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Ord. 1266 2006-05-08
ORDINANCE NO. 1266 ORDINANCE AUTHORIZING AND ORDERING THE ISSUANCE OF CITY OF PEARLAND, TEXAS PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006; PRESCRIBING THE TERMS AND FORM THEREOF; PROVIDING FOR THE PAYMENT OF THE PRINCIPAL THEREOF AND INTEREST THEREON; AWARDING THE SALE THEREOF; AUTHORIZING THE PREPARATION AND DISTRIBUTION OF AN OFFICIAL STATEMENT TO BE USED IN CONNECTION WITH THE SALE OF THE BONDS; AUTHORIZING THE PURCHASE OF BOND INSURANCE; AUTHORIZING THE REDEMPTION PRIOR TO MATURITY OF CERTAIN OUTSTANDING BONDS; AUTHORIZING THE REFUNDING OF CERTAIN OUTSTANDING OBLIGATIONS, THE EXECUTION AND DELIVERY OF AN ESCROW AGREEMENT AND THE SUBSCRIPTION FOR AND PURCHASE OF CERTAIN ESCROWED SECURITIES; MAKING OTHER PROVISIONS REGARDING SUCH BONDS, INCLUDING USE OF THE PROCEEDS THEREOF, AND MATTERS INCIDENT THERETO; AND DECLARING AN EMERGENCY BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF PEARLAND: ARTICLE I. FINDINGS AND DETERMINATIONS Section 1.1.: Findings and Determinations. The City Council hereby officially finds and determines that: (a) The City of Pearland, Texas (the "City"), acting through its City Council, is authorized by Section 3.07 of its Home Rule Charter and the Constitution and laws of the State of Texas, particularly Chapters 1331 and 1207 of the Texas Government Code, as amended, to issue bonds for the purpose of making needed public improvements and refunding the Refunded Obligations (hereinafter defined); (b) The issuance of the new money portion of the bonds herein authorized was approved by the voters of the City at an election held for such purpose on November 6, 2001 (the "Election"), which was called by the City Council pursuant to Resolution No. R2001-116 adopted August 29, 2001, and which authorized the issuance of $92,500,000 in bonds for necessary public improvements to City streets and bridges and $22,500,000 in bonds for necessary public improvements to City drainage projects and facilities; HOU:2570169,5 (c) The City Council canvassed the returns of the Election and by Ordinance No. 1040, adopted November 12, 2001 declared the results to be in favor of the issuance of the Bonds; (d) The City has previously issued three installments of bonds authorized by the Election, totaling $61,198,470.40 (of which $22,500,000 was for public improvements to City drainage projects and facilities and $38,698,470.40 was for public improvements to City streets and bridges), and has now determined that it is necessary and advisable to authorize, issue and deliver a fourth installment of such authorized bonds in an amount of $24,090,000 (which includes $90,000 of premium generated on the sale of the new money portion of the Bonds that will be applied against voted authorization after the deduction of applicable underwriters' discount and issuance expenses) for public improvements to City streets and bridges; Following the issuance of the Bonds, the City will have $29,711,529.60 of authorized but unissued bonds remaining pursuant to the Election; The City. acting through its City Council, has heretofore annexed Brazoria County Municipal Utility District No. 5 and has assumed or undertaken and there remain outstanding the bonds and other obligations described in Exhibit G attached hereto (the "Refunded Obligations"); The City desires to refund the Refunded Obligations in advance of their maturities which will benefit the City by restructuring the annual debt service requirements of the City thereby creating more level annual debt service requirements; (h) 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 Obligations proceeds from the sale of the refunding bonds authorized herein, together with any other legally available funds, which shall be sufficient to provide for the payment of the Refunded Obligations on their date of redemption or maturity, and such deposit shall constitute the making of firm banking and financial arrangements for the discharge and final payment of the Refunded Obligations; (e) (f) (g) (i) The City desires to enter into an escrow agreement (the "Escrow Agreement") with Wells Fargo Bank, N.A., Houston, Texas, as escrow agent, as authorized in Chapter 1207, pursuant to which a portion of the proceeds of the refunding bonds herein authorized, and other legally available funds of the City, will be deposited and applied in a manner sufficient to provide for the full and timely payment of all principal of, premium, if any, and interest on the Refunded Obligations; (1) Upon the issuance of the refunding bonds herein authorized and the creation of the escrow referred to above, the Refunded Obligations shall no longer be regarded as being outstanding, except for the purpose of being paid pursuant to L. L. HOU:2570169.5 such Escrow Agreement and the pledges, liens, trusts and all other covenants, provisions, terms and conditions of the resolutions authorizing the issuance of the Refunded Obligations shall be, with respect to the Refunded Obligations, discharged, terminated and defeased; and (k) 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 II. DEFINITIONS AND INTERPRETATIONS Section 2.1.: Definitions. As used herein, the following terms shall have the meanings specified, unless the context clearly indicates otherwise: "Act" shall mean Chapters 1207 and 1331, Texas Government Code, as amended. "Attorney General" shall mean the Attorney General of the State of Texas. "Bond" or "Bonds" shall mean any or all of the City of Pearland, Texas Permanent Improvement and Refunding Bonds, Series 2006, authorized by this Ordinance. "Bond Insurance Policy" shall mean the financial guaranty insurance policy issued by the Bond Insurer insuring the payment when due of the principal and interest on the Bonds as provided therein. "Bond Insurer" shall mean Financial Guaranty Insurance Company. "City" shall mean the City of Pearland, Texas and, where appropriate, its City Council. "City Council" shall mean the governing body of the City. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Comptroller" shall mean the Comptroller of Public Accounts of the State of Texas. "Construction Fund" shall mean the Permanent Improvement and Refunding Bonds, Series 2006 Construction Fund established by the City and described in Section 5.3 of this Ordinance. "DTC" shall mean The Depository Trust Company, New York, New York, or any successor securities depository. 3 HOU:2570169.5 "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. "Debt Service Fund" shall mean the Permanent Improvement and Refunding Bonds, Series 2006 Debt Service Fund established by the City and described in Section 5.2 of this Ordinance. "Escrow Agent" shall mean Wells Fargo Bank, N.A., Houston, Texas, and its successors in that capacity. "Escrow Agreement" shall mean the agreement between the City and the Escrow Agent relating to the deposit of funds to pay the Refunded Obligations. "Election" shall mean the election held November 6, 2001 which authorized the issuance of $92,500,000 in bonds for necessary public improvements to City streets and bridges and $22,500,000 in bonds for necessary public improvements to City drainage projects and facilities. "Fiscal Year" shall mean the City's then designated fiscal year, which currently is the twelve-month period beginning on the first day of October of a calendar year and ending on the last day of September of the next succeeding calendar year and each such period may be designated with the number of the calendar year in which such period ends. "Interest Payment Date," when used in connection with any Bond, shall mean March 1, 2007, and each September 1 and March 1 thereafter until maturity or earlier redemption of such Bond. "Ordinance" shall mean this Ordinance and all amendments hereof and supplements hereto. "Outstanding", when used with reference to the Bonds, shall mean, as of a particular date, all Bonds theretofore and thereupon delivered pursuant to this Ordinance except: (a) any Bonds canceled by or on behalf of the City at or before such date; (b) any Bonds defeased pursuant to the defeasance provisions of this Ordinance or otherwise defeased as permitted by applicable law: and (c) any Bonds in lieu of or in substitution for which a replacement Bond shall have been delivered pursuant to this Ordinance. "Paying Agent/Registrar" shall mean Wells Fargo Bank, N.A., Houston, Texas, and its successors in that capacity. "Purchaser" shall mean the entity or entities specified in Section 7.1 hereof. "Record Date" shall mean the close of business on the 15`h business day of the calendar month immediately preceding the applicable Interest Payment Date. 4 HOU:2570169.5 "Refunded Obligations" shall mean those bonds described in Exhibit G attached hereto, which are being refunded and defeased with the proceeds of the Bonds and other legally available funds of the City, if any. "Register" shall mean the registration books for the Bonds kept by the Paying Agent/Registrar in which are maintained the names and addresses of, and the principal amounts registered to, each Registered Owner of Bonds. "Registered Owner" shall mean the person or entity in whose name any Bond is registered in the Register. "Report" shall mean the verification report prepared by Grant Thornton LLP, Certified Public Accountants, verifying the accuracy of certain mathematical computations relating to the Bonds and the refunding of the Refunded Obligations. Section 2.2.: Interpretations. All terms defined herein and all pronouns used in this Ordinance shall be deemed to apply equally to singular and plural and to all genders. The titles and headings of the articles and sections of this Ordinance have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof. This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to sustain the validity of the Bonds and the validity of the levy of ad valorem taxes to pay the principal of and interest on the Bonds. ARTICLE III. TERMS OF THE BONDS Section 3.1.: Amount, Purpose and Authorization. (a) The Bonds shall be issued in fully registered form, without coupons, under and pursuant to the authority of the City's Home Rule Charter and the Act in the total authorized aggregate principal amount of THIRTY TWO MILLION ONE HUNDRED SIXTY FIVE AND NO/100 DOLLARS ($32,165,000) for the purpose of providing all or part of the funds for the following purposes: (i) $24,000,000 for acquiring, constructing, repairing and improving City streets and bridges; and (ii) $8,165,000 to refund the Refunded Obligations. Proceeds of the Bonds also will be used to pay costs of issuance of the Bonds and other professional services related thereto. (b) It is hereby found and determined that the refunding of the Refunded Obligations and the issuance of the Bonds will benefit the City by restructuring the annual debt service requirements of the City thereby creating more level annual debt service requirements, and that such benefits are sufficient consideration for the issuance of the Bonds. Section 3.2.: Designation, Date and Interest Payment Dates. The Bonds shall be designated as the "City of Pearland, Texas Permanent Improvement and Refunding Bonds, Series 2006," and shall be dated June 1, 2006. The Bonds shall bear interest at the rates set forth in Section 3.3 below, from the later of June 1, 2006 or the most recent Interest Payment Date to 5 HOU2570169.5 which interest has been paid or duly provided for, calculated on the basis of a 360-day year of twelve 30-day months, payable on March 1, 2007, and each September 1 and March 1 thereafter until maturity or earlier redemption. If interest on any Bond is not paid on any Interest Payment Date and continues unpaid for thirty (30) days thereafter, the Paying Agent/Registrar shall establish a new record date for the payment of such interest, to be known as a Special Record Date. The Paying Agent/Registrar shall establish a Special Record Date when funds to make such interest payment are received from or on behalf of the City. Such Special Record Date shall be fifteen (15) days prior to the date fixed for payment of such past due interest, and notice of the date of payment and the Special Record Date shall be sent by United States mail, first class, postage prepaid, not later than five (5) days prior to the Special Record Date, to each affected Registered Owner as of the close of business on the day prior to mailing of such notice. Section 3.3.: Numbers, Denomination, Interest Rates and Maturities. (a) The Bonds shall be initially issued bearing the numbers, in the principal amounts and bearing interest at the rates set forth in the following schedule, and may be transferred and exchanged as set out in this Ordinance. The Bonds shall mature on March 1 in each of the years and in the amounts set out in such schedule. Bonds delivered in transfer of or in exchange for other Bonds shall be numbered in order of their authentication by the Paying Agent/Registrar, shall be in the denomination of $5,000 or integral multiples thereof and shall mature on the same date and bear interest at the same rate as the Bond or Bonds in lieu of which they are delivered. Bond Year of Principal Interest Number Maturity Amount Rate R-1 2007 $50,000 4.000% R-2 2008 50,000 4.000 R-3 2009 50,000 4.000 R-4 2010 50,000 4.000 R-5 2011 320,000 4.000 R-6 2012 385,000 4.000 R-7 2013 400,000 4.000 R-8 2014 410,000 4.000 R-9 2015 430,000 4.000 R-10 2016 445,000 4.125 R-11 2017 460,000 4.250 R-12 2018 480,000 4.250 R-13 2019 1,335,000 4.500 R-14 2020 1,485,000 5.000 R-15 2021 1,580,000 5.000 R-16 2022 1.675,000 5.000 R-17 2023 2,150,000 5.000 R-18 2024 2,150,000 5.000 R-19 2025 2,270,000 5.000 R-20 2026 2,395,000 5.000 R-21 2027 2,525,000 4.750 6 HOU:2570169.5 Bond Year of Principal Interest Number Maturity Amount Rate * * * * * * * * * * * * R-22 2029 11,070,000 4.750 (b) The principal amount of the Bonds shall be allocated between and designated as being applied for the purposes of refunding the Refunded Obligations and for acquiring, constructing, repairing and improving City streets and bridges as follows: Public Year Improvements Refunding Total 2007 8 50,000 $ $ 50,000 2008 50,000 50,000 2009 50,000 50,000 2010 50,000 50,000 2011 50,000 270,000 320,000 2012 100,000 285,000 385,000 2013 100,000 300,000 400,000 2014 100,000 310,000 410,000 2015 100,000 330,000 430,000 2016 100,000 345,000 445,000 2017 100,000 360,000 460,000 2018 100,000 380,000 480,000 2019 940,000 395,000 1,33 5,000 2020 1,070,000 415,000 1,485,000 2021 1,145,000 435,000 1,580,000 2022 1,220,000 445,000 1,675,000 2023 1,670,000 480,000 2,150,000 2024 1,645,000 505,000 2,150,000 2025 1,745,000 525,000 2,270,000 2026 1,845,000 550,000 2,395,000 2027 1,945,000 580,000 2,525,000 2028 3,080,000 610,000 3,690,000 2029 6,745,000 635,000 7,380,000 $24,000,000 $8,165,000 $ 32,165,000 Section 3.4.: Redemption Prior to Maturity. (a) Optional Redemption. The Bonds maturing on and after March 1, 2017 are subject to redemption prior to maturity, at the option of the City, in whole or in part, on March 1, 2016 or any date thereafter, at par plus accrued interest to the date fixed for redemption. (b) The Bonds maturing on March 1, 2029 (the "Term Bonds") are subject to mandatory sinking fund redemption in the following amounts (subject to reduction as hereinafter provided), on the following dates, in each case at a redemption price equal to the principal amount of the Bonds or the portions thereof so called for redemption plus accrued interest to the date fixed for redemption: 7 HOU:2570169.5 Mandatory Redemption Dates Term Bonds Maturing March 1, 2029 March 1, 2028 March 1. 2029 (maturity) Principal Amounts $ 3,690,000 7,380,000 The particular Term Bonds to be redeemed shall be selected by the Registrar by lot or other customary random selection method, on or before January 1 of each year in which Term Bonds are to be mandatorily redeemed. The principal amount of Term Bonds to be mandatorily redeemed in each year shall be reduced by the principal amount of such Term Bonds that have been optionally redeemed on or before January 1 of such year and which have not been made the basis for a previous reduction. (c) Bonds may be redeemed in part only in integral multiples of $5,000. If a Bond subject to redemption is in a denomination larger than $5,000, a portion of such Bond may be redeemed, but only in integral multiples of $5,000. In selecting portions of Bonds for redemption, each Bond shall be treated as representing that number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Bond by $5,000. Upon presentation and surrender of any Bond for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of this Ordinance, shall authenticate and deliver in exchange therefor a Bond or Bonds of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered. (d) Notice of any redemption, identifying the Bonds or portions thereof to be redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shown on the Register, not less than thirty (30) days before the date fixed for such redemption. By the date fixed for redemption, due provision shall be made with the Paving Agent/Registrar for the payment of the redemption price of the Bonds called for redemption. if such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Bonds which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being Outstanding except for the purpose of being paid with the funds so provided for such payment. Section 3.5.: Manner of Payment, Characteristics, Execution and Authentication. The Paying Agent/Registrar is hereby appointed the paying agent for the Bonds. The Bonds shall be payable, shall have the characteristics and shall be executed, sealed, registered and authenticated, all as provided and in the manner indicated in the FORM OF BONDS set forth in Article IV of this Ordinance. If any officer of the City whose manual or facsimile signature shall appear on the Bonds shall cease to be such officer before the authentication of the Bonds or before the delivery of the 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 back of the Bonds over the certification of the City Secretary, which may be executed in facsimile. CUSIP numbers also may be printed on the 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. 8 HOU:2570169.5 Section 3.6.: Authentication. Except for the Bonds to be initially issued, which need not be authenticated by the Paying Agent/Registrar, only such Bonds as shall bear thereon a certificate of authentication, substantially in the form provided in Article IV of this Ordinance, manually executed by an authorized representative of the Paying Agent/Registrar, shall be entitled to the benefits of this Ordinance or shall be valid or obligatory for any purpose. Such duly executed certificate of authentication shall be conclusive evidence that the Bond so authenticated was delivered by the Paying Agent/Registrar hereunder. Section 3.7.: Ownership. The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Bond is registered as the absolute owner of such Bond for the purpose of making and receiving payment of the principal thereof and interest thereon and for all other purposes, whether or not such 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 Registered Owner of any Bond in accordance with this Section shall be valid and effective and shall discharge the liability of the City and the Paying Agent/Registrar upon such Bond to the extent of the sums paid. Section 3.8.: Registration, Transfer and Exchange. The Paying Agent/Registrar is hereby appointed the registrar for the Bonds. So long as any Bond remains Outstanding, the Paying Agent/Registrar shall keep the Register at its office in Houston, Texas in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of the Bonds in accordance with the terms of this Ordinance. Each Bond shall be transferable only upon the presentation and surrender thereof at the office of the Paying Agent/Registrar, accompanied by an assignment duly executed by the Registered Owner or his authorized representative in form satisfactory to the Paying Agent/Registrar. Upon due presentation of any Bond for transfer, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor, within seventy-two (72) hours after such presentation, a new Bond or Bonds, registered in the name of the transferee or transferees, in authorized denominations and of the same maturity and aggregate principal amount and bearing interest at the same rate as the Bond or Bonds so presented and surrendered. All Bonds shall be exchangeable upon the presentation and surrender thereof at the office of the Paying Agent/Registrar for a Bond or Bonds, maturity and interest rate and in any authorized denomination, in an aggregate principal amount equal to the unpaid principal amount of the Bond or Bonds presented for exchange. The Paying Agent/Registrar shall be and is hereby authorized to authenticate and deliver exchange Bonds in accordance with the provisions of this Section. Each Bond delivered by the Paying Agent/Registrar in accordance with this Section shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such Bond is delivered. All Bonds issued in transfer or exchange shall be delivered to the Registered Owners thereof at the office of the Paying Agent/Registrar or sent by United States mail, first class, postage prepaid. 9 HOU:2570169.5 The City or the Paying Agent/Registrar may require the Registered Owner of any Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of such Bond. Any fee or charge of the 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 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 Bond called for redemption in part. Section 3.9.: Book -Entry Only System. The definitive Bonds shall be initially issued in the form of a separate single fully registered Bond for each of the maturities thereof. Upon initial issuance, the ownership of each such Bond shall be registered in the name of Cede & Co., as nominee of DTC, and except as provided in Section 3.11 hereof, all of the Outstanding 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 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 DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in the 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 Bonds, (b) the delivery to any DTC Participant or any other person, other than a Bondholder, as shown on the Register, of any notice with respect to the Bonds, including any notice of redemption or (c) the payment to any DTC Participant or any other person, other than a Bondholder as shown in the Register, of any amount with respect to principal of Bonds, premium, if any, or interest on the Bonds. Except as provided in Section 3.10 of this Ordinance, the City and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Bond is registered in the Register as the absolute owner of such Bond for the purpose of payment of principal of, premium, if any, and interest on Bonds, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfer with respect to such Bond, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of Bonds, premium, if any, and interest on the 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 Bonds to the extent of the sum or sums so paid. No person other than an owner shall receive a Bond evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. 10 HOU:2570169.5 Section 3.10.: Payments and Notices to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, as long as any 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 Bonds, and all notices with respect to such Bonds shall be made and given, respectively, in the manner provided in the representation letter of the City to DTC. Section 3.11.: Successor Securities Depository; Transfer Outside Book -Entry Only System. In the event that the City or the Paying Agent/Registrar determines that DTC is incapable of discharging its responsibilities described herein and in the representation letter of the City to DTC, and that it is in the best interest of the beneficial owners of the Bonds that they be able to obtain certificated Bonds, the City or the Paying Agent/Registrar shall (a) appoint a successor securities depository, qualified to act as such under Section 17(a) of the Securities and Exchange Act of 1934, as amended, notify DTC of the appointment of such successor securities depository and transfer one or more separate Bonds to such successor securities depository or (b) notify DTC of the availability through DTC of Bonds and transfer one or more separate Bonds to DTC Participants having Bonds credited to their DTC accounts. In such event, the 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 Bondholders transferring or exchanging Bonds shall designate, in accordance with the provisions of this Ordinance. Section 3.12.: Replacement Bonds. Upon the presentation and surrender to the Paying Agent/Registrar of a damaged or mutilated Bond, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Bond, of the same maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding. The City or the Paying Agent/Registrar may require the Registered Owner of such 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 and the City. If any Bond is lost, apparently destroyed or wrongfully taken, the City, pursuant to the applicable laws of the State of Texas and ordinances of the City, and in the absence of notice or knowledge that such Bond has been acquired by a bona fide purchaser, shall execute, and the Paying Agent/Registrar shall authenticate and deliver, a replacement Bond of the same maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding, provided that the Registered Owner thereof shall have: (a) furnished to the City and the Paying Agent/Registrar satisfactory evidence of the ownership of and the circumstances of the loss, destruction or theft of such Bond; (b) furnished such security or indemnity as may be required by the Paying Agent/Registrar and the City to save and hold them harmless; 11 HOU:2570169.5 (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 Bond, a bona fide purchaser of the original Bond in lieu of which such replacement Bond was issued presents for payment such original Bond, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Bond from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the City or the Paying Agent/Registrar in connection therewith. If any such mutilated, lost, apparently destroyed or wrongfully taken Bond has become or is about to become due and payable, the City in its discretion may, instead of issuing a replacement Bond, authorize the Paying Agent/Registrar to pay such Bond. Each replacement Bond delivered in accordance with this Section shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such replacement Bond is delivered. Section 3.13.: Cancellation. All Bonds paid or redeemed in accordance with this Ordinance, and all Bonds in lieu of which exchange Bonds or replacement Bonds are authenticated and delivered in accordance herewith, shall be canceled and destroyed upon the making of proper records regarding such payment or redemption. The Paying Agent/Registrar shall periodically furnish the City with certificates of destruction of such Bonds. 12 HOU:2570169.5 ARTICLE IV. FORM OF BONDS The Bonds, including the Form of Comptroller's Registration Certificate, Form of Paying Agent/Registrar's Authentication Certificate and Form of Assignment, shall be in substantially the following forms, with such omissions, insertions and variations as may be necessary or desirable, and not prohibited by this Ordinance: UNITED STATES OF AMERICA STATE OF TEXAS CITY OF PEARLAND, TEXAS PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006 NUMBER DENOMINATION R- $ REGISTERED REGISTERED INTEREST RATE: DATED DATE: MATURITY DATE: CUSIP: June 1, 2006 March 1, REGISTERED OWNER: PRINCIPAL AMOUNT: DOLLARS THE CITY OF PEARLAND, TEXAS, a municipal corporation of the State of Texas (the "City"), for value received, hereby promises to pay to the Registered Owner identified above or its registered assigns, on the maturity date specified above (or on earlier redemption as herein provided), upon presentation and surrender of this Bond at the office of Wells Fargo Bank, N.A., Houston, Texas or its successor (the "Paying Agent/Registrar"), the principal amount identified above (or so much thereof as shall not have been paid or deemed to have been paid upon prior redemption) payable in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due to the United States of America, and to pay interest thereon at the rate shown above, calculated on a basis of a 360-day year composed of twelve 30-day months, from the later of the Dated Date identified above or the most recent interest payment date to which interest has been paid or duly provided for. Interest on this Bond is payable on March 1, 2007, and each September 1 and March 1 thereafter until maturity or earlier redemption of this Bond, by check sent by United States mail, first class, postage prepaid, by the Paying Agent/Registrar to the Registered Owner of record as of the close of business on the 15`h business day of the calendar month immediately preceding the applicable interest payment date, as shown on the registration books kept by the Paying Agent/Registrar. Any accrued interest payable at maturity or earlier redemption shall be paid upon presentation and surrender of this Bond at the office of the Paying Agent/Registrar. 13 HOU:2570I69.5 THIS BOND IS ONE OF A DULY AUTHORIZED SERIES OF BONDS (the "Bonds") in the aggregate principal amount of $32,165,000 issued pursuant to an ordinance adopted by the City Council of the City on May 8, 2006 (the "Ordinance") for the purpose of providing funds for permanent public improvements in the City and refunding certain outstanding obligations of the City, under and pursuant to the authority of Chapters 1207 and 1331, Texas Government Code, as amended, the City's Home Rule Charter, and an election held on November 6, 2001. Proceeds of the Bonds will also be used to pay costs of issuance of the Bonds and other professional services related thereto. THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Bond either (i) is registered by the Comptroller of Public Accounts of the State of Texas by due execution of the registration certificate endorsed hereon or (ii) is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. THE CITY RESERVES THE RIGHT, at its option, to redeem, prior to their maturity, Bonds maturing on and after March 1, 2017, in whole or in part, on March 1, 2016, or any date thereafter, at par plus accrued interest to the date fixed for redemption. THE BONDS MATURING ON March 1, 2029 (the "Term Bonds") are subject to mandatory sinking fund redemption in the following amounts (subject to reduction as hereinafter provided), on the following dates, in each case at a redemption price equal to the principal amount of the Bonds or the portions thereof so called for redemption plus accrued interest to the date fixed for redemption: Mandatory Redemption Dates Term Bonds Maturing March 1, 2029 March 1, 2028 March 1, 2029 (maturity) Principal Amounts $ 3.690,000 7,380,000 The particular Term Bonds to be redeemed shall be selected by the Registrar by lot or other customary random selection method, on or before January 1 of each year in which Term Bonds are to be mandatorily redeemed. The principal amount of Term Bonds to be mandatorily redeemed in each year shall be reduced by the principal amount of such Term Bonds that have been optionally redeemed on or before January 1 of such year and which have not been made the basis for a previous reduction. BONDS MAY BE REDEEMED IN PART only in integral multiples of $5,000. If a Bond subject to redemption is in a denomination larger than $5,000, a portion of such Bond may be redeemed, but only in integral multiples of $5,000. In selecting portions of Bonds for redemption, each Bond shall be treated as representing that number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Bond by $5,000. Upon surrender of any Bond for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of the Ordinance, shall authenticate and deliver in exchange therefor a Bond or Bonds of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered. 14 HOU:2570169.5 NOTICE OF ANY SUCH REDEMPTION, identifying the Bonds or portions thereof to be redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shown on the books of registration kept by the Paying Agent/Registrar, not less than thirty (30) days before the date fixed for such redemption. By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the redemption price of the Bonds called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Bonds which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the purpose of being paid with the funds so provided for such payment. THIS BOND IS TRANSFERABLE only upon presentation and surrender at the office of the Paying Agent/Registrar, accompanied by an assignment duly executed by the Registered Owner or its authorized representative, subject to the terms and conditions of the Ordinance. THIS BOND IS EXCHANGEABLE at the office of the Paying Agent/Registrar for a Bond or Bonds of the same maturity and interest rate and in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Ordinance. THE PAYING AGENT/REGISTRAR is not required to accept for transfer or exchange any 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 such limitation shall not apply to the transfer or exchange by the Registered Owner of an unredeemed portion of a Bond called for redemption in part. THE CITY OR PAYING AGENT/REGISTRAR may require the Registered Owner of any Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of a Bond. Any fee or charge of the Paying Agent/Registrar for a transfer or exchange shall be paid by the City. THE REGISTERED OWNER of this Bond by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Ordinance. IT IS HEREBY DECLARED AND REPRESENTED that this Bond has been duly and validly issued and delivered; that all acts, conditions and things required or proper to be performed, exist and to be done precedent to or in the issuance and delivery of this Bond have been performed, exist and have been done in accordance with law; that the Bonds do not exceed any constitutional or statutory limitation; and that annual ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Bond, as such interest comes due and such principal matures, have been levied and ordered to be levied, within the limits prescribed by law, against all taxable property in the City and have been irrevocably pledged for such payment. REFERENCE IS HEREBY MADE TO THE ORDINANCE, a copy of which is filed with the Paying Agent/Registrar, for the full provisions thereof, to all of which the Registered Owners of the Bonds assent by acceptance of the Bonds. 15 HOU:2570169.5 IN WITNESS WHEREOF, the City has caused its corporate seal to be impressed or placed in facsimile hereon and this Bond to be signed by the Mayor and countersigned by the City Secretary by their manual, lithographed or printed facsimile signatures. (AUTHENTICATION OR CITY OF PEARLAND, TEXAS REGISTRATION CERTIFICATE) (SEAL) * * * Mayor COUNTERSIGNED: City Secretary 16 HOU:2570169.5 FORM OF COMPTROLLER'S REGISTRATION CERTIFICATE The following form of Comptroller's Registration Certificate shall be attached or affixed to each of the Bonds initially delivered: OFFICE OF THE COMPTROLLER § OF PUBLIC ACCOUNTS § REGISTER NO. THE STATE OF TEXAS § I hereby certify that this bond has been examined, certified as to validity and approved by the Attorney General of the State of Texas, and that this bond has been registered by the Comptroller of Public Accounts of the State of Texas. WITNESS MY SIGNATURE AND SEAL OF OFFICE this Comptroller of Public Accounts (SEAL) of the State of Texas * * * FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE The following form of authentication certificate shall be printed on the face of each of the Bonds other than those initially delivered: AUTHENTICATION CERTIFICATE This Bond is one of the Bonds described in and delivered pursuant to the within - mentioned Ordinance; and, except for the Bonds initially delivered, this Bond has been issued in 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., Houston, Texas as Paying Agent/Registrar By Authorized Signature Date of Authentication: * * * 17 HOU:2570169.5 FORM OF ASSIGNMENT The following form of assignment shall be printed on the back of each of the Bonds: ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto (Please print or type name, address, and zip code of Transferee) (Please insert Social Security or Taxpayer Identification Number of Transferee) the within bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer such bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature Guaranteed: NOTICE: Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. * * * Registered Owner NOTICE: The signature above must correspond to the name of the Registered Owner as shown on the face of this bond in every particular, without any alteration, enlargement or change whatsoever. STATEMENT OF INSURANCE Financial Guaranty Insurance Company ("Financial Guaranty") has issued a policy containing the following provisions with respect to the Bonds, such policy being on file at the principal office of Wells Fargo Bank, N.A., Houston, Texas, as paying agent (the "Paying Agent"): Financial Guaranty hereby unconditionally and irrevocably agrees to pay for disbursement to the Bondholders that portion of the principal or accreted value (if applicable) of and interest on the Bonds which is then due for payment and which the issuer of the Bonds (the "Issuer") shall have failed to provide. Due for payment means, with respect to principal or accreted value (if applicable), 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 the payment of principal or accreted value (if applicable) of the Bonds is due by reason of call for redemption (other than mandatory sinking fund redemption), acceleration or other advancement of maturity, and with respect to interest, the stated date for payment of such interest. 18 HOU:2570169.5 Upon receipt of telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from a Bondholder or the Paying Agent to Financial Guaranty that the required payment of principal, accreted value or interest (as applicable) has not been made by the Issuer to the Paying Agent, Financial Guaranty on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, or its successor as its agent (the "Fiscal Agent"), sufficient to make the portion of such payment not paid by the Issuer. Upon presentation to the Fiscal Agent of evidence satisfactory to it of the Bondholder's right to receive such payment and any appropriate instruments of assignment required to vest all of such Bondholder's right to such payment in Financial Guaranty, the Fiscal Agent will disburse such amount to the Bondholder. As used herein the term "Bondholder" means the person other than the Issuer or the borrower(s) of bond proceeds who at the time of nonpayment of a Bond is entitled under the terms of such Bond to payment thereof. The policy is non -cancellable for any reason. FINANCIAL GUARANTY INSURANCE COMPANY * * * ARTICLE V. SECURITY FOR THE BONDS Section 5.1.: Pledge and Levy of Taxes. (a) To provide for the payment of principal of and interest on the Bonds, there is hereby levied, within the limits prescribed by law, for the current year and each succeeding year thereafter, while the Bonds or any part of the principal thereof and the interest thereon remain outstanding and unpaid, an ad valorem tax upon all taxable property within the City sufficient to pay the interest on the Bonds and to create and provide a sinking fund of not less than 2% of the principal amount of the Bonds or not less than the principal payable out of such tax, whichever is greater, with full allowance being made for tax delinquencies and the costs of tax collection, and such taxes, when collected, shall be applied to the payment of principal of and interest on the Bonds by deposit to the Debt Service Fund and to no other purpose. (b) The City hereby declares its purpose and intent to provide and levy a tax legally sufficient to pay the principal of and interest on the Bonds, it having been determined that the existing and available taxing authority of the City for such purpose is adequate to permit a legally sufficient tax. As long as any Bonds remain outstanding, all moneys on deposit in, or credited to, the Debt Service Fund shall be secured by a pledge of security, as provided by law for cities in the State of Texas. Section 5.2.: Debt Service Fund. The Permanent improvement and Refunding Bonds, Series 2006 Debt Service Fund (the "Debt Service Fund") is hereby created as a special fund solely for the benefit of the Bonds. The City shall establish and maintain such fund at an official 19 HOU:2570I 69.5 City depository and shall keep such fund separate and apart from all other funds and accounts of the City. Any amount on deposit in the Debt Service Fund shall be maintained by the City in trust for the Registered Owners of the Bonds. Such amount, plus any other amounts deposited by the City into such fund and any and all investment earnings on amounts on deposit in such fund, shall be used only to pay the principal of, premium, if any, and interest on the Bonds. Section 5.3.: Construction Fund. The Permanent Improvement and Refunding Bonds, Series 2006 Construction Fund (the "Construction Fund") is hereby created as a special fund of the City. Money on deposit in the Construction Fund shall be used only for the purposes set forth in Section 3.1 (a)(i) of this Ordinance. Money on deposit in the Construction Fund may, at the option of the City, be invested as permitted by Texas law, provided that all such deposits and investments shall be made in such manner that the money required to be expended from the Construction Fund will be available at the proper time or times. All interest and income derived from such deposits and investments shall remain in the Construction Fund, except that, to the extent required by law, such interest and income may be applied to make such payments to the United States of America as shall be required to assure that interest on the Bonds is exempt from federal income taxation. Upon the completion of the purposes set forth in Section 3.1 of this Ordinance, any surplus funds on deposit in the Construction Fund shall be transferred into the Debt Service Fund. Section 5.4.: Further Proceedings. After the Bonds to be initially issued have been executed, it shall be the duty of the Mayor to deliver the Bonds to be initially issued and all pertinent records and proceedings to the Attorney General for examination and approval. After the Bonds to be initially issued shall have been approved by the Attorney General, they shall be delivered to the Comptroller for registration. Upon registration of the Bonds to be initially issued, the Comptroller (or a deputy lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's registration certificate prescribed herein to be affixed or attached to the Bonds to be initially issued, and the seal of said Comptroller shall be impressed, or placed in facsimile, thereon. ARTICLE VI. CONCERNING THE PAYING AGENT/REGISTRAR Section 6.1.: Acceptance. Wells Fargo Bank, N.A., Houston, Texas, is hereby appointed as the initial Paying Agent/Registrar for the Bonds pursuant to the terms and provisions of the Paying Agent/Registrar Agreement by and between the City and the Paying Agent/Registrar. The Paying Agent/Registrar Agreement shall be substantially in the form attached hereto as Exhibit A, the terms and provisions of which are hereby approved, and the Mayor is hereby authorized to execute and deliver such Paying Agent/Registrar Agreement on behalf of the City in multiple counterparts and the City Secretary is hereby authorized to attest thereto and affix the City's seal. Such initial Paying Agent/Registrar and any successor Paying Agent/Registrar, by undertaking the performance of the duties of the Paying Agent/Registrar hereunder, and in consideration of the payment of any fees pursuant to the terms of any contract between the 20 HOU:2570169.5 Paying Agent/Registrar and the City and/or the deposits of money pursuant to this Ordinance, shall be deemed to accept and agree to abide by the terms of this Ordinance. Section 6.2.: Trust Funds. All money transferred to the Paying Agent/Registrar in its capacity as Paying Agent/Registrar for the Bonds under this Ordinance (except any sums representing Paying Agent/Registrar's fees) shall be held in trust for the benefit of the City, shall be the property of the City and shall be disbursed in accordance with this Ordinance. Section 6.3.: Bonds Presented. Subject to the provisions of Section 6.4, all matured Bonds presented to the Paying Agent/Registrar for payment shall be paid without the necessity of further instructions from the City. Such Bonds shall be canceled as provided herein. Section 6.4.: Unclaimed Funds Held by the Paying Agent/Registrar. Funds held by the Paying Agent/Registrar that represent principal of and interest on the Bonds remaining unclaimed by the Registered Owner thereof after the expiration of three years from the date such funds have become due and payable (a) shall be reported and disposed of by the Paying Agent/Registrar in accordance with the provisions of Title 6 of the Texas Property Code, as amended, to the extent such provisions are applicable to such funds, or (b) to the extent such provisions do not apply to the funds, such funds shall be paid by the Paying Agent/Registrar to the City upon receipt by the Paying Agent/Registrar of a written request therefor from the City. The Paying Agent/Registrar shall have no liability to the Registered Owners of the Bonds by virtue of actions taken in compliance with this Section. Section 6.5.: Paying Agent/Registrar May Own Bonds. The Paying Agent/Registrar in its individual or any other capacity, may become the owner or pledgee of Bonds with the same rights it would have if it were not the Paying Agent/Registrar., Section 6.6.: Successor Paying Agents/Registrars. The City covenants that at all times while any 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 Bonds. The City reserves the right to change the Paying Agent/Registrar for the 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 60 days prior to the next succeeding principal or interest payment date on the 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 United States mail, first class, postage prepaid, of such change and of the address of the new Paying Agent/Registrar. Each Paying Agent/Registrar hereunder, by acting in that capacity, shall be deemed to have agreed to the provisions of this Ordinance. ARTICLE VII. PROVISIONS CONCERNING SALE AND APPLICATION OF PROCEEDS OF BONDS 21 HOU:2570169.5 Section 7.1.: Sale of Bonds; Insurance. The sale of the Bonds to Citigroup Global Markets, Inc., (the "Purchaser") at a price of $32,257,573.20 (representing the principal amount of the Bonds, plus a net premium of $349,893.20 and less an underwriting discount of $257,320.00), plus accrued interest on the Bonds, is hereby approved, and delivery of the Bonds to the Purchaser shall be made upon payment therefor in accordance with the terms of sale and the terms and conditions of the Purchaser's bid, which is attached hereto as Exhibit B. It is hereby officially found, determined and declared that the Purchaser is the highest bidder for the Bonds as a result of invitations for competitive bids. It is further officially found, determined and declared that the Bonds have been sold at public sale to the bidder offering the lowest interest cost, which is hereby determined to be a net effective interest rate of 4.795914%, after receiving sealed bids pursuant to an Official Notice of Sale and Preliminary Official Statement prepared and distributed in connection with the sale of the Bonds. The City hereby acknowledges that the Purchaser's bid is contingent upon the issuance of a policy of The Bond Insurance Policy from the Bond Insurer insuring the timely payment of principal of and interest on the Bonds. The terms and conditions of the Bond Insurance Policy, as set out in Exhibit F hereto, are incorporated herein for all purposes for so long as such policy remains in effect. Such Bond Insurance Policy is to be obtained at the Purchaser's expense. The appropriate officials and representatives of the City are hereby authorized and directed to execute such documents and certificates and to do any and all things necessary or desirable to obtain such insurance, and the printing on the Bonds of an appropriate legend or statement regarding such insurance, as provided by the Bond Insurer, is hereby approved. Section 7.2.: Approval. Registration and Delivery. The Mayor is hereby authorized to have control and custody of the Bonds and all necessary records and proceedings pertaining thereto pending their delivery, and the Mayor and other officers and employees of the City are hereby authorized and directed to make such certifications and to execute such instruments as may be necessary to accomplish the delivery of the Bonds and to assure the investigation, examination and approval thereof by the Attorney General and the registration of the initial Bonds by the Comptroller. Upon registration of the Bonds, the Comptroller (or the Comptroller's certificates clerk or an assistant certificates clerk lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's Registration Certificates prescribed herein to be attached or affixed to each Bond initially delivered and the seal of the Comptroller shall be impressed or printed or lithographed thereon. Section 7.3.: Offering Documents; Ratings. The City hereby approves the form and contents of the Official Notice of Sale and Preliminary Official Statement, attached hereto as Exhibit C and the final Official Statement, attached hereto as Exhibit D, dated as of the date hereof, relating to the 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 Bonds and in the reoffering of the 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 Official Notice of Sale and Preliminary 22 HOU:2570169.5 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 Official Notice of Sale and Preliminary Official Statement was an official statement of the City with respect to the 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. Further, the City Council hereby ratifies, authorizes and approves the actions of the Mayor, the City's financial advisor and other consultants in seeking ratings on the Bonds from Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and such actions are hereby ratified and confirmed. Section 7.4.: Application of Proceeds of Bonds. (a) Proceeds from the sale of the Bonds shall, promptly upon receipt by the City, be applied as follows: (1) Accrued interest shall be deposited into the Debt Service Fund created in Section 5.2 of this Ordinance; (2) A portion of the proceeds shall be applied to pay expenses arising in connection with the issuance of the Bonds and the refunding of the Refunded Obligations; (3) The remaining proceeds shall be (i) used to establish an escrow fund to refund the Refunded Obligations, as more fully provided below and (ii) deposited into the Construction Fund created in Section 5.3 of this Ordinance. (b) From the existing debt service fund for the Refunded Obligations there shall be transferred to the escrow fund established pursuant to the Escrow Agreement the amount of $0.00 and to the Debt Service Fund the amount of $0.00. Section 7.5.: 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 will use all of the proceeds of the Bonds to: (i) acquire United States Treasury Securities (the "Escrowed Securities") sufficient to pay the principal of, premium, if any, and interest on the Refunded Obligations, (ii) provide funds for 23 HOU:2570169.5 (b) the purposes described in Section 3.1; and (iii) to pay the costs of issuing the Bonds except for amounts, if any, described in the Report (as defined in the Escrow Agreement) as the rounding amount and the ending cash balance in the Escrow Fund (as defined in the Escrow Agreement). All of the proceeds of the Bonds will be used for the purposes set forth above; The City will not directly or indirectly take any action or omit to take any action, which action or omission would cause the Bonds or the Refunded Obligations to constitute "private activity bonds" within the meaning of Section 141(a) of the Code. (c) Principal of and interest on the Bonds will be paid solely from ad valorem taxes collected by the City, investment earnings on such collections, and as available, proceeds of the Bonds. (d) Based upon all 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. (e) 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. (f) 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. (g) The City represents that not more than fifty percent (50%) of the proceeds 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 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 HOU:2570169.5 24 (h) (i) purpose of such Bonds within the corresponding three-year period beginning on the respective dates of the Bonds or the Refunded Obligations. 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. 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. (j) The City will timely file or cause to be filed with the Secretary of the Treasury of the United States the information required by Section 149(e) of the Code with respect to the Bonds on such form and in such place as the Secretary may prescribe. (k) 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 25 HOU:2570169.5 exempt and taxable interest rates to gain a material financial advantage, or (ii) increasing the burden on the market for tax-exempt obligations. (1) Proper officers of the City charged with the responsibility for issuing the 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. (m) 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 Bondholder and any subsequent Bondholder 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 Ordiance, the City's representations and obligations under the covenants and provisions of this Section 7.5 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 7.6.: Escrow Agreement. The discharge and defeasance of the Refunded Obligations 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 H, 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 the City's Financial Advisor, (b) to maximize the City's present value savings and to minimize the City's costs of refunding, (c) to comply with all applicable laws and regulations relating to the refunding of the Refunded Obligations 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 7.7.: Redemption Prior to Maturity of Refunded Obligations. To maximize the City's present value savings 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 in the amounts, at the dates and at the redemption prices set forth in Exhibit G attached hereto (except for the September 1. 2006 maturities of Brazoria County Municipal Utility District No. 5 Unlimited Tax Bonds, Series 1998 and Brazoria County Municipal Utility District No. 5 Unlimited Tax Bonds, Series 1999 listed in Exhibit G, which shall instead be escrowed to their respective maturities), 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 26 HOU:2570169.5 required, to publish such notices, all in the manner required by the documents authorizing the issuance of such Refunded Obligations. Section 7.8.: Purchase of United States Treasury Obligations. To assure the purchase of the Escrowed Securities referred to in the Escrow Agreement, the Mayor of the City and the City Manager are hereby authorized to subscribe for, agree to purchase and purchase 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. Any actions heretofore taken for such purpose are hereby ratified and approved. Section 7.9.: Related Matters. In order that the City shall satisfy in a timely manner all of its obligations under this Ordinance, the Mayor, City Secretary and all other appropriate officers, agents, representatives and employees of the City are hereby authorized and directed to take all other actions that are reasonably necessary to provide for the issuance and delivery of the Bonds, including, without limitation, executing and delivering on behalf of the City all certificates, consents, receipts, requests, notices, and other documents as may be reasonably necessary to satisfy the City's obligations under this Ordinance and to direct the transfer and application of funds of the City consistent with the provisions of this Ordinance. ARTICLE VIII. CONTINUING DISCLOSURE UNDERTAKING Section 8.1.: Annual Reports. The City shall provide annually to each NRMSIR and any SID, within six months after the end of each fiscal year, financial information and operating data with respect to the City of the general type included in the final Official Statement authorized by Section 7.3 of this Ordinance, being the information described in Exhibit E hereto. Any financial statements so to be provided shall be (1) prepared in accordance with the accounting principles described in Exhibit E hereto and (2) audited, if the City commissions an audit of such statements and the audit is completed within the period during which they must be provided. If audited financial statements are not so provided, then the City shall provide audited financial statements for the applicable fiscal year to each NRMSIR and any SID, when and if audited financial statements become available. If the City changes its fiscal year, it will notify each NRMSIR and any SID of the change (and of the date of the new fiscal year end) prior to the next date by which the City otherwise would be required to provide financial information and operating data pursuant to this Section. The financial information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to each NRMSIR and any SID or filed with the SEC. 27 HOU:2570169.5 Section 8.2.: Material Event Notices. The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the 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 Bonds; (g) Modifications to rights of holders of the Bonds; (h) Bond calls; (i) Defeasances; (j) Release, substitution, or sale of property securing repayment of the Bonds; and (k) Rating changes. The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with Section 8.1 of this Ordinance by the time required by such Section. Section 8.3.: Limitations, Disclaimers and Amendments. The City shall be obligated to observe and perform the covenants specified in this Article for so long as, but only for so long as, the City remains an "obligated person" with respect to the Bonds within the meaning of the Rule, except that the City in any event will give the notice required by Section 8.2 of any 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 holders and beneficial owners of the 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 Bonds at any future date. 28 HOU:2570169.5 UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY 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 the Ordinance for purposes of any other provision of this Ordinance. Nothing in this Article is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. The provisions of this Article may be amended by the City from time to time to adapt the changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (1) the provisions of this Article, as so amended, would have permitted an underwriter to purchase or sell the Bonds in the primary offering of the 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 holders of a majority in aggregate principal amount (or any greater amount required by any other provision of this Ordinance that authorizes such an amendment) of the outstanding Bonds consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the holder and beneficial owners of the 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 8.1 an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information or operating data so provided. The City may also amend or repeal the provisions of this Article if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, and the City also may amend the provisions of this Article in its discretion in any other manner or circumstance, but in either case only if and to the extent that the provisions of this sentence would not have prevented an underwriter from lawfully purchasing or selling Bonds in the primary offering of the Bonds. Section 8.4.: Definitions. As used in this Article, the following terms have the meanings ascribed to such terms below: "MSRB" means the Municipal Securities Rulemaking Board. 29 HOU:2570169.5 "NRMSIR" means each person whom the SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to time. "Rule" means SEC Rule 15c2-12, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. "SID" means any person designated by the State of Texas or an authorized depai hnent, officer, or agency thereof as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule from time to time. ARTICLE IX. MISCELLANEOUS Section 9.1.: Defeasance. The City may defease the provisions of this Ordinance and discharge its obligations to the Registered Owners of any or all of the Bonds to pay the principal of and interest thereon in any manner permitted by law, including by depositing with the Paying Agent/Registrar or with the State Treasurer of the State of Texas either: (a) cash in an amount equal to the principal amount of such 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; 30 HOU:2570169.5 provided, however, that if any of the 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 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 9.2.: Application of Chapter 1208, Government Code. Chapter 1208, Government Code, applies to the issuance of the Bonds and the pledge of the taxes granted by the City under Section 5.1 of this Ordinance, and such pledge is therefore valid, effective and perfected. If Texas law is amended at any time while the Bonds are outstanding and unpaid such that the pledge of the taxes granted by the City under Section 5.1 of this Ordinance is to be subject to the filing requirements of Chapter 9, Business & Commerce Code, then in order to preserve to the Registered Owners of the Bonds the perfection of the security interest in said pledge, the City agrees to take such measures as it determines are reasonable and necessary under Texas law to comply with the applicable provisions of Chapter 9, Business & Commerce Code and enable a filing to perfect the security interest in said pledge to occur. Section 9.3.: Ordinance a Contract - Amendments. This Ordinance shall constitute a contract with the Registered Owners from time to time, be binding on the City, and shall not be amended or repealed by the City so long as any Bond remains Outstanding except as permitted in this Section. The City may, without the consent of or notice to any Registered Owners, from time to time and at any time, amend this Ordinance in any manner not detrimental to the interests of the Registered Owners, including the curing of any ambiguity, inconsistency, or formal defect or omission herein. In addition, the City may, with the consent of Registered Owners who own in the aggregate 51 % of the principal amount of the Bond then Outstanding, amend, add to, or rescind any of the provisions of this Ordinance; provided that, without the consent of all Registered Owners of Outstanding Bonds, no such amendment, addition, or rescission shall (i) extend the time or times of payment of the principal of and interest on the Bonds, reduce the principal amount thereof, the redemption price, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of or interest on the Bonds, (ii) give any preference to any Bond over any other Bond, or (iii) reduce the aggregate principal amount of Bonds required to be held by Registered Owners for consent to any such amendment, addition, or rescission. Section 9.4.: Legal Holidays. In any case where the date interest accrues and becomes payable on the Bonds or principal of the Bonds matures or the date fixed for redemption of any Bonds or a Record Date shall be in the City a Saturday, Sunday, legal holiday or a day on which banking institutions are authorized by law to close, then payment of interest or principal need not be made on such date, or the Record Date shall not occur on such date, but payment may be made or the Record Date shall occur on the next succeeding day which is not in the City a Saturday, Sunday, legal holiday or a day on which banking institutions are authorized by law to close with the same force and effect as if (i) made on the date of maturity or the date fixed for redemption and no interest shall accrue for the period from the date of maturity or redemption to the date of actual payment or (ii) the Record Date had occurred on the fifteenth day of that calendar month. 31 HOU:2570169.5 Section 9.5.: No Recourse Against City Officials. No recourse shall be had for the payment of principal of or interest on any Bonds or for any claim based thereon or on this Ordinance against any official of the City or any person executing any Bonds. Section 9.6.: Power to Revise Form of Documents. Notwithstanding any other provision of this Ordinance, the Mayor is hereby authorized to make or approve such revisions, additions, deletions, and variations to this Ordinance and in the form of the documents attached hereto as exhibits as, in the judgment of the Mayor, and in the opinion of Bond Counsel to the City, may he necessary or convenient to carry out or assist in carrying out the purposes of this Ordinance, or as may be required for approval of the Bonds by the Attorney General of Texas; provided, however, that any changes to such documents resulting in substantive amendments to the terms and conditions of the Bonds or such documents shall be subject to the prior approval of the City Council. Section 9.7.: Further Proceedings. The Mayor, City Secretary and other appropriate officials of the City are hereby authorized and directed to do any and all things necessary and/or convenient to carry out the terms of this Ordinance. Section 9.8.: Severability. If any Section, paragraph, clause or provision of this Ordinance shall for any reason be held to be invalid or unenforceable, the invalidity or unenforceability of such Section, paragraph, clause or provision shall not affect any of the remaining provisions of this Ordinance. Section 9.9.: Open Meeting. It is hereby found, determined and declared that a sufficient written notice of the date, hour, place and subject of the meeting of the City Council at which this Ordinance was adopted was posted at a place convenient and readily accessible at all times to the general public at City Hall for the time required by law .preceding this meeting, as required by the Open Meetings Law, Chapter 551, Texas Government Code, and that this meeting has been open to the public as required by law at all times during which this Ordinance and the subject matter thereof has been discussed, considered and formally acted upon. The City Council further ratifies, approves and confirms such written notice and the contents and posting thereof. Section 9.10.: Repealer. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency. Section 9.11.: Declaration of Emergency. It is hereby officially found and determined that a case of emergency and urgent public necessity exists that requires that this Ordinance be passed finally and take effect immediately on the date of its introduction, such emergency and urgent public necessity being that the proceeds from the sale of the Bonds are required as soon as possible and without delay for the purposes set forth herein. Section 9.12.: Effective Date. This Ordinance shall be in force and effect from and after its passage on the date shown below. 32 HOU:2570169.5 PASSED AND APPROVED on first and final reading pursuant to Section 3.10 of the City Charter this May 8, 2006. CITY OF PEARLAND, TEXAS Mayor ATTEST , • Ex i°Iv° Exhibit A - Paying Agent/Registrar Agreement Exhibit B - Winning Bid Exhibit C - Notice of Sale and Preliminary Official Statement Exhibit D - Official Statement Exhibit E - Description of Annual Financial Information Exhibit F -- Insurance Provisions Exhibit G - Description of Refunded Obligations Exhibit H - Escrow Agreement 32 HOU:2570169.1 EXHIBIT A PAYING AGENT/REGISTRAR AGREEMENT See Tab 6 HOU:2570169.5 EXHIBIT B WINNING BID See Tab 21 HOU:2570169.5 EXHIBIT C NOTICE OF SALE AND PRELIMINARY OFFICIAL STATEMENT See Tab 4 HOU:2570169.5 EXHIBIT D OFFICIAL STATEMENT See Tab 5 HOU:2570169.5 EXHIBIT E DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Section 8.1 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 Section are as specified (and included in the Appendix or under the headings of the Official Statement referred to) below: 1. The audited financial statements of the City, but for the most recently concluded fiscal year, and, to the extent that such statements are not completed and available, unaudited financial statements for such fiscal year. 2. The quantitative and financial information and operating data with respect to the City of the general type included under the headings "INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE CITY — Current Investments," "CITY TAX DEBT" (except for information under the subheading "Estimated Overlapping Debt"), "TAX DATA - Historical Analysis of Tax Collection," "TAX DATA - Analysis of Tax Base, "TAX DATA - Sales Tax" and "SELECTED FINANCIAL DATA." Accounting Principles The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to in paragraph 1 above. HOU:2570169.5 EXHIBIT F INSURANCE PROVISIONS PRELIMINARY OFFICIAL STATEMENT DATED APRIL 24, 2006 c2 This Preliminary Official Statement is subject to completion and amendment. Upon sale of the Bonds, the Official Statement will be completed and ,c -0 delivered to the Underwriters. Prospective purchasers must read the entire Official Statement to make an informed investment decision. > v In the opinion of Bond Counsel, interest on the Bonds is excludable from gross income for federal income tax purposes under existing law, subject to -o the matters described under "Tax Exemption" herein, and is not includable in the alternative minimum taxable income of individuals. See "TAX 4 o` EXEMPTION" for a discussion of the opinion of Bond Counsel, including the alternative minimum tax on corporations. Ec 5 NEW ISSUE: BOOK -ENTRY -ONLY RATINGS: Moody's Investors Service, Inc " " V. Standard & Poor's Ratings Services Ca " CI) $32,165,000* o CITY OF PEARLAND, TEXAS (A political subdivision of the State of Texas located within Brazoria and Hams Counties) PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006 ° o Dated: June I, 2006 Due: March I, as shown below `o • u ▪ Principal of and interest on the $32,165,000* City of Pearland, Texas, Permanent Improvement and Refunding Bonds, Series 2006 (the "Bonds") are E - payable by Wells Fargo Bank, N.A., Houston, Texas, the paying agent/registrar (the "Paying Agent/Registrar"). The Bonds are initially registered 2 A and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book -Entry -Only System described 13 E herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Lc Bonds will be made to the beneficial owners thereof. Principal of and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede o E & Co., which will make distribution of the amounts so paid to the beneficial owners of the Bonds. See "THE BONDS - Book -Entry -Only System" E herein. Interest on the Bonds will accrue from June 1, 2006 and is payable on March I, and September I of each year, commencing March 1, 2007, to the registered owners (initially Cede & Co.) appearing on the registration books of the Paying Agent/Registrar on the 15th day of the month , •o preceding each interest payment date (the "Record Date"). See "THE BONDS - Description." aThe Bonds are payable from the proceeds of a continuing, direct annual ad valorem tax levied, within the limits prescribed by law, against taxable ▪ m property within the City of Pearland, Texas (the "City"). See "THE BONDS - Source of Payment." 2 -8 The Bonds are issued pursuant to the Constitution and general laws of the State of Texas, particularly Chapters 1207 and 1331, Texas Government $ s Code, as amended, and an Ordinance approved by the City Council on May 8, 2006. See "THE BONDS - Authority for Issuance." E H Proceeds of the sale of the Bonds will be used for the construction and improvements of city streets. Proceeds from the sale of the Bonds will also be cused to refund certain outstanding obligations of the City as more particularly described in "APPENDIX D" hereto (the "Refunded Bonds") and to , pay the costs of issuance of the Bonds. See "THE BONDS - Use of Proceeds." ° The City has applied for a municipal bond insurance policy to guarantee the scheduled payment of principal of and interest on the Bonds. The premium for such insurance, if purchased will be paid by the Underwriter. PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES AND PRICES ° (Due March 1) Initial CUSIP Initial CUSIP `o V Principal Interest Reoffering Nos. Principal Interest Reoffering Nos. 8 9 Maturity Amount* Rate Yield (a) (c) Maturity Amount• Rate Yield (a) (c) E o 0 2007 $ 50,000 % % 2019(b) $1,335,000 % % 8 y " 2008 50,000 2020(b) 1,485,000 S 0 c 2009 50,000 2021(b) 1,580,000 E 2010 50,000 2022(b) 1,675,000 3 � 3 2011 320,000 2023(b) 2,150,000 2012 385,000 2024(b) 2,150,000 0 r' N ° 2 2013 400,000 2025(b) 2,270,000 .. o 2014 410,000 2026(b) 2,395,000 o " ! 2015 430,000 2027(b) 2,525,000 := 2016 445,000 2028(1,) 3,690,000 § 8. 2017(b) 460,000 2029(b) 7,380,000 Cl" 2018(b) 480,000 .? O •((a) The initial yields will be established by and are the sole responsibility of the Underwriters, and may subsequently be changed. E ' ' (b) The Bonds maturing on March 1, 2017 and thereafter, are subject to redemption, at the option of the City, at par value thereof plus accrued interest on 2 March 1, 2016, or any date thereafter. See "THE BONDS - Redemption Provisions." $ (c) CUSIP numbers have been assigned to the Bonds by Standard and Poor's CUSIP Service Bureau, A Division of the McGraw-Hill Companies, Inc., and .6 a are included solely for the convenience of the registered owners of the Bonds. Neither the City, the Financial Advisor, nor the Underwriters are z ° responsible for the selection or correctness of the CUSIP numbers set forth herein. 13 o The Bonds are offered when, as and if issued, subject to the approving opinion of the Attorney General of the State of Texas and the opinion of 78 y ' Andrews Kurth LLP, Houston, Texas, Bond Counsel for the City, as to the validity of the issuance of the Bonds under the Constitution and laws of OL the State of Texas. See "LEGAL MATTERS." Delivery of the Bonds is expected to be on or about June 8, 2006. .c' E .2 SELLING: MONDAY, MAY 8, 2006 2go t. J E UNTIL 1:00 P.M., HOUSTON TIME 4 r * Preliminary, subject to change. F D OFFICIAL STATEMENT DATED MAY 8, 2006 In the opinion of Bond Counsel, interest on the Bonds is excludable from gross income for federal income tax purposes under existing law, subject to the matters described under "Tax Exemption" herein, and is not includable in the alternative minimum taxable income of individuals. See "TAX EXEMPTION" for a discussion of the opinion of Bond Counsel, including the alternative minimum tax on corporations. NEW ISSUE: BOOK -ENTRY -ONLY RATINGS: Moody's Investors Service, Inc. (FGIC) "Aaa" Standard & Poor's Ratings Services (FGIC) "AAA" $32,165,000 CITY OF PEARLAND, TEXAS (A political subdivision of the State of Texas located within Brazoria and Harris Counties) PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006 Dated: June 1, 2006 Due: March 1, as shown below Principal of and interest on the $32,165,000 City of Pearland, Texas, Permanent Improvement and Refunding Bonds, Series 2006 (the "Bonds") are payable by Wells Fargo Bank, N.A., Houston, Texas, the paying agent/registrar (the "Paying Agent/Registrar"). The Bonds are initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book -Entry -Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the beneficial owners of the Bonds. See "THE BONDS - Book -Entry -Only System" herein. Interest on the Bonds will accrue from June 1, 2006 and is payable on March 1, and September 1 of each year, commencing March 1, 2007. to the registered owners (initially Cede & Co.) appearing on the registration books of the Paying Agent/Registrar on the 15th day of the month preceding each interest payment date (the "Record Date"). See "THE BONDS - Description." The Bonds are payable from the proceeds of a continuing, direct annual ad valorem tax levied, within the limits prescribed by law, against taxable property within the City of Pearland, Texas (the "City"). See "THE BONDS - Source of Payment." The Bonds are issued pursuant to the Constitution and general laws of the State of Texas. particularly Chapters 1207 and 1331, Texas Government Code, as amended, and an Ordinance approved by the City Council on May 8, 2006. See "TI-IE BONDS - Authority for Issuance." Proceeds of the sale of the Bonds will be used for the construction and improvements of city streets. Proceeds from the sale of the Bonds will also be used to refund certain outstanding obligations of the City as more particularly described in "APPENDIX D" hereto (the "Refunded Bonds") and to pay the costs of issuance of the Bonds. See "THE BONDS - Use of Proceeds." Payment of the principal of and interest on the Bonds when due will be insured by a bond insurance policy to be issued by Financial Guaranty Insurance Company ("FGIC") simultaneously with the delivery of the Bonds. See "SALE AND DISTRIBUTION OF THE BONDS - Bond Insurance." FGIC PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES AND PRICES (Due March 1) $21,095,000 Serial Bonds Initial CUSIP Initial CUSIP Principal Interest Reoffering Nos. Principal Interest Reoffering Nos. Maturity Amount Rate Yield (a) 704862 (c) Maturity Amount Rate Yield (a) 704862 (c) 2007 $ 50,000 4.000% 3.700% WF4 2018(b) $ 480,000 4.250% 4.350% WS6 2008 50,000 4.000 3.710 WG2 2019(b) 1,335,000 4.500 4.550 WT4 2009 50,000 4.000 3.710 WHO 2020(b) 1,485,000 5.000 4.490 WUI 2010 50,000 4.000 3.730 WJ6 2021(h) 1,580,000 5.000 4.520 WV9 2011 320.000 4.000 3.760 WK3 2022(b) 1,675.000 5.000 4.550 WW7 2012 385,000 4.000 3.860 WL1 2023(b) 2,150,000 5.000 4.580 WX5 2013 400,000 4.000 3.960 WM9 2024(b) 2,150,000 5.000 4.550 WY3 2014 410,000 4.000 4.080 WN7 2025(b) 2,270,000 5.000 4.570 WZO 2015 430,000 4.000 4.180 WP2 2026(b) 2,395,000 5.000 4.590 XA4 2016 445.000 4.125 4.250 WQO 2027(b) 2,525,000 4.750 4.750 XB2 2017(b) 460,000 4.250 4.300 WR8 $11,070,000 Term Bonds 511,070,000 Term Bond Due March 1, 2029 (a)(b)(c)(d) Interest Rate 4.750% (Yield 4.820%) CUSIP No. 704862 XCO (a) The initial yields will be established by and are the sole responsibility of the Underwriters, and may subsequently be changed. (b) The Bonds maturing on March 1, 2017 and thereafter, are subject to redemption, at the option of the City, at par value thereof plus accrued interest on March 1, 2016, or any date thereafter. See "THE BONDS - Redemption Provisions." (c) CUSIP numbers have been assigned to the Bonds by Standard and Poor's CUSIP Service Bureau, A Division of the McGraw-Hill Companies. Inc., and are included solely for the convenience of the registered owners of the Bonds. Neither the City, the Financial Advisor, nor the Underwriters are responsible for the selection or correctness of the CUSIP numbers set forth herein. (d) Subject to mandatory redemption by lot or other customary random selection on March 1 in the years and in the amounts set forth herein under the caption "THE BONDS - Redemption Provisions." The Bonds are offered when, as and if issued, subject to the approving opinion of the Attorney General of the State of Texas and the opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel for the City, as to the validity of the issuance of the Bonds under the Constitution and laws of the State of Texas. See "LEGAL MATTERS." Delivery of the Bonds is expected to he on or about June 8. 2006. CERTIFICATE FOR ORDINANCE THE STATE OF TEXAS COUNTIES OF BRAZORIA AND HARRIS CITY OF PEARLAND We, the undersigned officers of the City of Pearland, Texas (the "City"), hereby certify as follows: 1. The City Council of the City convened in a regular meeting on May 8, 2006, at the regular meeting place thereof, within the City, and the roll was called of the duly constituted officers and members of the City Council, to wit: Tom Reid Kevin Cole Richard F. Tetens Woodrow "Woody" Owens Steve Saboe Larry R. Marcott Young Lorfing Mayor Mayor Pro Tem Council Member Council Member Council Member Council Member Secretary and all of such persons were present, thus constituting a quorum. Whereupon, among other business, the following was transacted at said meeting: a written ORDINANCE AUTHORIZING AND ORDERING THE ISSUANCE OF CITY OF PEARLAND, TEXAS PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006; PRESCRIBING THE TERMS AND FORM THEREOF; PROVIDING FOR THE PAYMENT OF THE PRINCIPAL THEREOF AND INTEREST THEREON; AWARDING THE SALE THEREOF; AUTHORIZING THE PREPARATION AND DISTRIBUTION OF AN OFFICIAL STATEMENT TO BE USED IN CONNECTION WITH THE SALE OF THE BONDS; AUTHORIZING THE PURCHASE OF BOND INSURANCE; AUTHORIZING THE REDEMPTION PRIOR TO MATURITY OF CERTAIN OUTSTANDING BONDS; AUTHORIZING THE REFUNDING OF CERTAIN OUTSTANDING OBLIGATIONS, THE EXECUTION AND DELIVERY OF AN ESCROW AGREEMENT AND THE SUBSCRIPTION FOR AND PURCHASE OF CERTAIN ESCROWED SECURITIES; MAKING OTHER PROVISIONS REGARDING SUCH BONDS, INCLUDING USE OF THE PROCEEDS THEREOF, AND MATTERS INCIDENT THERETO; AND DECLARING AN EMERGENCY (the "Ordinance") was duly introduced for the consideration of the City Council and read in full. It was then duly moved and seconded that the Ordinance be adopted on first reading; and, after due discussion, such motion, carrying with it the adoption of the Ordinance, prevailed and carried by the following vote: HOU:2570169.5 AYES: NAYS: ABSTENTIONS: 2. That a true, full and correct copy of the Ordinance adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate; that the Ordinance has been duly recorded in the City Council's minutes of such meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the City Council's minutes of such meeting pertaining to the adoption of the Ordinance; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of the City Council as indicated therein; that each of the officers and members of the City Council was duly and sufficiently notified officially and personally, in advance, of the date, hour, place and subject of the aforesaid meeting, and that the Ordinance would be introduced and considered for adoption at such meeting, and each of such officers and members consented, in advance, to the holding of such meeting for such purpose; that such meeting was open to the public as required by law; and that public notice of the date, hour, place and subject of such meeting was given as required by the Open Meetings Law, Chapter 551, Texas Government Code. SIGNED AND SEALED this May 9 , 2006. 71 TE A O's• EARLA S 2 Mayor CITY OF PEARLAND, TEXAS HOU:2570169. t FGIC Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 y 212.312.3000 v 212.312.3093 MEMORANDUM Enclosed please find one original and one copy of our commitment to provide municipal bond insurance for the bonds referenced below. The commitment may include some or all of the following, as applicable: • Specimen bond insurance policy or surety bond and applicable endorsements. • Statement of insurance to be printed on the bonds. • Official Statement disclosure language. • Additional exhibits may be attached to the commitment letter, including conditions to the issuance of the policy and provisions to be incorporated into the legal documents. Bonds: City of Pearland, Texas, Permanent Improvement and Refunding Bonds, Series 2006 Commitment Due Date: FGIC Contact: Closing Contact: Payment Instructions: May 17, 2006 Abigail Trutor, Associate (Phone 212-312-3235) Stephanie Cain, Analyst (Phone 212-312-3230); (Fax 212-312-3206) Wire transfer instructions for the Policy are enclosed. Please fax a copy of the signature page of the original commitment letter by the due date noted above and return the original executed commitment letter to the FGIC closing contact noted above. She should also receive bond proofs and official statement drafts, as well as any inquiries regarding commitment letter conditions or closing procedures. Please inform your closing contact as soon as possible of the closing date/policy issuance date. We look forward to working with you on this transaction. Thank you. 6027476 FGIC Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 T 212.312.3000 F 212.312.3093 Commitment For Municipal Bond Insurance Issuer: City of Pearland, Texas Date of Commitment: May 10, 2006 Expiration Date: July 10, 2006* Premium: S 150,900.00 Bonds Insured: S32,165,000 in principal amount of Permanent Improvement and Refunding Bonds, Series 2006 FINANCIAL GUARANTY INSURANCE COMPANY ("Financial Guaranty") A Stock Insurance Company hereby commits to issue a Municipal Bond New Issue Insurance Policy (the "Policy"), in the form attached hereto as Exhibit A, relating to the above -described debt obligations (the "Bonds"), subject to the terms and conditions contained herein or added hereto. To keep this Commitment in effect after the Expiration Date set forth above, a request for renewal must be submitted to Financial Guaranty prior to such Expiration Date. Financial Guaranty reserves the right to refuse wholly or in part to grant a renewal. THE MUNICIPAL BOND NEW ISSUE INSURANCE POLICY SHALL BE ISSUED IF THE CONDITIONS SPECIFIED BELOW ARE SATISFIED. I , In addition to the satisfaction of the other conditions set forth herein, Financial Guaranty shall be provided with: (a) (i) Executed copies of all financing documents, the official statement (or any similar disclosure document), and all Bond documentation evidencing the Issuer's ability and intent to comply with the Internal Revenue Code of 1986, as amended (if in the opinion of bond counsel (described below) ongoing compliance would be necessary to maintain the exemption from federal income taxation of interest on the Bonds), which shall be in form and substance acceptable to Financial Guaranty; and (ii) the various legal opinions delivered in connection with the issuance and sale of the Bonds, including, without limitation, the unqualified approving opinion of bond counsel rendered by a law firm acceptable to Financial Guaranty and addressed to (or with a reliance letter • Subject to written acceptance of this Commitment being furnished to Financial Guaranty by the earlier of the date on which the disclosure document relating to the Bonds is circulated and May 17, 2006. Page 1 FGIC addressed to) Financial Guaranty, which opinion shall include statements to the effect that (A) (1) the Bonds have been duly authorized, executed and delivered by the Issuer and are the valid and binding obligations of the Issuer, and (2) the interest on the Bonds is excludable from gross income of the holders thereof for federal income tax purposes under the Internal Revenue Code of 1986, as amended (if the Bonds are issued as tax-exempt obligations); and (B) the Bonds constitute a general obligation of the Issuer, for the payment of whichall eligible taxable, real property within the jurisdiction of the Issuer is subject to the levy of ad valorem taxes, subject only to limitations on levies prescribed by applicable law. Copies of all drafts of such documents and legal opinions (blacldined as appropriate) prepared subsequent to the date of this Commitment shall be furnished to Financial Guaranty. Final drafts of such documents shall be provided to Financial Guaranty at least five (5) business days prior to the issuance of the Policy unless Financial Guaranty shall approve a shorter period and such documents shall be satisfactory to Financial Guaranty in all respects. (b) Evidence of wire transfer in federal funds in an amount equal to the insurance premium unless alternative arrangements for the payment of the premium acceptable to Financial Guaranty have been made prior to the delivery date of the Bonds. Please note the attached Wire Instructions. 2. Neither the financing/authorizing documents nor the Bonds shall include, nor shall they be amended to include, provisions allowing the Issuer or other obligor to purchase the Bonds either outright or in lieu of redemption for purposes other than retiring the Bonds. Notwithstanding any other provision contained herein, this covenant shall survive the expiration of this commitment and shall be applicable so long as the Bonds remain outstanding. 3. The documents to be executed and delivered in connection with the issuance and sale of the Bonds shall not contain any untrue or misleading statement of a material fact and shall not fail to state a material fact nececaary in order to make the information contained therein not misleading. 4. No event shall occur which would permit any purchaser of the Bonds, otherwise required, not to be required to purchase the Bonds on the date scheduled for the issuance and delivery thereof. 5. There shall be no material change in or affecting the Bonds (including, without limitation, the security for the Bonds) or the financing documents or the official statement (or any similar disclosure document) to be executed and delivered in connection with the issuance and sale of the Bonds from the descriptions or forms thereof approved by Financial Guaranty. 6. The Bonds shall contain no reference to Financial Guaranty, the Policy or the municipal bond insurance evidenced thereby except as may be approved by Financial Guaranty. 7. The Bonds shall bear a "Statement of Insurance" in the form attached to this Commitment (also available online on our web site at www.fgic.com). BOND PROOFS SHALL BE APPROVED BY FINANCIAL GUARANTY PRIOR TO PRINTING. 8. The preliminary official statement and the official statement shall (a) be satisfactory in form and substance to Financial Guaranty and (b) contain the "Official Statement Page 2 FGIC Disclosure Language" attached to this Commitment and only such other references to Financial Guaranty as we shall supply or approve. Financial Guaranty's official statement language and cover logo are also available online on our web site at www.fgic.com. 9. The following additional conditions shall be met for all transactions that include the issuance of advance refunding bonds: (a) The Escrow Agreement (the "Escrow Agreement") providing for the refunding of the bonds to be refunded with the proceeds of the Bonds (the "Prior Bonds") shall permit the deposit solely of cash, direct non -callable obligations of the United States of America and securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America, to which direct obligation or guarantee the full faith and credit of the United States of America has been pledged, Refcorp interest strips, CATS, TIGRS, STRPS, or defeased municipal bonds rated AAA by S&P or Aaa by Moody's (or any combination thereof) ("Direct Obligations") and shall permit substitution of Direct Obligations for other Direct Obligations solely upon the receipt by the escrow agent of (i) a new verification of the sufficiency of the escrowed securities (assuming such substitution has been made) to provide for the payment of the Prior Bonds in accordance with the terms of the escrow agreement and (ii) an opinion of bond counsel to the effect that such substitution shall not affect the tax-exempt status of interest on the Prior Bonds or the Bonds. Modification of the Escrow Agreement shall not be permitted unless the holders of all of the Prior Bonds consent to such modification. (b) At least five business days prior to the proposed date for delivery of the Policy, Financial Guaranty shall receive for its review and approval (i) the escrow agreement in substantially final form, (ii) the verification by independent certified public accountants satisfactory to Financial Guaranty of the accuracy of the mathematical computation of the adequacy of the escrow established to provide for the payment of the Prior Bonds in accordance with the terms and provisions of the Escrow Agreement, (iii) as applicable, copies of the subscription forms for the purchase and issue of U.S. Treasury Securities — State and Local Government Series which have been stamped as received by the Federal Reserve Bank or copies of the confirmations of purchase of open market Direct Obligations, and (iv) the form of an opinion of bond counsel addressed to Financial Guaranty (or a reliance letter relating thereto) to the effect that, upon the making of the required deposit to the escrow, the legal defeasance of the Prior Bonds shall have occurred. if legal defeasance of the Prior Bonds is not permitted under the governing laws of the jurisdiction, then bond counsel's opinion shall address the defeasance of the Prior Bonds in the manner permitted under such laws. The opinion requirement may be waived upon request to Financial Guaranty, in Financial Guaranty's sole discretion. An executed copy of such opinion shall be forwarded to Financial Guaranty, together with the documentation requested in the Commitment Letter. (c) The Escrow Agreement may provide that cash received by the escrow agent not required for purchase of the initial investments that are referenced in the verification report may be invested, in accordance with an opinion of bond Page 3 FGIC counsel as described in the Commitment Letter, by the escrow agent, but only in noncallable Direct Obligations that mature in an amount at least equal to the purchase price of such Direct Obligations prior to the next scheduled interest payment date for the Prior Bonds. The escrow agent shall be responsible for determining compliance with this requirement. (d) A forward supply contract relating to the provision of such investments which is acceptable to Financial Guaranty may be entered into at closing if (i) the terms thereof are consistent with the foregoing requirements, (ii) the Escrow Agreement provides that in the event of any discrepancy or difference between the terms of the forward supply contract and the Escrow Agreement, the terms of the Escrow Agreement shall be controlling, and (iii) the verification report shall expressly state that the adequacy of the escrow to accomplish the refunding project relies solely on the initial escrowed investments and the maturing principal thereof and interest income thereon and does not assume performance under or compliance with the forward supply contract. 10. All drafts of the preliminary official statement, official statement or any other disclosure documents and the form of the Bonds should be directed to the attention of Stephanie Cain (Phone 212-312-3230), Financial Guaranty's closing contact for this transaction, for approval. 11. Promptly after the closing of the Bonds, Financial Guaranty shall receive three completed sets of executed documents (one original and two photocopies or CD copies). We will provide the photocopies or CD copies to the rating agencies. AuthoriwdZWsentative To keep this commitment in effect to the Expiration Date set forth on the first page, Financial Guaranty must receive a duplicate of this Commitment executed by an appropriate officer of Citigroup Global Markets Inc. by May 17, 2006. The undersigned agrees that if the Bonds are insured by a policy of municipal bond insurance, such insurance shall be provided by Financial Guaranty in accordance with the terms of the Commitment. Accepted as of by Citigroup Global Markets Inc. By: Name: Title: 6027476 Page 4 FGIC Exhibit A Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 T 212.312,3000 T 800.352-0001 Municipal Bond New Issue Insurance Policy Issuer: Policy Number: Control Number: 0010001 Bonds: Premium: Financial Guaranty Insurance Company ("Financial Guar York stock insurance.company, in consideration of the payment of the premium and su ct to terms of this Policy, hereby unconditionally and irrevocably agrees to pay to U.S. Bank T t do 1 Association or its successor, as its agent (the "Fiscal Agent"), for the benefit of Bon s, portion of the principal and interest on the above - described debt obligations (the "Bonds s 11 become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. Financial Guaranty will make such payments to the Fiscal Agent on the date such principal or interest becomes Due for Payment or on the Business Day next following the day on which Financial Guaranty shall have received Notice of Nonpayment, whichever is later. The Fiscal Agent will disburse to the Bondholder the face amount of principal and interest which is then Due for Payment but is unpaid by reason of Nonpayment by the Issuer but only upon receipt by the Fiscal Agent, in form reasonably satisfactory to it, of (i) evidence of the Bondholder's right to receive payment of the principal or interest Due for Payment and (ii) evidence, including any appropriate instruments of assignment, that all of the Bondholder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Financial Guaranty. Upon such disbursement, Financial Guaranty shall become the owner of the Bond, appurtenant coupon or right to payment of principal or interest on such Bond and shall be fully subrogated to all of the Bondholder's rights thereunder, including the Bondholder's right to payment thereof. This Policy is non -cancellable for any reason. The premium on this Policy is not refundable for any reason, including the payment of the Bonds prior to their maturity. This Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bond. As used herein, the term "Bondholder" means, as to a particular Bond, the person other than the Issuer who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof. "Due for Payment" means, when referring to the principal of a Bond, the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity and means, when referring to interest on a Bond, the stated date for payment of interest. "Nonpayment" in respect of a Bond means the failure of the Issuer to have provided sufficient funds to the paying agent for payment in full of all FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company, FGIC Corporation.t of 2 Form 9000 (10/93) FGIC Financial Guaranty Insurance Company 125 Park Avenue Ncw York, NY 10017 T 212-312.3000 T 800.352.0001 Municipal Bond New Issue Insurance Policy principal and interest Due for Payment on such Bond. "Notice" means telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from a Bondholder or a paying agent for the Bonds to Financial Guaranty. "Business Day" means any day other than a Saturday, Sunday or a day on which the Fiscal Agent is authorized by law to re in osed. In Witness Whereof, Financial Guaranty has caused this Policy ed with its corporate seal and to be signed by its duly authorized officer in facsimil • effective and binding upon Financial »Guaranty by virtue of the countersignature of itsyuth ` d representative. President Effective Date: U.S. Bank Trust National Association, acknowledges that it has agreed to perform the duties of Fiscal Agent under this Policy. Authorized Officer Authorized Representative FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company, FGIC pCaCo age 2 of2 Form 9000 (10/93) FGIC Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 T 212312-3000 T 800.352.0001 Endorsement To Financial Guaranty Insurance Company Insurance Policy Policy Number: It is further understood that the term "Nonpayment" in or interest made to a Bondholder by or on behalf of th such Bondholder pursuant to the United States B with a final, nonappealable order of a court Control Number: 0010001 respect o includes any payment of principal u h Bond which has been recovered from de by a trustee in bankruptcy in accordance nt jurisdiction. NOTHING HEREIN SHALL BE CUED TO WAIVE, ALTER, REDUCE OR AMEND COVERAGE IN ANY OTHER SECT] OF THE POLICY. IF FOUND CONTRARY TO THE POLICY LANGUAGE, THE TERMS OF THIS ENDORSEMENT SUPERSEDE THE POLICY LANGUAGE. In Witness Whereof, Financial Guaranty has caused this Endorsement to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. President Effective Date: Acknowledged as of the Effective Date written above: Authorized Officer U.S. Bank Trust National Association, as Fiscal Agent Authorized Representative FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company. FGIC Corporation. ' Form E-0002 (10/93) STATEMENT OF INSURANCE (To be printed on the Bonds) Financial Guaranty Insurance Company ("Financial Guaranty") has issued a policy containing the following provisions with respect to the Bonds, such policy being on file at the principal office of [Paying Agent], as paying agent (the "Paying Agent"): Financial Guaranty hereby unconditionally and irrevocably agrees to pay for disbursement to the Bondholders that portion of the principal or accreted value (if applicable) of and interest on the Bonds which is then due for payment and which the issuer of the Bonds (the "Issuer") shall have failed to provide. Due for payment means, with respect to principal or accreted value (if applicable), 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 the payment of principal or accreted value (if applicable) of the Bonds is due by reason of call for redemption (other than mandatory sinking fund redemption), acceleration or other advancement of maturity, and with respect to interest, the stated date for payment of such interest. Upon receipt of telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from a Bondholder or the Paying Agent to Financial Guaranty that the required payment of principal, accreted value or interest (as applicable) has not been made by the Issuer to the Paying Agent, Financial Guaranty on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, or its successor as its agent (the "Fiscal Agent"), sufficient to make the portion of such payment not paid by the Issuer. Upon presentation to the Fiscal Agent of evidence satisfactory to it of the Bondholder's right to receive such payment and any appropriate instruments of assignment required to vest all of such Bondholder's right to such payment in Financial Guaranty, the Fiscal Agent will disburse such amount to the Bondholder. As used herein the teen "Bondholder" means the person other than the Issuer or the borrower(s) of bond proceeds who at the time of nonpayment of a Bond is entitled under the terms of such Bond to payment thereof. The policy is non -cancellable for any reason. FINANCIAL GUARANTY INSURANCE COMPANY Page l OFFICIAL STATEMENT DISCLOSURE LANGUAGE BOND INSURANCE Financial Guaranty has supplied the following information for inclusion in this Official Statement. No representation is made by the issuer or the underwriter as to the accuracy or completeness of this information. Payments Under the Policy Concurrently with the issuance of the Bonds, Financial Guaranty Insurance Company ("Financial Guaranty") will issue its Municipal Bond New Issue Insurance Policy for the Bonds (the "Policy"). The Policy unconditionally guarantees the payment of that portion of the principal or accreted value (if applicable) of and interest on the Bonds which has become due for payment, but shall be unpaid by reason of nonpayment by the issuer of the Bonds (the "issuer"). Financial Guaranty will make such payments to U.S. Bank Trust National Association, or its successor as its agent (the "Fiscal Agent"), on the later of the date on which such principal, accreted value or interest (as applicable) is due or on the business day next following the day on which Financial Guaranty shall have received notice (in accordance with the terms of the Policy) from an owner of Bonds or the trustee or paying agent (if any) of the nonpayment of such amount by the Issuer. The Fiscal Agent will disburse such amount due on any Bond to its owner upon receipt by the Fiscal Agent of evidence satisfactory to the Fiscal Agent of the owner's right to receive payment of the principal, accreted value or interest (as applicable) due for payment and evidence, including any appropriate instruments of assignment, that all of such owner's rights to payment of such principal, accreted value or interest (as applicable) shall be vested in Financial Guaranty. The term "nonpayment" in respect of a Bond includes any payment of principal, accreted value or interest (as applicable) made to an owner of a Bond which has been recovered from such owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. Once issued, the Policy is non -cancellable by Financial Guaranty. The Policy covers failure to pay principal (or accreted value, if applicable) of the Bonds on their stated maturity dates and their mandatory sinking fund redemption dates, and not on any other date on which the Bonds may have been otherwise called for redemption, accelerated or advanced in maturity. The Policy also covers the failure to pay interest on the stated date for its payment. In the event that payment of the Bonds is accelerated, Financial Guaranty will only be obligated to pay principal (or accreted value, if applicable) and interest in the originally scheduled amounts on the originally scheduled payment dates. Upon such payment, Financial Guaranty will become the owner of the Bond, appurtenant coupon or right to payment of principal or interest on such Bond and will be fully subrogated to all of the Bondholder's rights thereunder. The Policy does not insure any risk other than Nonpayment by the Issuer, as defined in the Policy. Specifically, the Policy does not cover: (i) payment on acceleration, as a result of a call for redemption (other than mandatory sinking fund redemption) or as a result of any other advancement of maturity; (ii) payment of any redemption, prepayment or acceleration premium; or (iii) nonpayment of principal (or accreted value, if applicable) or interest caused by the insolvency or negligence or any other act or omission of the trustee or paying agent, if any. As a condition of its commitment to insure Bonds, Financial Guaranty may be granted certain rights under the Bond documentation. The specific rights, if any, granted to Financial Guaranty in connection with its insurance of the Bonds may be set forth in the description of the principal Page 1 legal documents appearing elsewhere in this Official Statement, and reference should be made thereto. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. In the event that Financial Guaranty is unable to fulfill its obligations under the Policy[DSRF Commitments: `Reserve Policy'], the policy holder or bondholder is not protected by an insurance guaranty fund or other solvency protection arrangement. Financial Guaranty Insurance Company Financial Guaranty is a New York stock insurance corporation that writes financial guaranty insurance in respect of public finance and structured finance obligations and other financial obligations, including credit default swaps. Financial Guaranty is licensed to engage in the financial guaranty insurance business in all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands and the United Kingdom. Financial Guaranty is a direct, wholly owned subsidiary of FGIC Corporation, a Delaware corporation. At March 31, 2006, the principal owners of FGIC Corporation and the approximate percentage of its outstanding common stock owned by each were as follows: The PMI Group, Inc. — 42%; affiliates of the Blackstone Group L.P. — 23%; and affiliates of the Cypress Group L.L.C. — 23%. Neither FGIC Corporation nor any of its stockholders or affiliates is obligated to pay any debts of Financial Guaranty or any claims under any insurance policy, including the Policy, issued by Financial Guaranty. Financial Guaranty is subject to the insurance laws and regulations of the State of New York, where Financial Guaranty is domiciled, including New York's comprehensive financial guaranty insurance law. That law, among other things, limits the business of each financial guaranty insurer to financial guaranty insurance (and related lines); requires that each financial guaranty insurer maintain a minimum surplus to policyholders; establishes limits on the aggregate net amount of exposure that may be retained in respect of a particular issuer or revenue source (known as single risk limits) and on the aggregate net amount of exposure that may be retained in respect of particular types of risk as compared to the policyholders' surplus (known as aggregate risk limits); and establishes contingency, loss and unearned premium reserve requirements. In addition, Financial Guaranty is also subject to the applicable insurance laws and regulations of all other jurisdictions in which it is licensed to transact insurance business. The insurance laws and regulations, as well as the level of supervisory authority that may be exercised by the various insurance regulators, vary by jurisdiction. At March 31, 2006, Financial Guaranty had net admitted assets of approximately $3.603 billion, total liabilities of approximately $2.454 billion, and total capital and policyholders' surplus of approximately $1.149 billion, determined in accordance with statutory accounting practices ("SAP") prescribed or permitted by insurance regulatory authorities. The unaudited consolidated financial statements of Financial Guaranty and subsidiaries, on the basis of U.S. generally accepted accounting principles ("GAAP"), as of March 31, 2006 and the audited consolidated financial statements of Financial Guaranty and subsidiaries, on the basis of GAAP, as of December 31, 2005 and 2004, which have been filed with the Nationally Recognized Municipal Securities Information Repositories ("NRMSIRs"), are hereby included by specific reference in this Official Statement. Any statement contained herein under the heading "BOND INSURANCE," or in any documents included by specific reference herein, shall be modified or superseded to the extent required by any statement in any document subsequently Page 2 filed by Financial Guaranty with such NRMSIRs, and shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. All financial statements of Financial Guaranty (if any) included in documents filed by Financial Guaranty with the NRMSIRs subsequent to the date of this Official Statement and prior to the termination of the offering of the Bonds shall be deemed to be included by specific reference into this Official Statement and to be a part hereof from the respective dates of filing of such documents. Page 3 The New York State Insurance Department recognizes only SAP for determining and reporting the financial condition and results of operations of an insurance company, for determining its solvency under the New York Insurance Law, and for determining whether its financial condition warrants the payment of a dividend to its stockholders. Although Financial Guaranty prepares both GAAP and SAP financial statements, no consideration is given by the New York State Insurance Department to financial statements prepared in accordance with GAAP in making such determinations. A discussion of the principal differences between SAP and GAAP is contained in the notes to Financial Guaranty's SAP financial statements. Copies of Financial Guaranty's most recently published GAAP and SAP financial statements are available upon request to: Financial Guaranty Insurance Company, 125 Park Avenue, New York, NY 10017, Attention: Corporate Communications Department. Financial Guaranty's telephone number is (212) 312-3000. Financial Guaranty's Credit Ratings The financial strength of Financial Guaranty is rated "AAA" by Standard & Poor's, a Division of The McGraw-Hill Companies, Inc., "Aaa" by Moody's Investors Service, and "AAA" by Fitch Ratings. Each rating of Financial Guaranty should be evaluated independently. The ratings reflect the respective ratings agencies' current assessments of the insurance financial strength of Financial Guaranty. Any further explanation of any rating may be obtained only from the applicable rating agency. These ratings are not recommendations to buy, sell or hold the Bonds, and are subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. Financial Guaranty does not guarantee the market price or investment value of the Bonds nor does it guarantee that the ratings on the Bonds will not be revised or withdrawn. Neither Financial Guaranty nor any of its affiliates accepts any responsibility for the accuracy or completeness of the Official Statement or any information or disclosure that is provided to potential purchasers of the Bonds, or omitted from such disclosure, other than with respect to the accuracy of information with respect to Financial Guaranty or the Policy under the heading "BOND INSURANCE." In addition, Financial Guaranty makes no representation regarding the Bonds or the advisability of investing in the Bonds. Page 4 FINANCIAL GUARANTY INSURANCE COMPANY PROCEDURES FOR PAYMENT OF PREMIUM Financial Guaranty's issuance of its Municipal Bond New Issue Insurance Policy (or Debt Service Reserve Fund Policy, as applicable) at closing is contingent upon its receipt of the premium. NO POLICY WILL BE RELEASED UNTIL ORAL CONFIRMATION OF THE FEDERAL RESERVE WIRE REFERENCE NUMBER HAS BEEN PROVIDED. 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 fmal debt service schedule, provide such schedule to Financial Guaranty, to the attention of the FGIC Closing Coordinator, whose name and telephone number are referenced in commitment letter, and subsequently confirm the amount of the premium with the Closing Coordinator. Payment: Closing Date Method of Payment: Wire Transfer of Federal Funds Wire Transfer Instructions: JPMorgan Chase Bank Routing/Transit No. 021000021 Branch and Account No. 904951812 For Credit to Financial Guaranty Insurance Company Premium Account FGIC Policy # FGIC Closing Contact: FGIC Closing Coordinator - Stephanie Cain (Phone 212-312-3230; Fax 212-312-3206) Any questions concerning these procedures or any premium payment method other than outlined above should be directed to the attention of the FGIC Closing Coordinator at least two banking days prior to thc scheduled payment date. CONFIRMATION OF RECEIPT OF PREMIUM Financial Guaranty 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 the FGIC Closing Coordinator. Upon confirmation of the premium payment and satisfaction of the other conditions set forth in the commitment letter, Financial Guaranty will release the Policy. REQUESTS FOR FURTHER INFORMATION OR ALTERNATIVE PAYMENT ARRANGEMENTS Requests for additional information regarding the procedures described above or as to the acceptability of alternate payment procedures should be directed to the FGIC Closing Coordinator at least two business days prior to the closing date. Page 1 EXHIBIT G DESCRIPTION OF REFUNDED OBLIGATIONS Redemption Redemption Name Maturities Amount Price Date Brazoria County MUD No. 5 9/1/2006 $ 100,000 100% 6/9/2006 Unlimited Tax Bonds, 9/1/2007 110,000 100 6/9/2006 Series 1995 9/1/2008 115,000 100 6/9/2006 9/1/2009 125,000 100 6/9/2006 9/1/2010 135,000 100 6/9/2006 9/1/2011 145,000 100 6/9/2006 9/1/2012 155,000 100 6/9/2006 9/1/2013 165,000 100 6/9/2006 9/1/2014 175,000 100 6/9/2006 9/1/2015 190,000 100 6/9/2006 Total $1,415,000 Brazoria County MUD No. 5 9/1/2006 $ 85,000 100% (escrowed to maturity) Unlimited Tax Bonds, 9/1/2007 90,000 100 9/1/2006 Series 1998 9/1/2008 95,000 100 9/1/2006 9/1/2009 100,000 100 9/1/2006 9/1/2010 105,000 100 9/1/2006 9/1/2011 115,000 100 9/1/2006 9/1/2012 125,000 100 9/1/2006 9/1/2013 245,000 100 9/1/2006 9/1/2014 260,000 100 9/1/2006 9/1/2015 275,000 100 9/1/2006 Total $1,495,000 Brazoria County MUD No. 5 3/1/2007 $ 450,000 100% 9/1/2006 Unlimited Tax Refunding 3/1/2008 475,000 100 9/1/2006 Bonds, Series 1998-A 3/1/2009 495,000 100 9/1/2006 3/1/2010 520,000 100 9/1/2006 3/1/2011 540,000 100 9/1/2006 3/1/2012 565,000 100 9/1/2006 Total $3,045,000 Brazoria County MUD No. 5 9/1/2006 $ 75,000* 100% (escrowed to maturity) Unlimited Tax Bonds, 9/1/2008 165,000* 100 9/1/2006 Series 1999 9/1/2010 180,000* 100 9/1/2006 9/1/2012 190,000* 100 9/1/2006 9/1/2013 420,000 100 9/1/2006 9/1/2014 445,000 100 9/1/2006 9/1/2015 460,000 100 9/1/2006 Total $1 935 000 Term Bond HOU:2570169.5 EXHIBIT H ESCROW AGREEMENT See Tab 3 HOU:2570169.5 r I CITY OF PEARLAND, TEXAS T r $32,165,000 PERMANENT IMPROVEMENT AND REFUNDING BONDS SERIES 2006 r r r 1 rTRANSCRIPT OF PROCEEDINGS VOL I of II r I I r Andrews Kurth LLP r 600 Travis,Suite 4200 Houston,Texas 77002 (713)220-4200 I' r I rHOU:2585006.1 a CITY OF PEARLAND, TEXAS PERMANENT IMPROVEMENT AND REFUNDING BONDS SERIES 2006 INDEX OF CONTENTS Closing Memorandum 1 I. BOND PROCEEDINGS AND DOCUMENTS Ordinance Authorizing Issuance of the Bonds 2 Escrow Agreement (with Verification Report) 3 Preliminary Official Statement 4 Official Statement 5 Paying Agent/Registrar Agreement 6 II. CERTIFICATES General Certificate 7 Signature Identification and No-Litigation Certificate 8 Federal Tax Certificate 9 Form 8038G 10 Official Statement Certificate 11 15c2-12 Certificate 12 Closing Certificate of Bond Insurer 13 III. OPINIONS Approving Opinion of Bond Counsel 14 r. HOU:2573913.1 Opinion of Attorney General of Texas with 15 Certificate of Comptroller of Public Accounts Opinion of Counsel to the Bond Insurer 16 Reliance Letter 17 IV. MISCELLANEOUS Receipt and Cross-Receipt 18 Registrar's Receipt 19 Escrow Agents Receipt 20 Winning Bid 21 Notices of Redemption (with Acknowledgement of Receipt) 22 Resolutions Authorizing Issuance of Refunded Obligations 23 Certificate of Paying Agent for Refunded Obligations 24 Rating Letters 25 Insurance Policy 26 Bond Review Board Questionnaire 27 Specimen Bond 28 2 HOU2573913.I RBC John H.Robuck Capital Associate Public Finance RBC Markets Phone(713)651-3340 Fax(713)651-3347 June 5,2006 Ms.Deri Ward Wells Fargo Bank,N.A. Corporate Trust Services 1000 Louisiana Street, Suite 640 Houston,Texas 77002 Re: $32,165,000 City of Pearland,Texas Permanent Improvement and Refunding Bonds,Series 2006 Dear Deri: The delivery of the above captioned bonds(the"Bonds")is scheduled for Thursday,June 8,2006,at 10:00 A.M.at your bank. Mr.Marcus Deitz of Andrews Kurth LLP,Houston,Texas,Bond Counsel,will handle all legal matters relating to the closing. Andrews Kurth will provide the Good Faith Check at closing. The Good Faith Check is to be endorsed by the City and returned to Citigroup Global Markets Inc. via overnight courier. Prior to closing, Citigroup Global Markets Inc. ("Citigroup") will make arrangements to pay the insurance premium of$150,900.00 to Financial Guaranty Insurance Company("FGIC")as follows: JPMorgan Chase Bank ABA Routing Number: 021 000 021 Account Number: 904951812 For Credit to: Financial Guaranty Insurance Company Premium Account Policy Number: 06010220 .. Attn.: Stephanie Cain(212)312-3230 ***Include Policy Number on Wire*** At or prior to closing,Citigroup will wire$32,287,424.19 in immediately available funds calculated as follows: Principal Amount of the Bonds $32,165,000.00 Plus: Premium 92,573.20 Plus: Accrued Interest 29,850.99 Total Amount to be Wired $32,287,424.19 Ms. Deri Ward June 5,2006 Page 2 Citigroup will wire the aforementioned sum of$32,287,424.19 to Wells Fargo Bank("WFB")as follows: Wells Fargo Bank ABA Routing Number: 121000248 Account Number: 0001038377 For further credit to 99990909 Re: The City of Pearland Attn: Deri Ward(713)319-1658 WFB will disburse the total amount of$32,287,424.19 as follows: 1. $8,001,622.54 shall be used by WFB to for the payment of the refunded bonds. Of such sum, $4,522,569.60 " shall be used to defease a portion of the refunded bonds on June 9, 2006, $3,479,051.00 shall be deposited in the Escrow Fund established under the Escrow Agreement for the purchase of United States Treasury Securities - State and Local Government Series United States Treasury Obligations("SLGs")and$1.94 shall be deposited in the Escrow Fund as the beginning fund balance; 2. $24,254,950.66 (representing $24,090,000.00 in project fund proceeds and $164,950.66 in issuance costs on the Bonds)shall be wired to the City's depository account as follows: Wells Fargo Bank,N.A. ABA Routing Number: 121000248 Account Number: 2010419595 For further credit: City of Pearland Attn: Tim Kreitzer 3. $29,850.99 representing accrued interest shall be wired to the City's Debt Service Fund,as follows: Wells Fargo Bank,N.A. ABA Routing Number: 121000248 Account Number: 2010419505 For further credit: City of Pearland Attn: Tim Kreitzer 4. $1,000.00 shall be withdrawn by WFB from the proceeds of the Bonds and credit such sum to its account as the Paying Agent Annual Administration Fee and Escrow Agent Fee for the Series 2006 Bonds. Ms. Deri Ward June 5,2006 Page 2 If I may be of further assistance,please do not hesitate to contact me at 713-651-3340. Sincerely, 1/ John H.Robuck Associate a cc: Rick Witte,Andrews Kurth LLP Marcus Deitz,Andrews Kurth LLP Bill Eisen,City of Pearland Claire Manthei,City of Pearland Mary Jo Murphy,Citigroup Global Markets Inc. Stephanie Cain,Financial Guaranty Insurance Company a Frank Ildebrando,RBC Capital Markets Ryan O'Hara,RBC Capital Markets Karen Blogg,RBC Capital Markets a a a a a STATEMENT OF INSURANCE (To be printed on the Bonds) Financial Guaranty Insurance Company("Financial Guaranty")has issued a policy containing the following provisions with respect to the Bonds, such policy being on file at the principal office of [Paying Agent],as paying agent(the"Paying Agent"): Financial Guaranty hereby unconditionally and irrevocably agrees to pay for disbursement to the Bondholders that portion of the principal or accreted value (if applicable) of and interest on the Bonds which is then due for payment and which the issuer of the Bonds (the "Issuer") shall have failed to provide. Due for payment means, with respect to principal or accreted value (if applicable), 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 the payment of principal or accreted value (if applicable) of the Bonds is due by reason of call for redemption (other than mandatory sinking fund redemption), acceleration or other advancement of maturity,and with respect to interest,the stated date for payment of such interest. Upon receipt of telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from a Bondholder or the Paying Agent to Financial Guaranty that the required payment of principal, accreted value or interest(as applicable)has not been made by the Issuer to the Paying Agent,Financial Guaranty on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, or its successor as its agent (the "Fiscal Agent"), sufficient to make the portion of such payment not paid by the Issuer. Upon presentation to the Fiscal Agent of evidence satisfactory to it of the Bondholder's right to receive such payment and any appropriate instruments of assignment required to vest all of such Bondholder's right to such payment in Financial Guaranty, the Fiscal Agent will disburse such amount to the Bondholder. As used herein the term "Bondholder" means the person other than the Issuer or the borrower(s) of bond proceeds who at the time of nonpayment of a Bond is entitled under the terms of such Bond to payment thereof. The policy is non-cancellable for any reason. FINANCIAL GUARANTY INSURANCE COMPANY i Page 1 r r . OFFICIAL STATEMENT DISCLOSURE LANGUAGE BOND INSURANCE Financial Guaranty has supplied the following information for inclusion in this Official Statement. No representation is made by the issuer or the underwriter as to the accuracy or completeness of this information. Payments Under the Policy Concurrently with the issuance of the Bonds,Financial Guaranty Insurance Company ("Financial Guaranty") will issue its Municipal Bond New Issue Insurance Policy for the Bonds (the "Policy"). The Policy unconditionally guarantees the payment of that portion of the principal or r accreted value (if applicable) of and interest on the Bonds which has become due for payment, but shall be unpaid by reason of nonpayment by the issuer of the Bonds (the "Issuer"). Financial Guaranty will make such payments to U.S. Bank Trust National Association, or its successor as ■. its agent (the "Fiscal Agent"), on the later of the date on which such principal, accreted value or interest (as applicable) is due or on the business day next following the day on which Financial Guaranty shall have received notice (in accordance with the terms of the Policy) from an owner of Bonds or the trustee or paying agent(if any)of the nonpayment of such amount by the Issuer. The Fiscal Agent will disburse such amount due on any Bond to its owner upon receipt by the Fiscal Agent of evidence satisfactory to the Fiscal Agent of the owner's right to receive payment of the principal, accreted value or interest (as applicable) due for payment and evidence, including any appropriate instruments of assignment,that all of such owner's rights to payment of such principal, accreted value or interest (as applicable) shall be vested in Financial Guaranty. The term"nonpayment"in respect of a Bond includes any payment of principal,accreted value or interest (as applicable) made to an owner of a Bond which has been recovered from such owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final,nonappealable order of a court having competent jurisdiction. Once issued, the Policy is non-cancellable by Financial Guaranty. The Policy covers failure to pay principal (or accreted value, if applicable) of the Bonds on their stated maturity dates and their mandatory sinking fund redemption dates, and not on any other date on which the Bonds may have been otherwise called for redemption, accelerated or advanced in maturity. The Policy also covers the failure to pay interest on the stated date for its payment. In the event that payment of the Bonds is accelerated, Financial Guaranty will only be obligated to pay principal (or accreted value, if applicable) and interest in the originally scheduled amounts on the originally scheduled payment dates. Upon such payment,Financial Guaranty will become the owner of the Bond, appurtenant coupon or right to payment of principal or interest on such Bond and will be fully subrogated to all of the Bondholder's rights thereunder. rThe Policy does not insure any risk other than Nonpayment by the Issuer, as defined in the Policy. Specifically, the Policy does not cover: (i) payment on acceleration, as a result of a call for redemption (other than mandatory sinking fund redemption) or as a result of any other advancement of maturity; (ii) payment of any redemption, prepayment or acceleration premium; or (iii) nonpayment of principal (or accreted value, if applicable) or interest caused by the insolvency or negligence or any other act or omission of the trustee or paying agent, if any. As a condition of its commitment to insure Bonds, Financial Guaranty may be granted certain rights under the Bond documentation. The specific rights, if any, granted to Financial Guaranty in connection with its insurance of the Bonds may be set forth in the description of the principal Page 1 r MIN legal documents appearing elsewhere in this Official Statement, and reference should be made thereto. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. In the event that Financial Guaranty is unable to fulfill its obligations under the Policy[DSRF Commitments: `Reserve Policy'], the policy holder or bondholder is not protected by an insurance guaranty fund or other solvency protection arrangement. Financial Guaranty Insurance Company MIR Financial Guaranty is a New York stock insurance corporation that writes financial guaranty insurance in respect of public finance and structured finance obligations and other financial obligations, including credit default swaps. Financial Guaranty is licensed to engage in the '■ financial guaranty insurancc business in all 50 states, the District of Columbia, the Commonwealth of Puerto Rico,the U.S.Virgin Islands and the United Kingdom. Financial Guaranty is a direct, wholly owned subsidiary of FGIC Corporation, a Delaware corporation. At March 31, 2006, the principal owners of FGIC Corporation and the approximate percentage of its outstanding common stock owned by each were as follows: The PMI Group, Inc. — 42%; affiliates of the Blackstone Group L.P. — 23%; and affiliates of the Cypress Group L.L.C. —23%. Neither FGIC Corporation nor any of its stockholders or affiliates is obligated to pay any debts of Financial Guaranty or any claims under any insurance policy, including the Policy, issued by Financial Guaranty. Financial Guaranty is subject to the insurance laws and regulations of the State of New York, where Financial Guaranty is domiciled, including New York's comprehensive financial guaranty insurance law. That law, among other things, limits the business of each financial guaranty insurer to financial guaranty insurance (and related lines);.tequires that each financial guaranty insurer maintain a minimum surplus to policyholders; establishes limits on the aggregate net amount of exposure that may be retained in respect of a particular issuer or revenue source (known as single risk limits)and on the aggregate net amount of exposure that may be retained in respect of particular types of risk as compared to the policyholders' surplus (]mown as aggregate risk limits); and establishes contingency, loss and unearned premium reserve requirements. In addition,Financial Guaranty is also subject to the applicable insurance laws and regulations of all other jurisdictions in which it is licensed to transact insurance business. The insurance laws and regulations, as well as the level of supervisory authority that may be exercised by the various insurance regulators, vary by jurisdiction. At March 31, 2006, Financial Guaranty had net admitted assets of approximately $3.603 billion, total liabilities of approximately $2.454 billion, and total capital and policyholders' surplus of approximately $1.149 billion, determined in accordance with statutory accounting practices ("SAP")prescribed or permitted by insurance regulatory authorities. The unaudited consolidated financial statements of Financial Guaranty and subsidiaries, on the basis of U.S. generally accepted accounting principles ("GAAP"), as of March 31, 2006 and the audited consolidated financial statements of Financial Guaranty and subsidiaries, on the basis of GAAP, as of December 31, 2005 and 2004, which have been filed with the Nationally Recognized Municipal Securities Information Repositories("NRMSIRs"),are hereby included by specific reference in this Official Statement. Any statement contained herein under the heading "BOND INSURANCE," or in any documents included by specific reference herein, shall be modified or superseded to the extent required by any statement in any document subsequently Page 2 filed by Financial Guaranty with such NRMSIRs,and shall not be deemed,except as so modified or superseded, to constitute a part of this Official Statement. All financial statements of Financial Guaranty (if any) included in documents filed by Financial Guaranty with the NRMSIRs subsequent to the date of this Official Statement and prior to the termination of the offering of the Bonds shall be deemed to be included by specific reference into this Official Statement and to be 1 a part hereof from the respective dates of filing of such documents. r I I I I I p I p p p I Page 3 I The New York State Insurance Department recognizes only SAP for determining and reporting the financial condition and results of operations of an insurance company, for determining its solvency under the New York Insurance Law, and for determining whether its financial condition warrants the payment of a dividend to its stockholders. Although Financial Guaranty prepares both GAAP and SAP financial statements, no consideration is given by the New York State Insurance Department to financial statements prepared in accordance with GAAP in making such determinations. A discussion of the principal differences between SAP and GAAP is contained in the notes to Financial Guaranty's SAP financial statements. Copies of Financial Guaranty's most recently published GAAP and SAP financial statements are available upon request to: Financial Guaranty Insurance Company, 125 Park Avenue,New York, NY 10017, Attention: Corporate Communications Department. Financial Guaranty's telephone number is(212)312-3000. Financial Guaranty's Credit Ratings The financial strength of Financial Guaranty is rated"AAA"by Standard & Poor's,a Division of The McGraw-Hill Companies, Inc., "Aaa" by Moody's Investors Service, and "AAA" by Fitch Ratings. Each rating of Financial Guaranty should be evaluated independently. The ratings reflect the respective ratings agencies' current assessments of the insurance financial strength of Financial Guaranty. Any further explanation of any rating may be obtained only from the applicable rating agency. These ratings are not recommendations to buy, sell or hold the Bonds, and are subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. Financial Guaranty does not guarantee the market price or investment value of the Bonds nor does it guarantee that the ratings on the Bonds will not be revised or withdrawn. Neither Financial Guaranty nor any of its affiliates accepts any responsibility for the accuracy or completeness of the Official Statement or any information or disclosure that is provided to potential purchasers of the Bonds,or omitted from such disclosure, other than with respect to the accuracy of information with respect to Financial Guaranty or the Policy under the heading "BOND INSURANCE." In addition, Financial Guaranty makes no representation regarding the Bonds or the advisability of investing in the Bonds. Page 4 a FINANCIAL GUARANTY INSURANCE COMPANY a PROCEDURES FOR PAYMENT OF PREMIUM Financial Guaranty's issuance of its Municipal Bond New Issue Insurance Policy(or Debt Service Reserve Fund Policy, as applicable)at closing is contingent upon its receipt of the premium. NO POLICY WILL BE RELEASED UNTIL ORAL CONFIRMATION OF THE FEDERAL RESERVE WIRE REFERENCE NUMBER HAS BEEN PROVIDED. Set forth below are the procedures to be followed for confirming the amount of the premium to be paid and for paying such amount: a Confirmation of Amount to be Upon determination of the final debt service schedule, provide such Paid: schedule to Financial Guaranty, to the attention of the FGIC Closing Coordinator, whose name and telephone number are referenced in commitment letter, and subsequently confirm the amount of the premium with the Closing Coordinator. Payment: Closing Date Method of Payment: Wire Transfer of Federal Funds Wire Transfer Instructions: JPMorgan Chase Bank Routing/Transit No.021000021 Branch and Account No.904951812 For Credit to Financial Guaranty Insurance Company Premium Account FGIC Policy# FGIC Closing Contact: FGIC Closing Coordinator—Stephanie Cain(Phone 212-312-3230; Fax 212-312-3206) Any questions concerning these procedures or any premium payment method other than outlined above should be directed to the attention of the FGIC Closing Coordinator at least two banking days prior to the scheduled payment date. a CONFIRMATION OF RECEIPT OF PREMIUM Financial Guaranty will accept as confirmation of the premium payment a wire transfer number and the a name of the sending bank,to be communicated on the closing date to the FG1C Closing Coordinator. Upon confirmation of the premium payment and satisfaction of the other conditions set forth in the commitment letter,Financial Guaranty will release the Policy. REQUESTS FOR FURTHER INFORMATION OR ALTERNATIVE PAYMENT ARRANGEMENTS a Requests for additional information regarding the procedures described above or as to the acceptability of alternate payment procedures should be directed to the FGIC Closing Coordinator at least two business days prior to the closing date. a Page 1 i a EXHIBIT G DESCRIPTION OF REFUNDED OBLIGATIONS Redemption Redemption Name Maturities Amount Price Date .,,, Brazoria County MUD No. 5 9/1/2006 $ 100,000 100% 6/9/2006 Unlimited Tax Bonds, 9/1/2007 110,000 100 6/9/2006 Series 1995 9/1/2008 115,000 100 6/9/2006 9/1/2009 125,000 100 6/9/2006 9/1/2010 135,000 100 6/9/2006 9/1/2011 145,000 100 6/9/2006 9/1/2012 155,000 100 6/9/2006 9/1/2013 165,000 100 6/9/2006 9/1/2014 175,000 100 6/9/2006 9/1/2015 190.000 100 6/9/2006 Total $1,415,000 a Brazoria County MUD No. 5 9/1/2006 $ 85,000 100% (escrowed to maturity) Unlimited Tax Bonds, 9/1/2007 90,000 100 9/1/2006 a Series 1998 9/1/2008 95,000 100 9/1/2006 9/1/2009 100,000 100 9/1/2006 9/1/2010 105,000 100 9/1/2006 9/1/2011 115,000 100 9/1/2006 9/1/2012 125,000 100 9/1/2006 9/1/2013 245,000 100 9/1/2006 9/1/2014 260,000 100 9/1/2006 9/1/2015 275.000 100 9/1/2006 Total $1,495,000 Brazoria County MUD No. 5 3/1/2007 $ 450,000 100% 9/1/2006 Unlimited Tax Refunding 3/1/2008 475,000 100 9/1/2006 Bonds, Series 1998-A 3/1/2009 495,000 100 9/1/2006 3/1/2010 520,000 100 9/1/2006 a 3/1/2011 540,000 100 9/1/2006 3/1/2012 565.000 100 9/1/2006 Total $3,045,000 Brazoria County MUD No. 5 9/1/2006 $ 75,000* 100% (escrowed to maturity) Unlimited Tax Bonds, 9/1/2008 165,000* 100 9/1/2006 Series 1999 9/1/2010 180,000* 100 9/1/2006 a 9/1/2012 190,000* 100 9/1/2006 9/1/2013 420,000 100 9/1/2006 9/1/2014 445,000 100 9/1/2006 9/1/2015 460.000 100 9/1/2006 a Total $1,935,000 * Term Bond al U. HOU:2570169.5 r EXHIBIT H ESCROW AGREEMENT See Tab 3 f r r HOU:2570169.5 ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Escrow Agreement"), dated for convenience as of May 8, 2006, but effective on the Escrow Funding Date described herein, is made and entered into by and between the CITY OF PEARLAND, TEXAS, a home rule municipality operating under its own charter and duly created, organized and existing under the Constitution and laws of the State of Texas (together with any successor to its duties and functions, the "City"), and WELLS FARGO BANK, N.A., Houston, Texas, as escrow agent (together with any successor or assign in such capacity, the "Escrow Agent"). WITNESSETH: WHEREAS, the City of Pearland, Texas has heretofore annexed and assumed the outstanding bonded indebtedness of Brazoria County Municipal Utility District No. 5 (the "District") WHEREAS, prior to annexation by the City, the District issued certain obligations (hereinafter defined as the "Refunded Obligations"), that the City now desires to refund in advance of their maturities; WHEREAS, Chapter 1207, Texas Government Code (the "Act"), authorizes and empowers the City to sell bonds in an amount sufficient, together with other available funds or resources, to provide for the payment of obligations which are to be discharged, deposit the proceeds of such refunding bonds with an escrow agent and enter into an escrow or similar agreement with such escrow agent for the safekeeping, investment, reinvestment, administration, and disposition of such deposit of proceeds, upon such terms and conditions as the parties may agree, to provide for the scheduled payment of such discharged obligations; WHEREAS, the City Council of the City has adopted an ordinance (the "Refunding Bond Ordinance") authorizing the issuance, sale and delivery of the City's Permanent Improvement and Refunding Bonds, Series 2006 (the "Refunding Bonds"), for the purpose, among other things, of providing the funds necessary to refund the Refunded Obligations; WHEREAS, to provide for the payment of the Refunded Obligations. the City has _ provided for the transfer to the Escrow Agent pursuant to this Escrow Agreement of proceeds of the Refunding Bonds together with any other legally available funds, if any; and WHEREAS, the City Council of the City has further determined to effectuate the refunding of the Refunded Obligations pursuant to this Escrow Agreement, under which provision is made for the safekeeping, investment, reinvestment, administration and disposition _ of proceeds of the Refunding Bonds so as to provide firm banking and financial arrangements for the discharge and final payment of the Refunded Obligations; NOW, THEREFORE, in consideration of the mutual undertakings, promises and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, and in order to secure the full and timely rie HOU:2573855.2 r payment of the principal of and interest on the Refunded Obligations, the City and the Escrow Agent contract and agree as follows: r ARTICLE I. DEFINITIONS AND INTERPRETATIONS Section 1.1. Definitions. Unless otherwise expressly provided or unless the context clearly requires otherwise, the following terms shall have the respective meanings specified below for all purposes of this Escrow Agreement: r "Code" shall mean the Internal Revenue Code of 1986, as amended, and the applicable regulations thereunder and under the Internal Revenue Code of 1954. "City"shall mean the City of Pearland,Texas and,where appropriate, its City Council. PP "District" shall mean Brazoria County Municipal Utility District No. 5. "Escrow Agent" shall mean Wells Fargo Bank, N.A., Houston, Texas, in its capacity as escrow agent hereunder, and any successor or assign in such capacity. "Escrow Agreement"shall mean this escrow agreement. "Escrow Deposit" shall mean the initial deposit into the Escrow Fund, as more particularly described in Section 2.1. "Escrow Fund" shall mean the fund created in Section 3.1 of this Escrow Agreement to be administered by the Escrow Agent pursuant to the provisions of this Escrow Agreement. "Escrow Funding Date" shall mean the date on which the City deposits with the Escrow Agent the Escrow Deposit described in Section 2.1, which date shall be no later than June 8, 2006. "Escrowed Securities" shall mean the Limited Yield Securities and the Open Market Securities. "Limited Yield Securities" shall mean the noncallable United States Treasury Obligations-State and Local Government Series to be initially purchased with proceeds of the Refunding Bonds, as more fully described in the Report attached hereto, together with all reinvestments of the proceeds thereof as may be directed in Section 4.2 or permitted in Section r 4.3(b). "Open Market Securities" shall mean the United States Treasury securities to be purchased in the open market with cash and the proceeds of the Refunding Bonds. as more fully described in the Report attached hereto, together with all reinvestments of the proceeds thereof as may be directed in Section 4.2 or permitted in Section 4.3(b), or cash or obligations substituted therefor pursuant to Section 4.3(a). f 2 HOU2573855.2 r "Paying Agent for the Refunded Obligations" shall mean, JPMorgan Chase Bank. National Association, Dallas, Texas, as successor in interest to Texas Commerce Bank National Association and Chase Bank of Texas National Association. "Refunded Bond Ordinances" shall mean the City's resolutions and ordinances, as the case may be,authorizing the issuance, sale and delivery of the Refunded Obligations. "Refunded Obligations" shall mean the District's outstanding obligations assumed by the City and listed on Schedule I hereto. "Refunding Bonds" shall mean the City's Permanent Improvement and Refunding Bonds, Series 2006, dated June 1,2006. "Report" shall mean the verification report prepared by Grant Thornton LLP, independent certified public accountants, relating to the advance refunding of the Refunded Obligations, a copy of which is attached hereto as Exhibit A, and any subsequent verification report required by Section 4.3. Section 1.2. Interpretations. The titles and headings of the articles and sections of this Escrow Agreement have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict the terms hereof. This Escrow Agreement and all of the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to achieve the intended purpose of providing for the refunding of the Refunded Obligations in accordance with applicable law. ARTICLE II. DEPOSIT OF FUNDS AND ESCROWED SECURITIES Section 2.1. Deposits to Escrow Fund. On the Escrow Funding Date, the City shall deposit, or cause to be deposited, into the Escrow Fund the Escrow Deposit, consisting of the following: (a) As the beginning cash balance for the Escrow Fund as shown in the Report, $4,522,571.54 from proceeds of the Refunding Bonds plus $0.00 from the interest and sinking funds for the Refunded Obligations; (b) the initial Limited Yield Securities, with a purchase price of$3,479.051.00: and (c) the initial Open Market Securities with a purchase price of$0.00. r r_ r 3 HOU.2573855.2 r ARTICLE III. CREATION AND OPERATION OF ESCROW FUND Section 3.1. Escrow Fund. On the Escrow Funding Date, the Escrow Agent will create in its books a special fund and irrevocable escrow to be known as the "City of Pearland. Texas Permanent Improvement and Refunding Bonds, Series 2006, Escrow Fund' (the "Escrow Fund"). On the Escrow Funding Date, the Escrow Deposit described in Section 2.1 will be r deposited to the credit of the Escrow Fund. The Escrow Deposit and all proceeds therefrom shall be the property of the Escrow Fund and shall be applied only in strict conformity with the terms and conditions hereof. All Escrowed Securities, all proceeds therefrom and all cash balances from time to time on deposit in the Escrow Fund are hereby irrevocably pledged to the payment of the principal of, redemption premium, if any, and interest on the Refunded Obligations, which payment shall be made by timely transfers to the Paying Agents for the Refunded Obligations of such amounts at such times as are provided in Section 3.2. When the final transfers have been made to the Paying Agents for the Refunded Obligations for the payment of such principal of. redemption premium, if any, and interest on the Refunded Obligations, any balance then remaining in the Escrow Fund shall be transferred to the City, and the Escrow Agent shall thereupon be discharged from any further duties hereunder. Section 3.2. Payment of Principal, Redemption Premium, if any. and Interest; Redemption of Certain Refunded Obligations. (a) The Escrow Agent is hereby irrevocably instructed to transfer to the Paying Agents for the Refunded Obligations from the cash balance from time to time on deposit in the Escrow Fund the amounts required to pay the principal of. redemption premium, if any, and interest on the Refunded Obligations in the amounts and at the times shown in the Report; provided, however, that funds transferred to the Escrow Fund from the interest and sinking funds for the Refunded Obligations, if any. and all investment earnings thereon be used for the payment of the principal of, redemption premium, if any, and interest on the Refunded Obligations prior to the use of proceeds of the Refunding Bonds for such purpose. (b) Except for amounts transferred to the Paying Agents for the Refunded Obligations pursuant to Section 3.2(a) and to the City pursuant to Section 4.2,the Escrow Agent agrees that it shall never make any withdrawals from the Escrow Fund or assert any claims, liens or charges against the Escrow Fund. Section 3.3. Sufficiency of Escrow Fund. The City represents (based upon the Report) that the successive receipts of the principal of and interest on the Escrowed Securities will assure that the cash balance on deposit from time to time in the Escrow Fund will be at all times sufficient to provide money for transfer to the Paying Agents for the Refunded Obligations at the times and in the amounts required to pay the interest on the Refunded Obligations as such interest comes due and to pay the principal of, redemption premium, if any, and interest on the Refunded Obligations as the Refunded Obligations mature or are called for redemption, all is more fully set forth in the Report. If, for any reason, at any time,the cash balances on deposit or scheduled to be on deposit in the Escrow Fund shall be insufficient to transfer the amounts required by the Paying Agents for the Refunded Obligations to make the payments set forth in Section 3.2, the City shall timely deposit into the Escrow Fund, from lawfully available funds. additional funds in the amounts required to make such payments. Notice of any such 4 HOU:2573855.2 r rinsufficiency shall be given promptly by the Escrow Agent to the City as hereinafter provided. but the Escrow Agent shall not in any manner be responsible for any insufficiency of funds in the Escrow Fund or the City's failure to make additional deposits thereto. Section 3.4. Trust Fund. The Escrow Agent at all times shall hold the Escrow Fund, the Escrowed Securities and all other assets of the Escrow Fund wholly segregated from all other funds and securities on deposit with the Escrow Agent; it shall never allow the Escrowed Securities or any other assets of the Escrow Fund to be commingled with any other funds or securities of the Escrow Agent; and it shall hold and dispose of the assets of the Escrow Fund only as set forth herein. The Escrowed Securities and other assets of the Escrow Fund always shall be maintained by the Escrow Agent for the benefit of the holders of the Refunded Obligations; and a special account evidencing such fact shall be maintained at all times on the books of the Escrow Agent. The holders of the Refunded Obligations shall be entitled to the same preferred claim and first lien upon the Escrowed Securities, the proceeds thereof and all other assets of the Escrow Fund to which they are entitled as holders of the Refunded Obligations. The amounts received by the Escrow Agent under this Escrow Agreement shall not be considered as a banking deposit by the City, and the Escrow Agent shall have no right or title with respect thereto except as escrow agent under the terms hereof. The amounts received by the Escrow Agent hereunder shall not be subject to warrants, drafts or checks drawn by the City or. except to the extent expressly herein provided, by the Paying Agents for the Refunded Obligations. Section 3.5. Security for Cash Balances. Cash balances from time to time on deposit in the Escrow Fund, to the extent not insured by the Federal Deposit Insurance Corporation or its successor, shall be continuously secured by a pledge of direct obligations of, or obligations unconditionally guaranteed by, the United States of America, having a market value at least equal to such cash balances. Section 3.6 Grant of Security Interest. In order to secure payment when due of the principal of and interest on the Refunded Obligations, the City hereby pledges and grants to the Escrow Agent, for the account of the holders or owners of the Refunded Obligations and of any appurtenant coupons, a security interest in all of its right, title, and interest, if any, in and to all funds held hereunder and all investments thereof and agrees that the Escrow Agent shall have and may exercise all of the rights of a secured party granted by the Texas Uniform Commercial Code in respect thereof to the same extent as if such Code applied to such security interest. ARTICLE IV. LIMITATION ON INVESTMENTS Section 4.1. General. Except as herein otherwise expressly provided, the Escrow Agent shall not have any power or duty to invest any money held hereunder, to make substitutions of the Escrowed Securities or to sell,transfer or otherwise dispose of the Escrowed Securities. Section 4.2. Reinvestment of Proceeds of Open Market Securities. The Escrow Agent is hereby authorized and directed to reinvest proceeds of the Open Market Securities, if any, which 5 HOU:2573855.2 r are attributable to amounts received as principal of or interest on the Open Market Securities and which are not immediately needed to pay the Refunded Obligations in direct obligations of the United States of America, i.e., United States Treasury Bonds, Bills and Notes, in the amounts. and maturing and bearing interest, all as set out in the Report. The City hereby designates and appoints the Escrow Agent as its agent and duly authorized representative for purposes of subscribing for and purchasing such obligations, all of which shall constitute Escrowed Securities. Any income or increment earned from such reinvestment remaining after final payment of the Refunded Obligations, shall be promptly transferred to the City. Section 4.3. Substitution of Securities. (a) Concurrently with the sale and delivery of the Refunding Bonds, the City may, upon compliance with the conditions stated in subsection (c) of this Section 4.3, at its option, substitute cash or non-interest bearing obligations of the United States Treasury (i.e., Treasury obligations which mature and are payable in a stated amount on the maturity date thereof and for which there are no payments other than the payment made on the maturity date) for non-interest bearing Open Market Securities listed in the Report. but only if such cash and/or substituted non-interest bearing direct obligations of the United States Treasury: (i) are in an amount, and/or mature in an amount, which, together with any cash substituted for such obligations, is equal to or greater than the amount payable on the maturity date of the obligation listed in the Report for which such obligation is substituted, and (ii) mature on or before the maturity date of the obligation listed in the Report for which such obligation is substituted. The City may at any time substitute any Open Market Securities which, as permitted by the preceding sentence, were not deposited to the credit of the•Escrow Fund, for the cash and/or obligations that were substituted concurrently with the sale and delivery of the Refunding Bonds for such Open Market Securities. (b) At the written request of the City, and upon compliance with the conditions hereinafter stated in subsection (c) of this Section 4.3, the Escrow Agent shall sell. transfer. otherwise dispose of or request the redemption of all or any portion of the Escrowed Securities and apply the proceeds therefrom to purchase Refunded Obligations or direct obligations of. or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America which do not permit the redemption thereof at the option of the obligor. (c) Any such transaction described in subsections (a) and (b) of this Section 4.3 may be affected by the Escrow Agent only if (1) the Escrow Agent shall have received a written opinion from a recognized firm of certified public accountants that such transaction will not cause the amount of money and securities in the Escrow Fund to be reduced below an amount which will be sufficient, when added to the interest to accrue thereon, to provide for the payment of principal of, redemption premium, if any, and interest on the remaining Refunded Obligations r as they become due, and (2) the Escrow Agent shall have received the unqualified written legal opinion of nationally recognized bond counsel or tax counsel acceptable to the City and the Escrow Agent to the effect that (a) such transaction will not cause any of the Refunded 6 HOU:2573855.2 Obligations or Refunding Bonds to be an `'arbitrage bond" within the meaning of the Code and (b) that such transaction complies with the Constitution and laws of the State of Texas and with all relevant documents relating to the issuance of the Refunded Obligations and the Refunding Bonds. Section 4.4. Arbitrage. The City hereby covenants and agrees that it shall never request the Escrow Agent to exercise any power hereunder or permit any part of the money in the Escrow Fund or proceeds from the sale of Escrowed Securities to be used directly or indirectly to acquire any securities or obligations if the exercise of such power or the acquisition of such securities or obligations would cause any Refunding Bonds to be an "arbitrage bond" within the meaning of the Code. ARTICLE V. RECORDS AND REPORTS �- Section 5.1. Records. The Escrow Agent shall keep books of record and account in which complete and correct entries shall be made of all transactions relating to the receipt. disbursement. allocation and application of the money and Escrowed Securities deposited to the Escrow Fund and all proceeds thereof, and such books shall be available for inspection at reasonable hours and under reasonable conditions by the City and the holders of the Refunded Obligations. Section 5.2. Reports. For the period beginning on the Escrow Funding Date and ending on August 31, 2006, and for each twelve (12) month period thereafter while this Agreement remains in effect, the Escrow Agent shall prepare and send to the City within thirty (30) days following the end of such period a written report summarizing all transactions relating to the Escrow Fund during such period, including, without limitation, credits to the Escrow Fund as a result of interest payments on or maturities of the Escrowed Securities and transfers from the Escrow Fund to the Paying Agents for the Refunded Obligations or otherwise, together with a detailed statement of all Escrowed Securities and the cash balance on deposit in the Escrow Fund as of the end of such period. ARTICLE VI. CONCERNING THE ESCROW AGENT Section 6.1. Representations of Escrow Agent. Wells Fargo Bank. N.A.. Houston. Texas hereby represents that it has all necessary power and authority to enter into this Escrok‘ Agreement and undertake the obligations and responsibilities imposed upon it herein and that it will carry out all of its obligations hereunder. Section 6.2. Limitation on Liability. The liability of the Escrow Agent to transfer funds to the Paying Agents for the Refunded Obligations for the payments of the principal of redemption premium, if any, and interest on the Refunded Obligations shall be limited to the 7 HOU2573855 2 proceeds of the Escrowed Securities and the cash balances from time to time on deposit in the Escrow Fund. Notwithstanding any provision contained herein to the contrary, the Escrow Agent shall have no liability whatsoever for the insufficiency of funds from time to time in the Escrow Fund or any failure of the obligor of the Escrowed Securities to make timely payment thereon, except for its obligation to notify the City promptly of any such occurrence. a The recitals herein and in the proceedings authorizing the Refunding Bonds shall be taken as the statements of the City and shall not be considered as made by, or imposing any — obligation or liability upon, the Escrow Agent. The Escrow Agent is not a party to the Refunding Bond Ordinance or the Refunded Bond Ordinances and in its capacity as Escrow Agent is not responsible for or bound by any of the provisions thereof. In its capacity as Escrow Agent, it is agreed that the Escrow Agent need look only to the terms and provisions of this Escrow Agreement. The Escrow Agent makes no representation as to the value, condition or sufficiency of the Escrow Fund, or any part thereof, or as to the title of the City thereto, or as to the security afforded thereby or hereby, and the Escrow Agent shall incur no liability or responsibility with respect to any of such matters. It is the intention of the City and the Escrow Agent that the Escrow Agent shall never be required to use or advance its own funds or otherwise incur personal financial liability in the performance of any of its duties or the exercise of any of its rights and powers hereunder. The Escrow Agent shall not be liable for the performance of any duties, except such duties as are specifically set forth in this Escrow Agreement, and no implied covenants or obligations shall be read into this Escrow Agreement. Nothing herein contained shall relieve the Escrow Agent from liability for its own negligent action, negligent failure to act or willful misconduct, except that this sentence shall not be construed to limit the effect of the immediately preceding sentence. The Escrow Agent shall not incur any liability for any error of judgment made in good faith by a responsible officer thereof, unless it shall be proved that it was negligent in ascertaining the pertinent facts. The Escrow Agent shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bond or other paper or document believed by it to be genuine, and to have been signed or presented by the proper party or parties. The Escrow Agent may consult with counsel, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it in good faith and in accordance therewith. Unless it is specifically provided otherwise herein, the Escrow Agent has no duty to determine or inquire into the happening or occurrence of any event or contingency or the performance or failure of performance of the City with respect to arrangements or contracts with others, with the Escrow Agent's sole duty hereunder being to safeguard the Escrow Fund and to — dispose of and deliver the same in accordance with this Escrow Agreement. If, however, the Escrow Agent is called upon by the terms of this Escrow Agreement to determine the occurrence of any event or contingency, the Escrow Agent shall be obligated, in making such determination. only to exercise reasonable care and diligence, and in the event of error in making such determination the Escrow Agent shall be liable only for its own misconduct or its negligence. In — determining the occurrence of any such event or contingency the Escrow Agent may request 8 HOU:2573855.2 r from the City or any other person such reasonable additional evidence as the Escrow Agent in its discretion may deem necessary to determine any fact relating to the occurrence of such event or contingency, and in this connection may make inquiries of, and consult with the City. among others, at any time. The Escrow Agent shall not be liable for any action taken or neglected to be taken by it in good faith in the exercise of reasonable care and believed by it to be within the discretion or power conferred upon it by this Escrow Agreement, nor shall the Escrow Agent be responsible for the consequences of any error of judgment; and the Escrow Agent shall not be answerable except for its own neglect or default, nor for any loss unless the same shall have been through its negligence or want of good faith. In the absence of bad faith, the Escrow Agent may rely conclusively upon the truth. completeness and accuracy of the statements, certificates, opinions, resolutions and other documents conforming to the requirements of this Escrow Agreement, and shall not be obligated to make any independent investigation with respect thereto. T To the full extent permitted by law, the parties agree to indemnify, defend and hold the Escrow Agent harmless from and against any and all loss, damage,tax, liability and expense that may be incurred by the Escrow Agent arising out of or in connection with its acceptance or C appointment as Escrow Agent hereunder, including attorneys fees and expenses of defending itself against any claim or liability in connection with its performance hereunder except that the Escrow Agent shall not be indemnified for any loss, damage, tax, liability, or expense resulting from its own negligence or willful misconduct. Section 6.3. Compensation. On the Escrow Funding Date, the City will pay Wells Fargo Bank, N.A., Houston, Texas, for performing its services as Escrow Agent hereunder and for all expenses incurred or to be incurred by the Escrow Agent in the administration of this Escrow Agreement, the fees set out in Exhibit B. If the Escrow Agent is requested to perform any extraordinary services hereunder, the City hereby agrees to pay reasonable fees to the Escrow Agent for such extraordinary services and to reimburse the Escrow Agent for all expenses incurred by the Escrow Agent in performing such extraordinary services. It is expressly provided that the Escrow Agent shall look only to the City for the payment of such additional fees and reimbursement of such additional expenses. The Escrow Agent hereby agrees that in no event shall it ever assert any claim or lien against the Escrow Fund for any fees for its services, whether regular, additional or extraordinary, as Escrow Agent, or in any other capacity. or for reimbursement for any of its expenses. Section 6.4. Successor Escrow Agents. If at any time the Escrow Agent or its legal successor or successors should become unable, through operation of law or otherwise, to act as escrow agent hereunder, or if its property and affairs shall be taken under the control of any state or federal court or administrative body because of insolvency or bankruptcy or for any other Freason, a vacancy shall forthwith exist in the office of Escrow Agent hereunder. In such event the City, by appropriate action, shall promptly appoint an Escrow Agent to fill such vacancy. If no successor Escrow Agent shall have been appointed by the City within 60 days, a successor may be appointed by the holders of a majority in aggregate principal amount of the Refunded Obligations then outstanding by an instrument or instruments in writing filed with the City. signed by such holders or by their duly authorized attorneys. If, in a proper case, no appointment 9 CHou:2573855 2 of a successor Escrow Agent shall be made pursuant to the foregoing provisions of this section within three months after a vacancy shall have occurred, the holder of any Refunded Bond then out-standing may apply to any court of competent jurisdiction to appoint a successor Escrow Agent. Such court may thereupon, after such notice, if any, as it may deem proper. prescribe and appoint a successor Escrow Agent. Any successor Escrow Agent shall be qualified to act in such capacity under Chapter 1207, Texas Government Code, as amended, and shall be a corporation organized and doing business under the laws of the United States or the State of Texas, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least S50.000.000 and subject to supervision or examination by federal or state authority. a Any successor Escrow Agent shall execute, acknowledge and deliver to the City and the Escrow Agent an instrument accepting such appointment hereunder, and the Escrow Agent shall a execute and deliver an instrument transferring to such successor Escrow Agent. subject to the terms of this Agreement, all the rights, powers and trusts of the Escrow Agent hereunder. Upon the request of any such successor Escrow Agent,the City shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor Escrow Agent all such rights, powers and duties. The Escrow Agent shall pay over to its successor Escrow Agent a proportional part of the Escrow Agent's fee paid hereunder. i The Escrow Agent at the time acting hereunder may at any time resign and be discharged from the escrow hereby created by giving not less than sixty (60) days' written notice to the City specifying the date when such resignation will take effect. No such resignation shall take effect unless a successor Escrow Agent shall have been appointed by the holders of the Refunded Obligations or by the City as herein provided and such successor Escrow Agent shall have accepted such appointment, in which event such resignation shall take effect immediately upon the appointment and acceptance of a successor Escrow Agent: The Escrow Agent may be removed at any time by an instrument or concurrent instruments in writing delivered to the Escrow Agent and to the City and signed by the holders of a majority in aggregate principal amount of the Refunded Obligations then outstanding. ARTICLE VII. MISCELLANEOUS Section 7.1. Notices. Any notice, authorization, request or demand required or permitted to be given hereunder shall be made or given in writing and shall be deemed to have been duly given when mailed by registered or certified mail, postage prepaid, addressed as follows: 10 HOU:2573855.2 To the Escrow Agent: Wells Fargo Bank. N.A. T5001-061 MAC 1000 Louisiana Houston, Texas 77002 Attn: Corporate Trust Department •• To the City: City of Pearland. Texas 3519 Liberty Drive Pearland, Texas 77581 Attention: City Manager The United States Post Office registered or certified mail receipt showing delivery of the aforesaid shall be conclusive evidence of the date and fact of delivery. Either party hereto may. change the address to which notices are to be delivered by giving to the other party not less than ten days' prior written notice thereof. Section 7.2. Termination of Responsibilities. Upon the taking by the Escrow Agent of all the actions as described herein, the Escrow Agent shall have no further obligations or responsibilities hereunder to the City, the holders of the Refunded Obligations or to any other person or persons in connection with this Escrow Agreement. Section 7.3. Binding Agreement: Amendment. This Escrow Agreement shall be binding upon the City and the Escrow Agent and their respective successors and legal representatives and shall inure solely to the benefit of the holders of the Refunded Obligations, the City, the Escrow Agent and their respective successors and legal representatives. This Escrow Agreement shall not be subject to amendment without the written consent of the holders of all Refunded Obligations then outstanding. Section 7.4. Severability. If any one or more of the provisions contained in this Escrow Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Escrow Agreement, but this Escrow Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. Section 7.5. Governing Law. This Escrow Agreement shall be governed exclusively by the provisions hereof and by the applicable laws of the State of Texas. Section 7.6. Time of Essence. Time shall be of the essence in the performance of obligations from time to time imposed upon the Escrow Agent by this Escrow Agreement. [signature page follows] 11 HOU:2573855.2 r rEXECUTED as of the date first written above,but effective as set forth herein. CITY OF PEARLAND, TEXAS By: k-4-9 Tom Reid Mayor ATTEST: gL i g ty Se twilit. r � . ( j �i�► %\ WELLS FARGO BANK, N.A. �i ...•�'' ��`�� Houston, Texas By: Name: rTitle: ATTEST: r By: r Name: Title: (SEAL) r r r S_1 HOU:2573855.1 EXECUTED as of the date first written above, but effective as set forth herein. CITY OF PEARLAND, TEXAS By: Tom Reid Mayor ATTEST: Young Lorfing City Secretary .. (SEAL) WELLS FARGO BANK, N.A. Houston, Texas By: ►—�.G..r Name: ;;hristina Faith Title: lice President ATTEST: n By: l J�-"—Q Name: Deirdre H. Ward Title: Vice President F_ak��11UIIIIU/�j�j coPPORq 3 y C) - SEAL: S-i HOU:2573855.I SCHEDULE I SCHEDULE OF REFUNDED OBLIGATIONS Redemption Redemption Name Maturities Amount Price Date Brazoria County MUD No. 5 9/1/2006 $ 100,000 100% 6/9/2006 Unlimited Tax Bonds. 9/1/2007 110,000 100 6/9/2006 Series 1995 9/1/2008 115,000 100 6'9'2006 9/1/2009 125,000 100 6 9 2006 9/1/2010 135,000 100 6/9/2006 9/1/2011 145,000 100 6/9/2006 9/1/2012 155,000 100 6/9/2006 9/1/2013 165,000 100 6/9/2006 9/1/2014 175,000 100 6/9/2006 9/1/2015 190.000 100 6/9/2006 Total $1,415,000 Brazoria County MUD No. 5 9/1/2006 $ 85,000 100% (escrowed to maturity) Unlimited Tax Bonds, 9/1/2007 90,000 100 9/1/2006 Series 1998 9/1/2008 95,000 100 9/1/2006 9/1/2009 100,000 100 9/1/2006 9/1/2010 105,000 100 9/1/2006 9/1/2011 115,000 100 9/1/2006 I. 9/1/2012 125,000 100 9/1/2006 9/1/2013 245,000 100 9/1/2006 9/1/2014 260,000 100 9/1/2006 r 9/1/2015 275.000 100 9/1i2006 Total $1,495,000 r Brazoria County MUD No. 5 3!1/2007 $ 450,000 100% 9/1/2006 Unlimited Tax Refunding 3/1/2008 475,000 100 9/1/2006 Bonds,Series 1998-A 3/1/2009 495,000 100 9/1/2006 3/1/2010 520,000 100 9/1/2006 r 3/1/2011 540,000 100 9/1/2006 3/1/2012 565.000 100 9/1/2006 Total $3,045,000 Brazoria County MUD No. 5 9/1/2006 $ 75,000* 100% (escrowed to maturity) Unlimited Tax Bonds. 9/1/2008 165,000* 100 9/1/2006 _ Series 1999 9/1/2010 180,000* 100 9/1/2006 9/1/2012 190,000* 100 9/1/2006 9/1/2013 420,000 100 9/1/2006 9/1/2014 445,000 100 9/1/2006 9/1/2015 460.000 100 9/1/2006 Total $1,935,000 * Term Bond r r rHOU:2573855.2 E1$11 A VE�FiC p A1%O1S OgT I t t It 13,0 1Y2513855:1 I ' icat\on WOO. d �e\d \l enfi Cash F\o an pearkand eras of c�tY June 8, 2006 INDEX Letter Exhibit A Schedule of Sources and Uses of Funds Exhibit B Escrow Account Cash Flow Exhibit B-1 Cash Receipt From the SLGS Exhibit B-2 Debt Service Payment on the 1995 Bonds Exhibit B-3 Debt Service Payment on the 1998 Bonds Exhibit B-4 Debt Service Payment on the 1998-A Bonds Exhibit B-5 Debt Service Payment on the 1999 Bonds Exhibit C Debt Service Payments and Yield on the Bonds Exhibit C-i Net Original Issue Premium on the Bonds Appendix I Applicable schedules provided by RBC Capital Markets ell Report of Independent Certified Public Accountants On Applying Agreed-Upon Procedures City of Pearland 3519 Liberty Drive Pearland,Texas Andrews Kurth LLP 600 Travis Street I-Houston,Texas Wells Fargo Bank, N.A. Texas Attorney General's Office 1000 Louisiana Street, Suite 640 300 West 15'1' Street, Ninth FIoor Houston,Texas Austin,Texas RBC Capital Markets UBS Investment Bank 1001 Fannin Street,Suite 400 1000 Main Street,Suite 2825 Houston,Texas Houston,Texas .► $32,165,000 City of Pearland,Texas (A political subdivision of the State of Texas located within Brazoria and Harris Counties) Permanent Improvement and Refunding Bonds, Series 2006 Dated June 1, 2006 We have performed the procedures described in this report, which were agreed to by the City of Pcarland, Texas (the "City") and RBC Capital Markets (the "Financial Advisor"), to verify the mathematical accuracy of certain computations contained in the schedules attached in Appendix I provided by the Financial Advisor. The Financial Advisor is responsible for these schedules. These procedures were performed solely to assist you in the issuance of the above-captioned bond issue (the "Bonds") for the purpose, in part, of current refunding the Brazoria County Municipal Utility District No. 5's outstanding Unlimited Tax Bonds, Series 1995 (the "1995 Bonds") and Series 1998 (the "1998 Bonds"), Unlimited Tax Refunding Bonds, Series 1998-A (the "1998-A Bonds") and Unlimited Tax Bonds, Series 1999 (the "1999 Bonds") (collectively referred to as the "Refunded MIR Bonds") as summarized on the next page. This engagement was performed in accordance with Statements on Standards for Attestation Engagements established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of the addressees of this report who are the specified parties. Consequently, we make no representation regarding the sufficiency of the procedures described in this report either for the purpose for which this report has been requested or for any other purpose. Page 2 Principal Principal Maturities Redemption Redemption ra Series Issued Dated Refunded Refunded Marc Pnec 9-1-06 to 1995 $2,020,000 November 1,1995 $1,415,000 9-1-15 6-9-06 100% 9-1-06 to 1998 $1,980,000 March 1,1998 $1,495,000 9-1-15 9-1-06 100% 3-1-07 to 1998-A $4,555,000 April 1,1998 $3,045,000 3-1-12 6-9-06 100% 9-1-06,9-1-08 9-1-10,9-1-12 1999 $2,300,000 November 1, 1999 $1,935,000 and 9-1-15 9-1-06 100% VIRIFICATION OF ESCROW ACCOUNT CASH FLOW SUFFICIENCY The Financial Advisor provided us with schedules (Appendix I) summarizing the future escrow account cash receipt and disbursements. These schedules indicate that there will be sufficient cash available in the escrow account to pay the principal and interest on the Refunded Bonds assuming the 1995 Bonds will be redeemed on June 9, 2006 at 100 percent of par plus accrued interest, the 1998 Bonds will be redeemed on September 1,2006 at 100 percent of par plus accrued interest, the 1998-A Bonds will be redeemed on June 9, 2006 at 100 percent of par plus accrued interest and the 1999 Bonds will be redeemed on September 1, 2006 at 100 percent of par plus accrued interest. 11. The attached Exhibit A (Schedule of Sources and Uses of Funds) was compiled based upon information provided by the Financial Advisor. As part of our engagement to recalculate the schedules attached as Appendix I we prepared schedules attached hereto as Exhibits B through B-5 independently calculating the future escrow account cash receipt and disbursements and compared the information used in our calculations to the information listed below contained in applicable pages of the following documents: • Subscription confirmation, dated May 8, 2006, and Schedule of U.S. Treasury Securities provided by the Financial Advisor used to acquire certain United States Treasury Securities - State and Local Government Series (the "SLGS") insofar as the SLGS are described as to the principal amount, interest rate, maturity date and issuance date;and • Resolutions for the Refunded Bonds provided by Andrews Kurth LLP insofar as the Refunded Bonds arc described as to the maturity and interest payment dates, principal amounts, interest rates and optional redemption dates and price. In addition, we compared the interest rate for the maturity of the SLGS, as shown on the Schedule .� of U.S. Treasury Securities, with the maximum allowable interest rate shown on the Department of Treasury, Bureau of Public Debt, SLGS Table (Form PD 4262) for use on May 8, 2006 and found that the interest rate was less than or equal to the maximum allowable interest rate for that maturity. ell Page 3 Our procedures, as summarized in Exhibits B through B-5, prove the mathematical accuracy of the schedules provided by the Financial Advisor summarizing the future escrow account cash receipt and disbursements. The schedules provided by the Financial Advisor and those prepared by us reflect that the anticipated receipt from the SLGS, together with an initial cash deposit of S4,522,571.54 to be deposited into the escrow account on June 8, 2006, will be sufficient to pay, when due, the principal and interest related to the Refunded Bonds assuming the 1995 Bonds will be redeemed on lune 9, 2006 at 100 percent of par plus accrued interest, the 1998 Bonds will be IMO redeemed on September 1, 2006 at 100 percent of par plus accrued interest, the 1998-A Bonds will be redeemed on June 9, 2006 at 100 percent of par plus accrued interest and the 1999 Bonds will be redeemed on September 1,2006 at 100 percent of par plus accrued interest. VERIFICATION OF YIELD The Financial Advisor provided us with schedules (Appendix I) which indicate the yield on the Bonds. These schedules were prepared based on the assumed settlement date of June 8, 2006 using a 360-day year with interest compounded semi-annually. The term "yield", as used herein, means that yield which, when used in computing the present value of all payments of principal and interest to be paid on an obligation produces an amount equal to, in the case of the Bonds, the issue price adjusted for the bond insurance premium of S150,900.00. In addition, we found that the schedules provided by the Financial Advisor, which assume the redemption of the March 1, 2020 through ` March 1, 2026 maturities identified on Exhibits C and C-1 at par on March 1, 2016 plus accrued interest, correctly treat those Bonds as yield-to-call Bonds as retired on the respective dates that for each Bond produces the lowest yield for the issue that includes the Bonds. Those Bonds identified as yield-to-call Bonds on the attached Exhibits C and C-1 are those Bonds that are subject to optional redemption and that are issued at an issue price that exceeds the stated redemption price at maturity of such Bonds by more than one-fourth of one percent multiplied by the product of the stated redemption price at maturity of such Bonds and the number of complete years to the first optional redemption date for the Bonds. We found that there arc no other yield-to-call Bonds other than those identified on the attached Exhibits C and C-1. As part of our engagement to recalculate the schedules attached as Appendix I we prepared a schedule attached hereto as Exhibit C independently calculating the yield on the Bonds using the Official Statement provided by the Financial Advisor insofar as the Bonds are described as to the maturity and interest payment dates, dated date, principal amounts, interest rates, optional redemption date and price, and issue price to the public. The result of our calculations,based on the aforementioned assumptions,is summarized below: Yield Exhibit • Yield on the Bonds 4.712716% Our procedures, as summarized in Exhibit C, prove the mathematical accuracy of the schedules ems provided by the Financial Advisor summarizing the yield. The schedules provided by the Financial Advisor and the schedule prepared by us reflect that the yield on the Bonds is as shown in our report. Page 4 k R * * x * We were not engaged to, and did not, perform an examination in accordance with Statements on Standards for Attestation Engagements established by the American Institute of Certified Public Accountants, the objective of which would be the expression of an examination opinion on the items referred to above. Accordingly we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of those to whom this letter is addressed and is not intended to be and should not be used by anyone other than these specified parties. on, Minneapolis, Minnesota June 8, 2006 um as J:xhihit A City of Pearland,Texas (Brazoria and Harris Counties) SCHEDULE OF SOURCES AND USES OF FUNDS June 8, 2006 Ima SOURCES: Principal amount of the Bonds $32,165,000.00 .. Net original issue premium 349,893.20 Accrued interest 29,850.99 $32,544,744.19 USES: Deposit to Project Fund $24,090,000.00 Purchase price of the SLGS 3,479,051.00 Beginning cash deposit to the escrow account 4,522,571.54 Accrued interest deposit to Debt Service Fund 29,850.99 Bond insurance premium 150,900.00 _ Costs of issuance 161,150.00 Underwriter's discount 106,420.00 Contingency 4,800.66 S32,544,744.19 a F.xhibit B City of Pearland,Texas (Brazoria and Harris Counties) ESCROW ACCOUNT CASH FLOW Debt service payments on Cash receipt Refunded Bonds from SLGS (Exhibits B-2 Cash Dates (Exhibit B-1) through B-5) balance Cash deposit on June 8, 2006 $4,522,571.54 06-09-06 $4,522,569.60 1.94 09-01-06 S3,516,614.69 3,516,615.63 1.00 $3,516,614.69 S8,039,185.23 i a a a a Exhibit B-1 City of Pearland,Texas (Brazoria and Harris Counties) CASH RECEIPT FROM THE SLGS Receipt Interest Cash receipt date Principal rate Interest from SLGS 09-01-06 $3,479,051 (1) $37,563.69 S3,516,614.69 (1) Consists of$3,410,209 at a 4.730%interest rate and S68,842 at a 0.000%interest rate. Exhibit B-2 City of Pearland, Texas (Brazoria and Harris Counties) DEBT SERVICE PAYMENT ON THE 1995 BONDS Interest Debt service Date Principal rate Interest payment 06-09-06 S1,415,000 (1) S23,207.63 S1,438.207.63 M (1) Actual maturity dates,principal amounts and interest rates are as follows: Maturity Principal Interest date amount rate 09-01-06 S100,000 5.600% 09-01-07 110,000 5.700°/o 09-01-08 115,000 5.800% 09-01-09 125,000 6.000% 09-01-10 135,000 6.000% 09-01-11 145,000 6.000% 09-01-12 155,000 6.125% 09-01-13 165,000 6.125% 09-01-14 175,000 6:250% 09-01-15 190,000 6.250% S1,415,000 go tot No low Exhibit B-3 Ell City of Pearland,Texas (Brazoria and Harris Counties) DEBT SERVICE PAYMENT ON THE 1998 BONDS Interest Debt service Date Principal rate Interest payment 09-01-06 S1,495,000 (1) S34,173.75 S1,529,173.75 (1) Actual maturity-dates,principal amounts and interest rates arc as follows: Maturity Principal Interest date amount rate 09-01-06 S85,000 4.450% 09-01-07 90,000 4.500% 09-01-08 95,000 4.600% 09-01-09 100,000 4.500% 09-01-10 105,000 4.500% 09-01-11 115,000 4.600% 09-01-12 125,000 4.600% re 09-01-13 245,000 4.60013.�% 09-01-14 260,000 4.600% 09-01-15 275,000 4.600% S1,495,000 Exhibit I3-4 City of Pearland,Texas (Brazoria and Harris Counties) DEBT SERVICE PAYMENT ON THE 1998-A BONDS Interest Debt service Date Principal rate Interest payment 06-09-06 S3,045,000 (1) S39,361.97 S3,084,361.97 "■ (1) Actual maturity dates,principal amounts and interest rates are as follows: Maturity Principal Interest date amount rate 03-01-07 $450,000 4.600% 03-01-08 475,000 4.700% 03-01-09 495,000 4.700% 03-01-10 520,000 4.750% 03-01-11 540,000 4.800% 03-01-12 565,000 4.900°i% S3,045,000 • a Exhibit B-5 a City of Pearland,Texas (Brazoria and Harris Counties) DEBT SERVICE PAYMENT ON THE 1999 BONDS Interest Debt service Date Principal rate Interest payment 09-01-06 S1,935,000 (1) S52,441.88 S1,987,441.88 (1) Actual maturity dates,principal amounts and interest rates are as follows: Maturity Principal Interest date amount rate 09-01-06 S75,000 5.000% 09-01-08 165,000 5.125°J% 09-01-10 180,000 5.350% 09-01-12 190,000 5.450% 09-01-13 420,000 5.400% 09-01-14 445,000 5.450% 09-01-15 460,000 5.600% S1,935,000 • Exhibit C Page 1 of 2 City of Pcarland,Texas (Brazoria and Harris Counties) DEBT SERVICE PAYMENTS AND YIELD ON THE BONDS Present value on $32,165,000 issue dated tune 1,2006 (1) June 8,2006 Interest Total debt Adjusted using a yield of Date Principal rate Literest service debt service 4.712716% r 03-01-07 S50,000 4.000% S1,151,395.31 $1,201,395.31 S1,201,395.31 S1,161,200.06 09-01-07 766,596.88 766,596.88 766,596.88 723,891.27 _ 03-01-08 50,000 4.000% 766,596.88 816,596.88 816,596.88 753,354.14 09-01-08 765,596.88 765,596.88 765,596.88 690,044.02 03-01-09 50,000 4.000% 765,596.88 815,596.88 815,596.88 718,186.72 09-01-09 764,596.88 764,596.88 764,596.88 657,778.25 No 03-01-10 50,000 4.000% 764,596.88 814,596.88 814,596.88 684,659.92 09-01-10 763,596.8S 763,596.88 763,596.88 627,020.13 03-01-11 320,000 4.000% 763,596.88 1,083,596.88 1,083,596.88 869,301.17 me 09-01-11 757,196.88 757,196.88 757,196.88 593,466.91 03-01-12 385,000 4.000% 757,196.88 1,142,196.88 1,142,196.88 874,608.79 09-01-12 749,496.88 749,496.88 749,496.88 560,696.53 IIII 03-01-13 400,000 4.000% 749,496.88 1,149,496.88 1,149,496.88 840,138.75 09-01-13 741,496.88 741,496.88' 741,496.88 529,465.56 03-01-14 410,000 4.000% 741,496.88 1,151,496.88 1,151,496.88 803,297.35 09-01-14 733,296.88 733,296.88 733,296.88 499,779.66 03-01-15 430,000 4.000% 733,296.88 1,163,296.88 1,163,296.88 774,594.63 09-01-15 724,696.88 724,696.88 724,696.88 471,438.98 .. 03-01-16 445,000 4.125% 724,696.88 1,169,696.88 14,874,696.88 9,453,712.59 09-01-16 715,518.75 715,518.75 372,893.75 231,539.21 03-01-17 460,000 4.250% 715,518.75 1,175,518.75 832,893.75 505,259.19 . 09-01-17 705,743.75 705,743.75 363,118.75 215,208.03 03-01-18 480,000 4.250% 705,743.75 1,185,743.75 843,118.75 488,184.20 09-01-18 695,543.75 695,543.75 352,918.75 199,643.36 .. 03-01-19 1,335,000 4.500% 695,543.75 2,030,543.75 1,687,918.75 932,860.83 09-01-19 665,506.25 665,506.25 322,881.25 174,338.51 03-01-20 1,485,000 5.000°'0 665,506.25 2,150,50625 322,881.25 170,325.04 _ 09-01-20 628,381.25 628,381.25 322,881.25 166,403.97 03-01-21 1,580,000 5.000% 628,381.25 2,208,381.25 322,881.25 162,573.16 09-01-21 588,881.25 588,881.25 322,881.25 158,830.54 03-01-22 1,675,000 5.000% 588,881.25 2,263,881.25 322,881.25 155,174.09 I. 09-01-22 547,006.25 547,006.25 322,881.25 151,601.81 03-01-23 2,150,000 5.000% 547,006 25 2,697,006.25 322,881.25 1-18,111.76 09-01-23 493,256.25 493,256.25 322,881.25 144,702.06 ... 03-01-24 2,150,000 5.000% 493,256.25 2,643,256.25 322,88125 141,370.86 mi i Exhibit C Page 2 of 2 City of Pearland,Texas (Brazoria and Harris Counties) DEBT SERVICE PAYMENTS AND YIELD ON THE BONDS Present value on 532,165,000 issue dated June 1,2006 (1) June 8,2006 Interest Total debt Adjusted using a yield of Date Principal rate Interest service debt service 4.712716% 09-01-24 439,506.25 439,506.25 322,881.25 138,116.34 03-01-25 2,270,000 5.000% 439,506.25 2,709,506.25 322,881.25 134,936.75 09-01-25 382,756.25 382,756.25 322,881.25 131,830.36 ow 03-01-26 2,395,000 5.000% 382,756.25 2,777,756.25 322,881.25 128,795.47 09-01-26 322,881.25 322,881.25 322,881.25 125,830.46 03-01-27 2,525,000 4.750% 322,881.25 2,847,881.25 2,847,88125 1,084,3013E 09-01-27 262,912.50 20,912.50 262,912.50 97,796.78 03-01-28 3,690,000 4.750% 262,912.50 3,952,912.50 3,952,912.50 1,436,533.23 09-01-28 175,275.00 175,275.00 175,275.00 62,230.55 03-01-29 7,380,000 4.750% 175 275.00 7,555,275.00 7,555,275.00 2,620,710.83 532,165,000 S27,930,876.65 S60,095,876.65 555,069,876.56 532,393,844.19 The present value of the future payments is equal to: Principal amount of the Bonds $32,165,000.00 Accrued interest 29,850.99 Net original issue premium 349,893.20 Bond insurance premium (150,900.00) S32,393,844.19 The sum of the present values of the adjusted debt service payments of the Bonds on June 8,2006,using a yield of 4.712716%,is equal to the issue price of the Bonds adjusted for the bond insurance premium. (1) Assumes that the March 1,2020 through March 1,202E maturities are called on March 1,201E at 100 percent of par plus accrued interest. Exhibit C-1 City of Pearland,Texas (Brazoria and Harris Counties) .. NET ORIGINAL ISSUE PREMIUM ON THE BONDS Initial Net original .. public issue Maturity Interest offering premium date Principal rate Yield price (discount) rs 03-01-07 S50,000 4.000% 3.700% 100.209% S104.50 03-01-08 50,000 4.000% 3.710% 100.477% 238.50 03-01-09 50,000 4.000% 3.710% 100.741% 370.50 lin 03-01-10 50,000 4.000% 3.730% 100.927% 463.50 03-01-11 320,000 4.000% 3.760% 101.026% 3,283 90 03-01-12 385,000 4.000% 3.860% 100.708% 2,725.80 r 03-01-13 400,000 4.000% 3.960% 100.229% 916.00 03-01-14 410,000 4.000% 4.080% 99.469% (2,177.10) 03-01-15 430,000 4.000% 4.180% 98.689% (5,637.30) MI 03-01-16 445,000 4.125% 4.250% 99.006% (4,423.30) 03-01-17 460,000 4.250% 4.300% 99.568% (1,987.20) 03-01-18 480,000 4.250% 4.350% 99.083% (4,401.60) 03-01-19 1,335,000 4.500% 4.550% 99.514% (6,488.10) 03-01-20 1,485,000 5.000% 4.490% •.103.978% (1) (2) 59,073.30 03-01-21 1,580,000 5.000% 4.520% 103.738% (1) (2) 59,060.40 03-01-22 1,675,000 5.000% 4.550% 103.499% (1) (2) 58,608.25 03-01-23 2,150,000 5.000% 4.580% 103.260% (1) (2) 70,090.00 03-01-24 2,150,000 5.000% 4.550% 103.499% (1) (2) 75,228.50 '., 03-01-25 2,270,000 5.000% 4.570% 103.340% (1) (2) 75,818.00 03-01-26 2,395,000 5.000% 4.590% 103.181% (1) (2) 76,184.95 03-01-27 2,525,000 4.750% 4.750% 100.000% im 03-01-29 11,070,000 4.750% 4.820% 99.032% (107,157.60) 532,165,000 S349,893.20 (1) Maturities were priced to call on March 1,2016 at 100 percent of par. (2) Represents the yield-to-call Bonds included for purposes of computing yield on the Bonds. .. NVV vl. dedby des pro ale Sued 0„T pplea Capital i i i i i i I i i it I i I I I i 1 i i City of Pearland,Texas-General Obligation Debt L Refunding Effects REVISED Final Numbers-June 2,2006 Less:Debt Service Plus: Year Ending Current Total on Refunded Current Interest Bonds Capital Post Rfndg Post Rfndg 09/30 Debt Service Bonds(1) Principal Interest Appr Bonds Debt Service Savings(2) 2006 11,661,443 461,539 11,199,903 491,390 2007 11,007,335 1,109,596 50,000 1,917,992 11,865,731 -858,396 2008 11,023,364 1,113,664 50,000 1,532,194 11,491,894 -468,530 2009 12,559,713 1,115,473 50,000 1,530,194 13,024,434 -464,721 2010 12,888,503 1,114,675 50,000 1,528,194 13,352,021 -463,519 2011 12,719,523 1,116,725 320,000 1,520,794 13,443,592 -724,069 2012 12,723,571 1,115,755 385,000 1,506,694 13,499,510 -775,939 2013 12,572,344 971,491 I 400,000 1,490,994 13,491,847 -919,503 2014 12,586,134 977,435 410,000 1,474,794 13,493,493 -907,359 2015 12,579,939 975,285 430,000 1,457,994 13,492,648 -912,709 2016 11,603,824 445,000 1,440,216 13,489,039 -1,885,216 2017 11,618,074 460,000 1,421,263 13,499,336 -1,881,263 2018 11,641,321 480,000 1,401,288 13,522,609 -1,881,288 2019 8,866,286 1,335,000 1,361,050 11,562,336 -2,696,050 2020 8,844,451 1,485,000 1,293,888 11,623,338 -2,778,887 2021 8,822,403 1,580,000 1,217,263 11,619,665 -2,797,262 2022 8,805,496 1,675,000 1,135,888 11,616,384 -2,810,888 2023 8,425,206 2,150,000 1,040,263 11,615,469 -3,190,263 2024 8,528,281 2,150,000 932,763 11,611,044 -3,082,763 2025 8,504,781 2,270,000 822,263 11,597,044 -3,092,263 2026 8,490,422 2,395,000 705,638 11,591,059 -3,100,638 2027 8,481,019 2,525,000 585,794 11,591,813 -3,110,794 2028 7,468,813 3,690,000 438,188 11,597,000 -4,128,188 2029 4,033,375 7,380,000 175,275 11,588,650 -7,555,275 Totals $246,455,621 $10,071,638 $32,165,000 $27,930,884 5296,479,859 -49,994,387 (1)-This column only reflects debt payments scheduled after the closing date of 06/08/2006. (2)-First year savings include$29,850.99 of accrued interest received at delivery. PEARLANDCITYOFGO:RUNO6REF AGGPRIOR AGGREF AGGNEW06 Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:17 v7,53 ■ Page-1 i d , 1 1 1 i II 1 f i 11 1 1 1 1 1 City of Pearland,Texas-General Obligation Debt Sources & Uses Report REVISED Final Numbers-June 2,2006 Sources of Funds: Principal Amount of Current Interest Bonds(CIBs) 32,165,000.00 CIB Premium 482,165.40 CIB Discount -132,272.20 Accrued Interest 29,850.99 Total SOURCES of Funds $32,544,744.19 Uses of Funds: SLG Escrow Cost 8,001,622.54 Project Fund 24,090,000.00 Bond Insurance 150,900.00 Accrued Interest Deposit to D/S Fund 29,850.99 Issuance Expenses: ($267,570.00) Underwriter's Discount 106,420.00 Rating Agency 30,150.00 Bond Counsel 54,500.00 Accountant/CPA 3,500.00 Printing 10,000.00 Trustee 3,000.00 Financial Advisory Fee 50,000.00 Miscellaneous 10,000.00 Rounding Amount 4,800.66 Total USES of Funds $32,544,744.19 Miscellaneous Bond Issuance Information: Delivery Date: 06/08/2006 Principal Amount of Bonds Being Refunded 7,890,000.00 Principal Amount of the Refunding Bonds 32,165,000.00 Proceeds of"The(new)Bonds" 32,514,893.20 Rate/Yield on the Refunded Bonds . 5.53947184% "All Costs Included"TIC on the New Issue is 4.82309861% Federal Arbitrage Yield on the New Issue is 4.71271611% Yield on Escrow 4.71264725% Total Debt Service Savings -49,994,387.50 Present Value Savings @ 4.71271611% -24,348,387.14 Total Debt Service Savings as a Percent of Total Debt Service of Refunded Bonds -496.38784382% Present Value Savings as a Percent of Principal Amount of Bonds Being Refunded -308.59806271% PEARLANDCITYOFGO:RUNO6REF NEWO6REF NEW06 AGGREF Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:17 v7.53 Page-2 i I I I I i I 1 I I I 1 I I I I I i i City of Pearland, Texas-General Obligation Debt Aggregation Report . REVISED Final Numbers-June 2,2006 Face Principal Interest Annual Total PV to 06/02/2006 Dates Amount Amount Amount Total FY Begins 10/01 @ 0.00000000% 03/01/2007 50,000.00 50,000.00 1,151,395.31 1,201,395.31 1,201,395.31 09/01/2007 766,596.88 766,596.88 1,967,992.19 766,596.88 03/01/2008 50,000.00 50,000.00 766,596.88 816,596.88 816,596.88 09/01/2008 765,596.88 765,596.88 1,582,193.76 765,596.88 03/01/2009 50,000.00 50,000.00 765,596.88 815,596.88 815,596.88 09/01/2009 764,596.88 764,596.88 1,580,193.76 764,596.88 03/01/2010 50,000.00 50,000.00 764,596.88 814,596.88 814,596.88 09/01/2010 763,596.88 763,596.88 1,578,193.76 763,596.88 03/01/2011 320,000.00 320,000.00 763,596.88 1,083,596.88 1,083,596.88 09/01/2011 757,196.88 757,196.88 1,840,793.76 757,196.88 03/01/2012 385,000.00 385,000.00 757,196.88 1,142,196.88 1,142,196.88 09/01/2012 749,496.88 749,496.88 1,891,693.76 749,496.88 03/01/2013 400,000.00 400,000.00 749,496.88 1,149,496.88 1,149,496.88 09/01/2013 741,496.88 741,496.88 1,890,993.76 741,496.88 03/01/2014 410,000.00 410,000.00 741,496.88 1,151,496.88 1,151,496.88 09/01/2014 733,296.88 733,296.88 1,884,793.76 733,296.88 03/01/2015 430,000.00 430,000.00 733,296.88 1,163,296.88 1,163,296.88 09/01/2015 724,696.88 724,696.88 1,887,993.76 724,696.88 03/01/2016 445,000.00 445,000.00 724,696.88 1,169,696.88 1,169,696.88 09/01/2016 715,518.75 715,518.75 1,885,215.63 715,518.75 03/01/2017 460,000.00 460,000.00 715,518.75 1,175,518.75 1,175,518.75 09/01/2017 705,743.75 705,743.75 1,881,262.50 705,743.75 03/01/2018 480,000.00 480,000.00 705,743.75 1,185,743.75 1,185,743.75 09/01/2018 695,543.75 695,543.75 1,881,287.50 695,543.75 03/01/2019 1,335,000.00 1,335,000.00 695,543.75 2,030,543.75 2,030,543.75 09/01/2019 665,506.25 665,506.25 2,696,050.00 665,506.25 03/01/2020 1,485,000.00 1,485,000.00 665,506.25 2,150,506.25 2,150,506.25 09/01/2020 628,381.25 628,381.25 2,778,887.50 628,381.25 03/01/2021 1,580,000.00 1,580,000.00 628,381.25 2,208,381.25 2,208,381.25 09/01/2021 588,881.25 588,881.25 2,797,262.50 588,881.25 03/01/2022 1,675,000.00 1,675,000.00 588,881.25 2,263,881.25 2,263,881.25 09/01/2022 547,006.25 547,006.25 2,810,887.50 547,006.25 03/01/2023 2,150,000.00 2,150,000.00 547,006.25 2,697,006.25 2,697,006.25 09/01/2023 493,256.25 493,256.25 3,190,262.50 493,256.25 03/01/2024 2,150,000.00 2,150,000.00 493,256.25 2,643,256.25 2,643,256.25 09/01/2024 439,506.25 439,506.25 3,082,762.50 439,506.25 03/01/2025 2,270,000.00 2,270,000.00 439,506.25 2,709,506.25 2,709,506.25 09/01/2025 382,756.25 382,756.25 3,092,262.50 382,756.25 03/01/2026 2,395,000.00 2,395,000.00 382,756.25 2,777,756.25 2,777,756.25 09/01/2026 322,881.25 322,881.25 3,100,637.50 322,881.25 03/01/2027 2,525,000.00 2,525,000.00 322,881.25 2,847,881.25 2,847,881.25 09/01/2027 262,912.50 262,912.50 3,110,793.75 262,912.50 03/01/2028 3,690,000.00 3,690,000.00 262,912.50 3,952,912.50 3,952,912.50 09/01/2028 175,275.00 175,275.00 4,128,187.50 175,275.00 Page-3 I I I I I I I $ II 1 I I I I I I I I I Face Principal Interest Annual Total PV to 06/02/2006 Dates Amount Amount Amount Total FY Begins 10/01 @ 0.00000000% 03/01/2029 7,380,000.00 7,380,000.00 175,275.00 7,555,275.00 7,555,275.00 7,555,275.00 Totals S32,165,000.00 $32,165,000.00 527,930,876.65 $60,095,876.65 S60,095,876.65 $60,095,876.65 Component Face Amt Prin Amt Cost/Proceeds WAM ----Title----- From To NEW06 24,000,000.00 24,000,000.00 24,255,793.10 18.970 yrs Permanent Improvement&Refunding Bonds,Seri 100.000 NEW06REF 8,165,000.00 8,165,000.00 8,259,100.10 15.149 yrs Permanent Improvement and Refunding Bonds,Se 100.000 Totals 532,165,000.00 $32,165,000.00 $32,514,893.20 17.999 yrs PEARLANDCITYOFGO:AGGNEW06 Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:17 v7.53 i Page-4 I 1 1 I I I I I I I 1 1 1 1 1 1 1 1 1 City of Pearland,Texas-General Obligation Debt Refunding Effects REVISED Final Numbers-June 2,2006 Less:Debt Service Plus:Permanent improvement and Refu Year Ending Current Total on Refunded Current Interest Bonds Capital Post Rfndg Post Rfndg 09/30 Debt Service Bonds(1) Principal Interest Appr Bonds Debt Service Savings(2) 2006 11,661,443 461,539 11,199,903 468,893 2007 11,007,335 1,109,596 472,742 10,370,481 636,854 2008 11,023,364 1,113,664 378,194 10,287,894 735,470 2009 12,559,713 1,115,473 378,194 11,822,434 737,279 2010 12,888,503 1,114,675 378,194 12,152,021 736,481 2011 12,719,523 1,116,725 270,000 372,794 12,245,592 473,931 2012 12,723,571 1,115,755 285,000 361,694 12,254,510 469,061 2013 12,572,344 971,491 300,000 349,994 12,250,847 321,498 2014 12,586,134 977,435 310,000 337,794 1 12,256,493 329,641 2015 12,579,939 975,285 330,000 324,994 12,259,648 320,291 2016 11,603,824 345,000 311,278 12,260,102 -656,278 2017 11,618,074 360,000 296,513 12,274,586 -656,513 2018 11,641,321 380,000 280,788 12,302,109 -660,788 2019 8,866,286 395,000 263,825 9,525,111 -658,825 2020 8,844,451 415,000 244,563 9,504,013 -659,563 2021 8,822,403 435,000 223,313 9,480,715 -658,313 2022 8,805,496 455,000 201,063 9,461,559 -656,063 2023 8,425,206 480,000 177,688 9,082,894 -657,688 2024 8,528,281 505,000 153,063 9,186,344 -658,063 2025 8,504,781 525,000 127,313 9,157,094 -652,313 2026 8,490,422 550,000 100,438 9,140,859 -650,438 2027 8,481,019 580,000 72,913 9,133,931 -652,913 2028 7,468,813 610,000 44,650 8,123,463 -654,650 2029 4,033,375 635,000 15,081 4,683,456 -650,081 Totals $246,455,621 $10,071,638 $8,165,000 $5,867,083 $250,416,059 -3,953,085 (1)-This column only reflects debt payments scheduled after the closing date of 06/08/2006. (2)-First year savings include$7,353.77 of accrued interest received at delivery. PEARLANDCITYOFGO:RUNO6REF AGGPRIOR AGGREF NEWO6REF Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:18 v7.53 r Page-5 1 i 1 i i 1 1 1 1 1 1 1 1 1 i 1 1 1 City of Pearland,Texas-General Obligation Debt Sources & Uses Report REVISED Final Numbers-June 2,2006 Sources of Funds: Principal Amount of Current Interest Bonds(CIBs) 8,165,000.00 CIB Premium 122,512.90 CIB Discount -28,412.80 Accrued Interest 7,353.77 Total SOURCES of Funds $8,266,453.87 Uses of Funds: SLG Escrow Cost 8,001,622.54 Bond Insurance 55,183.06 Accrued Interest Deposit to D/S Fund 7,353.77 Issuance Expenses: ($200,067.04) Underwriter's Discount 38,917.04 Rating Agency 30,150.00 Bond Counsel 54,500.00 Accountant/CPA 3,500.00 Printing 10,000.00 Trustee 3,000.00 Financial Advisory Fee 50,000.00 Miscellaneous 10,000.00 Rounding Amount 2,227.46 Total USES of Funds $8,266,453.87 Miscellaneous Bond Issuance Information: Delivery Date: 06108/2006 Principal Amount of Bonds Being Refunded 7,890,000.00 Principal Amount of the Refunding Bonds 8,165,000.00 Proceeds of"The(new)Bonds" 8,259,100.10 Rate/Yield on the Refunded Bonds 5.53947184% "All Costs Included"TIC on the New Issue is 4.82309861% Federal Arbitrage Yield on the New Issue is 4.71271611% Yield on Escrow 4.71264725% Total Debt Service Savings -3,953,084.72 Present Value Savings @ 4.71271611% -1,767.47 Total Debt Service Savings as a Percent of Total Debt Service of Refunded Bonds -39.24966979% Present Value Savings as a Percent of Principal Amount of Bonds Being Refunded -0.02240117% PEARLANDCITYOFGO:RUNO6REF NEWO6REF NEW06 AGGREF Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:18 v7.53 Page-6 1 I I I I I I I I I i i I I i I I i i City of Pearland,Texas-General Obligation Debt Refunding Analysis Savings Report REVISED Final Numbers-June 2,2006 Maturing Proceeds @ Interest Total Escrowed FY Begins Cumulative PV of Savings Dates Amount Issue Date Coupon Yield Amount Debt Service Debt 10/01 Savings 4.71271611% Savings 06/08/2006 09/01/2006 461,539.38 461,539.38 461,539.38 456,609.25 0310112007 4.000 3.700000 283,645.31 283,645.31 644,973.13 361,327.82 822,867.20 349,238.82 09/01/2007 189,096.88 189,096.88 464,623.13 275,526.25 1,098,393.45 260,177.22 03/01/2008 4.000 3.710000 189,096.88 189,096.88 652,413.13 463,316.25 1,561,709.70 427,433.94 09/01/2008 189,096.88 189,096.88 461,250.63 272,153.75 1,833,863.45 245,296.28 03/01/2009 4.000 3.710000 189,096.88 189,096.88 653,552.50 464,455.62 2,298,319.07 408,983.74 09/01/2009 189,096.88 189,096.88 461,920.00 272,823.12 2,571,142.19 234,708.15 03/01/2010 4.000 3.730000 189,096.88 189,096.88 658,512.50 469,415.62 3,040,557.81 394,538.79 09/01/2010 189,096.88 189,096.88 456,162.50 267,065.62 3,307,623.43 219,298.33 03/01/2011 270,000 272,770.20 4.000 3.760000 189,096.88 459,096.88 657,342.50 198,245.62 3,505,869.05 159,039.91 09/01/2011 183,696.88 183,696.88 459,382.50 275,685.62 3,781,554.67 216,073.65 03101/2012 285,000 287,017.80 4.000 3.860000 183,696.88 468,696.88 659,798.75 191,101.87 3,972,656.54 146,331.49 09/01/2012 177,996.88 177,996.88- 455,956.25 277,959.37 4,250,615.91 207,940.63 03/01/2013 300,000 300,687.00 4.000 3.960000 177,996.88 477,996.88 70,745.63 -407,251.25 3,843,364.66 -297,649.83 09/01/2013 171,996.88 171,996.88 900,745.63 728,748.75 4,572,113.41 520,362.77 03/01/2014 310,000 308,353.90 4.000 4.080000 171,996.88 481,996.88 48,717.50 -433,279.38 4,138,834.03 -302,260.64 09/01/2014 165,796.88 165,796.88 928,717.50 762,920.62 4,901,754.65 519,969.77 03/01/2015 330,000 325,673.70 4.000 4.180000 165,796.88 495,796.88 25,142.50 -470,654.38 4,431,100.27 -313,390.64 09/01/2015 159,196.88 159,196.88 950,142.50 790,945.62 5,222,045.89 514,535.95 03/01/2016 345,000 341,570.70 4.125 4.250000 159,196.88 504,196.88 -504,196.88 4,717,849.01 -320,445.68 09/01/2016 152,081.25 152,081.25 -152,081.25 4,565,767.76 -94,431.12 03/01/2017 360,000 358,444.80 4.250 4.300000 152,081.25 512,081.25 -512,081.25 4,053,686.51 -310,644.38 09/01/2017 144,431.25 144,431.25 -144,431.25 3,909,255.26 -85,599.45 03/01/2018 380,000 376,515.40 4.250 4.350000 144,431.25 524,431.25 -524,431.25 3,384,824.01 -303,657.17 09/01/2018 136,356.25 136,356.25 -136,356.25 3,248,467.76 -77,135.66 03/01/2019 395,000 393,080.30 4.500 4.550000 136,356.25 531,356.25 -531,356.25 2,717,111.51 -293,664.27 09/01/2019 127,468.75 127,468.75 -127,468.75 2,589,642.76 -68,826.27 03/01/2020 415,000 431,508.70 5.000 4.490000 127,468.75 542,468.75 -542,468.75 2,047,174.01 -286,160.97 09/01/2020 117,093.75 117,093.75 -117,093.75 1,930,080.26 -60,346.84 03/01/2021 435,000 451,260.30 5.000 4.520000 117,093.75 552,093.75 -552,093.75 1,377,986.51 -277,983.39 09/01/2021 106,218.75 106,218.75 -106,218.75 1,271,767.76 -52,250.73 03/01/2022 455,000 470,920.45 5.000 4.550000 106,218.75 561,218.75 -561,218.75 710,549.01 -269,717.14 09/01/2022 94,843.75 94,843.75 -94,843.75 615,705.26 -44,531.80 03101/2023 480,000 495,648.00 5.000 4.580000 94,843.75 574,843.75 -574,843.75 40,861.51 -263,691.75 09/01/2023 82,843.75 82,843.75 -82,843.75 -41,982.24 -37,127.15 03/01/2024 505,000 522,669.95 5.000 4.550000 82,843.75 587,843.75 -587,843.75 -629,825.99 -257,382.48 09/01/2024 70,218.75 70,218.75 -70,218.75 -700,044.74 -30,036.92 03101/2025 525,000 542,535.00 5.000 4.570000 70,218.75 595,218.75 -595,218.75 -1,295,263.49 -248,750.54 09/01/2025 57,093.75 57,093.75 -57,093.75 -1,352,357.24 -23,311.01 03/01/2026 550,000 567,495.50 5.000 4.590000 57,093.75 607,093.75 -607,093.75 -1,959,450.99 -242,166.20 09/01/2026 43,343.75 43,343.75 -43,343.75 -2,002,794.74 -16,891.55 03/01/2027 580,000 580,000.00 4.750 4.750000 43,343.75 623,343.75 -623,343.75 -2,626,138.49 -237,331.69 09/01/2027 29,568.75 29,568.75 -29,568.75 -2,655,707.24 -10,998.82 i Page-7 l I I $ I I I i I 1 I I a a i a a a a Maturing Proceeds @ Interest Total Escrowed FY Begins Cumulative PV of Savings Dates Amount Issue Date Coupon Yield Amount Debt Service Debt 10/01 Savings 4.71271611% Savings 03/01/2028 610,000 604,095.20 4.750 4.821850 29,568.75 639,568.75 -639,568.75 -3,295,275.99 -232,426.54 09/01/2028 15,081.25 15,081.25 -15,081.25 -3,310,357.24 -5,354.53 03/01/2029 635,000 628,853.20 4.750 4.820000 15,081.25 650,081.25 -650,081.25 -3,960,438.49 -225,494.77 $8,165,000 $8,259,100.10 .$5,867,076.65 $14,032,076.65 $10,071,638.16 -3,960,438.49 -9,121.24 Acc Int -7,353.77 -7,353.77 $7,353.77 $7,353.77 Grnd Total $8,165,000 $8,259,100.10 $5,859,722.88 $14,024,722.88 $10,071,638.16 -3,953,084.72 -1,767.47 PEARLANDCITYOFGO:RUN06REF NEW06REF AGGREF Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:18 v7.53 Page-8 1 1 I I I I I I I a a a a 1 I I I I 1 City of Pearland,Texas-General Obligation Debt REVISED Final Numbers-June 2,2006 Dated Date=06/01/2006 Permanent Improvement and Refunding Bonds,Series 2006 Delivery Date=06/08/2006 Term Bond Bond Coupon Interest Total Fiscal Year Debt Service Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call 03/01/2007 - - - 4.000 3.700000 100.209000 283,645.31 283,645.31 - 283,645.31 09101/2007 - - - - - - 189,096.88 189,096.88 472,742.19 189,096.88 03/01/2008 - - - 4.000 3,710000 100.477000 189,096.88 189,096.88 - 189,096.88 09/01/2008 - - - - - - 189,096.88 189,096.88 378,193.76 189,096.88 03/01/2009 - - - 4.000 3.710000 100.741000 189,096.88 189,096.88 - 189,096.88 09/01/2009 - - - - - - 189,096.88 189,096.88 378,193.76 189,096.88 03/01/2010 - - - 4.000 3.730000 100.927000 189,096.88 189,096.88 - 189,096.88 09/01/2010 - - - - - - 189,096.88 189,096.88 378,193.76 189,096.88 03/01/2011 - 270,000.00 272,770.20 4.000 3.760000 101.026000 189,096.88 459,096.88 - 459,096.88 09/01/2011 - - - - - - 183,696.88 183,696.88 642,793.76 183,696.88 03/01/2012 - 285,000.00 287,017.80 4.000 3.860000 100.708000 183,696.88 468,696.88 - 468,696.88 09/01/2012 - - - - - - 177,996.88 177,996.88 646,693.76 177,996.88 03/01/2013 - 300,000.00 300,687.00 4.000 3.960000 100.229000 177,996.88 477,996.88 - 477,996.88 09/01/2013 - - - - - 171,996.88 171,996.88 649,993.76 171,996.88 03/01/2014 - 310,000.00 308,353.90 4,000 4.080000 99.469000 171,996.88 481,996.88 - 481,996.88 09/01/2014 - - - - - •- 165,796.88 165,796.88 647,793.76 165,796.88 03/01/2015 - 330,000.00 325,673.70 4.000 4.180000 98.689000 165,796.88 495,796.88 - 495,796.88 09/01/2015 - - - - - - 159,196.88 159,196.88 654,993.76 159,196.88 03/01/2016 - 345,000.00 341,570.70 4.125 4.250000 99.006000 159,196.88 504,196.88 - 6,829,196.88 09/01/2016 - - - - - - 152,081.25 152,081.25 656,278.13 - 03/01/2017 - 360,000.00 * 358,444.80 4.250 4.300000 99.568000 152,081.25 512,081.25 - - 09/01/2017 - - - - - - 144,431.25 144,431.25 656,512.50 - 03101/2018 - 380,000.00 * 376,515.40 4.250 4.350000 99.083000 144,431.25 524,431.25 - - 09/01/2018 - - - - - - 136,356.25 136,356.25 660,787.50 03/01/2019 - 395,000.00 ' 393,080.30 4.500 4.550000 99.514000 136,356.25 531,356.25 - - 09/01/2019 - - - - - - 127,468.75 127,468.75 658,825.00 - 03/01/2020 - 415,000.00 ' 431,508.70 5.000 4.490000 103.978000 127,468.75 542,468.75 - - 09/01/2020 - - - - - - 117,093.75 117,093.75 659,562.50 - 03/01/2021 - 435,000.00 • 451,260.30 5.000 4.520000 103.738000 117,093.75 552,093.75 - - 09/01/2021 - - - - - - 106,218.75 106,218.75 658,312,50 - 03/01/2022 - 455,000.00 ' 470,920.45 5.000 4.550000 103.499000 106,218.75 561,218.75 - - 09/01/2022 - - - - - - 94,843.75 94,843.75 656,062.50 - 03/01/2023 - 480,000.00 ' 495,648.00 5.000 4.580000 103.260000 94,843.75 574,843.75 - - 09/01/2023 - - - - - - 82,843.75 82,843.75 657,687.50 - 03/01/2024 - 505,000.00 ' 522,669.95 5.000 4.550000 103.499000 82,843.75 587,843.75 - - 09/01/2024 - - - - - - 70,218.75 70,218.75 658,062.50 - 03/01/2025 - 525,000.00 * 542,535.00 5.000 4.570000 103.340000 70,218.75 595,218.75 - - 09/01/2025 - - - - - - 57,093.75 57,093.75 652,312.50 - 03/01/2026 - 550,000.00 ' 567,495.50 5.000 4.590000 103.181000 57,093.75 607,093.75 - - 09/01/2026 - - - - - - 43,343.75 43,343.75 650,437.50 - 03/01/2027 - 580,000.00 ' 580,000.00 4.750 4.750000 100.000000 43,343.75 623,343.75 - - 09/01/2027 - - - - - - 29,568.75 29,568.75 652,912.50 - 03/01/2028 - (1) 610,000.00 * 604,095.20 4.750 4.821850 99.032000 29,568.75 639,568.75 - - 09/01/2028 - - - - - - 15,081.25 15,081.25 654,650.00 - 03/01/2029 1,245,000.00 (1) 635,000.00 * 628,853.20 4.750 4.820000 99.032000 15,081.25 650,081.25 650,081.25 - Total 1,245,000.00 8,165,000.00 8,259,100.10 5,867,076.65 14,032,076.65 14,032,076.65 11,678,789.15 Acc Int - - - -7,353.77 -7,353.77 - - i Page-9 I $ 1 ! i I 1 I i o i 1 i I i 1 1 i i I Term Bond Bond Coupon Interest Total Fiscal Year Debt Service - Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call $rand Totals 1,245,000.00 8,165,000.00 8,259,100.10 5,859,722.88 14,024,722.88 14,032,076.65 11,678,789.15 •-Bonds callable... 03/01/2016 @ 100.000 TIC(Incl.all expenses)....4.90956784% Average Coupon 4.74226958% Net Eff. Int.Rate(Texas Vernon's)= 4.666210%(with Adjstmnt of$0.00). TIC(Arbitrage TIC) 4.61457539% Average Life(yrs)... 15.15 IRS Form 8038-G NIC =4.608047%(with Adjstmnt of$0.00). Bond Years 123,718.75 WAM(yrs) 15.149440 NIC= 4.666210%(with Adjstmnt of$0.00). Term bonds and their respective sinking payments are marked by "(n)" where each"n"identifies each respective term bond. PEARLANDCITYOFGO:NEW06REF Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:18 v7.53 Page-10 I I 1 1 1 1 1 ; I 1 I i I I I I 1 1 1 City of Pearland,Texas-General Obligation Debt Escrow Sufficiency & Balance Report REVISED Final Numbers-June 2,2006 Escrow Settlement Date Is 06/08/2006 Proceeds from Less Amts to Plus Maturing Adjusted Proceeds from Original be Invested Amts Invested Proceeds from Present Value 'Other' Old D/S Escrow Escrow Dates Restricted in 0%SLGs in 0%SLGs Rstrct'd Esc @ 4.71264725% Investments Requirement New Balance Old Balance 06/08/2006 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4,522,571.54 4,522,571.54 06/09/2006 0.00 0.00 0.00 0.00 0.00 0.00 4,522,569.60 1.94 1.94 09/01/2006 3,516,614.69 0.00 0.00 3,516,614.69 3,479,051.00 0.00 3,516,615.63 1.00 1.00 Totals $3,516,614.69 $0.00 $0.00 $3,516,614.69 $3,479,051.00 $0.00 $8,039,185.23 Cost of SLG Securities $3,479,051.00 Escrow Arbitrage YLD after Reinvestment in 0%SLGs=4.71264725% Cost of'Other'Restricted Investments $0.00 Escrow Starting Balance $4,522,571.54 Total Escrow Cost... $8,001,622.54 SLG Rates Were Taken From SLG Table Dated 05/08/2006 PEARLANDCITYOFGO:RLINO6REF AGGREF Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:18 v7.53 Page-11 I 1 1 1 1 1 1 a a a i 1 a 1 a a a 1 1 City of Pearland,Texas-General Obligation Debt U. S.Treasury SLG Investments REVISED Final Numbers-June 2,2006 Escrow Settlement Date Is 06/08/2006 Payment SLG SLG Rates Total Receipts PV'd SLG Rates Dates Principal Subscribed Interest SLG Receipts A 4.71264725% From Table 09/01/2006 3,410,209 4.730000 37,563.69 3,447,772.69 3,410,944.35 4.730000 09101/2006 68,842 0.000000 0.00 68,842.00 68,106.65 4.730000 Totals $3,479,051 S37,563.69 $3,516,614.69 $3,479,051.00 SLG Rates were taken from a SLG table dated 05/08/2006 • PEARLANDCITVOFGO:RUNO6REF AGGREF Prepared by:RBC Capital Markets-Houston,Texas(713)651-3340(JHR) 06/02/2006 @ 14:18 v7.53 L._ Page-12 I I I I i a a a a a a 1 i I I f t 1 City of Pearland,Texas-General Obligation Debt Aggregation Spreadsheet Report REVISED Final Numbers-June 2,2006 Data are Principal Amounts Data are to Maturity FY 10101 Dates Totals OLD95MUD5R OLD98MUD5R OLD98AMUD5R OLD99MUD5R 09/01/2006 260,000.00 100,000.00 85,000.00 75,000.00 03/01/2007 450,000.00 450,000.00 09/01/2007 280,000.00 110,000 00 90,000.00 80,000.00 03/01/2008 475,000.00 475,000.00 09/01/2008 295,000.00 115,000.00 95,000.00 85,000..00 03/01/2009 495,000.00 495,000.00 09/0112009 315,000.00 125,000.00 100,000.00 90,000.00 03/01/2010 520,000.00 520,000.00 09/01/2010 330,000.00 135,000.00 105,000.00 90,000.00 03/0112011 540,000.00 540,000.00 09/01/2011 355,000.00 145,000.00 115,000.00 95,000.00 03/01/2012 565,000.00 565,000.00 09/01/2012 375,000.00 155,000.00 125,000.00 95,000.00 03/01/2013 0.00 09101/2013 830,000.00 165,000.00 245,000.00 420,000.00 03/01/2014 0.00 09/01/2014 880,000.00 175,000.00 260,000.00 445,000.00 03/01/2015 0.00 09/01/2015 925,000.00 190,000.00 275,000.00 460,000.00 Totals S7,890000.00 $1,416,000.00 S1,_495,000.00 S3,045,000.00 $1,935,000.00 Component Face Amt —Title-- From To OLD95MUD5R $1,415,000.00 U/L Tax Bonds,Series 1995 OLD98MUD5R $1,495,000.00 U/L Tax Bonds,Series 1998 OLD98AMUD5R $3,045,000.00 U/L Tax Refunding Bonds,Series 1998A OLD99MUD5R $1,935,000.00 U/L Tax Bonds,Series 1999 PEARLANDCITYOFGO:AGGREF Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:18 v7.53 i Page-13 I i I a I I I I I I I I I I I I I I I City of Pearland,Texas-General Obligation Debt REVISED Final Numbers-June 2,2006 Dated Date=03/01/2006 U/L Tax Bonds,Series 1995 Delivery Date=03/01/2006 Brazorla Co MUD#5 Term Bond Bond Coupon Interest Total Fiscal Year Debt Service Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call 06/09/2006 - - - - - - - - - 1,438,207.63 09/01/2006 - 100,000.00 ' 100,000.00 5.600 5.600000 100.000000 42,626.25 142,626.25 142,626.25 - 03/01/2007 - - - - - - 39,826.25 39,826.25 - - 09/01/2007 - 110,000.00 ' 110,000.00 5.700 5.700000 100.000000 39,826.25 149,826.25 189,652.50 - 03/01/2008 - - - - - - 36,691.25 36,691.25 - - 09/01/2008 - 115,000.00 ' 115,000.00 5.800 5.800000 100.000000 36,691.25 151,691.25 188,382.50 - 03/01/2009 - - - - - - 33,356.25 33,356.25 - - 09/01/2009 - 125,000.00 ' 125,000.00 6.000 6.000000 100.000000 33,356.25 158,356.25 191,712.50 - 03/01/2010 - - - - - - 29,606.25 29,606.25 - - 09/01/2010 - 135,000.00 ' 135,000.00 6.000 6.000000 100.000000 29,606.25 164,606.25 194,212.50 - 03/01/2011 - - - - - - 25,556.25 25,556.25 - - 09/01/2011 - 145,000.00 ' 145,000.00 6.000 6.000000 100.000000 25,556.25 170,556.25 196,112.50 - 03/01/2012 - - - - - - 21,206.25 21,206.25 - - 09/01/2012 - 155,000.00 ' 155,000.00 6.125 6.125000 100.000000 21,206.25 176,206.25 197,412.50 - 03/01/2013 - - - - - •- 16,459.38 16,459.38 - - 09/01/2013 - 165,000.00 ' 165,000.00 6.125 6.125000 100.000000 16,459.38 181,459.38 197,918.76 - 03/01/2014 - - - - - - 11,406.25 11,406.25 - - 09/01/2014 - 175,000.00 ' 175,000.00 6.250 6.250000 100.000000 11,406.25 186,406.25 197,812.50 - 03/01/2015 - - - - - - 5,937.50 5,937.50 - - 09/01/2015 - 190,000.00 ' 190,000.00 6.250 6.250000 100.000000 5,937.50 195,937.50 201,875.00 - Total - 1,415,000.00 1,415,000.00 482,717.51 1,897,717.51 1,897,717.51 1,438,207.63 Acc Int - - - - - - - brand Totals - 1,415,000.00 '4415,000.00 482,717.51 1,897,717.51 1,897,717.51 1,438,207.63 •-Bonds callable... 06/09/2006 @ 100.000 TIC(Incl.all expenses)....6.11522757% Average Coupon 6.12391386% Net Eff.Int.Rate(Texas Vernon's)= 6.123914%(with Adjstmnt of$0.00). TIC(Arbitrage TIC) 6.11522757% Average Life(yrs)... 5.57 IRS Form 8038-G NIC =6.123914%(with Adjstmnt of$0.00). Bond Years 7,882.50 WAM(yrs)_ 5.570671 NIC= 6.123914%Awith Adjstmnt of$0.00). • PEARLANDCITYOFGO:OLD95MUD5R Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:19 v7.53 r Page-14 i I i i i i I I I i I I 1 f i i a a i City of Pearland,Texas-General Obligation Debt REVISED Final Numbers-June 2,2006 Dated Date=03/01/2006 U/L Tax Bonds,Series 1998 Delivery Date=03/01/2006 Brazoria Co MUD#5 Term Bond Bond Coupon Interest Total Fiscal Year Debt Service Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call 09/01/2006 - 85,000.00 85,000.00 4.450 4.450000 100.000000 34,173.75 119,173.75 119,173.75 1,529,173.75 03/01/2007 - - - - - - 32,282.50 32,282.50 - - 09/01/2007 - 90,000.00 ' 90,000.00 4.500 4.500000 100.000000 32,282.50 122,282.50 154,565.00 - 03/01/2008 - - - - - - 30,257.50 30,257.50 - - 09/01/2008 - 95,000.00 ' 95,000.00 4.600 4.600000 100.000000 30,257.50 125,257.50 155,515.00 - 03/01/2009 - - - - - - 28,072.50 28,072.50 - - 09/01/2009 - 100,000.00 ' 100,000.00 4.500 4.500000 100.000000 28,072.50 128,072.50 156,145.00 - 03/01/2010 - - - - - - 25,822.50 25,822.50 - - 09/01/2010 105,000.00 " 105,000.00 4.500 4.500000 100.000000 25,822.50 130,822.50 156,645.00 - 03/01/2011 - - - - - - 23,460.00 23,460.00 - - 09/01/2011 - 115,000.00 " 115,000.00 4.600 4.600000 100.000000 23,460.00 138,460.00 161,920.00 - 03/01/2012 - - - - - - 20,815.00 20,815.00 - - 09/01/2012 - 125,000.00 " 125,000.00 4.600 4.600000 100.000000 20,815.00 145,815.00 166,630.00 - 03/01/2013 - - - - - - 17,940.00 17,940.00 - - 09/01/2013 - 245,000.00 " 245,000.00 4.600 4.600000 100.000000 17,940.00 262,940.00 280,880.00 - 03/01/2014 - - - - - - 12,305.00 12,305.00 - - 09/01/2014 - 260,000.00 " 260,000.00 4.600 4.600000 100.000000 12,305.00 272,305.00 284,610.00 - 03/01/2015 - - - - - - 6,325.00 6,325.00 - - 09/01/2015 - 275,000.00 " 275,000.00 4.600 4.600000 100.000000 6,325.00 281,325.00 287,650.00 - Total - 1,495,000.00 1,495,000.00 428,733.75 1,923,733.75 1,923,733.75 1,529,173.75 Acc Int - - - - - - - 6rand Totals - 1,495,000.00 1,495,000.00 428,733.75 1,923,733.75 1,923,733.75 1,529,173.75 '-Bonds callable... 09/01/2006 @ 100.000 TIC(Incl.all expenses)....4.58808164% Average Coupon 4.58906877% Net Eff.Int.Rate(Texas Vernon's)= 4.589069%(with Adjstmnt of$0.00). TIC(Arbitrage TIC) 4.58808164% Average Life(yrs)... 6.25 IRS Form 8038-G NIC =4.589069%(with Adjstmnt of$0.00). Bond Years 9,342.50 WAM(yrs) 6.249164 NIC= 4.589069%(with Adjstmnt of$0.00). • PEARLANDCITYOFGO:OLD98MUD5R Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:19 v7.53 1 Page-15 1 1 i I i I i I I I r i If 1 1 1 i i 1 City of Pearland,Texas-General Obligation Debt REVISED Final Numbers-June 2,2006 Dated Date=03/01/2006 U/L Tax Refunding Bonds,Series 1998A Delivery Date=03/01/2006 Brazoria Co MUD#5 Term Bond Bond Coupon Interest Total Fiscal Year Debt Service Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call _ 06/09/2006 - - - - - - - - - 3,084,361.97 09/01/2006 - - - - - - 72,297.50 72,297.50 72,297.50 - 03/01/2007 - 450,000.00 ' 450,000.00 4.600 4.600000 100.000000 72,297.50 522,297.50 - - 09/01/2007 - - - - - - 61,947.50 61,947.50 584,245.00 - 03/01/2008 - 475,000.00 ' 475,000.00 4.700 4.700000 100.000000 61,947.50 536,947.50 - - 09/01/2008 - - - - - - 50,785.00 50,785.00 587,732.50 - 03/01/2009 - 495,000.00 •' 495,000.00 4.700 4.700000 100.000000 50,785.00 545,785.00 - - 09/01/2009 - - - - - - 39,152.50 39,152.50 584,937.50 - 03/01/2010 - 520,000.00 * 520,000.00 4.750 4.750000 100.000000 39,152.50 559,152.50 - - 09/01/2010 - - - - - - 26,802.50 26,802.50 585,955.00 - 03/01/2011 - 540,000.00 •' 540,000.00 4.800 4.800000 100.000000 26,802.50 566,802.50 - - 09/01/2011 - - - - - - 13,842.50 13,842.50 580,645.00 - 03/01/2012 - 565,000.00 * 565,000.00 4.900 4.900000 100.000000 13,842.50 578,842.50 578,842.50 - Total - 3,045,000.00 3,045,000.00 529,655.00 3,574,655.00 3,574,655.00 3,084,361.97 Acc Int - - Orand Totals - 3,045,000.00 3,045,000.00 529,655.00 3,574,655.00 3,574,655.00 3,084,361.97 '-Bonds callable... 06/09/2006 @ 100.000 TIC(Incl.all expenses)....4.78831644% Average Coupon 4.79109000% Net Eff.Int.Rate(Texas Vernon's)= 4.791090%(with Adjstmnt of$0.00). TIC(Arbitrage TIC) 4.78831644% Average Life(yrs)... 3.63 IRS Form 8038-G NIC =4.791090%(with Adjstmnt of$0.00). Bond Years 11,055.00 WAM(yrs) 3.630542 NIC= 4.791090%iwith Adjstmnt of$0.00). PEARLANDCITYOFGO:OLD98AMUD5R Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:19 v7.53 I Page-16 a a a f a a a li a a i a i a a a i a a City of Pearland,Texas-General Obligation Debt REVISED Final Numbers-June 2,2006 Dated Date=03/01/2006 U/L Tax Bonds,Series 1999 Delivery Date=03/01/2006 Brazoria Co MUD#5 Term Bond Bond Coupon Interest Total Fiscal Year Debt Service Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call _ 09/01/2006 75,000.00 (1) 75,000.00 75,000.00 5.000 5.000000 100.000000 52,441.88 127,441.88 127,441.88 1,987,441.88 03/01/2007 - - - - - - 50,566.88 50,566.88 - - 09/01/2007 - (2) 80,000.00 ' 80,000.00 5.125 5.125000 100.000000 50,566.88 130,566.88 181,133.76 - 03/01/2008 - - - - - - 48,516.88 48,516.88 - - 09/01/2008 165,000.00 (2) 85,000.00 ' 85,000.00 5.125 5.125000 100.000000 48,516.88 133,516.88 182,033.76 - 03/01/2009 - - - - - - 46,338.75 46,338.75 - - 09/01/2009 - (3) 90,000.00 ' 90,000.00 5.350 5.350000 100.000000 46,338.75 136,338.75 182,677.50 - 03/01/2010 - - - - - - 43,931.25 43,931.25 - _ 09/01/2010 180,000.00 (3) 90,000.00 ' 90,000.00 5.350 5.350000 100.000000 43,931.25 133,931.25 177,862.50 - 03/01/2011 - - - - - 41,523.75 41,523.75 - _ 09/01/2011 - (4) 95,000.00 ' 95,000.00 5.450 5.450000 100.000000 41,523.75 136,523.75 178,047.50 - 03/01/2012 - - - - - - 38,935.00 38,935.00 - - 09/01/2012 190,000.00 (4) 95,000.00 ' 95,000.00 5.450 5.450000 100.000000 38,935.00 133,935.00 172,870.00 - 03/01/2013 - - - - - - 36,346.25 36,346.25 - - 09/01/2013 - 420,000.00 ' 420,000.00 5.400 5.400000 100.000000 36,346,25 456,346.25 492,692.50 - 03/01/2014 - - - - - - 25,006.25 25,006.25 - _ 09/01/2014 - 445,000.00 ' 445,000.00 5.450 5.450000 100.000000 25,006.25 470,006.25 495,012.50 - 03/01/2015 - - - - - - 12,880.00 12,880.00 - _ 09/01/2015 - 460,000.00 ' 460,000.00 5.600 5.600000 100.000000 12,880.00 472,880.00 485,760.00 - Total 610,000.00 1,935,000.00 1,935,000.00 740,531.90 2,675,531.90 2,675,531.90 1,987,441.88 Acc int - - - - - - - Orand Totals 610,000.00 1,935,000.00 1,935,000.00 740,531.90 2,675,531.90 2,675,531.90 1,987,441.88 •-Bonds callable... 09/01/2006 @ 100.000 TIC(Incl.all expenses)....5.46815587% Average Coupon 5.47224755% Net Eff.Int.Rate(Texas Vernon's)= 5.472248%(with Adjstmnt of$0.00). TIC(Arbitrage TIC) 5.46815587% Average Life(yrs)... 6.99 IRS Form 8038-G NIC =5.472248%(with Adjstmnt of$0.00). Bond Years 13,532.50 WAM(yrs) 6.993540 NIC= 5.472248%(with Adjstmnt of$0.00). Term bonds and their respective sinking payments are marked by "(n)" where each"n"identifies each respective term bond. PEARLANOCITYOFGO:OLD99MUD5R Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:19 v7.53 r Page-17 I i i I I I i I i a I I I 1 I 1 i 1 i City of Pearland, Texas-General Obligation Debt Proof of Federal Arbitrage Yield REVISED Final Numbers-June 2,2006 Dated Date 06/01/2006 Permanent Improvement and Refunding Bonds,Series 2006 Delivery Date 06/08/2006 Proceeds to: Interest to: Disc Term Total(1) PV of Adj D/S Recoverable Bond Face Bondholder(+) Maturing Bondholder(+) Total Adjusted to 06/08/2006 Recurring Adjustments Dates Amounts Issuer(-) Amounts Issuer(-) Fees Debt Service for Yld Cal: Cash Flow @ 4.61457539% 06/08/2006 0.00 -8,259,100.10 0.00 -8,266,453.87 0.00 0.00 0.00 -8,266,453.87 -8,266,453.87 03/01/2007 0.00 0.00 0.00 567,290.62 0.00 283,645.31 0.00 283,645.31 274,347.50 09/0112007 0.00 0.00 0.00 378,193.76 0.00 189,096.88 0.00 189,096.88 178,773.52 03/01/2008 0.00 0.00 0.00 378,193.76 0.00 189,096.88 0.00 189,096.88 174,741.73 09/01/2008 0.00 0.00 0.00 378,193.76 0.00 189,096.88 0.00 189,096.88 170,800.86 03/01/2009 0.00 0.00 0.00 378,193.76 0.00 189,096.88 0.00 189,096.88 166,948.87 09/01/2009 0.00 0.00 0.00 378,193.76 0.00 189,096.88 0.00 189,096.88 163,18375 03/01/2010 0.00 0.00 0.00 378,193.76 0.00 189,096.88 0.00 189,096.88 159,503.54 09/01/2010 0.00 0.00 0.00 378,193.76 0.00 189,096.88 0.00 189,096.88 155,906.34 03/01/2011 270,000.00 272,770.20 270,000.00 648,193.76 0.00 459,096.88 0.00 459,096.88 369,979.08 09/01/2011 0.00 0.00 0.00 367,393.76 0,00 183,696.88 0.00 183,696.88 144,699.84 03/01/2012 285,000.00 287,017.80 285,000.00 652,393.76 0.00 468,696.88 0.00 468,696.88 360,870.81 09/01/2012 0.00 0.00 0.00 355,993.76 0.03 177,996.88 0.00 177,996.88 133,957.03 03/01/2013 300,000.00 300,687.00 300,000.00 655,993.76 0.00 477,996.88 0.00 477,996.88 351,618.41 09/01/2013 0.00 0.00 0.00 343,993.76 0.00 171,996.88 0.00 171,996.88 123,668.91 03/01/2014 310,000.00 308,353.90 310,000.00 653,993.76 0.00 481,996.88 0.00 481,996.88 338,748.69 09/01/2014 0.00 0.00 0.00 331,593.76 0.00 165,796.88 0.00 165,796.88 113,894.61 03/01/2015 330,000.00 325,673.70 330,000.00 661,593.76 0.00 495,796.88 0.00 495,796.88 332,907.86 09/01/2015 0.00 0.00 0.00 318,393.76 0.00 159,196.88 0.00 159,196.88 104,483.63 03/01/2016 345,000.00 341,570.70 345,000.00 4,028,393.76 0.00 504,196.88 0.00 3,869,196.88 2,482,149.57 09/01/2016 0.00 0.00 0.00 220,037.50 0.00 152,081.25 0.00 67,956.25 42,611.81 03/01/2017 360,000.00 358,444.80 360,000.00 580,037.50 0.00 512,081.25 0.00 •427,956.25 262,297.02 09/01/2017 0.00 0.00 0.00 204,737.50 0.00 144,431.25 0.00 60,306.25 36,128.48 03/01/2018 380,000,00 376,515.40 380,000.00 584,737.50 0.00 524,431.25 0.00 440,306.25 257,831.33 09/0112018 0.00 0.00 0.00 188,587.50 0.00 136,356.25 0.00 52,231.25 29,895.42 03/01/2019 395,000.00 393,080.30 395,000.00 583,587.50 0.00 531,356.25 0.00 447,231.25 250,207.22 09/01/2019 0.00 0.00 0.00 170,812.50 0.00 127,468.75 0.00 43,343.75 23,702.14 03/01/2020 415,000.00 431,508.70 415,000.00 170,812.50 0.00 542,468.75 0.00 43,343.75 23,167.60 09/01/2020 0.00 0.00 0.00 160,437.50 0.00 117,093.75 0.00 43,343.75 22,645.11 03/01/2021 435,000.00 451,260.30 435,000.00 160,437.50 0.00 552,093.75 0.00 43,343.75 22,134.41 09/01/2021 0.00 0.00 0.00 149,562.50 0.00 106,218.75 0.00 43,343.75 21,635.22 03/01/2022 455,000.00 470,920.45 455,000.00 149,562.50 0.00 561,218.75 0.00 43,343.75 21,147.29 09/0112022 0.00 0.00 0.00 138,187.50 0.00 94,843.75 0.00 43,343.75 20,670.37 03/01/2023 480,000.00 495,648.00 480,000.00 138,187.50 0.00 574,843.75 0.00 43,343.75 20,204.20 09/01/2023 0.00 0.00 0.00 126,187.50 0.00 82,843.75 0.00 43,343.75 19,748.54 03/01/2024 505,000.00 522,669.95 505,000.00 126,187.50 0.00 587,843.75 0.00 43,343.75 19,303.16 09/01/2024 0.00 0.00 0.00 113,562.50 0.00 70,218.75 0.00 43,343.75 18,867.83 03/01/2025 525,000.00 542,535.00 525,000.00 113,562.50 0.00 595,218.75 0.00 43,343.75 18,442.31 09/01/2025 0.00 0.00 0.00 100,437.50 0.00 57,093.75 0.00 43,343.75 18,026.39 03/01/2026 550,000.00 567,495.50 550,000.00 100,437.50 0.00 607,093.75 0.00 43,343.75 17,619.85 09/01/2026 0.00 0.00 0.00 86,687.50 0.00 43,343.75 0.00 43,343.75 17,222.48 03/01/2027 580,000.00 580,000.00 580,000.00 666,687.50 0.00 623,343.75 0.00 623,343.75 242,097.42 09/01/2027 0.00 0.00 0.00 59,137.50 0.00 29,568.75 0.00 29,568.75 11,225.07 03/01/2028 610,000.00 604,095.20 610,000.00 669,137.50 0.00 639,568.75 0.00 639,568.75 237,321.26 09/01/2028 0.00 0.00 0.00 30,162.50 0.00 15,081.25 0.00 15,081.25 5,469.91 03/01/2029 635,000.00 628,853.20 635,000.00 665,162.50 0.00 650,081.25 0.00 650,081.25 230,464.43 i Page-18 a a a I ! I i I l I I i I I I I I I I Disc Term - Proceeds to: Interest to: Total(1) PV of Adj D/S Recoverable Bond Face Bondholder(+) Maturing Bondholder(+) Total Adjusted to 06/08/2006 Recurring Adjustments Dates Amounts Issuer(-) Amounts Issuer(-) Fees Debt Service for Yid Calc Cash Flow @ 4.61457539% Totals 8,165,000.00 0.00 8,165,000.00 10,423,199.43 0.00 14,032,076.65 0.00 4,556,122.78 -55,183.06 Plus PV of Bond Insurance 55,183.06 0.00 (1)--Adjustments to cash flow are based on the following"yield to call"optional redemption schedule: NEW06REF-Call the 03/01/2020 maturity on 03/01/2016 @ 100.000 NEWO6REF--Call the 03/01/2021 maturity on 03/01/2016 @ 100.000 NEW06REF--Call the 03/01/2022 maturity on 03/01/2016 @ 100.000 NEWO6REF--Call the 0310112023 maturity on 03/01/2016 @ 100.000 NEW06REF--Call the 03/01/2024 maturity on 03/01/2016 @ 100.000 NEWO6REF--Call the 03/01/2025 maturity on 03/01/2016 @ 100.000 NEW06REF--Call the 03/01/2026 maturity on 03101/2016 @ 100.000 • PEARLANDCITYOFGO:NEW06REF Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:19 v7.53 L Page-19 I I 1 I I I II I I I I I I II I 1 1 1 I City of Pearland,Texas-General Obligation Debt Issuance Expenses for NEWO6REF REVISED Final Numbers-June 2,2006 Expenses for NEWO6REF Expense Raises Exp has no Expense Title Type Units Arb Yield Affect Total on Arb Yield Underwriter's Discount F 38,917.04 0.00 38,917.04 38,917.04 Rating Agency F 30,150.00 0.00 30,150.00 30,150.00 Bond Counsel F 54,500.00 0.00 54,500.00 54,500.00 Accountant/CPA F 3,500.00 0.00 3,500.00 3,500.00 Printing F 10,000.00 0.00 10,000.00 10,000.00 Trustee F 3,000.00 0.00 3,000.00 3,000.00 Bond Insurance F 55,183.06 55,183.06 0.00 55,183.06 Financial Advisory Fee F 50,000.00 0.00 50,000.00 50,000.00 Miscellaneous F 10,000.00 0.00 10,000.00 10,000.00 Totals S55,183.06 $200,067.04 $255,250.10 Type: F-Fixed Expense V-Variable Expense Based on issue Size D-Variable Expense Based on Total Debt Service E-Variable Expense Based on Total Debt Service Less Accrued Interest R-Variable Expense Based on Reserve Fund Requirement PEARLANDCITYOFGO:EXP06REF Prepared by:RBC Capital Markets-Houston,Texas(713)651-3340(JHR) 06/0212006 @ 14:20 v7.53 Page-20 1 1 1 1 I 1 I il 1 I I 1 I 1 I 1 1 1 i City of Pearland,Texas-General Obligation Debt Current Debt plus New Debt REVISED Final Numbers-June 2,2006 Dated Date 06/01/2006 Permanent Improvement&Refunding Bonds,Series 2006 Delivery Date 06/08/2006 New Interest Interest Year Current Principal Various Various Total Total New Total Debt Ending Debt Due Due Due New Principal Service 09/30 Requirement 03/01 03101 09101 Interest &Interest Requirement 2006 11,661,443 11,661,443 2007 11,007,335 50,000 867,750 577,500 1,445,250 1,495,250 12,502,585 2008 11,023,364 50,000 577,500 576,500 1,154,000 1,204,000 12,227,364 2009 12,559,713 50,000 576,500 575,500 1,152,000 1,202,000 13,761,713 2010 12,888,503 50,000 575,500 574,500 1,150,000 1,200,000 14,088,503 2011 12,719,523 50,000 574,500 573,500 1,148,000 1,198,000 13,917,523 2012 12,723,571 100,000 573,500 571,500 1,145,000 1,245,000 13,968,571 2013 12,572,344 100,000 571,500 569,500 1,141,000 1,241,000 13,813,344 2014 12,586,134 100,000 569,500 567,500 1,137,000 1,237,000 13,823,134 2015 12,579,939 100,000 567,500 565,500 1,133,000 1,233,000 13,812,939 2016 11,603,824 100,000 565,500 563,438 1,128,938 1,228,938 12,832,761 2017 11,618,074 100,000 563,438 561,313 1,124,750 1,224,750 12,842,824 2018 11.641.321 100,000 561,313 559,188 - 1,120,500 1,220,500 12,861,821 2019 8,866,286 940,000 559,188 538,038 1,097,225 2,037,225 10,903,511 2020 8,844,451 1,070,000 538,038 511,288 1,049,325 2,119,325 10,963,776 2021 8,822,403 1,145,000 511,288 482,663 993,950 2,138,950 10,961,353 2022 8,805,496 1,220,000 482,663 452,163 934,825 2.154,825 10,960,321 2023 8,425,206 1,670,000 452,163 410,413 862,575 2,532,575 10,957,781 2024 8,528,281 1,645,000 410,413 369,288 779,700 2,424,700 10,952,981 2025 8,504,781 1,745,000 369,288 325,663 694,950 2,439.950 10,944,731 2026 8,490,422 1,845,000 325,663 279,538 605,200 2,450,200 10,940,622 2027 8,481,019 1,945,000 279,538 233,344 512,881 2,457,881 10,938,900 2028 7,468,813 3,080,000 233,344 160,194 393,538 3,473,538 10,942,350 2029 4,033,375 6,745,000 160,194 160,194 6,905,194 10,938,569 Totals 5246,455,621 $24,000,000 $11,465,781 $10,598,031 $22,063,801 546,063,801 S292,519,420 NEW06: Dated Date:06/01/2006 Principal Due Dates:0310112007-0310112029 Maturing Amount:24,000,000.00 PEARLANDCITYOFGO:NEW06 AGGPRIOR Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:20 v7.53 1 Page-21 I i a a 1 1 a a a a a City of Pearland, Texas-General Obligation Debt Sources & Uses Report REVISED Final Numbers-June 2,2006 Sources of Funds: Principal Amount of Current Interest Bonds(CIBs) 24,000,000.00 CIB Premium 359,652.50 CIB Discount 103,859.40 Accrued Interest 22,497.22 Total SOURCES of Funds $24,278,290.32 Uses of Funds: Project Fund 24,090,000.00 Bond Insurance 95,716.94 Accrued Interest Deposit to D/S Fund 22,497.22 Issuance Expenses: ($67,502.96) Underwriter's Discount 67,502.96 Rounding Amount 2,573.20 Total USES of Funds $24,278,290.32 Miscellaneous Bond Issuance Information: Delivery Date: 06/08/2006 Principal Amount of the New Money Bonds 24,000,000.00 Proceeds of"The(new)Bonds" 24,255,793.10 "All Costs Included"TIC on the New Issue is 4.82309861% Federal Arbitrage Yield on the New Issue is 4.71271611% PEARLANDCITYOFGO:RUNO6 NEW06 NEWO6REF Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:20 v7.53 Page-22 i i a i i i a I I I il a a i 1 i a a a City of Pearland,Texas-General Obligation Debt '- REVISED Final Numbers-June 2,2006 Dated Date=06/01/2006 Permanent Improvement 8 Refunding Bonds,Series 2006 Delivery Date=06/08/2006 Term Bond Bond Coupon Interest Total Fiscal Year Debt Service Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call 03/01/2007 - 50,000.00 50,104.50 4.000 3.700000 100.209000 867,750.00 917,750.00 - 917,750.00 09I01I2007 - -- - - 577,500.00 577,500.00 1,495,250.00 577,500.00 03/01/2008 - 50,000.00 50,238.50 4.000 3.710000 100,477000 577,500.00 627,500.00 - 627,500.00 09/01/2008 - - - - - - 576,500.00 576,500.00 1,204,000.00 576,500.00 03/01/2009 - 50,000.00 50,370.50 4.000 3.710000 100.741000 576,500.00 626,500.00 - 626,500.00 09/01/2009 - - - - - - 575,500.00 575,500.00 1,202,000.00 575,500.00 03/01/2010 - 50,000.00 50,463.50 4.000 3.730000 100.927000 575,500.00 625,500.00 - 625,500.00 09/01/2010 - - - - - - 574,500.00 574,500.00 1,200,000.00 574,500.00 03/01/2011 - 50,000.00 50,513.00 4.000 3.760000 101.026000 574,500.00 624,500.00 - 624,500.00 09/01/2011 - - - - - - 573,500.00 573,500.00 1,198,000.00 573,500.00 03/01/2012 - 100,000.00 100,708.00 4.000 3.860000 100.708000 573,500.00 673,500.00 - 673,500.00 09/01/2012 - - - - - - 571,500.00 571,500.00 1,245,000.00 571,500.00 03/01/2013 - 100,000.00 100,229.00 4.000 3.960000 100.229000 571,500.00 671,500.00 - 671,500.00 09/01/2013 - - - - - . - 569,500.00 569,500.00 1,241,000.00 569,500.00 03/01/2014 - 100,000.00 99,469.00 4.000 4.080000 99.469000 569,500.00 669,500.00 - 669,500.00 09/01/2014 - - - - - - 567,500.00 567,500.00 1,237,000.00 567,500.00 03/01/2015 - 100,000.00 98,689.00 4.000 4.180000 98.689000 567,500.00 667,500.00 - 667,500.00 09/01/2015 - - - - - - 565,500.00 565,500.00 1,233,000.00 565,500.00 03/01/2016 - 100,000.00 99,006.00 4.125 4.250000 99.006000 565,500.00 665,500.00 - 23,915,500.00 09/01/2016 - - - - - - 563,437.50 563,437.50 1,228,937.50 - 03/01/2017 - 100,000.00 * 99,568.00 4.250 4.300000 99.568000 563,437.50 663,437.50 - - 09/01/2017 - - - - - - 561,312.50 561,312.50 1,224,750.00 - 03/01/2018 - 100,000.00 ' 99,083.00 4.250 4.350000 99.083000 561,312.50 661,312.50 - - 09/01/2018 - - - - - - 559,187.50 559,187.50 1,220,500.00 - 03/01/2019 - 940,000.00 ' 935,431.60 4.500 4.550000 99.514000 559,187.50 1,499,187.50 - - 09/01/2019 - - - - - - 538,037.50 538,037.50 2,037,225.00 - 03/01/2020 - 1,070,000.00 ' 1,112,564.60 5.000 4.490000 103.978000 538,037.50 1,608,037.50 - - 09/01/2020 - - - - - - 511,287.50 511,287.50 2,119,325.00 - 03/01/2021 - 1,145,000.00 ' 1,187,800.10 5.000 4.520000 103.738000 511,287.50 1,656,287.50 - - 09/01/2021 - - - - - - 482,662.50 482,662.50 2,138,950.00 - 03/01/2022 - 1,220,000.00 ' 1,262,687.80 5.000 4.550000 103.499000 482,662.50 1,702,662,50 - - 09/01/2022 - - - - - - 452,162.50 452,162.50 2,154,825.00 - 03/01/2023 - 1,670,000.00 ' 1,724,442.00 5.000 4.580000 103.260000 452,162.50 2,122,162,50 - - 09/01/2023 - - - - - - 410,412.50 410,412.50 2,532,575.00 - 03/01/2024 - 1,645,000.00 * 1,702,558.55 5.000 4.550000 103.499000 410,412.50 2,055,412.50 - - 09/01/2024 - - - - - - 369,287.50 369,287.50 2,424,700.00 - 03/01/2025 - 1,745,000.00 ' 1,803,283.00 5.000 4.570000 103.340000 369,287,50 2,114,287.50 - - 09/01/2025 - - - - - - 325,662.50 325,662.50 2,439,950.00 - 03/01/2026 - 1,845,000.00 ' 1,903,689.45 5.000 4.590000 103.181000 325,662,50 2,170,662.50 - - 09/01/2026 - - - - - - 279,537.50 279,537.50 2,450,200.00 - 03/01/2027 - 1,945,000.00 ' 1,945,000.00 4.750 4.750000 100.000000 279,537,50 2,224,537.50 - - 09/01/2027 - - - - - - 233,343.75 233,343.75 2,457,881.25 - 03/01/2028 - (1) 3,080,000.00 * 3,050,185.60 4.750 4.821850 99.032000 233,343.75 3,313,343.75 - - 09/01/2028 - - - - - - 160,193.75 160,193.75 3,473,537.50 - 03/01/2029 9,825,000.00 (1) 6,745,000.00 * 6,679,708.40 4.750 4.820000 99.032000 160,193.75 6,905,193.75 6,905,193.75 - Total 9,825,000.00 24,000,000.00 24,255,793.10 22,063,800.00 46,063,800.00 46,063,800.00 35,170,750.00 Acc Int - - - -22,497.22 -22,497.22 - - • Page-23 i 1 a I a I 1 a I I I I a a a a a a a Term Bond Bond Coupon Interest Total Fiscal Year Debt Service - Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call Grand Totals 9,825,000.00 24,000,000.00 24,255,793.10 22,041,302.78 46,041,302.78 46,063,800.00 35,170,750.00 •-Bonds callable... 03/01/2016 @ 100.000 TIC(Incl.all expenses)....4.79850460% Average Coupon 4.83071332% Net Eff. Int.Rate(Texas Vernon's)= 4.774709%(with Adjstmnt of$0.00). TIC(Arbitrage TIC) 4.74051079% Average Life(yrs)... 19.03 IRS Form 8038-G NIC =4.734732%(with Adjstmnt of$0.00). Bond Years 456,740.00 WAM(yrs) 18.969541 NIC= 4.774709%(with Adjstmnt of$0.00). Term bonds and their respective sinking payments are marked by "(n)" where each"n"identifies each respective term bond. PEARLANDCITYOFGO:NEW06 Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:20 v7.53 Page-24 I I I I I I I I I I I a I I I I a 0 City of Pearland,Texas-General Obligation Debt Proof of Federal Arbitrage Yield REVISED Final Numbers-June 2,2006 Dated Date 06/01/2006 Permanent Improvement 8 Refunding Bonds,Series 2006 Delivery Date 06/08/2006 Disc Term Proceeds to: Interest to: Total(1) PV of Adj D/S Recoverable Bond Face Bondholder(+) Maturing Bondholder(+) Total Adjusted to 06/08/2006 Recurring Adjustments Dates Amounts Issuer(-) Amounts Issuer(-) Fees Debt Service for Yld Calc Cash Flow @ 4.74051079% 06/08/2006 0.00 -24,255,793.10 0.00 -24,278,290.32 0.00 0.00 0.00 -24,278,290.32 -24,278,290.32 03/01/2007 50,000.00 50,104.50 50,000.00 1,785,500.00 0.00 917,750.00 0.00 917,750.00 886,868.77 09/01/2007 0.00 0.00 0.00 1,155,000.00 0.00 577,500.00 0.00 577,500.00 545,146.43 03/01/2008 50,000.00 50,238.50 50,000.00 1,205,000.00 0.00 627,500.00 0.00 627,500.00 578,630.24 09/01/2008 0.00 0.00 0.00 1,153,000.00 0.00 576,500.00 0.00 576,500.00 519,293.54 03/01/2009 50,000.00 50,370.50 50,000.00 1,203,000.00 0.00 626,500.00 0.00 626,500.00 551,265.60 09/01/2009 0.00 0.00 0.00 1,151,000.00 0.00 575,500.00 0 00 575,500.00 494,665.20 03/01/2010 50,000.00 50,463.50 50,000.00 1,201,000.00 0.00 625,500.00 0.00 625,500.00 525,193.76 09/01/2010 0.00 0.00 0.00 1,149,000.00 0.00 574,500.00 0.00 574,500.00 471,203.48 03/01/2011 50,000.00 50,513.00 50,000.00 1,199,000.00 0.00 624,500.00 0.00 624,500.00 500,353.70 09/01/2011 0.00 0.00 0.00 1,147,000.00 0,00 573,500.00 0.00 573,500.00 448,853.18 03/01/2012 100,000.00 100,708.00 100,000.00 1,247,000.00 0.00 673,500.00 0.00 673,500.00 514,914.00 09/01/2012 0.00 0.00 0.00 1,143,000.00 0.00 571,500.00 0.00 571,500.00 426,81488 03101/2013 100,000.00 100,229.00 100,000.00 1,243,000.00 0.00 671,500.00 0.00 671,500.00 489,886.58 09/01/2013 0.00 0.00 0.00 1,139,000.00 0.00 569,500.00 0.00 569,500.00 405,853,66 03/01/2014 100,000.00 99,469.00 100,000.00 1,239.000.00 0.00 669,500.00 0.00 669,500.00 466,071.49 09/0112014 0.00 0.00 0.00 1,135,000.00 0.00 567,500.00 0.00 567,500.00 385,917,11 03/01/2015 100,000.00 98,689.00 100,000.00 1,235,000.00 0.00 667,500.00 0.00 667,500.00 443,410.17 09/01/2015 0.00 0.00 0.00 1,131,000.00 0.00 565,500.00 0.00 565,500.00 366,955.33 03/01/2016 100,000.00 99,006.00 100,000.00 11,571,000.00 0.00 665,500.00 0.00 11,005,50000 6,976,162.42 09/01/2016 0.00 0.00 0.00 868,375.00 0.00 563,437.50 0.00 304,937.50 188,818 20 03/01/2017 100,000.00 99,568.00 100,000.00 968,375.00 0.00 663,437.50 0.00 404,937.50 244,932.96 09/01/2017 0.00 0.00 0.00 864,125.00 0.00 561,312.50 0.00 302,812.50 178,920.15 03/01/2018 100,000.00 99,083.00 100,000.00 964,125.00 0.00 661,312.50 0.00 402,812.50 232,495.52 09/01/2018 0.00 0.00 0.00 659,875.00 0.00 559,187.50 0.00 300,687.50 169,532.61 03/01/2019 940,000.00 935,431.60 940,000.00 1,799,875.00 0.00 1,499,187.50 0.00 1,240,687.50 683,323 71 09/01/2019 0.00 0.00 0.00 817,575.00 0.00 538,037.50 0.00 279,537.50 150,393.95 03/01/2020 1,070,000.00 1,112,564.60 1,070,000.00 817,575.00 0.00 1,608,037.50 0.00 279,537.50 146,911.77 09/01/2020 0.00 0.00 0.00 790,825.00 0.00 511,287.50 0.00 279,537.50 143,510.21 03/01/2021 1,145,000.00 1,187,800.10 1,145,000.00 790,825.00 0.00 1,656,287.50 0.00 279,537.50 140,187.41 09/01/2021 0.00 0.00 0.00 762,200.00 0.00 482,662.50 0.00 279,537.50 136,941.55 03/01/2022 1,220,000.00 1,262,687.80 ' 1,220,000.00 762,200.00 0.00 1,702,662.50 0.00 279,537.50 133,770.84 09/0112022 0.00 0.00 0.00 731,700.00 0.00 452,162.50 0.00 279,537.50 130,673.54 03/01/2023 1,670,000.00 1,724,442.00 1,670,000.00 731,700.00 0.00 2,122,162.50 0.00 279,537.50 127,647.96 09/01/2023 0.00 0.00 0.00 689,950.00 0.00 410,412.50 0.00 279,537.50 124,692.43 03101/2024 1,645,000.00 1,702,558.55 1,645,000.00 689,950.00 0.00 2,055,412.50 0.00 279,537.50 121,805.33 09/01/2024 0.00 0.00 0.00 648,825.00 0.00 369,287.50 0.00 279,537.50 118,985.08 03/01/2025 1,745,000.00 1,803,283.00 1,745,000.00 648,825.00 0.00 2,114,287.50 0.00 279,537.50 116,230.13 09/01/2025 0.00 0.00 0.00 605,200.00 000 325,662.50 0.00 279,537.50 113,538.97 03/01/2026 1,845,000.00 1,903,689.45 1,845,000.00 605,200.00 0.00 2,170,662.50 0.00 279,537.50 110,910.11 09/01/2026 0.00 0.00 0.00 559,075.00 0.00 279,537.50 0.00 279,537.50 108,342.13 03/01/2027 1,945,000.00 1,945,000.00 1,945,000.00 2,504,075.00 0.00 2,224,537.50 0.00 2,224,537.50 842,215.50 09/01/2027 0.00 0.00 0.00 466,687.50 0.00 233,343.75 0.00 233,343.75 86,299.02 03/01/2028 3,080,000.00 3,050,185.60 3,080,000.00 3,546,687.50 0.00 3,313,343.75 0.00 3,313,343.75 1,197,022.79 09/01/2028 0.00 0 00 0.00 320,387.50 0.00 160,193.75 0.00 160,193.75 56,533 74 03/01/2029 6,745,000.00 6,679,708.40 6,745,000.00 7,065,387.50 0.00 6,905,193.75 0.00 6,905,193.75 2,380,478.25 t Page-25 I a a 1 1 1 a I 1 1 a I I a I a a a a Proceeds to: Interest to: Disc Term Total(1) PV of Adj D/S Recoverable Bond Face Bondholder(+) Maturing Bondholder(+) Total Adjusted to 06/O8/2006 Dates Amounts Issuer(-) Amounts Issuer(-) Recurring Debt Service Adjustments Cash Flow @ 4.74051079% Fees for Yld Calc Totals 24,000,000.00 0.00 24,000,000.00 40,032,809.68 0.00 46,063,800.00 0.00 17,969,009,68 -95,716.94 Plus PV of Bond Insurance 95,716.94 0.00 (1)--Adjustments to cash flow are based on the following"yield to call"optional redemption schedule: NEW06--Call the 03/01/2020 maturity on 03/01/2016©100.000 NEW06--Call the 03/01/2021 maturity on 03/01/2016 @ 100.000 NEW06--Call the 03/01/2022 maturity on 03/01/2016 @ 100.000 NEW06--Call the 03/01/2023 maturity on 03/01/2016 @ 100.000 NEW06--Call the 03/01/2024 maturity on 03/01/2016 @ 100.000 NEW06--Call the 03/01/2025 maturity on 03/01/2016 @ 100.000 NEW06--Call the 03/0112026 maturity on 03/01/2016 @ 100.000 PEARLANDCITYOFGO:NEW06 Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:21 v7.53 Page-26 I I 1 I 1 1 1 r 1 1 r 1 1 I 1 1 1 1 1 City of Pearland,Texas-General Obligation Debt Issuance Expenses for NEW06 REVISED Final Numbers-June 2,2006 . Expenses for NEW06 Expense Raises Exp has no Expense Title Type Units Arb Yield Affect Total on Arb Yield Underwriter's Discount F 67,502.96 0.00 67,502.96 67,502.96 Rating Agency F 0.00 0.00 0.00 0.00 Bond Counsel F 0.00 0.00 0.00 0.00 Accountant/CPA F 0.00 0.00 0.00 0.00 Printing F 0.00 0.00 0.00 0.00 Trustee F 0.00 0.00 0.00 0.00 Bond Insurance F 95,716.94 95,716.94 0.00 95,716.94 Totals $95,716.94 $67,502.96 $163,219.90 Type: F-Fixed Expense V-Variable Expense Based on Issue Size . D-Variable Expense Based on Total Debt Service E-Variable Expense Based on Total Debt Service Less Accrued Interest R-Variable Expense Based on Reserve Fund Requirement PEARLANDCITYOFGO:EXPO6 Prepared by:RBC Capital Markets-Houston,Texas(713)651-3340(JHR) 06/02/2006 @ 14:21 v7.53 r Page-27 Po r EXHIBIT B ESCROW AGENT COMPENSATION i PM i i OM i i i i i HOU:2573855.2 Sherri H. Owen Wells Fargo Bank WELLS Corporate Trust Services FArt c o 1445 Ross Avenue, 2nd Floor Dallas, Texas 75202 Tel: (214) 668-6450 Fax: (214)777-4086 SCHEDULE OF FEES $32,165,000 City of Pearland, Texas Permanent Improvement and Refunding Bonds, Series 2006 To act as PAYING AGENT& REGISTRAR& ESCROW AGENT Acceptance Fee: $0.00 Initial Fees as they relate to Wells Fargo Bank acting in the capacity of Paying Agent/Registrar— includes creation and examination of the Paying Agent/Registrar Agreement; acceptance of the appointment; setting up of Paying Agent/Registrar records and accounting records; and coordination of closing. Acceptance Fee payable at time of Paying Agent/Registrar Agreement execution. Annual Administration Fee: $500.00 For ordinary administration services by Paying Agent/Registrar — includes daily routine account management; investment transactions; cash transaction processing in accordance with the agreement; and mailing of trust account statements to all applicable parties. Float credit received by the bank for receiving funds that remain uninvested are deemed part of the Paying Agent's compensation. The Annual Administration fees are payable in advance, with the first installment due at closing. Escrow Administration Fee : $500.00 For ordinary administration services by Escrow Agent through maturity of 9/1/06 includes daily routine account management; investment transactions; cash transaction processing in accordance with the agreement; and mailing of trust account statements to all applicable parties. Float credit received by the bank for receiving funds that remain uninvested are deemed part of the Paying Agent's compensation. The Administration fees are payable in advance, with the first installment due at closing. Out of Pocket Expenses: We only charge for out of pocket expenses in response to specific tasks assigned by the client. Therefore, we cannot anticipate what specific out-of-pocket items will be needed or what corresponding expenses will be incurred. Possible expenses would be, but are not limited to, express mail and messenger charges, travel expenses to attend closing or other meetings. There are no charges for indirect out-of- pocket expenses. This fee schedule is based upon the assumptions listed above which pertain to the responsibilities and risks involved in Wells Fargo undertaking the role of Paying Agent/Registrar. These assumptions are based on information provided to us as of the date of this fee schedule. Our fee schedule is subject to review and acceptance of the final documents. Should any of the assumptions, duties or responsibilities change, we reserve the right to affirm, modify or rescind our fee schedule. Submitted by: Sherri H. Owen—May 15, 2006 Vice President/Business Development Wells Fargo Bank (214)668-6450 P# PA ESCROW Wells Fargo Bank, N.A. Certified Copy of General Signature LLS FARGO Corporate Trust Services Resolution Relating to Execution of Written Instruments I, Patricia Aston, an Assistant Secretary of Wells Fargo Bank, National Association, a national banking association organized under the laws of the United States of America (the"Bank"), hereby certify that: The following is a true and correct extract from resolutions duly adopted by the Board of Directors of the Bank on November 25, 2003, F and that no modification, amendment, rescission or revocation of such resolutions has occurred affecting such extract as of the date of this certificate, and that the resolutions remain in full force and effect on the date hereof: RESOLVED,that agreements, instruments, or other documents, including amendments and modifications thereto, relating to or affecting the property or business and affairs of the Bank,whether acting for its own account or in a fiduciary or other representative capacity, may be executed in its name by the persons hereinafter authorized; FURTHER RESOLVED, that for the purposes of these resolutions, "Executive Officer"shall mean any person ► specifically designated as an Executive Officer of the Bank by resolution of the Board of Directors, and"Signing Officer"shall mean the Chairman of the Board, the President, any Vice Chairman, any Executive Vice President, any Senior Vice President, the Treasurer, any Vice President, any Assistant Vice President, any person whose title includes the word"Officer" (e.g., Commercial Banking Officer, Personal Banking Officer, Trust Officer), or any other person whose title has been or is hereafter r" designated by the Board of Directors as a title for an officer of the Bank, and such officers are hereby authorized to sign agreements, instruments and other documents on behalf of the Bank in accordance with the signing authorities conferred in Parts A, B and C of these resolutions; A. Executive Officers FURTHER RESOLVED,that the Chairman,the President, any Vice Chairman, any Executive Vice President and any Executive Officer of the Bank, acting alone, may execute agreements, guaranties, instruments or other documents which such officer may deem necessary, proper or expedient to the conduct of the business of the Bank; B. Vice Presidents and Above FURTHER RESOLVED,that the Chairman,the President, any Vice Chairman, any Executive Vice President, any Senior Vice President and any Vice President, acting alone, may execute on behalf of the Bank: Deeds, leases, assignments, bills of sale, purchase agreements and other instruments of conveyance to purchase, sell, lease or sublease to or from a third party real property, or any interest therein,for the Bank's own account; provided, however, that such agreements, instruments and other documents may also be signed as hereinafter provided with respect to real property acquired by the Bank in connection with collateral for a loan. Bonds of indemnity and powers of attorney; provided, however,that proxies to vote stock in a corporation or to vote other interests in other legal entities and stock and bond powers may also be signed as hereinafter provided. C. Signing Officers FURTHER RESOLVED, that any Signing Officer, acting alone, may execute on behalf of the Bank,whether acting for its own account or in a fiduciary or other representative capacity: Receipts for any funds or other property paid or delivered to the Bank. Guaranties of signatures,whether appearing as endorsements of bonds, certificates of stock, or other securities, including without limitation medallion guaranties provided in connection with a medallion stamp, or otherwise. Agreements and proposals to provide services to or receive services from third parties. ... Trust indentures, declarations of trust,trust and agency agreements, pooling and servicing agreements, fiscal and paying agency agreements, acceptances thereof, consents thereto and any similar agreements, however denominated,to which the Bank is a party in a fiduciary or other representative capacity; certificates of authentication or other indicia of valid issuance with respect to bonds, notes, debentures and other securities or obligations issued under any indenture, mortgage,trust or other agreement; certificates for securities deposited, interim certificates and other certificates for and on behalf of the Bank as depository or agent; countersignatures of stocks, bonds, notes, debentures, voting trust certificates, participation certificates and other certificates, instruments, obligations or other securities on behalf of the Bank as trustee, fiscal and paying agent,transfer agent, registrar or in another similar capacity; and certificates of cancellation and cremation of stocks, bonds, debentures or other securities. ... FURTHER RESOLVED,that the signature of the Secretary or of any Assistant Secretary of the Bank shall be required to certify any resolution adopted by the Board of Directors of the Bank or any committee thereof, the incumbency, title or signature of any officer of the Bank and any designation of authority under these resolutions or otherwise, and the Secretary or any Assistant Secretary of the Bank may also certify any records or other documents created in the ordinary course of the business of the Bank. ,. I further certify that on ,the following named person is/was a duly appointed, qualified and acting Signing Officer of Wells Fargo Bank, N.A.,that their correct title and genuine signature appears beside their name, and that on said date they were duly authorized to act on behalf of the Bank as set forth in the foregoing resolution: Name Title Signature Pamela M. Black Vice President Mark A. Dunn Vice President t Christina Faith Vice President Greg Hasty Vice President Sherri H. Owen Vice President Melissa Scott Vice President Greg L. Stites Vice President Deirdre H.Ward Vice President Cheri Whitford Assistant Vice President IMO Diana Dietsch-Alardin Vice President Varleen Doyle Vice President Gloria Thomas Vice President Juanita A.Webb Vice President IN WITNESS WHEREOF, I have hereunto signed my name this L4))jk Assistant Secretary ... Redacted [Indicates portions of the resolutions have intentionally been omitted because the sections are not relevant to the transaction for which this certification has been requested.] UPI This Official Notice of Sale does not alone constitute an offer to sell but is merely notice of sale of the Bonds described herein. The offer to sell such Bonds is being made by means of this Official Notice of Sale. the Official Bid Form and the Preliminary Official Statement. OFFICIAL NOTICE OF SALE CITY OF PEARLAND, TEXAS (Brazoria and Harris Counties,Texas) r r $32,165,000* r PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006 r r r Sealed Bids Will Be Received Monday,May 8,2006 at 1:00 P.M. Houston Time * Preliminary,subject to change. See"Adjustment of Principal Amounts." This Official Notice of Sale does not alone constitute an invitation for bids but is merely notice of sale of the Bonds described herein. The invitation for bids on such Bonds is being made by means of this Official Notice of Sale,the Official Bid Form and the Official Statement. Prospective purchasers are urged to carefully examine all the documents to determine the investment quality of the Bonds. OFFICIAL NOTICE OF SALE $32,165,000* _ CITY OF PEARLAND,TEXAS (Brazoria and Harris Counties,Texas) PERMANENT IMPROVEMENT AND REFUNDING BONDS SERIES 2006 THE SALE PERMANENT IMPROVEMENT AND REFUNDING BONDS OFFERED FOR SALE AT COMPETITIVE BIDS: The City Council (the "Council") of The City of Pearland, Texas (the "City") is offering for sale at competitive bid its$32.165,000*Permanent Improvement and Refunding Bonds,Series 2006(the"Bonds). PLACE AND TIME OF SALE: The Council will receive sealed bids at the City Hall, 3519 Liberty Drive, Pearland, Texas 77581 until 1:00 P.M.. Houston Time. Monday, May 8, 2006, and the bids will be opened and publicly read at 7:00 P.M. Sealed bids, which must be submitted in duplicate on the Official Bid Form and plainly marked "Bid for Bonds," are to be addressed to "Mayor and City Council, City of Pearland.Texas." All bids must be delivered at the above address prior to the above-scheduled time. Any bid received after such scheduled time for bid opening will not be accepted and will be returned unopened. ELECTRONIC BIDDING PROCEDURE: Any prospective bidder that intends to submit an electronic bid must submit its electronic bid through the facilities of PARITY. Bidders must submit, prior to Monday, May 8, 2006, SIGNED Official Bid Forms, in duplicate, to Ryan O'Hara, RBC Capital Markets. 1001 Fannin. Suite 400, Houston, IMP Texas 77002. Subscription to the i-Deal's BIDCOMP Competitive Bidding System is required in order to submit an electronic bid. The City will neither confirm any subscription nor be responsible for the failure of any prospective bidder to subscribe. Electronic bids must be received via PARITY in the manner described below,no later than 1:00 P.M.,Houston Time,on Monday,May 8,2006. Electronic bids must be submitted via PARITY in accordance with this Official Notice of Sale,no later than 1:00 P.M., Houston Time, but no bid will be received after the time for receiving bids specified above. An electronic bid made through the facilities of PARITY shall be deemed an irrevocable offer to purchase the Bonds on the terms provided in the Official Notice of Sale,and shall be binding upon the bidder as if made by a signed,sealed bid delivered to the City. The City shall not be responsible for any malfunction or mistake made by,or as a result of the use of the facilities of, PARITY,the use of such facilities being the sole risk of the prospective bidder. If any provisions of the Official Notice of Sale shall conflict with information provided by PARITY as the approved provider of electronic bidding services,this Official Notice of Sale shall control. Further information about PARITY, including any fee charged.may be obtained from i-Deal.395 Hudson Street,New York,New York 10014,(212)806- 8304. For purposes of both the written bid process and the electronic bidding process, the time as maintained by PARITY shall constitute the official time. For information purposes only, bidders are requested to state in their electronic bids the net interest cost to the City,as described under"CONDITIONS OF THE SALE -Basis of Award" below. All electronic bids shall be deemed to incorporate the provisions of this Official Notice of Sale and the Official Bid Form. * Preliminary,subject to change. See"Adjustment of Principal Amounts." BIDS BY TELEPHONE OR FACSIMILE: Bidders must submit,prior to Monday,May 8.2006,SIGNED Official Bid Forms, in duplicate, to Ryan O'Hara, RBC Capital Markets, 1001 Fannin. Suite 400. Houston,Texas 77002 and submit their bid by telephone or facsimile(fax)on the date of sale by 1:00 P.M..Houston Time Ryan O'Hara of RBC Capital Markets will call telephone bidders who have submitted SIGNED Official Bid Forms prior to the date of the sale. Fax bids must be received by 1:00 P.M., Houston Time,on the date of the sale. Contact Ryan O'Hara of RBC Capital Markets on the day of the sale to obtain the fax phone numbers. RBC Capital Markets will not be responsible for the submission of any bids received after the above deadlines. RBC Capital Markets assumes no responsibility or liability with respect to any irregularities associated with the submission of any bids. AWARD OF THE BONDS: The Council will take action to award the Bonds(or reject all bids) at a meeting of the City Council on the date of the bid opening, and will adopt an ordinance authorizing the Bonds and approving the Official Statement (the "Ordinance"). The City reserves the right to reject any or all bids and to waive any a• irregularities except time of filing. THE BONDS DESCRIPTION: The Bonds will be dated June 1, 2006 and interest will be calculated on the basis of a 360-day year of twelve 30-day months. Interest on the Bonds will be paid on March 1, 2007, and semiannually on September 1 and March 1 of each year thereafter until maturity or prior redemption. The Bonds maturing on or after March 1, 2017 are subject to redemption prior to their scheduled maturities on March 1, 2016, or any date thereafter, at the option of the City. Upon redemption the Bonds will be payable at a price equal to the principal amount thereof plus accrued interest to the date of redemption. The Bonds will be issued in fully registered form in principal amounts of$5,000 or any integral multiple thereof. Principal and semiannual interest will be paid by Wells Fargo Bank Texas,N.A.,Houston,Texas,the Paying Agent/Registrar. Interest will be paid by check dated as of the interest payment date and mailed on or before each interest payment date by the Paying Agent/Registrar to the registered owner appearing on the Paying Agent/Registrar's books on the Record Date (hereinafter defined). .. Principal will be paid to the registered owners at maturity upon presentation of the Bonds to the Paying Agent/Registrar. The Bonds will mature March 1 in each year as follows:, - Maturity Principal Maturity Principal Date Amount* Date Amount* 2007 $ 50,000 2019 $1,335,000 .. 2008 50.000 2020 1,485,000 2009 50,000 2021 1.580,000 2010 50.000 2022 1.675,000 2011 320.000 2023 2.150.000 2012 385,000 2024 2,150.000 2013 400.000 2025 2.270,000 2014 410.000 2026 2,395,000 2015 430.000 2027 2.525.000 2016 445,000 2028 3.690,000 2017 460,000 2029 7.380.000 2018 480.000 * Preliminary, subject to change. See"Adjustment of Principal Amounts." ii urn ADJUSTMENT OF PRINCIPAL AMOUNTS: Prior to receiving bids on the Bonds the Council may, in its sole discretion,adjust the principal amounts set forth above(the"Maturity Schedule"). The City will give notice of any such adjustment no later than 2:00 P.M.Houston Time on the Sale Date. If.after final computation of the Bids, in awarding the sale to the best bidder,the City may determine that the funds necessary to carry out the purposes for which the Bonds are to be issued is either more or less than the proceeds of the proposed sale of all of the Bonds, the City reserves the right to adjust, by no more than five percent (5.0%)the principal amount of the Bonds(including amortization installments in the case of Term Bonds, if any)shown on the Maturity Schedule. All calculations will be rounded to the nearest$5,000. The amount of Bonds maturing in each year may be increased or decreased by more than five percent(5.0%)so long as the City adheres to the overall five percent(5.0%)limitation on the amount of change to the total principal amount. If the City exercises its right to adjust the principal amount of the Bonds, the City agrees that any such adjustment(s) of the affected bid shall be contingent upon the preservation of the bidder's underwriting spread, as ow contemplated by the original bid. The winning bidder's acceptance of any adjustment(s)of the principal amount of the Bonds shall be verbally confirmed by (and subject to the verbal confirmation of) the City's financial advisor prior to the execution of the winning bid by the Council. SOURCE OF PAYMENT: The Bonds are direct obligations of the City, and the principal thereof and interest thereon are payable solely from the proceeds of an annual ad valorem tax levied upon all taxable property within the City,within the limits prescribed by law. 111. BOOK-ENTRY-ONLY SYSTEM: The City intends to utilize the Book-Entry-Only System of The Depository Trust Company("DTC"). CONDITIONS OF THE SALE TYPES OF BIDS AND INTEREST RATES: The Bonds will be sold in one block on an "All or None" basis,and at a price of not less than their par value plus accrued interest to the date of delivery of the Bonds. Bidders are invited to name the rate(s) of interest to be borne by the Bonds provided that each rate bid must be in a multiple of 1/8 of 1% or 1/20 of 1% and the net effective interest rate for the Bonds (calculated in the manner required by Chapter 1204, Texas Government Code, as amended) must not exceed 15%. The highest rate bid may not exceed the lowest rate bid by more than 2% in rate. No limitation is imposed upon bidders as to the number of rates or changes which may be used. All Bonds of one maturity must bear one and the same rate. No bids involving supplemental interest rates will be considered. Each bidder shall state in his bid the total interest cost in dollars and the net effective interest rate determined hereby, which shall be considered informative only and not as a part of the bid. BASIS OF AWARD: The sale of the Bonds will be awarded to the bidder making a bid that conforms to the specifications herein and which produces the lowest net interest cost rate to the City. The net interest cost rate is that annual rate which, when used to compute the total present value as of the dated date of the Bonds of all debt service payments on the Bonds on the basis of semi-annual compounding, using a 360-day year composed of 12 consecutive 30-day months,produces an amount equal to the sum of the par value of the Bonds plus any premium bid (but not interest accrued from the dated date of the Bonds to the date of their delivery). For the purpose of calculating the net interest cost rate,the principal amount of Bonds scheduled for maturity sinking fund redemption as part of a term bond shall be treated as a serial maturity in each year. In the event of the bidder's error in interest cost calculations,the interest rates set forth in the Official Bid Form will be considered as the intended bid. GOOD FAITH DEPOSIT: A Good Faith Deposit,payable to the"City of Pearland" in the amount of$643,300 is required. Such Good Faith Deposit shall be in the form of a Cashier's Check, which is to be retained uncashed by the City pending the Purchaser's compliance with the terms of its bid and the Notice of Sale and Bidding Instructions. The Good Faith Deposit may accompany the Official Bid Form or it may be submitted separately. If submitted separately. it shall be made available to the City prior to the opening of the bids. and shall be lit vs. accompanied by instructions from the bank on which drawn which authorize its use as a Good Faith Deposit by the Purchaser who shall be named in such instructions. Unless otherwise agreed, the Good Faith Deposit will be returned to the purchaser of the Bonds on the date of delivery of the Bonds. No interest will be allowed on the Good Faith Deposit. In the event the Purchaser should fail or refuse to take up and pay for the Bonds in accordance with its bid,then said check shall be cashed and accepted by the City as full and complete liquidated damages. The checks accompanying bids other than the winning bid will be returned immediately after the bids are opened,and an award of the Bonds has been made. FINANCIAL ADVISOR'S RIGHT TO BID: The City has given RBC Capital Markets,its Financial Advisor,the right to bid on the Bonds. RBC Capital Markets is the trade name under which RBC Dain Rauscher Inc..a broker- dealer,conducts its investment banking business. INITIAL OFFERING PRICE BOND: To provide the City with information to enable it to comply with certain conditions of the Internal Revenue Code of 1986 relating to the exclusion of interest on the Bonds from gross income for federal income tax purposes, the successful bidder will be required to complete. execute, and deliver to v• the City, at the time that the Bonds are awarded, a certification regarding "issue price" substantially in the form attached hereto. If the successful bidder will not reoffer the Bonds for sale or has not sold a substantial amount of the Bonds of any maturity by the date of delivery, such certificate may be modified in a manner approved by the City and the City's Bond Counsel (as hereinafter defined). In no event will the City fail to deliver the Bonds as a result of the successful bidder's inability to certify actual sales of Bonds at a particular price prior to delivery. Each bidder,by submitting its bid, agrees to complete,execute,and deliver such a certificate by the date of the award of the Bonds, if its bid is accepted by the City. It will be the responsibility of the successful bidder to institute such .. syndicate reporting requirements.to make such investigation,or otherwise to ascertain the facts necessary to enable it to make such certifications with reasonable certainty. Any questions concerning such certification should be directed to Bond Counsel. DELIVERY OF THE BONDS AND ACCOMPANYING DOCUMENTS The delivery of the Bonds is subject to receipt of the opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel for the City,as hereinafter described. CUSIP NUMBERS: It is anticipated that CUSIP identification numbers will appear on the Bonds, but neither the failure to print or type such number on any Bonds nor any error with respect thereto shall constitute cause for a failure or refusal by the Purchaser to accept delivery of and pay for the Bonds in accordance with the terms of this Notice of Sale and the terms of the Official Bid Form. All expenses in relation to the printing or typing of CUSIP numbers on the Bonds shall be paid by the City; provided, however, that the CUSIP Service Bureau fee for the assignment of the numbers shall be the responsibility of and shall be paid for by the Purchaser. INITIAL DELIVERY OF INITIAL BONDS: Initial delivery will be accomplished by the issuance of registered Bonds in the aggregate principal amount of$32.165,000*,payable to the Purchaser,signed by the manual or facsimile signature of the Mayor and City Secretary of the City, approved by the Attorney General, and registered by the Comptroller of Public Accounts. Initial delivery will be at the corporate trust office of the Paying Agent/Registrar. Upon delivery of the Initial Bond. it shall be immediately cancelled,and one definitive Bond for each maturity will be registered and delivered only to Cede & Co., and deposited with DTC in connection with DTC's Book-Entry-Only System. Payment for the Bonds must be made in immediately available funds for unconditional credit to the City,or as otherwise directed by the City. The Purchaser will be given five(5)business days'notice of the time fixed for delivery of the Bonds. It is anticipated that initial delivery of the Initial Bonds can be made on or about June 8,2006,and it is understood and agreed that the Purchaser will accept delivery and make payment for Initial Bonds by 10:00 A.M., Houston Time on June 8.2006,or thereafter on the date the Bonds are tendered for delivery,up to and including July 6, 2006. If for any reason the City is unable to make delivery on or before July 6,2006,then the City shall immediately contact the Purchaser and offer to allow the Purchaser to extend its offer for an additional fifteen (15) days. If the Purchaser does not elect to extend its offer within six(6)days thereafter,then its Good Faith Deposit will be returned, and both the City and the Purchaser shall be relieved of any further obligation. In no event shall the City be liable for any damages.whether direct,consequential or otherwise,by reason of its failure to deliver the Bonds. iv w CONDITIONS TO DELIVERY: The obligation of the Purchaser to take up and pay for the Bonds is subject to the Purchaser's receipt of(a)the legal opinion of Andrews Kurth LLP,Houston,Texas. Bond Counsel for the City ("Bond Counsel"), (b)a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the Bonds, and (c)the certification as to the Official Statement, all as further described in the Official Statement. LEGAL OPINION: The City will furnish the Purchaser a transcript of certain certified proceedings held incident to the authorization and issuance of the Bonds, including a certified copy of the unqualified approving opinion of the Attorney General of Texas, as recorded in the Bond Register of the Comptroller of Public Accounts of the State of Texas. to the effect that the Bonds, which the Attorney General will have examined, are valid and binding obligations of the City under the Constitution and laws of the State of Texas. The City also will furnish the approving legal opinion of Andrews Kurth LLP, Houston,Texas, Bond Counsel,to the effect that, based upon an examination of such transcript, the Bonds are valid and binding obligations of the City under the Constitution and laws of the State of Texas. The legal opinion of Bond Counsel will further state that(1)taxable property in the City is subject to the levy of a continuing, direct annual ad valorem tax, within the limits prescribed by law, to pay the Bonds and interest thereon and(2)subject to the matters discussed under the caption"TAX EXEMPTION"in the Official Statement, interest on the Bonds is excludable from gross income for federal income tax purposes. The opinion of Bond Counsel is expected to be reproduced on the back panel of the Bonds over a certification by the _ City Clerk of the City attesting that such legal opinion was dated as of the date of delivery of and payment for the Bonds and is a true and correct copy of the original opinion. Errors or omissions in the printing of such legal opinion on the Bonds shall not affect the validity of the Bonds nor constitute cause for the failure or refusal by the Purchaser to accept delivery of and pay for the Bonds. WNW REGISTRATION: The Bonds are transferable only on the bond register kept by the Paying Agent/Registrar upon surrender and reissuance. The Bonds are exchangeable for an equal principal amount of Bonds of the same maturity in any authorized denomination upon surrender of the Bonds to be exchanged at the principal office of the Paying Agent/Registrar. No service charge will be made for any transfer or exchange,but the City may require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith. NO-LITIGATION BOND: The customary closing papers,including a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the Bonds, or, which would affect the provisions made for their payment or security, or in any manner questioning the validity of said Bonds will also be furnished. IMP NO MATERIAL ADVERSE CHANGE: The obligations of the Initial Purchaser to take up and pay for the Bonds, and of the City to deliver the Bonds, are subject to the condition that, up to the time of delivery of and receipt of payment for the Bonds, there shall have been no material adverse change in the condition (financial or otherwise) of the City subsequent to the date of sale from that set forth or contemplated in the Preliminary Official Statement,as it may have been supplemented or amended through the date of sale. CHANGE IN TAX EXEMPT STATUS: At any time before the Bonds are tendered for delivery, the Purchaser may withdraw its bid if the interest received by private owners of bonds of the same type and character as the Bonds shall be declared to be taxable income under present federal income tax laws, either by ruling of the Internal Revenue Service or by a decision of any Federal court, or shall be declared taxable or be required to be taken into account in computing any federal income taxes, by the terms of any federal income tax law enacted subsequent to the date of this Official Notice of Sale. CONTINUING DISCLOSURE AGREEMENT: The City will agree in the Ordinance authorizing the Bonds to provide certain periodic information and notices of material events in accordance with the Securities and Exchange Commission Rule 15c2-12, as described in the Preliminary Official Statement under "CONTINUING DISCLOSURE OF INFORMATION." The Purchaser's obligation to accept and pay for the Bonds is conditioned upon delivery to the Purchaser or its agent of a certified copy of the Ordinance containing the agreement described under such heading. * Preliminary,subject to change. See"Adjustment of Principal Amounts." ow GENERAL CONSIDERATIONS FINANCIAL ADVISOR: RBC Capital Markets is employed as Financial Advisor to the City in connection with the issuance of the Bonds. The Financial Advisor's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. RBC Capital Markets,in its capacity as Financial Advisor, has not verified and does not assume any responsibility for the information,covenants and representations contained in any of the legal documentation with respect to the federal income tax status of the Bonds. RBC Capital Markets is the trade name under which RBC Dain Rauscher Inc.,a broker-dealer,conducts its investment banking business. SECURITIES REGISTRATION AND QUALIFICATION: No registration statement relating to the Bonds has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, in reliance upon exemptions provided thereunder. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein;nor have the Bonds been registered or qualified under the securities laws or regulations of any other jurisdiction. The City assumes no responsibility for registration or qualification of the Bonds under the securities laws or regulations of any other jurisdiction in which the Bonds may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions in such other jurisdictions. MIR By submission of a bid,the Initial Purchaser represents that the sale of the Bonds in states other than Texas will be made only pursuant to exemptions from registration or qualification or, where necessary. the Initial Purchaser will register or qualify the Bonds in accordance with the securities laws or regulations of any jurisdiction which so sis requires. The City agrees to cooperate, at the Initial Purchaser's written request and expense, in registering or qualifying Bonds, or in obtaining an exemption from registration or qualification, in any jurisdiction where such action is necessary, provided that the City shall not be required to file a consent to service of process in any — jurisdiction. MUNICIPAL BOND INSURANCE: The City has submitted an application for municipal bond insurance under the bidder option program. The premium for such insurance,if any.will be paid by the Purchaser. OFFICIAL STATEMENT ,, By accepting the winning bid,the City agrees to the following representations and covenants to assist the Purchaser in complying with Rule 15c2-12 of the Securities and Exchange Commission("SEC"). FINAL OFFICIAL STATEMENT: The City has prepared the accompanying Official Statement for dissemination to potential purchasers of the Bonds, but will not prepare any other document or version for such purpose except as described below. The Purchaser will be responsible for informing the City of the initial offering yields. The City will prepare a final Official Statement describing these offering yields. the interest rates on the Bonds, the selling compensation. the final debt service schedule, the ratings assigned to the Bonds(if not currently mie included), and the terms of and obligor on any policy of municipal bond insurance. Accordingly. the City deems the accompanying Official Statement to be final as of its date, within the meaning of SEC Rule 15c2-12(bXI), except for the omission of the foregoing items. By delivering the final Official Statement or any amendment or supplement thereto to the Purchaser on or after the sale date, the City represents the same to be complete as of its MINI date, within the meaning of SEC Rule 15c2-12(e)(3). Notwithstanding the foregoing, the only representations concerning the absence of material misstatements or omissions from the Official Statement which are or will be made by the City are those described in the Official Statement under "GENERAL CONSIDERATIONS - Certification as to Official Statement." CHANGES TO OFFICIAL STATEMENT: If, subsequent to the date of the Official Statement,the City learns, through the ordinary course of business and without undertaking any investigation or examination for such purposes. or is notified by the Purchaser of any adverse event which causes the Official Statement to be materially misleading, and unless the Purchaser elects to terminate its obligation to purchase the Bonds, as described above under "DELIVERY OF THE BONDS AND ACCOMPANYING DOCUMENTS - Conditions to Delivery," the vi City will promptly prepare and supply to the Purchaser an appropriate amendment or supplement to the Official Statement satisfactory to the Purchaser; provided, however, that the obligation of the City to do so will terminate when the City delivers the Bonds to the Purchaser, unless the Purchaser notifies the City on or before such date that less than all of the Bonds have been sold to ultimate customers. in which case the City's obligations hereunder will extend for an additional period of time(but not more than 90 days after the date the City delivers the Bonds)until all of the Bonds have been sold to ultimate customers. DELIVERY OF OFFICIAL STATEMENTS: The City will furnish to the Purchaser (and to each other participating purchaser of the Bonds, within the meaning of SEC Rule 15c2-12(a), designated by the Purchaser), within seven days after the sale date, up to 200 copies of the Official Statement. The City will also furnish to the Purchaser a like number of any supplement or amendment prepared by the City for dissemination to potential ra11 purchasers of the Bonds as described above as well as such additional copies of the Official Statement or any supplement or amendment as the Purchaser may request prior to the 90th day after the end of the underwriting period referred to in SEC Rule 15c2-12(e)(2). The City will pay the expense of preparing up to 200 copies of the Official Statement and up to 200 copies of any supplement or amendment issued on or before the delivery date,but the Purchaser must pay for all other copies of the Official Statement or any supplement or amendment thereto. OFFICIAL STATEMENT: Upon the award of the sale of the Bonds, the Preliminary Official Statement will be amended to conform to the terms of the Purchaser's bid and, if necessary, to make certain other changes. In connection therewith, the Purchaser will be required to furnish information concerning the initial resale offering prices and yields of the Bonds as well as the names of the members of the underwriting syndicate. ADDITIONAL COPIES OF NOTICE, BID FORM AND STATEMENT: A limited number of additional copies of this Official Notice of Sale, the Official Bid Form and the Official Statement,as available over and above the normal mailing, may be obtained at the offices of RBC Capital Markets, 1001 Fannin, Suite 400, Houston, Texas,77002,Financial Advisor to the City. On the date of the sale, the City Council will, in the Ordinance authorizing the issuance of the Bonds, confirm its approval of the form and content of the Official Statement,and any addenda,supplement or amendment thereto,and authorize its use in the reoffering of the Bonds by the Purchaser. OM /Si Tom Reid Mayor City of Pearland.Texas April 24,2006 vi OFFICIAL BID FORM May 8.2006 Mayor and City Council ell City of Pearland 3519 Liberty Drive Pearland,Texas 77581 Gentlemen: Subject to the terms of your Official Notice of Sale and Official Statement, dated April 24, 2006, which are w incorporated herein by reference,we hereby submit the following bid for the$32,165.000* CITY OF PEARLAND, TEXAS, PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006,dated June 1, 2006. This offer is being made for all said Bonds and for not less than all. For said legally issued Permanent Improvement and Refunding Bonds, we will pay you the par value thereof, plus accrued interest from their date to the date of delivery to us,plus a cash premium of$ for the Bonds maturing and bearing interest per annum as follows: Maturity Principal Interest Maturity Principal Interest Date Amount* Rate Date Amount* Rate March 1,2007(a) $ 50,000 % March 1.2019(a)(b) $1,335,000 March 1,2008(a) 50,000 March 1,2020(axb) 1.485,000 March 1,2009(a) 50,000 March 1,2021(axb) 1,580,000 March 1,2010(a) 50,000 March 1,2022(axb) 1,675.000 March 1.2011(a) 320,000 March 1,2023(a)(b) 2.150,000 March 1,2012(a) 385,000 March 1,2024(a)(b) 2,150,000 March 1.2013(a) 400.000 March 1.2025(a)(b) 2,270,000 March 1,2014(a) 410,000 March 1,2026(a)(b) 2,395,000 March 1.2015(a) 430,000 March 1,2027(a)(b) 2.525.000 March 1,2016(a) 445.000 March 1,202.8(axb) 3,690.000 March 1,2017(axb) 460,000 March 1,2029(a)(b) 7,380.000 March 1,2018(a)(b) 480,000 (a) At the option of the Initial Purchaser.any or all of such serial maturities may be designated as term bonds subject to mandatory sinking fund redemption as follows: provided that the mandatory sinking fund amount in each year shall equal the amounts shown above as maturing in such year. Term Bonds Years of First Maturity Date Mandatory Principal Amount Interest (March 1) Redemption of Term Bonds* Rate w (b) Subject to optional redemption and payment, at the option of the City, in whole or. from time to time, in part, on March 1, 2016. or on any date thereafter at a price equal to the principal amount thereof, plus w accrued interest to the date fixed for redemption. * Preliminary,subject to change. See"Adjustment of Principal Amounts." INNI Interest cost,in accordance with the above bid,is: Total Interest Cost from June 1,2006 $ Less: Premium $ NET INTEREST COST $ NET EFFECTIVE INTEREST RATE The Initial Bonds shall be registered in the name of , which will, upon payment for the Bonds, be cancelled by the Paying Agent/Registrar.The Bonds will then be registered in the name of Cede & Co. (DTC's partnership nominee),under the Book-Entry-Only System. Cashier's Check of the Bank, ,Texas, in the amount of$643,300 which represents our Good Faith Deposit (is attached hereto) or(has been made available to you prior to the opening of this Bid), and is submitted in accordance with the terms as set forth in the "Official Notice of Sale" and "Official Statement." We agree to accept delivery of the Bonds utilizing the Book-Entry-Only System through DTC and make payment for the Initial Bond in immediately available funds in the Corporate Trust Office,Wells Fargo Bank,N.A.,Houston, Texas.not later than 10:00 AM,CST,on June 8,2006,or thereafter on the date the Bonds are tendered for delivery, pursuant to the terms set forth in the Notice of Sale and Bidding Instructions. It will be the obligation of the purchaser of the Bonds to complete the DTC Eligibility Questionnaire. The undersigned agrees to complete, execute and deliver to the City, by the date of delivery of the Bonds, a certificate relating to the "issue price" of the Bonds in the form and to the effect attached to or accompanying the Official Notice of Sale,with such changes thereto as may be acceptable to the City and its Bond Counsel. Respectfully submitted, a By Authorized Representative ACCEPTED this 8th day of May,2006,the City Council,City of Pearland,Texas. a Mayor a ATTEST: a City Clerk (For your information you will find attached a list of the group of purchasers associated with us in this proposal) a ow • CERTIFICATE REGARDING ISSUE PRICE The undersigned hereby certifies with respect to the sale of$32,165.000* City of Pearland, Texas (the "Issuer"). Permanent Improvement and Refunding Bonds,Series 2006(the"Bonds"): u. 1. The undersigned is a duly authorized representative of the underwriter or of the manager of the syndicate of underwriters(the"Underwriters")which has purchased the Bonds at competitive sale. In this capacity, the undersigned is familiar with the facts stated herein. 2. The term "Initial Offering Prices" means the respective initial offering prices for the Bonds of each maturity(expressed as a dollar amount or percentage of principal amount and exclusive of accrued interest)as .. set forth in the following table: Principal Initial Principal Initial Amount Year of Offering Amount Year of Offering Maturing* Maturity Price Maturing* Maturity Price $ 50,000 March 1,2007 % $1,335,000 March 1,2019 50,000 March 1,2008 % 1,485,000 March 1.2020 .. 50,000 March 1,2009 % 1,580,000 March 1,2021 % 50,000 March 1,2010 % 1,675,000 March 1,2022 320,000 March 1,2011 % 2,150,000 March 1,2023 % 385,000 March 1,2012 % 2,150.000 March 1,2024 % 400,000 March 1,2013 % 2,270,000 March 1,2025 % 410,000 March 1,2014 % 2,395,000 March 1,2026 % 430,000 March 1,2015 % 2,525,000 March I,2027 445.000 March 1,2016 % 3.690,000 March 1,2028 % 460.000 March 1,2017 % 7,380,000 March 1.2029 % 480,000 March 1,2018 % .. 3. The Underwriters purchased the Bonds for contemporaneous sale to the Public and not for investment for their own account. Each of the Bonds has actually been offered to the Public at its respective initial offering prices set forth above in a bona fide public offering of all the Bonds and, as of the Issue Date,a substantial amount of the Bonds(at least ten percent)of each maturity has been sold to the Public in arm's length transactions for cash prices(with no other consideration being included). The initial offering prices do not exceed the respective fair market value for each such maturity of the Bonds as of the Sale Date and are based on actual facts and reasonable expectations in existence on the Sale Date. 4. The term "Sale Date" means the first day on which there was a binding contract in writing for the sale of the Bonds by the Issuer to the Underwriters on specific terms that were not later modified or adjusted in any material respect. In the case of the Bonds,the Sale Date is May 8.2006. a. 5. The term "Issue Date" means the first day on which there is physical delivery of the written evidence of the Bonds in exchange for the purchase price(but not earlier than the day interest on the Bonds begins to accrue for federal income tax purposes). In the case of the Bonds,the Issue Date is June 8,2006. ow 6. The term "Public" shall not include bond houses, brokers, and similar persons or organizations acting in the capacity of wholesalers or underwriters. a. 7. The accrued interest on the Bonds as of the Issue Date is $ . The aggregate of the respective Initial Offering Prices of all of the Bonds, exclusive of accrued interest and without adjustment for any ow costs of issuance,is$ . * Preliminary, subject to change. See"Adjustment of Principal Amounts. a. r .111 8. The Underwriter[has] [has not]purchased bond insurance or another form of credit enhancement ("Guarantee") from securing the payment of the principal of. or interest on, any of the Bonds. With respect to the Guarantee, a. The provider of the Guarantee is (the"Guarantor"). b. The fee or premium paid to the Guarantor for the Guarantee is $ (the "Premium"). The Premium is set forth in the Guarantor's commitment, does not exceed a reasonable charge for the transfer of the credit risk provided by the Guarantee, and does not include any direct or indirect payment or compensation (such as rating agency fees) for any service other than the transfer of such credit risk. The Guarantor has not provided any service other than the Guarantee,except for any such IIIIN service for which the Guarantor has charged a reasonable arm's length price which will be in addition to, and stated separately from,the Premium. No portion of the Premium is refundable upon the redemption or defeasance of any of the Bonds. c. As a result of the Guarantee, the interest rates on the Bonds, are less than those which would have been necessary in order to sell the Bonds at the respective Initial Offering Prices without the Guarantee. As of the Issue Date, the present value of such interest savings expected to result from the Guarantee is greater than the present value of the Premium, using the yield on the Bonds (computed for this purpose by treating the Premium as additional interest on the Bonds)as the discount rate. We understand that the Issuer will rely on the above in making certain representations to Andrews Kurth LLP, Houston, Texas, Bond Counsel, and in complying with the conditions of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations in effect thereunder, necessary for interest on the Bonds to be and remain excludable from gross income for federal income tax purposes. EXECUTED and DELIVERED this .2006. (Name of Underwriter or Manager) By: Title: a a BOND YEARS Dated: June 1,2006 Due: As shown below Years Maturity Bond Cumulative Date Amount* Years* Bond Years* t March 1,2007 $ 50,000 37.5000 37.5000 March 1,2008 50,000 87.5000 125.0000 r March 1,2009 50,000 137.5000 262.5000 March 1,2010 50,000 187.5000 450.0000 March 1,2011 320,000 1,520.0000 1,970.0000 March 1,2012 385,000 2,213.7500 4,183.7500 r March 1,2013 400,000 2,700.0000 6,883.7500 March 1,2014 410,000 3,177.5000 10,061.2500 March 1,2015 430,000 3,762.5000 13,823.7500 r March 1,2016 445,000 4,338.7500 18,162.5000 March 1,2017 460,000 4,945.0000 23,107.5000 March 1,2018 480,000 5,640.0000 28,747.5000 March 1,2019 1,335,000 17,021.2500 45,768.7500 r March 1,2020 1,485,000 20,418.7500 66,187.5000 March 1,2021 1,580,000 23,305.0000 89,492.5000 March 1,2022 1,675.000 26,381.2500 115,873.7500 March 1,2023 2,150,000 36,012.5000 151,886.2500 rMarch 1,2024 2,150,000 38,162.5000 190,048.7500 March 1,2025 2,270,000 42,562.5000 232,611.2500 March 1,2026 2,395,000 47,301.2500 279,912.5000 r March 1,2027 2,525,000 52,393.7500 332,306.2500 March 1,2028 3,690,000 80,257.500Q • 412,563.7500 March 1,2029 7,380,000 167,895.0000 580,458.7500 FAVERAGE MATURITY—18.027 YEARS r * Preliminary. subject to change. See"Adjustment of Principal Amounts." c PRELIMINARY OFFICIAL STATEMENT DATED APRIL 24, 2006 '. ,c x This Preliminary Official Statement is subject to completion and amendment. Upon sale of the Bonds,the Official Statement will be completed and delivered to the Underwriters. Prospective purchasers must read the entire Official Statement to make an informed investment decision. y in the opinion of Bond Counsel,interest on the Bonds is excludable from gross income for federal income tax purposes under existing law,subject to um 4,1 the matters described under"Tax Exemption"herein, and is not includable in the alternative minimum taxable income of individuals. See"TAX S EXEMPTION"for a discussion of the opinion of Bond Counsel,including the alternative minimum tax on corporations. .v•• G NEW ISSUE: BOOK-ENTRY-ONLY RATINGS: Moody's Investors Service,Inc. " " ti:= Standard&Poor's Ratings Services "_" ow �: x $32,165,000* ✓L CITY OF PEARLAND, TEXAS y V r (A political subdivision of the State of Texas located within Brazoria and Harris Counties) ma s PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006 2 o Dated: June 1,2006 Due: March 1,as shown below 5 ow a I Principal of and interest on the S32,165,000•City of Pearland,Texas,Permanent Improvement and Refunding Bonds,Series 2006(the"Bonds")are .. payable by Wells Fargo Bank,NA.,Houston,Texas,the paying agent/registrar(the"Paying AgenvRegistrar"). The Bonds are initially registered and delivered only to Cede &Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book-Entry-Only System described X• = herein. Beneficial ownership of the Bonds may be acquired in denominations of$5,000 or integral multiples thereof. No physical delivery of the Po .= Bonds will be made to the beneficial owners thereof. Principal of and interest on the Bonds will be payable by the Paying AgentlRegistrar to Cede 5 &Co.,which will make distribution of the amounts so paid to the beneficial owners of the Bonds. See"THE BONDS-Book-Entry-Only System" herein. Interest on the Bonds will accrue from June 1,2006 and is payable on March I,and September 1 of each year,commencing March 1,2007, c y to the registered owners (initially Cede & Co.)appearing on the registration books of the Paying Agent/Registrar on the 15th day of the month am preceding each interest payment date(the"Record Date"). See"THE BONDS-Description." E ° s 2 The Bonds are payable from the proceeds of a continuing,direct annual ad valorem tax levied,within the limits prescribed by law,against taxable ▪ property within the City of Pearland,Texas(the"City"). See"THE BONDS-Source of Payment." us s The Bonds are issued pursuant to the Constitution and general laws of the State of Texas,particularly Chapters 1207 and 1331,Texas Government r Code,as amended,and an Ordinance approved by the City Council on May 8,2006. See"THE BONDS-Authority for Issuance." h o.2 Proceeds of the sale of the Bonds will be used for the construction and improvements of city streets. Proceeds from the sale of the Bonds will also be • used to refund certain outstanding obligations of the City as more particularly described in"APPENDIX D"hereto(the"Refunded Bonds")and to ow • pay the costs of issuance of the Bonds. See"THE BONDS-Use of Proceeds." r 2 The City has applied for a municipal bond insurance policy to guarantee the scheduled payment of principal of and interest on the Bonds. The premium for such insurance,if purchased will be paid by the Underwriter. W' `_ € PRINCIPAL AMOUNTS,MATURITIES,INTEREST RATES AND PRICES ▪s (Due March 1) , s Initial CUSIP Initial CUSIP a. 5= Principal Interest Reoffering Nos. Principal Interest Reoffering Nos. x , Maturity Amount' _ Rate Yield(a) (c) Maturity Amount' Rate Yield(a) (c) - o 2007 $ 50,000 % % 2019(b) S1,335,000 % % • y • 2008 50,000 2020(b) 1,485,000 pm _ 6 2009 50,000 2021(b) 1,580,000 ,w . 2010 50,000 2022(b) 1,675,000 to- 5; 2011 320,000 2023(b) 2,150,000 vas c 2012 385,000 2024(b) 2,150.000 cob = ?' 2013 400,000 2025(b) 2,270,000 t = x 2014 410,000 2026(b) 2,395,000 4 ` = 2015 430,000 2027(b) 2,525,000 2016 445,000 2028(b) 3,690,000 2017(b) 460,000 2029(b) 7,380,000 ma o v - 2018(b) 480,000 .2"-II ,t • (a) The initial yields will be established by and are the sole responsibility of the Underwriters,and may subsequently be changed. c,' (b) The Bonds maturing on March I,2017 and thereafter,are subject to redemption,at the option of the City,at par value thereof plus accrued interest on am =• _ = March I,2016,or any date thereafter. See"THE BONDS-Redemption Provisions." _`• = .= (c) CUSIP numbers have been assigned to the Bonds by Standard and Poor's CUSIP Service Bureau,A Division of the McGraw-Hill Companies,Inc.,and are included solely for the convenience of the registered owners of the Bonds. Neither the City, the Financial Advisor, nor the Underwriters are E= L responsible for the selection or correctness of the CUSIP numbers set forth herein. "Ill .3 The Bonds are offered when, as and if issued, subject to the approving opinion of the Attorney General of the State of Texas and the opinion of ▪ : Andrews Kurth LLP,Houston,Texas,Bond Counsel for the City,as to the validity of the issuance of the Bonds under the Constitution and laws of c = t the State of Texas. See"LEGAL MATTERS." Delivery of the Bonds is expected to be on or about June 8,2006. C`_ - SELLING: MONDAY,MAY 8,2006 UNTIL 1:00 P.M.,HOUSTON TiME • Preliminary,subject to change. a No dealer, broker, salesman or other person has been authorized by the City to give any information or to.make any representation other than those contained in this Official Statement,and,if given or made,such other information or representations must not be relied upon as having been authorized by the City. This Official Statement is not to be used in an offer to sell or the solicitation of an offer to buy in any state in which ,... such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. This Official Statement contains, in part, estimates, assumptions and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of such estimates, assumptions or matters of opinion or as to the likelihood that they will be realized. Any information and expressions of opinion herein contained arc subject to change without notice,and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the condition of the City or other matters described herein since the date hereof. TABLE OF CONTENTS INTRODUCTORY STATEMENT......................._.3 Property Tax Code and County-Wide SALE AND DISTRIBUTION OF THE BONDS...».3 Appraisal District 16 Sale of the Bonds 3 Tax Rate Limitations 17 Prices and Marketability 3 Property Subject to Taxation by the City 17 Securities Laws 3 Tax Increment Reinvestment Zone 18 Bond Insurance 4 Notice and Hearing Procedures 19 Municipal Bond Ratings 4 Levy and Collection of Taxes 19 OFFICIAL STATEMENT SUMMARY„»....»....»„..5 Collection of Delinquent Taxes 19 INTRODUCTION....................»........».......»..».„.._.7 Historical Analysis of Tax Collection 20 THE BONDS....„............ ....._...... .............7 Analysis of Tax Base 21 Description 7 Estimated Overlapping Taxes 22 Redemption Provisions 7 Sales Tax 22 Notice of Redemption 7 SELECTED FINANCIAL DATA.............................23 Book-Entry-Only System 8 Historical Operations of the City's Use of Certain Terms in Other Sections General Fund 23 of this Official Statement 9 General Fund and Debt Service Fund Successor Paying Agent/Registrar 9 Balance for the Past Five Fiscal Source of Payment 10 Years 24 Authorization of the Bonds 10 Pension Fund 24 Use of Proceeds 10 Financial Statements 24 Refunded Bonds 10 ADMINISTRATION OF THE CITY ..»...»....25 Sources and Uses of Funds 11 Mayor and City Council 25 Future Debt 11 Administration 25 ,. Legal Investments in Texas 11 Consultants 26 Remedies in the Event of Default 12 LEGAL MATTERS.„....„....„.»....„........„..„.»........26 INVESTMENT AUTHORITY AND Legal Opinions 26 INVESTMENT OBJECTIVES OF THE No-Litigation Certificate 26 CITY .................12 No Material Adverse Change 27 Legal Investments 12 TAX EXEMPTION .»....27 Investment Policies 13 TAX TREATMENT OF ORIGINAL ISSUE Current Investments 13 DISCOUNT AND PREMIUM BONDS.....»..»28 ".. Additional Provisions 13 Discount Bonds 28 CITY TAX DEBT»._...„........._»..„.»......._._.»...........14 Premium Bonds 29 Tax Supported Debt Statement 14 CONTINUING DISCLOSURE OF Bonded Indebtedness Payable from Ad INFORMATION..»....»....... 29 Valorem Taxes 14 Annual Reports 29 Pro-Forma Tax Supported Debt Service Material Event Notices 30 Schedule 15 Availability of Information From — Estimated Overlapping Debt 16 NRMSIRs and SID 30 Debt Ratios 16 Limitations and Amendments 30 TAX DATA. ........„....». .....„..»„.....„..»....16 Audited Financial Report of the City 31 General 16 Compliance With Prior Undertakings 31 i VERIFICATION OF ACCURACY OF MATHEMATICAL COMPUTATIONS»» 31 APPENDIX A- Economic and Demographic Characteristics FINANCIAL ADVISOR........ .................»»».» 31 APPENDIX B- Unaudited Financial Statements of the GENERAL CONSIDERATIONS...».......» 31 City Sources and Compilation of Information 3l APPENDIX C- Form of Legal Opinion Certification as to Official Statement 32 APPENDIX D- The Refunded Bonds Updating of Official Statement 32 rr a a $32,165,000* CITY OF PEARLAND,TEXAS PERMANENT IMPROVEMENT AND REFUNDING BONDS,SERIES 2006 INTRODUCTORY STATEMENT Information contained in this Official Statement, including Appendix B, has been obtained from the City of Pearland, Texas (the "City") in connection with the offering by the City of its S32,165,000* Permanent Improvement and Refunding Bonds, Series 2006(the"Bonds")identified on the cover page hereof. All financial and other information presented in this Official Statement has been provided by the City from its records, except for information expressly attributed to other sources. The presentation of information, including tables of receipts from taxes and other sources,is intended to show recent historic information,and is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as is shown by that financial and other information, will necessarily continue or be repeated in the future. SALE AND DISTRIBUTION OF THE BONDS Sale of the Bonds After requesting competitive bids for the Bonds, the City accepted the lowest bid, which was tendered by a syndicate managed by (collectively, referred to herein as the "Underwriters")to purchase the Bonds,bearing the interest rates on the inside cover page of this Official Statement, at a cash price of S , plus accrued interest to the date of delivery. The net effective interest rate on the bonds is %. Prices and Marketability The delivery of the Bonds is conditioned upon the receipt by the City of a certificate executed and delivered by the Underwriters on or before the date of delivery of the Bonds stating the prices at which a substantial amount of the Bonds of each maturity have been sold to the public. For this purpose, the term "public" shall not include any person who is bondhouse,broker or similar person acting in the capacity of underwriter or wholesaler. The City has no control over trading of the Bonds after a bona fide offering of the Bonds is made by the Underwriters at the yields specified on the cover page. Information concerning reoffering yields or prices is the responsibility of the Underwriters. The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by the Underwriters after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering price, including sales to dealers who may sell the Bonds into investment accounts. IN CONNECTION WITH THE Ohr[RING OF THE BONDS, THE UNDERWRITERS MAY OVER-ALLOT OR El-HHCT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS, AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,IF COMMENCED,MAY BE DISCONTINUED AT ANY TIME. Securities Laws No registration statement relating to the Bonds has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended,in reliance upon the exemptions provided thereunder. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; .11111 nor have the Bonds been registered or qualified under the securities acts of any jurisdiction. The City assumes no responsibility for registration or qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions in such jurisdictions. For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission("Rule I5c2-12"). this document, as may be supplemented or corrected by the City from time to time, may be treated as an Official Statement with respect to the Bonds described herein "deemed final" by the City as of the date hereof(or of any such supplement or correction)except for the omission of certain information referred to in the succeeding sentence. This document, when further supplemented by adding information specifying the interest rates and certain other information relating to the Bonds,shall constitute a"Final Official Statement"of the City with respect to the Bonds, as such term is defined in Rule 15c2-12. * Preliminary,subject to change. 3 OW OW Bond Insurance The City has made application for municipal bond insurance under the bidder option program. The premium for such insurance,if purchased,will be paid for by the Underwriter. Municipal Bond Ratings In connection with the sale of the Bonds, the City has made application to Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") for ratings and the ratings of "_" and "_ , respectively, have been assigned to the Bonds with the understanding that upon delivery of the Bonds, a municipal bond insurance policy insuring the timely payment of the principal of and interest on the Bonds will be issued by . In addition, Moody's and S&P have assigned underlying ratings of " " and " " respectively on the Bonds. An explanation of the significance of such ratings may be obtained from Moody's and S&P. The ratings reflect only the views of Moody's and S&P, and the City makes no representation as to the appropriateness of such ratings. There is no assurance that such ratings will continue for any period of time or that they will not be revised downward or withdrawn entirely by Moody's and/or S&P, if, in the judgment of Moody's and S&P,circumstances so warrant. Any such downward revision or withdrawal of either or both of the ratings may have an adverse effect on the market price of the Bonds. WO olW OW WO 4 a OFFICIAL STATEMENT SUMMARY The following material is a summary of certain information contained herein and is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Official Statement. The reader should refer particularly to sections that are indicated for more complete information. The Issuer The City of Pearland,Texas(the "City") is a political subdivision and home rule city of the State of Texas located within Brazoria and Harris Counties, Texas. For additional information regarding the City, see "Appendix A—Economic and Demographic Characteristics." ., The Bonds $32,165,000* Permanent Improvement and Refunding Bonds, Series 2006(the "Bonds"),are dated June 1, 2006 and mature March 1, 2007 through March 1, 2029. Interest on the Bonds accrues from June 1, 2006,and is payable initially on March 1,2007,and on each September 1 and March 1 thereafter until the earlier of maturity or prior redemption. See"THE BONDS-Description." Other Characteristics The Bonds are issued in fully registered form in integral multiples of $5,000. The Bonds maturing on and after March I,2017 are subject to redemption, at the option of the City,at a price of the par value thereof plus accrued interest on March 1, 2016 or any date thereafter. See "THE BONDS-Redemption Provisions." Paying Agent/Registrar The initial paying agent/registrar is Wells Fargo Bank, N.A., Houston, Texas. The City intends to use the book-entry-only system of The Depository Trust Company ("DTC"), but reserves the right on its behalf or on behalf of the DTC to discontinue such system. (See 'THE BONDS-Book-Entry-Only System.") Source of Payment Principal of and interest on the Bonds are payable from the proceeds of a continuing, direct annual ad valorem tax, levied within the limits prescribed by law against taxable property located within the City. See "THE BONDS-Source of Payment." Use of Proceeds Proceeds from the sale of the Bonds will be used for the construction and improvements of city streets. Proceeds from the sale of the Bonds will also be used to refund certain outstanding obligations of the City as more particularly described in "APPENDIX D" hereto (the "Refunded Bonds") and to pay the costs of issuance of the Bonds. See "THE BONDS-Use of Proceeds." Bond Insurance The City has applied for a municipal bond insurance policy on the Bonds. Ratings Moody's Investors Service,inc.(Insured) Standard&Poor's Ratings Group(Insured) Moody's Investors Service,Inc.(Underlying) Standard&Poor's Ratings Group(Underlying) a a a * Preliminary,subject to change. 5 -Selected Financial Information- (Unaudited) The Bonds 2005 Certified Net Assessed Valuation(100%of estimated market value) $ 3,816,235,030 (a)(b) Direct Debt: Outstanding Tax Supported Bonds(as of May 1,2006) $ 152.605,000 (c) Less: The Refunded Bonds (7,890,000)(d) Plus: The Bonds 32,165,000 (d) Total Tax Supported Debt $ 176.880.000 Estimated Overlapping Debt $ 331,035,353 Direct and Estimated Overlapping Debt 507.9 Debt Service Fund Balance(as of April 18,2006) $ 4.207. a_* %of 2005 Per Assessed Capital Valuation (69,808) Debt Ratios: Direct Tax Supported Debt 4.63% $ 2,534 Direct Tax Supported and Estimated Overlapping Debt 13.31% $ 7,276 2005 Tax Rate(per$100 of Assessed Valuation) Maintenance and Operation $ 0.34548 Debt Service 0.32892 Total � 0.67440 Estimated Annual Debt Service Requirements: Average(Fiscal Years 2007-2029) $ 12,387,864 Maximum(2018) $ 13,492,884 Tax Collections: Arithmetic Average,Tax Years(2000-2004)-Current Years 97.72% -Current and Prior Years 99.54% (a) Provided by the Brazoria Central Appraisal District (the "Appraisal District")and net of exemptions. Includes $472,469,612 in assessed value attributable to Reinvestment Zone Number Two, City of Pearland, Texas (the "TIRZ"). Pursuant to an agreement between the City and the TIRZ,tax revenues generated from assessed value attributable to the TIRZ are deposited in a fund to be used for TIRZ projects and are not available to make debt service payments on the Bonds; however, a portion of the such revenues are retained by the City for administrative services related to the TIRZ. See -TAX DATA — Tax Increment Reinvestment Zone" for a description of the agreement between the City and the TIRZ. (b) Includes$233,127,070 in assessed valuation from Brazoria County Municipal Utility District No. 5, which was annexed by the City on December 9,2005. (c) Includes$7,890,000 in outstanding debt from Brazoria County Municipal Utility District No.5. (d) Preliminary,subject to change. 6 a INTRODUCTION This Official Statement and the Appendices hereto provide certain information with respect to the issuance by the City of Pearland, Texas (the "City") in connection with the offering by the City of its $32,165,000* Permanent Improvement and Refunding Bonds,Series 2006(the`Bonds"). The Bonds are issued pursuant to the Texas Constitution, the general laws of the State of Texas, including particularly Chapters 1207 and 1331 Texas Government Code,as amended,and an Ordinance authorizing issuance of the Bonds(the"Ordinance")adopted by the City Council of the City(the"Council"). There follows in this Official Statement descriptions of the Bonds, the plan of financing, and certain information about the City and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the City upon request. Certain capitalized terms used in this Official Statement have the same meanings assigned to a such terms in the Ordinance,except as otherwise indicated herein. THE BONDS Description The Bonds are dated June 1, 2006 and bear interest from such date at the stated interest rates indicated under "PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES AND PRICES" on the cover page hereof, which interest is payable initially on March 1, 2007, and each September 1 and March 1 thereafter until the earlier of .11111 maturity or prior redemption. The Bonds are issued in fully registered form in denominations of$5,000 each or any multiple thereof. Principal of the Bonds is payable at the principal payment office of Wells Fargo Bank, N.A. (the "Paying Agent/Registrar"). Interest on the Bonds will be payable by check, dated as of the interest payment date, and mailed by the Paying Agent/Registrar to registered owners as shown on the records of the Paying Agent/Registrar. The Bonds initially will be registered only to Cede &Co., the nominee of The Depository Trust Company pursuant to the Book-Entry-Only System described below. In the event the Book-Entry-Only-System is discontinued,the Bonds may be transferred and exchanged on the bond register kept by the Paying Agent/Registrar upon surrender and reissuance. The Bonds are exchangeable for an equal principal amount of Bonds of the same maturity in any authorized denomination upon surrender of the Bonds to be exchanged at the principal payment office of the Paying Agent/Registrar. No service charge will be made for any transfer,but the City may require payment of a sum sufficient to cover any tax or governmental charge payable a in connection therewith. The record date(the`Record Date")for the interest payable on any interest payment date means the 15th day of the month next preceding such interest payment date. It will be required that all transfers be made within three business days after request and presentation. The City has agreed to replace mutilated,destroyed,lost or stolen Bonds upon surrender of the mutilated Bonds,or receipt of satisfactory evidence of such destruction, loss or theft, and receipt by the City and the Paying ,OW Agent/Registrar of security or indemnity to keep them harmless. The City may require payment of taxes, governmental charges and other expenses in connection with any such replacement. Redemption Provisions The Bonds maturing on March 1, 2017 and thereafter are subject to optional redemption prior to maturity, in whole or in part, on March 1,2016,or any date thereafter,at the option of the City at a price equal to the principal amount thereof plus accrued interest to the date of redemption. If less than all of the Bonds are redeemed at any time, the maturities of the Bonds to be redeemed shall be selected by the City. Notice of Redemption Not less than 30 days prior to a redemption date for the Bonds,the City shall cause a notice of redemption to be sent by United States mail,first class,postage prepaid,to the registered owners of the Bonds to be redeemed,in whole or in part at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE,NOTWITHSTANDING THAT ANY BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH BOND OR PORTION THEREOF SHALL CEASE TO ACCRUE. 7 Book-Entry-Only System This section describes how ownership of the Bonds is to be transferred and how the principal of premium, if any, and interest on the Bonds are to be paid to and credited by The Depository Trust Company("DTC"), New York, New York, while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official MIR Statement. The City believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. The City cannot and does not give any assurance that(1)DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee(as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or(3)DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Bonds (the "Bonds"). The Bonds will be issued as fully-registered Bonds in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for the Bonds, in the aggregate principal amount of such issue,and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law,a"banking organization"within the meaning of the New York Banking Law,a member of the Federal Reserve System, a"clearing corporation" within the meaning of the New York Uniform Commercial Code, and a"clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds •• and provides asset servicing for over 2 million issues of U.S. and non U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 55 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation("DTCC"). DTCC,in turn,is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation,and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC),as well as by the New York Stock Exchange,Inc.,the American Stock Exchange LLC,and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. Securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( "Indirect Participants"). DTC has Standard & Poor's highest rating: AAA.The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner")is in turn to be recorded on the Direct and Indirect Participants'records.Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction as well as periodic statements of their holdings,from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the hooks of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds,except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers,all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee,Cede&Co.,or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede&Co.or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. a i Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them,subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds,such as redemptions,tenders,defaults,and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC.If less than all of the Bonds within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures,DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds,distributions,and dividend payments on the Bonds will be made to Cede&Co.,or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or Agent,on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices,as is the case with Bonds held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC,Paying Agent,or the City,subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds,distributions,and dividend payments to Cede &Co. (or such other nominee as may be requested by an authorized representative of DTC)is the responsibility of the City or Paying Agent. Disbursement of such payments to Direct Participants will be the responsibility of DTC, and reimbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or Paying Agent. Under such circumstances,in the event that a successor depository is not obtained,Bond certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC(or a successor securities depository). Discontinuance of the use of the system of book-entry transfers through DTC may require the approval of DTC Participants under DTC's operational arrangements. In that event, Bond certificates will be printed and delivered. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the City believes to be reliable,but the City and the Underwriters take no responsibility for the accuracy thereof. Use of Certain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System, VIM references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System,and,(ii)except as described above,notices that are to be given to registered owners under the Ordinance will be given only to DTC. Successor Paying Agent/Registrar Provision is made in the Ordinance for replacing the Paying Agent/Registrar. If the City replaces the Paying a Agent/Registrar, such Paying Agent/Registrar shall, promptly upon the appointment of a successor, deliver the Paying Agent/Registrar's records to the successor paying agent/registrar(the "Successor Paying Agent/Registrar"), and the Successor Paying Agent/Registrar shall act in the same capacity as the previous Paying Agent/Registrar. Any Successor Paying Agent/Registrar selected by the City shall be a commercial bank or trust company organized under the laws of the United States or any state and duly qualified and legally authorized to serve and perform the duties of the Paying Agent/Registrar for the Bonds. 9 a Source of Payment The Bonds, together with other outstanding tax supported debt of the City(the "Outstanding Tax Supported Debt"). are payable as to principal and interest from,and secured by,the proceeds of a continuing,direct annual ad valorem tax levied, within the limits prescribed by law, against taxable property within the City. In the Ordinance the City covenants that while the Bonds are outstanding, it will levy, assess and undertake to collect such tax. See "TAX DATA-Tax Rate Limitations"and"THE BONDS—Remedies in the Event of Default." Authorization of the Bonds The Bonds are issued pursuant to applicable provisions of the Constitution and laws of the State of Texas,including .11111 Chapter 1207 and 1331,Texas Government Code, as amended, and the provisions of the Ordinance adopted by the City Council, which specifically authorizes the sale and issuance of the Bonds. A portion of the Bonds constitute the fourth installment of the total authorization of$115,000,000 unlimited tax bonds approved at an Election held November 6,2001. See"PLAN OF FINANCING." a The following table illustrates the bonds authorized,issued and remaining authorized but unissued by proposition. Date Amount Issued Authorized Authorized Authorized To Date The Bonds But Unissued 11/06/2001 $115,000,000 $61,198,470 $24,000,000 $29,801,530 Use of Proceeds Proceeds of the sale of the Bonds will be used for the construction and improvements of city streets. Proceeds from the sale of the Bonds will also be used to refund certain outstanding obligations of the City as more particularly .. described in"APPENDIX D"hereto(the"Refunded Bonds")and to pay the costs of issuance of the Bonds. The refunding Bonds are being issued to restructure the City's debt service payments, which is required as a result of the City's assumption of the outstanding indebtedness of Brazoria County Municipal Utility District No.5, which was annexed by the City on December 9,2005. Refunded Bonds A portion of the proceeds from the sale of the Bonds are being used to refund and defease the bonds shown on MIR Appendix D hereto(the "Refunded Bonds"), and to pay the costs of refunding and defeasing the Refunded Bonds. Simultaneously with the issuance of the Bonds,the City will give instructipns to provide notice to the owners of the Refunded Bonds that are not being escrowed to maturity that the Refunded Bonds will be redeemed prior to stated maturity on which date money will be made available to redeem the Refunded Bonds from money held by the paying agents for the Refunded Bonds. A description and identification of the Refunded Bonds appears in Appendix D attached hereto. The Refunded Bonds and the interest due thereon are to be paid on their redemption or maturity dates from funds to be deposited with Wells Fargo Bank, N.A., Houston, Texas (the "Escrow Agent") pursuant to an Escrow Agreement (the "Escrow Agreement")between the City and the Escrow Agent. The Ordinance provides that from the proceeds of the sale of the Bonds to the Underwriters, the City will deposit with the Escrow Agent an amount, together with other lawfully available funds, which, when added to the investment earnings thereon, will be sufficient to accomplish the discharge and final payment of the Refunded Bonds. Such funds will be held by the Escrow Agent in a special escrow account(the "Escrow Fund")and used to purchase, with respect to certain of the Refunded Bonds, direct obligations of the United States of America (the a "Federal Securities"). Under the Escrow Agreement, the Escrow Fund is irrevocably pledged to the payment of principal of and interest on the Refunded Bonds. Grant Thornton LLP, Certified Public Accountants, will verify at the time of delivery of the Bonds to the Underwriters that the Federal Securities will mature and pay interest in such amounts which, together with uninvested funds,if any,in the Escrow Fund, will be sufficient to pay, when due, the principal of and interest on the Refunded Bonds. Such maturing principal of and interest on the Federal Securities will not be available to pay the debt service on the Bonds(see"VERIFICATION OF ARITHMETICAL COMPUTATIONS"). 10 S By the deposit of the Federal Securities and cash with the Escrow Agent pursuant to the Escrow Agreement,the City will have effected the defeasance of the Refunded Bonds pursuant to the terms of Chapter 1207,Texas Government Code, and the orders authorizing the issuance of the Refunded Bonds. It is the opinion of Bond Counsel that, as a result of such defeasance, the Refunded Bonds will no longer be payable from ad valorem taxes but will be payable solely from the principal of and interest on the Federal Securities and cash held for such purpose by the Escrow Agent, and that the Refunded Bonds will be defeased and thus will not be included in or considered to be indebtedness of the City for the purpose of a limitation on indebtedness or taxation or for any other purpose. The City has covenanted in the Escrow Agreement to make timely deposits with the Escrow Agent from lawfully available funds,of any additional amounts required to pay the principal of and interest on the Refunded Bonds,if for any reason the cash balances on deposit or scheduled to be on deposit in the Escrow Fund are insufficient to make such payment. Sources and Uses of Funds The proceeds from the sale of the Bonds will be applied as follows: SOURCES OF FUNDS: Par Amount of the Bonds $ Net Premium on the Bonds City Contribution Accrued Interest Total Sources of Funds $ USES OF FUNDS Project Fund $ Purchase of Escrowed Obligations for Escrow Fund Escrow Starting Balance Deposit Accrued Interest to Debt Service Fund Expenses: Underwriters' Discount Bond Insurance Other Issuance Expenses Contingency Total Uses of Funds $ Future Debt aft Following the issuance of the Bonds the City will have$29,801,530 authorized but unissued bonds. The City plans to issue such authorized bonds over the next year. The City also intends to issue certificates of obligation for various City projects over the next year. Depending on the rate of development within the City,changes in assessed S valuation, and the amounts, interest rates, maturities and time of issuance of additional certificates of obligation or bonds,increases in the City's annual ad valorem tax rate may be required to provide for the payment of the principal of and interest on the City's outstanding bonds,the Bonds,and such future certificates of obligation or bonds. Legal Investments in Texas Pursuant to the Texas Public Securities Procedures Act, Chapter 1201, Texas Government Code, as amended, the Bonds, whether rated or unrated, are(a)legal investments for insurance companies, fiduciaries and trustees and (b) legal investments for the sinking funds of political subdivisions or public agencies of the State. Most political subdivisions in the State of Texas are required to adopt investment guidelines under the Public Funds Investment Act,Chapter 2256,Texas Government Code,as amended,and such political subdivisions may impose a requirement consistent with such act that the Bonds have a rating of not less than"A"or its equivalent to be legal investments for such entity's funds. The Bonds are eligible under the Public Funds Collateral Act, Chapter 2257, Texas Government Code,as amended,to secure deposits of public funds of the State or any political subdivision or public agency of the State and are lawful and sufficient security for those deposits to the extent of their market value. Again,political subdivisions in the State of Texas may impose a requirement that the Bonds have a rating of not less than"A"or its equivalent to be eligible to serve as collateral for their funds. The City has not made any investigations of any other laws,rules,regulations or investment criteria that might affect the suitability of the Bonds for any of the above purposes or limit the authority of any of the above entities or persons to purchase or invest in the Bonds. 11 a Remedies in the Event of Default The Ordinance requires the City to assess and collect ad valorem taxes each year sufficient to pay principal and interest when due on the Bonds. The Ordinance does not provide any other security for the payment of the Bonds, or any express remedies in the event of default, makes no provision for acceleration of maturity of the Bonds in the event of default,and does not provide for a trustee to protect the rights of the holders of the Bonds. a Although a holder of the Bonds could presumably obtain judgment against the City in the event of default in the payment of principal or interest on the Bonds, such judgment could not be satisfied by execution against any property of the City. A holder of the Bonds could,in the event of default,ask a court for a mandamus or court order compelling the City to levy, assess and collect sufficient ad valorem taxes to pay principal of and interest on the Bonds as it falls due. Such remedy might need to be enforced on a periodic basis. The enforcement of a claim for payment of principal or interest on the Bonds would be subject to judicial discretion, sovereign police powers and the applicable provisions of the federal bankruptcy laws and to any other similar laws affecting the rights of political subdivisions generally. INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE CITY The City invests its investable funds in investments authorized by Texas law in accordance with investment policies Ulla approved by the Mayor and Council of the City. Both state law and the City's investment policies are subject to change. Legal Investments Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, (2)direct obligations of the State of Texas or its agencies and instrumentalities, (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying 4.1111. security for which is guaranteed by an agency or instrumentality of the United States, (4) other obligations, the principal of and interest on which are unconditionally guaranteed or insured by,or backed by the full faith and credit of,the State of Texas or the United States or their respective agencies and instrumentalities, (5)obligations of states, agencies, counties, cities,and other political subdivisions of any state rates as to investment quality by a nationally a recognized investment rating firm not less than A or its equivalent, (6)certificates of deposit that are guaranteed or insured by the Federal Deposit Insurance Corporation or are secured as to principal by obligations described in the preceding clauses or in any other manner and amount provided by law for City deposits, (7)certificates of deposit and share certificates issued by a state or federal credit union domiciled in the State of Texas that are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in the clauses (1)through (5) or in any other manner and amount provided by law for City deposits, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (9) bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally recognized credit rating agency,(10)commercial paper that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or(b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S.or state bank),(11)no-load money market mutual funds regulated by the Securities and Exchange Commission that have a dollar weighted average portfolio maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share, (12) no-load mutual funds registered with the Securities and Exchange Commission that: have an average weighted maturity of less than two years; invests exclusively in obligations described in the preceding clauses;and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of no less than AAA or its equivalent, and (13) bonds issued, assumed, or guaranteed by the State of Israel; and may invest bond proceeds in guaranteed investment contracts that have a defined termination date and are secured by obligations described in clause (i) above in an amount at least equal to the amount of bond proceeds invested under such a contract. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than Aaa or AAA or an equivalent by at least one nationally recognized rating service. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal;(2)obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3)collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in the market index. 12 Investment Policies Under Texas law,the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement"that specifically addresses each funds' investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment,(5)diversification of the portfolio,and(6)yield. Under Texas law, City investments must be made "with judgment and care, under prevailing circumstances, that person or prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At least quarterly,the investment officers of the City shall submit an investment report detailing: (1) the investment position of the City; (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, any additions and changes to market value and the ending value for each pooled fund group, (4)the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired,and (7)the compliance of the investment portfolio as it related to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority from the Mayor and Council of the City. The City's policies requires investments in accordance with applicable state law. The City' Statement of Investment does not exclude any investments allowable under State law described above under"Legal Investments." The City generally invests in obligations of the United States or its Agencies and instrumentalities. Current Investments State law and City ordinances authorize the City to invest in direct obligations of the U.S. Treasury with maturity dates of three years or less,obligations of agencies of the U.S. Government with maturity dates of two years or less, and certain investment pools. The City's investment balances on March 31,2006 were as follows: Face Principal Market Book Amount Invested Value Value Money Market Funds $63,631,736 $63,631,736 $63,631,736 $63,631,736 Government Securities 14,384,000 14,077,511 14,148,568 14,156,301 Certificates of Deposit 3,754,007 3,754,007 3,754,007 3,754,007 Total Portfolio $81,769,743 $81,463,254 $81,534,311 $81,542,044 Additional Provisions Under Texas law, the City is additionally required to: (1) annually review its adopted policies and strategies; (2) require any investment officers with person business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the Mayor and Council;(3)require the registered principal of firms seeking to sell securities to the City to: (a)receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) perform and annual audit of the management controls on investments and adherence to the City's investment policy; (5) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (6) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (7) restrict the investment in mutual funds in the aggregate to no more than 80% of the City's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service and further restrict the investment in non-money market mutual funds of any portion of bond proceeds,reserves and funds held for debt service and to not more than 15%of the entity's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt AIM service; and (8)require local government investment pools to confirm to the new disclosure, rating,net asset value, yield calculation,and advisory board requirements. 13 CITY TAX DEBT Tax Supported Debt Statement The following tables and calculations relate to the Bonds and to all other tax supported debt of the City. The City and various other political subdivisions of government which overlap all or a portion of the City are empowered to incur debt to be paid from revenues raised or to be raised by taxation against all or a portion of property within the City. Bonded Indebtedness Payable from Ad Valorem Taxes 2005 Certified Net Assessed Valuation(100%of estimated market value) $ 3,816,235,030 (a)(b) Direct Debt: Outstanding Tax Supported Debt(as of May 1,2006) $ 152,605,000 (c) Less: The Refunded Bonds (7,890,000)(d) Plus: The Bonds 32,165.000 (d) Total Direct Debt $ 1 7.14880 000 Debt Service Fund Balance(as of April 18,2006) $ 4.292.E (a) Provided by the Brazoria Central Appraisal District(the "Appraisal District")and net of exemptions. Includes $472,469,612 in assessed value attributable to Reinvestment Zone Number Two, City of Pearland, Texas (the "TIRZ"). Pursuant to an agreement between the City and the TIRZ,tax revenues generated from assessed value attributable to the TIRZ are deposited in a fund to be used for TIRZ projects and are not available to make debt service payments on the Bonds; however, a portion of the such revenues are retained by the City for administrative services related to the TIRZ. Sec "TAX DATA — Tax Increment Reinvestment Zone" for a description of the agreement between the City and the TIRZ. (b) Includes$233,127,070 in assessed valuation from Brazoria County Municipal Utility District No. 5, which was annexed by the City on December 9,2005. (c) Includes$7,890,000 in outstanding debt from Brazoria County Municipal Utility District No. 5. (d) Preliminary,subject to change. 14 a r Pro-Forma Tax Supported Debt Service Schedule The following sets forth the principal and interest on the City's Outstanding Tax Supported Debt, less the principal and interest on the Refunded Bonds,plus the principal and estimated interest on the Bonds. Fiscal Year Current Less: Total Ending Debt Service The Refunded Plus: The Bonds*(b) Debt Service 9-30 Requirements(a) Bonds* Principal Interest Requirements 2006 $ 11,661,443 $ 461,539 $ 11,199,903 2007 11,007,335 1,109,596 $ 50,000 $ 1,908,609 11.856.348 2008 11,023,364 1,113,664 50,000 1,524,275 11.483,975 2009 12,559,713 1,115,473 50,000 1,521,900 13.016,140 'a• 2010 12,888,503 1,114,675 50.000 1,519,525 13.343.353 2011 12,719,523 1,116,725 320,000 1,510,738 13,433,536 2012 12,723,571 1,115,755 385,000 1,493,994 13.486,810 2013 12,572,344 971,491 400,000 1,475,350 13,476,203 .. 2014 12,586,134 977,435 410,000 1,456,113 13,474,811 2015 12,579,939 975.285 430,000 1,436.163 13,470,816 2016 11,603,824 445,000 1,415,381 13,464,205 2017 11,618,074 460,000 1,393,888 13,471,961 .n 2018 11,641,321 480,000 1,371,563 13,492,884 2019 8,866.286 1,335,000 1,328,456 11,529,742 2020 8,844,451 1,485,000 1.261,481 11,590,932 2021 8,822,403 1,580,000 1,188,688 11,591,090 2022 8,805,496 1,675,000 1,111,381 11,591,878 2023 8,425.206 2,150,000 1,020,538 11.595,744 2024 8,528,281 2,150,000 918,413 11,596,694 2025 8,504,781 2,270,000 813,438 11.588.219 2026 8,490,422 2,395,000 702,644 11,588,066 2027 8,481,019 2,525,000 585,794 11,591,813 2028 7.468.813 3,690,000 438,188 11,597,000 2029 4,033.375 7.380.000 175.275 11,588.650 $246.455.619 $10,071,638 SIZ165.000 127.571.791 5296.1 * Preliminary,subject to change. (a) Includes the outstanding debt service requirements associated with the annexation of Brazoria County Municipal Utility District No.5. (b) Interest estimated at 4.75%for purposes of illustration. Estimated Average Annual Requirements(2007-2029) $12,387,864 Estimated Maximum Annual Requirement(2018) $13,492,884 Principal Payout(All Tax Supported Bonds) 14.00% in 5 years 34.46%in 10 years 56.45% in 15 years 81.69% in 20 years a a 15 Estimated Overlapping Debt The following table indicates the indebtedness,defined as outstanding obligations payable from ad valorem taxes,of governmental entities overlapping the City and the estimated percentages and amounts of such indebtedness attributable to property within the City. This information is based upon data secured from the individual jurisdictions and/or the Texas Municipal Reports. Such figures do not indicate the tax burden levied by the applicable taxing jurisdictions for operation and maintenance or for other purposes. The City has not independently verified the accuracy or completeness of the information shown below except for amounts related to the City. Debt as of Overlapping Taxing Jurisdiction March 1,2006 Percent Amount Alvin Community College District $ 19,610,000 5.22% $ 1,023,642 Brazoria County 29,535,000 6.97 2,058,590 Brazoria County MUD No. 17 23,745,000 100.00 23,745,000 Brazoria County MUD No. 18 30,925,000 99.86 30,881,705 Brazoria County MUD No. 19 30,380,000 100.00 30,380,000 + Brazoria County MUD No.26 40,830,000 100.00 40,830,000 Pearland ISD 279,340,000 72.20 201,683,480 Harris County(a) 1,811,116,590 0.02 362,223 Harris County Department of Education -0- 0.02 -0- Harris County Flood Control District 38,859,985 0.02 7,712 Port of Houston Authority 314,705,000 0.02 62,941 TOTAL ESTIMATED OVERLAPPING $331,035,353 The City(b) 176,880,000 MIR Total Direct and Estimated Overlapping Debt S507,915,353 (a) Harris County Toll Road Bonds are considered self-supporting and are not included in the amount shown for Harris County. (b) Preliminary,subject to change. Includes the Bonds and excludes the Refunded Bonds. Debt Ratios Direct and Direct Debt Overlapping Debt Per 2005 Certified Net Assessed Valuation(S3,816,235,030) 4.63% 13.31% Per Capita(69,808) $2,534 $7,276 TAX DATA General One of the City's principal sources of operational revenue and its principal source of funds for debt service payments is the receipts from ad valorem taxation. See"SELECTED FINANCIAL DATA". The following is a recapitulation of(a) the Texas Property Tax Code, including methodology, limitations, remedies and procedures; (b) historical analysis of collection and trends of tax receipts and provisions for delinquencies; (c) an analysis of the tax base, including relative property composition, principal taxpayers and adequacy of the tax base to service debt requirements;and(d)taxation that may add to the City's taxpayers'tax costs. Property Tax Code and County-Wide Appraisal District The Texas Property Tax Code (the "Property Tax Code") establishes for each county in Texas a single appraisal district with responsibility for recording and appraising property for all taxing units within the county, and a single appraisal review board, with responsibility for reviewing and equalizing the values established by the appraisal district. The Property Tax Code requires the appraisal district, by May 15 of each year, or as soon thereafter as practicable,to prepare appraisal records of property as of January 1 of each year based upon market value.The chief appraiser must give written notice before May 15,or as soon thereafter as practicable,to each property owner whose property value is appraised higher than the prior tax year or the value rendered by the property owner or whose property was not on the appraisal roll the preceding year or whose property was reappraised in the current tax year. Notice must also be given if ownership of the property changed during the preceding year. The appraisal review 16 a board has the ultimate responsibility for determining the value of all taxable property within the City; however,any property owner who has timely filed notice with the appraisal review board may appeal a final determination by the .111 appraisal review board by filing suit in a Texas district court. Prior to such appeal or any tax delinquency date, however,the property owner must pay the tax due on the value of that portion of the property involved that is not in dispute or the amount of tax imposed in the prior year, whichever is greater, or the amount of tax due under the order from which the appeal is taken. In such event,the value of the property in question will be determined by the court, or by a jury, if requested by any party. In addition taxing units such as the City are entitled to challenge certain matters before the appraisal review board, including the level of appraisals of a certain category of property, the exclusion of property from the appraisal records or the grant in whole or in part of an exemption. A taxing unit may not,however,challenge the valuation of individual properties. Although the City has the responsibility for establishing tax rates and levying and collecting its taxes each year, under the Property Tax Code the City does not establish appraisal standards or determine the frequency of revaluation or reappraisal. The appraisal district is governed by a board of directors elected by the governing bodies of the county and all cities, towns, school districts and,if entitled to vote, the conservation and reclamation districts that participate in the appraisal district. The Property Tax Code requires each appraisal district to implement a plan for periodic reappraisal of property to update appraised values. Such plan must provide for reappraisal of all real property in the appraisal district at least once every three years. It is not known what frequency of reappraisals will be utilized by the Brazoria County Appraisal District or whether reappraisals will be conducted on a zone or county-wide basis. Tax Rate Limitations Article XI, Section 5 of the Texas Constitution, provides for an overall limitation for Home Rule Cities of$2.50 per $100 assessed valuation. The Attorney General of Texas follows a policy, with respect to Home Rule Cities which have such a$2.50 limitation, of approving ad valorem tax bonds only to the extent that all of such city's ad valorem tax debt can be serviced by a debt service tax rate of$1.50 at 90%collection. Property Subject to Taxation by the City Except for certain exemptions provided by Texas law,all real and tangible personal property and certain categories of intangible personal property with a tax situs in the City are subject to taxation by the City; however, no effort is expected to be made by the Brazoria County Appraisal District to include on the tax roll tangible or intangible personal property not devoted to commercial or industrial use. Principal categories of exempt property include: property owned by the State of Texas or its political subdivisions; property used for public purposes; property exempt from ad valorem taxation by federal law; certain household goods, family supplies, and personal effects; farm products owned by the producer; certain property owned by charitable organizations, youth development associations, religious organizations, and qualified schools; designated historical sites; solar and wind-powered energy devices; most individually-owned automobiles; and property of disabled veterans, only to the extent of $3,000 of taxable property. In addition, taxpayers who are over 65 years of age are entitled to apply for an additional exemption from market value of their residential homestead of$25,000. These over 65 exemptions and disabled veterans exemptions amounted to$58,797,330 from the 2005 tax roll. The state constitution permits local governments the option of granting homestead exemptions of up to 20% of market value. The City has not granted such additional homestead exemption for the 2005 tax year. An eligible owner of agricultural and timberland may apply to have such properties which meet certain requirements appraised on the basis of productivity value or market value, whichever is less. The loss of value due to property values based on productivity value on the 2005 tax roll was approximately$65,819,110 The City has authority to enter into tax abatement agreements to encourage economic development. Under such agreements, a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. Such abatement agreement may last for a period of up to 10 years. The City has $7,902,020 of such property that was subject to abatement on January 1,2005. The constitution of the State of Texas authorizes a property tax exemption for certain business personal property. The City Council had the option to take official action to override the exemption and to continue taxing the property exempted by the amendment. On December 18, 1989,the City's City Council took such official action not to tax the property in 1990 and to allow the exemption for 1991 and all future years. This Freeport Goods exemption amounted to$24,467,740 on the 2005 tax roll. 17 Tax Increment Reinvestment Zone Article VIII, Section 1-g of the Texas Constitution and the Tax Increment Financing Act, Chapter 311, V.T.C.A. Tax Code (the "TIF Act") authorize municipalities in the State to establish one or more tax increment financing reinvestment zones for development or redevelopment of the territory within the zones. .011111. The TIF Act provides that the municipality may appoint a board of directors for a reinvestment zone to develop a project plan and financing plan for the zone and may delegate to the board certain management duties relating to the zone. Project costs,including financing costs, within the zone may be paid from tax increments collected by each of the taxing units in the zone.The amount of a taxing unit's tax increment for a year is the amount of property taxes levied by the unit for that year on the captured appraised value of real property taxable by the unit (the "Captured Appraised Value") and located in the zone. The Captured Appraised Value is the total appraised value of the property for a year, less the tax increment base of the unit. The tax increment base of a taxing unit is the total appraised value of all real property taxable by the unit and located in the zone in the year in which the City created the zone.Participation by a taxing unit in a reinvestment is discretionary with such taxing unit,and it may decide to deposit all or none,or a portion,of its tax increments into the fund and retain for its own purposes the remainder. A taxing unit cannot reduce the amount of its participation once the financing plan has been implemented. AIM The City designated a reinvestment zone and created the Reinvestment Zone Number Two,City of Pearland,Texas (the "TIRZ") in 1998 by Ordinance No. 891 of the City Council of the City.The purpose of the TIRZ is to design, construct and finance or cause to be designed, constructed and financed certain public works and improvements to promote and facilitate the development of the vacant, undeveloped property in the TIRZ. Specifically, the TIRZ is '" constructing public works and infrastructure improvements to assist in the development of the master planned community, Shadow Creek Ranch ("Shadow Creek Ranch"). The City, Alvin Independent School District ("AISD"), Brazoria County, Texas ("Brazoria County") and Fort Bend County, Texas ("Fort Bend County") have agreed to deposit to a tax increment fund established for the TIRZ(the "Tax Increment Fund") annually a certain percentage of tax collections arising from their taxation of the increase, if any, since January 1, 1998, in the total appraised value of all real property located in the TIRZ and taxable by the City, AISD, Brazoria County and Fort Bend County. The TIRZ Board has nine members, four of whom are appointed by the City. One of the City's appointees is nominated by AISD and Brazoria County and Fort Bend County each appoint one member of the TIRZ Board. Finally, the Texas State Senator and Texas State Representative, or their designees, in whose district the TIRZ is located serve as the final two members of the TIRZ Board. The TIRZ encompasses approximately 3,467 acres of land located within the City, including all of the master planned community of Shadow Creek Ranch, which includes approximately 3,300 acres of land. To date all of the development within the TIRZ has occurred within Shadow Creek Ranch. The City has agreed to pay 100% of its collected Tax Increments(the "City Tax Increment") to the Tax Increment Fund. However,pursuant to a development plan and a development agreement (the"Development Agreement")by and between the City and Shadow Creek Ranch Development Company, L.P., the master developer of property within the TIRZ(the "Developer"), the City, the Developer and the TIRZ have agreed that a certain portion of the City Tax Increment shall be paid by the TIRZ to the City as an "Administrative Fee" (the "Administrative Fee")to compensate the City for some of its cost of providing City services to the developed property within the TIRZ. Pursuant to the Development Agreement,the Administrative Fee is as follows: Years 1 through 3(1999-2001) No Administrative Fee Years 4 through 8(2002-2006) 36 percent of the City Increment Years 9 through 30(2007-2028) 64 percent of the City increment _ Provided that,the amount of City Tax Increment deposited and retained annually in the Tax Increment Fund for the applicable year shall in no event be less than: (i)$0.44 per$100.00 of valuation in years four through eight,and(ii) $0.255 per$100.00 of valuation in years nine through thirty. For tax year 2005,the assessed value attributable to the TIRZ is $472,469,612. As described above, tax revenues generated from assessed value attributable to the TIRZ are deposited into the Tax Increment Fund and are not available to make debt service payments on the Bonds. While a portion such revenues are to be retained by the City as Administrative Fees,such Administrative Fees may not be available to make debt service payments on the Bonds. 18 s Notice and Hearing Procedures The Property Tax Code establishes procedures for providing notice and the opportunity for a hearing for taxpayers in the event of certain proposed tax increases and provides for taxpayer referenda which could result in the repeal of certain tax increases. The Property Tax Code also establishes a procedure for notice to property owners of reappraisals reflecting increased property values over $1,000, appraisals which are higher than renditions, and .ft appraisals of property not previously on an appraisal roll. Levy and Collection of Taxes The City is responsible for the collection of its taxes, unless it elects to transfer such functions to another governmental entity. The City elected to have Brazoria County bill and collect taxes on behalf of the City. Before the later of September 30 or the both day after the date the certified appraisal roll is received by the City, the rate of taxation is set by the City Council based upon the valuation of property within the City as of the preceding January 1 and the amount required to be raised for debt service,maintenance purposes and authorized contractual obligations. The City Council may under certain circumstances be required to advertise and hold a public hearing within the City on a proposed tax rate before the City Council can hold a public meeting to vote on the tax rate. If the tax rate adopted exceeds by more than 8% the rate needed to pay debt service and certain contractual obligations and to produce, when applied to the property which was on the prior years roll, the prior year's total taxes levied for purposes other than debt service and such contractual obligations (the "rollback rate"), such excess portion of the levy may, subject to constitutional restrictions on the impairment of existing obligations, be repealed at an election within the City held upon petition of 10%of the City's qualified voters and the tax rate adopted for the current year be reduced to the rollback rate. The City is prohibited from adopting a tax rate that exceeds the lower of the rollback tax rate or the "effective tax rate" until it has held a public hearing on the proposed tax rate and has otherwise complied with the Property Tax Code. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. Taxes are due on receipt of the tax bill,and become delinquent after January 31 of the following year,or on the first t day of the calendar month next following the expiration of twenty-one (21) days after mailing of the tax bills, whichever occurs later. A delinquent tax account incurs an initial penalty of six percent (6%) of the amount of the tax and accrues an additional penalty of one percent (1%) per month up to July 1, at which time the total penalty becomes twelve percent (12%). In addition, delinquent taxes accrue interest at one percent (1%)per month. If the tax is not paid by July 1, an additional penalty of up to twenty percent (20%) may under certain circumstances be imposed by the City.The Property Tax Code also makes provision for the•split payment of taxes,discounts for early payments, partial payments of taxes and the postponement of the delinquency date of taxes under certain circumstances. Collection of Delinquent Taxes Taxes levied by the City are a personal obligation of the property owner on January 1 of the year for which the tax is imposed. On January 1 of each year,a tax lien attaches to property to secure the payment of all taxes,penalties and interest ultimately imposed for the year on the property. The lien exists in favor of the State and each taxing unit, including the City, having the power to tax the property.The City's tax lien is on a parity with tax liens of all other such taxing units. A tax lien on real property has priority over the claim of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien.In the event a taxpayer fails to make timely payment of taxes due the City,the City may file suit to foreclose its lien securing payment of the tax, to enforce personal liability for the tax, or both. Whether a lien of the United States is on a parity with or takes priority over a tax lien of the City is determined by applicable federal law. In the absence of such federal law,the City's tax lien takes priority over a tax lien of the United States.The ability of the City to collect delinquent taxes by foreclosure may be adversely affected by the amount of taxes owed to other taxing units, the foreclosure sale price attributable to market conditions, the taxpayer's right to redeem the property within two years of foreclosure,or by bankruptcy proceedings which restrain the collection of a taxpayer's debts. MID 19 Historical Analysis of Tax Collection -Collection Ratios- Tax Rate Fiscal Net Per$100 of %of Collections Year Tax Assessed Assessed Adjusted Current Current and Ending .. Year Valuation(a) Valuation Tax Levy(a) Year Prior Years 9-30 1995 $ 844,357,847 $0.6950 $ 5,869,525 98.65% 99.72% 1996 1996 875,483,990 0.6950 6,343,113 98.31 99.43 1997 1997 1,012,049,410 0.6950 7,062,826 98.50 99.57 1998 1998 1,172,298,277 0.6950 8,147,473 98.10 99.27 1999 1999 1,322,581,461 0.6950 9,174,224 98.35 99.65 2000 2000 1,563,565,809 0.6950 10,864,049 97.66 99.31 2001 2001 1,760,551,863 0.6860 12,890,902 96.79 98.34 2002 2002 2,171,317,975 0.6860 14,869,170 98.02 100.33 2003 2003 2,355,280,316 0.6960 17,987,752 98.03 100.02 2004 2004 3,019,449,422 0.6948 20,979,311 98.08 99.68 2005 2005 3,816,235,030(b) 0.6744 25,726,447 (In Process of Collection) 2006 . (a) Includes assessed value attributable to the TIRZ. (b) Includes assessed value attributable to Brazoria County Municipal Utility District No.5,annexed by the City on December 9,2005. Tax Rate Distribution- 2005 2004 2003 2002 2001 Maintenance $0.34548 $0.33890 $0.34570 $0.40600 $0.43000 Debt Service 0.32892 0.35590 0.35030 0.28000 0.25600 Total $0.67440 $0.69480 $0.69600 $0.68600 $0.68600 .. -Analysis of Delinquent Taxes- The following is an analysis,by tax year,of taxes delinquent as of September 30,2005. Uncollected Adjusted Percentage Tax Year As of September 30,2005 Tax Levy(a) of Tax Levy 2004 $797,744 $20,979,391 3.80% 2003 738,970 17,987,752 4.11 2002 693,785 14,869,170 4.67 2001 699,841 12,890,902 5.43 2000 285,091 10,864,049 2.62 1999 479,170 9,174,224 5.22 ap 1998 389,445 8,147,473 4.78 1997 293,915 7,062,826 4.16 1996 258,140 6,343,113 4.07 ,. 1995 280,499 5,869,525 4.78 (a) The total tax levy has been adjusted to reflect additions and deletions from the tax roll for prior years. '� -Delinquent Tax Collection Procedures- In addition to the legal procedures and penalties described under "Levy and Collection of Taxes", the City has retained a delinquent tax attorney on a contract basis to file suit to collect delinquent taxes due the City. The fees a due such attorney for acting as delinquent tax attorney are payable from an additional penalty imposed upon the delinquent taxpayer,not to exceed 20%of the tax due. a 20 a . Analysis of Tax Base -Tax Base Distribution- 2005 Tax Roll 2004 Tax Roll 2003 Tax Roll Type of Property Amount % Amount % Amount % Residential $2,892,460,301 71.6% $2,306,313,150 70.6% $1,788,420,100 70.9% Acreage 171,917,714 4.3 171,709,500 5.3 107.695,780 4.3 Vacant Lots/Tracts 238,624,160 5.9 158,938,710 4.9 84,600,830 3.4 Farm&Ranch 7,986,224 0.2 5,528,720 0.2 4,923,360 0.2 Commercial/Industrial 655,848,240 16.2 545,849,480 16.7 466,128,080 18.5 Utilities 48,658,247 1.2 45,034,700 1.4 43,705,230 1.7 Real Inventory 12,121,454 0.3 14,500,240 0.4 10,239,250 0.4 Other 13,241,531 0.3 18,183,090 0.6 17,013,190 0.7 Gross Assessed Value $4,040,857,870 $3,266,057,590 $2,522,725,820 .. Less: Exemption (224,622,840) (245,607,617) (167,445,404) Net Assessed Value $3,8I6,235,030(a)(b)(c) $3,020,449,973(a)(d) $2,355,280,316(a) • (a) Value may differ from those shown elsewhere in this Official Statement due to subsequent adjustments to the tax roll. (b) Includes $472,469,612 in assessed value attributable to the TIRZ. Pursuant to an agreement between the City and the TIRZ,tax revenues generated from assessed value attributable to the TIRZ are deposited in a fund to be used for 1'IRZ projects and are not available to make debt service payments on the Bonds;however,a portion of such revenues are retained by the City for administrative services related to the TIRZ. See"TAX DATA—Tax Increment Reinvestment Zone"for a description of the agreement between the City and the TIRZ. (c) Includes$233,127,070 in assessed valuation from Brazoria County Municipal Utility District No. 5, which was .. annexed by the City on December 9,2005. (d) Includes$219,785,523 in assessed value attributed to the TIRZ. -Principal Taxpayers- 2005 2004 2003 Taxable Taxable Taxable Assessed Assessed Assessed Principal Taxpayer Type of Property Valuation Valuation Valuation Weatherford U.S.Inc. Oil Field Equipment $ 33,721,540 $ 34,027,450 $ 34,843,830 Centerpoint Energy,Inc. Utility 21,856,040 19.416,250 18,062.650 Wal-Mart Real Estate Shopping Center 18,652,320 12,428,460 12,115,230 Pearland Investments Ltd.Prt. Land Development 18,529,300 25,546,730 (a) Perry Homes Home Construction 17.768,220 (a) (a) Shadow Creek Ranch Dev.Co. Land Development 14,743,240 13,068,530 (a) Shadow Creek Ranch Development Land Development 12,754,930 (a) (a) .. Lowe's Home Centers Retail Store 12.683,070 13,731,580 (a) MHI Partnership Ltd. Land Development 12,094,900 8.604,070 (a) HD Development Properties LP Land Development 11,466,010 (a) (a) LandarMary's Creek Apartments Apartments (a) 10,309,630 11,113,820 .. Home Depot USA Inc. Retail Store (a) 9,756,700 (a) D R Horton-Emerald Ltd. Home Construction (a) 9,371,630 (a) SBC Telephone Utility (a) (a) 9,439.220 Lennar Homes of Texas Home Construction (a) (a) 8,997,250 West Lake Residential Ltd. Apartments (a) (a) 8,835,990 Aggreko,Inc. Mobile Temperature Control (a) (a) 8,560,750 Whispering Winds Apartments Apartments (a) (a) 7,705,580 Total Ten Principal Taxpayers $174.269,570 $156,261,030 $133.019,740 Percentage Ten Principal Taxpayers Comprise of Tax Roll 1,2% 5_64% % (a) Not a principal taxpayer in such tax year. 21 -Tax Adequacy- Estimated Average Annual Debt Service Requirements based on Total New Debt Service(2007-2029) $12,387,864 Tax Rate of$0.342 per$100 assessed valuation against the 2005 Certified Assessed Valuation,at 95%collection,produces $12,398,948 Oak Estimated Maximum Annual Debt Service Requirements based on Total New Debt Service(in the year 2015) $13,492,884 Tax Rate of$0.373 per$100 assessed valuation against the 2005 Certified Assessed Valuation,at 95%collection,produces $13,522,829 Estimated Overlapping Taxes Under Texas law, if ad valorem taxes levied by a taxing authority become delinquent, a lien is created upon the property which has been taxed, which lien is on a parity with any tax lien on such property in favor of the City. In addition to ad valorem taxes required to retire the aforementioned direct and estimated overlapping debt, certain taxing jurisdictions including those mentioned in Estimated Overlapping Debt are also authorized by Texas law to assess, levy, and collect ad valorem taxes for operation, maintenance, administrative and/or general revenue .01 purposes. Set forth below is an estimation of ad valorem taxes levied on a $100,000 single-family residence by such jurisdictions, assuming the assessments are made at their claimed basis of assessment (100%). Such residence is further assumed to be located within Brazoria County wherein substantially all of the residential property within the City is located. No recognition is given to local assessments for civic association dues, fire department contributions,or other charges made by other than political subdivisions. 2005 Tax Estimated Taxing Jurisdiction Rate/$100 2005 Tax Bill The City $0.674400 $ 674.40 Brazoria County 0.347987 347.99 Brazoria Drainage District No.4 0.143845 143.85 Pearland ISD 1.792200 1,792.20 Estimated Total 2005 Tax Bill: S2,958.54(a) (a) Ad valorem taxes are levied by eight separate municipal utility districts ("MUD")on property located within the specific MUD. These taxes are paid in addition to the above noted City taxes. Sales Tax -Authority- The City has adopted the provisions of Article 1066c, Vernon's Texas Civil Statutes, as amended, which grants the City the power to impose and levy a 1% sales tax. The City has also voted an additional 1/2% sales and use tax for economic development under Article 5190.6,Vernon's Texas Civil Statutes, as amended. The City may not and has not pledged the proceeds from the sales and use tax as security for the Bonds. 22 a -Collection History- .. The State Comptroller,after deduction of a 2%service fee,currently remits the City's portion of sales tax collections monthly. By statute the Comptroller is required to remit at least twice annually. The following is an analysis of the collection history of the City's sales and use tax: a Ad Valorem Tax Comparisons Fiscal Year Sales and Use Equivalent Tax Rate %of Actual Ended 9-30 Tax Receipts Tax Year Equivalent Tax Levy 1994 $1,905,741 (1993) $0.261 36.48 1995 2,166,219 (1994) 0.284 40.74 .. 1996 2,298,546 (1995) 0.272 39.16 1997 2,589,918 (1996) 0.298 40.83 1998 2,962,481 (1997) 0.297 41.94 1999 3,415,183 (1998) 0.291 41.92 2000 3,684,676 (1999) 0.279 40.16 2001 4,795,355 (2000) 0.307 44.14 2002 5,025,749 (2001) 0.285 38.99 2003 5,859,053 (2002) 0.270 39.40 2004 6,739,484 (2003) 0.260 37.47 2005 7,785,161 (2004) 0.258 37.09 SELECTED FINANCIAL DATA Historical Operations of the City's General Fund The following is a condensed statement of revenues and expenses of the City's General Fund for the past five fiscal years. The inclusion of the following table is not intended to imply that any revenues of the City,other than receipts from ad valorem taxes as provided in the Ordinance are pledged to pay principal and interest on the Bonds. Fiscal Year Ended September 30 2005(a) 2004 2003 2002 2001 REVENUES General Property Taxes(b) $ 9,649,452 $ 8,752,162 $ 8,970,369 $ 8,054,173 $ 6.784.591 Sales Taxes 7,785,161 6,739,484 5.859,053 5,025,749 4,795,353 Franchises 3,097,163 2,883,188 2,533,475 2,453,829 2,303,730 Licenses&Permits 3,863,592 3,427,957 2,682,456 2,256,638 1,896,728 Charges for Services 6,138,610 5,259,748 3.982.070 3,651,825 3,202,767 .., Fines&Forfeitures 1,883,381 1,561,850 1,377,552 845,322 856,641 Intergovernmental 871,196 716,136 615,436 -0- -0- Other Revenues 1,066,315 855,628 324,501 908,154 863,457 Total Revenues $34,354,870 $30,196,153 $26,344,912 $23,195,690 $20,703,267 a EXPENDITURES General Government $ 6,664,735 $ 6,059,595 $ 5,678,275 $ 5.052,056 $ 4,217,744 Public Safety 10,816,906 10,142,115 9,637,676 7,411,992 6,692,138 Public Works 10,449,814 8,709,151 8,769,722 7.613,804 5,974,667 Community Services 2,692,534 2,792,376 2,729,859 2,271,052 2,043,620 Capital Outlay 1,019,976 -0- -0- -0- -0- Total $31,643.881 $27.703,237 526,815.532 $22,338,904 $18.928,169 a. (a) Unaudited. The City's audited financial statements for the Fiscal Year ended September 30,2005 (the"2005 Financial Statements") have not yet been finalized. The City's independent auditor is currently preparing its report and the City expects the 2005 Financial Statements to be available within the next 60 days. (b) Includes penalties and interest. Source: City's audited financial statements. 23 • General Fund and Debt Service Fund Balance for the Past Five Fiscal Years Fiscal Year Ended September 30 2005(a) 2004 2003 2002 2001 General Fund $17,586,818 $8,285,590 $5,361.732 $5,024.946 $6,563,942 Debt Service Fund $ 1,349,168 $3,007,752 $2,130,321 $2,229,529 $1,544,987 (a) Unaudited. The City's audited financial statements for the Fiscal Year ended September 30, 2005 (the "2005 Financial Statements") have not yet been finalized. The City's independent auditor is currently preparing its report and the City expects the 2005 Financial Statements to be available within the next 60 days. Pension Fund The City participates in the Texas Municipal Retirement System(TMRS),an agency operated by the State of Texas. Employees of the City who participate in TMRS contribute a fixed percentage,currently 7%,of their gross pay and the City matching percent is currently 2 to 1. As employees leave municipal employment other than through retirement, they may withdraw from TMRS those funds they contributed,but forfeit their employer's contributions. Each municipal employer's requirements for current contributions are offset by the amounts of such forfeitures. As of April 7,2006,the City employed 390 full-time employees and 63 part-time and seasonal employees. All full- time employees are covered by TMRS and the City's contribution for this calendar year as of December 31, 2005, amounted to approximately $1,536,669 which includes amortization of prior service cost over 25 years. The City had an unfunded pension benefit obligation in the amount of approximately $4,546,738 as of December 31, 2004. The liability for prior service benefits will be amortized over a period of twenty-five years or less by contributions from the City which are a level percentage of payroll. Financial Statements A copy of the City's unaudited Financial Statements for the fiscal year ended September 30,2005,is attached hereto in the APPENDIX B. The City's audited financial statements for the Fiscal Year ended September 30, 2005 (the "2005 Financial Statements") have not yet been finalized. The City's independent auditor is currently preparing its report and the City expects the 2005 Financial Statements to be available within the next 60 days.Copies of such statements for preceding years are available,for a fee,upon request. 24 ADMINISTRATION OF THE CITY Mayor and City Council Policy-making and supervisory functions are the responsibility of and are vested in the Mayor and City Council for the City, under provisions of the "Charter of the City of Pearland" (the "Charter") approved by the electorate .0110 February 6, 1971. The Council is elected at large on the first Saturday in May. The Mayor and five Council members serve three-year staggered terms. The Mayor is entitled to vote only in the event of a tie and has no power to veto Council action. Members of the Council are described below: Term Council Members Period Served Expires May Occupation Tom Reid 15 Years 2008 Retired Mayor Kevin Cole 2 Years(a) 2007 Insurance Broker Council Member Mayor Pro-Tem Woody Owens 6 Years 2006(c) Consultant Council Member Larry Marcott 6 Years 2006(c) Retired Council Member Richard Tetens 5 Years(b) 2007 Retired Council Member Steve Saboe 1 Year 2008 Management ~" Council Member (a) Elected May 2004,however Councilman Cole has served a previous term(3 years)on the City Council. (b) Elected May 2001,however Councilman Tetens has served two previous terms(6 years)on the City Council. (c) Term expires in May 2006 and not eligible for re-election for City Council position. Administration Under provisions of the Charter, the City Council enacts local legislation, adopts budgets, determines policies and appoints the City Manager, who is charged with the duties of executing the laws and administering the government of the City. As the chief executive officer and head of the administrative branch of the City government, the City Manager is given the power and duties to: (1) Appoint and remove all department heads and all other employees in the administrative service of the City and may authorize the head of a department to appoint and remove subordinates in his respective department; (2) Prepare the budget annually,submit it to City Council,and be responsible for its administration; (3) Prepare and submit to City Council a complete report on the finances and administrative activities of the City; (4) Keep City Council advised of the financial condition and future needs of the City and make appropriate recommendations;and (5) Perform such other necessary duties as prescribed by the Charter or required by City Council. 25 Members of the administrative staff are described below: Name Position Period Served Bill Eisen City Manager 5 Years Nick Finan Assistant City Manager 1 Year Mickiel Hodge Assistant City Manager 1 Year Claire Manthei Director of Finance 1 Year Daniel Cameron Director of Public Works 13 Years Young Lorfing City Secretary 9 Years Doug Kneupper City Engineer 3 Years Damn Coker City Attorney 9 Years Joseph Wertz Director of Projects 4 Years Christopher Doyle Police Chief 27 Years Consultants The City has retained several consultants to perform professional services in connection with the independent auditing of its books and records and other City activities. Several of these consultants are identified below: Bond Counsel Andrews Kurth LLP Houston,Texas Certified Public Accountants Pattillo,Brown&Hill,P.C. _ Waco,Texas Financial Advisor RBC Capital Markets Houston,Texas LEGAL MATTERS Legal Opinions The City will furnish the Underwriter a transcript of certain certified proceedings prepared incident to the authorization and issuance of the Bonds, including a certified copy of the unqualified approving opinion of the Attorney General of Texas, as recorded in the Bond Register of the Comptroller of Public Accounts of the State of Texas, to the effect that the Bonds, which the Attorney General will have examined, are valid and binding obligations of the City under the Constitution and laws of the State of Texas. The City also will furnish the approving legal opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, to the effect that, based upon an examination of such transcript, the Bonds are valid and binding obligations of the City under the Constitution and laws of the State of Texas. The legal opinion of Bond Counsel will further state that(1)the Bonds are payable,both as to principal and interest, from the levy of ad valorem taxes, within the limits prescribed by law, against taxable property within the City and(2)subject to the matters discussed under the caption"TAX EXEMPTION,"interest on the Bonds is excludable from gross income for federal income tax purposes. The opinion of Bond Counsel is expected to be reproduced on the back panel of the Bonds over a certification by the City Secretary attesting that such legal opinion is dated as of the date of delivery of and payment for the Bonds and is a true and correct copy of the original opinion. Errors or omissions in the printing of such legal opinion on the Bonds shall not affect the validity of the Bonds nor constitute cause for the failure or refusal by the Underwriter to accept delivery of and pay for the Bonds. Bond Counsel was not requested to participate, and did not take part, in the preparation of the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information describing the Bonds in the Official Statement to verify that such description conforms to the provisions of the Ordinance. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent upon the sale and delivery of the Bonds. The legal opinion will be printed on the Bonds. No-Litigation Certificate The City will furnish to the Underwriter a certificate, dated as of the date of delivery of the Bonds, executed by appropriate City officials,to the effect that no litigation of any nature has been filed or is then pending or threatened, either in state or federal courts,contesting or attacking the Bonds;restraining or enjoining the issuance,execution or 26 delivery of the Bonds; affecting the provisions made for the payment of or security for the Bonds; in any manner questioning the authority or proceedings for the issuance, execution, or delivery of the Bonds; or affecting the validity of the Bonds. No Material Adverse Change The obligations of the Underwriter to take and pay for the Bonds,and of the City to deliver the Bonds,are subject to the condition that, up to the time of delivery of and receipt of payment for the Bonds, there shall have been no material adverse change in the condition(financial or otherwise)of the City subsequent to the date of sale from that set forth or contemplated in the Preliminary Official Statement, as it may have been supplemented or amended through the date of sale. TAX EXEMPTION In the opinion of Andrews Kurth LLP,Houston,Texas,Bond Counsel,interest on the Bonds is(1)excludable under A- Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), from gross income of the owners thereof for federal income tax purposes and (2) is not includable in the alternative minimum taxable income of individuals or corporations,except as described below. The foregoing opinions of Bond Counsel are based on the Code and the regulations, rulings and court decisions thereunder in existence on the date of issue of the Bonds. Such authorities are subject to change and any such change could prospectively or retroactively result in the inclusion of the interest on the Bonds in gross income of the owners thereof or change the treatment of such interest for purposes of computing alternative minimum taxable income. In rendering its opinions, Bond Counsel has assumed continuing compliance by the City with certain covenants of the Ordinance authorizing the issuance of the Bonds(the"Ordinance")and has relied on representations by the City with respect to matters solely within the knowledge of the City,which Bond Counsel has not independently verified. The covenants and representations relate to, among other things, the use of Bond proceeds and any facilities financed therewith, the source of repayment of the Bonds, the investment of Bond proceeds and certain other amounts prior to expenditure,and requirements that excess arbitrage earned on the investment of Bond proceeds and certain other amounts be paid periodically to the United States and that the City file an information report with the Internal Revenue Service(the "Service"). If the City should fail to comply with the covenants in the Ordinance,or if its representations relating to the Bonds that are contained in the Ordinance should be determined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of the Bonds, regardless of the date on which the event causing such taxability occurs. Interest on all tax-exempt obligations, such as the Bonds, owned by a corporation (other than an S corporation, a regulated investment company, a real estate investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securitization investment trust (FASIT)) will be included in such corporation's adjusted current earnings for purposes of calculating such corporation's alternative minimum taxable income. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of,receipt or accrual of interest on or acquisition or disposition of the Bonds. Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes,regulations,published rulings and court decisions and the representations and covenants of the City described above. No ruling has been sought from the Service with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the Service. The Service has an ongoing program of -• auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Bonds is commenced, under current procedures the Service is likely to treat the City as the "taxpayer," and the owners of the Bonds may have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds,the City may have different or conflicting interests from the owners of the Bonds. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit,regardless of its ultimate outcome. Under the Code,taxpayers are required to provide information on their returns regarding the amount of tax-exempt WWI interest,such as interest on the Bonds,received or accrued during the year. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations, such as the Bonds, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies,property and casualty insurance companies,certain foreign corporations doing business in the 27 United States,certain S corporations with Subchapter C earnings and profits,individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations, and individuals otherwise eligible for the earned income tax credit. Such prospective purchasers should consult their tax advisors as to the consequences of investing in the Bonds. If a tax-exempt obligation, such as the Bonds, was acquired at a"market discount"and if the fixed maturity of such obligation is equal to, or exceeds,one year from the date of issue, the Code provides ordinary income tax treatment of gain recognized upon the disposition of such "market discount bond." A "market discount bond"is one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturity or,in the case of a bond issued at an original issue discount,the"revised issue price"(i.e.,a market discount). Such treatment applies to"market discount bonds" to the extent the gain from the disposition thereof exceeds the accrued market discount of such bonds unless a statutory de minimis rule applies. The"accrued market discount"is the amount which bears .01 the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the number of days between the acquisition date and the final maturity date. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of the Bonds. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the Bonds. TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS Discount Bonds Some of the Bonds may be offered at initial offering prices which are less than the stated redemption prices at maturity of such Bonds. If the initial offering prices of the Bonds are lower than the stated redemption price payable at maturity, the Bonds of that maturity (the "Discount Bonds") will be considered to have "original issue discount" for federal income tax purposes. An initial owner who purchases a Discount Bond in the initial public offering of the Bonds at such an initial offering price will acquire such Discount Bond with original issue discount equal to the difference between(a)the stated redemption price payable at the maturity of such Discount Bond and(b)the initial offering price to the public of such Discount Bond. Under existing law, such original issue discount will be treated for federal income tax purposes as additional interest on a Bond and such initial owner will be entitled to exclude from gross income for federal income tax purposes that portion of such original issue discount deemed to be earned (as discussed below) during the period while such Discount Bond continues to be owned by such initial owner. Except as otherwise provided herein, the discussion regarding interest on the Bonds under the caption "TAX EXEMPTION"generally applies to original issue discount deemed to be earned on a Discount Bond while held by an owner who has purchased such Bond at the initial offering price in the initial public offering of the Bonds and that discussion should be considered in connection with this portion of the'Official Statement. In the event of a redemption, sale, or other taxable disposition of a Discount Bond prior to its stated maturity, however, any amount realized by such initial owner in excess of the basis of such Discount Bond in the hands of such owner (increased to reflect the portion of the original issue discount deemed to have been earned while such Discount Bond continues to be held by such initial owner) will be includable in gross income for federal income tax purposes. Because original issue discount on a Discount Bond will be treated for federal income tax purposes as interest on a Bond,such original issue discount must be taken into account for certain federal income tax purposes as it is deemed to be earned even though there will not be a corresponding cash payment. Corporations that purchase Discount Bonds must take into account original issue discount as it is deemed to be earned for purposes of determining alternative minimum tax. Other owners of a Discount Bond may be required to take into account such original issue discount as it is deemed to be earned for purposes of determining certain collateral federal tax consequences of owning a Bond. See "TAX EXEMPTION" for a discussion regarding the alternative minimum taxable income consequences for corporations and for a reference to collateral federal tax consequences for certain other owners. The characterization of original issue discount as interest is for federal income tax purposes only and does not otherwise affect the rights or obligations of the owner of a Discount Bond or of the City. The portion of the principal of a Discount Bond representing original issue discount is payable upon the maturity or earlier redemption of such Bond to the registered owner of the Discount Bond at that time. Under special tax accounting rules prescribed by existing law, a portion of the original issue discount on each Discount Bond is deemed to be earned each day. The portion of the original issue discount deemed to be earned each day is determined under an actuarial method of accrual,using the yield to maturity as the constant interest rate and semi-annual compounding. a 28 a The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Discount Bonds by an owner that did not purchase such Bonds in the initial public offering and at the initial offering price may be determined according to rules which differ from those described above. All prospective purchasers of Discount Bonds should consult their tax advisors with respect to the determination for federal, state and local income tax purposes of interest and original issue discount accrued upon redemption, sale or other disposition of such Discount Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership,redemption,sale or other disposition of such Discount Bonds. Premium Bonds Some of the Bonds may be offered at initial offering prices which exceed the stated redemption prices payable at the maturity of such Bonds. If any of the Bonds of such maturities are sold to members of the public (which for this purpose excludes bond houses,brokers and similar persons or organizations acting in the capacity of wholesalers or underwriters) at such initial offering prices, each of the Bonds of such maturities ("Premium Bonds") will be considered for federal income tax purposes to have"bond premium" equal to the amount of such excess. The basis for federal income tax purposes of a Premium Bond in the hands of an initial purchaser who purchases such Bond in the initial offering must be reduced each year and upon the sale or other taxable disposition of the Bond by the amount of amortizable bond premium. This reduction in basis will increase the amount of any gain (or decrease the amount of any loss) recognized for federal income tax purposes upon the sale or other taxable disposition of a Premium Bond by the initial purchaser. Generally, no corresponding deduction is allowed for federal income tax purposes, for the reduction in basis resulting from amortizable bond premium. The amount of bond premium on a Premium Bond which is amortizable each year(or shorter period in the event of a sale or disposition of a Premium Bond) is determined under special tax accounting rules which use a constant yield throughout the term of the Premium Bond based on the initial purchaser's original basis in such Bond. The federal income tax consequences of the purchase,ownership,redemption, sale or other disposition by an owner of Bonds that are not purchased in the initial offering or which are purchased at an amount representing a price other than the initial offering prices for the Bonds of the same maturity may be determined according to rules which differ from those described above. Moreover, all prospective purchasers of Bonds should consult their tax advisors with respect to the federal,state,local and foreign tax consequences of the purchase,ownership,redemption,sale or other disposition of Premium Bonds. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance,the City has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the City will be obligated to provide'certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. Annual Reports The City will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Official Statement under the headings "INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE CITY —Current Investments," "CITY TAX DEBT," "TAX DATA" (except under the subheading "Estimated Overlapping Taxes"), "SELECTED FINANCIAL DATA," and in Appendix "B". The City will update and provide this information within six months after the end of each fiscal year ending in or after 2006. The City will provide the updated information to each nationally recognized M municipal securities information repository ("NRSIR") and to the Texas Municipal Advisory Council, the state information depository ("SID") designated by the State of Texas and approved by the staff of the United States Securities and Exchange Commission(the"SEC"). The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12, as amended and in effect from time to time (the "Rule"). The updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not commissioned or are not available by the required time,the City will provide unaudited financial statements and audited financial statements when and if they become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix "B" or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. a 29 The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year,beginning March 31,2007, unless the City changes its fiscal year. If the City changes its fiscal year.it will notify each NRMSIR and the SID of the change. Material Event Notices The City will also provide timely notices of certain events to certain information vendors. The City will provide notice of any of the following events with respect to the Bonds,if such event is material to a decision to purchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds;(7)modifications to rights of holders of the Bonds;(8)calls;(9)defeasances;(10)release,substitution,or sale of property securing repayment of the Bonds; and (11) rating changes. Neither the Bonds nor the Ordinance makes any provision for debt service reserves or liquidity enhancement. In addition, the City will provide timely notice of any failure by the City to provide information,data,or financial statements in accordance with its agreement described above under"Annual Reports." The City will provide each notice described in this paragraph to the SID and to either each NRMSIR or the Municipal Securities Rulemaking Board. Availability of Information From NRMSIRs and SID The City has agreed to provide the foregoing information only to NRMSIRs and the SID. The information will be available to holders of and beneficial owners of the Bonds only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. The Municipal Advisory Council of Texas has been designated by the State of Texas as a SID and the SEC staff has determined that it is a qualified SID.The address of the Municipal Advisory Council of Texas is 600 West 8th Street, P.O.Box 2177,Austin,Texas 78768-2177,and its telephone number is(512)476-6947.The MAC has also received SEC approval to operate and has begun to operate,a"central post office"for information filings made by municipal issuers,such as the County. A municipal issuer may submit its information filings with the central post office,which then transmits such information to the NRMSIRs and the appropriate SID for filing. This central post office can be accessed and utilized at www.disclosureUSA.org("DisclosureUSA"). The County may utilize DisclosureUSA for the filing of information relating to the Bonds. Limitations and Amendments The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations,condition,or prospects or agreed to update any information that is provided,except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, of its continuing disclosure agreement or from any statement made pursuant to its agreement. Holders or beneficial owners of Bonds may seek as their sole remedy a writ of mandamus to compel the City to comply with its agreement. No default by the City with respect to its continuing disclosure agreement shall constitute a breach of or default under the Ordinance for purposes of any other provision of the Ordinance. Nothing in this paragraph is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. The City's undertakings and agreements are subject to appropriation of necessary funds and to applicable legal restrictions. The City may amend its continuing disclosure agreement to adapt to changed circumstances that arise from a change in legal requirements,a change in law,or a change in the identity,nature,status or type of operations of the City if, but only if(i)the agreement, as so amended, would have permitted a purchaser to purchase or sell the Bonds in the offering made hereby in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (2) either (a) the holders of a majority in aggregate amount of the outstanding Bonds consent to such amendment or(b)a person unaffiliated with the City (such as nationally recognized bond counsel)determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. The City may also amend or repeal the agreement if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction determines that such provisions are invalid, and the City may amend the agreement in its discretion in any other circumstance or manner, but in either case only to the extent that its right to do so would not prevent the Underwriters from purchasing the Bonds in the offering described herein in compliance with the Rule. If the City amends the agreement, it has agreed 30 a to include with any financial information or operating data next provided in accordance with its agreement described above under"Annual Reports"an explanation,in narrative form,of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. Audited Financial Report of the City The City presently requires that an annual audit be performed by an independent public accounting firm in accordance with generally accepted auditing standards for governmental units. The most recent audit,and additional financial information are available for public inspection,or copies may be obtained by written request, to the extent permitted by law, addressed to the City,with such fee,if any, for copies as may from time to time be authorized by the City. Compliance With Prior Undertakings The City has complied in all material respects with its prior continuing disclosure agreements made in accordance with the Rule. VERIFICATION OF ACCURACY OF MATHEMATICAL COMPUTATIONS The arithmetical accuracy of certain computations included in the schedules provided by RBC Capital Markets on behalf of the City relating to (a) computation of the sufficiency of the anticipated receipts from the Federal Securities, together with the initial cash deposit, if any, to pay, when due, the principal, interest and early redemption premium requirements, if any, of the Refunded Bonds, and (b) computation of the yields on Federal Securities and the Bonds were verified by Grant Thornton LLP, certified public accountants. Such computations were completed using certain assumptions and information provided by RBC Capital Markets on behalf of the City. Grant Thornton LLP has restricted its procedures to recalculating the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information on which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome. The report of Grant Thornton LLP will be relied upon by Bond Counsel in rendering their opinion with respect to the exclusion of interest on the Bonds for federal income tax purposes and with respect to the defeasance of the Refunded Bonds. FINANCIAL ADVISOR RBC Capital Markets is employed as Financial Advisor to the City in connection with the issuance of the Bonds. RBC Capital Markets is the trade name under which RBC Dain Rauscher Inc., a broker-dealer, conducts municipal investment banking business. The Financial Advisor's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. GENERAL CONSIDERATIONS Sources and Compilation of Information The information contained in this Official Statement has been obtained primarily from the City and from other sources believed to be reliable. No representation is made as to the accuracy or completeness of the information derived from sources other than the City. The summaries of the statutes, orders, ordinances and other related documents are included herein subject to all of the provisions of such documents.These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. The information contained in this Official Statement in the section entitled "APPENDIX B - Unaudited Financial Statements of the City" has been provided by Patillo, Brown & Hill, P.C., Waco, Texas and has been included herein in reliance upon their authority as an expert in the fields of auditing and accounting. Bond Counsel has reviewed the information herein contained under the captions"THE BONDS" (except for sections captioned"Book- Entry-Only System," "Future Debt" and "Use of Proceeds"), "LEGAL MATTERS - Legal Opinions," "TAX EXEMPTION," "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS," and "CONTINUING DISCLOSURE OF INFORMATION (except for the section captioned "Compliance With Prior Undertakings")," solely to determine whether such information fairly and accurately describes the Bonds, the Ordinance, and the law set out therein. Bond Counsel has neither independently verified other factual information contained in this Official Statement nor conducted an investigation of the affairs of the City for the purpose of passing upon the accuracy or completeness of this Official Statement. No person is entitled to rely upon the limited participation of such firms as an assumption of responsibility for, or an expression of opinion of any kind with regard to,the accuracy or completeness of any of the other information contained herein. 31 i Neither this Official statement nor any statement that may have been made orally or in writing is to be constructed as or as part of a contract with the original purchasers or subsequent owners of the Bonds. .111 Certification as to Official Statement At the time of payment for and delivery of the Bonds,the City will furnish the Underwriter a certificate,executed by the City Secretary and Mayor,acting in their official capacities,to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the City contained in this Official Statement, on the date thereof and on the date of delivery were and are true and correct in all material respects;(b)insofar as the City and its affairs, including its financial affairs,are concerned,this Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated herein or necessary to make the statements herein,in the light of the circumstances under which they were made,not misleading;and(c)insofar as the descriptions and statements, including financial data contained in this Official Statement, of or pertaining to entities other than the City and their activities are concerned, such statements and data have been obtained from sources which the City believes to be reliable and that the City has no reason to believe that they are untrue in any material respect. Updating of Official Statement The City will keep the Official Statement current by amendment or sticker to reflect material changes in the affairs of the City and, to the extent that information comes to its attention, in the other matters described in the Official Statement,until the delivery of the Bonds to the Underwriter. This Official Statement was duly authorized and approved by the City Council of the City of Pearland, Texas as of the date specified on the first page hereof. /s/ Tom Reid Mayor City of Pearland a A I-I"bST: /s/ Young Lorfing City Secretary City of Pearland 32 APPENDIX A GENERAL INFORMATION REGARDING THE CITY OF PEARLAND The following information has been derived from various sources,including the U.S.Census data,Texas Workforce Commission, "Sales Management Survey of Buying Power",Claritas, and City of Pearland, Texas officials. While such sources are believed to be reliable,no representation is made as to the accuracy thereof. Residential and Commercial Development Because of the City's proximity to downtown Houston, it has become an area of continuing growth in residential, commercial and some light industrial development. As of March 2006,there are numerous residential subdivisions either developed or under construction within the City with homes ranging in value from $75,000 to $400,000, the average being approximately$185,400. -Building Permits- Residential Commercial Other(a) Total Year 12-31 No. Value No. Value No. Value No. Value 1990 670 35,378,197 90 2,947,276 119 931,546 879 39,256,965 1991 382 36,416,253 12 2,503,500 402 5,507,501 796 44,427,254 1992 402 37,249,884 16 6,849,000 453 11,764,178 871 55,863,062 1993 481 39,236,381 15 6,475,570 863 5,961.881 1,359 51,673,832 1994 362 25,173,050 12 2,997,021 582 7,425,514 956 35,595,585 1995 340 34,734,829 13 3,762,900 528 7,799,090 881 46,296,819 1996 478 38,301,224 19 5,189,850 392 85,320,262 889 128,811,066 1997 415 43,712,441 30 10,785,050 402 50,038,171 847 104,535,662 1998 506 60,691,036 23 12,696,415 422 40,739,351 951 114,126,808 1999 536 64,525,679 22 13,847,245 532 48,265,402 1,090 126,638,386 2000 818 202,795,755 17 43,414,385 604 59,823,285 1,439 306,033,425 2001 1,245 212,152,849 20 10,868,583 705 21,129,833 1,970 244,151,265 2002 1,424 257,282,301 20 29,585,122 719 15,782,222 2,163 302,649,645 2003 1,684 312,354,189 49 41,504,192 742 17,717,326 2,475 371,575,707 2004 2,102 384,666,248 43 39,220,592 645 21,702,813 2,790 445,589,653 2005 2,610 479,228,095 51 40,675,200 664 30,299,897 3,325 550,203,192 (a) Includes apartments and public facilities. Source: City of Pearland • Major Employers The City has a well-rounded workforce with a significant percentage of workers employed in professional or executive positions or as administrative support for professionals. The industries employing the greatest number of Pearland's residents are manufacturing of durable goods,retail trade and education. Industrial activities within the City include the manufacturing of pipe, concrete building materials, mining equipment, lighting fixtures, large storage tanks and the fabrication and forging of steel. According to the Pearland Chamber of Commerce, the following is a list of the industrial employers located within the City with employment above 100. 100—999 Employees Davis Lynch Randall's Home Depot Shaw Cor Pipe Protection Kemlon Strickland Chevrolet Kroger Super Target Lowe's Tele-Flow,Inc. Pauluhn Electric Manufacturing TurboCare Pearland,City of Weatherford Manufacturing Pro Fax 1000+Employees Pearland ISD Wal-Mart ECONOMIC AND GROWTH INDICATORS U.S.Census of Population City of Pearland .Brazoria County Number %Change Number %Change 1930 --- --- 23,054 +11.84 1940 --- --- 27,069 +17.42 1950 -- --- 46,549 +71.96 1960 1,497 --- 76,204 +63.71 1970 6,444 +330.46 108,312 +42.13 1980 13,248 +105.59 169,587 +56.57 1990 18,927 +42.87 191,707 +13.04 2000 37,640 +98.87 241,767 +26.11 2005* 69,808 +85.46 * As of December 2005. Employment Statistics Source: Texas Workforce Commission City of Pearland 2005 2004 2003 2002 2001 2000 1999 1998 1997 Labor Force 27,906 20,398 13,035 12,555 12,074 12,010 11,773 11,905 11.809 Employed 26,809 19,403 12,323 12,004 11,640 11,556 11.290 11,466 11,282 Unemployed 1,097 994 712 551 434 454 483 439 527 Rate 3.9 4.9 5.5 4.4 3.6 3.8 4.1 3.7 4.5 Brazoria County 2005 2004 2003 2002 2001 2000 1999 1998 1997 Labor Force 132,814 125,175 116,777 110,179 106,660 106,312 104,330 105,383 105,274 Employed 126,536 115,693 106,393 102,593 100,336 99,685 97,274 98,970 97,580 Unemployed 6,278 9,480 10,384 7,586 6,324 6,627 7,056 6,413 7,694 Rate 4.7 7.7 8.9 6.9 5.9 6.2 6.8 6.1 7.3 Marketing Survey of Buying Power* Houston CMSA Brazoria County Population(000s) Total Population 5,341.3 271.9 18-24 10.0 9.9 25-34 14.8 13.7 35-49 23.1 23.9 50+ 23.6 24.5 Households 1,865.4 93.0 Retail By Store Group Sales(000's) Total Retail Sales $ 81,154,286 S3,203,521 Food&Beverage Stores 9,044,420 369,610 Food&Beverage Stores Estab. 8,160,895 231,535 General Merchandise 11,987,182 641,421 Furnit.&Home Furnish.and Electron.&Appin. 5,176,520 73,145 Motor Vehicle&Parts Dealers $ 22,198,875 $ 927,372 w Total EBI($000) $107,301,634 $5,067,825 Median Household EBI 42,818 45,928 $20,000-$34,999 20.8 19.1 $35,000-$49,999 18.1 18.6 $50,000 and Over 41.6 45.0 Buying Power Index 1.8831 0.858 * Statistical data from "Sales & Marketing Management-2005 Survey of Buying Power", copyright in 2Q0I Sales Management Survey of Buying Power. Further reproduction is forbidden. a APPENDIX B UNAUDITED FINANCIAL STATEMENTS OF THE CITY .. om.. ! ter,,,,,yam rCtt.. \ / .0 CITY OF PEARLAND, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THEYEAR ENDED SEPTEMBER 30, 2005 TENTATIVE & PRELIMINARY CITY OF PEARLAND, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED SEPTEMBER 30, 2005 Prepared by: Finance Department TENT ATI VE & P RE LI MI NARY CV OS S CTIpN I1�TROW TOT ��ZV,� ELpR.51.1-1, `^ / *P� P ARtiMpe. • - T E X A S • zip 7 To the Honorable Mayor,Members of City Council, and Citizens of the City of Pearland, Texas: We are pleased to submit to you the Comprehensive Annual Financial Report of the City of Pearland, Texas (the "City") for the fiscal year ended September 30, 2005. This report is published in order to provide the City Council, City employees, our Citizens, and other interested parties with detciled information concerning the financial condition and significant activities of the City. Responsibility for the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with the City. We believe that the enclosed data, as presented, is accurate in all material respects, and is reported in a manner designed to present fairly the financial position and results of operations of the City, as measured by the financial activity of its various funds and account groups; and that all disclosures necessary to enable the reader to gain an understanding of the City's financial affairs have been included. THE REPORT The Comprehensive Annual Financial Report is presented in three sections: Introductory, Financial, and Statistical. The Introductory Section, which is unaudited, includes this transmittal letter, the City's organizational chart, a list of principal City officials, and a copy of the 2003 Certificate of Achievement for Excellence in Financial Reporting. The Financial Section includes a Management's Discussion and Analysis (MD&A), basic financial statements and the combining statements and schedules. The Financial Section also includes our independent auditors' report on the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information. The Statistical Section, which is unaudited, includes selected financial and demographic information, generally presented on a multi-year basis to allow for certain .. trend analyses relative to the City. This report includes all the funds of the primary government (i.e., the City of Pearland as legally defined), as well as all of its Component Units. Component Units are legally separate entities for which the primary government is financially accountable. The City provides a full range of municipal services contemplated by statute or charter. These services include police and fire protection, health and social services,public improvements, planning and zoning, and general administrative services. The City also provides water, sewer, and sanitation services. Additionally, the City has an Economic Development Corporation, which was established to attract and retain jobs within the City and to more fully develop the local ad valorem tax base. T ENT AT I VE & ;P RE LI MI NARY There are two types of Component Units which are reported herein— one being the Pearland Economic Development Corporation (as previously described) and the other being Tax Increment Investment Zones ("TIRZ"). A TIRZ is an area within the City's jurisdiction that is created in order to foster investment and development that will ultimately benefit the City. These Component Units are presented herein discretely. Further, the Component Units are reported in a separate column in the government- ! wide financial statements to emphasize that they are legally separate from the primary government and to differentiate their financial position and results of operations from those of the primary government. The MD&A is intended to be a narrative introduction, overview and analysis of the financial and operating affairs of the City, written to supplement the basic financial statements. The letter of transmittal is designed to compliment MD&A and should be read in conjunction with it. The City of Pearland's MD&A can be found immediately following the independent auditors' report. CITY PROFILE Form of Government The City of Pearland is governed by the Council/Manager form of government in accordance with the Home Rule Charter adopted by the voters in February 1971. The City Council is the legislative and policy-making body of the City. It consists of a mayor and five members elected at-large for three-year, staggered terms. Elections are held annually the first Saturday in May. The Mayor and Council provide community leadership, develop policies to guide the City in delivering services and achieving community goals,and encourage citizen awareness and involvement. Location The City of Pearland is located in the upper Gulf Coast region of Texas and is situated primarily in the northeast corner of Brazoria County, approximately 15 miles southeast of the City of Houston's central business district. The City currently encompasses approximately 44 square miles within the City limits and includes approximately 29 additional square miles within its Extra Territorial Jurisdiction(ETJ). The City of Pearland's transportation needs are served via access to several interstate and state highways. State Highway 288 traverses the City's west side providing access to the port of Freeport to the south and to the Houston Medical Center on into downtown Houston to the north. The Sam Houston ToIlway (Beltway 8) is a freeway "loop" that encircles the City of Houston. This freeway artery runs near and parallel to the City's northern boundaries in an east-west direction. Interstate Highway 45 lies just east of the City of Pearland, providing access to the Johnson Space Center and Port of Galveston to the south, and travels northward, through the heart of downtown Houston. Additionally, State Highway 35 bisects the City of Pearland in a north-south direction, providing easy access to Houston's Hobby airport approximately 6 miles to the north. T ENT AT I VE (Sc 1? RE LI MI NARY Population Currently, the City's estimated population is approximately 54,000 people (not including the ETJ population). Recent trends forecast the City's population growth to double within the city limits by the year 2012. Estimates for Brazoria County for this same time period reflect a population increase of approximately 40%, from approximately 255,000 today, up to approximately 356,000 in 2012. However, nearly 50% of the overall county population growth is expected to occur within Pearland's city limits, which is estimated to account for 27% of the county population by 2012 (as compared to approximately 18%today). MAJOR INITIATIVES Dramatic growth and opportunity — tempered with visionary guidance — continue to be the prevailing forces steering Pearland City Council, staff, and community direction. The community continues to embrace the challenge of preserving Pearland's small-town feel, even as it blossoms into one of Houston's largest suburbs. This concept is captured by the slogan"Where town and country meet," and is embodied in numerous major initiatives and on-going programs. The Old Town Site The Old Town Site is the historic center of Pearland, and the City Council has established a vision to reinvent the area as a hub of mixed-use residential, business, and civic activity. Over the past three years, the majority of the area's half-century old sewer system has been rehabilitated. For five years, $150,000 per year has been spent to add sidewalks, and increase the"walk ability" of the neighborhood. In 2003, the City re-acquired ownership of Zychlinski Old Town Park, and added walking trails, playground equipment,a basketball court, and landscaping. Redevelopment efforts will continue next year with implementation of a mixed use "Village District" zoning concept for the area. The Council has expressed a willingness to utilize tax increment reinvestment zones and other creative financing tools to continue the revitalization effort. Sense of Community Maintaining a small town environment means ensuring that opportunities exist for all citizens- `old- timers' and newcomers - to come together and form new bonds. The Parks and Recreation Department plays a leading role in this function by sponsoring community-wide events that attract residents of all ages. City and citizen support for such events as the summer concert series, bi-monthly teen and senior citizen dances, the annual Winterfest event, the Christmas tree lighting ceremony, and Christmas parade continue to grow steadily each year. In 2003, the City took over operation and programming for the senior citizen center; daily programs and periodic field trips are now offered, and attendance has grown significantly. The department is also focused on reaching out to the community and offering classes and events in the newly developed Western portion of our City. The City of Pearland has many natural assets. The Ecotourism Department is working on a plan to incorporate nature and heritage tourism while preserving and enhancing greenspace. TENT ATI VE & 2RELIMINARY Community Appearance The original small town of Pearland traditionally prided itself on a clean appearance, and the larger City of Pearland expects nothing less. A close relationship with the local Keep America Beautiful affiliate has spawned several initiatives. Adding to the curbside recycling collection program that has been in place since 1995, green waste recycling has also been added. Partnering with the Houston-Galveston Area Council, the City operates a state-of-the-art recycling center that serves Pearland and Brazoria County. The center was completed in April 2004, and will be one of the anchors of the new Southwest Environmental Center. Beginning in early 2005, the City began accepting Household Ha7.ardous waste at the center. Volunteers staff an innovative program known as the "Eyes of Pearland," patterned after the familiar song"The Eyes of Texas are Upon You." High weeds, structures and fences in ill repair, and "bandit" signs are the primary targets of this motivated group, which began operation in 2003. Supplementing City code enforcement staff, these volunteers clean up these problems in a timely manner, while allowing City staff to focus on other pressing issues. Another volunteer program utilizes graduates from the citizen's police academy to enforce handicapped-parking violations. Now in its third year, this program has been tremendously successful and additional resources continue to be allocated to the program. Public Safety Personal safety and low crime rate are often cited as reasons families have chosen to relocate to Pearland. Public safety continues to be a major emphasis for the City Council, continuing a program to add a minimum of six new police officers per year to maintain a ratio of 1.8 officers per 1,000 population. In 2004, a new police department Geographic Information System interface was added that will improve response times, ensure dispatch to the proper locations, and add significant crime tracking and analysis capabilities. Explorer Post 411 (affiliated with Boy Scouts of America), sponsored by the Pearland Police Department, continues to gain members, compete well at competitions, and create another vital linkage between the City and its citizens. Community Enrichment Initiatives Under the leadership of the Mayor, several new community-oriented initiatives are setting the stage for future opportunities. A joint venture grant application with the YMCA was submitted to the Texas Park and Wildlife Department to build a skateboard park on City-owned land will benefit the YMCA by reducing costs, and benefit the community by providing a safe location for kids to practice this popular sport. This joint venture has created an opportunity to apply for a Texas Park and Wildlife grant to build additional recreational trails near the facility. The Pearland Arts League was also formed in 2003 and hosted its first event on Grand Avenue in the Old Town Site in 2004. This community event serves multiple purposes: providing a venue for artisans of all varieties, bringing diverse segments of the community together, and placing a focal point on the Old Town Site. Finally, the higher education initiative has resulted in a partnership between the Alvin Community College-Pearland Campus and the University of Houston to offer upper-level (junior-senior) classes in Pearland. This pilot initiative will likely lead to a full-time presence for a future University of Houston—Pearland campus. T ENT ATIVE & 13 RE L I MI NARY • Growth Management An update of the 1999 Comprehensive Plan was completed in July of 2004. This document refreshes the vision of the community to maintain a strong balance of residential, retail, and primary employers. The Pearland Economic Development Corporation and City are funding a nearly $9 million extension of Kirby Drive along with associated drainage and utilities that will serve as the focal point for the Spectrum Business Park, a development that may ultimately include 1,000 acres of biomedical research and manufacturing, offices, regional retail,and related uses. The City and EDC executed a development agreement with the first tenant, a 700,000 square foot lifestyle retail center in December 2004. Two major hospital corporations have purchased property in Pearland for new facilities, and the University of Texas has acquired 50 acres for a potential annex to the world-renowned Texas Medical Center. Following completion of the Comprehensive Plan Update in mid-2005 will be revisions to several City codes. The zoning and subdivision codes will be combined into one updated unified development code that will assist both applicants and City staff in effective and efficient plan review. All of the City's building, fire, and life-safety codes have also been updated to the most recent national standards. Transportation Improvements and Strategic Planning Enhancing transportation to meet growth demands also continues to be a major priority. Several major components of the$92.5 million transportation bond program(passed in Fall 2001)are under construction, including Yost Road, Barry Rose Road, and Cullen Boulevard extension. The first phases of the $36 million Magnolia Road project are now in design. All of these projects will provide new transportation linkages, and provide traffic relief for FM 518. By early 2006, the first phase of the $46 million Dixie Farm Road project will be under construction,resulting in a vastly improved primary connection to IH 45. In addition to transportation construction projects, the City is actively involved in long-range transportation planning activities. City staff members are on the steering committees of the TX DOT- sponsored major corridor feasibility studies for improvements to SH 288 and SH 35. The SH 288 study was completed 2004, and the SH 35 study will be completed by mid-2005. The City also participated _ with the Houston-Galveston Area Council and the cities of Friendswood and League City in a mobility study for FM 518. Implementation of the recommendations of this study will begin in 2005. This study resulted in specific projects that can improve mobility and reduce travel delay on FM 518 without the need to add additional lane capacity; significant improvements have already been implemented and a raised medium plan is in design. Finally,the City actively participated in the Brazoria County Mobility Bond Steering Committee, which developed a street bond program, which was submitted to and approved in November 2004. The County Bond referendum was approved in November 2004 and the project is now in progress. Storm Water Management Responding to the devastation inflicted by Tropical Storm Allison in 2001, the City has stepped up efforts to enhance flood control measures. A revised Drainage Design Criteria Manual enacted in February 2004 will result in approximately 12% larger detention ponds for private development. The City has also completed a Hazard Mitigation Plan that incorporates compliance with state and federal agency requirements to ensure continued eligibility for grant programs. In late 2003, the City submitted an application to FEMA for inclusion in the Community Rating System. The City and Drainage District will begin joint construction of a second stormwater detention facility on Mary's Creek in 2005, and are designing a third detention facility on Mary's Creek. A final rating is expected in 2005. TENTATIVE & PRELIMINARY Water and Sewer Strategic Planning Assurance of adequate water and sewer capacity is a primary goal toward providing quality-of-life amenities for current residents, and ensuring a desirable future-growth rate. The City's first major source of surface water (purchased from the City of Houston)was activated in 2003, and will provide up to three million gallons per day (MGD) of drinking water in 2005. The City intends to increase that intake to 6 MGD by 2007, and will also be buying into a regional surface water treatment plant in 2005 at a cost of over $16 million for an additional capacity of 10 MGD to be available by 2009. This initiative to convert the majority of water supplies to surface water not only provides the City with adequate water supplies through 2022, but also will assist in the regional battle against subsidence by reducing the City's reliance on pumping groundwater. The City's four wastewater treatment plants are all operating well within governmental compliance requirements, and a more formal method of monitoring and predicting wastewater volume growth is now in place. The next major plant expansion is expected to enter the planning stage in 2005. In addition to these planning activities, over $40 million in in-line extension and plant improvement projects are currently in progress. These projects include major trunk facilities to network properties annexed in the late 1990's, as well as local distribution and collection lines to replace substandard well and septic tank service in several recently-annexed areas. A major initiative to correct sewer inflow and infiltration in the older sections of the City is nearing the end of a six-year program, in which more than $4 million has been spent in rehabilitation. By reducing unnecessary rainwater flow to the wastewater treatment plants,plant operational costs have decreased,thus deferring the need for plant expansion. City Facilities Accompanying the aspects of long-range utility and transportation planning is an initiative to compile a cohesive water, sewer, drainage, transportation, and facility capital improvement programs, which were presented to City Council in February 2005. A comprehensive street inventory to be used for compliance with GASB 34 and budget planning was completed in January 2005. A building facility- needs analysis has been completed and will provide a blueprint for additional public safety, public works, and administrative facility needs to match the City's growth trends. ECONOMIC OUTLOOK Brazoria County's current population is approximately 250,000. It is estimated that this will increase to over 356,000 by 2012. According to the Economic Development Alliance for Brazoria County, job growth will be focused in four primary areas: 1) aerospace/high technology, 2) transportation and distribution, 3)petrochemical and downstream petrochemical companies, and 4)tourism. In late 1998,the City of Pearland created a Tax Increment Reinvestment Zone (TIRZ#2). This involved the annexation of over 3,000 acres west of the State Highway 288 (SH 288)corridor. The city limit now extends to portions of Fort Bend County. The proposed development, Shadow Creek Ranch, has the potential to develop the acreage over a 15 to 20 year time frame and has already developed more than 3,000 lots. It is estimated that 7,000 new single-family homes, 1,800 assisted living units, and 3,900 multi-family units could be developed. More than two billion dollars worth of value would be added over the next 20 years. New valuation of property in Shadow Creek Ranch exceeded $330 million in 2003-2004. Retail continues to grow in Pearland. Within the City and EMJ, an estimated 400,000 sq. feet of new retail opened in 2004. This served to boost our sales tax revenue by more than 17%in 2003. TENT ATI VE & vVRE LI MI NARY Shadow Creek Ranch will not only improve roads in the area, but will also bring in sewer and drainage, water, and major landscaping to the area. The added population poises SH 288 for major retail and commercial development that could eventually include major office buildings, a hospital,and hotels. With respect to economic development projects in Pearland, 2005 proved to be a very active year. Many commercial enterprises have expanded ore relocated their businesses to the City during the course of the year. The following list summarizes some of the major projects in 2005: • The Spectrum at Clear Creek—a master-planned,mixed-used business park development to be located on a 1,000-acre site at the crossroads of SH 288 and Beltway 8 in Pearland. The Spectrum will be the convergence of science, technology, training, and lifestyle. Design of the extension by Kirby Drive, which will provide access to the Spectrum, is nearing completion. • West Pearland Professional Center — a 20,000 square foot professional office building and an adjacent strip center that includes approximately 11,500 square feet. Construction is currently underway for an additional 11,500 square foot professional office building. • HCA announced plans to begin construction of Phase 1 of a hospital project in early 2005. • In addition are numerous retail projects that have either opened for business or are in the process of building. ACCOUNTING AND BUDGETARY CONTROLS Management of the City is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the City are protected from loss, theft or misuse, and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the cost of controls should not exceed the benefits expected to be derived and(2)the evaluation of costs and benefits requires estimates and judgments by management. Accounting Controls. We believe that the City's accounting controls provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period by employees in the normal course of performing their assigned function. BudgetingControls. In addition, the City maintains budgetary controls. The objective of these budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City's governing body. Activities of the General,Debt Service, and Enterprise Funds are included in the annual appropriated budget. The level of budgetary control (the level at which expenditures cannot legally exceed the appropriated amount)is the total approved budget for each department. TE NT AT I VE & 2RELIMINARY OTHER INFORMATION Independent Audit The City Charter requires an annual audit of the books of account, financial records, and transactions of all administrative departments of the City by an independent certified public accountant. The accounting firm of Pattillo,Brown and Hill, L.L.P. was selected by the City Council. This requirement has been complied with, and the auditors' opinion has been included with this report. Awards The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Pearland for its Comprehensive Annual Financial Report for the fiscal year ended September 30, 2004. This was the 28th consecutive year that the City has received this prestigious award. In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently organized comprehensive annual financial report, whose contents conform to program standards. Such reports must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current report continues to conform to Certificate of Achievement Program requirements and we are submitting it to GFOA to determine its eligibility for another certificate. In addition, the government also received the GFOA's Award for Distinguished Budget Presentation, the 18th consecutive year for its annual appropriated budget dated September 8,2004. In order to qualify for the Distinguished Budget Presentation Award, the government's budget document was judged to be proficient in several categories including policy documentation, financial planning, and organization. Acknowledgments We would like to express our appreciation to all members of the Finance and Administration Departments who assisted and contributed to its preparation. We would also like to thank the Mayor, members of the City Council, and City Manager for their interest and support in planning and conducting the financial operations of the City in a responsible and progressive manner. Respectfully submitted, Andrea M. Gardner Director of Finance ,2006 T E NT AT I VE & VP RE LI MI NARY Organizational Chart CITIZENS OF PEARLAND MAYOR AND CITY COUNCIL MUNICIPAL JUDGES BOARDS & COMMISSIONS CITY ATTORNEY CITY MANAGER ASSISTANT ASSISTANT CITY MANAGER CITY MANAGER t PUBLIC WORKS COMMUNITY DEVELOPMENT ENGINEERING MUNICIPAL COURT PROJECT MANAGEMENT ANIMAL CONTROL PLANNING POLICE PUBLIC AFFAIRS FIRE MARSHAL PARKS& EMERGENCY RECREATION MANAGEMENT DIRECTOR OF FIRE FINANCE EMERGENCY MEDICAL SERVICES --{ FINANCE PURCHASING CITY SECRETARY INFORMATION "H. GRANTS TECHNOLOGY HUMAN RESOURCES W&S BILLING& COLLECTIONS TENTATIVE & PRELIMINARY CITY OF PEARLAND,TEXAS LIST OF PRINCIPAL OFFICIALS YEAR ENDED SEPTEMBER 30,2005 ELECTED OFFICIALS Tom Reid Mayor Richard Tetens (Position 1) Council Member Woody Owens (Position 2) Council Member Steve Saboe(Position 3) Council Member Larry Maroon(Position 4) Council Member Kevin Cole(Position 5) Council Member, Mayor Pro-Tern APPOINTED OFFICIALS Bill Eisen , City Manager Young Lorfing City Secretary Darrin Coker City Attorney (continued) TENT ATI VE ip CITY OF PEARLAND, TEXAS LIST OF PRINCIPAL OFFICIALS (Continued) YEAR ENDED SEPTEMBER 30,2005 EXECUTIVE MANAGERS Nicholas Finan Assistant City Manager Mickiel Hodge Assistant City Manager Fredrick Howard Welch Executive Director of P.E.D.C. Claire Manthei Director of Finance Chris Doyle Police Chief Steve Chapman Fire Marshal/Emergency Management Director Rhonda Cyrus Director of Parks and Recreation Danny Cameron Director of Public Works Joseph Wertz Director of Projects Kola D. Olayiwola Director of Inspection Services Doug Kneupper City Engineering Glenn Chaney Municipal Court Judge Letitia Farnie Municipal Court Judge Roy Simmons Municipal Court Judge Jeff Sundeth Director of EMS Paul Jamison Fire Chief Mary Hickling Director of Human Resources Lata Krishnarao Director of Planning T ENT AT I VE & 2RELIMINARY F[NANCIAL SECTION T -Orr AT ? VE St PRELIMZN �Y i HIM PATTILLO, BROWN & HILL, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS■ BUSINESS CONSULTANTS INDEPENDENT AUDITORS' REPORT To the Honorable Mayor and Member of the City of Council City of Pearland,Texas We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Pearland, Texas, as of and for the year ended `' September 30, 2005, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Pearland, Texas' management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing •• Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Pearland, Texas, as of September 30, 2005, and the respective changes in financial position and cash flows,where applicable,thereof and the respective budgetary comparison for the General Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated March 10,2006,on our consideration of the City of Pearland,Texas' internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in conjunction with this report in considering the results of our audit. 1 401 WEST HIGHWAY 6■P.O.BOX 20725■WACO,TX 76702-0725■ 254 772-4901■FAX:(254)772-4920■Uwhc a.com TENT ATTIATEE254ns7v9&or<AL: U 0 265 ? The management's discussion and analysis on pages 3 through 10 is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However,we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that "' collectively comprise the City of Pearland, Texas' basic financial statements. The introductory section, combining and individual fund financial statements and schedules, and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund financial statements and schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and,accordingly,we express no opinion on them. March 10,2006 TENT ATI VE & PRELIMINARY MANAGEME��YSIS DISCUSSION AND p R.�.L� .MI N pPY TT1ST \ E & Management's Discussion and Analysis As management of the City of Pearland,we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, 2005. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages i —viii of this report. FINANCIAL HIGHLIGHTS • The assets of the City of Pearland exceeded its liabilities as of September 30, 2005, by $69,128,282 (net as-sets). Of this amount, $21,533,384 (unrestricted net assets)may be used to meet the City's ongoing obligations to citizens and creditors in accordance with the City's fund designation and fiscal policies. • The City's total net assets increased by$12,499,750. • At the close of the current fiscal year, the City of Pearland's governmental funds reported combined ending fund balances of$64,524,460, an increase of$3,802,719 in comparison with the prior year. Of this amount,$63,173,968 is unreserved fund balance available for use within the City's fund designation and fiscal policies. Approximately $43 million of this ending balance can be attributed to work in progress for capital projects,which is expected to decrease the fund balance in the following fiscal year. • As of September 30, 2005,the unreserved, undesignated fund balance for the General Fund was$17,585,494. • The City of Pearland's total debt increased by $15,155,000 during the fiscal year. The key factor for this increase was the issuance of$37,015,000 in Permanent Improvement and Refunding Bonds. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements are comprised of three components: (1) government-wide financial statements, (2) fund financial statements and (3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide Financial Statements —The government-wide financial statements are designed to provide readers with a broad overview of the City's finances, in a manner similar to a private-sector business. The Statement of Net Assets presents information on all of the City's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. TENT ATI VE & 3P RE LI MI NAR.Y • The Statement of Activities presents information showing how the City's net assets changed during the fiscal year. All changes in net assets are reported when the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in the future fiscal periods(e.g.,uncollected taxes and earned but unused compensated absences). Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from fractions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Pearland include General Government,Public Safety, Public Works and Community Services. The business-type activities of the City include Water and Sewer. The government-wide financial statements include not only the City of Pearland, itself(known as the primary government), but also a legally separate Economic Development Corporation, Tax Increment Investment Zone (TIRZ) Developments and Development Authority of Pearland for which the City of Pearland is financially accountable. Financial information for these component units is reported separately from the financial information presented for the primary government, itself. The government-wide financial statements can be found on pages 11 — 13 of this report. Fund Financial Statements—A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments,uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All funds of the City can be divided into two categories— governmental funds and proprietary funds. Governmental Funds — Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on current sources and uses of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental funds balance sheet and the governmental fund statements of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. Beginning on page 14 of this report, information is presented separately in the Governmental Fund Balance Sheet and in the Governmental Fund Statement of Revenues, Expenditures, and Changes in Fund Balances for the General, Debt Service, Capital Projects and other funds, which are considered to be major funds. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. TENTATIVE & 4P RE LI III NARY The City of Pearland adopts an annual appropriated budget for its General Fund. A budgetary comparison statement has been provided for the General Fund to demonstrate compliance with the budget Proprietary Funds — The City maintains one type of proprietary fund. Enterprise Funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses an Enterprise Fund to account for the Water and Sewer Fund. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The basic proprietary fund financial statements, which begin on page 18 of this report,provide separate information for the Water and Sewer Enterprise Fund since it is considered to be a major fund of the City. Notes to the Financial Statements—The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 21 —45 of this report. Other Information — In addition to the basic financial statements and accompanying notes, this report also presents combining fund statements and schedules that further support the information in the financial statements. The combining fund statements and schedules for nonmajor funds are presented immediately following the notes to the financial statements beginning on page 46 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier,net assets may serve over time as a useful indicator of government's financial position. In the case of the City of Pearland, net assets exceeded liabilities by $69,128,282 as of September 30, 2005. The largest portion of the City's net assets ($43,239,067)reflects its investments in capital assets (e.g., land, building, equipment, improvements, construction in progress and infrastructure), less any outstanding debt used to acquire those assets. The City uses these capital assets to provide service to citizens; consequently, these assets are not available for future spending. Although the City's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. TENT ATI VE & ,PRE LI MI NARY CITY OF PEARLAND'S NET ASSETS Governmental Activities Business-type Activities Totals 2005 2004 2005 2004 2005 2004 Current and other asset S 71,009,278 S 64,371,013 S 12,344,512 S 23,448,781 S 83,353,790 S 87,819,794 Capital assets 92,505,150 67,143,104 88,846,250 76,429,323 181,351,400 143,572,427 Total assets 163,514,428 131,514,117 101.190,762 99,878,104 264,705,190 231,392,221 Other liabilities 8,853 968 2,750,146 6,662,540 3,207,343 15,516,508 5,957,489 Long-term liabilities 133,262,658 118,165,340 46,797,742 50,640,860 180,060,400 168,806,200 Total liabilities 142,116,626 120.915,486 53,460,212 53,848,203 195,576,908 174,763,689 Net assets: Invested in capital assets, net of related debt 1,872,817 ( 2,537,520) 41,366,250 27,004,323 43,239,067 24506,803 Resricsed 4,355,831 6,390,504 4,355,831 6,390,504 Unrestricted 15,169,154 6,745,647 6,364,230 18,985,578 21,533,384 25,731,225 Total net assets S 21,397,802 S 10,598,631 S 47,730,480 S 46,029,901 S 69,128,282 S 56,628,532 A portion of the City's net assets ($4,354,206) represents resources that are subject to external restriction on how they may be used. The remaining balance ($20,855,881) of unrestricted net assets may be used to meet the City's ongoing obligations to citizens and creditors. Analysis of the City's Operations— The following table provides a summary of the City's operations for the year ended September 30, 2005. Governmental activities increased the City of Pearland's net assets by$7,076,384, accounting for approximately 54%of the total growth in net assets. Business-type activities increased the City's net assets by $6,000,247, accounting for approximately 46% of the total growth in net assets. Governmental Activities—The major increase in revenues comes from the tax category. The property tax base increased by approximately $453 million, due to construction of new residences, businesses, and revaluation of property. The current year tax collection rate was approximately 98% of the levy. Additionally, there was an increase in both license and permit revenues and engineering and inspection revenues due to an increase in both residential and commercial building permits. Sales tax revenues increased due to the addition of new retail outlets and an increased residential base to frequent the new and existing retail outlets. Fines and forfeitures were up due to increased citations issued, and investment earnings are down due to the continued low interest rates. Business-type Activities — The City has one enterprise operation, the Water and Sewer Fund. Total operating revenues of the Water and Sewer fund were $11,219,499 for the fiscal year. Water sales increased primarily due to an increasing customer base due to growth in residential and commercial development, and due to a lack of rainfall during portions of the year. Similarly, service charges for wastewater increased primarily due to new residential and commercial construction. The increase in the Water and Sewer Fund's expenditures was primarily due to various capital infrastructure improvements and increase in service to customers. TENTATIVE & 6P RE LI MI NARY CITY OF PEARLAND'S CHANGES IN NET ASSETS Governmental Activities Business-type Activities Totals 2005 2004 2005 2004 2005 2004 Revenues Program rev®ies: Charges for services S 12,309,406 S 11.040,246 S 11,219,499 S 11,897,876 S 23,528,905 S 22,933,122 Operating grams and contributions 1,154,531 855,917 47,293 1,154,531 903,210 -. Capital grants and coon-Rations 1,117,712 2,074,506 8.365,452 6932,959 9,483,164 9,007,465 General revalues: Ad valorem taxes 19,804,541 17,907,163 19,804,541 17,907,163 Sales taxes 7,785,161 6,739,484 7,785,161 6,739,484 Franchise taxes 3,097,163 2,883,188 3,097,163 2,883,188 Other taxes 241,046 193,464 241,046 193,464 Investment earnings 1,863,323 1,115,100 399,275 417,258 2,262,598 1,532,358 y Muoellaneous 827,589 782,165 827,589 782,165 Total revenues 48,200,472 43,591,233 19,984,226 19,290,386 68,184,698 62,881,619 Expenses: General government 7,630,505 7,314,239 7,630,505 7,314,239 Public safety 11,856,643 10,524,915 11,856,643 10,524,915 Public works 12,858,259 9912,937 12,858, 59 9,912,937 Community services 2,939,228 2,700,356 2,939,228 2,700,356 Interest on long-tam debt 6,198,935 5,549,292 6,198,935 5,549,292 Water and sewer 13,624,497 15,265,350 13,624,497 15,265,350 Total expenses 41,483,570 36,001,739 13,6242497 15,265,350 55,108,067 51,267,089 Incases in net assets before trarsfea 6,716,902 7,589,494 6,359,729 4,025,036 13,076,631 11,614,530 Transfers 359,482 524,110 ( 359,482) ( 524,110) • Change in net assets 7,076,384 8,113,604 6,000,247 3,500,926 13,076,631 11,614,530 Net assets,beginning 10,598,631 2,583,968 46,029,901 42,528,975 56,628,532 45,112,943 Prior period adjustment 3,722,787 ( 98,941) ( 4,299,668) ( 576,881) ( 98,941) Net assets,ending S 21397,802 S 10.598,631 S 47,730,480 S 46,029,901 S 69,128,282 S 56,628,532 TENT ATI VE & 7P RE LI MI NARY FINANCIAL ANALYSIS OF THE GOVERNMENT'S FUNDS Governmental Funds — The focus of the City of Pearland's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. At the end of the current fiscal year, the City of Pearland's governmental funds reported combined ending find balances of$64,524,460. Approximately 98%of this total amount$63,173,968 constitutes an unreserved fund balance. The remainder of the fund balance ($1,420,041)is reserved to indicate that it is not available for new spending because it has already been committed to pay for encumbrances or debt service or to provide for other items. Refer to page 14 of this report for a more detailed presentation of governmental fund balances. In the General Fund, the City originally budgeted for a slight change in fund balance. The actual increase to fund balance for the General Fund was$1,770,959 for fiscal year 2005. Proprietary Funds — The City's proprietary fund statements, beginning on page 18 of this report, provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net assets of the only proprietary fund are $6,364,230. This fund experienced increases in total net assets during 2005 of$6,000,247. This increase was primarily due to an increase in customer base. See discussion for business-type activities for further explanation. General Fund Budgetary Highlights — During the year, revenues exceeded budgetary estimates and expenditures were less than budgetary estimates,thus eliminating any need to draw upon existing fund balance. Refer to the General Fund Statement of Revenue,Expenditures and Changes in Fund Balances—Budget and Actual on page 17 of this report for a detailed presentation of the actual General Fund operations compared to both the original and final budget for fiscal year 2005. CAPITAL ASSETS The City of Pearland's investment in capital assets for its governmental and business-type activities as of September 30,2005,amounts to $181,351,400(net of accumulated depreciation). This investment in capital assets includes land, building, equipment, improvements other than buildings, infrastructure and construction work in progress. Major capital asset events occurring during the current fiscal year related primarily to three basic categories: water and sewer infrastructure projects, streets and mobility projects, and drainage improvement projects. T E NT ATIVE F SP RE LI MI NARY CITY OF PEARLAND'S CAPITAL ASSETS AT YEAR-END Governmental Activities Business-type Activities Totals 2005 2004 2005 2004 2005 2004 Land S 2,717,453 $ 2,509,691 S 367,962 S 367,962 S 3,085,415 $ 2,877,653 Building`and improvements 12,1134,943 12,575,655 22,610,028 21,518,110 35,444,971 34,093,765 Equipment 9,282,167 8,619,886 8,347,893 7,895,580 17,630,060 16,515,466 Infrastructure/ waterdistributioon 61,799,139 42,674,657 57,228,510 60,791,814 119,027,649 103,466,471 C.onstmction is progress 20,698,167 12,946,218 19,424,558 2,166,494 40,122,725 15,112,712 Less:accafaulal depreciation ( 14,826,719) ( 12,183,003) ( 19,132,701) ( 16,310,637) ( 33,959,420) ( 28,493,640) Total capital assets $ 92,505,150 S 67,143,104 $ 88,846.250 $ 76,429,323 S 18 51,400 $ 143,572,427 Additional information on the City's capital assets can be found in Note 4,pages 34—35 of this report. DEBT ADNIINISTRATION At the end of the current fiscal year,the City of Pearland had total bonded debt of$180,925,000. Of this amount, $92,655,000 represents bonded debt backed by the full faith and credit of the government and $88,270,000 represents bonds secured solely by water and sewer revenues. CITY OF PEARLAND'S OUTSTANDING DEBT AT YEAR-END Governmental Activities Business-type Activities Totals 2005 2004 2005 2004 2005 2004 General obligation S 60,175,000 S 25,345,000 S S S 60,175,000 $ 25,345,000 Revenue bonds Wale32,480,000 33,505,000 32,480,000 33,505,000 Certificates of obligation 72,390,000 90,185,000 15,880,000 16,735,000 88,270,000 106,920,000 S 132,565,000 $ 115,530,000 $ 48,360,000 $ 50,240,000 $ 180,925,000 $ 165,770,000 During the fiscal year,the City issued$37,015,000 in Permanent Improvement and Refunding Bonds. The City's General Obligation, Certificates of Obligation, and Revenue Bond ratings are listed below based on the issuance of a financial guaranty insurance policy. Standard Moods and Pool's Tax Bonds Aaa AAA Revenue Bonds Aaa AAA TENT ATI VE & 9P RE LI III NARY Most of the City's Bonds are insured, thus holding a Triple A credit rating from Moody's and Standard & Poor's. Additional information on the City of Pearland's long term-debt can be found on pages 36— 41 of this report. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES One of the primary factors considered in the 2006 budget development is the overall economy and how it affects Pearland's growth. Pearland continues to be one of the fastest growing cities in the Houston area with such developments as Shadow Creek Ranch,the Lakes at Highland Glen and Southern Trails. The continued growth creates expanded infrastructure needs and subsequent bond elections. Another factor that impacts the 2006 budget is the annexation of Municipal Utility District 5 on December 31,2005. The annexation will add an estimated 5,000 population to the City. The General Fund budget (including transfers in) for fiscal year 2006 is based on a projected revenue growth of 9.5% compared to the fiscal year 2005 budget Substantial anticipated increases in property taxes of 14% are due to growth. Charges for services will increase the budget by 16% to adequately maintain the growth. The 2006 budget includes additional personnel. Twenty-five new personnel were added to the General Fund budget Although the Water and Sewer rate study projected a 9%increase in rates,there is no rate increase in the 2006 budget for the Water and Sewer Fund. Included in the Water and Sewer Fund are four new additions to personnel and generous repairs, replacements, and maintenance related capital infrastructure. The Pearland Economic Development Fund fiscal year 2006 budget includes bond proceeds from the sale of Sales Tax Bonds totaling $11,005,000 for the Kirby Road Extension and related water, sewer and drainage. REQUESTS FOR INFORMATION The financial report is designed to provide our citizens,customers, investors and creditors with a general overview of the City's finances. If you have questions about this report or need any additional information,contact Claire Manthei,Director of Finance, at 3519 Liberty Drive, Pearland,Texas 77581, or call(281)652-1600. T ENT AT I VE & ,OPRELI MI NARY BASIC FINANCIAL STATEMENTS TENTATIVE & PRELIMINARY CITY OF PEARLAND, TEXAS STATEMENT OF NET ASSETS SEPTEMBER 30,2005 Primary Government Component Units Economic Development Governmental Business-type Development TIRZ Authority Activities Activities Total Corporation Developments ofPcariand ASSETS Cash and investments S 60,503,560 $ 10,413,796 S 70,917,356 S 1,198,360 S 1,168,096 $ 65,344 Receivables,net of allowances for uncoilectihlee Accounts 913,860 2,245,558 3,159,418 142 Property taxes 797,744 797,744 234,7,87 Sales taxes 1,456,049 1,456,049 724,601 other taxes 664,345 664,345 Intergovernmental 270,306 270,306 Accrued interest 2,387 20,079 22,466 20,097 Prepaid items 1,324 1,324 3,450 Inventories 69,549 69,549 A. Restricted cash and investments 4,527,602 4,527,602 10,035,804 1,630,157 Deferred charges 663,459 627,796 1,291,255 256,439 927,778 Capital assets: Land 2,717,453 367,962 3,085,415 Buildings and improvements 12,834,943 22,610,028 35,444,971 19,501 Machinery and equipment 9,282,167 8,347,893 17,630,060 124,959 Infrastructure 24,631,483 57,228,510 81,859,993 Construction in progress 57,865,823 19,424,558 77,290,381 Less:accumulated depreciation ( 14,826,719) ( 19,132,701) ( 33,959,420) ( 144,460) Total capital assets 92,505,150 88,846,250 181,351,400 Total assets 157,847,733 106,681,081 264,528,814 12,238,893 1,402,383 2,623,279 LIABILITIES Accounts payable 3,987,205 3,094,901 7,082,106 21,076 Accrued liabilities 494,613 157,955 652,568 11,498 Unearned revenue 167,061 167,061 179,285 Accrued interest 523,316 117,851 641,167 Customer deposits 1,253,770 1,253,770 Noncurrent liabilities: Due within one year 3,681,773 2,038,063 5,719,836 351,088 815,000 a Due in more than one year 133,262,658 46,797,742 180,060,400 10,219,274 13,180,000 Total liabilities 142,116,626 53,460,282 195,576,908 10,602,936 179,285 13,995,000 NET ASSETS Invested in capital assets, net of related debt 3,084,208 45,641,648 48,725,856 Restricted for, Debt service 3,607,258 275,502 3,882,760 Capital improvements 904,397 6,751,273 7,655,670 Public safety 449,775 449,775 Parks and recreation 992,941 992,941 Economic development 669,937 669,937 ., Corrunumty services 237,484 237,484 Unrestricted 5,785,107 552,376 6,337,483 1,635,957 1,223,098 ( 11,371,721) Total net assets S 15,731,107 S 53,220,799 S 68,951,906 S 1,635,957_S 1,223,098 $ ( 11,371,721) The notes to the financial statements are an integral part of this statement. TENTATIVE & PRELIMINARY CITY OF PEARLAND, TEXAS STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30,2005 Program Revenues Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Primary Government: Governmental activities General government S 8,714,401 S 185,235 $ 2,380 S 799,999 Public safety 11,856,643 3,639,966 673,276 311,921 Public works 12,858 259 7,221,015 5,792 Community services 2,939228 1,263,190 478,875 Interest on long-term debt 5,115,039 +� Total governmental activities 41,483,570 12,309,406 1,154,531 1,117,712 Business-type activities: Water and sewer 13,624,497 11,219,499 8,365,452 Total business-type activities 13,624,497 11,219,499 8,365,452 Total primary govemment S 55,108,067 S 23.528,905 S 1,154,531 S 9,483,164 Component Units: Econonric Development Corporation S 2,312,729 S S S TIRZ Developments 1,888,506 Development Authority ofPearland 13,225,937 1,824,418 Total component units S 17,427,172 S S S 1,824,418 — General revenues Taxes Property,levied for general purposes Property,levied for debt service Sales Franchise Other Investment earnings + Ivf1s^.Uanrous Transfers Total general revenues and transfers Change in net assets Net assets,beginning Prior period adjustment Net assets,beginning,as restated Net assets,ending The notes to the financial statements are an integral part of this statement. T ENT AT I VE P RE LI MI NARY Net(Expenses)Revenues and Changes in Net Assets Primary Government Component tints Economic Development Governmental Bnsness-type Development TIRZ Authority Activities Activities Total Corporation Developments of Peasiand $ ( 7,726,787) S S ( 7,726,787) S S S ( 7,231,480) ( 7,231,480) ( 5,631,452) ( 5,631,452) ( 1,197,163) ( 1,197,163) ( 5,115,039) ( 5,115,039) ( 26,901,921) ( 26,901,921) 5,960,454 5,960,454 5,960,454 5,960,454 ( 26,901,921) 5,960,454 ( 20,941,467) ( 2,312,729) ( 1,888,506) ( 11,401,519) ( 2,312,729) ( 1,888,506) ( 11,401,519) 9,678,307 9,678,301 2,531,251 10,126,234 10,126,234 7,785,161 7,785,161 3,891,870 3,097,163 3,097,163 241,046 241,046 1,863,323 399,275 2,262,598 303,129 8,390 29,798 827,589 827,589 12,000 359,482 ( 359,482) 33,978,305 39,793 34,018,098 4,206,999 2,539,641 29,798 7,076,384 6,000,247 13,076,631 1,894,270 651,135 ( 11,371,721) 10,598,631 46,029,901 56,628,532 ( 231,831) 571,963 ( 1,943,908) 1,190,651 ( 753,257) ( 26,482) 8,654,723 47,220,552 55,875,275 ( 258,313) 571,963 S 15,731,107 S 53,220,799 S 68,951,906 S 1,635,957 $ 1,223,098 5 ( 1171,721) TENT ATI VE PRELI MI NARY CITY OF PEARLAND, TEXAS BALANCE SHEET GOVERNMENTAL FUNDS - SEPTEMBER 30,2005 Total Debt Capital Other Governmental General Service Projects Funds Funds ASSETS Cash and investments S 6,945,697 $ 3,843,924 S 46,538,692 S 3,175,247 S 60,503,560 Receivables,net of allowances for uncollectiblea Accounts 802,568 46,605 64,687 913,860 Property taxes 511,094 286,650 797,744 Sales taxes 1,456,049 1,456,049 Other taxes 664,345 664,345 Intergovernmental 216,443 53,863 270,306 Accrued interest 1,393 994 2,387 Repaid items 1,324 1,324 Inventories 69,549 69,549 Total assets $ 10,668,462 S 4,130,574 $ 46,585,297 $ 3,294,791 S 64,679,124 LIABILTfIES AND FUND BALANCES Liabilities: Accounts payable 940,728 3,009,966 36,511 3,987,205 Accrued liabilities 464,613 30,000 494,613 Deferred revenue 1,060,350 275,445 3,746 1,339,541 Total liabilities 2,465,691 275,445 3,039,966 40,257 5,821,359 Fund balances: Reserved for: • Inventories 69,549 69,549 Prepaid items 1,324 1,324 Debt service 3,855,129 3,855,129 Unreserved,reported in: General fiend 8,201,447 8,201,447 Special revenue funds 2,462,352 2,462,352 Capital projects fund 43,545,331 792,182 44,337,513 Total fund balances 8,202,771 3,855,129 43,545,331 3,254,534 58,857,765 - Total liabilities and fund balances $ 10,668,462 S 4,130,574 S 46,585,297 $ 3,294,791 Amounts reported for governmental activities in the statement of net assets are different because: - Capital assets used in governmental activities are not financial resources and,therefore,are not reported in the funds. 92,505,150 Other long-term assets are not available to pay for current-period expenditures and,therefore,are deferred in the funds. 1,172,480 Long-term liabilities are not due and payable in the current period and therefore are not reported in the funds. ( 136,804,288) Net assets of governmental activities S 15,731,107 The notes to the financial statements are an integral part of this statement. TENT ATI VE & 2 RE LI MI NARY CITY OF PEARLAND, TEXAS STATEMENT OF REVENUES,EXPENDITURES AND "' CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30,2005 Total Debt Capital Other Governmental General Service Projects Funds Funds REVENUES Taxes: Property $ 9,649,452 $ 10,095,935 $ S $ 19,745,387 ,.. Sales 7,785,161 7,785,161 Mixed beverage 55,181 55,181 Hotellmottl 469 185,396 185,865 Franchise 3,097,163 3,097,163 Permits,licenses and fees 3,863,592 3,863,592 Fines 1,883,381 51,586 1,934,967 Charge,for services 6,138,610 6,138,610 Intergovernmental 871,196 1,111,920 398,388 2,381,504 Other revenue 595,369 8,846 568,098 1,172,313 Investment earnings 415,296 57,687 1,335,250 55,090 1,863,323 Total revenues 34,354,870 10,153,622 2,456,016 1,258,558 48,223,066 EXPENDITURES Current General government 6,664,735 84,839 6,749,574 Public sarty 10,816,906 264,555 11,081,461 Public works 10,449,814 10,449,814 Cammnnity services 2,692,450 54,729 2,747,179 Capital outlay 1,019,976 27,531,520 109,355 28,660,851 Debt service: Principal 3,534,534 3,534,534 Interest and fiscal charges 5,027,376 527,689 5,555,065 Intergovernmental - 1,083,896 1,083,8% Total expenditures 31,643,881 9,645,806 28,059,209 513,478 69,862,374 EXCESS(DEFICIENCY)OF REVENUES OVER(UNDER)EXPENDITURES 2,710,989 507,816 ( 25,603,193) 745,080 ( 21,639,308) OTHER FINANCING SOURCES(USES) me Transfers in 2,063,264 339,561 2,384,774 82,000 4,869,599 Transfers out ( 3,003,294) ( 608,559) ( 898,264) ( 4,510,117) Issuance of capital lease 271,193 271,193 Capital-:elated debt issued 37,015,000 37,015,000 Premium from capital-related debt issued 1,368,186 1,368,186 Payment to escrow agent ( 17,294,621) ( 17,294,621) Total other financing sources and(uses) ( 940,030) 339,561 23,135,973 ( 816,264) 21,719,240 "' NET CHANGE IN FUND BALANCES 1,770,959 847,377 ( 2,467,220) ( 71,184) 79,932 FUND BALANCES,BEGINNING AS PREVIOUSLY STATED 8,285,590 3,007,752 46,012,551 3,415,848 60,721,741 PRIOR PERIOD ADJUST ( 1,853,778) - - ( 90,130) ( 1,943,908) FUND BALANCRS,BEGINNING AS RESTATED 6,431,812 3,007,752 46,012,551 3,325,718 58,777,833 FUND BALANCES,ENDING $ 8,202,771 $ 3,855,129 $ 43,545,331 $ 3,254,534 $ 58,857,765 The notes to the financial statements are an integral part of this statement. TENTAT I VE & IPRELI MI NARY CITY OF PEARLAND,TEXAS RECONCILIATION OF THE STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30,2005 Amounts reported for governmental activities in the Statement of Activities (pages 12 - 13) are different because: Net change in fund balances-total governmental funds(page 15) 5 79,932 Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. 25,362,046 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. ( 22,594) The issuance of Long-term debt (e.g., bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. This amount is the net effect of these differences in the treatment of long- term debt and related items. ( 17,273,098) Some expenses reported in the statement of activities do not require the use of current financial resources and,therefore, are not reported as expenditures in governmental funds. ( 1,069,902) Change in net assets of governmental activities(pages 12- 13) $ 7,076,384 The notes to the financial statements are an integral part of this statement. T E NT ATIVE & P RE LI MI NARY i CITY OF PEARLAND,TEXAS GENERAL FUND STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES-BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30,2005 Variance with Final Budget- Budgeted Amounts Actual Positive Original Final Amounts (Negative) REVENUES Property taxes and penalties $ 9,767,610 $ 9,767,610 $ 9,649,452 $ ( 118,158) Other taxes 6,931,000 6,931,000 7,840,811 909,811 Franchise fees 3,015,000 3,015,000 3,097,163 82,163 .." Licenses and permits 3,180,335 3,180,335 3,863,592 683,257 Fines and forfeitures 1,590,200 1,590,200 1,883,381 293,181 Charges for services 5,269,949 5,269,949 6,138,610 868,661 . Intergovernmental 879,300 879,300 871,196 ( 8,104) Other income 282,100 288,100 595,369 307,269 Investment earnings 1,000 1,000 415,296 414,296 Total revenues 30,916,494 30,922,494 34,354,870 3,432,376 EXPENDITURES Current: General government 6,380,991 6,720,970 6,664,735 56,235 Public safety 10,706,646 11,031,997 10,816,906 215,091 Public works 9,926,159 10,916,013 10,449,814 466,199 _ Community services 3,801,935 3,123,164 2,692,450 430,714 Capital outlay 1,762,877 1,138,759 1,019,976 118,783 Total expenditures 32,578,608 32,930,903 31,643,881 1,287,022 EXCESS(DEFICIENCY)OF REVENUES OVER(UNDER)EXPENDITURES ( 1,662,114) ( 2,008,409) 2,710,989 4,719,398 OTHER FINANCING SOURCES(USES) Transfers in 1,765,806 1,765,806 2,063,264 297,458 Transfers out ( 459,000) ( 2,045,788) ( 3,003,294) ( 957,506) Total other financing sources(uses) 1,306,806 ( 279,982) ( 940,030) ( 660,048) NET CHANGE IN FUND BALANCES ( 355,308) ( 2,288,391) 1,770,959 4,059,350 FUND BALANCES,BEGINNING AS — PREVIOUSLY STATED 8,285,590 8,285,590 8,285,590 PRIOR PERIOD ADJUSTMENT ( 1,853,778) ( 1,853,778) ( 1,853,778) FUND BALANCES,BEGINNING AS RESTATED 6,431,812 6,431,812 6,431,812 FUND BALANCES,ENDING $ 6,076,504 $ 4,143,421 $ 8,202,771 $ 4,059,350 The notes to the financial statements are an integral part of this statement. TENT AT I VE & 2 RE LI MI NARY CITY OF PEARLAND, TEXAS STATEMENT OF NET ASSETS PROPRIETARY FUND SEPTEMBER 30,2005 Business-type Activities Enterprise Fund Water and Sewer ASSETS Current assets: Cash and investments $ 10,413,796 Accounts receivable,net of allowances 2,245,558 Accrued interest 20,079 Restricted cash and investments 4,527,602 Total current assets 17,207,035 Noncurrent assets: Deferred charges 627,796 Capital assets: Land 367,962 Buildings and improvements 22,610,028 Machinery and equipment 8,347,893 Infrastructure 57,228,510 Construction work in progress 19,424,558 Less:accumulated depreciation ( 19,132,701) Total capital assets 88,846,250 Total noncurrent assets 89,474,046 Total assets 106,681,081 LIABILITIES Current liabilities: Accounts payable 3,094,901 Accrued liabilities 157,955 Accrued interest 117,851 Customer deposits 1,253,770 Compensated absences 83,063 Certificates of obligation 880,000 Revenue bonds 1,075,000 Total current liabilities 6,662,540 Noncurrent liabilities: Compensated absences 392,742 Certificates of obligation 15,000,000 Revenue bonds 31,405,000 Total noncurrent liabilities 46,797,742 Total liabilities 53,460,282 NET ASSETS Invested in capital assets,net of related debt 45,641,648 Restricted for: Debt service 275,502 Capital improvements 6,751,273 Unrestricted - 552,376 Total net assets $ 53,220,799 The notes to the financial statements are an integral part of this statement. TENT ATI VE & 1PRE LI MI NARY CITY OF PEARLAND,TEXAS STATEMENT OF REVENUES,EXPENSES,AND CHANGES IN FUND NET ASSETS PROPRIETARY FUND FOR THE YEAR ENDED SEPTEMBER 30,2005 Business-type Activities Enterprise Fund Water and Sewer OPERATING REVENUES Charges for services $ 10,947,737 Other 271,762 Total operating revenues 11,219,499 OPERATING EXPENSES Production and wastewater 4,507,571 Distribution and collection 1,415,078 Accounting and collections 1,124,626 Other requirements 792,301 Construction and engineering 767,233 Depreciation 2,864,261 Total operating expenses 11,471,070 OPERATING LOSS ( 251,571) NONOPERATING REVENUES (EXPENSES) Earnings on investments 399,275 Interest and fiscal charges ( 2,153,427) Total nonoperating revenues(expenses) ( 1,754,152) LOSS BEFORE CONTRIBUTIONS AND TRANSFERS ( 2,005,723) CAPITAL CONTRIBUTIONS 8,365,452 TRANSFERS IN 536,520 TRANSFERS OUT ( 896,002) CHANGE IN NET ASSETS 6,000,247 TOTAL NET ASSETS,BEGINNING 46,029,901 PRIOR PERIOD ADJUSTMENT 1,190,651 TOTAL NET ASSETS,ENDING $ 53,220,799 The notes to the financial statements are an integral part of this statement. TENT ATIVE & IP RE LI MI NARY CITY OF PEARLAND, TEXAS STATEMENT OF CASH FLOWS PROPRIETARY FUND FOR THE YEAR ENDED SEPTEMBER 30,2005 Business-type Activities Enterprise Fund Water and Sewer CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $ 12,888,744 Cash paid to suppliers for goods and services ( 2,710,758) Cash paid to employees for services ( 4,460,630) Net cash provided by operating activities 5,717,356 CASH FLOWS FROM NONCAPJTAL FINANCING ACTIVITIES Cash paid to other Binds 1,190,651 Transfers from other funds 536,520 Transfers to other funds ( 896,002) Net cash used for noncapital for finaneing activities 831,169 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Principal repayments on bonds ( 1,880,000) Cash received from capital contnbutiona 8,365,452 Interest and fiscal charges on debt ( 2,111,230) Aegrrisition and construction of capital assets ( 15,281,188) Net cash used for capital and related financing activities ( 10,906,966) CASH FLOWS FROM INVESTING ACTIVITIES Earnings on investments 273,163 Net cash provided by investing activities 273,163 NET DECREASE IN CASH AND CASH EQUIVALENTS ( 4,085,278) CASH AND CASH EQUIVALENTS,BEGINNING 19,026,676 CASH AND CASH EQUIVALENTS,ENDING S 14,941,398 Cash and investments S 10,413,796 Restricted cash and investments 4,527,602 Cash and cash equivalents,ending S 14,941,398 Reconciliation of operating loss to net cash provided by operating activities: Operating loss S ( 251,571) Adjustments to reconcile operating loss to net cash provided by operating activities: Depreciation 2,864,261 Changes in assets and liabilities: Decrease(increase)in assets: Accounts receivable 1,500,001 Increase(decrease)in liabilities: Accounts payable 1,229,941 Accrued liabilities 130,535 Customer deposits 169,244 Compensated absences payable 74,945 Net cash provided by operating activities S 5,717,356 The notes to the financial statements are an integral part of this statement. TENT ATIVE & 2' RELI MI NARY a CITY OF PEARLAND, TEXAS ... GENERAL FUND SCHEDULE OF EXPENDITURES-BUDGET AND ACTUAL r YEAR ENDED SEPTEMBER 30,2005 Variance Final Positive s Budget Actual (Negative) GENERAL GOVERNMENT .. City council $ 86,600 $ 70,422 $ 16,178 City manager 626,356 632,472 ( 6,116) Human resources 569,104 555,469 13,635 City secretary 222,800 214,584 8,216 Finance 923,825 1,004,003 ( 80,178) Legal 425,424 433,010 ( 7,586) Municipal court 434,665 433,882 783 .. Custodial services 659,605 683,263 ( 23,658) Engineering 1,318,902 1,245,697 73,205 Public affairs/grants 340,505 280,321 60,184 Project management 591,918 589,044 2,874 Information technology 510,300 510,444 ( 144) Emergency management 10,966 12,124 ( 1,158) Total general government 6,720,970 6,664,735 56,235 PUBLIC SAFETY Police 7,908,587 7,738,616 169,971 Fire 376,518 346,051 30,467 Fire marshal 389,530 374,270 15,260 Animal shelter 403,437 387,034 16,403 Emergency medical services 1,797,810 1,826,769 ( 28,959) Service center 156,115 144,166 11,949 Total public safety 11,031,997 10,816,906 215,091 PUBLIC WORKS 10,916,013 10,449,814 466,199 COMMUNITY SERVICES Library 129,313 116,346 12,967 Parks and recreation-administration 1,679,760 1,407,405 272,355 Parks and recreation-recreation 452,069 399,288 52,781 Parks and recreation-athletics and aquatics 305,992 285,839 20,153 Parks and recreation-special events 387,360 336,958 50,402 Parks and recreation-senior programs 168,670 146,614 22,056 Total community services 3,123,164 2,692,450 430,714 CAPITAL OUTLAY 1,138,759 1,019,976 118,783 Total expenditures $ 32,930,903 $ 31,643,881 $ 1,287,022 TENT ATI VE & 42 RE LI MI NARY CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30,2005 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The City of Pearland, Texas, was incorporated in December 1959, and adopted the "Home Rule Charter" February 6, 1971, pursuant to the laws of the State of Texas. The City operates under a "Council-Manager" form of government and provides services authorized by its charter. Presently, these services include police and fire protection, water and sewer services, drainage, sanitation, building and code inspection, planning, zoning, engineering, street repair and maintenance, park maintenance, recreational activities for citizens, and general administrative services. The City is an independent political subdivision of the State of Texas, governed by an elected mayor and five-member Council, and is considered a primary government. The accompanying financial statements present the government and its component units, entities for which the government is considered to be financially accountable. Each discretely presented component unit is reported in a separate column in the government-wide financial statements (see note below for description) to emphasize that it is legally separate from the government. Discretely Presented Component Units—The component units' column in the government- wide financial statements includes the financial data of the City's component units. 1. The Pearland Economic Development Corporation (PEDC) is responsible for economic development within the City's jurisdiction. The PEDC was created in 1995 and is fiscally dependent upon the primary government because, besides appointing the Board, the City Council also must approve the PEDC's budget and any debt issuances. 2. The Tax Increment Reinvestment Zone (TIRZ #2) provides tax assisted property development and/or redevelopment in specific geographic areas in accordance with applicable state laws. TIRZ#2 was created in 1998. Besides appointing Board members, the City Council must also approve the TIRZ's budgets and any debt issuances done on behalf of the T1RZs. 3. The Development Authority of Pearland was created by the City in 2004 by Resolution No. 2004-107 to aid, assist and account on behalf of the City to provide financing for the Reinvestment Zone Number Two. Proceeds from bond sales are to be used to reimburse developers and fund a debt service reserve. (continued) T ENT AT I VE & P RE LI MI NARY 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenue, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenue. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenue includes 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenue are reported instead as general revenue. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual Enterprise Funds are reported as separate columns in the fund financial statements. (continued) TE NT ATIVE & P RE LI MI NARY 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Measurement Focus,Basis of Accounting and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenue is recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenue in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenue is recognized as soon as it is both measurable and available. Revenue is considered to be available when it is collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenue to be available if collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, franchise taxes, sales taxes, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenue of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the City. The City reports the following major governmental funds: The General Fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Debt Service Fund is used to account for the resources accumulated and payments made for principal and interest on long-term general obligation debt of the governmental funds. The Capital Projects Fund is used to account for the proceeds from the sale of general obligation bonds and certificates of obligation and expenditures of these proceeds for the acquisition of capital assets as designated in each bond issue. (continued) TE NT ATIVE & PRELIMINARY 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Measurement Focus,Basis of Accounting and Financial Statement Presentation (Continued) The City reports the following major Enterprise Fund: The Water and Sewer Fund accounts for the activities necessary for the provision of water and wastewater services. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. The City also has the option of following subsequent private-sector guidance for their business-type activities and Enterprise Funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. As a general rule, the effect of interfund activity has been eliminated from the government- wide financial statements. Exceptions to this general rule are charges between the City's water and sewer function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenue reported for the various functions concerned. Amounts reported as program revenues include: 1) charges to customers or applicants for goods, services, or privileges provided, 2)operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenue. Likewise, general revenue includes all taxes. • Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the City's Enterprise Funds and Internal Service Funds are charges to customers for sales and services. Operating expenses for Enterprise Funds and Internal Service Funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenue and expenses not meeting this definition are reported as nonoperating revenue and expenses. When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, then unrestricted resources as needed. (continued) T ENT ATIVE & P RE LI MI NARY 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets,Liabilities and Net Assets or Equity Cash and Investments Cash and investments consist of amounts in an interest-bearing time deposit account, petty cash funds, and U. S. Government Securities. Investments are stated at fair value based on quoted market prices at September 30,2005. The net increase or decrease in the fair value of investments is recorded as investment earnings. Investments are generally held to maturity. The City pools cash resources of its various funds to facilitate the management of cash. Cash applicable to a particular fund is readily identifiable. The balance in the pooled cash accounts is available to meet current operating requirements. Cash in excess of current requirements is invested in various interest-bearing securities and disclosed as part of the City's investments. The City pools excess cash of the various individual funds to purchase investments. These pooled investments are reported in the combined balance sheet as investments in each fund based on each fund's share of the pooled investments. Interest income is allocated to each respective individual fund monthly based on its respective share of pooled investments. Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as "due to/from other funds" (i.e., the current portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as"internal balances." All trade receivables are shown net of an allowance for uncollectibles. Trade accounts receivable in excess of 180 days comprise the trade accounts receivable allowance for uncollectibles. Property taxes for each year are required to be levied by October 1 and are due upon receipt of the City's tax bill and become delinquent on February 1 of the following year. On January 1 of each year, a tax lien is attached to the property to secure the payment of all taxes, penalties and interest. The lien exists in the favor of the State and each taxing unit. Appraised values are established by the Central Appraisal District (CAD) of Brazoria County, Texas, through procedures established by the Texas Legislature. The Brazoria County Tax office bills and collects the City's property taxes. A penalty of 7% is added to delinquent taxes on February 1 and increases 2% each month through September. An additional penalty of 15%or 20% is added in July for attorney costs. There are no discounts allowed in taxes. (continued) T ENT AT I VE & P RE LI MI NARY 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets.Liabilities and Net Assets or Equity(Continued) Receivables and Payables The City is permitted, by Article XI, Section 5, of the State of Texas Constitution and the City Charter, to levy property taxes up to $2.50 per $100 of assessed valuation for general governmental services. Within the $2.50 maximum levy, there is no legal limit upon the amount of property taxes, which can be levied for debt service. The property tax rates to finance general governmental services and debt service for the 2004 tax year were $.3389 and $.3559, respectively, per $100 of assessed valuation. The 2004 assessed value and total tax levy as adjusted through September 30, 2005, were $3,019,449,422 and $20,979,391, respectively. The City has enacted an ordinance providing for the exemption of$25,000 of the assessed value of residential homesteads of persons 65 years of age or older from property taxes. This is provided by Section 1-b(a) of Article 8 of the Constitution of Texas. Additionally, the market value of agricultural land is reduced to agricultural value for purposes of the City's tax levy calculation. Inventories Inventory, which consists of gasoline and auto parts for use in the City's vehicles, is stated at cost (first-in, first-out method). Expenditures are recognized as the fuel and auto parts are consumed rather when purchased. Restricted Assets Certain proceeds of the Enterprise Fund and Economic Development Corporation revenue bonds and certain resources set aside for their repayment are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. Certain resources are also set aside for repayment of Development Authority bonds and are reported as restricted assets. Capital Assets Capital assets, which include property, plant, equipment and infrastructure, are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. The City defines capital assets as assets with an initial, individual cost of more than $1,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. (continued) `TE NT AT I VE & ? RELIMINARY 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) D. Assets,Liabilities and Net Assets or Equity(Continued) Capital Assets(Continued) The City has elected to delay implementation of the requirements of GASB Statement No. 34 related to infrastructure(roads, sidewalks, etc.) assets acquired prior to October 1, 2002. The City has implemented the general provisions of GASB Statement No. 34 and will complete the implementation of the retroactive provisions for infrastructure no later than September 30,2007. a Property, plant, and equipment is depreciated using the straight-line method over the following useful lives: Assets Years Buildings and improvements 20-45 Machinery and equipment 5-15 Infrastructure 40-50 Compensated Absences It is the City's policy to permit employees to accumulate earned but unused vacation, sick and holiday pay benefits. Employees earn vacation leave at the rate of 15 days per year from 1 to 15 years of service, 20 days per year for service of 16 to 19 years, and 25 days per year for service of 20 years or more. Employees hired after October 1, 2005, earn vacation at a rate of 10 days per year from 1 —6 years of service, 15 days per year for 7— 15 years of service, and 20 days for over 16 years of service. Employees are required to take their earned vacation. Employees who are unable to use their vacation, for various reasons, may, with the City Manager's approval, carry over 50 percent of the unused portion of the vacation, or receive compensation for a maximum of 40 hours. City employees receive 11 paid holidays per year. Employees may be paid or may elect to receive compensatory time off for the holiday. Overtime is earned at one and one-half times the regular rate of pay. Employees may be paid or receive compensatory time. The maximum accrual for overtime is 160 hours, except for employees involved in public safety, who can accrue up to 320 hours. All sick leave benefits are accumulated and paid to employees upon separation from the City. Vacation, sick and holiday pay benefits are accrued when incurred in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. (continued) T ENT AT I VE & P RE LI MI NARY 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets,Liabilities and Net Assets or Equity(Continued) Long-term Obligations In the government-wide financial statements and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts, as well as issuance costs,are deferred and amortized over the life of the bonds using the straight-line method which approximates the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts,as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received,are reported as debt service expenditures. Fund Equity In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. Net Assets Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvements of those assets, and adding back unspent proceeds. As of September 30, 2005, the City has elected to delay implementation of the requirements of GASB 34 related to infrastructure assets acquired prior to October 1, 2002. As a result, net assets invested in capital assets, net of related debt does not consist of infrastructure acquired prior to October 1, 2002, but does consist of the infrastructures related debt. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislations adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. Estimates The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual amounts could differ from those estimates. TENT AT I VE & PRE LI MI NARY 2. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS Explanation of Certain Differences Between the Governmental Fund Balance Sheet and the Government-wide Statement of Net Assets The governmental fund balance sheet includes a reconciliation between fund balance — total governmental funds and net assets—governmental activities as reported in the government-wide statement of net assets. One element of that reconciliation explains, "Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds." The details of this$136,804,288 difference are as follows: Certificates and General Obligation Bonds $ 132,565,000 Deferred charge for issuance cost ( 663,459) Deferred amount for issuance premium 1,458,694 Deferred loss on refunding bonds ( 789,621) Accrued interest payable 523,316 Compensated absences 3,314,699 Capital lease obligation 395,659 Net adjustment to reduce fund balance-total governmental funds to arrive at net assets- governmental activities $ 136,804.288 Explanation of Certain Differences Between the Governmental Fund Statement of Revenue, Expenditures and Changes in Fund Balances and the Government-wide Statement of Activities The governmental fund statement of revenue, expenditures and changes in fund balances includes a reconciliation between net changes in fund balances — total governmental fund and changes in net assets of governmental activities as reported in the government-wide statement of activities. One element of that reconciliation explains, "Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense." The details of this$25,362,046 difference are as follows: Capital outlay $ 28,005,762 Depreciation expense ( 2,643,716) Net adjustment to increase net changes in fund balances- total governmental funds to arrive at changes in net assets of governmental activities $ 25,362.046 (continued) TENT ATI VE & PRELI MI NARY 2. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (Continued) Explanation of Certain Differences Between the Governmental Fund Statement of Revenue, Expenditures and Changes in Fund Balances and the Government-wide Statement of Activities (Continued) Another element of that reconciliation states,"Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds." The details of this $(22,594)difference are as follows: Property taxes $ 59,154 Court fines ( 81,748) Net adjustment to increase net changes in fund balances- total governmental funds to arrive at changes in net assets of governmental activities $ ( 22,594) Another element of that reconciliation states, "The issuance of long-term debt(e.g., bonds, leases) provides current financial resources to governmental funds,while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. The details of this $(17,273,098) difference are as follows: Debt issued or incurred: Issuance of general obligation bonds $ ( 37,015,000) Bond issuance cost 548,191 Premium on issuance of bonds ( 1,368,186) Capital lease financing ( 271,193) Amortization of bond issue costs 3,935 Payment to escrow agent 17,294,621 Principal repayments: General obligation debt 3,534,534 Net adjustment to reduce net changes in fund balances- total governmental funds to arrive at changes in net assets of governmental activities $ ( 17,273,098) Another element of that reconciliation states, "Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds." The details of this $(1,069,902) difference are as follows: Compensated absences $ ( 957,802) Interest expense ( 112,100) Net adjustment to increase net changes in fund balances- total governmental funds to arrive at changes in net assets of governmental activities $ ( 1,069,902) TENTATIVE & 3? RE LI MI NARY 3. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgetary Information Annual appropriated budgets are adopted on a basis consistent with generally accepted accounting principles for the General Fund and Debt Service Fund. The City adopts project- length budgets for the Capital Projects and Special Revenue Funds. All annual appropriations lapse at fiscal year-end. The City Manager, between 60 and 90 days prior to the beginning of each fiscal year, submits to Council a proposed budget. The Council shall review the proposed budget and revise as deemed appropriate prior to circulation for public hearing. After the public hearing, the Council may adopt the budget with or without amendment. In amending the budget, Council may add or increase programs or amounts and may delete or decrease any amount, except expenditures required by law or for debt or for estimated cash deficits, provided no amendments to the budget shall increase the authorized expenditures to an amount greater than the total of estimated income plus funds available from prior years. The Council shall adopt the budget no later than 15 days prior to the beginning of the fiscal year. Adoption of the budget shall constitute appropriation of the amounts specified therein as expenditures and shall constitute a levy of the property tax therein proposed. Every appropriation lapses at the close of the fiscal year to the extent it has not been expended. Any encumbered appropriation lapses at year-end, but is generally reappropriated as part of the subsequent year's budget. Expenditures may not legally exceed appropriations at the fund level. At any time during the fiscal year, the City Manager may request Council to transfer by ordinance any unencumbered appropriation balance between funds. No significant supplemental appropriations were necessary during the year. 4. DETAILED NOTES ON ALL FUNDS Cash and Investments The City's cash and investments are classified as cash and cash equivalents, investments, and restricted cash and investments. The cash and cash equivalents include cash on hand, deposits with financial institutions and other investments which have maturities at purchase date of less than three months. The restricted cash includes cash on deposit with financial institutions. (continued) T E NT AT I VE & 3p RE LI MI NARY 4. DETAILED NOTES ON ALL FUNDS(Continued) Cash and Investments(Continued) The Council has adopted a written investment policy regarding the investment of its funds as defined by the Public Funds Investment Act (Chapter 2256 Texas Government Code). The investments of the City are in compliance with the Council's investment policies. It is the City's policy to restrict its investments to direct obligations of the U. S. Government, commercial paper, fully collateralized certificates of deposit and other interest-bearing time and demand deposits, and other instruments and investments in public funds investment pools. State law provides that collateral pledged as security for bank deposits must have a market value of not less than the uninsured amount of the deposits and must consist of 1) obligations of the United States of its agencies and instrumentalities; 2) direct obligations of the State of Texas or its agencies; 3) other obligations, the principal and interest on which are unconditionally guaranteed or insured by the State of Texas; and/or 4) obligations of states, agencies, counties, cities, and other political subdivisions of any state having been rated as to investment quality by a nationally recognized investment rating firm and having received a rating of not less than A or its equivalent. The deposit and investment policies for the Pearland Economic Development Corporation, TIRZ Developments, and Development Authority of Pearland are substantially the same as the City. Deposits and Investments As of September 30, 2005, the City had the following investments: Weighted Average Investment Type Fair Value Maturity(Days) Primary government: Fannie Mae Discount Note S 1,152,974 17 Freddie Mac Discount Note 1,851,659 91 Total portfolio S 3,004,633 Portfolio weighted average maturity(days) 63 Interest Rate Risk. In accordance with its investment policy, the City manages its exposure to declines in fair market values by limiting the weighted average maturity of its investment portfolios to a maximum of 365 days. (continued) T E NT ATIVE 313 4. DETAILED NOTES ON ALL FUNDS(Continued) Deposits and Investments(Continued) Custodial Credit Risk. In the case of deposits,this is the risk that in the event of a bank failure,the City's deposits may not be returned to it. State statutes require that all deposits in financial institutions be fully collateralized by U. S. Government obligations or its agencies and instrumentalities or direct obligations of Texas or its agencies and instrumentalities that have a fair value of not less than the principal amount of deposits. As of September 30,2005, $64,957,376 of the City's $65,257,376 deposit balance was collateralized with securities held by the pledging financial institution. The remaining balance,$300,000 was covered by FDIC insurance. As of the same date, $13,808,363 of the component units' deposit balance was collateralized with securities held by the pledging financial institution and by FDIC. Credit Risk It is the City's policy to limit its investments to investment types with an investment quality rating not less than A or its equivalent by a nationally recognized statistical rating organization. The City's investments as of September 30,2005,were rated as follows: Investment Type Rating Rating Agency U.S.Agency Securities: Fannie Mae Discount Note AAA Moody's Investor Service Freddie Mac Discount Note Au Moody's Investor Service Receivables Receivables as of year-end for the City's individual major funds, nonmajor funds in the aggregate, and discretely presented component units in the aggregate including the applicable allowances for uncollectible accounts, are as follows: • Debt Capital Nonmajor Water Component General Service Projects Governmental and Sewer Units Total Receivables: Accounts S 868,158 S $ 46,605 $ 64,687 S 2,714,763 S 142 S 3,694,355 Property taxes 511,094 286,650 234,287 1,032,031 Sales taxes 1,456,049 724,601 2,180,650 Other taxes 664,345 664,345 Intergovernmental 216,443 53,863 270,306 Accrued interest 1,393 994 20,079 20,097 42,563 •• Gross receivables 3,717,482 286,650 46,605 119,544 2,734,842 979,127 7,884,250 Less allowance for uncolleclbles 65,590 469,205 534,795 Net total receivables S 3,651,892 S 286,650 $ 46,605 S, 119,544 S 2,265,637 $ 979,127 S 7,349,455 Governmental funds report deferred revenue in connection with receivables for revenue that is not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, the various components of deferred revenue and unearned revenue reported in the governmental funds were as follows: (continued) T E NT ATIVE & 31) RELI MI NARY 4. DETAILED NOTES ON ALL FUNDS(Continued) Receivables (Continued) Unavailable Unearned General fund: Delinquent property taxes receivable S 500,028 S Municipal court 393,261 Other 167,061 Debt service fund: Delinquent property taxes receivable 275,445 Nonmajor governmental: Municipal court 3,746 Governmental Funds S 1,172.480 $ 167,061 Capital Assets Capital asset activity for the year ended September 30,2005,was as follows: Primary Government Decreases Beginning and Ending Balance Increases Reclassifications Balance Governmental activities: Capital assets,not being depreciated: Land S 2,509,691 $ 207,762 $ $ 2,717,453 Construction in progress 12,946,218 26,335,777 ( 18,583,828) 20,698,167 Total capital assets not being depreciated 15,455,909 26,543,539 ( 18,583,828) 23,415,620 Capital assets,being depreciated: Buildings 10,357,504 104,827 10,462,331 Improvements other than buildings 2,218,151 154,461 2,372,612 Machinery and equipment 8,619,886 662,281 9,282,167 Infrastructure 42,674,657 540,654 18,583,828 61,799,139 Total capital assets being depreciated 63,870,198 1,462,223 18,583,828 83,916,249 Less accumulated depreciation: Buildings 3,589,225 227,342 3,816,567 Improvements other than buildings 1,357,101 90,268 1,447,369 Machinery and equipment 5,714,914 1,259,239 6,974,153 Infrastructure 1,521,763 1,066,867 2,588,630 Total accumulated depreciation 12,183,003 2,643,716 14,826,719 Total capital assets,being depreciated,net 51,687,195 ( 1,181,493) 18,583,828 69,089,530 Governmental activities capital assets,net S 67,143,104 S 25,362,046 S $ 92,505,150 (continued) T E NT AT I VE & 3PRE LI MI NARY 4. DETAILED NOTES ON ALL FUNDS(Continued) - Capital Assets(Continued) Decreases Beginning and Ending Balance Increases Reclassifications Balance Business-type activities: Capital assets,not being depreciated: Land S 367,962 S S S 367,962 Construction in progress 2,166,494 17,258,064 19,424,558 Total assets not being depreciated 2,534,456 17,258,064 19,792,520 — Capital assets,being depreciated: Buildings and improvements 21,518,110 1,091,918 22,610,028 Machinery and equipment 7,895,580 452,313 8,347,893 Water and sewer system 60,791,814 3,063,383 6,626,687 57,228,510 a Total capital assets,being depreciated 90,205,504 4,607,614 6,626,687 88,186,431 Less accumulated depreciation: Buildings and improvements 8,198,116 695,693 8,893,809 Machinery and equipment 4,083,651 695,658 4,779,309 Water and sewer system 4,028,870 1,430,713 5,459,583 Total accumulated depreciation 16,310,637 2,822,064 19,132,701 Total capital assets being depreciated,net 73,894,867 1,785,550 6,626,687 69,053,730 Business-type activities capital assets,net S 76,429,323 S 19,043,614 S 6.626.687 S 88.846,250 Depreciation expense was charged to functions/programs of the primary government as follows: Governmental activities: General government $ 581,618 Public safety 475,869 Public works 1,454,043 Community services 132,186 Total depreciation expense-governmental activities $ 2,643,716 Business-type activities: Water and sewer $ 2,822,064 Total depreciation expense-business-type activities $ 2,822,064 Interfund Transfers Transfers In Debt Capital Nonmajor Water - General Service Projects Governmental and Sewer Total Transfers Out: General S - S - S 2,384,774 S 82,000 S 536,520 S 3,003,294 — Capital projects 404,000 204,559 - - 608,559 Nonmajor governmental 898,264 - - - - 898,264 Water and sewer 761,000 135,002 - - - 896,002 Total Transfers S 2,063,264 S 339,561 S 2,384,774 S 82,000 S 536,5.20 S 5,406,119 • (continued) TENT ATI VE & PRELIMINARY 4. DETAILED NOTES ON ALL FUNDS(Continued) Interfund Transfers(Continued) Transfers are used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the Debt Service Fund as debt service payments become due, and(3)use unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. Long-term Debt General Obligation Bonds and Certificates of Obligation The City issues general obligation bonds and certificates of obligation to provide funds for the acquisition and construction of major capital facilities. General obligation bonds and certificates of obligation have been issued for both governmental and business-type activities. The original amount of general obligation bonds and certificates of obligation issued in prior years was $153,795,000. During the year, general obligation bonds and certificates of obligation totaling $37,015,000 were issued to fund general obligation projects and refund certain debt issues. General obligation bonds and certificates of obligation are direct obligations and pledge the full faith and credit of the government. These bonds generally are issued as 20-year serial bonds with equal amounts of principal maturing each year. General obligation bonds and certificates of obligation currently outstanding are as follows: Purpose Interest Rates Amount Governmental activities 3.00-7.25% $ 107,550,000 Governmental activities-refunding 3.25-5.5% 25,015,000 Business-type activities 2.6-6.5% 15,880,000 $ 148.445,000 Annual debt service requirements to maturity for general obligation bonds and certificates of obligation are as follows: Year Ending Governmental Activities Business-type Activities September 30, Principal Interest Principal Interest 2006 $ 2,850,000 $ 6,279,799 $ 880,000 $ 548,674 2007 2,525,000 5,936,666 915,000 521,072 2008 2,650,000 5,822,694 945,000 492,006 2009 4,340,000 5,663,043 980,000 461,197 2010 4,885,000 5,445,556 1,015,000 428,271 2011-2015 27,045,000 23,764,608 5,645,000 1,570,214 2016-2020 29,330,000 17,396,188 5,500,000 347,768 2021-2025 32,735,000 10,351,167 2026-2030 26,205,000 2,268.629 Total $ 132,565,000 $ 82,928,350 $ 15,880,000 $ 4,369,202 (continued) TENT ATI VE & 3P RE LI MI NARY 4. DETAILED NOTES ON ALL FUNDS (Continued) Long-term Debt(Continued) The various bond obligations contain certain financial limitations and restrictions. The ordinances authorizing the issuance of general obligation bonds created an interest and sinking fund(general debt service fund). The ordinances require the City to ascertain a rate and amount of tax which will be sufficient to pay interest as it comes due and provide a reserve fund which is adequate to meet principal as it matures. The City is in compliance with all such significant financial restrictions. Revenue Bonds The City also issues bonds where the City pledges income derived from the acquired or constructed assets to pay debt service. The original amount of revenue bonds issued in prior years was$36,370,000 Revenue bonds outstanding at year-end are as follows: Purpose Interest Rates Amount Water and sewer improvements 4.00-6.00% $ 32,480,000 Revenue bond debt service requirements to maturity are as follows: Year Ending Business-type Activities September 30, Principal Interest 2006 $ 1,075,000 $ 1,459,365 2007 1,125,000 1,411,888 2008 1,180,000 1,361,558 2009 1,235,000 1,308,250 2010 1,295,000 1,251,918 2011-2015 7;485,000 5,254,083 2016-2020 9,380,000 3,431,769 2021-2025 9,705,000 1,222,249 Total $ 32,480,000 $ 16,701,080 Obligations Under Capital Leases During the current year, the City entered into a capital lease agreement in order to purchase equipment and vehicles for various departments. The assets acquired through these lease agreements are as follows: Governmental Activities Asset: Equipment and vehicles $ 455,193 Less:accumulated depreciation 26,284 Total $ 428,909 (continued) T ENT ATI VE & PRELIMINARY • 4. DETAILED NOTES ON ALL FUNDS(Continued) Lone-term Debt(Continued) Obligations Under Capital Leases (Continued) Year Ending Lease September 30, Obligation 2006 $ 159,629 2007 159,629 2008 95,069 Total 414,327 Less interest portion ( 18,668) Obligations under capital leases $ 395,659 The primary government's long-term liability activity for the year ended September 30, 2005, was as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental activities Bonds payable: General obligation $ 25,345,000 $ 37,015,000 $ 2,185,000 $ 60,175,000 $ 2,295,000 Certificates of obligation 90,185,000 17,795,000 72,390,000 555,000 Deferred amount for issuance premium 94,443 1,368,186 3,935 1,458,694 60,943 Deferred loss on refunding ( 789,621) ( 789,621) ( 39,481) Total bonds payable 115.624,443 37,593,565 19,983,935 133,234,073 2,871,462 Capital lease 184,000 271,193 59,534 395,659 147,371 Compensated absences 2,356,897 1,234,722 276,920 3,314,699 662,940 Governmental activity long-term liabilities 118,165,340 39,099,480 20,320,389 136,944,431 3,681,773 Business-type activities Bonds payable: Certificates of obligation 16,735,000 855,000 15,880,000 880,000 Revenue 33,505,000 1,025,000 32,480.000 1,075,000 Total bonds payable 50,240,000 1,880,000 48,360,000 1,955,000 Compensated absences 400,860 82,447 67,991 415,316 83,063 Business-type activity long-term liabilities S 50,640 860 S 82,447 S 1,947,991 S 48,775,316 S 2,038,063 The governmental activities compensated absences are generally liquidated by the General Fund. (continued) TENTATIVE & P RE LI MI NARY 4. DETAILED NOTES ON ALL FUNDS(Continued) Long-term Debt(Continued) Advance Refunding The City issued $16,510,000 of general obligation refunding bonds to provide resources to purchase U. S. Government State and Local Government Series securities that were placed in an irrevocable trust for the purpose of generating resources for all future debt service payments of $17,294,621 of general obligation bonds. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the governmental activities column of the statement of net assets. The reacquisition price exceeded the net carrying amount of the old debt by $789,621. This amount is being netted against the new debt and amortized over the remaining life of the refunded debt, which is shorter than the life of the new debt issued. This advance refunding was undertaken to increase total debt service payments over the next 12 years by$1,031,367 and resulted in an economic gain of$871,970. Federal Tax Compliance(Arbitrage)for Long-term Debt In accordance with provisions of Section 148 of the Internal Revenue Code of 1986, as amended, (the "Code") the City's long-term debt obligations must meet certain minimum criteria to be considered and continue to be considered "tax-exempt." This "tax-exempt" status means that interest income earned by purchasers of the City's long-term debt instruments is not subject to federal income taxes. Related Treasury Regulations promulgated under Section 148 of the Code generally provide that the determination of whether these obligations are tax-exempt is made as of the date such obligations are issued based on a reasonable expectation regarding the use of the proceeds of the bonds issued. Long-term debt that does not meet and continue to meet the minimum criteria of Section 148 of the Code and the related Treasury Regulations described above are considered"arbitrage bonds" and are not considered"tax-exempt" as described above. Rebate Obligations will become arbitrage bonds (as described above) if certain arbitrage profits are not paid to the federal government as rebate under Section 148(f) of the Code. The City's obligations to calculate and make rebate payments (if any) will continue as long as there are gross proceeds allocable to outstanding debt issues. The City has performed calculations required under Section 148(f) of the Code and a liability in the amount of$53,317 was reported in the Water and Sewer Fund. (continued) TENTATIVE & PRELIMINARY 4. DETAILED NOTES ON ALL FUNDS(Continued) Lone-term Debt(Continued) Unexpended Debt Issuance Proceeds(Yield Restriction Requirements) Section 148 of the Code also provides that in order for debt not to be considered arbitrage bonds (as described above),proceeds of such debt must be invested at a yield that is not materially higher than the yield on the debt issued starting on the third anniversary of the issue date of such debt. Accordingly, any unexpended proceeds of debt issued by the City that remain unexpended more than three years after such debt was issued should be yield restricted. The yield restriction may be accomplished by making yield reduction payments pursuant to Treasury Regulation Section 1.148- 5(c). The City is currently pursuing compliance with these yield restriction requirements and does not anticipate associated significant noncompliance issues. The City is continuing to proceed with reasonable diligence to expend any remaining unexpended debt issuance proceeds on qualifying projects. Component Units The terms of Sales Tax and Tax Increment Revenue Bonds are as follows: Purpose Interest Rates Amount Sales Tax Revenue-Economic Development 2.5%-5% $ 10,590,000 Tax Increment Revenue-Development Authority 3.25%-5.5% 13,995,000 The Pearland Economic Development Corporation issued $4,365,000 of sales tax revenue refunding bonds to provide resources to purchase U. S. Government State and Local Government Series securities that were placed in an irrevocable trust for the purpose of generating resources for all future debt service payments of$4,349,474 of sales tax revenue bonds. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the statement of net assets. The reacquisition price exceeded the net carrying amount of the old debt by $189,626. This amount is being netted against the new debt and amortized over the remaining life of the refunded debt, which is shorter than the life of the new debt issued. This advance refunding was undertaken to increase total debt service payments over the next 10 years by $1,135,935 and resulted in an economic gain of$790,921. (continued) TENTATIVE & 4P' RE LI MI NARY 4. DETAILED NOTES ON ALL FUNDS (Continued) Long-term Debt(Continued) Component Units (Continued) Long-term activity for the year ended September 30,2005, was as follows: Beginn1ng Ending Due Within Balance Additions Reductions Balance One Year Economic Development Corporation: Sales Tax Revenue Bonds S 4,165,000 S 11,005,000 S 4,580,000 S 10,590,000 S 345,000 Deferred amount for issuance premium 155,448 155,448 7,772 Deferred loss on refunding ( 189,626) ( 189,626) ( 9,481) Compensated absences - 14,540 28,191 28,191 14,540 7,797 Total long-term liabilities S 4,179,540 S 10,999,013 S 4,608,191 S 10,570,362 S 351,088 Development Authority of Pearland: Tax Increment Revenue Bonds S S 13,995,000 S S 13,995,000 S 815,000 Total long-term liabilities S S 13,995,000 S S I3,995,000 S 815,000 Annual debt service requirements to maturity for sales tax revenue bonds are as follows: Year Ending September 30, Principal Interest 2006 $ 345,000 $ 420,900 2007 350,000 412,275 2008 360,000 402,650 2009 375,000 391,850 2010 385,000 380,600 2011-2015 ,.2,140,000 1,693,590 2016-2020 2,645,000 1,190,740 y 2021-2025 3,255,000 575,689 2026 735,000 31,238 Total $ 10,590000_ $ 5,499,532_ Annual debt service requirements to maturity for tax increment revenue bonds are as follows: Year Ending September 30, Principal Interest 2006 $ 815,000 S 668,858 2007 840,000 642,370 2008 360,000 614,020 2009 375,000 601,060 2010 390,000 586,435 2011-2015 2,215,000 2,663,241 2016-2020 2,790,000 2,085,615 2021-2025 3,570,000 1,307,981 2026-2028 2,640,000 292,489 Total $ 13,995,000 $ 9.462,069 (continued) TE NT AT I VE & 2RELIMINARY 4. DETAILED NOTES ON ALL FUNDS (Continued) Contingent Liabilities Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies,principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures that may be disallowed by the grantor cannot be determined at this time, although the government expects such amounts, if any,to be immaterial. The City is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, in the opinion of the City's counsel, the resolution of these matters will not have a material adverse effect on the financial condition of the City. Pension Plans—Primary Government Plan Description The City provides pension benefits for all of its full-time employees through a non-traditional, joint contributory, hybrid defined benefit plan in the state-wide Texas Municipal Retirement System (TMRS), one of 801 administered by TMRS, an agent multiple-employer public employee retirement system. Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the City-financed monetary credits, with interest. At the date the plan began, the City granted monetary credits for service rendered before the plan began of a theoretical amount equal to two times what would have been contributed by the employee,with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percent(100%, 150%, or 200%) of the employee's accumulated contributions. In addition, the City can grant, as often as annually, another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions and the monetary credits for service since the plan began, would be the total monetary credits and employee contributions, accumulated with interest, if the current employee contribution rate and City matching percent had always been in existence; and if the employee's salary had always been the average of his salary in the last three years that are one year before the effective date. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions, with interest, and the employer-financed monetary credits, with interest, were used to purchase an annuity. Members can retire at age 60 and above with 5 or more years of service or with 20 years of service regardless of age. A member is vested after 5 years. The plan provisions are adopted by the governing body of the City,within the options available in the state statutes governing TMRS and within the actuarial constraints also in the statutes. (continued) T E NT AT I VE & 2RELIMINARY 4. DETAILED NOTES ON ALL FUNDS (Continued) Pension Plans—Primary Government(Continued) Contributions The contribution rate for the employees is 7% and the City matching ratio is currently 2 to 1, both as adopted by the governing body of the City. Under the state law governing TMRS, the actuary annually determines the City contribution rate. This rate consists of the normal cost contribution rate and the prior service contribution rate,both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the currently accruing monetary credits due to the City matching percent, which the obligation of the City as of an employee's retirement date, not at the time the employee's contributions are made. The normal cost contribution rate is the actuarially determined percent of payroll necessary to satisfy the obligation of the City to each employee at the time his/her retirement becomes effective. The prior service contribution rate amortizes the unfunded(overfunded) actuarial liability(asset) over the remainder of the plan's 25-year amortization period. When the City periodically adopts updated service credits and increases its annuities in effect, the increased unfunded actuarial liability is to be amortized over a new 25-year period. The unit credit actuarial cost method is used for determining the City contribution rate. Both the employees and the City make contributions monthly. Since the City needs to know its contribution rate in advance to budget for it, there is a one-year delay between the actuarial valuation that is the basis for the rate and the calendar year when the rate goes into effect (i.e., December 31, 2004, valuation is effective for rates beginning January 2006). Schedule of Actuarial Liabilities and Funding Progress For the Years Ended September 30,2002, 2003 and 2004 Actual Valuation Date 12/031/02 12/031/03 12/031/04 Actuarial value of assets S 16,390,251 S 18,772,272 S 21,971,144 Actuarial accrued liability 19,963,606 23,190,084 26,517,882 Percent funded 82.1% 80.9% 82.9% Unfunded(overfunded)actuarial accrued liability(UAAL) 3,573,355 4,417,812 4,546,738 Annual covered payroll 11,151,256 12,731,012 13,703,115 UAAL as a percentage of covered payroll 32.0% 34.7% 33.2% Net pension obligation(NPO at the beginning of period Annual Pension Cost: Annual required contribution(ARC) 1,228,907 1,371,452 1,480,301 Contributions made 1,228,907 1,371,452 1,480,301 Increase in NPO NPO at the end of the period S (continued) TENTATIVE & 2 RE LI MI NARY 4. DETAILED NOTES ON ALL FUNDS(Continued) Pension Plans—Primary Government(Continued) Contributions (Continued) Actuarial Assumptions Actuarial Cost Method • Unit Credit Amortization Method - Level Percent of Payroll Remaining Amortization Period - 25 Years-Open Period Asset Valuation Method - Amortized Cost(to accurately reflect the requirements of GASB Statement No.25, Investment Rate of Return - paragraphs36e and 138) Projected Salary Increases - None Includes Inflation at - None Cost-of-living Adjustments - None The City is one of 801 municipalities having its benefit plan administered by TMRS. Each of the 794 municipalities has an annual, individual actuarial valuation performed.. All assumptions for the December 31, 2004, valuations are contained in the 2004 TMRS Comprehensive Annual Financial Report, a copy of which may be obtained by writing to P. O. Box 149153, Austin, Texas 78714-9153. Risk Management The City is exposed to various risks of loss related to torts: theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City's risk management program mainly encompasses obtaining property and liability insurance through Texas Municipal League (TML-IRP), an Intergovernmental Risk-Pool and through commercial insurance carriers. The City purchases commercial general insurance through the Texas Municipal League, an unincorporated association of political subdivisions of the State of Texas. This policy encompasses general liability, incidental, medical malpractice, automobile liability, law enforcement liability, errors and omissions liability, property, automobile vehicle liability, and damages with limits of liability for each occurrence. The City has not had any significant reduction in insurance coverage, and the amounts of insurance settlements have not exceeded insurance coverage for any of the last three years. The participation of the City in the TML-IRP is limited to payment of premiums. At year-end, the City did not have any significant claims pending. (continued) TE NT ATIVE & 4P RE LI MI NARY 4. DETAILED NOTES ON ALL FUNDS (Continued) Risk Management(Continued) Workers' Compensation The City is a member of the Texas Municipal League (TML) Workers' Compensation Intergovernmental Risk Pool,an unincorporated association of political subdivisions of the State of Texas. The fund contracts with a third-party administrator for administration, investigation, and adjustment services in the handling of claims. Premiums are based on the estimated City payroll by risk factor and rates. The premiums are adjusted by the City's experience modifier. All loss contingencies, including claims incurred, but not reported, if any, are recorded and accounted for by the TML Pool. The City's liability is limited to the payment of premiums as assessed by TML. Prior Period Adjustment As of September 30, 2004, the City understated due to and due from other funds. Beginning fund equity was restated in each of the following funds to correct this error in the prior year. Amount of Fund Restatement General $ ( 1,853,778) Nonmajor governmental ( 90,130) a Water and sewer 1,190,651 Economic Development Corporation ( 26,482) Subsequent Events Debt Issuance On October 1, 2005, the Development Authority of Pearland, a discretely presented component unit, issued Tax Increment Revenue Bonds, Series 2005, in the amount of $9,775,000. These bonds were used to reimburse developers for certain project costs including infrastructure and related improvements made by such developers within Reinvestment Zone Number Two. Annexation On December 31, 2005, the City annexed approximately 582 acres of land consisting of all of Brazoria County Municipal Utility District No. 5 and adjacent portions of County Road 403 and FM 865, Brazoria County into the City. Upon the dissolution of the District,the City assumes all property and assets owned by the District, as well as all debts, liabilities and obligations of the District, and must provide all City services to the annexed areas. Capital assets and long-term debt acquired were approximately$11.7 million and$8.3 million,respectively. TENT ATI VE & PRELIMINARY APPENDIX C FORM OF BOND COUNSEL OPINION A N D R E W S Andrews&Kurth L.L.P. 600 Traws,Suite 4200 ASTORNEYS K U R T H LIP Houston,Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com May_,2006 WE HAVE ACTED as Bond Counsel for the City of Pearland, Texas (the "City") in connection with an issue of bonds (the"Bonds")described as follows: CITY OF PEARLAND, TEXAS PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006, dated June 1, 2006, in the aggregate principal amount of $ maturing on March 1, 20_ through March 1, 20 , inclusive. The Bonds are issuable in fully registered form only, in denominations of$5,000 or integral multiples thereof, bear interest and may be transferred and exchanged as set out in the Bonds and in the ordinance (the "Ordinance") adopted by the City Council of the City authorizing their issuance. WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds from gross income under federal income tax law. In such capacity we have examined the Constitution and laws of the State of Texas; federal income tax law; and a transcript of certain certified proceedings pertaining to the issuance of the Bonds and the bonds and certificates of obligation that are being refunded (the "Refunded Obligations") with the proceeds of the Bonds, as described in the Ordinance. The transcript contains certified copies of certain proceedings of the City and Wells Fargo Bank, N.A., Houston, Texas (the "Escrow Agent"); the report (the "Report") of Grant Thornton LLP, certified public accountants,which verifies the sufficiency of the deposits made with the Escrow Agent for the defeasance of the Refunded Obligations and the mathematical accuracy of certain computations of the yield on the Bonds and the obligations acquired with the proceeds of the Bonds; certain certifications and representations and other material facts within the knowledge and control of the City, upon which we rely; and certain other customary documents and instruments authorizing and relating to the issuance of the Bonds and the firm banking and financial arrangements for the discharge and final payment of the Refunded Obligations. We have also examined executed Bond No. R-1 of this issue. WE HAVE NOT BEEN REQUESTED to examine, and have not investigated or verified, any original proceedings, records, data or other material, but have relied upon the transcript of certified proceedings. We have not assumed any responsibility with respect to the financial condition or capabilities of the City or the disclosure thereof in connection with the sale of the Bonds. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. BASED ON SUCH EXAMINATION, it is our opinion as follows: a HOU:2570369.1 Ausun Dallas Houston London Los Angeles New York The Woodlands Washington.DC May_,2006 Page 2 (1) The transcript of certified proceedings evidences complete legal authority for the issuance of the Bonds in full compliance with the Constitution and laws of the State of Texas presently in effect; the Bonds constitute valid and legally binding obligations of the City enforceable in accordance with the terms and conditions thereof, except to the extent that the rights and remedies of the owners of the Bonds may be limited by laws heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors of political subdivisions and the exercise of judicial discretion in appropriate cases; and the Bonds have been authorized and delivered in accordance with law; (2) The Bonds are payable, both as to principal and interest, from the receipts of an annual ad valorem tax levied, within the limits prescribed by law, upon taxable property located within the City, which taxes have been pledged irrevocably to pay the principal of and interest on the Bonds; and (3) The escrow agreement between the City and the Escrow Agent (the "Escrow Agreement") has been duly executed and delivered and constitutes a binding and enforceable agreement in accordance with its terms; the establishment of the Escrow Fund pursuant to the Escrow Agreement and the deposit made therein constitute the making of firm banking and financial arrangements for the discharge and final payment of the Refunded Obligations; in reliance upon the accuracy of the calculations contained in the Report, the Refunded Obligations, having been discharged and paid, are no longer outstanding and the lien on and pledge of ad valorem taxes and other revenues as set forth in the ordinance authorizing their issuance will be appropriately and legally defeased; the holders of the Refunded Obligations may obtain payment of the principal of, redemption premium, if any, and interest on the Refunded Obligations only out of the funds provided therefor now held in escrow for that purpose by the Escrow Agent pursuant to the terms of the Escrow Agreement; and therefore the Refunded Obligations are deemed to be fully paid and no longer outstanding, except for the purpose of being paid from the funds provided therefor in such Escrow Agreement. ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our further opinion that, subject to the restrictions hereinafter described, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes under existing law and is not subject to the alternative minimum tax on individuals or, except as hereinafter described, corporations. The opinion set forth in the first sentence of this paragraph is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax S HOU:2570369.1 May_, 2006 Page 3 purposes. The City has covenanted in the Ordinance to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. The Code and the existing regulations, rulings and court decisions thereunder, upon which the foregoing opinions of Bond Counsel are based, are subject to change, which could prospectively or retroactively result in the inclusion of the interest on the Bonds in gross income of the owners thereof for federal income tax purposes. INTEREST ON all tax-exempt obligations, including the Bonds, owned by a corporation (other than an S corporation, a regulated investment company, a real estate investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securitization investment trust (FASIT)) will be included in such corporation's adjusted current earnings for purposes of calculating such corporation's alternative minimum taxable income. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. Purchasers of Bonds are directed to the discussion entitled "TAX EXEMPTION" set forth in the Official Statement. EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or local tax consequences under present law, or future legislation, resulting from the ownership of, receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations, such as the Bonds, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies,property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax- . exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations and individuals otherwise qualified for the earned income tax credit. For the foregoing reasons, prospective purchasers should consult their tax advisors as to the consequences of investing in .. the Bonds. 786717866 ow IND HOU:2570369.I we r a APPENDIX D THE REFUNDED BONDS Maturity Refunded Call Remaining Series Date Bonds* Date/Price Outstanding Unlimited Tax Bonds, 9-1-2006 $ 100,000 6-9-06 @ 100 -0- Series 1995 9-1-2007 110,000 6-9-06 @ 100 -0- (Brazoria Co.MUD#5) 9-1-2008 115,000 6-9-06 @ 100 -0- 9-1-2009 125,000 6-9-06 @ 100 -0- 9-1-2010 135,000 6-9-06 @ 100 -0- 9-1-2011 145,000 6-9-06 @ 100 -0- 9-1-2012 155,000 6-9-06 @ 100 -0- 9-1-2013 165,000 6-9-06 @ 100 -0- 9-1-2014 175,000 6-9-06 @ 100 -0- 9-1-2015 190,000 6-9-06 @ 100 -0- Unlimited Tax Bonds, 9-1-2006 $ 85,000 Non-Callable -0- Series 1998 9-1-2007 90,000 9-1-06 @ 100 -0- (Brazoria County MUD#5) 9-1-2008 95,000 9-1-06 @ 100 -0- 9-1-2009 100,000 9-1-06 @ 100 -0- 9-1-2010 105,000 9-1-06 @ 100 -0- 9-1-2011 115,000 9-1-06 @ 100 -0- 9-1-2012 125,000 9-1-06 @ 100 -0- 9-1-2013 245,000 9-1-06 @ 100 -0- 9-1-2014 260,000 9-1-06 @ 100 -0- 9-1-2015 275,000 9-1-06 @ 100 -0- I- Unlimited Tax Refunding 3-1-2007 $ 450,000 6-9-06 @ 100 -0- Bonds,Series 1998 3-1-2008 475,000 6-9-06 @ 100 -0- (Brazoria Co.MUD#5) 3-1-2009 495,000 6-9-06 @ 100 -0- 3-1-2010 520,000 6-9-06 @ 100 -0- 3-1-2011 540,000 6-9-06 @ 100 -0- 3-1-2012 565,000 6-9-06 @ 100 -0- Unlimited Tax Bonds, 9-1-2006 $ 75,000(a) Non-Callable Series 1999 9-1-2008 165,000(a) 9-1-06 @ 100 -0- y' (Brazoria Co.MUD#5) 9-1-2010 180,000(a) 9-1-06 @ 100 -0- 9-1-2012 190,000(a) 9-1-06 @ 100 -0- 9-1-2013 420,000 9-1-06 @ 100 -0- 9-1-2014 445,000 9-1-06 @ 100 -0- 9-1-2015 460.000 9-1-06 @ 100 -0- 17.890.000 (a) Represents Term Bonds. S r OFFICIAL STATEMENT DATED MAY 8,2006 MI In the opinion of Bond Counsel,interest on the Bonds is excludable from gross income for federal income tax purposes under existing law,subject to the matters described under'Tax Exemption"herein, and is not includable in the alternative minimum taxable income of individuals. See 'TAX EXEMPTION"for a discussion of the opinion of Bond Counsel,including the alternative minimum tax on corporations. _ NEW ISSUE: BOOK-ENTRY-ONLY RATINGS: Moody's Investors Service,Inc.(FGIC) "Aaa" Standard&Poor's Ratings Services(FGIC) "AAA" $32,165,000 CITY OF PEARLAND, TEXAS (A political subdivision of the State of Texas located within Brazoria and Harris Counties) PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006 all Due:June 1,2006 Due: March 1.as shown below Principal of and interest on the$32,165,000 City of Pearland,Texas,Permanent Improvement and Refunding Bonds,Series 2006(the"Bonds")are payabie by Wells Fargo Bank,N.A.,Houston,Texas.the paying agent/registrar(the"Paying Agent/Registrar"). The Bonds are initially registered and delivered only to Cede&Co.,the nominee of The Depository Trust Company("DTC")pursuant to the Book-Entry-Only System described herein. ,� Beneficial ownership of the Bonds may be acquired in denominations of$5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the beneficial owners of the Bonds. See 'THE BONDS- Book-Entry-Only System"herein. Interest on the Bonds will accrue from June 1,2006 and is payable on March 1,and September 1 of each year.commencing March 1, 2007,to the registered owners(initially Cede& Co.)appearing on the registration books of the Paying Agent/Registrar cm the 15th day of the month preceding each interest payment date(the"Record Date"). See'THE BONDS-Description." The Bonds are payable from the proceeds of a continuing,direct annual ad valorem tax levied, within the limits prescribed by law,against taxable property within the City of Pearland,Texas(the"City"). See'THE BONDS-Source of Payment." "op The Bonds are issued pursuant to the Constitution and general laws of the State of Texas,particularly Chapters 1207 and 1331,Texas Government Code,as amended,and an Ordinance approved by the City Council on May 8,2006. See"THE BONDS-Authority for Issuance." Proceeds of the sale of the Bonds will be used for the construction and improvements of city streets. Proceeds from the sale of the Bonds will also be used to refund certain outstanding obligations of the City as more particularly described in"APPENDIX D"hereto(the"Refunded Bonds")and to pay Am the costs of issuance of the Bonds. See"THE BONDS-Use of Proceeds." Payment of the principal of and interest on the Bonds when due will be insured by a bond insurance policy to be issued by Financial Guaranty Insurance Company ("FGIC") simultaneously with the delivery of the Bonds. See "SALE AND DISTRIBUTION OF THE BONDS - Bond Insurance." wee FGIC PRINCIPAL AMOUNTS,MATURITIES,INTEREST RATES AND PRICES us (Due March 1) $21,095,000 Serial Bonds Initial CUSIP Initial CUSIP .. Principal Interest Reoffering Nos. Principal Interest Reoffering Nos. Maturity Amount Rate Yield(a)_ 704862(c) Maturity Amount Rate Yield(a) 704862(c) 2007 $ 50,000 4.000% 3.700% WF4 2018(b) $ 480,000 4.250% 4.350% WS6 2008 50,000 4.000 3.710 WG2 2019(b) 1,335,000 4.500 4.550 WT4 Wilb 2009 50,000 4.000 3.710 WHO 2020(b) 1,485,000 5.000 4.490 WU1 2010 50.000 4.000 3.730 WJ6 2021(b) 1.580,000 5.000 4.520 WV9 2011 320.000 4.000 3.760 WK3 2022(b) 1,675.000 5.000 4.550 WV/7 2012 385.000 4.000 3.860 WLI 2023(b) 2,150,000 5.000 4.580 WX5 ow 2013 400.000 4.000 3.960 WM9 2024(b) 2,150,000 5.000 4.550 WY3 2014 410.000 4.000 4.080 WN7 2025(b) 2,270.000 5.000 4.570 WZO 2015 430,000 4.000 4.180 WP2 2026(b) 2,395.000 5.000 4.590 XA4 2016 445,000 4.125 4.250 WQO 2027(b) 2,525,000 4.750 4.750 XB2 2017(b) 460,000 4.250 4.300 WR8 ani $11,070,000 Term Bonds S 11,070,000 Term Bond Due March 1,2029(a)(b)(c)(d)Interest Rate 4.750%;Yield 4.820%)CUSIP No.704862 XCO (a) The initial yields will be established by and are the sole responsibility of the Underwriters,and may subsequently be changed. (b) The Bonds maturing on March 1,2017 and thereafter,are subject to redemption,at the option of the City,at par value thereof plus accrued interest on March 1,2016,or any date thereafter. See"THE BONDS-Redemption Provisions." (c) CUSIP numbers have been assigned to the Bonds by Standard and Poor's CUSIP Service Bureau,A Division of the McGraw-Hill Companies,lac.,and "S are included solely for the convenience of the registered owners of the Bonds. Neither the City, the Financial Advisor, nor the Underwriters are responsible for the selection or correctness of the CUSIP numbers set forth herein. (d) Subject to mandatory redemption by lot or other customary random selection on March i in the years and in the amounts set forth herein under the caption "THE BONDS-Redemption Provisions." The Bonds are offered when, as and if issued, subject to the approving opinion of the Attorney General of the State of Texas and the opinion of Andrews Kurth LLP,Houston,Texas,Bond Counsel for the City,as to the validity of the issuance of the Bonds under the Constitution and laws of the State of Texas. See"LEGAL MATTERS." Delivery of the Bonds is expected to be on or about June 8.2006. a a No dealer, broker,salesman or other person has been authorized by the City to give any information or to make any representation other than those contained in this Official Statement,and,if given or made,such other information or representations must not be relied upon as having been authorized by the City. This Official Statement is not to be used in an offer to sell or the solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. This Official Statement contains, in part, estimates, assumptions and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of such estimates, assumptions or matters of opinion or as to the likelihood that they will be realized. Any information and expressions of opinion herein contained are subject to change without notice,and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the condition of the City or other matters described herein since the date hereof. TABLE OF CONTENTS INTRODUCTORY STATEMENT........_..„„»».........3 Debt Ratios 19 SALE AND DISTRIBUTION OF THE BONDS......3 TAX DATA».»....„»».».._...,........„._._» 19 Sale of the Bonds 3 General 19 Prices and Marketability 3 Property Tax Code and County-Wide Securities Laws 3 Appraisal District 19 BOND INSURANCE.........._..... ...»..»»»»»».,.4 Tax Rate Limitations 20 Payments Under the Policy 4 Property Subject to Taxation by the City 20 Financial Guaranty Insurance Company 4 Tax Increment Reinvestment Zone 21 Financial Guaranty's Credit Ratings 5 Notice and Hearing Procedures 22 MUNICIPAL BOND RATINGS.....„..»......................6 Levy and Collection of Taxes 22 OFFICIAL STATEMENT SUMMARY .7 Collection of Delinquent Taxes 22 DITRODUCTION...........................„»..»».»..»».„» —9 Historical Analysis of Tax Collection 23 THE BONDS„...„„....»..............„»...»»..„..».»...........».9 Analysis of Tax Base 24 Description 9 Estimated Overlapping Taxes 25 Redemption Provisions 9 Sales Tax 25 Notice of Redemption 10 SELECTED FINANCIAL DATA„.......»...„...........„26 a Book-Entry-Only System 10 Historical Operations of the City's Use of Certain Terms in Other Sections •General Fund 26 of this Official Statement 12 General Fund and Debt Service Fund Successor Paying Agent/Registrar 12 Balance for the Past Five Fiscal Source of Payment 12 Years 27 Authorization of the Bonds 12 Pension Fund 27 Use of Proceeds 12 Financial Statements 27 Refunded Bonds 13 ADMINISTRATION OF THE CITY.......................28 Sources and Uses of Funds 13 Mayor and City Council 28 Future Debt 14 Administration 28 Legal Investments in Texas 14 Consultants 29 - Remedies in the Event of Default 14 LEGAL MATTERS„.............„....„......„„»......„,....»„29 INVESTMENT AUTHORITY AND Legal Opinions 29 INVESTMENT OBJECTIVES OF THE No-Litigation Certificate 30 CITY.„.....»„. „............»..............».».........„...14 No Material Adverse Change 30 Legal Investments 14 TAX EXEMPTION„..„....„_.„.... .......30 Investment Policies 15 TAX TREATMENT OF ORIGINAL ISSUE Current Investments 16 DISCOUNT AND PREMIUM BONDS......_..31 Additional Provisions 16 Discount Bonds 31 CITY TAX DEBT„.„..._........_..._.._.......„._.»_ 17 Premium Bonds 32 CITY TAX DEBT........................_......._..................17 CONTINUING DISCLOSURE OF Tax Supported Debt Statement 17 INFORMATION„.„..................„.......„.........„...32 .. Bonded Indebtedness Payable from Ad Annual Reports 32 Valorem Taxes 17 Material Event Notices 33 Tax Supported Debt Service Schedule 18 Availability of Information From Estimated Overlapping Debt 19 NRMSIRs and SID 33 i Limitations and Amendments 33 Updating of Official Statement 35 Audited Financial Report of the City 34 Compliance With Prior Undertakings 34 VERIFICATION OF ACCURACY OF APPENDIX A— Economic and Demographic Characteristics MATHEMATICAL COMPUTATIONS._.».34 APPENDIX B— Audited Financial Statements of the City FINANCIAL ADVISOR.._...»........ 34 APPENDIX C- Form of Legal Opinion GENERAL CONSIDERATIONS ,,,,,,,,,,,34 APPENDIX D- The Refunded Bonds Sources and Compilation of Information 34 APPENDIX E— Specimen Municipal Bond Insurance Policy a Certification as to Official Statement 35 a a tt OM $32,165,000 CITY OF PEARLAND,TEXAS PERMANENT IMPROVEMENT AND REFUNDING BONDS,SERIES 2006 INTRODUCTORY STATEMENT Information contained in this Official Statement, including Appendix B, has been obtained from the City of Pearland,Texas (the "City") in connection with the offering by the City of its$32,165,000 Permanent Improvement and Refunding Bonds,Series 2006(the"Bonds")identified on the cover page hereof. All financial and other information presented in this Official Statement has been provided by the City from its records, except for information expressly attributed to other sources. The presentation of information, including tables of receipts from taxes and other sources,is intended to show recent historic information,and is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience,as is shown by that financial and other information, will necessarily continue or be repeated in the future. SALE AND DISTRIBUTION OF THE BONDS Sale of the Bonds After requesting competitive bids for the Bonds, the City accepted the lowest bid, which was tendered by a syndicate managed by Citigroup Global Markets Inc. (collectively, referred to herein as the "Underwriters") to a purchase the Bonds, bearing the interest rates on the inside cover page of this Official Statement, at a cash price of $32,257,573.20, plus accrued interest to the date of delivery. The net effective interest rate on the bonds is 4.795914%. Prices and Marketability The delivery of the Bonds is conditioned upon the receipt by the City of a certificate executed and delivered by the Underwriters on or before the date of delivery of the Bonds stating the prices at which a substantial amount of the Bonds of each maturity have been sold to the public. For this purpose, the term "public" shall not include any person who is bondhouse,broker or similar person acting in the capacity of underwriter or wholesaler. The City has no control over trading of the Bonds after a bona fide offering of the Bonds is made by the Underwriters at the yields specified on the cover page. Information concerning reoffering yields or prices is the responsibility of the Underwriters. The prices and other terms respecting the offering and sale of the Bonds"may be changed from time to time by the Underwriters after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the .� initial offering price, including sales to dealers who may sell the Bonds into investment accounts. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS,AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,IF COMMENCED,MAY BE DISCONTINUED AT ANY TIME. Securities Laws No registration statement relating to the Bonds has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended,in reliance upon the exemptions provided thereunder. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been registered or qualified under the securities acts of any jurisdiction. The City assumes no responsibility for registration or qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions in such jurisdictions. a BOND INSURANCE Payments Under the Policy Concurrently with the issuance of the Bonds, Financial Guaranty Insurance Company ("Financial Guaranty") will issue its Municipal Bond New Issue Insurance Policy for the Bonds (the "Policy"). The Policy unconditionally guarantees the payment of that portion of the principal or accreted value(if applicable)of and interest on the Bonds which has become due for payment, but shall be unpaid by reason of nonpayment by the issuer of the Bonds (the "Issuer"). Financial Guaranty will make such payments to U.S.Bank Trust National Association,or its successor as its agent (the "Fiscal Agent"), on the later of the date on which such principal, accreted value or interest as applicable) is due or on the business day next following the day on which Financial Guaranty shall have received notice(in accordance with the terms of the Policy)from an owner of Bonds or the trustee or paying agent(if any)of the nonpayment of such amount by the Issuer. The Fiscal Agent will disburse such amount due on any Bond to its owner upon receipt by the Fiscal Agent of evidence satisfactory to the Fiscal Agent of the owner's right to receive payment of the principal, accreted value or interest (as applicable) due for payment and evidence, including any appropriate instruments of assignment,that all of such owner's rights to payment of such principal,accreted value or interest(as applicable)shall be vested in Financial Guaranty. The term"nonpayment" in respect of a Bond includes any payment of principal, accreted value or interest (as applicable) made to an owner of a Bond which has been recovered from such owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final,nonappealable order of a court having competent jurisdiction. Once issued, the Policy is non-cancellable by Financial Guaranty. The Policy covers failure to pay principal (or accreted value, if applicable) of the Bonds on their stated maturity dates and their mandatory sinking fund redemption dates, and not on any other date on which the Bonds may have been otherwise called for redemption, accelerated or advanced in maturity. The Policy also covers the failure to pay interest on the stated date for its payment. In the event that payment of the Bonds is accelerated, Financial Guaranty will only be obligated to pay principal (or accreted value, if applicable) and interest in the originally scheduled amounts on the originally scheduled payment dates. Upon such payment,Financial Guaranty will become the owner of the Bond,appurtenant coupon or right to payment of principal or interest on such Bond and will be fully subrogated to all of the Bondholder's rights thereunder. The Policy does not insure any risk other than Nonpayment by the Issuer,as defined in the Policy. Specifically, the Policy does not cover: (i)payment on acceleration,as a result of a call for redemption(other than mandatory sinking fund redemption)or as a result of any other advancement of maturity;(ii)payment of any redemption,prepayment or acceleration premium; or(iii)nonpayment of principal (or accreted value, if applicable)or interest caused by the insolvency or negligence or any other act or omission of the trustee or paying agent.,if any. As a condition of its commitment to insure Bonds,Financial Guaranty may be granted certain rights under the Bond documentation. The specific rights, if any, granted to Financial Guaranty in connection with its insurance of the Bonds may be set forth in the description of the principal legal documents appearing elsewhere in this Official Statement,and reference should be made thereto. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. In the event that Financial Guaranty is unable to fulfill its obligations under the Policy, the policy holder or bondholder is not protected by an insurance guaranty fund or other solvency protection arrangement. Financial Guaranty Insurance Company Financial Guaranty is a New York stock insurance corporation that writes financial guaranty insurance in respect of public finance and structured finance obligations and other financial obligations, including credit default swaps. Financial Guaranty is licensed to engage in the financial guaranty insurance business in all 50 states, the District of Columbia,the Commonwealth of Puerto Rico,the U.S.Virgin Islands and the United Kingdom. Financial Guaranty is a direct, wholly owned subsidiary of FGIC Corporation, a Delaware corporation. At March 31, 2006, the principal owners of FGIC Corporation and the approximate percentage of its outstanding common stock owned by each were as follows: The PM! Group, Inc. —42%; affiliates of the Blackstone Group L.P. —23%; and affiliates of the Cypress Group L.L.C.—23Tc. Neither FGIC Corporation nor any of its stockholders or affiliates is obligated to pay any debts of Financial Guaranty or any claims under any insurance policy, including the Policy, issued by Financial Guaranty. 4 Financial Guaranty is subject to the insurance laws and regulations of the State of New York, where Financial Guaranty is domiciled, including New York's comprehensive financial guaranty insurance law. That law, among other things, limits the business of each financial guaranty insurer to financial guaranty insurance (and related lines); requires that each financial guaranty insurer maintain a minimum surplus to policyholders; establishes limits on the aggregate net amount of exposure that may be retained in respect of a particular issuer or revenue source(known as single risk limits)and on the aggregate net amount of exposure that may be retained in respect of particular types of risk as compared to the policyholders' surplus (known as aggregate risk limits); and establishes contingency, loss and unearned premium reserve requirements. In addition, Financial Guaranty is also subject to the applicable insurance laws and regulations of all other jurisdictions in which it is licensed to transact insurance business. The insurance laws and regulations, as well as the level of supervisory authority that may be exercised by the various insurance regulators,vary by jurisdiction. At March 31, 2006, Financial Guaranty had net admitted assets of approximately $3.603 billion, total liabilities of approximately $2.454 billion, and total capital and policyholders' surplus of approximately $1.149 billion, determined in accordance with statutory accounting practices ("SAP") prescribed or permitted by insurance regulatory authorities. The unaudited consolidated financial statements of Financial Guaranty and subsidiaries, on the basis of U.S. generally accepted accounting principles ("GAAP"), as of March 31, 2006 and the audited consolidated financial statements of Financial Guaranty and subsidiaries,on the basis of GAAP,as of December 31,2005 and 2004,which have been filed with the Nationally Recognized Municipal Securities Information Repositories ("NRMSIRs"), are hereby included by specific reference in this Official Statement. Any statement contained herein under the heading "BOND INSURANCE,"or in any documents included by specific reference herein,shall be modified or superseded to the extent required by any statement in any document subsequently filed by Financial Guaranty with such NRMSIRs, and shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. All financial statements of Financial Guaranty (if any) included in documents filed by Financial Guaranty with the NRMSIRs subsequent to the date of this Official Statement and prior to the termination of the offering of the Bonds shall be deemed to be included by specific reference into this Official Statement and to be a part hereof from the respective dates of filing of such documents. The New York State Insurance Department recognizes only SAP for determining and reporting the financial condition and results of operations of an insurance company, for determining its solvency under the New York Insurance Law, and for determining whether its financial condition warrants the payment of a dividend to its stockholders. Although Financial Guaranty prepares both GAAP and SAP financial statements, no consideration is given by the New York State Insurance Department to financial statements prepared in accordance with GAAP in making such determinations. A discussion of the principal differences between SAP and GAAP is contained in the notes to Financial Guaranty's audited SAP financial statements. Copies of Financial Guaranty's most recently published GAAP and SAP financial statements are available upon request to: Financial Guaranty Insurance Company, 125 Park Avenue, New York, NY 10017, Attention: Corporate Communications Department. Financial Guaranty's telephone number is(212)312-3000. Financial Guaranty's Credit Ratings The financial strength of Financial Guaranty is rated"AAA"by Standard&Poor's,a Division of The McGraw-Hill Companies, Inc., "Aaa" by Moody's Investors Service, and "AAA" by Fitch Ratings. Each rating of Financial Guaranty should be evaluated independently. The ratings reflect the respective ratings agencies' current assessments of the insurance financial strength of Financial Guaranty. Any further explanation of any rating may be obtained only from the applicable rating agency. These ratings are not recommendations to buy, sell or hold the Bonds, and are subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. Financial Guaranty does not guarantee the market price or investment value of the Bonds nor does it guarantee that the ratings on the Bonds will not be revised or withdrawn. Neither Financial Guaranty nor any of its affiliates accepts any responsibility for the accuracy or completeness of the Official Statement or any information or disclosure that is provided to potential purchasers of the Bonds, or omitted from such disclosure, other than with respect to the accuracy of information with respect to Financial Guaranty or the Policy under the heading"BOND INSURANCE." In addition,Financial Guaranty makes no representation regarding the Bonds or the advisability of investing in the Bonds. 5 MUNICIPAL BOND RATINGS In connection with the sale of the Bonds, the City has made application to Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") for ratings and the ratings of "Aaa" and "AAA", respectively, have been assigned to the Bonds with the understanding that upon delivery of the Bonds, a municipal bond insurance policy insuring the timely payment of the principal of and interest on the Bonds will be issued by Financial Guaranty Insurance Company. In addition,Moody's and S&P have assigned underlying ratings of"Al" and "A+" respectively on the Bonds. An explanation of the significance of such ratings may be obtained from Moody's and S&P. The ratings reflect only the views of Moody's and S&P,and the City makes no representation as to the appropriateness of such ratings. There is no assurance that such ratings will continue for any period of time or that they will not be revised downward or withdrawn entirely by Moody's and/or S&P,if, in the judgment of Moody's and S&P,circumstances so warrant. Any such downward revision or withdrawal of either or both of the ratings may have an adverse effect on the market price of the Bonds. • p r I i 6 OFFICIAL STATEMENT SUMMARY The following material is a summary of certain information contained herein and is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Official Statement. The reader should refer particularly to sections that are indicated for more complete information. The Issuer The City of Pearland,Texas (the "City") is a political subdivision and home rule city of the State of Texas located within Brazoria and Hams Counties, Texas. For additional information regarding the City, see "Appendix A—Economic and Demographic Characteristics." The Bonds $32,165,000 Permanent improvement and Refunding Bonds, Series 2006(the "Bonds"), are dated June 1, 2006 and mature March 1, 2007 through March 1, 2029. Interest on the Bonds accrues from June 1, 2006,and is payable initially on March 1,2007,and on each September 1 and March 1 thereafter until the earlier of maturity or prior redemption. See'THE BONDS-Description." Other Characteristics The Bonds arc issued in fully registered form in integral multiples of a. S5,000. The Bonds maturing on and after March 1,2017 are subject to redemption,at the option of the City,at a price of the par value thereof plus accrued interest on March 1, 2016 or any date thereafter. See "THE BONDS - Redemption Provisions." Term Bonds arc also subject to mandatory sinking fund redemption as described under the heading"THE BONDS-Redemption Provisions." Paying Agent/Registrar The initial paying agent/registrar is Wells Fargo Bank,N.A., Houston, Texas. The City intends to use the book-entry-only system of The Depository Trust Company ("DTC'), but reserves the right on its behalf or on behalf of the DTC to discontinue such system. (See "THE BONDS-Book-Entry-Only System.") Source of Payment Principal of and interest on the Bonds are payable from the proceeds of a continuing, direct annual ad valorem tax, levied within the limits prescribed by law against taxable property located within the City. See "THE BONDS-Source of Payment." Use of Proceeds Proceeds from the sale of the Bonds will be used for the construction and improvements of city streets. Proceeds from the sale of the Bonds will also be used to refund certain outstanding obligations of the City as more particularly described in "APPENDIX D" hereto (the "Refunded Bonds") and to pay the costs of issuance of the Bonds. See "THE BONDS-Use of Proceeds." Bond Insurance Financial Guaranty Insurance Company ("FGIC"). See "BOND INSURANCE." Ratings Moody's Investors Service,Inc.(Insured) "Aaa" Standard&Poor's Ratings Group(Insured) "AAA" Moody's Investors Service,Inc. (Underlying) "Al" Standard&Poor's Ratings Group(Underlying) "A+" a -Selected Financial Information- (Unaudited) The Bonds 2005 Certified Net Assessed Valuation(100%of estimated market value) $ 3,816,235,030 (a)(b) Direct Debt: Outstanding Tax Supported Bonds(as of May 1,2006) $ 152,605,000 (c) Less: The Refunded Bonds (7,890.000) Plus: The Bonds 32,165,000 Total Tax Supported Debt $ 176,880,000 Estimated Overlapping Debt $ 33l 035,353 Direct and Estimated Overlapping Debt 507.915, 53 Debt Service Fund Balance(as of April 18,2006) , 4.207,$99 %of 2005 Per Assessed Capital Valuation (69,808) Debt Ratios: Direct Tax Supported Debt 4.63% $ 2,534 Direct Tax Supported and Estimated Overlapping Debt 13.31% $ 7,276 2005 Tax Rate(per$100 of Assessed Valuation) Maintenance and Operation $ 0.34548 Debt Service 0.32892 Total 0.67440 Annual Debt Service Requirements: Average (Fiscal Years 2007-2029) $ 12,403,476 Maximum(2018) $ 13,522,609 Tax Collections: Arithmetic Average,Tax Years(2000-2004)-Current Years 97.72% -Current and Prior Years 99.54% (a) Provided by the Brazoria Central Appraisal District(the "Appraisal District")and net of exemptions. Includes $472,469,612 in assessed value attributable to Reinvestment Zone Number Two, City of Pearland, Texas (the '7IRZ"). Pursuant to an agreement between the City and the TIRZ,tax revenues generated from assessed value attributable to the TIRZ are deposited in a fund to be used for TIRZ projects and are not available to make debt service payments on the Bonds; however, a portion of the such revenues are retained by the City for administrative services related to the TIRZ. See "TAX DATA — Tax Increment Reinvestment Zone" for a description of the agreement between the City and the TIRZ. (b) Includes $233,127,070 in assessed valuation from Brazoria County Municipal Utility District No. 5, which was annexed by the City on December 9,2005. (c) Includes$7,890,000 in outstanding debt assumed by the City through annexation of Brazoria County Municipal Utility District No.5 that is being refunded by the Bonds. 8 AIN INTRODUCTION This Official Statement and the Appendices hereto provide certain information with respect to the issuance by the MIR City of Pearland, Texas (the "City") in connection with the offering by the City of its $32,165,000 Permanent Improvement and Refunding Bonds,Series 2006(the"Bonds"). The Bonds are issued pursuant to the Texas Constitution, the general laws of the State of Texas, including particularly Chapters 1207 and 1331 Texas Government Code, as amended, and an Ordinance authorizing issuance of the Bonds(the"Ordinance")adopted by the City Council of the City(the"Council"). There follows in this Official Statement descriptions of the Bonds, the plan of financing, and certain information about the City and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the City upon request. Certain capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Ordinance,except as otherwise indicated herein. THE BONDS Description The Bonds are dated June 1, 2006 and bear interest from such date at the stated interest rates indicated under "PRINCIPAL AMOUNTS, MATURI"IItS, INTEREST RATES AND PRICES" on the cover page hereof, which interest is payable initially on March 1, 2007, and each September 1 and March 1 thereafter until the earlier of maturity or prior redemption. The Bonds are issued in fully registered form in denominations of$5,000 each or any multiple thereof. Principal of the Bonds is payable at the principal payment office of Wells Fargo Bank,N.A. (the "Paying Agent/Registrar"). Interest on the Bonds will be payable by check, dated as of the interest payment date, and mailed by the Paying Agent/Registrar to registered owners as shown on the records of the Paying Agent/Registrar. The Bonds initially will be registered only to Cede & Co., the nominee of The Depository Trust Company pursuant to the Book-Entry-Only System described below. In the event the Book-Entry-Only-System is discontinued,the Bonds may be transferred and exchanged on the bond register kept by the Paying Agent/Registrar upon surrender and reissuance. The Bonds are exchangeable for an equal principal amount of Bonds of the same maturity in any authorized denomination upon surrender of the Bonds to be exchanged at the principal payment office of the Paying Agent/Registrar. No service charge will be made for any transfer,but the City may require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith. The record date(the"Record Date")for the interest payable on any interest payment date means the 15th day of the month next preceding such interest payment date. It will be required that all transfers be made within three business days after request and presentation. The City has agreed to replace mutilated, destroyed, lost or stolen Bonds upon surrender of the mutilated Bonds,or receipt of satisfactory evidence of such destruction, loss or theft, and receipt by the City and the Paying Agent/Registrar of security or indemnity to keep them harmless. The City may require payment of taxes, governmental charges and other expenses in connection with any such replacement. Redemption Provisions -Optional Redemption The Bonds maturing on March 1,2017 and thereafter are subject to optional redemption prior to maturity, in whole or in part,on March 1, 2016, or any date thereafter,at the option of the City at a price equal to the principal amount thereof plus accrued interest to the date of redemption. If less than all of the Bonds are redeemed at any time, the maturities of the Bonds to be redeemed shall be selected by the City. 9 1 MEI -Mandatory Redemption- The Bonds maturing in the year 2029 (the"Term Bonds")are subject to mandatory redemption prior to maturity in the amounts and on the dates set out below, at a price equal to the principal amount to be redeemed plus accrued interest to the redemption date: $11.070,000 Term Bonds Maturing on March 1.2029 Mandatory Redemption Date Principal Amount March 1,2028 $3,690,000 March 1,2029(Maturity) 7.380,000 The particular Term Bonds to be mandatorily redeemed shall be selected by lot or other customary random selection method. The principal amount of any Term Bond to be mandatorily redeemed on such Mandatory Redemption Date shall be reduced by the principal amount of such Term Bond that have been acquired by the City and delivered to the Registrar for cancellation or have been optionally redeemed and which, in either case, has not previously been made the basis for a reduction under this sentence. Notice of Redemption Not less than 30 days prior to a redemption date for the Bonds,the City shall cause a notice of redemption to be sent by United States mail,first class,postage prepaid,to the registered owners of the Bonds to be redeemed,in whole or in part at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, NOTWITHSTANDING THAT ANY BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH BOND OR PORTION THEREOF SHALL CEASE TO ACCRUE. Book-Entry-Only System This section describes how ownership of the Bonds is to be transferred and how the principal of premium, if any, and interest on the Bonds are to be paid to and credited by The Depository Trust Company ("DTC"), New York, New York, while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The City believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof The City cannot and does not give any assurance that(1)DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee(as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or(3)DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Bonds (the "Bonds"). The Bonds will be issued as fully-registered Bonds in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for the Bonds, in the aggregate principal amount of such issue,and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law,a"banking organization"within the meaning of the New York Banking Law,a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section I7A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 55 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing 10 corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation("DTCC"). DTCC,in turn,is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC),as well as by the New York Stock Exchange,Inc.,the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. Securities brokers and dealers, banks, trust,companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( "Indirect Participants"). DTC has Standard& Poor's highest rating: AAA.The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner")is in turn to be recorded on the Direct and Indirect Participants' records.Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction as well as periodic statements of their holdings,from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the hooks of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds,except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers,all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee,Cede&Co.,or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede&Co.or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds;DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them,subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds,such as redemptions,tenders,defaults,and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish,to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative,Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed,DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds,distributions,and dividend payments on the Bonds will be made to Cede&Co.,or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or Agent,on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with Bonds held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC,Paying Agent,or the City,subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds,distributions, and dividend payments to Cede &Co. (or such other nominee as may be requested by an authorized representative of DTC)is the responsibility of the City " or Paying Agent. Disbursement of such payments to Direct Participants will be the responsibility of DTC, and reimbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. WIN 11 DTC may discontinue providing its services as depository with respect to the Bonds at any time .by giving reasonable notice to the City or Paying Agent. Under such circumstances,in the event that a successor depository is not obtained,Bond certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC(or a successor securities depository). Discontinuance of the use of the system of book-entry transfers through DTC may require the approval of DTC Participants under DTC's operational arrangements. In that event, Bond certificates will be printed and delivered. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the City believes to be reliable,but the City and the Underwriters take no responsibility for the accuracy thereof. Use of Certain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System,and,(ii)except as described above,notices that are to be given to registered owners under the Ordinance will be given only to DTC. Successor Paying Agent/Registrar Provision is made in the Ordinance for replacing the Paying Agent/Registrar, If the City replaces the Paying Agent/Registrar, such Paying Agent/Registrar shall, promptly upon the appointment of a successor, deliver the Paying Agent/Registrar's records to the successor paying agent/registrar(the "Successor Paying Agent/Registrar"), and the Successor Paying Agent/Registrar shall act in the same capacity as the previous Paying Agent/Registrar. Any Successor Paying Agent/Registrar selected by the City shall be a commercial bank or trust company organized under the laws of the United States or any state and duly qualified and legally authorized to serve and perform the duties of the Paying Agent/Registrar for the Bonds. Source of Payment .. The Bonds, together with other outstanding tax supported debt of the City(the "Outstanding Tax Supported Debt"), are payable as to principal and interest from, and secured by,the proceeds of a continuing,direct annual ad valorem tax levied, within the limits prescribed by law,against taxable property within the City. In the Ordinance the City covenants that while the Bonds are outstanding, it will levy, assess and undertake to collect such tax. See 'TAX DATA-Tax Rate Limitations"and"THE BONDS—Remedies in the Event of Default" Authorization of the Bonds The Bonds are issued pursuant to applicable provisions of the Constitution and laws of the State of Texas,including Chapter 1207 and 1331,Texas Government Code, as amended, and the provisions of the Ordinance adopted by the City Council, which specifically authorizes the sale and issuance of the Bonds. A portion of the Bonds constitute the fourth installment of the total authorization of$115,000,000 unlimited tax bonds approved at an Election held November 6,2001. See"PLAN OF FINANCING." The following table illustrates the bonds authorized,issued and remaining authorized but unissued by proposition. Date Amount Issued Authorized Authorized Authorized To Date The Bonds But Unissued 11/06/2001 $115,000,000 $61,198,470 $24,090,000(a) $29,711,530 a (a) Includes$90,000 in net premium that is charged against voted authorization. Use of Proceeds Proceeds of the sale of the Bonds will be used for the construction and improvements of city streets. Proceeds from the sale of the Bonds will also be used to refund certain outstanding obligations of the City as more particularly described in"APPENDIX D"hereto(the "Refunded Bonds")and to pay the costs of issuance of the Bonds. The refunding Bonds are being issued to restructure the City's debt service payments, which is required as a result of the City's assumption of the outstanding indebtedness of Brazoria County Municipal Utility District No.5, which - was annexed by the City on December 9,2005. 12 Refunded Bonds A portion of the proceeds from the sale of the Bonds are being used to refund and defease the bonds shown on Appendix D hereto (the "Refunded Bonds"), and to pay the costs of refunding and defcasing the Refunded Bonds. Simultaneously with the issuance of the Bonds,the City will give instructions to provide notice to the owners of the Refunded Bonds that are not being escrowed to maturity that the Refunded Bonds will be redeemed prior to stated maturity on which date money will be made available to redeem the Refunded Bonds from money held by the r. paying agents for the Refunded Bonds. A description and identification of the Refunded Bonds appears in Appendix D attached hereto. The Refunded Bonds and the interest due thereon are to be paid on their redemption or maturity dates from funds to be deposited with Wells Fargo Bank, N.A., Houston, Texas (the "Escrow Agent") pursuant to an Escrow Agreement (the "Escrow Agreement")between the City and the Escrow Agent. The Ordinance provides that from the proceeds of the sale of the Bonds to the Underwriters, the City will deposit with the Escrow Agent an amount, together with other lawfully available funds, which, when added to the investment earnings thereon, will be sufficient to accomplish the discharge and final payment of the Refunded Bonds. Such funds will be held by the Escrow Agent in a special escrow account(the "Escrow Fund") and used to purchase, with respect to certain of the Refunded Bonds, direct obligations of the United States of America (the "Federal Securities"). Under the Escrow Agreement, the Escrow Fund is irrevocably pledged to the payment of principal of and interest on the Refunded Bonds. Grant Thornton LLP, Certified Public Accountants, will verify at the time of delivery of the Bonds to the Underwriters that the Federal Securities will mature and pay interest in such amounts which, together with uninvested funds,if any,in the Escrow Fund,will be sufficient to pay,when due,the principal of and interest on the Refunded Bonds. Such maturing principal of and interest on the Federal Securities will not be available to pay the debt service on the Bonds(see"VERL9CATION OF ARITHMETICAL COMPUTATIONS"). By the deposit of the Federal Securities and cash with the Escrow Agent pursuant to the Escrow Agreement,the City will have effected the defeasance of the Refunded Bonds pursuant to the terms of Chapter 1207,Texas Government Code, and the orders authorizing the issuance of the Refunded Bonds. It is the opinion of Bond Counsel that, as a result of such defeasance,the Refunded Bonds will no longer be payable from ad valorem taxes but will be payable solely from the principal of and interest on the Federal Securities and cash held for such purpose by the Escrow Agent, and that the Refunded Bonds will be defeased and thus will not be included in or considered to be indebtedness of the City for the purpose of a limitation on indebtedness or taxation or for any other purpose. The City has covenanted in the Escrow Agreement to make timely deposits with the Escrow Agent from lawfully available funds,of any additional amounts required to pay the principal of and interest on the Refunded Bonds,if for any reason the cash balances on deposit or scheduled to be on deposit in the Escrow Fund are insufficient to make such payment. Sources and Uses of Funds The proceeds from the sale of the Bonds will be applied as follows: SOURCES OF FUNDS: Par Amount of the Bonds $ 32,165,000.00 Net Premium on the Bonds 349,893.20 Accrued Interest 29,850.99 Total Sources of Funds $ 32,544,744.19 USES OF FUNDS Project Fund $ 24,090,000.00 Purchase of Escrowed Obligations for Escrow Fund 3,479,410.00 Escrow Starting Balance 4,572,571.26 Deposit Accrued Interest to Debt Service Fund 29,850.99 Expenses: 257,320.00 Underwriters' Discount Other Issuance Expenses 165,591.94 Total Uses of Funds $ 32,544,7,4.19 a 13 Future Debt Following the issuance of the Bonds the City will have$29,711.530 authorized but unissued bonds. The City plans to issue such authorized bonds over the next year. The City also intends to issue certificates of obligation for various City projects over the next year. Depending on the rate of development within the City,changes in assessed valuation, and the amounts, interest rates, maturities and time of issuance of additional certificates of obligation or bonds,increases in the City's annual ad valorem tax rate may be required to provide for the payment of the principal of and interest on the City's outstanding bonds,the Bonds,and such future certificates of obligation or bonds. Legal Investments in Texas Pursuant to the Texas Public Securities Procedures Act, Chapter 1201,Texas Government Code, as amended, the Bonds, whether rated or unrated, are (a)legal investments for insurance companies, fiduciaries and trustees and (b) legal investments for the sinking funds of political subdivisions or public agencies of the State. Most political subdivisions in the State of Texas are required to adopt investment guidelines under the Public Funds Investment Act,Chapter 2256,Texas Government Code,as amended,and such political subdivisions may impose a requirement consistent with such act that the Bonds have a rating of not less than"A"or its equivalent to be legal investments for such entity's funds. The Bonds are eligible under the Public Funds Collateral Act, Chapter 2257, Texas Government Code, as amended,to secure deposits of public funds of the State or any political subdivision or public agency of the State and are lawful and sufficient security for those deposits to the extent of their market value. Again,political subdivisions in the State of Texas may impose a requirement that the Bonds have a rating of not less than"A"or its equivalent to be eligible to serve as collateral for their funds. The City has not made any investigations of any other laws,rules,regulations or investment criteria that might affect the suitability of the Bonds for any of the above purposes or limit the authority of any of the above entities or persons to purchase or invest in the Bonds. Remedies in the Event of Default The Ordinance requires the City to assess and collect ad valorem taxes each year sufficient to pay principal and interest when due on the Bonds. The Ordinance does not provide any other security for the payment of the Bonds, or any express remedies in the event of default,makes no provision for acceleration of maturity of the Bonds in the event of default,and does not provide for a trustee to protect the rights of the holders of the Bonds. Although a holder of the Bonds could presumably obtain judgment against the City in the event of default in the payment of principal or interest on the Bonds, such judgment could not be satisfied by execution against any property of the City. A holder of the Bonds could,in the event of default,ask a court for a mandamus or court order compelling the City to levy, assess and collect sufficient ad valorem takes to pay principal of and interest on the Bonds as it falls due. Such remedy might need to be enforced on a periodic basis. The enforcement of a claim for payment of principal or interest on the Bonds would be subject to judicial discretion, sovereign police powers and the applicable provisions of the federal bankruptcy laws and to any other similar laws affecting the rights of political subdivisions generally. INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE CITY The City invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the Mayor and Council of the City. Both state law and the City's investment policies are subject to change. Legal Investments Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, (2)direct obligations of the State of Texas or its agencies and instrumentalities, (3)collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States, (4) other obligations, the principal of and interest on which are unconditionally guaranteed or insured by,or backed by the full faith and credit of,the State of Texas or the United States or their respective agencies and instrumentalities,(5)obligations of states, agencies,counties,cities,and other political subdivisions of any state rates as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent, (6) certificates of deposit that are guaranteed or insured by the Federal Deposit Insurance Corporation or are secured as to principal by obligations described in the preceding clauses or in any other manner and amount provided by law for City deposits, (7) certificates of deposit and share certificates issued by a state or federal credit union domiciled in the State of Texas that are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in the clauses (1) through(5) or in any other manner and amount 14 provided by law for City deposits, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (I), and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (9) bankers' acceptances with the remaining term of 270 days or less,if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally recognized credit rating agency, (10)commercial paper that is rated at least A-1 or P-1 or the equivalent by either(a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S.or state bank), (11)no-load money market mutual funds regulated by the Securities and Exchange Commission that have a dollar weighted average portfolio maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of SI for each share, (12) no-load mutual funds registered with the Securities and Exchange Commission that: have an average weighted maturity of less than two years; invests exclusively in obligations described in the preceding clauses;and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of no less than AAA or its equivalent, and (13) bonds issued, assumed, or guaranteed by the State of Israel; and may invest bond proceeds in guaranteed investment contracts that have a defined termination date and are secured by obligations described in clause (i) above in an amount at least equal to the amount of bond proceeds invested under such a contract. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than Aaa or AAA or an equivalent by at least one nationally recognized rating service. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal;(2)obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest;(3)collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in the market index. Investment Policies Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement"that specifically addresses each funds' investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment,(5)diversification of the portfolio,and(6)yield. Under Texas law, City investments must be made "with judgment and care, under prevailing circumstances, that person or prudence,discretion,and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At least quarterly, the investment officers of the City shall submit an investment report detailing: (1)the investment position of the City; (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, any additions and changes to market value and the ending value for each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7)the compliance of the investment portfolio as it related to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority from the Mayor and Council of the City. The City's policies requires investments in accordance with applicable state law. The City' Statement of Investment does not exclude any investments allowable under State law described above under"Legal Investments." The City generally invests in obligations of the United States or its Agencies and instrumentalities. a 15 a Current Investments State law and City ordinances authorize the City to invest in direct obligations of the U.S. Treasury with maturity dates of three years or less, obligations of agencies of the U.S. Government with maturity dates of two years or less, and certain investment pools. The City's investment balances on March 31,2006 were as follows: Face Principal Market Book Amount Invested Value Value Money Market Funds $63,631,736 $63,631,736 $63,631,736 $63,631,736 Government Securities 14,384,000 14,077,511 14,148,568 14,156,301 Certificates of Deposit 3,754.007 3,754,007 3,754,007 3,754,007 Total Portfolio $81,769,743 $81,463.254 $81.534,311 $81,542.044 Additional Provisions Under Texas law, the City is additionally required to: (1) annually review its adopted policies and strategies; (2) require any investment officers with person business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the Mayor and Council; (3)require the registered principal of firms seeking to sell securities to the City to: (a)receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) perform and annual audit of the management controls on investments and adherence to the City's investment policy; (5) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (6) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (7) restrict the investment in mutual funds in the aggregate to no more than 80% of the City's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service and further restrict the investment in non-money market mutual funds of any portion of bond proceeds,reserves and funds held for debt service and to not more than 15%of the entity's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service;and(8)require local government investment pools to confirm to the new disclosure,rating, net asset value. yield calculation,and advisory board requirements. AIM a 16 CITY TAX DEBT -• Tax Supported Debt Statement The following tables and calculations relate to the Bonds and to all other tax supported debt of the City. The City and various other political subdivisions of government which overlap all or a portion of the City are empowered to incur debt to be paid from revenues raised or to be raised by taxation against all or a portion of property within the City. Bonded Indebtedness Payable from Ad Valorem Taxes 2005 Certified Net Assessed Valuation(100%of estimated market value) $ 3,816,235,030 (a)(b) Direct Debt: Outstanding Tax Supported Debt(as of May 1,2006) S 152,605,000 (c) Less: The Refunded Bonds (7,890,000) Plus: The Bonds 32,165,000 Total Direct Debt S 176.880.000 Debt Service Fund Balance(as of April 18,2006) $4.207•590 (a) Provided by the Brazoria Central Appraisal District(the "Appraisal District") and net of exemptions. Includes $472,469,612 in assessed value attributable to Reinvestment Zone Number Two, City of Pearland, Texas (the "TIRZ"). Pursuant to an agreement between the City and the TIRZ,tax revenues generated from assessed value attributable to the TIRZ are deposited in a fund to be used for TIRZ projects and are not available to make debt service payments on the Bonds; however, a portion of the such revenues are retained by the City for administrative services related to the TIRZ. See "TAX DATA — Tax Increment Reinvestment Zone" for a description of the agreement between the City and the TIRZ. (b) Includes$233,127,070 in assessed valuation from Brazoria County Municipal Utility District No. 5,which was annexed by the City on December 9,2005. (c) Includes$7,890,000 in outstanding debt assumed by the City through annexation of Brazoria County Municipal Utility District No.5 that is being refunded by the Bonds. s S 17 w Tax Supported Debt Service Schedule The following sets forth the principal and interest on the City's Outstanding Tax Supported Debt,less the principal and interest on the Refunded Bonds,plus the principal and estimated interest on the Bonds. Fiscal Year Current Less: Total Ending Debt Service The Refunded Plus: The Bonds Debt Service 9-30 Requirements(a) Bonds Principal Interest Requirements 2006 S 11,661,443 S 461539 S 11,199.903 2007 11.007,335 1,109,596 5 50,000 S 1,917.992 11,865,731 2008 11.023,364 1,113,664 50.000 1,532,194 11.491,894 2009 12.559,713 1,115.473 50.000 1.530.194 13,024,434 .1 2010 12,888.503 1.114,675 50,000 1,528,194 13,352.021 2011 12.719,523 1,116,725 320.000 1,520,794 13.443.592 2012 12.723,571 1.115.755 385,000 1,506,694 13,499,510 2013 12572,344 971,491 400.000 1,490,994 13.491.847 „r 2014 12586.134 977,435 410.000 1,474.794 13,493,493 2015 12.579.939 975,285 430,000 1,457,994 13.492.648 2016 11.603.824 445.000 1,440,216 13.489,039 2017 11.618,074 460,000 1,421,263 13.499,336 2018 11,641,321 480,000 1,401,288 13,522,609 2019 8,866,286 1.335,000 1,361.050 11562,336 2020 8,844,451 1.485.000 1,293,888 11,623,338 2021 8.822,403 1.580.000 1.217,263 11,619,665 2022 8.805,496 1,675,000 1,135,888 11,616,384 2023 8.425,206 2,150.000 1,040,263 11,615,469 2024 8,528,281 2,150,000 932.763 11,611,044 2025 8,504,781 2,270,000 822.263 11,597,044 2026 8,490,422 2.395,000 705,638 11,591,059 2027 8,481,019 2,525,000 585.794 11.591.813 2028 7,468,813 3,690,000 438,188 11,597,000 2029 4.033,375 7.380.000 175.275 11.588.650 5246,455, 21. 510,071,638 132.165.000 S11930,8 1296.479_859 (a) Includes the outstanding debt service requirements associated with debt assumed by the City through the annexation of Brazoria County Municipal Utility District No,5. Average Annual Requirements(2007-2029) S12,403,476 Maximum Annual Requirement(2018) S13,522,609 Principal Payout(All Tax Supported Bonds) 14.00% in 5 years 34.46%in 10 years 56.45%in 15 years '� 81.69% in 20 years 18 Estimated Overlapping Debt The following table indicates the indebtedness,defined as outstanding obligations payable from ad valorem taxes.of governmental entities overlapping the City and the estimated percentages and amounts of such indebtedness attributable to property within the City. This information is based upon data secured from the individual jurisdictions and/or the Texas Municipal Reports. Such figures do not indicate the tax burden levied by the applicable taxing jurisdictions for operation and maintenance or for other purposes. The City has not independently verified the accuracy or completeness of the information shown below except for amounts related to the City. Debt as of Overlapping Taxing Jurisdiction March 1,2006 Percent Amount Alvin Community College District $ 19,610,000 5.22% $ 1,023,642 Brazoria County 29,535,000 6.97 2,058,590 Brazoria County MUD No. 17 23,745,000 100.00 23,745,000 Brazoria County MUD No. 18 30,925,000 99.86 30,881,705 Brazoria County MUD No. 19 30,380,000 100.00 30,380,000 Brazoria County MUD No.26 40,830,000 100.00 40,830,000 Pearland 1SD 279,340,000 72.20 201,683,480 Hams County(a) 1,811,116,590 0.02 362,223 Harris County Department of Education -0- 0.02 -0- Harris County Flood Control District 38,859,985 0.02 7,712 Port of Houston Authority 314,705,000 0.02 62,941 TOTAL ESTIMATED OVERLAPPING $331,035,353 The City(b) 176,880,000 p1' Total Direct and Estimated Overlapping Debt $507.915.353 (a) Harris County Toll Road Bonds are considered self-supporting and are not included in the amount shown for V Harris County. (b) Includes the Bonds and excludes the Refunded Bonds. Debt Ratios Direct and Direct Debt Overlapping Debt Per 2005 Certified Net Assessed Valuation($3,816,235,030) 4.63% 13.31% r Per Capita(69,808) $2,534 $7,276 TAX DATA General One of the City's principal sources of operational revenue and its principal source of funds for debt service payments is the receipts from ad valorem taxation. See"SFI.FCTED FINANCIAL DATA". The following is a recapitulation of (a) the Texas Property Tax Code, including methodology, limitations, remedies and procedures; (b) historical analysis of collection and trends of tax receipts and provisions for delinquencies; (c) an analysis of the tax base, including relative property composition, principal taxpayers and adequacy of the tax base to service debt requirements;and(d)taxation that may add to the City's taxpayers'tax costs. Property Tax Code and County-Wide Appraisal District The Texas Property Tax Code (the "Property Tax Code") establishes for each county in Texas a single appraisal district with responsibility for recording and appraising property for all taxing units within the county, and a single appraisal review board, with responsibility for reviewing and equalizing the values established by the appraisal district. The Property Tax Code requires the appraisal district, by May 15 of each year, or as soon thereafter as practicable, to prepare appraisal records of property as of January 1 of each year based upon market value.The chief appraiser must give written notice before May 15,or as soon thereafter as practicable,to each property owner whose property value is appraised higher than the prior tax year or the value rendered by the property owner or whose property was not on the appraisal roll the preceding year or whose property was reappraised in the current tax year. Notice must also be given if ownership of the property changed during the preceding year. The appraisal review r 19 r board has the ultimate responsibility for determining the value of all taxable property within the City; however,any property owner who has timely filed notice with the appraisal review board may appeal a final determination by the appraisal review board by filing suit in a Texas district court. Prior to such appeal or any tax delinquency date, however, the property owner must pay the tax due on the value of that portion of the property involved that is not in dispute or the amount of tax imposed in the prior year, whichever is greater, or the amount of tax due under the order from which the appeal is taken. In such event,the value of the property in question will be determined by the court, or by a jury, if requested by any party. In addition taxing units such as the City are entitled to challenge certain matters before the appraisal review board,including the level of appraisals of a certain category of property, the exclusion of property from the appraisal records or the grant in whole or in part of an exemption. A taxing unit — may not,however,challenge the valuation of individual properties. Although the City has the responsibility for establishing tax rates and levying and collecting its taxes each year, under the Property Tax Code the City does not establish appraisal standards or determine the frequency of revaluation or reappraisal. The appraisal district is governed by a board of directors elected by the governing bodies of the county and all cities,towns,school districts and,if entitled to vote, the conservation and reclamation districts that participate in the appraisal district. The Property Tax Code requires each appraisal district to implement a plan for periodic reappraisal of property to update appraised values. Such plan must provide for reappraisal of all real property in the appraisal district at least once every three years. It is not known what frequency of reappraisals will be utilized by the Brazoria County Appraisal District or whether reappraisals will be conducted on a zone or county-wide basis. Tax Rate Limitations Article Xl, Section 5 of the Texas Constitution,provides for an overall limitation for Home Rule Cities of$2.50 per $100 assessed valuation. The Attorney General of Texas follows a policy, with respect to Home Rule Cities which have such a$2.50 limitation,of approving ad valorem tax bonds only to the extent that all of such city's ad valorem tax debt can be serviced by a debt service tax rate of$1.50 at 90%collection. Property Subject to Taxation by the City Except for certain exemptions provided by Texas law, all real and tangible personal property and certain categories of intangible personal property with a tax situs in the City are subject to taxation by the City; however, no effort is expected to be made by the Brazoria County Appraisal District to include on the tax roll tangible or intangible personal property not devoted to commercial or industrial use. Principal categories of exempt property include: property owned by the State of Texas or its political subdivisions; property used for public purposes; property exempt from ad valorem taxation by federal law; certain household goods, family supplies, and personal effects; farm products owned by the producer, certain property owned by charitable organizations, youth development associations, religious organizations, and qualified schools; designated historical sites; solar and wind-powered energy devices; most individually-owned automobiles; and property of disabled veterans, only to the extent of $3,000 of taxable property. In addition, taxpayers who are over 65 years of age are entitled to apply for an additional exemption from market value of their residential homestead of$25,000. These over 65 exemptions and disabled veterans exemptions amounted to$58,797,330 from the 2005 tax roll. The state constitution permits local governments the option of granting homestead exemptions of up to 20% of market value. The City has not granted such additional homestead exemption for the 2005 tax year. An eligible owner of agricultural and timberland may apply to have such properties which meet certain requirements appraised on the basis of productivity value or market value, whichever is less. The loss of value due to property values based on productivity value on the 2005 tax roll was approximately$65,819.110 The City has authority to enter into tax abatement agreements to encourage economic development. Under such agreements, a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. Such abatement agreement may last for a period of up to 10 years. The City has $7,902.020 of such property that was subject to abatement on January 1,2005. The constitution of the State of Texas authorizes a property tax exemption for certain business personal property. The City Council had the option to take official action to override the exemption and to continue taxing the property exempted by the amendment. On December 18, 1989,the City's City Council took such official action not to tax the property in 1990 and to allow the exemption for 1991 and all future years. This Freeport Goods exemption amounted to$24,467,740 on the 2005 tax roll. via 20 a Tax Increment Reinvestment Zone Article VIII, Section 1-g of the Texas Constitution and the Tax Increment Financing Act, Chapter 311, V.T.C.A. Tax Code (the "TIF Act") authorize municipalities in the State to establish one or more tax increment financing reinvestment zones for development or redevelopment of the territory within the zones. The TIF Act provides that the municipality may appoint a board of directors for a reinvestment zone to develop a project plan and financing plan for the zone and may delegate to the board certain management duties relating to the zone. Project costs,including financing costs,within the zone may be paid from tax increments collected by each of the taxing units in the zone. The amount of a taxing unit's tax increment for a year is the amount of property taxes levied by the unit for that year on the captured appraised value of real property taxable by the unit (the "Captured Appraised Value") and located in the zone. The Captured Appraised Value is the total appraised value of the property for a year, less the tax increment base of the unit. The tax increment base of a taxing unit is the total appraised value of all real property taxable by the unit and located in the zone in the year in which the City created the zone. Participation by a taxing unit in a reinvestment is discretionary with such taxing unit,and it may decide to deposit all or none,or a portion, of its tax increments into the fund and retain for its own purposes the remainder. A taxing unit cannot reduce the amount of its participation once the financing plan has been implemented. The City designated a reinvestment zone and created the Reinvestment Zone Number Two,City of Pearland,Texas (the "TIRZ") in 1998 by Ordinance No. 891 of the City Council of the City. The purpose of the TIRZ is to design, construct and finance or cause to be designed, constructed and financed certain public works and improvements to promote and facilitate the development of the vacant,undeveloped property in the TIRZ. Specifically, the TIRZ is constructing public works and infrastructure improvements to assist in the development of the master planned community, Shadow Creek Ranch ("Shadow Creek Ranch"). The City, Alvin Independent School District ("AISD"), Brazoria County, Texas ("Brazoria County") and Fort Bend County, Texas ("Fort Bend County") have agreed to deposit to a tax increment fund established for the TIRZ(the "Tax Increment Fund") annually a certain percentage of tax collections arising from their taxation of the increase, if any, since January 1, 1998, in the total appraised value of all real property located in the TIRZ and taxable by the City, AISD, Brazoria County and Fort Bend County. The TIRZ Board has nine members, four of whom are appointed by the City. One of the City's appointees is nominated by AISD and Brazoria County and Fort Bend County each appoint one member of the TIRZ Board. Finally, the Texas State Senator and Texas State Representative, or their designees, in whose district the TIRZ is located serve as the final two members of the TIRZ Board. The TIRZ encompasses approximately 3,467 acres of land located within the City, including all of the master planned community of Shadow Creek Ranch, which includes approximately 3,300 acres of land. To date all of the development within the TIRZ has occurred within Shadow Creek Ranch. The City has agreed to pay 100% of its collected Tax Increments (the "City Tax Increment") to the Tax Increment Fund. However,pursuant to a development plan and a development agreement (the"Development Agreement")by and between the City and Shadow Creek Ranch Development Company, L.P., the master developer of property within the TIRZ(the "Developer"), the City, the Developer and the TIRZ have agreed that a certain portion of the City Tax Increment shall be paid by the TIRZ to the City as an "Administrative Fee" (the "Administrative Fee")to compensate the City for some of its cost of providing City services to the developed property within the TIRZ. Pursuant to the Development Agreement,the Administrative Fee is as follows: Years 1 through 3(1999-2001) No Administrative Fee Years 4 through 8(2002-2006) 36 percent of the City Increment Years 9 through 30(2007-2028) 64 percent of the City Increment Provided that,the amount of City Tax Increment deposited and retained annually in the Tax Increment Fund for the applicable year shall in no event be less than: (i)$0.44 per$100.00 of valuation in years four through eight,and(ii) S0.255 per$100.00 of valuation in years nine through thirty. For tax year 2005, the assessed value attributable to the TIRZ is $472,469,612. As described above, tax revenues generated from assessed value attributable to the TTRZ arc deposited into the Tax Increment Fund and are not available to make debt service payments on the Bonds. While a portion such revenues are to be retained by the City as Administrative Fees,such Administrative Fees may not be available to make debt service payments on the Bonds. 21 i Notice and Hearing Procedures The Property Tax Code establishes procedures for providing notice and the opportunity for a hearing for taxpayers in the event of certain proposed tax increases and provides for taxpayer referenda which could result in the repeal of certain tax increases. The Property Tax Code also establishes a procedure for notice to property owners of reappraisals reflecting increased property values over $1,000, appraisals which are higher than renditions, and appraisals of property not previously on an appraisal roll. Levy and Collection of Taxes The City is responsible for the collection of its taxes, unless it elects to transfer such functions to another governmental entity. The City elected to have Brazoria County bill and collect taxes on behalf of the City. Before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the City, the rate of taxation is set by the City Council based upon the valuation of property within the City as of the preceding January 1 and the amount required to be raised for debt service,maintenance purposes and authorized contractual obligations. The City Council may under certain circumstances be required to advertise and hold a public hearing within the City on a proposed tax rate before the City Council can hold a public meeting to vote on the tax rate. If the tax rate adopted exceeds by more than 8% the rate needed to pay debt service and certain contractual obligations and to produce, when applied to the property which was on the prior year's roll, the prior year's total taxes levied for purposes other than debt service and such contractual obligations (the "rollback rate"), such excess portion of the levy may, subject to constitutional restrictions on the impairment of existing obligations, be repealed at an election within the City held upon petition of 10% of the City's qualified voters and the tax rate adopted for the current year be reduced to the rollback rate. The City is prohibited from adopting a tax rate that exceeds the lower of the rollback tax rate or the "effective tax rate" until it has held a public hearing on the proposed tax rate and has otherwise complied with the Property Tax Code. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. Taxes are due on receipt of the tax bill,and become delinquent after January 31 of the following year, or on the first day of the calendar month next following the expiration of twenty-one (21) days after mailing of the tax bills, whichever occurs later. A delinquent tax account incurs an initial penalty of six percent (6%) of the amount of the tax and accrues an additional penalty of one percent (1%) per month up to July 1, at which time the total penalty becomes twelve percent (12%). In addition, delinquent taxes accrue interest at one percent (1%) per month. If the tax is not paid by July 1, an additional penalty of up to twenty percent(20%) may under certain circumstances be imposed by the City.The Property Tax Code also makes provision for the'split payment of taxes,discounts for early payments, partial payments of taxes and the postponement of the delinquency date of taxes under certain circumstances. Collection of Delinquent Taxes Taxes levied by the City are a personal obligation of the property owner on January 1 of the year for which the tax is imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all taxes, penalties and interest ultimately imposed for the year on the property. The lien exists in favor of the State and each taxing unit, including the City, having the power to tax the property.The City's tax lien is on a panty with tax liens of all other such taxing units. A tax lien on real property has priority over the claim of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien.In the event a taxpayer fails to make timely payment of taxes due the City,the City may file suit to foreclose its lien securing payment of the tax, to enforce personal liability for the tax, or both. Whether a lien of the United .., States is on a parity with or takes priority over a tax lien of the City is determined by applicable federal law. In the absence of such federal law, the City's tax lien takes priority over a tax lien of the United States. The ability of the City to collect delinquent taxes by foreclosure may be adversely affected by the amount of taxes owed to other taxing units,the foreclosure sale price attributable to market conditions, the taxpayer's right to redeem the property within two years of foreclosure,or by bankruptcy proceedings which restrain the collection of a taxpayer's debts. 22 Historical Analysis of Tax Collection -Collection Ratios- Tax Rate Fiscal Net Per$100 of %of Collections Year .. Tax Assessed Assessed Adjusted Current Current and Ending Year Valuation(a) Valuation Tax Levy(a)_ Year Prior Years 9-30 1995 $ 844,357,847 $0.6950 $ 5,869,525 98.65% 99.72% 1996 1996 875,483,990 0.6950 6,343,113 98.31 99.43 1997 1997 1,012,049,410 0.6950 7,062,826 98.50 99.57 1998 1998 1,172,298,277 0.6950 8,147,473 98.10 99.27 1999 1999 1,322,581.461 0.6950 9,174,224 98.35 99.65 2000 2000 1,563,565,809 0.6950 10,864,049 97.66 99.31 2001 2001 1,760,551,863 0.6860 12,890,902 96.79 98.34 2002 2002 2,171,317,975 0.6860 14,869,170 98.02 100.33 2003 2003 2,355.280,316 0.6960 17,987,752 98.03 100.02 2004 • 2004 3,019,449,422 0.6948 20,979,311 98.08 99.68 2005 2005 3,816,235,030(b) 0.6744 25,726,447 (In Process of Collection) 2006 (a) Includes assessed value attributable to the TIRZ. (b) Includes assessed value attributable to Brazoria County Municipal Utility District No.5,annexed by the City on December 9,2005. -Tax Rate Distribution- 2005 2004 2003 2002 2001 Maintenance $0.34548 $0.33890 $0.34570 $0.40600 $0.43000 Debt Service 0.32892 0.35590 0.35030 0.28000 0.25600 Total $0.67440 $0.69480 $0.69600 $0.68600 $0.68600 .. vim. .��. ........ .. ..... -- -Analysis of Delinquent Taxes- The following is an analysis,by tax year,of taxes delinquent as of September 30,2005. Uncollected Adjusted Percentage Tax Year _ As of September 30,2005 Tax Levy(a) of Tax Levy 2004 $797,744 $20,979,391 3.80% 2003 738,970 17,987,752 4.11 2002 693,785 14,869,170 4.67 2001 699,841 12,890,902 5.43 2000 285,091 10,864,049 2.62 1999 479,170 9,174,224 5.22 1998 389,445 8,147,473 4.78 1997 293,915 7,062,826 4.16 1996 258,140 6,343,113 4.07 1995 280,499 5,869,525 4.78 (a) The total tax levy has been adjusted to reflect additions and deletions from the tax roll for prior years. -Delinquent Tax Collection Procedures- In addition to the legal procedures and penalties described under "Levy and Collection of Taxes", the City has retained a delinquent tax attorney on a contract basis to file suit to collect delinquent taxes due the City. The fees due such attorney for acting as delinquent tax attorney are payable from an additional penalty imposed upon the delinquent taxpayer,not to exceed 20%of the tax due. 23 Analysis of Tax Base -Tax Base Distribution- 2005 Tax Roll 2004 Tax Roll 2003 Tax Roll "' Type of Property Amount % Amount % Amount Residential $2,892,460,301 71.6% $2,306,313,150 70.6% $1,788,420,100 70.9% Acreage 171,917,714 4.3 171,709,500 5.3 107.695,780 4.3 Vacant Lots/Tracts 238,624,160 5.9 158.938,710 4.9 84,600,830 3.4 Farm&Ranch 7,986,224 0.2 5,528,720 0.2 4,923,360 0.2 Commercial/Industrial 655,848,240 16.2 545,849,480 16.7 466,128,080 18.5 Utilities 48,658,247 1.2 45,034,700 1.4 43,705,230 1.7 Real Inventory 12,121,454 0.3 14,500,240 0.4 10,239 250 0.4 Other 13,241,531 0.3 18,183,090 0.6 17,013,190 0.7 Gross Assessed Value $4,040,857,870 $3,266,057,590 $2,522,725,820 Less: Exemption (224,622,840) (245,607,617) (167,445,404) Net Assessed Value $3,816,235,030(a)(b)(c) $3,020,449,973(a)(d) $2,355,280,316(a) ,. (a) Value may differ from those shown elsewhere in this Official Statement due to subsequent adjustments to the tax roll. (b) Includes $472,469,612 in assessed value attributable to the TIRZ. Pursuant to an agreement between the City and the TIRZ,tax revenues generated from assessed value attributable to the TIRZ are deposited in a fund to be used for TIRZ projects and are not available to make debt service payments on the Bonds;however,a portion of such revenues are retained by the City for administrative services related to the TIRZ See"TAX DATA—Tax Increment Reinvestment Zone"for a description of the agreement between the City and the TIRZ (c) Includes$233,127,070 in assessed valuation from Brazoria County Municipal Utility District No. 5, which was annexed by the City on December 9,2005. (d) Includes$219,785,523 in assessed value attributed to the TIRZ. -Principal Taxpayers- 2005 2004 2003 Taxable Taxable Taxable Assessed Assessed Assessed Principal Taxpayer Type of Property Valuation Valuation Valuation Weatherford U.S.Inc. Oil Field Equipment $ 33,721,540 $ 34,027,450 $ 34,843.830 Centerpoint Energy,Inc. Utility 21,856,040 19,416,250 18,062,650 Wal-Mart Real Estate Shopping Center 18,652.320 12,428,460 12,115,230 .. Pearland Investments Ltd.Prt. Land Development 18,529,300 25,546,730 (a) Perry Homes Home Construction 17,768.220 (a) (a) Shadow Creek Ranch Dev.Co. Land Development 14,743,240 13,068,530 (a) Shadow Creek Ranch Development Land Development 12,754,930 (a) (a) Lowe's Home Centers Retail Store 12.683,070 13,731.580 (a) MHI Partnership Ltd. Land Development 12,094,900 8,604,070 (a) HD Development Properties LP Land Development 11,466,010 (a) (a) Landar Mary's Creek Apartments Apartments (a) 10,309,630 11,113,820 Home Depot USA Inc. Retail Store (a) 9,756,700 (a) D R Horton-Emerald Ltd. Home Construction (a) 9,371,630 (a) SBC Telephone Utility (a) (a) 9,439,220 Lennar Homes of Texas Home Construction (a) (a) 8,997,250 West Lake Residential Ltd. Apartments (a) (a) 8.835,990 Aggreko,Inc. Mobile Temperature Control (a) (a) 8,560,750 Whispering Winds Apartments Apartments (a) (a) 7.705,580 Total Ten Principal Taxpayers $174,269.570 .$156.261.030 $133,019,740 Percentage Ten Principal Taxpayers Comprise of Tax Roll 4.57% ,5i% '9e -- (a) Not a principal taxpayer in such tax year. 24 -Tax Adequacy- Average Annual Debt Service Requirements based on Total New Debt Service(2007-2029) $12,403,476 Tax Rate of$0.343 per$100 assessed valuation against the 2005 Certified Assessed Valuation,at 95%collection,produces $12,435,202 Maximum Annual Debt Service Requirements based on Total New Debt Service(in the year 2015) $13,522,609 Tax Rate of$0.373 per$100 assessed valuation against the 2005 Certified Assessed Valuation,at 95%collection,produces S 13,522,829 Estimated Overlapping Taxes Under Texas law, if ad valorem taxes levied by a taxing authority become delinquent, a lien is created upon the •• property which has been taxed, which lien is on a parity with any tax lien on such property in favor of the City. In addition to ad valorem taxes required to retire the aforementioned direct and estimated overlapping debt, certain taxing jurisdictions including those mentioned in Estimated Overlapping Debt are also authorized by Texas law to assess, levy, and collect ad valorem taxes for operation, maintenance, administrative and/or general revenue purposes. Set forth below is an estimation of ad valorem taxes levied on a $100,000 single-family residence by such jurisdictions, assuming the assessments are made at their claimed basis of assessment(100%). Such residence is further assumed to be located within Brazoria County wherein substantially all of the residential property within the City is located. No recognition is given to local assessments for civic association dues, fire department contributions,or other charges made by other than political subdivisions. .,� 2005 Tax Estimated Taxing Jurisdiction Rate/$100 2005 Tax Bill The City $0.674400 $ 674.40 Brazoria County 0.347987 347.99 Brazoria Drainage District No.4 0.143845 143.85 Pearland ISD 1.792200 1.792.20 Estimated Total 2005 Tax Bill: • �(a) • (a) Ad valorem taxes are levied by eight separate municipal utility districts("MUD")on property located within the specific MUD. These taxes are paid in addition to the above noted City taxes. Sales Tax -Authority- The City has adopted the provisions of Article 1066c, Vernon's Texas Civil Statutes,as amended, which grants the City the power to impose and levy a 1%sales tax. The City has also voted an additional 1/2% sales and use tax for economic development under Article 5190.6, Vernon's Texas Civil Statutes, as amended. The City may not and has not pledged the proceeds from the sales and use tax as security for the Bonds. 25 -Collection History- The State Comptroller,after deduction of a 2%service fee,currently remits the City's portion of sales tax collections monthly. By statute the Comptroller is required to remit at least twice annually. The following is an analysis of the collection history of the City's sales and use tax: '. Ad Valorem Tax Comparisons Fiscal Year Sales and Use Equivalent Tax Rate %of Actual Ended 9-30 Tax Receipts Tax Year Equivalent Tax Levy 1994 $1,905,741 (1993) $0.261 36.48 1995 2,166,219 (1994) 0.284 40.74 1996 2,298,546 (1995) 0272 39.16 '" 1997 2,589,918 (1996) 0.298 40.83 1998 2.962,481 (1997) 0.297 41.94 1999 3,415,183 (1998) 0.291 41.92 2000 3,684,676 (1999) 0.279 40.16 2001 4,795,355 (2000) 0.307 44.14 2002 5,025,749 (2001) 0.285 38.99 2003 5,859,053 (2002) 0.270 39.40 2004 6,739,484 (2003) 0.260 37.47 2005 7,785,161 (2004) 0.258 37.09 SELECTED FINANCIAL DATA Historical Operations of the City's General Fund The following is a condensed statement of revenues and expenses of the City's General Fund for the past five fiscal years. The inclusion of the following table is not intended to imply that any revenues of the City,other than receipts from ad valorem taxes as provided in the Ordinance are pledged to pay principal and interest on the Bonds. 4 Fiscal Year Ended September 30 2005 2004 2003, 2002 2001 REVENUES General Property Taxes(a) $ 9,649,452 $ 8,752,162 S 8,970,369 S 8,054,173 $ 6,784,591 Sales Taxes 7,785,161 6,739,484 5,859.053 5.025.749 4,795,353 } Franchises 3,097,163 2,883,188 2,533,475 2,453,829 2.303,730 Licenses&Permits 3,863,592 3,427,957 2,682.456 2,256,638 1,896,728 Charges for Services 6,138,610 5,259,748 3,982.070 3,651,825 3,202,767 Fines&Forfeitures 1,883,381 1,561,850 1,377,552 845,322 856,641 _ Intergovernmental 871,196 716,136 615,436 -0- -0- Other Revenues 1,066,315 855,628 324.501 908,154 863,457 Total Revenues $34,354,870 $30,196,153 526,344.912 $23,195,690 $20.703.267 EXPENDITURES General Government $ 6.664,735 $ 6,059,595 $ 5,678,275 $ 5,052,056 $ 4,217,744 Public Safety 10,816,906 10,142,115 9,637.676 7,411,992 6.692.138 Public Works 10,449,814 8,709,151 8,769,722 7,603,804 5,974.667 a' Community Services 2,692,534 2,792,376 2,729,859 2,271,052 2,043.620 Capital Outlay 1,019,976 -0- -0- -0- -0- Total $31,643,881 S27.703.237 S26.815.532 S22.338,904 S18,928.169 (a) Includes penalties and interest. Source: City's audited financial statements. 26 as General Fund and Debt Service Fund Balance for the Past Five FicrA1 Years Fiscal Year Ended September 30 2005 2004 2003 2002 2001 General Fund S8.202,771 S8,285,590 $5,361,732 55.024.946 S6.563,942 Debt Service Fund $3,855,129 $3,007,752 $2,130,321 $2,229.529 $1,544,987 Pension Fund The City participates in the Texas Municipal Retirement System(TMRS),an agency operated by the State of Texas. Employees of the City who participate in TMRS contribute a fixed percentage,currently 7%,of their gross pay and the City matching percent is currently 2 to 1. As employees leave municipal employment other than through retirement, they may withdraw from TMRS those funds they contributed, but forfeit their employer's contributions. Each municipal employer's requirements for current contributions are offset by the amounts of such forfeitures. As of April 7,2006,the City employed 390 full-time employees and 63 part-time and seasonal employees. All full- time employees are covered by TMRS and the City's contribution for this calendar year as of December 31, 2005, amounted to approximately $1,536,669 which includes amortization of prior service cost over 25 years. The City • had an unfunded pension benefit obligation in the amount of approximately $4,546,738 as of December 31, 2004. The liability for prior service benefits will be amortized over a period of twenty-five years or less by contributions from the City which are a level percentage of payroll. Financial Statements A copy of the City's audited Financial Statements for the fiscal year ended September 30,2005,is attached hereto in the APPENDIX B. The City's audited financial statements for the Fiscal Year ended September 30, 2005 (the "2005 Financial Statements") have not yet been finalized. The City's independent auditor is currently preparing its report and the City expects the 2005 Financial Statements to be available within the next 60 days. Copies of such statements for preceding years are available,for a fee,upon request. — 27 S ADMINISTRATION OF THE CITY Mayor and City Council Policy-making and supervisory functions are the responsibility of and are vested in the Mayor and City Council for the City, under provisions of the "Charter of the City of Pearland" (the "Charter") approved by the electorate February 6, 1971. The Council is elected at large on the first Saturday in May. The Mayor and five Council members serve three-year staggered terms. The Mayor is entitled to vote only in the event of a tie and has no power to veto Council action. Members of the Council are described below: Term Council Members Period Served Expires May Occupation Tom Reid 15 Years 2008 Retired Mayor Kevin Cole 2 Years(a) 2007 Insurance Broker Council Member Mayor Pro-Tem Woody Owens 6 Years 2006(c) Consultant Council Member Larry Marcott 6 Years 2006(c) Retired Council Member Richard Tetens 5 Years(b) 2007 Retired Council Member Steve Saboe 1 Year 2008 Management Council Member (a) Elected May 2004,however Councilman Cole has served a previous term(3 years)on the City Council. (b) Elected May 2001,however Councilman Tetens has served two previous terms(6 years)on the City Council. (c) Term expires in May 2006 and not eligible for re-election for City Council position. Elections for these two positions will be held May 13,2006. Administration Under provisions of the Charter, the City Council enacts local legislation, adopts budgets, determines policies and appoints the City Manager, who is charged with the duties of executing the laws and administering the government of the City. As the chief executive officer and head of the administrative branch of the City government, the City Manager is given the power and duties to: (1) Appoint and remove all department heads and all other employees in the administrative service of the City and may authorize the head of a department to appoint and remove subordinates in his respective department; (2) Prepare the budget annually,submit it to City Council,and be responsible for its administration; (3) Prepare and submit to City Council a complete report on the finances and administrative activities of the City; (4) Keep City Council advised of the financial condition and future needs of the City and make appropriate recommendations;and (5) Perform such other necessary duties as prescribed by the Charter or required by City Council. 28 Members of the administrative staff are described below: ' Name Position Period Served Bill Eisen City Manager 5 Years Nick Finan Assistant City Manager 1 Year Mickiel Hodge Assistant City Manager 1 Year Claire Manthei Director of Finance 1 Year Daniel Cameron Director of Public Works 13 Years Young Lorfing City Secretary 9 Years Doug Kneupper City Engineer 3 Years Damn Coker City Attorney 9 Years Joseph Wertz Director of Projects 4 Years Christopher Doyle Police Chief 27 Years Consultants The City has retained several consultants to perform professional services in connection with the independent auditing of its books and records and other City activities. Several of these consultants are identified below: Bond Counsel Andrews Kurth LLP Houston,Texas Certified Public Accountants Pattillo,Brown&Hill,P.C. Waco,Texas Financial Advisor RBC Capital Markets Houston,Texas LEGAL MATTERS Legal Opinions The City will furnish the Underwriter a transcript of certain certified proceedings prepared incident to the authorization and issuance of the Bonds, including a certified copy of the unqualified approving opinion of the Attorney General of Texas, as recorded in the Bond Register of the Comptroller of Public Accounts of the State of Texas, to the effect that the Bonds, which the Attorney General will have examined, are valid and binding obligations of the City under the Constitution and laws of the State of Texas. The City also will furnish the approving legal opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, to the effect that, based upon an examination of such transcript, the Bonds are valid and binding obligations of the City under the Constitution and laws of the State of Texas. The legal opinion of Bond Counsel will further state that(1)the Bonds are payable, both as to principal and interest, from the levy of ad valorem taxes, within the limits prescribed by law, against taxable property within the City and(2)subject to the matters discussed under the caption"TAX EXEMPTION,"interest on the Bonds is excludable from gross income for federal income tax purposes. The opinion of Bond Counsel is expected to be reproduced on the back panel of the Bonds over a certification by the City Secretary attesting that such legal opinion is dated as of the date of delivery of and payment for the Bonds and is a true and correct copy of the original opinion. Errors or omissions in the printing of such legal opinion on the Bonds shall not affect the validity of the Bonds nor constitute cause for the failure or refusal by the Underwriter to accept delivery of and pay for the Bonds. Bond Counsel was not requested to participate, and did not take part, in the preparation of the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information describing the Bonds in the Official Statement to verify that such description conforms to the provisions of the Ordinance. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent upon the sale and delivery of the Bonds. The legal opinion will be printed on the Bonds. 29 No-Litigation Certificate The City will furnish to the Underwriter a certificate, dated as of the date of delivery of the Bonds, executed by appropriate City officials,to the effect that no litigation of any nature has been filed or is then pending or threatened, either in state or federal courts,contesting or attacking the Bonds;restraining or enjoining the issuance,execution or delivery of the Bonds; affecting the provisions made for the payment of or security for the Bonds; in any manner questioning the authority or proceedings for the issuance, execution, or delivery of the Bonds; or affecting the validity of the Bonds. No Material Adverse Change The obligations of the Underwriter to take and pay for the Bonds,and of the City to deliver the Bonds,are subject to the condition that, up to the time of delivery of and receipt of payment for the Bonds, there shall have been no material adverse change in the condition (financial or otherwise)of the City subsequent to the date of sale from that set forth or contemplated in the Preliminary Official Statement, as it may have been supplemented or amended through the date of sale. TAX EXEMPTION In the opinion of Andrews Kurth LLP,Houston,Texas,Bond Counsel,interest on the Bonds is(1)excludable under y Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), from gross income of the owners thereof for federal income tax purposes and (2) is not includable in the alternative minimum taxable income of individuals or corporations,except as described below. The foregoing opinions of Bond Counsel arc based on the Code and the regulations, rulings and court decisions thereunder in existence on the date of issue of the Bonds. Such authorities are subject to change and any such change could prospectively or retroactively result in the inclusion of the interest on the Bonds in gross income of the owners thereof or change the treatment of such interest for purposes of computing alternative minimum taxable income. In rendering its opinions, Bond Counsel has assumed continuing compliance by the City with certain covenants of the Ordinance authorizing the issuance of the Bonds(the"Ordinance")and has relied on representations by the City with respect to matters solely within the knowledge of the City,which Bond Counsel has not independently verified. The covenants and representations relate to, among other things, the use of Bond proceeds and any facilities financed therewith, the source of repayment of the Bonds, the investment of Bond proceeds and certain other amounts prior to expenditure, and requirements that excess arbitrage earned on the investment of Bond proceeds and certain other amounts be paid periodically to the United States and that the City file an information report with the Internal Revenue Service(the"Service"). If the City should fail to comply with the covenants in the Ordinance,or if its representations relating to the Bonds that are contained in the Ordinance should be determined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of the Bonds,regardless of the date on which the event causing such taxability occurs. Interest on all tax-exempt obligations, such as the Bonds, owned by a corporation (other than an S corporation, a regulated investment company, a real estate investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securitization investment trust (FASIT)) will be included in such corporation's adjusted current earnings for purposes of calculating such corporation's alternative minimum taxable income. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of,receipt or accrual of interest on or acquisition or disposition of the Bonds. Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes,regulations, published rulings and court decisions and the representations and covenants of the City described above. No ruling has been sought from the Service with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Bonds is commenced, under current procedures the Service is likely to treat the City as the "taxpayer," and the owners of the Bonds may have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds,the City may have different or conflicting interests from the owners of the Bonds. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit,regardless of its ultimate outcome. a 30 Under the Code, taxpayers are required to provide information on their returns regarding the amount of tax-exempt interest,such as interest on the Bonds,received or accrued during the year. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations, such as the Bonds, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies,certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits,individual recipients of Social Security or Railroad Retirement benefits,taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations, and individuals otherwise eligible for the earned income tax credit. Such prospective purchasers should consult their tax advisors as to the consequences of investing in the Bonds. If a tax-exempt obligation, such as the Bonds,was acquired at a"market discount"and if the fixed maturity of such obligation is equal to, or exceeds, one year from the date of issue,the Code provides ordinary income tax treatment of gain recognized upon the disposition of such"market discount bond." A"market discount bond" is one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturity or,in the case of a bond issued at an original issue discount,the"revised issue price"(i.e.,a market discount). Such treatment applies to"market discount bonds" to the extent the gain from the disposition thereof exceeds the accrued market discount of such bonds unless a statutory de minimis rule applies. The"accrued market discount" is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the number of days between the acquisition date and the final maturity date. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of the Bonds. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the Bonds. TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS Discount Bonds Some of the Bonds may be offered at initial offering prices which are less than the stated redemption prices at maturity of such Bonds. If the initial offering prices of the Bonds are lower than the stated redemption price payable at maturity, the Bonds of that maturity (the "Discount Bonds") will be considered to have "original issue discount" for federal income tax purposes. An initial owner who purchases a Discount Bond in the initial public offering of the Bonds at such an initial offering price will acquire such Discount Bond with original issue discount equal to the difference between (a)the stated redemption price payable at the maturity of such Discount Bond and (b)the initial offering price to the public of such Discount Bond. Under existing law, such original issue discount will be treated for federal income tax purposes as additional interest on a Bond and such initial owner will be entitled to exclude from gross income for federal income tax purposes that portion of such original issue discount deemed to be earned (as discussed below) during the period while such Discount Bond continues to be owned by such initial owner. Except as otherwise provided herein, the discussion regarding interest on the Bonds under the caption "TAX EXEMPTION" generally applies to original issue discount deemed to be earned on a Discount Bond while held by an owner who has purchased such Bond at the initial offering price in the initial public offering of the Bonds and that discussion should be considered in connection with this portion of the Official Statement. In the event of a redemption, sale, or other taxable disposition of a Discount Bond prior to its stated maturity, however, any amount realized by such initial owner in excess of the basis of such Discount Bond in the hands of such owner (increased to reflect the portion of the original issue discount deemed to have been earned while such Discount Bond continues to be held by such initial owner)will be includable in gross income for federal income tax purposes. Because original issue discount on a Discount Bond will be treated for federal income tax purposes as interest on a Bond,such original issue discount must be taken into account for certain federal income tax purposes as it is deemed to be earned even though there will not be a corresponding cash payment. Corporations that purchase Discount Bonds must take into account original issue discount as it is deemed to be earned for purposes of determining alternative minimum tax. Other owners of a Discount Bond may be required to take into account such original issue discount as it is deemed to be earned for purposes of determining certain collateral federal tax consequences of owning a Bond. See "TAX EXEMPTION" for a discussion regarding the alternative minimum taxable income consequences for corporations and for a reference to collateral federal tax consequences for certain other owners. The characterization of original issue discount as interest is for federal income tax purposes only and does not otherwise affect the rights or obligations of the owner of a Discount Bond or of the City. The portion of the principal of a Discount Bond representing original issue discount is payable upon the maturity or earlier redemption a of such Bond to the registered owner of the Discount Bond at that time. 31 Under special tax accounting rules prescribed by existing law, a portion of the original issue discount on each Discount Bond is deemed to be earned each day. The portion of the original issue discount deemed to be earned each day is determined under an actuarial method of accrual,using the yield to maturity as the constant interest rate and semi-annual compounding. The federal income tax consequences of the purchase,ownership,redemption, sale or other disposition of Discount Bonds by an owner that did not purchase such Bonds in the initial public offering and at the initial offering price may be determined according to rules which differ from those described above. All prospective purchasers of Discount Bonds should consult their tax advisors with respect to the determination for federal, state and local income tax purposes of interest and original issue discount accrued upon redemption, sale or other disposition of such Discount Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership,redemption,sale or other disposition of such Discount Bonds. Premium Bonds Some of the Bonds may be offered at initial offering prices which exceed the stated redemption prices payable at the maturity of such Bonds. If any of the Bonds of such maturities are sold to members of the public (which for this purpose excludes bond houses,brokers and similar persons or organizations acting in the capacity of wholesalers or underwriters) at such initial offering prices, each of the Bonds of such maturities ("Premium Bonds") will be considered for federal income tax purposes to have"bond premium"equal to the amount of such excess. The basis for federal income tax purposes of a Premium Bond in the hands of an initial purchaser who purchases such Bond in the initial offering must be reduced each year and upon the sale or other taxable disposition of the Bond by the amount of amortizable bond premium. This reduction in basis will increase the amount of any gain(or decrease the amount of any loss) recognized for federal income tax purposes upon the sale or other taxable disposition of a Premium Bond by the initial purchaser. Generally, no corresponding deduction is allowed for federal income tax purposes, for the reduction in basis resulting from amortizable bond premium. The amount of bond premium on a Premium Bond which is amortizable each year(or shorter period in the event of a sale or disposition of a Premium Bond) is determined under special tax accounting rules which use a constant yield throughout the term of the Premium Bond based on the initial purchaser's original basis in such Bond. The federal income tax consequences of the purchase,ownership,redemption,sale or other disposition by an owner of Bonds that are not purchased in the initial offering or which are purchased at an amount representing a price other than the initial offering prices for the Bonds of the same maturity may be determined according to rules which differ from those described above. Moreover, all prospective purchasers of Bonds should consult their tax advisors with respect to the federal,state,local and foreign tax consequences of the purchase,ownership,redemption,sale or other disposition of Premium Bonds. CONTINUING DISCLOSURE OF INFORMATION In order to provide certain continuing disclosure with respect to the Series 2006 General Obligation Bonds in accordance with Rule 15c2-I2 of the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time ("Rule 15c2-12"), the City of Pearland, Texas has entered into a Disclosure Dissemination Agent Agreement ("Disclosure Dissemination Agreement") for the benefit of the Holders of the Series 2006 Permanent Improvement and Refunding Bonds with Digital Assurance Certification, L.L.C. ("DAC"), under which the City of Pearland, Texas has designated DAC as Disclosure Dissemination Agent. The form of Disclosure Dissemination Agreement can be obtained from www.dacbond.com. In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. Annual Reports The City will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Official Statement under the headings "INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE CITY—Current Investments," "CITY TAX DEBT," "TAX DATA" (except under the subheading "Estimated Overlapping Taxes"), "SF1 FL I ED FINANCIAL DATA," and in Appendix "B". The City will update and provide this information within six months after the end of each fiscal year ending in or after 2006. The City will provide the updated information to each nationally recognized 32 municipal securities information repository ("NRMSIR") and to the Texas Municipal Advisory Council, the state information depository ("SID") designated by the State of Texas and approved by the staff of the United States Securities and Exchange Commission(the"SEC"). The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12, as amended and in effect from time to time (the "Rule"). The updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not commissioned or are not available by the required time,the City will provide unaudited financial statements and audited financial statements when and if they become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix "B" or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year,beginning March 31,2007,unless the City changes its fiscal year. If the City changes its fiscal year,it will notify each NRMSIR and the SID of the change. Material Event Notices The City will also provide timely notices of certain events to certain information vendors. The City will provide notice of any of the following events with respect to the Bonds,if such event is material to a decision to purchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds;(7)modifications to rights of holders of the Bonds;(8)calls; (9)defeasances;(10)release,substitution,or sale of property securing repayment of the Bonds; and (1 1) rating changes. Neither the Bonds nor the Ordinance makes any provision for debt service reserves or liquidity enhancement_ In addition, the City will provide timely notice of any failure by the City to provide information,data,or financial statements in accordance with its agreement described above under"Annual Reports." The City will provide each notice described in this paragraph to the SID and to either each NRMSIR or the Municipal Securities Rulemaking Board. Availability of Information From NRMSIRs and SID The City has agreed to provide the foregoing information only to NRMSIRs and the SID. The information will be available to holders of and beneficial owners of the Bonds only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. The Municipal Advisory Council of Texas has been designated by the State of Texas as a SID and the SEC staff has determined that it is a qualified SID.The address of the Municipal Advisory Council of Texas is 600 West 8th Street, P.O.Box 2177,Austin,Texas 78768-2177,and its telephone number is(512)476-6947.The MAC has also received SEC approval to operate and has begun to operate,a"central post office"for information filings made by municipal issuers,such as the County.A municipal issuer may submit its information filings with the central post office,which then transmits such information to the NRMSIRs and the appropriate SID for filing. This central post office can be accessed and utilized at www.disclosureUSA.org ("DisclosureUSA"). The County may utilize DisclosureUSA for the filing of information relating to the Bonds. Limitations and Amendments The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations,condition,or prospects or agreed to update any information that is provided,except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, of its continuing disclosure agreement or from any statement made pursuant to its agreement. Holders or beneftcial owners of Bonds may seek as their sole remedy a writ of mandamus to compel the City to comply with its agreement. No default by the City with respect to its continuing disclosure agreement shall constitute a breach of or default under the Ordinance for purposes of any other provision of the Ordinance. Nothing in this paragraph is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. The City's undertakings and agreements are subject to appropriation of necessary funds and to applicable legal restrictions. 33 a The City may amend its continuing disclosure agreement to adapt to changed circumstances that arise from a change in legal requirements,a change in law,or a change in the identity, nature, status or type of operations of the City if. but only if(i)the agreement, as so amended, would have permitted a purchaser to purchase or sell the Bonds in the offering made hereby in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (2) either (a) the holders of a majority in aggregate amount of the outstanding Bonds consent to such amendment or(b)a person unaffiliated with the City(such as nationally recognized bond counsel)determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. The City may also amend or repeal the agreement if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction determines that such provisions are invalid,and the City may amend the agreement in its discretion in any other circumstance or manner, but in either case only to the extent that its right to do so would not prevent the Underwriters from purchasing the Bonds in the offering described herein in compliance with the Rule. If the City amends the agreement,it has agreed to include with any financial information or operating data next provided in accordance with its agreement described above under"Annual Reports" an explanation,in narrative form,of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. Audited Financial Report of the City The City presently requires that an annual audit be performed by an independent public accounting firm in accordance with generally accepted auditing standards for governmental units. The most recent audit,and additional financial information are available for public inspection,or copies may be obtained by written request, to the extent permitted by law, addressed to the City, with such fee, if any, for copies as may from time to time be authorized by the City. Compliance With Prior Undertakings The City has complied in all material respects with its prior continuing disclosure agreements made in accordance with the Rule. VERIFICATION OF ACCURACY OF MATHEMATICAL COMPUTATIONS The arithmetical accuracy of certain computations included in the schedules provided by RBC Capital Markets on behalf of the City relating to (a) computation of the sufficiency of the anticipated receipts from the Federal Securities, together with the initial cash deposit, if any, to pay, when due, the principal, interest and early redemption premium requirements, if any, of the Refunded Bonds, and (b) computation of the yields on Federal Securities and the Bonds were verified by Grant Thornton LLP, certified public accountants. Such computations were completed using certain assumptions and information provided by RBC Capital Markets on behalf of the City. Grant Thornton LLP has restricted its procedures to recalculating the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information on which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome. The report of Grant Thornton LLP will be relied upon by Bond Counsel in rendering their opinion with respect to the exclusion of interest on the Bonds for federal income tax purposes and with respect to the defeasance of the Refunded Bonds. FINANCIAL ADVISOR RBC Capital Markets is employed as Financial Advisor to the City in connection with the issuance of the Bonds. RBC Capital Markets is the trade name under which RBC Dain Rauscher Inc.,a broker-dealer,conducts municipal investment banking business. The Financial Advisor's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. GENERAL CONSIDERATIONS Sources and Compilation of Information The information contained in this Official Statement has been obtained primarily from the City and from other sources believed to be reliable. No representation is made as to the accuracy or completeness of the information derived from sources other than the City. The summaries of the statutes, orders, ordinances and other related documents are included herein subject to all of the provisions of such documents.These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information, 34 The information contained in this Official Statement in the section entitled "APPENDIX B - Audited Financial Statements of the City" has been provided by Patillo, Brown & Hill, P.C., Waco, Texas and has been included herein in reliance upon their authority as an expert in the fields of auditing and accounting. Bond Counsel has reviewed the information herein contained under the captions"THE BONDS" (except for sections captioned "Book- Entry-Only System," "Future Debt" and "Use of Proceeds"), "LEGAL MATTERS - Legal Opinions," 'TAX EXEMPTION," "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS," and "CONTINUING DISCLOSURE OF INFORMATION (except for the section captioned "Compliance With Prior Undertakings")," solely to determine whether such information fairly and accurately describes the Bonds, the Ordinance, and the law set out therein. Bond Counsel has neither independently verified other factual information contained in this Official Statement nor conducted an investigation of the affairs of the City for the purpose of passing upon the accuracy or completeness of this Official Statement.No person is entitled to rely upon the limited participation of such firms as an assumption of responsibility for, or an expression of opinion of any kind with regard to,the accuracy or completeness of any of the other information contained herein. Neither this Official statement nor any statement that may have been made orally or in writing is to be constructed as or as part of a contract with the original purchasers or subsequent owners of the Bonds. Certification as to Official Statement At the time of payment for and delivery of the Bonds,the City will furnish the Underwriter a certificate,executed by the City Secretary and Mayor, acting in their official capacities, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the City contained in this Official Statement, on the .. date thereof and on the date of delivery were and are true and correct in all material respects;(b)insofar as the City and its affairs, including its financial affairs, are concerned, this Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated herein or necessary to make the statements herein, in the light of the circumstances under which they were made,not misleading;and(c) insofar as the descriptions and statements, including financial data contained in this Official Statement, of or pertaining to entities other than the City and their activities are concerned, such statements and data have been obtained from sources which the City believes to be reliable and that the City has no reason to believe that they are untrue in any material respect. Updating of Official Statement The City will keep the Official Statement current by amendment or sticker to reflect material changes in the affairs of the City and, to the extent that information comes to its attention, in the other matters described in the Official Statement,until the delivery of the Bonds to the Underwriter. This Official Statement was duly authorized and approved by the City Council of the City of Pearland,Texas as of the date specified on the first page hereof. Is/ Tom Reid Mayor City of Pearland ATTEST: /s/ Young Lorfing City Secretary City of Pearland 35 APPENDIX A GENERAL INFORMATION REGARDING THE CITY OF PEARLAND The following information has been derived from various sources, including the U.S.Census data,Texas Workforce Commission, "Sales Management Survey of Buying Power",Claritas. and City of Pearland, Texas officials. While such sources are believed to be reliable,no representation is made as to the accuracy thereof. Residential and Commercial Development Because of the City's proximity to downtown Houston, it has become an area of continuing growth in residential, commercial and some light industrial development. As of March 2006, there are numerous residential subdivisions -.. either developed or under construction within the City with homes ranging in value from $75,000 to $400,000, the average being approximately$185,400. - Building Permits- Residential Commercial Other(a) Total Year 12-31 No. Value No. Value No. Value NQ Value 1990 670 35,378,197 90 2,947,276 119 931,546 879 39,256,965 1991 382 36,416,253 12 2,503,500 402 5,507,501 796 44,427,254 1992 402 37,249,884 16 6,849,000 453 11,764,178 871 55,863,062 1993 481 39,236,381 15 6,475,570 863 5,961,881 1,359 51,673,832 1994 362 25,173,050 12 2,997,021 582 7,425,514 956 35,595,585 1995 340 34,734,829 13 3,762,900 528 7,799.090 881 46,296,819 1996 478 38,301.224 19 5,189,850 392 85,320,262 889 128,811,066 r. 1997 415 43,712,441 30 10,785,050 402 50,038,171 847 104,535,662 1998 506 60,691,036 23 12,696,415 422 40,739,351 951 114,126,808 1999 536 64,525,679 22 13,847,245 532 48.265,402 1,090 126,638,386 2000 818 202,795,755 17 43,414,385 604 59.823,285 1,439 306,033,425 2001 1,245 212,152,849 20 10,868,583 705.., 21,129,833 1,970 244,151,265 2002 1,424 257,282,301 20 29,585,122 719 15,782,222 2,163 302,649,645 2003 1,684 312.354,189 49 41,504,192 742 17,717,326 2,475 371,575,707 2004 2,102 384,666,248 43 39,220,592 645 21,702,813 2,790 445,589,653 2005 2,610 479,228,095 51 40,675,200 664 30,299,897 3,325 550,203,192 I- (a) Includes apartments and public facilities. Source: City of Pearland w • Major Employers The City has a well-rounded workforce with a significant percentage of workers employed in professional or executive positions or as administrative support for professionals. The industries employing the greatest number of Pearland's residents are manufacturing of durable goods, retail trade and education. Industrial activities within the City include the manufacturing of pipe, concrete building materials, mining equipment, lighting fixtures, large storage tanks and the fabrication and forging of steel. According to the Pearland Chamber of Commerce, the following is a list of the industrial employers located within the City with employment above 100. 100—999 Employees Davis Lynch Randall's Home Depot Shaw Cor Pipe Protection Kemlon Strickland Chevrolet Kroger Super Target Lowe's Tele-Flow,Inc. Pauluhn Electric Manufacturing TurboCare Pearland,City of Weatherford Manufacturing Pro Fax 1000+Employees Pearland ISD Wal-Mart ECONOMIC AND GROWTH INDICATORS U.S.Census of Population City of Pearland •.,Brazoria County Number %Change Number %Change 1930 -- -- 23,054 +11.84 1940 -- --- 27,069 +17.42 1950 --- --- 46.549 +71.96 1960 1,497 --- 76,204 +63.71 1970 6,444 +330.46 108,312 +42.13 1980 13,248 +105.59 169,587 +56.57 1990 18,927 +42.87 191,707 +13.04 2000 37,640 +98.87 241,767 +26.11 2005* 69,808 +85.46 * As of December 2005. Employment Statistics Source: Texas Workforce Commission City of Pearland 2005 2004 2003 2002 2001 2000 1999 1998 1997 Labor Force 27,906 20.398 13,035 12,555 12,074 12,010 11,773 11.905 11,809 Employed 26,809 19,403 12,323 12,004 11,640 11.556 11,290 11,466 11.282 Unemployed 1,097 994 712 551 434 454 483 439 527 Rate 3.9 4.9 5.5 4.4 3.6 3.8 4.1 3.7 4.5 Brazoria County 2005 2004 2003 2002 2001 2000 1999 1998 1997 Labor Force 132,814 125,175 116,777 110,179 106,660 106,312 104.330 105,383 105,274 Employed 126,536 115,693 106,393 102,593 100,336 99,685 97,274 98,970 97,580 Unemployed 6,278 9,480 10,384 7,586 6,324 6,627 7,056 6,413 7,694 Rate 4.7 7.7 8.9 6.9 5.9 6.2 6.8 6.1 7.3 Marketing Survey of Buying Power* Houston CMSA Brazoria County Population(000s) Total Population 5,341.3 271.9 18-24 10.0 9.9 25-34 14,8 13.7 35-49 23.1 23.9 50+ '.,23.6 24.5 Households 1,865.4 93.0 y Retail By Store Group Sales(000's) Total Retail Sales $ 81,154,286 $3,203,521 Food&Beverage Stores 9,044,420 369,610 Food&Beverage Stores Estab. 8,160,895 231,535 General Merchandise 11,987,182 641,421 Fumit.&Home Furnish.and Electron.&Appin. 5.176,520 73,145 Motor Vehicle&Parts Dealers $ 22,198,875 $ 927,372 Total EBI($000) $107,301,634 $5,067.825 Median Household EBI 42,818 45,928 $20,000-$34,999 20.8 19.1 $35,000-$49,999 18.1 18.6 $50,000 and Over 41.6 45.0 Buying Power Index 1.8831 0.858 * Statistical data from "Sales & Marketing Management- 2005 Survey of Buying Power", copyright in 2005 Sales Management Survey of Buying Power. Further reproduction is forbidden. .. '" APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY s f , Q � „,...,.f....,.... . - dl 'fib ;141, iti,-.P. „,;(,..1 4 .=m= Ink .......4... _.,:%-_ ai. . . . .... .• . . .., . ... 141! CITY OF PEARLAND, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED SEPTEMBER 30, 2005 CITY OF PEARLAND, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED SEPTEMBER 30,2005 Prepared by: Finance Department INTRODUCTORY SECTION 41. GE LEA 151 .4 111 SYPa II de- r.> Ei4:A .2 -- T t A' _ '11- r To the Honorable Mayor, Members of City Council, and Citizens of the City of Pearland, Texas State law requires that the City shall have its records and accounts audited annually and shall have an audited financial statement prepared based on the audit. We are pleased to submit to you the Comprehensive Annual Financial Report for the City of Pearland, Texas (the "City") for the fiscal year ended September 30, 2005. This report is published in order to provide the City Council, our Citizens, and other interested parties with detailed information concerning the financial conditions and activities of the City. Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal control that it has established for this purpose. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements. Pattillo, Brown & Hill, L.L.P., Certified Public Accountants, have issued an unqualified ("clean") opinion on the City of Pearland's financial statements for the year ended September 30, 2005. The independent auditors' report is located at the front of the financial section of this report. Management's discussion and analysis (MD&A) immediately follows the independent auditors' report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it. PROFILE OF THE GOVERNMENT The City of Pearland, incorporated in 1959, is located across the northern end of Brazoria County and shares a common border with Houston, Texas to the north. The City of Pearland, encompassing approximately 50 square miles, is the fastest growing city in Brazoria County, increasing from approximately 18,000 residents in 1990 to 70,000 residents estimated as of December 2005. _ l The City of Pearland is a home-rule City operating under a Council-Manager form of government. Policy-making and legislative authority are vested in a governing council (Council) consisting of the mayor and five other members. The Mayor and all Council members are elected at large. The Mayor is allowed to vote only in case of a tie vote. The Mayor and each Council member hold office for a period of three years and until his/her successor is elected and qualified. Council members shall be limited to two full consecutive terms of office and there is no limitation on the office of Mayor. The City Manager is appointed by Council and is responsible for implementation of Council policy, execution of the laws, and all day-to-day operations of the City. A full range of municipal services is provided by the City of Pearland including public safety (police, fire, and emergency medical services); solid waste; water and wastewater utilities; public improvements; repair and maintenance of infrastructure; recreational and community activities; and general administrative services. As an independent political subdivision of the State of Texas, the City is considered a primary government. Pursuant to standards established by the Governmental Accounting Standards Board (GASB),the City also reports for all funds for which the City, as the primary government, is financially accountable. As such, this report includes financial activities of three component units as follows: The Pearland Economic Development Corporation was created by the City in 1995 under the Texas Development Corporation Act of 1979 for the purpose of promoting, assisting, and enhancing economic and related development activities on behalf of the City. The Tax Increment Reinvestment Zone(TIRZ #2) was created in 1998 for the purposes of development and redevelopment in the Zone Area, better known as Shadow Creek Ranch. The City participates in the Zone by contributing tax increments produced in the Zone to the Tax Increment Fund. The Development Authority of Pearland was created in 2004 to provide financing for the development of the Zone. LOCAL ECONOMY • Located minutes away from Downtown Houston, Texas, the nation's second largest seaport, the world- - renowned Texas Medical Center, and NASA-Johnson Space Center, Pearland is the premier location for residential and commercial growth. With abundant land,business facilities,a sound infrastructure, and a diverse workforce supported by educational programs, Pearland's growth has been consistent and will continue to be sustained over time with continued residential and commercial development. The total construction value of all building permits issued during fiscal year 2004-2005 totaled over $550 million, the majority of which can be attributable to residential construction. New single-family housing permits totaled 2,610. Residential permitting activity is anticipated to remain at this level for several years as the development of a 3,300-acre master planned community, Shadow Creek Ranch, continues. Homes are priced from $140,000 to $1 million and ultimate development will consist of as many as 7,000 single-family homes, 1,800 assisted living units, and 3,900 multi-family units and offer 700 acres of greenbelts and parks, 300 acres of recreational lakes. and commercial and retail centers. Commercial development tends to follow residential development. As such, the City of Pearland is experiencing and will continue to experience retail and office development. ii The Promenade Shops at Shadow Creek,an 800,000 square foot lifestyle center,is tentatively scheduled to open in the fall of 2007. Bass Pro Shops has committed to anchor the center.The Promenade Shops is part of The Spectrum at Clear Creek, a new 1,000-acre mixed-use business and technology park, which will target emerging companies working in advanced sciences. The development will blend components of industrial flex,office and corporate campus uses with retail,leisure,and other lifestyle components. Nashville based HCA, Inc. is building an 81,500 square foot medical complex, which will include a medical office building, outpatient diagnostics and an emergency center. HCA, Inc. will also begin construction of a hospital at the same site in the summer of 2006. Memorial Hermann Hospital will begin construction of a three-story medical office building on SH 288, north of Broadway in early 2006. The City currently is in negotiations with a developer that will bring to the City a new 700,000 square foot open-air pedestrian regional shopping center. The center, which could open in the fall of 2008, would be located on a 110-acre tract adjacent to the Shadow Creek subdivision. Because of Pearland's proximity to Houston Hobby Airport and land availability, Pearland is quickly becoming home to a growing aviation industry. Two aviation companies located near Houston Hobby have relocated to Pearland,comprising a total of 9,500 square feet. MA5)R INITIATIVES The City of Pearland continues to experience dramatic growth and new opportunities. The City Council, staff, and community share a vision that combines progress and innovation with prudent controls to shape Pearland's future even as it becomes one of the largest suburbs in the Houston area. Our slogan "Where town and country meet" reinforces the message that Pearland will maintain its small-town feel despite becoming a mid-sized city. Tb Old Town Site The historic center of Pearland, the Old Town Site, has received special attention over the last several years, with a focus on careful planning that will result in a substantially revitalized neighborhood. The City rehabilitated the sewer system, added over a half-million dollars worth of sidewalks, and completed a makeover of Zychlinski Old Town Park, complete with walking trails, playground equipment, landscaping, and a basketball court. The City now looks forward to implementation of a "Village District" zoning concept intended to allow for mixed-use properties in the area. Sense of Community The City preserves its small-town feel by providing opportunities for all citizens, new and old, to participate in community activities and events. Each year, a greater number of citizens gather at a wide variety of city-sponsored events, including Winter fest, teen and senior dances, the summer concert series, and the Christmas tree lighting ceremony and parade. Participation at the Knapp Senior Center also continues to grow, sparked by new daily programs, field trips, and transportation. Improvements to the building and parking lot will be completed in the near future. Subsequent to the annexation of Brazoria County Municipal Utility District (MUD)#5, the City has taken control of the Westside Event Center,opening up new possibilities for providing services to citizens on that side of town. iii Community Appearance The City of Pearland continues to pride itself on a clean, attractive appearance in the midst of unprecedented growth. Maintaining close collaboration with the Keep America Beautiful affiliate has resulted in a growing number of successful programs to reduce littering, encourage recycling, and educate citizens on a variety of environmental issues. Participation at the Recycling Center continues to grow, strengthened by the highly popular Household Hazardous Waste Collection program. City staff is now working with other communities to expand recycling and hazardous waste collection opportunities on a regional scale. City staff and volunteers have worked together to improve the effectiveness of the volunteer-driven "Eyes of Pearland" community appearance program. Volunteers supplement the efforts of City code enforcement staff to address structures or fences in ill repair, high weeds, "bandit" signs, and other violations of local ordinances. Citizen Police Academy graduates continue to assist with handicapped- - parking violations, while also supporting code enforcement efforts in the removal of "bandit" signs. Combined, these efforts provide a community-driven response to code violations, while allowing City staff to concentrate on other pressing issues. Public Safety Among numerous other reasons, families move to Pearland for a high degree of personal safety and a low crime rate. The City Council continues to emphasize public safety, adding a minimum of six new police officers each year to keep pace with growth. The Police Department has expanded traffic and commercial vehicle enforcement with added motorcycle and DOT-certified officers, while capitalizing on improved computer equipment to improve crime tracking and analysis. Community policing remains a focus, with crime prevention, victim assistance, and youth intervention programs further reinforcing the City's small-town feel. The City and the Volunteer Fire Department requested a re-evaluation of our fire insurance rating by the Insurance Service Organization (ISO). As a result of this re-evaluation, the City's ISO rating was reduced from a score of 5 to one of 3. This will result in reduced property insurance premiums for property owners in the City. The City has also formed a committee of the public safety leadership in the City to begin planning for the addition of paid firefighting personnel. This committee, which includes the leadership of the Volunteer Fire Department, is developing a plan to begin combined volunteer-paid personnel operations in October 2007. Community Enriclnent Initiatives The Mayor, City Council, and City staff continue to promote a variety of community-oriented recreational, cultural, and educational activities designed to enhance the quality of life in Pearland. The Parks and Recreation Department constantly seeks new funding avenues for planned improvements including recreational trails and a possible skateboard park. Meanwhile, City funds are being used to build additional soccer fields, a spray park, and added parking capacity. iv To enrich our cultural landscape, the Pearland Arts League, with coordination and support from City Council and staff, has established itself as an effective community organization with a history of successful events. The League is supported by strong, community-backed board leadership, and now looks forward to partnering with the Convention and Visitors Bureau to collaborate on bigger and better events in the future. Lastly, to add to the ever-increasing menu of educational opportunities, the Mayor and staff members have helped cultivate a partnership between Alvin Community College and the University of Houston to offer upper-level classes in Pearland. Furthermore, plans for a University of Houston campus and a San Jacinto Community College campus in Pearland continue to take shape. Growtllvianagement Over the past several years, the City has adopted and updated a number of codes to enhance the value and attractiveness of new development. In order to combine these various codes for easier use by staff and developers, the City Council adopted a Unified Development Code, which officially goes into effect May 1, 2006. City staff is conducting presentations to realtors, developers, and other groups in the ., business community to provide outreach and education on the new regulations. The City also directly facilitates a variety of development projects that will help shape the future of our community. Through Strategic Partnership Agreements, the City has a responsible and financially sound plan for the annexation of municipal utility districts (MUD) in our extra-territorial jurisdiction. In December of 2005, the City welcomed approximately 5,000 new residents to the City with the annexation of Brazoria County MUD #5. In December of 2006, the City will welcome another 5,000 new residents with the annexation of Brazoria County MUD#1. With continued residential and commercial growth, the need to build new infrastructure and maintain existing infrastructure will be a priority and implemented through an aggressive capital improvement program. The City has $29.8 million voted but, un-issued bond authorization remaining from its 2001 bond referendum, which is expected to be issued over the next year. The City, through master plans, developer agreements, and studies is working toward a 2007 bond referendum to ensure that the City maintains a quality of life that the citizens have come to expect. Transportation Improvements and Strategic Planning Charged with planning, establishing, and maintaining an effective transportation system in the midst of such dramatic growth, the City of Pearland is involved in numerous activities to face this challenge. Major components of our$92.5 million transportation bond program (passed in 2001)are now complete, with others either in progress or ready to start. The Barry Rose Road and Cullen Boulevard extension projects are finished, and the Yost Road project is nearing completion. The first phase of the $46 million Dixie Farm Road project will start construction this year, resulting in a vastly improved primary connection to IH 45. Projects completed also include the extension of Kirby Drive from Shadow Creek Ranch to Beltway 8 and the construction of McHard Road from SH 35 to Pearland Parkway. - v The City is also involved in regional efforts for long-range transportation planning. City staff participates on TxDOT-sponsored study steering committees for improvements to SH 288 and SH 35. The City has also participated with the Houston-Galveston Area Council and the cities of Friendswood and League City in a mobility study for FM 518. The City of Pearland also played a key role in the development and passage of the November 2004 Brazoria County Mobility Bond project. Storm Water Management The City has responded to disasters over the last five years with planning and mitigation efforts that will ensure the best possible management of our floodplain. Over the past two years, the City has adopted revised Drainage Design Criteria as well as a Hazard Mitigation Plan, providing additional mitigation measures while also maintaining compliance with state and federal requirements. Moreover, in 2005, the City of Pearland was approved by FEMA for inclusion in the Community Rating System as a Class 8 community, earning flood insurance premium discounts of up to 10% for our citizens. The City is working to improve this rating and increase discounts available to our residents. Water and Sewer Strategic Planning The City continues to make strides in providing adequate water and sewer capacity for the future. Building upon major surface water purchases since 2003, the City has increased both intake and treatment capacity that will result in an additional 10 million gallons per day (MGD) over the next three years. This surface water initiative not only ensures an adequate water supply through 2022, but also alleviates subsidence by reducing our dependence on groundwater. Furthermore, the City has maintained its five wastewater treatment plants within governmental compliance, and is currently planning another major plant expansion. While planning for the future and maintaining our treatment plants, the City is also expanding its water and sewer service area while maintaining the existing infrastructure. Several in-line extension projects are in progress, working to network annexed areas and replace substandard well and septic tank service. Moreover, the City is wrapping up a six-year program to correct sewer inflow and infiltration in older sections of the City. AWARDS AND ACNOWLEDGEMENTS The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for the Excellence in Financial Reporting to the City of Pearland, Texas, for its Comprehensive Annual Financial Report for the year ended September 30, 2004. This was the 28th consecutive year that the government has received this prestigious award. In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program's requirements,and we are submitting it to GFOA to determine its eligibility for another certificate. vi In addition, the government also received the GFOA's Distinguished Budget Presentation Award for its annual budget document for fiscal year 2004-2005. In order to qualify for the Distinguished Budget Presentation Award, the government's budget document had to be judged proficient as a policy document.,a financial plan, an operations guide, and a communications device. The preparation of this report was accomplished with the dedicated service of the entire staff of the Finance Department. We express our appreciation to all members of the Department who assisted and contributed to the preparation of this report. We also thank the Mayor and members of the City Council for their support in planning and conducting the financial operations of the City in a responsible manner. Respectfully submitted, William Eisen,City Manager Claire Manthei,Director of Finance a vii Certificate of Achievement for Excellence in Financial Reporting Presented to City of Pearland, Texas For its Comprehensive Annual Financial Report for the Fiscal Year Ended September 30,2004 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports(CAFRs)achieve the highest standards in government accounting and financial reporting. &644/ President *Cr,04101— Executive Director viii Organizational Chart CITIZENS OF PEARLAND MAYOR AND CITY COUNCIL MUNICIPAL JUDGES BOARDS& COMMISSIONS CITY ATTORNEY CITY MANAGER ASSISTANT ASSISTANT CITY MANAGER CITY MANAGER PUBLIC WORKS COMMUNITY DEVELOPMENT ENGINEERING PROJECT MUNICIPAL COURT MANAGEMENT ANIMAL CONTROL PLANNING POLICE • PUBLIC AFFAIRS FIRE MARSHAL EMERGENCY PARKS RECREATION MANAGEMENT FIRE DIRECTOR FINANCEOF EMERGENCY MEDICAL SERVICES ---{ FINANCE PURCHASING I--- CITY SECRETARY INFORMATION -I GRANTS HUMAN TECHNOLOGY RESOURCES w&S BILLING& COLLECTIONS ix CITY OF PEARLAND, TEXAS LIST OF PRINCIPAL OFFICIALS YEAR ENDED SEPTEMBER 30,2003 ELECTED OFFICIALS Tom Reid Mayor Richard Tetens (Position 1) Council Member Woody Owens (Position 2) Council Member Steve Saboe(Position 3) Council Member Larry Marcott(Position 4) Council Member Kevin Cole(Position 5) Council Member,Mayor Pro-Tern APPOINTED OFFICIALS Bill Eisen City Manager Young Lorfing City Secretary Damn Coker City Attorney (continued) - _ CITY OF PEARLAND,TEXAS LIST OF PRINCIPAL OFFICIALS (Continued) YEAR ENDED SEPTEMBER 30,2005 EXECUTIVE MANAGERS Nicholas Finan Assistant City Manager Mickiel Hodge Assistant City Manager Fredrick Howard Welch Executive Director of P.E.D.C. Claire Manthei Director of Finance Chris Doyle Police Chief Steve Chapman Fire Marshal/Emergency Management Director Rhonda Cyrus Director of Parks and Recreation Daniel Cameron Director of Public Works Joseph Wertz Director of Projects Kola D.Olayiwola Director of Inspection Services Doug Kneupper City Engineer Glenn Chaney Municipal Court Judge Letitia Farnie Municipal Court Judge Roy Simmons Municipal Court Judge Jeff Sundseth Director of EMS Paul Jamison Fire Chief Mary Hickling Director of Human Resources Lata Krishnarao Director of Planning xi { 1 1 1 1 IT,1.15P,G£LEVI eu0xINTE, T,ONA�vt 1 1 i 1 1 FINANCIAL SECTION NAI,Vi wit TES PAGE T,E a i wI PATTILLO, BROWN & HILL, L.L.P. CEPTIFIED PUBLIC ACCOUNTANTS■ BUSINESS CONSULTANTS INDEPENDENT AUDITORS' REPORT To the Honorable Mayor and Member of the City of Council City of Pearland,Texas We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Pearland, Texas, as of and for the year ended September 30, 2005, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Pearland, Texas' management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Pearland, Texas, as of September 30, 2005, and the respective changes in financial position and cash flows,where applicable, thereof and the respective budgetary comparison for the General Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated March l0, 2006, on our consideration of the City of Pearland,Texas' internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in conjunction with this report in considering the results of our audit. 1 401 WEST HIGHWAY 6■P.O.BOX 20725■WACO,TX 76702-0725•(254)772-4901■FAX:(254)772-4920•www.pbhcpa.com AFFILIATE OFFICES:BROWNSVILLE,TX(956)544-7778■HIL SBORO,TX(254)582-2583 TEMPLE,TX(254)791-3460■ALBUQUERQUF NM(505)266-5904 The management's discussion and analysis on pages 3 through 10 is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. _ Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Pearland, Texas' basic financial statements. The introductory section, combining and individual fund financial statements and schedules, and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund financial statements and schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly,we express no opinion on them. March 10, 2006 2 MANAGEMENT'S DISCUSSION AND ANALYSIS EFT BLp,� Oro NLVI 1 L 'L�pAG Management's Discussion and Analysis As management of the City of Pearland, we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, 2005. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal,which can be found on pages i—vii of this report. FINANCIAL HIGHLIGHTS • The assets of the primary government of the City of Pearland exceeded its liabilities as of September 30, 2005, by $68,951,906 (net assets). Of this amount, $6,337,483 (unrestricted net assets) may be used to meet the City's ongoing obligations to citizens and creditors in accordance with the City's fund designation and fiscal policies. • The City's total net assets increased by$12,323,374. • At the close of the current fiscal year, the City of Pearland's governmental funds reported combined ending fund balances of $58,857,765, an increase of $79,932 in comparison with the prior year. Approximately $44 million of this ending balance can be attributed to work in progress for capital projects, which is expected to decrease the fund balance in the following fiscal year. • As of September 30, 2005, the unreserved, undesignated fund balance for the General Fund was $8,201,447 or 25.9% of total General Fund expenditures. • The City of Pearland's General Obligation and Certificates of Obligation debt increased to $148,445,000, an increase of$32,915,000, net of debt retirement, over the previous year. The key factor was the sale of $37,015,000 in Permanent Improvement and Refunding Bonds. The City of Pearland Economic Development Corporation issued $11,005,000 of Sales Tax Revenue and Refunding Bonds and the Development Authority of Pearland issued$13,995,000 in Tax Increment Contract Revenue bonds. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements are comprised of three components: (I) government-wide financial statements, (2) fund financial statements and (3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide Financial Statements — The government-wide financial statements are designed to provide readers with a broad overview of the City's finances, in a manner similar to a private-sector business. The Statement of Net Assets presents information on all of the City's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. 3 The Statement of Activities presents information showing how the City's net assets changed during the fiscal year. All changes in net assets are reported when the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this • statement for some items that will only result in cash flows in the future fiscal periods (e.g., uncollected taxes and earned but unused compensated absences). Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Pearland include General Government,Public Safety, Public Works and Community Services. The business-type activities of the City include Water and Sewer. The government-wide financial statements include not only the City of Pearland, itself (known as the primary government), but also a legally separate Economic Development Corporation, Tax Increment Reinvestment Zone (TIRZ) and the Development Authority of Pearland for which the City of Pearland is financially accountable. Financial information for these component units is reported separately from the financial information presented for the primary government, itself. The government-wide financial statements can be found on pages 12— 14 of this report. Fund Financial Statements—A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All funds of the City can be divided into two categories — governmental funds and proprietary funds. Governmental Funds — Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on current sources and uses of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental funds balance sheet and the governmental fund statements of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. Beginning on page 15 of this report, information is presented separately in the Governmental Fund Balance Sheet and in the Governmental Fund Statement of Revenues, Expenditures, and Changes in Fund Balances for the General, Debt Service, Capital Projects and other funds, which are considered to be major funds. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. 4 The City of Pearland adopts an annual appropriated budget for its General Fund. A budgetary comparison statement has been provided for the General Fund to demonstrate compliance with the budget. Proprietary Funds — The City maintains one type of proprietary fund. Enterprise Funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses an Enterprise Fund to account for its Water and Sewer Fund. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The basic proprietary fund financial statements, which begin on page 19 of this report,provide separate information for the Water and Sewer Enterprise Fund since it is considered to be a major fund of the City. Notes to the Financial Statements—The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 22—46 of this report. Other Information — In addition to the basic financial statements and accompanying notes, this report also presents combining fund statements and schedules that further support the information in the financial statements. The combining fund statements and schedules for nonmajor funds are presented immediately following the notes to the financial statements beginning on page 47 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. In the case of the City of Pearland, assets exceeded liabilities by S68,951,906 as of September 30, 2005. The largest portion of the City's net assets, 71 percent, reflects its investments in capital assets (e.g., land, building, equipment, improvements, construction in progress and infrastructure), less any outstanding debt used to acquire those assets. The City uses these capital assets to provide service to citizens; consequently, these assets are not available for future spending. Although the City's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Since the City does not capitalize all infrastructure assets at this time, the financial statements do not fully reflect the City's total assets but does reflect its total liabilities for the corresponding debt. 5 a COMPARATIVE SCHEDULE OF NET ASSETS SEPTEMBER 30,2005 AND 2004 Governmental Activities Business-type Activities Totals Will 2005 2004 2005 2004 2005 2004 Current and other asset S 65.342.583 S 64,371,013 S 17,834,831 S 23.448,781 S 83,177,414 $ 87,819.794 Capita/assets 92505.150 67.143.104 88.846.250 76.429,323 181.351,40E 143572.427 'a Total assets 157,847,733 131.514,117 106,681.081 99,878.104 264.528.814 231.392.221 Other liabilities 8,853.968 2,750.146 6,662.540 3207.343 15.516508 5,957,489 Long-term liabilities 133,262,658 118,165.340 46,797.742 50.640.860 180.060,400 168.806,200 Total liabilities 142.116,626 120.915.486 53,460,282 53.848.203 195.576.908 174.763.689 Net assets: Invested in capital assets. net of related debt 3,084,208 ( 2,337.520) 45.641,648 36.022.558 48,725,856 33,485.038 ' Restricted 6.861,792 6.390.504 7.026,775 5.979,068 13,888.567 12,369572 Unrestricted 5,785.107 6,745,647 552,376 4,028.275 6337.483 10,773.922 Total net assets S 15 731 1� S I� 0�59g a S S.3 22i07_ S 46� 0��90� S � S 5��6�628i3� A portion of the City's net assets ($13,888,567) represents resources that are subject to external ' restriction on how they may be used. The remaining balance($6,337,483)of unrestricted net assets may be used to meet the City's ongoing obligations to citizens and creditors. Analysis of the City's Operations — The following tables provide a summary of the City's operations for the year ended September 30, 2005. Governmental activities increased the City of Pearland's net assets by$5,132,476, accounting for approximately 42% of the total growth in net assets. Business-type activities increased the City's net assets by $7,190,898, accounting for approximately 58% of the total growth in net assets. a a a a 6 a COMPARATIVE SCHEDULE OF CHANGES IN NET ASSESTS SEPTEMBER 30,2005 AND 2004 Governmental Activities Business-type Activities Totals 2005 2004 2005 2004 2005 2004 Revenues: Program revenues: Charges for services S 12.309.406 S 11.040,246 S 11.219.499 S 11.892.876 S 23528,905 S 22,933.122 Operating grants and contributions 1.150.531 855.917 47,293 1.154.531 903.210 Capital grants and contributions 1.117.712 2.074.506 8.365.452 6,932,959 9.483,164 9.007.465 _ General revenues: Ad valorem taxes 19,800.541 17,907,163 19.804541 17.907.163 Sales taxes 7,785.161 6.739,484 7,785,161 6,739,484 Franchise taxes 3.097.163 2.883.188 3.097,163 2,883,188 .� Other taxes 241,046 193.464 241.046 193.464 lnvesttnentearnings 1.863323 1.115,100 399275 417.258 2,262.598 1,532.358 Miscellaneous 827.589 782,165 827,589 782,165 Total revenues 48200.472 43.591.233 19.984,226 19.290.386 68.184.698 62,881.619 Expenses: General government 8.714.401 7.314,239 8,714,401 7314,239 Public safety 11.856,643 10,524,915 11,856,643 10.524.915 _ Public worts 12.858.259 9,912.937 12,858 259 9.912.937 Community services 2.939.228 2.700,356 2,939,228 2.700.356 Interest on long-term debt 5.115.039 5,549,292 5,115,039 5.549.292 Water and sewer 13.624,497 15.265.350 13,624,497 15.265.350 "' Total expenses 4I 483,570 36.001,739 13.624,497 15.265350 55.108.067 51.267.089 Increases in net assets before uansfers 6,716.902 7.589,494 6.359,729 4,025,036 13.076.631 11.614,530 Transfers 359,482 524.110 ( 359.482) ( ,� 524.110) Change in net assets 7,076384 8,113,604 6,000,247 3,500,926 13,076,631 11.614.530 ' Net assets.beginning 10,598,631 2,583.968 46.029,901 42528,975 56.628,532 45,112,943 Prior period adjustment ( 1.943.908) ( 98,941) 1,190,651 ( 753,257) ( 98.941) ' Net assess,ending S 15,731,107,S '0�598.62s S 53,220,799, S s 6 S 28 S32 mor .r .10 r . . r r . Revenues by Source - Governmental Activities i i Ad valorem taxes -,;;1r`.T _r,�_- sre Investment earnings lC A Yr cY+ih •Tirr= 6% ,,..,_.._,,_,..„,,.„..„.,,.._..:,T._„,,..,,:__ ,....,..„......‘,„.„...,...„:„,.. d 0_ 7Cr1'."'^..7e,g.J." .d•fir.•=J_ ICapital grants and ig '{ 1 Franchise taxes r , contributions -� '-_ " ih;r- -i'nr'^ 6' 25• c • • r.ye�1�'N M � • ' ar Other taxes /P tic:: Operating grants and :- 1% contributions - r Investment earnings 2% 4°,i• Charges for services - \, , "' 26% Miscellaneous 2% -__.1 r 1 i .. Expenses and Program Revenues - Governmental Activities 14,000,000 • 12,000.000 - - • ,a 10,000.000 - 8.000,000 -----— -- — — — -- - ®Expenses ,I 6,000,000 -- .- IRevenuesi 4,000,0007. • ■ •s 2.000,000 a ,, General Public safety Public works Community Interest on government services long-term debt a a a 8 a Governmental Activities—The major increase in revenues comes from the tax category. The property tax base increased by approximately $412 million, due to construction of new residences, businesses, and revaluation of property. The current year tax collection rate was approximately 98% of the levy. Additionally, there was an increase in both license and permit revenues and engineering and inspection revenues due to an increase in both residential and commercial building permits. Fines and forfeitures were up due to increased citations issued, and investment earnings are down due to the continued low interest rates.Charges for services increased due to population growth. Business-type Activities — The City has one enterprise operation, the Water and Sewer Fund. Total charges for services of the Water and Sewer Fund were $11,219,499 for the fiscal year. This is slightly lower than the previous year, however, expenses are significantly lower by $1.6 million due to construction activities. FINANCIAL ANALYSIS OF THE CITY'S FUNDS Governmental Funds — The focus of the City of Pearland's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements, in particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. At the end of the current fiscal year, the City of Pearland's governmental funds reported combined ending fund balances of$58,857,765. Of this total amount, $55 million constitutes an unreserved fund balance and can be used to fund day-to-day operations and capital projects. The remainder of the fund balance, $3.9 million, is reserved to indicate that it is not available for new spending because it has already been committed to pay for encumbrances or debt service or to provide for other items. Refer to page 15 of this report for a more detailed presentation of governmental fund balances. In the General Fund, the City originally budgeted for a decrease in.fund balance. The actual increase to fund balance for the General Fund was$4,059,350 over the budgeted amounts. Proprietary Funds — The City's proprietary fund statements, beginning on page 19 of this report, provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net assets of the only proprietary fund are $552,376. This fund experienced increases in total net assets during 2005 of $6,000,247. This increase was primarily due to increased contributions from impact fees. General Fund Budgetary Highlights — During the year, revenues exceeded budgetary estimates by $3.4 million and expenditures were less than budgetary estimates by $1.3 million, thus eliminating any need to draw upon existing fund balance. Refer to the General Fund Statement of Revenue, Expenditures and Changes in Fund Balances —Budget and Actual on page 18 of this report for a detailed presentation of the actual General Fund operations compared to both the original and final budget for fiscal year 2005. a a a CAPITAL ASSETS The City of Pearland's investment in capital assets for its governmental and business-type activities as of September 30, 2005, amounts to $181,351,400 (net of accumulated depreciation) as reflected in the following schedule. This investment in capital assets includes land, building, equipment, improvements other than buildings, infrastructure and construction work in progress. This represents a net increase of $37.8 million or 26% over last year. Major capital asset events occurring during the current fiscal year related primarily to three basic categories: water and sewer infrastructure projects, streets and mobility projects,and drainage improvement projects. CITY OF PEARLAND'S CAPITAL ASSETS AT YEAR-END Governmental Activities Business-type Activities Totals 2005 2004 2005 2004 2005 2004 Land S 2,717,453 S 2,509.691 S 367,962 S 367.962 S 3,085,415 S 2,877,653 Buildings and improvements 12,834,943 12,575,655 22.610,0211 21.518,110 35,444,97) 34,093.765 Equipment 9,282,167 8,619,886 8.347,893 7,895.580 17,630,060 16,515,466 infrastructure/ water distribution 61.799,139 42,674,657 57.228.510 60,791,814 119,027,649 103,466,471 Construction in progress 20,698,167 12,946,218 19,424,558 2,166,494 40,122,725 15,112,712 Less:accumulated depreciation ( 14,826,719) ( 12.183.003) ( 19.132,701) ( 16.310.637) ( 33,959.420) ( 28.493.640) Total capital assets S�1� S 67,143.104 S 88,846,250 S 76,429,323 S. 181,351,400 S 143,572,427 Additional information on the City's capital assets can be found in Note 4, pages 35 —36 of this report. LONG-TERM DEBT At the end of the current fiscal year, the City of Pearland had debt totaling $180,925,000, excluding capital leases. Of this amount, $148,445,000 represents debt backed by the full faith and credit of the government and$32,480,000 represents bonds secured solely by water and sewer revenues. CITY OF PEARLAND'S OUTSTANDING DEBT AT YEAR-END Governmental Activities Business-type Activities Totals '- 2005 2004 2005 2004 2005 2004 General obligation S 60,175,000 S 25,345,000 S S S 60.175.000 S 25,345,000 Revenue bonds payable 32,480.000 33305.000 32,480.000 33.505.000 Certificates of obligation 72,390,000 90.185.000 15.880.000 16.735.000 88.270.000 106.920.000 as S 132 565,000 S )15,530,000 S 48,360`000 S 50,240,000 S 180,925,000 S 165.770,000 10 OW During the fiscal year, the City issued$37,015,000 in Permanent Improvement and Refunding Bonds. The City's General Obligation, Certificates of Obligation, and Revenue Bond underlying ratings are listed below. a Standard Moody's and Poor's Tax Bonds Al A+ W/S Revenue Bonds Baal A Ali of the City's bond issues have been successful in qualifying for bond insurance resulting in ratings of "Aaa" and "AAA" from Moody's and Standard & Poor's, respectively. Additional information on the City of Pearland's long-term debt can be found on pages 37—42 of this report. a ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES One of the primary factors considered in the 2006 budget development is the overall economy and how it affects Pearland's growth. Pearland continues to be one of the fastest growing cities in the Houston area with such developments as Shadow Creek Ranch, the Lakes at Highland Glen and Southern Trails. New single-family housing starts totaled 2,610 for 2005 and total construction value of all permits for 2005 was $550 million. The continued growth creates the need to expand services and provide infrastructure. The Pearland City Council approved a$38.0 million General Fund budget for the 2005-2006 fiscal year. This is a 16% increase over the adopted 2004-2005 fiscal year budget. This includes approximately $1.0 million to serve the newly annexed area formerly known as Brazoria County MUD 5, which has an estimated population of 5,000. Twenty-five new personnel were added to the General Fund budget. The growth in the budget is driven by increased costs of doing business, as well as, funding for growth and development. The budget incorporates a tax rate reduction of 2.9% to $0.6744 per $100 of valuation. The budget also includes the third installment of the 2001 voter approved bond referendum for mobility projects. After the issuance,there will be a$29.8 million voted, but unissued bonds. The Pearland Economic Development Corporation fiscal year 2006 budget includes bond proceeds from the sale of Sales Tax Bonds totaling $11,005,000 for the Kirby Road Extension and related water, sewer and drainage. a REQUESTS FOR INFORMATION The financial report is designed to provide our citizens, customers. investors and creditors with a general overview of the City's finances. If you have questions about this report or need any additional financial information, contact Claire Manthei, Director of Finance, at 3519 Liberty Drive, Pearland, Texas 77581, a or call (281) 652-1600. For general information, visit the City's website at www.citvofpearland.com. a a 11 THIS PAGE LEFT BLANK INTENTIONALLY $ASIC ENTS �INA�CIA ST ATEM -410 2.10 411. K ENTIGNALLY 1 PAGE LEA gLAK CITY OF PEARLAND,TEXAS STATEMENT OF NET ASSETS SEPTEMBER 30,2005 Primary Government Component Units Economic Development Gove n nmal Business-type Development TIRZ Authority Activities Activities Total Corporation Devdopmenu of Pearland ASSETS Cash and investments S 60,503560 S 10,413,796 S 70.917.356 S 1,198,360 S 1,168.096 S 65344 Receivables,net of allowances for uncolle tibles Accounts 913.860 2.245.558 3,159.418 142 Properly taxes 797,744 797,744 234.287 Sales taxes 1,456,049 1,456,049 724,601 Other taxes 664,345 664,345 Intergovernmental 270306 270306 Accrued interest 2.387 20.079 22.466 20.097 Prepaid items 1324 1,324 3,450 Inveruories 69549 69549 Restricted cash and investments 4527.602 4,527,602 10,035,804 1,630,157 Deferred charges 663.459 627,796 1,291,255 256,439 927,778 Capital assets: Land 2.717,453 367,961 3,085,415 Buildings and improvaneots 12,834,943 22.610,028 35,444,971 19501 Machinery and equipment 9,282.167 8,347,893 17,630,060 124,959 Infrastructure 24,631,483 57,228510 81,859.993 Construction in progress 57,865,823 19.424.558 77.290.381 Less:accumulated depreciation ( 14.826,719) ( 19,132,701) ( 33.959,420) ( 144,4601 Total capital assets 92.505.150 88.846,250 181351.400 Total assess 157,847,733 106,681.081 264528.814 12,238.893 1.402383 2.623.279 LIABILITIES Accounts payable 3.987205 3.094,901 7.082,106 . 21.076 Accrued liabilities 494.613 157,955 652.568 11.498 Unearned revalue 167,061 167.061 179.285 "` Accrued interest 523316 117.851 641.167 Customer deposits 1.253,770 1.253,770 No anent liabilities: Due within one year 3,681,773 2.038.063 5,719,836 351.088 815.000 Due in more than one year 133,262.658 46.797.742 180,060,400 10,219,274 13,180,000 Total liabilities 142,116.626 53.460.282 195576.908 10.602.936 179.285 I3,995,000 NET ASSETS Invested in capital assets, net of related debt 3.084208 45.641,648 48.725,856 Restricted for: Debt service 3,607,258 275.502 3,882.760 Capital improvements 904,397 6,751,273 7,655.670 Public safety 449,775 449,775 Parks and recreation 992.941 992,941 Economic development 669.937 669.937 Community services 237,484 237,484 Unrestricted 5.785.107 552.376 6.337.483 1.635.957 1,223,098 ( 11371.721) Total net assets S 15.731.107 S 53.220.799 S 68.951.906 S 1.635.957 S 1.223.098 S ( 11371.721) =MIMMIMIIMMs sa®=== The notes to the financial statements are an integral part of this statement. 12 CITY OF PEARLAND,TEXAS STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30,2005 Program Revenues voi Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Prlwry Government: Governmental activities: General government S 8,714,401 S 185,235 S 2.380 S 799,999 `• Public safety 11.856,643 3.639,966 673.76 311,921 Public works 12,858,259 7,221,015 5,792 Community services 2.939.228 1,263,190 478,875 Interest on long-tam debt 5,115.039 Total governmerual activities 41,483,570 12.309,406 1.154,531 1,117.712 Business-type activities Water and sewer 13.624,497 11219,499 8.365,452 Total business-type activities 13.624,497 11.219,499 8.365,452 Total primary govenumn S 55.108.067 S 23.528,905 S 1,154.531 S 9.483,164 aamisosmmom immnomminomos omisottammamosi sas Component Units: Economic Development Corporation S 2.312,729 S S S TIRZ Developments 1,888,506 Development Authority of Pesrland 13.225,937 1,824,418 Total component units S 17.427.172 S S S 1.824.418 General revenues: Taxes Property,levied for general purposes Property,levied for debt service Sales Franchise Odle Investment earnings Miscellaneous Transfers Total general revenues and transfers Change in net assets Net assets,beginning Pnor period adjustment Net assets,beginning,as restated Net assets,ending The notes to the financial statements are an integral part of this statement. 13 ,. Net(Expenses)Revenues and Changes in Net Assets ,e Primary Government Component Units Economic Development Governmental Buses-type Development TIRZ Authority ,a Activities Activities Total Corporation Developments of Prartand S ( 7.726,787) S S ( 7.726,787) $ S S ( 7.231.480) ( 7,231,480) ( 5,631,452) ( 5.631,452) ( 1,197,163) ( 1.197.163) .. ( 5,115,039) ( 5,115.039) ( 26.901,921) ( 26,901.921) 5,960.454 5,960.454 '11. 5,960.454 5.960.454 ( 26.901,921) 5.960,454 ( 20.941.467) a. - - — ®aortae a =ICEMMAIME MOMXzar! ® ataaae7MMIMMINEB ( 2.312.729) ( 1,888.506) ( 11.401,519) ( 2312.729) ( 1.888.506) ( 11.401519) aimmuniasusimmen eras sr•rra: �aata• .��� as_�� r 9.678,307 9.678,307 2531.251 10.126.234 10,126,234 ,r 7,785,161 7.785.161 3.891.870 3.097.163 3,097,163 241,046 241.046 1,863,323 399,275 2,262398 303,129 8,390 29,798 827,589 827.589 12.000 359.482 ( 359.482) 33,978.305 39.793 34,018.098 4,206,999 2.539.641 29.798 7,076,384 6,000,247 13.076.631 1.894.270 651.135 ( 11,371.721) 10.598.631 46,029.901 56,628.532 ( 231,831) 571,963 .. ( 1,943.908) 1.190,651 ( 753.257) ( 26,482) 8.654.723 47.220552 55,875.275 ( 258313) 571.963 S 1�5.731,107 S S� 3 S 68.951.906 S 1.635,957 S 1.223.098 S I 11,371.721) an: +r a 14 THIS PAGE LEFT BLANK INTENTIONALLY CITY OF PEARLAND,TEXAS BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30,2005 Tout Debt Capital Other Governmental General Service Projects Funds Funds ASSETS Cash and investments S 6,945,697 S 3,843,924 S 46,538,692 S 3,175,247 S 60.503.560 Receivables.net of allowances for uncollectibles Accounts 802,568 46,605 64,687 913.860 Property taxes 511.094 286.650 797,744 Sales taxes 1,456,049 1,456.049 Other taxes 664,345 664.345 Intergovernmental 216,443 53.863 270306 Accrued interest 1,393 994 2387 Prepaid itesns 1.324 1324 Inventories 69549 69549 Total assets S 10.668.462 S 4.130.574 S 46.585,297 S 3,294.791 S 64.679.124 ameasnarensammacram®a: LIABfLrrffs AND FUND BALANCES Liabilities Accounts payable 940.728 3,009.966 36511 3.987.205 Accrued liabilities 464,613 30,000 494,613 Deferred revenue 1,060,350 275.445 3.746 1.339541 Total liabilities 2,465.691 275.445 3,039.966 40257 5.821,359 Fund balances: Reserved for. Inventories 69,549 69,549 Prepaid items 1.324 1.324 Debt service 3,855.129 3,855,129 Unreserved,reported in: General fund 8.201,447 8,201,447 Special revenue funds 2,462.352 2.462.352 Capital projects fund 43545,331 792.182 44,337,513 Total fund balances 8,202,77i 3.855.129 43,545,331 3254534 58,857.765 Total liabilities and fund balances S 10.668,462 S 4.130574 S 46385297 S 3294.791 tears ma= -a Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and,therefore,are not reported in the funds. 92,505.150 Other long-term assets are not available to pay for current-period expenditures and therefore,arc deferred in the funds 1.172.480 long-term liabilities are not due and payable in the current period and therefore are not reported in the funds. ( 136.804.288) Net assets of governmental activities S 15.731.107 The notes to the financial statements are an integral part of this statement. 15 ��pTION�'LLY T�PAGE yEF1 BL�K f r CITY OF PEARLAND,TEXAS STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS .. FOR THE YEAR ENDED SEPTEMBER 30,2005 Taal Debt Capital Other Governmental General Service Pivjea, Funds Funds REVENUES Taxes: Property S 9.649,452 S 10,095.935 S S S 19345.387 Saks 7,785,161 7,785,161 Mixed beverage 55,181 55,181 Hotel/motel 469 185.396 185.865 Franchise 3.097,163 3,097.163 *+ Permits,licenses and fees 3,863.592 3,863,592 Fines 1.883.381 51,586 1,934,967 Charges for services 6,138,610 6.138,610 Intergovernmental 871,196 1,111,920 398.388 2.381.504 .. Other revenue 595,369 8,846 568,098 1.172,313 Investment earnings 415.296 57.687 1,335,250 55,090 1.863.323 Total revenues 34.354,870 10,153,622 2.456,016 1.258,558 48.223.066 EXPENDITURES Current General government 6,664,735 84,839 6.749.574 Public safety 10.816,906 264555 11,081.461 Public works 10,449,814 10,449.814 Community services 2.692,450 54,729 2.747.179 Capital outlay 1.019.976 27.531.520 109,355 28,660.851 Debt service: Principal 3534534 3.534,334 ,. Interest and fiscal diarges 5,027,376 527.689 5.555.065 Intergovernmental 1,083.896 1.083.896 Taal expo dimes 31,643.881 9.645.806 28.059,209 513,478 69.862.374 EXCESS(DEFICIENCY)OF REVENUES OVER(UNDER)EXPENDITURES 2,710,989 507.816 ( 25.603.193) 745.080 ( 21.639.308) OTHER FINANCING SOURCES(USES) Transfers in 2,063,264 339561 2.384.774 82,000 4,869,599 Transfers out ( 3,003.294) ( 608.559) ( 898,264) ( 4510,117) Issuance of capital lease 271,193 271,193 Capital-related debt issued 37.015.000 37,015,000 Premium from capital-related debt issued 1368,186 1,368,186 '. Payment to escrow agent ( 17,294,621) ( 17,294,621) Total other financing souras and(uses) ( 940.030) 339561 23.135.973 ( 816.264) 21.719,240 NET CHANGE IN FUND BALANCES 1,770.959 847377 ( 2,467220) ( 71,184) 79,932 y FUND BALANCES,BEGINNING AS PREVIOUSLY STATED 8.285590 3,007,752 46,012.551 3,415.848 60,721,741 PRIOR PERIOD ADJUSTMENT ( 1.853.778) - ( 90.130) ( 1,943.908) FUND BALANCES,BEGINNING AS RESTATED 6.431,812 3.007.752 46.012.551 3.325,718 58.777.833 FUND BALANCES,ENDING S 8.202.771 S 33®�S 43.545331 S 3,254534 S 58.857,765 The notes to the financial statements are an integral part of this statement- _ 16 THIS PAGE LEFT BLANK INTENTIONALLY r r CITY OF PEARLAND,TEXAS RECONCII.IATION OF THE STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPfEMBER 30,2005 Amounts reported for governmental activities in the Statement of Activities (pages 13 - 14) are different because: Net change in fund balances-total governmental funds(page 16) $ 79,932 Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those accPts is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. 25,362,046 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. ( 22,594) The issuance of long-term debt (e.g., bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. This amount is the net effect of these differences in the treatment of long- .. term debt and related items. ( 17,273,098) Some expenses reported in the statement of activities do not require the use of current financial resources and,therefore,are not reported as expenditures in governmental funds. ( 1,069.902) Change in net assets of governmental activities(pages 13- 14) $ 7 076 r The notes to the financial statements are an integral part of this statement. 17 a N�IONXL° BLprI1�II` TPAELE CITY OF PEARLAND, TEXAS GENERAL FUND STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES-BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30,2005 Variance with Final Budget- Budgeted Amounts Actual Positive Original Final Amounts (Negative) REVENUES Property taxes and penalties $ 9,767,610 $ 9,767,610 $ 9,649,452 $ ( 118,158) Other taxes 6.931,000 6,931,000 7,840,811 909,811 Franchise fees 3,015,000 3,015,000 3,097,163 82,163 Licenses and permits 3,180,335 3.180,335 3,863,592 683,257 Fines and forfeitures 1,590,200 1,590,200 1.883,381 293,181 - Charges for services 5,269,949 5.269,949 6,138,610 868,661 Intergovernmental 879,300 879,300 871,196 ( Other income 282,100 288,100 595,369 307,269) Investment earnings 1,000 1,000 415,296 414,296 Total revenues 30,916,494 30,922,494 34,354,870 3,432,376 EXPENDITURES Current: General government 6,380,991 6,720,970 6,664,735 56.235 Public safety 10,706.646 11,031,997 10,816,906 215,091 Public works 9,926,159 10,916,013 10,449,814 466,199 Community services 3,801,935 3,123,164 2,692,450 430,714 Capital outlay 1,762,877 1,138,759 1,019,976 118.783 Total expenditures 32.578,608 32,930.903 31,643,881 1,287.022 EXCESS(DEFICIENCY)OF REVENUES OVER(UNDER)EXPENDITURES ( 1,662,114) ( 2,008,409) 2,710,989 4,719.398 OTHER FINANCING SOURCES(USES) Transfers in 1,765,806 1,765,806 2,063,264 297,458 Transfers out ( 459,000) ( 2,045,788) ( 3,003,294) ( 957,506) Total other financing sources(uses) 1,306,806 ( 279,982) ( 940.030) ( 660.048) - NET CHANGE IN FUND BALANCES ( 355,308) ( 2,288,391) 1,770,959 4,059,350 FUND BALANCES,BEGINNING AS PREVIOUSLY STATED 8,285,590 8,285,590 8,285,590 PRIOR PERIOD ADJUSTMENT ( 1,853,778) ( 1,853.778) ( 1.853,778) FUND BALANCES,BEGINNING AS RESTATED 6,431.812 6,431,812 6,431,812 FUND BALANCES,ENDING $ 6 076 504 $ 4,143421 $ 8,202,771 $ 4,059,350 The notes to the financial statements are an integral part of this statement. — 18 K IN`�TNTIONALLY P AGE LEFT gj,AN THIS CITY OF PEARLAND,TEXAS STATEMENT OF NET ASSETS PROPRIETARY FUND SEPTEMBER 30,2005 Business-type Activities Enterprise Fund Water and Sewer ASSETS Current assets: Cash and investments S 10,413,796 Accounts receivable,net of allowances 2,245,558 Accrued interest 20,079 Restricted cash and investments 4,527,602 Total current assets 17,207,035 Noncurrent assets: Deferred charges 627,796 Capital assets: Land 367,962 Buildings and improvements 22,610,028 Machinery and equipment 8,347,893 Infrastructure 57,2,28,510 Construction work in progress 19,424,558 Less:accumulated depreciation ( 19,132,701) Total capital assets 88,846,250 Total noncurrent assets 89,474,046 Total assets 106,681,081 LIABILITIES Current liabilities: Accounts payable 3,094,901 Accrued liabilities 157,955 Accrued interest 117,851 Customer deposits 1,253,770 Compensated absences 83,063 Certificates of obligation 880,000 Revenue bonds 1,075,000 Total current liabilities 6.662,540 Noncurrent liabilities: Compensated absences 392,742 Certificates of obligation 15,000,000 Revenue bonds 31,405,000 Total noncurrent liabilities 46,797,742 Total liabilities 53,460,282 NEr ASSETS Invested in capital assets,net of related debt 45,641,648 Restricted for 275,502 Debt service Capital improvements 6,751,273 Unrestricted 552,376 Total net assets S 53,220,799 The notes to the financial statements are an integral part of this statement. 19 THIS PAGE LEFT BLANK INTENTIONALLY CITY OF PEARLAND,TEXAS STATEMENT OF REVENUES,EXPENSES,AND CHANGES IN FUND NET ASSETS PROPRIETARY FUND FOR THE YEAR ENDED SEPTEMBER 30,2005 Business-type Activities Enterprise Fund Water and Sewer OPERATING REVENUES Charges for services $ 10,947,737 Other 271,762 Total operating revenues 11,219,499 OPERATING EXPENSES Production and wastewater 4,507,571 Distribution and collection 1,415,078 Accounting and collections 1,124,626 Other requirements 792.301 Construction and engineering 767,233 Depreciation 2,864,261 Total operating expenses 11,471.070 OPERATING LOSS ( 251,571) NONOPERATING REVENUES(EXPENSES) Earnings on investments 399,275 Interest and fiscal charges ( 2,153,427) Total nonoperating revenues(expenses) ( 1.754.152) LOSS BEFORE CONTRIBUTIONS AND TRANSFERS ( 2,005,723) CAPITAL CONTRIBUTIONS 8,365,452 TRANSFERS IN 536,520 TRANSFERS OUT ( 896,002) CHANGE IN NET ASSETS 6.000,247 TOTAL NET ASSETS,BEGINNING 46,029.901 PRIOR PERIOD ADJUSTMENT 1,190,651 TOTAL NET ASSETS,ENDING $ 53.220,799 The notes to the financial statements are an integral part of this statement. 20 _ . N�Ipjy ALLYL E LEFT BL�� ` �.�F AG _ CITY OF PEARLAND, TEXAS STATEMENT OF CASH FLOWS PROPRIETARY FUND FOR THE YEAR ENDED SEPTEMBER 30,2005 Business-type Activines Enterprise Fund Water and Sewer CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers S 12.888,744 Cash paid to suppliers for goods and services ( 2.710.758) Cash paid to employees for services ( 4,460.630) Net cash provided by operating activities 5.717.356 .. CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Cash paid to other funds 1,190,651 Transfers from other funds 536.520 Transfers to other funds ( 896.002) Net cash used for noncapital for financing activities 831.169 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Principal repayments on bonds ( 1,880.000) Cash received from capital contributions 8.365.452 Interest and fiscal d cages on debt ( 2,1 11.230) Acquisition and construction of capital assets ( 15,281,18 Net cash used for capital and related financing activities ( 10.906.966) CASH FLOWS FROM INVESTING ACTIVITIES Earnings on investments 273.163 Net cash provided by investing activities 273.163 NET DECREASE IN CASH AND CASH EQUIVALENTS ( 4.0&5.278) CASH AND CASH EQUIVALENTS,BEGINNING 19,026.676 CASH AND CASH EQUIVALENTS,ENDING S 14.941,398 Cash and investments S 10,413,7% Resrricud cash cad investments 4,527,602 Cash and cash equivalents,ending S 14,941398 miammicasurommi Reconciliation of operating loss to net cash provided by operating activities: Operating loss S ( 251.571) Adjustments to reconcile operating loss to net cash provided by operating activities: Depreciation 2,864261 Changes in assets and liabilities: Decrease(increase)in assets: Accounts receivable 1.500,001 Increase(decrease)in liabilities: Accounts payable 1229.941 Accrued liabilities 130535 Customer deposits 169.244 Convoluted absences payable 74,945 Na cash provided by operating activities S 5.717,356 The notes to the financial statements are an integral part of this statement. 21 CITY OF PEARLAND,TEXAS NOTES TO FLNANCIAL STATEMENTS SEPTEMBER 30,2005 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Renortine Entity The City of Pearland, Texas, was incorporated in December 1959, and adopted the "Home Rule Charter" February 6, 1971, pursuant to the laws of the State of Texas. The City operates under a "Council-Manager" form of government and provides services authorized by its charter. Presently, these services include police and fire protection, water and sewer services, drainage, sanitation, building and code inspection, planning, zoning, engineering, street repair and maintenance, park maintenance, recreational activities for citizens, and general administrative services. The City is an independent political subdivision of the State of Texas, governed by an elected mayor and five-member Council, and is considered a primary government. The accompanying financial statements present the government and its component units, entities for which the government is considered to be financially accountable. Each discretely presented component unit is reported in a separate column in the government-wide financial statements (see note below for description) to emphasize that it is legally separate from the government. Discretely Presented Component Units—The component units' column in the government- wide financial statements includes the financial data of the City's component units. 1. The Pearland Economic Development Corporation (PEDC) is responsible for economic development within the City's jurisdiction. The PEDC was created in 1995 and is fiscally dependent upon the primary government because, besides appointing the Board, the City Council also must approve the PEDC's budget and any debt issuances. 2. The Tax Increment Reinvestment Zone (TIRZ #2) provides tax assisted property development and/or redevelopment in specific geographic areas in accordance with applicable state laws. TIRZ#2 was created in 1998. Besides appointing Board members, the City Council must also approve the TIRZ's budgets and any debt issuances done on behalf of the TIRZ. 3. The Development Authority of Pearland was created by the City in 2004 by Resolution No. 2004-107 to aid, assist and account on behalf of the City to provide financing for the Reinvestment Zone Number Two. Proceeds from bond sales are to be used to reimburse developers and fund a debt service reserve. (continued) ... 22 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) B. Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenue, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenue. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenue includes I) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenue are reported instead as general revenue. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual Enterprise Funds are reported as separate columns in the fund financial statements. (continued) 23 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Measurement Focus,Basis of Accounting and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenue is recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenue in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenue is recognized as soon as it is both measurable and available. Revenue is considered to be available when it is collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenue to be available if collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments,are recorded only when payment is due. Property taxes, franchise taxes, sales taxes, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenue of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the City. The City reports the following major governmental funds: The General Fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Debt Service Fund is used to account for the resources accumulated and payments made for principal and interest on long-term general obligation debt of the governmental funds. The Capital Projects Fund is used to account for the proceeds from the sale of general obligation bonds and certificates of obligation and expenditures of these proceeds for the acquisition of capital assets as designated in each bond issue. (continued) 24 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Measurement Focus.Basis of Accounting and Financial Statement Presentation (Continued) The City reports the following major Enterprise Fund: The Water and Sewer Fund accounts for the activities necessary for the provision of water and wastewater services. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. The City also has the option of following subsequent private-sector guidance for their business-type activities and Enterprise Funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. As a general rule, the effect of interfund activity has been eliminated from the government- wide financial statements. Exceptions to this general rule are charges between the City's water and sewer function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenue reported for the various functions concerned. Amounts reported as program revenues include: 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3)capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenue. Likewise, general revenue includes all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the City's Enterprise Funds and Internal Service Funds are charges to customers for sales and services. Operating expenses for Enterprise Funds and Internal Service Funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenue and expenses not meeting this definition are reported as nonoperating revenue and expenses. When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first,then unrestricted resources as needed. (continued) 25 a 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets,Liabilities and Net Assets or Equity Cash and Investments Cash and investments consist of amounts in an interest-bearing time deposit account, petty cash funds, and U. S. Government Securities. Investments are stated at fair value based on quoted market prices at September 30,2005. The net increase or decrease in the fair value of investments is recorded as investment earnings. Investments are generally held to maturity. The City pools cash resources of its various funds to facilitate the management of cash. Cash applicable to a particular fund is readily identifiable. The balance in the pooled cash accounts is available to meet current operating requirements. Cash in excess of current requirements is invested in various interest-bearing securities and disclosed as part of the City's investments. The City pools excess cash of the various individual funds to purchase investments. These pooled investments are reported in the combined balance sheet as investments in each fund based on each fund's share of the pooled investments. Interest income is allocated to each respective individual fund monthly based on its respective share of pooled investments. Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as "due to/from other funds" (i.e., the current portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances." All trade receivables are shown net of an allowance for uncollectibles. Trade accounts receivable in excess of 180 days comprise the trade accounts receivable allowance for uncollectibles. Property taxes for each year are required to be levied by October 1 and are due upon receipt of the City's tax bill and become delinquent on February 1 of the following year. On January I of each year, a tax lien is attached to the property to secure the payment of all taxes, penalties and interest. The lien exists in the favor of the State and each taxing unit. Appraised values are established by the Central Appraisal District (CAD) of Brazoria County, Texas, through procedures established by the Texas Legislature. The Brazoria County Tax office bills and collects the City's property taxes. A penalty of 7% is added to delinquent taxes on February 1 and increases 2% each month through September. An additional penalty of 15% or 20% is added in July for attorney costs. There are no discounts allowed in taxes. (continued) 26 nr 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets,Liabilities and Net Assets or Equity(Continued) Receivables and Payables The City is permitted, by Article XI, Section 5, of the State of Texas Constitution and the City Charter, to levy property taxes up to $2.50 per $100 of assessed valuation for general governmental services. Within the $2.50 maximum levy, there is no legal limit upon the amount of property taxes, which can be levied for debt service. The property tax rates to finance general governmental services and debt service for the 2004 tax year were $.3389 and $.3559, respectively, per$100 of assessed valuation. The 2004 assessed value and total tax levy as adjusted through September 30, 2005, were $3,019,449,422 and $20,979,391, respectively. The City has enacted an ordinance providing for the exemption of $25,000 of the assessed value of residential homesteads of persons 65 years of age or older from property taxes. This is provided by Section 1-b(a) of Article 8 of the Constitution of Texas. Additionally, the market value of agricultural land is reduced to agricultural value for purposes of the City's tax levy calculation. Inventories Inventory, which consists of gasoline and auto parts for use in the City's vehicles, is stated at cost (first-in, first-out method). Expenditures are recognized as the fuel and auto parts are consumed rather when purchased. Restricted Assets Certain proceeds of the Enterprise Fund and Economic Development Corporation revenue bonds and certain resources set aside for their repayment are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. Certain resources are also set aside for repayment of Development Authority bonds and are reported as restricted assets. Capital Assets Capital assets, which include property, plant, equipment and infrastructure, are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. The City defines capital assets as assets with an initial, individual cost of more than $1,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. (continued) 27 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) D. Assets,Liabilities and Net Assets or Euuity (Continued) Capital Assets(Continued) The City has elected to delay implementation of the requirements of GASB Statement No. 34 related to infrastructure(roads, sidewalks, etc.) assets acquired prior to October 1, 2002. The City has implemented the general provisions of GASB Statement No. 34 and will complete the implementation of the retroactive provisions for infrastructure no later than September 30, 2007. Property, plant, and equipment is depreciated using the straight-line method over the following useful lives: Assets Years Buildings and improvements 20-45 Machinery and equipment 5-15 Infrastructure 40-50 Compensated Absences It is the City's policy to permit employees to accumulate earned but unused vacation, sick and holiday pay benefits. Employees earn vacation leave at the rate of 15 days per year from l to 15 years of service, 20 days per year for service of 16 to 19 years, and 25 days per year for service of 20 years or more. Employees hired after October 1, 2005, earn vacation at a rate of 10 days per year from l —6 years of service, 15 days per year for 7— 15 years of service, and 20 days for over 16 years of service. Employees are required to take their earned vacation. Employees who are unable to use their vacation, for various reasons, may, with the City Manager's approval, carry over 50 percent of the unused portion of the vacation, or receive compensation for a maximum of 40 hours. City employees receive 11 paid holidays per year. Employees may be paid or may elect to receive compensatory time off for the holiday. Overtime is earned at one and one-half times the regular rate of pay. Employees may be paid or receive compensatory time. The maximum accrual for overtime is 160 hours, except for employees involved in public safety, who can accrue up to 320 hours. All sick leave benefits are accumulated and paid to employees upon separation from the City. Vacation, sick and holiday pay benefits are accrued when incurred in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. (continued) -- 28 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets. Liabilities and Net Assets or Equity (Continued) Long-term Obligations In the government-wide financial statements and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts,as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line method which approximates the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs,during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received,are reported as debt service expenditures. Fund Equity In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. • Net Assets Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvements of those assets, and adding back unspent proceeds. As of September 30, 2005, the City has elected to delay implementation of the requirements of GASB 34 related to infrastructure assets acquired prior to October 1, 2002. As a result, net assets invested in capital assets, net of related debt does not consist of infrastructure acquired prior to October 1, 2002, but does consist of the infrastructures related debt. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislations adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. Estimates The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual amounts could differ from those estimates. 29 2. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS Explanation of Certain Differences Between the Governmental Fund Balance Sheet and the Government-wide Statement of Net Assets The governmental fund balance sheet includes a reconciliation between fund balance - total governmental funds and net assets-governmental activities as reported in the government-wide statement of net assets. One element of that reconciliation explains, "Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds." The details of this$136,804,288 difference are as follows: Certificates and General Obligation Bonds $ 132,565,000 Deferred charge for issuance cost ( 663,459) Deferred amount for issuance premium 1,458,694 Deferred loss on refunding bonds ( 789,621) Accrued interest payable 523,316 Compensated absences 3,314,699 Capital lease obligation 395,659 Net adjustment to reduce fund balance-total governmental funds to arrive at net assets- governmental activities $ 136,804 288 Explanation of Certain Differences Between the Governmental Fund Statement of Revenue, Expenditures and Changes in Fund Balances and the Government-wide Statement of Activities The governmental fund statement of revenue, expenditures and changes in fund balances includes a reconciliation between net changes in fund balances - total governmental fund and changes in net assets of governmental activities as reported in the government-wide statement of activities. One element of that reconciliation explains, "Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense." The details of •- this$25,362,046 difference are as follows: Capita]outlay $ 28,005,762 Depreciation expense ( 2,643,716) Net adjustment to increase net changes in fund balances- total governmental funds to arrive at changes in net assets of governmental activities $ 25 362 0445 (continued) 30 a 2. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (Continued) Explanation of Certain Differences Between the Governmental Fund Statement of Revenue, Expenditures and Changes in Fund Balances and the Government-wide Statement of Activities(Continued) Another element of that reconciliation states,"Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds." The details of this $(22,594)difference are as follows: Property taxes $ 59,154 Court fines ( 81,748) Net adjustment to increase net changes in fund balances- r' total governmental funds to arrive at changes in net assets of governmental activities $ ( 22,594) Another element of that reconciliation states, "The issuance of long-term debt (e.g., bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. The details of this $(17,273,098) difference are as follows: Debt issued or incurred: Issuance of general obligation bonds $ ( 37,015,000) Bond issuance cost 548,191 Premium on issuance of bonds ( 1,368,186) Capital lease financing ( 271,193) Amortization of bond issue costs 3,935 Payment to escrow agent 17,294,621 Principal repayments: General obligation debt 3.534,534 Net adjustment to reduce net changes in fund balances- total governmental funds to arrive at changes in net assets of governmental activities $ ( 17,273,098) Another element of that reconciliation states, "Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds." The details of this$(1,069,902)difference are as follows: Compensated absences S ( 957,802) Interest expense (_ 112.100) Net adjustment to increase net changes in fund balances- total governmental funds to arrive at changes in net assets of governmental activities $ ( 1.069.902) 31 3. STEWARDSHIP,COMPLIANCE AND ACCOUNTABILITY Budeetary Information Annual appropriated budgets are adopted on a basis consistent with generally accepted accounting principles for the General Fund and Debt Service Fund. The City adopts project- length budgets for the Capital Projects and Special Revenue Funds. All annual appropriations lapse at fiscal year-end. The City Manager, between 60 and 90 days prior to the beginning of each fiscal year, submits to Council a proposed budget. The Council shall review the proposed budget and revise as deemed appropriate prior to circulation for public hearing. After the public hearing, the Council may adopt the budget with or without amendment. In amending the budget, Council may add or increase programs or amounts and may delete or decrease any amount, except expenditures required by law or for debt or for estimated cash deficits, provided no amendments to the budget shall increase the authorized expenditures to an amount greater than the total of estimated income plus funds available from prior years. The Council shall adopt the budget no later than 15 days prior to the beginning of the fiscal year. Adoption of the budget shall constitute appropriation of the amounts specified therein as expenditures and shall constitute a levy of the property tax therein proposed. Every appropriation lapses at the close of the fiscal year to the extent it has not been expended. Any encumbered appropriation lapses at year-end, but is generally reappropriated as part of the subsequent year's budget. Expenditures may not legally exceed appropriations at the fund level. At any time during the fiscal year, the City Manager may request Council to transfer by ordinance any unencumbered appropriation balance between funds. No significant supplemental appropriations were necessary during the year. 4. DETAILED NOTES ON ALL FUNDS Cash and Investments The City's cash and investments are classified as cash and cash equivalents, investments, and restricted cash and investments. The cash and cash equivalents include cash on hand, deposits with financial institutions and other investments which have maturities at purchase date of less than three months. The restricted cash includes cash on deposit with financial institutions. (continued) 32 4. DETAILED NOTES ON ALL FUNDS (Continued) Cash and Investments(Continued) The Council has adopted a written investment policy regarding the investment of its funds as defined by the Public Funds Investment Act (Chapter 2256 Texas Government Code). The investments of the City are in compliance with the Council's investment policies. It is the City's policy to restrict its investments to direct obligations of the U. S. Government, commercial paper, fully collateralized certificates of deposit and other interest-bearing time and demand deposits, and other instruments and investments in public funds investment pools. State law provides that collateral pledged as security for bank deposits must have a market value of not less than the uninsured amount of the deposits and must consist of 1) obligations of the United States of its agencies and instrumentalities; 2) direct obligations of the State of Texas or its agencies; 3) other obligations, the principal and interest on which are unconditionally guaranteed or insured by the State of Texas; and/or 4) obligations of states, agencies, counties, cities, and other political subdivisions of any state having been rated as to investment quality by a nationally recognized investment rating firm and having received a rating of not less than A or its equivalent. The deposit and investment policies for the Pearland Economic Development Corporation, TIRZ Developments,and Development Authority of Pearland are substantially the same as the City. Deposits and Investments As of September 30, 2005,the City had the following investments: Weighted Average Investment Type Fair Value Maturity(Days) Primary government: Fannie Mae Discount Note S 1,152,974 17 Freddie Mac Discount Note 1.851,659 91 Total portfolio S 3.004.633 Portfolio weighted average maturity(days) 63 Interest Rate Risk. In accordance with its investment policy, the City manages its exposure to declines in fair market values by limiting the weighted average maturity of its investment portfolios to a maximum of 365 days. (continued) 33 4. DETAILED NOTES ON ALL FUNDS (Continued) Deposits and Investments(Continued) Custodial Credit Risk. In the case of deposits, this is the risk that in the event of a bank failure, the City's deposits may not be returned to it. State statutes require that all deposits in financial institutions be fully collateralized by U. S. Government obligations or its agencies and instrumentalities or direct obligations of Texas or its agencies and instrumentalities that have a fair value of not less than the principal amount of deposits. As of September 30, 2005, $64,957,376 of the City's $65,257,376 deposit balance was collateralized with securities held by the pledging financial institution. The remaining balance, $300,000 was covered by FDIC insurance. As of the same date, $13,808,363 of the component units' deposit balance was collateralized with securities held by the pledging financial institution and by FDIC. Credit Risk It is the City's policy to limit its investments to investment types with an investment quality rating not less than A or its equivalent by a nationally recognized statistical rating organization. The City's investments as of September 30,2005,were rated as follows: Investment Type Rating Rating Agency U.S.Agency Securities: Fannie Mae Discount Note AAA Moody's Investor Service Freddie Mac Discount Note Aaa Moody's Investor Service Receivables Receivables as of year-end for the City's individual major funds, nonmajor funds in the aggregate, and discretely presented component units in the aggregate including the applicable allowances for uncollectible accounts,are as follows: Debt Capital Notunajor Water Component General Service Projects Governmental and Sewer Units Total Receivables: Accounts S 868,158 S S 46,605 S 64,687 S 2,714.763 S 142 S 3,694.355 Property taxes 511,094 286.650 234.287 1,032.031 Sales taxes 1.456,049 724.601 2,180.650 Other taxes 664.345 664,345 Intergovernmental 216,443 53,863 270.306 Accrued interest 1_393 994 20.079 20.097 42.563 Gross receivables 3,717,482 286,650 46,605 119,544 2.734,842 979.127 7,884.250 Less:allowance for uncoll ctibles 65.590 469.205 534.795 Net total receivables S 3 6551 892 S 286,650 S oifAs S 119 544 S 2,265,63'7 S 979.127 S 7 349,455 Governmental funds report deferred revenue in connection with receivables for revenue that is not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, the various components of deferred revenue and unearned revenue reported in the governmental funds were as follows: (continued) 34 4. DETAILED NOTES ON ALL FUNDS (Continued) Receivables(Continued) a Unavailable Unearned General fund: Delinquent property taxes receivable S 500.028 S +■ Municipal court 393.261 Other 167,061 Debt service fund: Delinquent property taxes receivable 275.445 Nonmajor governmental: Municipal court 3,746 Governmental Funds S 11 17�t: S 167 061� Capital Assets Capital asset activity for the year ended September 30,2005, was as follows: Primary Government Decreases Beginning and Ending Balance Increases Reclassifications Balance Governmental activities: Capital assets,not being depreciated: Land S 2,509,691 S 207,762 S S 2,717,453 Construction in progress 12,946,218 26.335.777 ( 18,583,828) 20,698.167 Total capital assets not being depreciated 15,455,909 26,543539 ( 18,583.828) 23,415.620 Capital assets,being depreciated: Buildings 10,357504 104,827 10,462.331 Improvements other than buildings 2,218,151 154,461 2.372.612 Machinery and equipment 8,619,886 662,281 9.282,167 Infrastructure 42,674,657 540,654 18,583,828 61,799,139 Total capital assets being depreciated 63,870,198 1,462.223 18583.828 83,916.249 Less accumulated depreciation: Buildings 3,589,225 227,342 3,816567 Improvements other than buildings 1,357,101 90,268 1,447369 Machinery and equipment 5,714,914 1.259.239 6,974,153 Infrastructure 1.521,763 1.066,867 2.588.630 Total accumulated depreciation 12,183,003 2.643,716 14,826,719 Total capital assets,being depreciated,net 51,687.195 ( 1,181,493) 18,583.828 69,089,530 Governmental activities capital assets,net S 67,143,104 S 25.362,046 S S 92,505,150 (continued) 35 4. DETAILED NOTES ON ALL FUNDS (Continued) Capital Assets(Continued) Decreases ., Beginning and Ending Balance Increases Reclassifications Balance Business-type activities: Capital assets,not being depreciated: Land S 367,962 S S S 367.962 Construction in progress 2,166,494 17,258,064 19,424,558 Total assets not being depreciated 2,534,456 17,258,064 19.792,520 ".. Capital assets,being depreciated: Buildings and improvements 21,518,110 1,091,918 22.610.028 Machinery and equipment 7,895.580 452,313 8,347,893 Water and sewer system 60,791,814 3,063,383 6.626.687 57,228,510 Total capital assets,being depreciated 90,205,504 4,607,614 6.626.687 88,186,431 Less accumulated depreciation: Buildings and improvements 8,198,116 695,693 8,893.809 Machinery and equipment 4.083,651 695,658 4,779,309 Water and sewer system 4,028,870 1,430,713 5,459,583 Total accumulated depreciation 16,310.637 2.822,064 19.132,701 "' Total capital assets being depreciated,net 73,894,867 1,785,550 6.626,687 69,053,730 Business-type activities capital assets,net S 76 429,323 S 19,043,614 S 6,626,687 S 88,846,250 Depreciation expense was charged to functions/programs of the primary government as follows: Governmental activities: General government $ 581,618 Public safety 475,869 Public works 1,454,043 Community services 132,186 Total depreciation expense-governmental activities S 2,643,716 Business-type activities: Water and sewer $ 2,822,064 Total depreciation expense-business-type activities $ 22 8�22 064064 - Interfund Transfers Transfers In Debt Capital Nonmajor Water General Service Projects Governmental and Sewer Total Transfers Out: General S - S - S 2,384.774 S 82,000 S 536,520 S 3,003.294 Capital projects 404.000 204,559 - - - 608.559 .r Nonmajor governmental 898264 - - - - 898.264 Water and sewer 761.000 I35,002 - - - 896.002 Total Transfers S 2.063 264 S 339,561 S 2,384,714 S 82,000, S 5!3,6,,520 S 5�19 as (continued) 36 r 4. DETAILED NOTES ON ALL FUNDS (Continued) Interfund Transfers(Continued) Transfers are used to (I) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the Debt Service Fund as debt service payments become due, and (3) use unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. Long-term Debt General Obligation Bonds and Certificates of Obligation The City issues general obligation bonds and certificates of obligation to provide funds for the acquisition and construction of major capital facilities. General obligation bonds and certificates of obligation have been issued for both governmental and business-type activities. The original amount of general obligation bonds and certificates of obligation issued in prior years was $153,795,000. During the year, general obligation bonds and certificates of obligation totaling $37,015,000 were issued to fund general obligation projects and refund certain debt issues. General obligation bonds and certificates of obligation are direct obligations and pledge the full faith and credit of the government. These bonds generally are issued as 20-year serial bonds with equal amounts of principal maturing each year. General obligation bonds and certificates of obligation currently outstanding are as follows: Purpose Interest Rates Amount Governmental activities 3.00-7.25% $ 107,550,000 Governmental activities-refunding 3.25-5.59E 25,015,000 Business-type activities 2.6-6.5% 15,880,000 $ 148,445,000 Annual debt service requirements to maturity for general obligation bonds and certificates of obligation are as follows: Year Ending Governmental Activities Business-type Activities September 30, Principal Interest Principal Interest 2006 $ 2,850,000 $ 6,279,799 $ 880,000 $ 548.674 2007 2,525,000 5,936,666 915,000 521,072 2008 2,650,000 5,822,694 945,000 492,006 2009 4,340,000 5,663,043 980.000 461,197 2010 4,885.000 5,445,556 1,015,000 428,271 2011-2015 27,045,000 23,764,608 5,645,000 1,570,214 2016-2020 29,330,000 17,396,188 5,500,000 347,768 2021-2025 32,735,000 10,351,167 2026-2030 26,205,000 2,268,629 Total $ 132,565,000 $ 82.928,350 $ 15 880 000 $.-- 4,369.202 inammoni (continued) 37 4. DETAILED NOTES ON ALL FUNDS (Continued) Long-term Debt (Continued) The various bond obligations contain certain financial limitations and restrictions. The ordinances authorizing the issuance of general obligation bonds created an interest and sinking fund (general debt service fund). The ordinances require the City to ascertain a rate and amount of tax which will be sufficient to pay interest as it comes due and provide a reserve fund which is adequate to meet principal as it matures. The City is in compliance with all such significant financial restrictions. Revenue Bonds The City also issues bonds where the City pledges income derived from the acquired or constructed assets to pay debt service. The original amount of revenue bonds issued in prior years was$36,370,000 Revenue bonds outstanding at year-end are as follows: Purpose Interest Rates Amount Water and sewer improvements 4.00-6.00% S 32,480,000 Revenue bond debt service requirements to maturity are as follows: Year Ending Business-type Activities September 30. Principal Interest 2006 S 1,075,000 $ 1,459,365 2007 1,125,000 1,411,888 2008 1,180,000 1,36 1,558 2009 1,235,000 1,308,250 2010 1,295,000 1,251,918 2011-2015 7,485,000 5,254,083 2016-2020 9,380,000 3,431,769 2021-2025 9,705,000 1,222,249 Total $ 32,480,000 S 16,701,080 Obligations Under Capital Leases During the current year, the City entered into a capital lease agreement in order to purchase equipment and vehicles for various departments. The assets acquired through these lease agreements are as follows: Governmental Activities Asset: Equipment and vehicles S 455,193 Less:accumulated depreciation 26.284 Total S 428,909 (continued) 38 4. DETAILED NOTES ON ALL FUNDS(Continued) Lone-term Debt(Continued) Obligations Under Capital Leases(Continued) Year Ending l race September 30, Obligation - 2006 S 159,629 2007 159,629 2008 95,069 Total 414,327 Less interest portion ( 18.668) Obligations under capital leases $ 3 The primary government's long-term liability activity for the year ended September 30, 2005, was as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental activities Bonds payable: General obligation S 2.5345.000 S 37.015,000 S 2.185.000 S 60,175,000 S 2.295.000 '. Certificates of obligation 90,185,000 17,795.000 72,390,000 555,000 Deferred amount for issuance premium 94.443 1.368,186 3.935 1,458.694 60,943 Defected loss on refunding 1 789,621) ( 789.621) ( 39.481) ,. Total bonds payable 115,624,443 37,593,565 19,983,935 133234.073 2.871,462 Capital testae 184,000 271.193 '• 59.534 395,659 147.371 Compensated absences 2.356.897 1,234,722 276,920 3.314.699 662,940 Governmental activity long-tern liabilities 118.165.340 39,099,480 20 320,389 136,944.431 3,681,773 Bosine a-type actividas Bonds payable: Certificates of obligation 16,735,000 855.000 15,880,000 880,000 Revenue 33.505.000 1,025,000 32.480,000 1,075,000 Total bonds payable 50.240.000 1.880.000 48,360,000 1.955.000 Compensated absences 400,860 82.447 67,991 415.316 83,063 Business-type acnvity long-term liabilities S _ _ 50,669.860 S 82.441, S,1 947;991. S 4 7 6 S 2,038,063 '. The governmental activities compensated absences are generally liquidated by the General Fund. (continued) — 39 4. DETAILED NOTES ON ALL FUNDS(Continued) Long-term Debt(Continued) Advance Refunding The City issued $16,510,000 of general obligation refunding bonds to provide resources to purchase U. S. Government State and Local Government Series securities that were placed in an irrevocable trust for the purpose of generating resources for all future debt service payments of $17,294,621 of general obligation bonds. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the governmental activities column of the statement of net assets. The reacquisition price exceeded the net carrying amount of the old debt by $789,621. This amount is being netted against the new debt and amortized over the remaining life of the refunded debt, which is shorter than the life of the new debt issued. This advance refunding was undertaken to increase total debt service payments over the next 12 years by $1,031,367 and resulted in an economic gain of$871,970. Federal Tax Compliance(Arbitrage)for Long-term Debt In accordance with provisions of Section 148 of the Internal Revenue Code of 1986,as amended, (the "Code") the City's long-term debt obligations must meet certain minimum criteria to be considered and continue to be considered "tax-exempt." This "tax-exempt" status means that interest income earned by purchasers of the City's long-term debt instruments is not subject to federal income taxes. Related Treasury Regulations promulgated under Section 148 of the Code generally provide that the determination of whether these obligations are tax-exempt is made as of the date such obligations are issued based on a reasonable expectation regarding the use of the proceeds of the bonds issued. Long-term debt that does not meet and continue to meet the minimum criteria of Section 148 of the Code and the related Treasury Regulations described above are considered "arbitrage bonds"and are not considered"tax-exempt" as described above. Rebate Obligations will become arbitrage bonds (as described above) if certain arbitrage profits are not paid to the federal government as rebate under Section 148(f) of the Code. The City's obligations to calculate and make rebate payments (if any) will continue as long as there are gross proceeds allocable to outstanding debt issues. The City has performed calculations required under Section 148(f) of the Code and a liability in the amount of$53,317 was reported in the Water and Sewer Fund. (continued) 40 4. DETAILED NOTES ON ALL FUNDS(Continued) Lone-term Debt(Continued) Unexpended Debt Issuance Proceeds(YIeld Restriction Requirements) Section 148 of the Code also provides that in order for debt not to be considered arbitrage bonds (as described above),proceeds of such debt must be invested at a yield that is not materially higher than the yield on the debt issued starting on the third anniversary of the issue date of such debt. Accordingly, any unexpended proceeds of debt issued by the City that remain unexpended more than three years after such debt was issued should be yield restricted. The yield restriction may be accomplished by making yield reduction payments pursuant to Treasury Regulation Section 1.148- 5(c). The City is currently pursuing compliance with these yield restriction requirements and does not anticipate associated significant noncompliance issues. The City is continuing to proceed with reasonable diligence to expend any remaining unexpended debt issuance proceeds on qualifying projects. Component Units The terms of Sales Tax and Tax Increment Revenue Bonds are as follows: Purpose Interest Rates Amount Sales Tax Revenue-Economic Development 2.5%-5% S 10,590,000 Tax Increment Revenue-Development Authority 3.25%-5.5% 13,995,000 The Pearland Economic Development Corporation issued $4,365,000 of sales tax revenue refunding bonds to provide resources to purchase U. S.Government State and Local Government Series securities that were placed in an irrevocable trust for the purpose of generating resources for all future debt service payments of$4,349,474 of sales tax revenue bonds. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the statement of net assets. The reacquisition price exceeded the net carrying amount of the old debt by $189,626. This amount is being netted against the new debt and amortized over the remaining life of the refunded debt, which is shorter than the life of the new debt issued. This advance refunding was undertaken to increase total debt service payments over the next 10 years by$1,135,935 and resulted in an economic gain of$790,921. I (continued) 41 r 4. DETAILED NOTES ON ALL FUNDS (Continued) Lone-term Debt(Continued) Component Units(Continued) Long-term activity for the year ended September 30,2005, was as follows: Beginning Ending Due Within r Balance Additions Reductions Balance One Year Economic Development Corporation: Sales Tax Revenue Bonds S 4,165,000 S 11,005.000 S 4,580,000 S 10,590.000 S 345.000 ... Deferred amount for issuance premium 155,448 155,448 7,772 Deferred loss on refunding ( 189,626) ( 189.626) ( 9.481) Co npensared absences 14,540 28.191 28.191 14.540 7,797 Total long-term liabilities S 4,179,540 S 1 Ss 4,608,191 S _10,570,362 S 351,088 Development Authority of Pearland: Tax b..,...s.0 Revenue Bonds S S 13.995.000 S S 13,995.000 S 815.000 • Total long-term liabilities S S 13.9951000 S S l� 3 995 )0 s S 815,000 — Annual debt service requirements to maturity for sales tax revenue bonds are as follows: Year Ending September 30, Principal Interest 2006 $ 345,000 $ 420,900 2007 350,000 412,275 2008 360,000 402,650 2009 375,000 391,850 2010 385,000 380,600 2011-2015 '2,140,000 1,693.590 2016-2020 2,645,000 1,190,740 2021-2025 3,255,000 575,689 2026 735,000 31,238 Total S I0� ,590,00 m. S 5�;99,532� Annual debt service requirements to maturity for tax increment revenue bonds are as follows: Year Ending September 30, Principal Interest 2006 $ 815,000 $ 668,858 2007 840,000 642,370 2008 360,000 614.020 2009 375,000 601,060 2010 390,000 586,435 2011-2015 2,215,000 2,663,241 2016-2020 2,790,000 2,085,615 2021-2025 3,570.000 1,307,981 2026-2028 2,640,000 292,489 Total $ 13�995,000+ $ 9.462.069 (continued) 42 4. DETAILED NOTES ON ALL FUNDS (Continued) Contingent Liabilities Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures that may be disallowed by the grantor cannot be determined at this time, although the government expects such amounts,if any,to be immaterial. The City is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, in the opinion of the City's counsel, the resolution of these matters will not have a material adverse effect on the financial condition of the City. Pension Plans—Primary Government Plan Description The City provides pension benefits for all of its full-time employees through a non-traditional, joint contributory, hybrid defined benefit plan in the state-wide Texas Municipal Retirement System (TMRS), one of E01 administered by TMRS, an agent multiple-employer public employee retirement system. Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the City-financed monetary credits, with interest. At the date the plan began, the City granted monetary credits for service rendered before the plan began of a theoretical amount equal to two times what would have been contributed by the employee, with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percent (100%, 150%, or 200%) of the employee's accumulated contributions. In addition, the City can grant, as often as annually, another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions and the monetary credits for service since the plan began, would be the total monetary credits and employee contributions, accumulated with interest, if the current employee contribution rate and City matching percent had always been in existence; and if the employee's salary had always been the average of his salary in the last three years that are one year before the effective date. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions, with interest, and the employer-financed monetary credits, with interest, were used to purchase an annuity. Members can retire at age 60 and above with 5 or more years of service or with 20 years of service regardless of age. A member is vested after 5 years. The plan provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS and within the actuarial constraints also in the statutes. (continued) 43 4. DETAILED NOTES ON ALL FUNDS (Continued) Pension Plans—Primary Government (Continued) Contributions The contribution rate for the employees is 7% and the City matching ratio is currently 2 to 1, both as adopted by the governing body of the City. Under the state law governing TMRS, the actuary annually determines the City contribution rate. This rate consists of the normal cost contribution rate and the prior service contribution rate,both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the currently accruing monetary credits due to the City matching percent, which the obligation of the City as of an employee's retirement date, not at the time the employee's contributions are made. The normal cost contribution rate is the actuarially determined percent of payroll necessary to satisfy the obligation of the City to each employee at the time his/her retirement becomes effective. The prior service contribution rate amortizes the unfunded (overfunded) actuarial liability(asset)over the remainder of the plan's 25-year amortization period. When the City periodically adopts updated service credits and increases its annuities in effect, the increased unfunded actuarial liability is to be amortized over a new 25-year period. The unit credit actuarial cost method is used for determining the City contribution rate. Both the employees and the City make contributions monthly. Since the City needs to know its contribution rate in advance to budget for it, there is a one-year delay between the actuarial valuation that is the basis for the rate and the calendar year when the rate goes into effect (i.e., December 31, 2004, valuation is effective for rates beginning January 2006). Schedule of Actuarial Liabilities and Funding Progress For the Years Ended September 30,2002,2003 and 2004 Actual Valuation Date 12/31/02 12/31n03 12/31/04 Actuarial value of assets S 16.390.251 $ 18,772,272 S 21,971,144 Actuarial accrued liability 19,963.606 23,190,084 26517,882 Percent funded 82.19E 80.9% 82.99E Unfunded(overfunded)actuarial accrued liability(UAAL) 3.573.355 4,417.812 4546.738 Annual covered payroll 11,151,256 17-731,012 13.703,115 UAAL as a percentage of covered payroll 32.0% 34.7% 3329E Net pension obligation(NPO at the beginning of period Annual Pension Cost: Annual required contribution(ARC) 1,228,907 1,371,452 1.480,301 Contributions made 1.228.907 1.371,452 1.480.301 Increase in NPO NPO at the end of the period f vas r mai (continued) 44 4. DETAILED NOTES ON ALL FUNDS (Continued) Pension Plans—Primary Government(Continued) Contributions(Continued) Actuarial Assumptions Actuarial Cost Method - Unit Credit Amortization Method - Level Percent of Payroll Remaining Amortization Period - 25 Years-Open Period Asset Valuation Method - Amortized Cost(to accurately reflect the requirements of GASB Statement No,25. paragraphs 36e and 138) Investment Rate of Return - 7% Projected Salary Increases - None Includes Inflation at - None Cost-of-living Adjustments - None The City is one of 801 municipalities having its benefit plan administered by TMRS. Each of the 794 municipalities has an annual, individual actuarial valuation performed. All assumptions for the December 31, 2004, valuations are contained in the 2004 TMRS Comprehensive Annual Financial Report, a copy of which may be obtained by writing to P. O. Box 149153, Austin, Texas 78714-9153. Risk ManaEement The City is exposed to various risks of loss related to torts: theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City's risk management program mainly encompasses obtaining property and liability insurance through Texas Municipal League (TML-IRP), an Intergovernmental Risk-Pool and through commercial insurance carriers. The City purchases commercial general insurance through the Texas Municipal League, an unincorporated association of political subdivisions of the State of Texas. This policy encompasses general liability, incidental, medical malpractice, automobile liability, law enforcement liability, errors and omissions liability, property, automobile vehicle liability, and damages with limits of liability for each occurrence. The City has not had any significant reduction in insurance coverage, and the amounts of insurance settlements have not exceeded insurance coverage for any of the last three years. The participation of the City in the TML-IRP is limited to payment of premiums. At year-end, the City did not have any significant claims pending. y S (continued) 45 4. DETAILED NOTES ON ALL FUNDS (Continued) • Risk Management (Continued) Workers' Compensation The City is a member of the Texas Municipal League (TML) Workers' Compensation Intergovernmental Risk Pool,an unincorporated association of political subdivisions of the State of Texas. The fund contracts with a third-party administrator for administration, investigation, and adjustment services in the handling of claims. Premiums are based on the estimated City payroll by risk factor and rates. The premiums are adjusted by the City's experience modifier. All loss contingencies, including claims incurred, but not reported, if any, are recorded and accounted for by the TML Pool. The City's liability is limited to the payment of premiums as assessed by TML. Prior Period Adjustment As of September 30, 2004, the City (overstated) understated certain assets between funds. Beginning fund equity was restated in each of the following funds to correct this error in the prior year. Amount of Fund Restatement General $ ( 1,853,778) Nonmajor governmental ( 90,130) Water and sewer 1,190,651 Economic Development Corporation ( 26,482) • Subsequent Events Debt Issuance On October 1, 2005, the Development Authority of Pearland, a discretely presented component unit, issued Tax Increment Revenue Bonds, Series 2005, in the amount of $9,775,000. These bonds were used to reimburse developers for certain project costs including infrastructure and related improvements made by such developers within Reinvestment Zone Number Two. Annexation On December 31, 2005, the City annexed approximately 582 acres of land consisting of all of Brazoria County Municipal Utility District No. 5 and adjacent portions of County Road 403 and FM 865, Brazoria County into the City. Upon the dissolution of the District, the City assumes all property and assets owned by the District, as well as all debts, liabilities and obligations of the District, and must provide all City services to the annexed areas. Capital assets and long-term debt acquired were approximately$1 1.7 million and$8.3 million, respectively. a 46 APPENDIX C FORM OF BOND COUNSEL OPINION AN D RE WS Andrews&KurthLLP ATTORNEYS K U R T H LLP 600 Travis.State 4200 Houston.Texas 77002 713 220.4200 Phone 713.220.4285 Fax andrewskurth.corn June 8,2006 WE HAVE ACTED as Bond Counsel for the City of Pearland, Texas (the "City") in connection with an issue of bonds(the"Bonds")described as follows: CITY OF PEARLAND, TEXAS PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006, dated June 1, 2006, in the aggregate principal amount of $32,165,000 maturing on March 1, 2007 through March 1, 2027, inclusive and on March 1, 2029. The Bonds are issuable in fully registered form only, in denominations of$5,000 or integral multiples thereof, bear interest and may be transferred and exchanged as set out in the Bonds and in the ordinance (the "Ordinance") adopted by the City Council of the City authorizing their issuance. WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds from gross income under federal income tax law. In such capacity we have examined the Constitution and laws of the State of Texas; federal income tax law; and a transcript of certain certified proceedings pertaining to the issuance of the Bonds and the bonds and certificates of obligation that are being refunded (the "Refunded Obligations") with the proceeds of the Bonds, as described in the Ordinance. The transcript contains certified copies of certain proceedings of the City and Wells Fargo Bank, N.A., Houston, Texas (the "Escrow Agent"); the report (the "Report") of Grant Thornton LLP, certified public accountants, which verifies the sufficiency of the deposits made with the Escrow Agent for the defeasance of the Refunded Obligations and the mathematical accuracy of certain computations of the yield on the Bonds and the obligations acquired with the proceeds of the Bonds; certain certifications and representations and other material facts within the knowledge and control of the City, upon which we rely; and certain other customary documents and instruments authorizing and relating to the issuance of the Bonds and the firm banking and financial arrangements for the discharge and final payment of the Refunded Obligations. We have also examined executed Bond No. R-1 of this issue. WE HAVE NOT BEEN REQUESTED to examine, and have not investigated or verified, any original proceedings, records, data or other material, but have relied upon the transcript of certified proceedings. We have not assumed any responsibility with respect to the financial condition or capabilities of the City or the disclosure thereof in connection with the sale of the Bonds. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. BASED ON SUCH EXAMINATION,it is our opinion as follows: w• Austin Dallas Houston London Los Ange'es New York The Woodlands WasnIngfon.DC June 8, 2006 Page 2 (1) The transcript of certified proceedings evidences complete legal authority for the issuance of the Bonds in full compliance with the Constitution and laws of the State of Texas presently in effect; the Bonds constitute valid and legally binding obligations of the City enforceable in accordance with the terms and conditions thereof, except to the extent that the rights and remedies of the owners of the Bonds may be limited by laws heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors of political subdivisions and the exercise of judicial discretion in appropriate cases; and the Bonds have been authorized and delivered in accordance with law; (2) The Bonds are payable,both as to principal and interest, from the receipts of an annual ad valorem tax levied, within the limits prescribed by law, upon taxable property located within the City, which taxes have been pledged irrevocably to pay the principal of and interest on the Bonds; and (3) The escrow agreement between the City and the Escrow Agent (the "Escrow Agreement") has been duly executed and delivered and constitutes a binding and enforceable agreement in accordance with its terms; the establishment of the Escrow Fund pursuant to the Escrow Agreement and the deposit made therein constitute the making of firm banking and financial arrangements for the discharge and final payment of the Refunded Obligations; in reliance upon the accuracy of the calculations contained in the Report, the Refunded Obligations, having been discharged and paid, are no longer outstanding and the lien on and pledge of ad valorem taxes and other revenues as set forth in the ordinance authorizing their issuance will be appropriately and legally defeased; the holders of the Refunded Obligations may obtain payment of the principal of, redemption premium, if any, and interest on the Refunded Obligations only out of the funds provided therefor now held in escrow for that purpose by the Escrow Agent pursuant to the terms of the Escrow Agreement; and therefore the Refunded Obligations are deemed to be fully paid and no longer outstanding, except for the purpose of being paid from the funds provided therefor in such Escrow Agreement. ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our further opinion that, subject to the restrictions hereinafter described, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes under existing law and is not subject to the alternative minimum tax on individuals or, except as hereinafter described, corporations. The opinion set forth in the first sentence of this paragraph is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax June 8, 2006 Page 3 purposes. The City has covenanted in the Ordinance to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. The Code and the existing regulations, rulings and court decisions thereunder, upon which the foregoing opinions of Bond Counsel are based, are subject to change, which could prospectively or retroactively result in the inclusion of the interest on the Bonds in gross income of the owners thereof for federal income tax purposes. INTEREST ON all tax-exempt obligations, including the Bonds, owned by a corporation (other than an S corporation, a regulated investment company, a real estate investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securitization investment trust (FASIT)) will be included in such corporation's adjusted current earnings for purposes of calculating such corporation's alternative minimum taxable income. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. Purchasers of Bonds are directed to the discussion entitled "TAX EXEMPTION" set forth in the Official Statement. EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or local tax consequences under present law, or future legislation, resulting from the ownership of, receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations, such as the Bonds, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies,property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax- -. exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations and individuals otherwise qualified for the earned income tax credit. For the foregoing reasons, prospective purchasers should consult their tax advisors as to the consequences of investing in •• the Bonds. a i 7867r7866 APPENDIX D THE REFUNDED BONDS Maturity Refunded Call Remaining Series Date Bonds Date/Price Outstanding Unlimited Tax Bonds, 9-1-2006 $ 100,000 6-9-06 @ 100 -0- Series 1995 9-1-2007 110,000 6-9-06 @ 100 -0- ,. (Brazoria Co. MUD#5) 9-1-2008 115,000 6-9-06 @ 100 -0- 9-1-2009 125,000 6-9-06 @ 100 -0- 9-1-2010 135,000 6-9-06 @ 100 -0- 9-1-2011 145,000 6-9-06 @ 100 -0- 9-1-2012 155,000 6-9-06 @ 100 -0- 9-1-2013 165,000 6-9-06 @ 100 -0- 9-1-2014 175,000 6-9-06 @ 100 -0- 9-1-2015 190,000 6-9-06 @ 100 -0- Unlimited Tax Bonds, 9-1-2006 $ 85,000 Non-Callable -0- Series 1998 9-1-2007 90,000 9-1-06 @ 100 -0- (Brazoria County MUD#5) 9-1-2008 95,000 9-1-06 @ 100 -0- 9-1-2009 100,000 9-1-06 @ 100 -0- 9-1-2010 105,000 9-1-06 @ 100 -0- 9-1-2011 115,000 9-1-06 @ 100 -0- 9-1-2012 125,000 9-1-06 @ 100 -0- 9-1-2013 245,000 9-1-06 @ 100 -0- 9-1-2014 260,000 9-1-06 @ 100 -0- 9-1-2015 275,000 9-1-06 @ 100 -0- Unlimited Tax Refunding 3-1-2007 $ 450,000 6-9-06 @ 100 -0- .. Bonds,Series 1998 3-1-2008 475,000 6-9-06 @ 100 -0- (Brazoria Co.MUD#5) 3-1-2009 495,000 6-9-06 @ 100 -0- 3-1-2010 520,000 6-9-06 @ 100 -0- 3-1-2011 540,000 6-9-06 @ 100 -0- 3-1-2012 565,000 6-9-06 @ 100 -0- Unlimited Tax Bonds, 9-1-2006 $ 75,000(a) Non-Callable Series 1999 9-1-2008 165,000(a) 9-1-06 @ 100 -0- (Brazoria Co.MUD#5) 9-1-2010 180,000(a) 9-1-06 @ 100 -0- 9-1-2012 190,000(a) 9-1-06 @ 100 -0- 9-1-2013 420,000 9-1-06 @ 100 -0- 0. 9-1-2014 445,000 9-1-06 @ 100 -0- 9-1-2015 460,000 9-1-06 @ 100 -0- 17.890.000 (a) Represents Term Bonds. r S APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY Exhibit A FGIC Financial Guaranty Insurance Company 125 Park Avenue New York,NY 10017 T 212.312.3000 T 800.352-0001 Municipal Bond New Issue Insurance Policy Issuer: Policy Number: Control Number: 0010001 Bonds: Premium: Financial Guaranty Insurance Company("Financial G " a w York stock insurance company, in consideration of the payment of the premium and su. ct to terms of this Policy,hereby unconditionally and irrevocably agrees to pay to U.S. Bank T .t tio.•1 Association or its successor, as its agent (the "Fiscal Agent"), for the benefit of Bon .'. , :- portion of the principal and interest on the above- described debt obligations (the "Bonds..ch s .11 become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. Financial Guaranty will make such payments to the Fiscal Agent on the date such principal or interest becomes Due for Payment or on the Business Day next following the day on which Financial Guaranty shall have received Notice of Nonpayment, whichever is later. The Fiscal Agent will disburse to the Bondholder the face amount of principal and interest which is then Due for Payment but is unpaid by reason of Nonpayment by the Issuer but only upon receipt by the Fiscal Agent, in form reasonably satisfactory to it, of(i) evidence of the Bondholder's right to receive payment of the principal or interest Due for Payment and (ii) evidence, including any appropriate instruments of assignment, that all of the Bondholder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Financial Guaranty. Upon such disbursement, Financial Guaranty shall become the owner of the Bond, .10 appurtenant coupon or right to payment of principal or interest on such Bond and shall be fully subrogated to all of the Bondholder's rights thereunder,including the Bondholder's right to payment thereof. This Policy is non-cancellable for any reason. The premium on this Policy is not refundable for any reason, including the payment of the Bonds prior to their maturity. This Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bond. As used herein, the term "Bondholder" means, as to a particular Bond, the person other than the Issuer who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof. "Due for Payment"means, when referring to the principal of a Bond,the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption(other than by mandatory sinking fund redemption),acceleration or other advancement of maturity and means,when referring to interest on a Bond,the stated date for payment of interest. "Nonpayment" in respect of a Bond means the failure of the Issuer to have provided sufficient funds to the paying agent for payment in full of all FGIC is a registered service mane used by Financial Guaranty Insurance Company under license from ns parent company.FGIC Corporation Form 9000(10/93; Page 1 012 FDIC Financial Guaranty Insurance Company 125 Park Avenue New York,NY 10017 T 212.312.3000 T 800.352.0001 Municipal Bond New Issue Insurance Policy principal and interest Due for Payment on such Bond. "Notice" means telephonic or telegraphic notice, subsequently confirmed in writing,or written notice by registered or certified mail, from a Bondholder or a paying agent for the Bonds to Financial Guaranty. "Business Day"means any day other than a Saturday, Sunday or a day on which the Fiscal Agent is authorized by law to re in osed. In Witness Whereof, Financial Guaranty has caused this Policy i ed with its corporate seal and to be signed by its duly authorized officer in facsimil • •? effective and binding upon Financial Guaranty by virtue of the countersignature of its d utho ' d representative. Q President Effective Date: Authorized Representative U.S.Bank Trust National Association,acknowledges that it has agreed to perform the duties of Fiscal Agent under this Policy. Authorized Officer FGIC is a registered service mark usec oy Financial Guaranty insurance Company under license from c m parerx company.FGIC Corootaf On Page 2of2 Form 9000(10/93) FDIC Financial Guaranty Insurance Company 125 Park Avenue New York,NY 10017 T 212-312.3000 T 800.352.0001 Endorsement To Financial Guaranty Insurance Company Insurance Policy Policy Number: Control Number: 0010001 It is further understood that the term"Nonpayment"in res t o includes any payment of principal or interest made to a Bondholder by or on behalf of th e u h Bond which has been recovered from such Bondholder pursuant to the United States B, •tc de by a trustee in bankruptcy in accordance with a final,nonappealable order of a court r• •. •-• nt jurisdiction. NOTHING HEREIN SHALL BE C •UED TO WAIVE, ALTER, REDUCE OR AMEND COVERAGE IN ANY OTHER SECT5 OF THE POLICY. IF FOUND CONTRARY TO THE POLICY LANGUAGE, THE TERMS OF THIS ENDORSEMENT SUPERSEDE THE POLICY LANGUAGE. In Witness Whereof,Financial Guaranty has caused this Endorsement to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. President Effective Date: Authorized Representative Acknowledged as of the Effective Date written above: Authorized Officer US.Bank Trust National Association,as Fiscal Agent stora FGIC is a registered serve man used by Financial Guaranty insurance Company under 4cense from its barest company.FGIC Pagetion. 1 Form E-0002(10/93) n. PAYING AGENT/REGISTRAR AGREEMENT THIS PAYING AGENT/REGISTRAR AGREEMENT dated as of May 8, 2006 (together with any amendments or supplements hereto, the "Agreement") is entered into by and between the CITY OF PEARLAND, TEXAS (the "Issuer"), and WELLS FARGO BANK, N.A., HOUSTON, TEXAS, as paying agent/registrar(together with any successor in such capacity, the "Bank"). WITNESSETH: WHEREAS, the Issuer has duly authorized and provided for the issuance of its City of Pearland, Texas Permanent Improvement and Refunding Bonds, Series 2006 (the "Bonds") in the aggregate principal amount of approximately $32,165,000 to be issued as fully registered bonds. WHEREAS, all things necessary to make the Bonds the valid obligations of the Issuer, in accordance with their terms, will be done upon the issuance and delivery thereof; WHEREAS, the Issuer and the Bank wish to provide the terms under which the Bank will act as Paying Agent to pay the principal of, redemption premium, if any, and interest on the Bonds, in accordance with the terms thereof; and under which the Bank will act as Registrar for the Bonds; and WHEREAS, the Issuer and the Bank have duly authorized the execution and delivery of this Agreement; and all things necessary to make this Agreement the valid agreement of the parties, in accordance with its terms, have been done. NOW, THEREFORE, it is mutually agreed as follows: ARTICLE I. APPOINTMENT OF BANK AS PAYING AGENT AND REGISTRAR Section 1.1. Appointment. The Issuer hereby appoints the Bank to act as Paying Agent with respect to the Bonds, to pay to the Registered Owners of the Bonds, in accordance with the terms and provisions of this Agreement and the ordinance authorizing the issuance of the Bonds (the "Ordinance"), the principal of, redemption premium, if any, and interest on all or any of the Bonds. The Issuer hereby appoints the Bank as Registrar with respect to the Bonds. The Bank hereby accepts its appointment, and agrees to act as Paying Agent and Registrar with respect to the Bonds. 1 HOU.2573923.1 Section 1.2. Compensation. In consideration of the deposits of funds required to be made with the Bank by the Issuer pursuant to the provisions of the Ordinance, the Bank shall be paid the fees set forth in the Bank's fee schedule attached as Exhibit A hereto and agrees to abide by and accept the terms hereof and of the Ordinance relating to the duties of the Paying Agent/Registrar. ARTICLE II. DEFINITIONS Section 2.1. Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: "Bank" means Wells Fargo Bank, N.A., Houston, Texas, a commercial bank duly organized and existing under the laws of the United States of America. "Bond" or "Bonds" means any one or all of the "City of Pearland, Texas Permanent Improvement and Refunding Bonds, Series 2006" authorized by the Bond Ordinance. "Issuer" means the City of Pearland, Texas. "Ordinance" means the ordinance approved by the City Council of the Issuer on May 8, 2006 authorizing the issuance of the Bonds. "Paying Agent" means Wells Fargo Bank, N.A., Houston, Texas. "Person" means any individual, corporation, partnership,joint venture, associations,joint stock company, trust, unincorporated organization or government or any agency or political subdivision of a government or any entity whatsoever. "Registrar"means the Bank when it is performing the function of registrar. "Registered Owner" means the Person in whose name any Bond is registered in the books of registration maintained by the Bank under this Agreement. All other capitalized terms shall have the meanings assigned to them in the Ordinance. ARTICLE III. DUTIES OF THE BANK Section 3.1. Initial Delivery of the Bonds. •• 2 HOU.2573923.1 The Bonds will be initially registered and delivered by the Bank to the purchaser designated by the Issuer as set forth in the Ordinance. If such purchaser delivers a written request to the Bank not later than five business days prior to the date of initial delivery, the Bank will, on the date of initial delivery, exchange the Bonds initially delivered for Bonds of authorized denominations, registered in accordance with the instructions in such request and the Ordinance. Section 3.2. Duties of Paying Agent. As Paying Agent, the Bank shall, provided adequate funds have been provided to it for such purpose by or on behalf of the Issuer, timely pay on behalf of the Issuer the principal of and interest on each Bond in accordance with the provisions of the Ordinance. If the issue is to be Depository Trust Company (DTC) eligible, the Paying Agent will comply with all eligibility requirements as outlined and agreed upon in the eligibility questionnaire. Section 3.3. Duties of Registrar. The Bank shall provide for the proper registration of the Bonds and the timely exchange, replacement and registration of transfer of the Bonds in accordance with the provisions of the Ordinance. Any changes to Registered Owners for such exchange, replacement and registration shall be made by the Bank only in accordance with the Ordinance. The Bank will maintain the books of registration in accordance with the Bank's general practices and procedures in effect from time to time; provided, however, that the Bank agrees to maintain books of registration for the Bonds at the City Secretary's office in City of Pearland, Texas. which books of registration may be a copy of the register which shall be kept current by the Bank. Section 3.4. Unauthenticated Bonds. The Issuer shall provide an adequate inventory of unauthenticated Bonds to facilitate transfers. The Bank covenants that it will maintain such unauthenticated Bonds in safekeeping and will use reasonable care in maintaining such Bonds in safekeeping, which shall be not less than the care it maintains for debt securities of other government entities or corporations for which it serves as registrar, or which it maintains for its own bonds. Section 3.5. Reports. Upon request of the Issuer, the Bank will provide the Issuer reports which will describe in reasonable detail all transactions pertaining to the Bonds and the books of registration for the period of time specified by the Issuer. The Issuer may also inspect and make copies of the information in the books of registration and such other documents related to the Bonds and in the Bank's possession at any time the Bank is customarily open for business, provided that reasonable time is allowed the Bank to provide an up-to-date listing or to convert the information into written form. The Bank will not release or disclose the content of the books of registration to any person other than to, or at the written request of, an authorized officer or employee of the Issuer, 3 HOU2573923.I i except upon receipt of a subpoena, court order or as otherwise required by law. Upon receipt of a subpoena, court order or other lawful request, the Bank will notify the Issuer immediately so that the Issuer may contest the subpoena, court order or other request if it so chooses. Section 3.6. Canceled Bonds. All Bonds surrendered for payment, redemption, transfer, exchange or replacement, if surrendered to the Bank, shall be promptly canceled by it and, if surrendered to the Issuer, shall be delivered to the Bank and, if not already canceled, shall be promptly canceled by the Bank. The Issuer may at any time deliver to the Bank for cancellation any Bonds previously authenticated and delivered which the Issuer may have acquired in any manner whatsoever, and all Bonds so delivered shall be promptly canceled by the Bank. All canceled Bonds held by the Bank shall be destroyed and evidence of such destruction shall be furnished to the Issuer. Section 3.7. Reliance on Documents, Etc. (a) The Bank may conclusively rely, as to the truth of the statements and correctness of the opinions expressed therein, on certificates or opinions furnished to the Bank by the Issuer. (b) The Bank shall not be liable to the Issuer for actions taken under this Agreement as long as it acts in good faith and exercises due diligence, reasonableness and care, as prescribed by law, with regard to its duties hereunder. (c) This Agreement is not intended to require the Bank to expend its own funds for performance of any of its duties hereunder. (d) The Bank may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attorneys... Section 3.8. Money Held by Bank. Money held by the Bank hereunder shall be held in trust for the benefit of the Registered Owners of the Bonds. The Bank shall be under no obligation to pay interest on any money received by it hereunder. All money deposited with the Bank hereunder shall be secured in the manner and to the fullest extent required by law for the security of funds of the Issuer. Any money deposited with the Bank for the payment of the principal of or interest on any Bonds and remaining unclaimed by the Registered Owner after the expiration of three years from the date such funds have become due and payable shall be reported and disposed of by the Bank in accordance with the provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. To the extent such provisions of the Property Code do not apply to the funds, such funds shall be paid by the Bank to the Issuer upon receipt of a written request therefor from the Issuer. The Bank shall have no liability to the Registered Owners of the Bonds by virtue of actions taken in compliance with the foregoing provision. *• 4 HOIJ:2573923.1 r • r ARTICLE IV. MISCELLANEOUS PROVISIONS Section 4.1. May Own Bonds. The Bank, in its individual or any other capacity, may become the owner or pledgee of Bonds with the same rights it would have if it were not the Paying Agent and Registrar for the Bonds. Section 4.2. Amendment. This Agreement may be amended only by an agreement in writing signed by both of the parties hereof. Section 4.3. Assignment. This Agreement may not be assigned by either party without the prior written consent of the other. Section 4.4. Notices. Any request, demand, authorization, direction, notice, consent, waiver or other document provided or permitted hereby to be given or furnished to the Issuer or the Bank shall be mailed or delivered to the Issuer or the Bank, respectively, at the addresses shown herein, or such other address as may have been given by one party to the other by 15 days' written notice. Section 4.5. Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 4.6. Successors and Assigns. All covenants and agreements herein by the Issuer and the Bank shall bind their successors and assigns, whether so expressed or not. This Agreement shall not be assigned by the Bank without the prior written consent of the Issuer. Section 4.7. Severability. Y r If any provision of this Agreement shall be invalid or unenforceable, the validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired. ' 5 HOU:2573923.] Section 4.8. Benefits of Agreement. Nothing herein, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any benefit or any legal or equitable right, remedy or claim hereunder. Section 4.9. Ordinances Govern Conflicts. This Agreement and the Ordinance constitute the entire agreement between the parties hereto relative to the Bank acting as Paying Agent and Registrar and if any conflict exists between this Agreement and the Ordinance, the Ordinance shall govern. The Bank agrees to be bound by the terms of the Ordinance with respect to the Bonds. Section 4.10. Term and Termination. This Agreement will terminate on the date of the final payment by the Bank issuing its checks for the final payment of principal and interest on the Bonds. This Agreement shall be effective from and after its date and may be terminated for any reason by the Issuer or the Bank at any time upon 60 days' written notice; provided, however, that no such termination shall be effective until a successor has been appointed and has accepted the duties of the Bank hereunder. The Bank agrees to give written notice to each owner of Bonds of the appointment of a successor Paying Agent/Registrar, by United States mail, first class postage prepaid. All expenses incurred in connection with such notices shall be paid by the Issuer. If a successor Paying Agent/Registrar has not been appointed within 45 days of such resignation or termination, then the Bank or the Issuer, at Issuer's expense, may petition a court of competent jurisdiction to appoint a successor Paying Agent/Registrar. In the event of early termination regardless of circumstances, the Bank shall deliver to the Issuer or its designee all funds, Bonds and all books and records pertaining to the Bank's role as Paying Agent and Registrar with respect to the Bonds, including, but not limited to, the books of registration. Section 4.11. Interpleader. The Issuer and the Bank agree that the Bank may seek adjudication of any adverse claim, demand, or controversy over its person as well as funds on deposit hereunder, in either the District Court of Harris County, Texas or the United States Federal District Court for the Southern District of Texas, waive personal service of any process, and agree that service of process by certified or registered mail, return receipt requested, to the address set forth herein shall constitute adequate service. The Issuer and the Bank further agree that the Bank has the right to file a Bill of Interpleader in any court of competent jurisdiction within the State of Texas, at the expense of the Issuer, to determine the rights of any person claiming any interest hereunder. Section 4.12. Merger, Conversion, Consolidation or Succession. Any corporation into which the Bank may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion, or consolidation to 6 HOL:2_573923.1 which the Bank shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Bank shall ipso facto be the successor of the Bank hereunder without the execution or filing of any paper or any further act on the part of either of the parties hereto. In case any Bond shall have been registered, but not delivered, by the Bank then in office, any successor by merger, conversion, or consolidation to such authenticating Bank may adopt such registration and deliver the Bonds so registered with the same effect as if such successor Bank had itself registered the Bonds. Section 4.13. Bank Not a Trustee. This Agreement shall not be construed to require the Bank to enforce any remedy which any Registered Owner may have against the Issuer during any default or event of default under any agreement between any Registered Owner and the Issuer, including the Ordinances or to act as trustee for such Registered Owner. Section 4.14. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement. Section 4.15. Governing Law. This Agreement shall be construed in accordance with and shall be governed by the laws of the State of Texas. - 7 HOU.2573923.I r IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CITY OF PEARLAND, TEXAS By: Tom Reid, Mayor Address: 3519 Liberty Drive Pearland, Texas 77581 ATTEST: • 1ng L''1.� Cit/:ecre�;�y .%uuiuhi��#/, _ S ,- f•••.Q Ae WELLS FARGO BANK' N.A. - c3 •• By: Title: fAddress: T5001-061 MAC 1000 Louisiana Houston, Texas 77002 Attn: Corporate Trust Department ATTEST: By: rTitle: (SEAL) r r V r S-1 HOU:2573923.1 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CITY OF PEARLAND, TEXAS By: Tom Reid, Mayor Address: 3519 Liberty Drive Pearland, Texas 77581 ATTEST: Young Lorfing, City Secretary (SEAL) WELLS FARGO BANK, N.A. By: Title: Vice Press nt Address: T5001-061 MAC 1000 Louisiana Houston, Texas 77002 Attn: Corporate Trust Department ATTEST: By: l 1��•�-6/ Title: \/inp Prcident (SEA\‘\11111Gp/////���/ v RP Oq 'f' 2 ift SEAL.. a S-1 HOU:2573923.1 I FEXHIBIT A ICity of Pearland, Texas Permanent Improvement and Refunding Bonds, Series 2006 F IFee Schedule F I I r I F .. I I If I F r r liHOU:2573923.1 Sherri H. Owen Wells Fargo Bank WELLS Corporate Trust Services 1AG O 1445 Ross Avenue, 2nd Floor Dallas, Texas 75202 Tel: (214) 668-6450 Fax: (214)777-4086 SCHEDULE OF FEES $32,165,000 City of Pearland, Texas Permanent Improvement and Refunding Bonds, Series 2006 To act as PAYING AGENT& REGISTRAR& ESCROW AGENT Acceptance Fee: $0.00 Initial Fees as they relate to Wells Fargo Bank acting in the capacity of Paying Agent/Registrar— includes creation and examination of the Paying Agent/Registrar Agreement; acceptance of the appointment; setting up of Paying Agent/Registrar records and accounting records; and coordination of closing. Acceptance Fee payable at time of Paying Agent/Registrar Agreement execution. Annual Administration Fee: $500.00 For ordinary administration services by Paying Agent/Registrar — includes daily routine account management; investment transactions; cash transaction processing in accordance with the agreement; and mailing of trust account statements to all applicable parties. Float credit received by the bank for receiving funds that remain uninvested are deemed part of the Paying Agent's compensation. The Annual Administration fees are payable in advance, with the first installment due at closing. Escrow Administration Fee : $500.00 For ordinary administration services by Escrow Agent through maturity of 9/1/06 includes daily routine account management; investment transactions; cash transaction processing in accordance with the agreement; and mailing of trust account statements to all applicable parties. Float credit received by the bank for receiving funds that remain uninvested are deemed part of the Paying Agent's compensation. The Administration fees are payable in advance, with the first installment due at closing. Out of Pocket Expenses: We only charge for out of pocket expenses in response to specific tasks assigned by the client. Therefore, we cannot anticipate what specific out-of-pocket items will be needed or what corresponding expenses will be incurred. Possible expenses would be, but are not limited to, express mail and messenger charges, travel expenses to attend closing or other meetings. There are no charges for indirect out-of- pocket expenses. This fee schedule is based upon the assumptions listed above which pertain to the responsibilities and risks involved in Wells Fargo undertaking the role of Paying Agent/Registrar. These assumptions are based on information provided to us as of the date of this fee schedule. Our fee schedule is subject to review and acceptance of the final documents. Should any of the assumptions, duties or responsibilities change, we reserve the right to affirm, modify or rescind our fee schedule. Submitted by: Sherri H. Owen—May 15, 2006 Vice President/Business Development Wells Fargo Bank (214)668-6450 P# PA ESCROW a GENERAL CERTIFICATE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § CITY OF PEARLAND § We, the undersigned officers of the City of Pearland, Texas (the "City"), do hereby make '- and execute this certificate for the benefit of the Attorney General of the State of Texas and all other persons interested in the City's $32,165,000 CITY OF PEARLAND, TEXAS PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006, dated as of June 1, 2006 (the"Bonds"), now in the process of issuance, as follows: (1) The City is a home rule municipality operating under its own charter, which has not been amended, repealed, changed or altered since certain amendments were made thereto at an election held on May 13, 2006. The canvassing Order showing the changes made to the City's charter in the May 13, 2006 election is attached hereto as Exhibit A. Prior to the changes made at the May 13, 2006 election the City's Charter had not been changed since August 9, 2005, the date of approval by the Attorney General of the State of Texas of the City of Pearland, Texas Permanent Improvement Bonds and Refunding Bonds, Series 2005, dated July 15, 2005, which are the last obligations issued by or on behalf of the City. (2) The Bonds are being issued to provide funds (i) for the construction and improvements of city streets; (ii) for refunding certain outstanding debt of the City; and (iii) for paying costs of issuance of the Bonds and other professional services related thereto. The total amount of bonds approved at the City's election held November 6, 2001, the amount previously issued and the amount remaining are as follows: Less Authorized Purpose Authorized Prior Bonds The Bonds But Unissued Drainage projects and $22,500,000 S22,500,000 $0 $0 facilities -- Streets and bridges 92,500,000 $38,698.470.40 24.090,000* 29,711,529.60 $115,000,000 $61,198,470.40 $24,090,000* $29,711,529.60 * Includes $90.000 of premium generated on the sale of the new money portion of the Bonds that will be applied against voted authorization after the deduction of applicable underwriters' discount and issuance expenses a (3) The Bonds were sold at a price equal to $32,257,573.20 (representing the par value thereof plus a net premium on the Bonds of$349,893.20 and less an underwriting discount of S257,320.00) plus accrued interest, by means of a competitive sale to Citigroup Global Markets, Inc. HOU:2573945.2 f r (4) That the Election authorizing the issuance of the Bonds, which was held in the City for that purpose on November 6, 2001, was held in accordance with the Voting Rights Act of 1965 and the Texas Election Code, as amended. (5) From May 8, 2006 to May 22, 2006, the following individuals were the duly elected and qualified Mayor and City Council of the City holding the offices opposite their names: Tom Reid Mayor Kevin Cole Mayor Pro TernRichard F. Tetens Council Member Woodrow"Woody"Owens Council Member ESteve Saboe Council Member Larry R. Marcott Council Member (6) From May 22, 2006 to the date hereof, the following individuals were the duly elected and qualified Mayor and City Council of the City holding the offices opposite their names: rTom Reid Mayor Kevin Cole Mayor Pro Tern Richard F. Tetens Council Member rSteve Saboe Council Member Felicia Kyle Council Member Helen Beckman Council Member (7) From May 8, 2006, to the date hereof, Young Lorfing has been the duly appointed and qualified City Secretary of the City. (8) Attached to this certificate as Exhibit B is a true, full and correct debt service schedule for the Bonds and for all presently outstanding obligations of the City which are payable from ad valorem taxes. (9) The currently effective ad valorem tax appraisal roll of the City (the "Tax Roll") is the Tax Roll prepared and approved during the calendar year 2006, being the most recently approved Tax Roll of the City; the taxable property in the City has been appraised, assessed and valued as required and provided by the Texas Constitution and Property Tax Code (collectively, "Texas law"); the Tax Roll for the year has been submitted to the City Council of the City as required by Texas law, and has been approved and recorded by the City Council; and according to the Tax Roll for the year, the net aggregate taxable value of taxable property in the City (after deducting the amount of all applicable exemptions required or authorized under Texas law), upon which the annual ad valorem tax of the City has been or will be imposed or levied, is $3,816,235,030. C (10) All of the meetings held by the City Council of the City, pursuant to which any proceedings were passed, adopted and approved in connection with the Bonds, were meetings I r 2 HOU:2573945.2 a open to the public for which public notice had been given, all as required by law and particularly as required by the Open Meetings Law, Chapter 551, Texas Government Code, as amended. a (11) That a true and correct savings report for the Bonds is attached hereto as Exhibit C. The gross loss attributable to the refunding is $3,953,084.72 and the present value loss is $1,767.47. [Signature Page Follows] a a a a a r ► r r r r3 HOU:2573945.2 r rSIGNED AND SEALED this --, day of , 2006. CITY OF PEARLAND, TEXAS r By: s4.1 Tom Reid, Mayor ADDRESS: 3519 Liberty Drive Pearland, Texas 77581 ATTEST: r J YigLorfi �, PVSe,i-tary / ( „„„„.,,,„.. Q.9 r r r r [Signature Page] HOU:2573945.1 r I EXHIBIT A CANVASSING ORDER FOR MAY 13, 2006 ELECTION RELATING TO AMENDMENTS TO CITY CHARTER • r r ► r r r r r r ► r r r r _ OE ®i Pt91P u -ME - 4 PEARLAND TEX AS ) CERTIFICATION THE STATE OF TEXAS § COUNTIES OF BRAZORIA, HARRIS, & FORT BEND. § I, Young Lorfing, City Secretary of the City of Pearland, Texas, hereby certifies that the attached constitutes a true and correct copy of Resolution No. R2006-65 duly passed and approved by the City Council on the 22nd day of May 2006. Witness my hand and seal of the City of Pearland, Texas, this 25th day of May 2006, at Pearland, Texas. ung ity S etary ''III!, ff1111111�00% 3519 LIBERTY DRIVE • PEARLAND,TEXAS 77581-5416 • 281-652-1600 • www.ci.pearland.tx.us C,Pnmetl on Recvtb0 Paper RESOLUTION NO. R2006-65 A RESOLUTION AND ORDER OF THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS, CANVASSING THE RETURNS AND DECLARING THE RESULTS OF THE GENERAL AND SPECIAL ELECTION HELD IN THE CITY OF PEARLAND, TEXAS, ON MAY 13, 2006. WHEREAS, there was held in the City of Pearland, Texas, on the 13th day of May, 2006, a City General Election and Special Election at which the offices to be filled for Member of the Council, Position No. Two (2), and Member of the Council, Position No. Four (4), along with Five (5) proposed Charter Amendments were submitted to a vote of the duly qualified resident electors of said City. WHEREAS, at this Special Meeting of the City Council of the City of Pearland, on May 22, 2006, after date of said election, being held for the purpose of canvassing the returns and declaring the results of the General and Special Election held on May 13, 2006; now therefore, BE IT RESOLVED AND ORDERED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS: SECTION I. That the election described was duly called and notice thereof given in accordance with law; that said election was held in the manner required by law; that due returns of said election have been made by the proper officers; and it appeared from said returns, duly and legally made, that there were cast at such election 1,142 valid and legal votes; and that said election resulted in the following vote totals: FOR MEMBER OF THE COUNCIL, POSITION NUMBER TWO (2) NAME OF CANDIDATE NUMBER OF VOTES RECEIVED PERCENTAGE Helen Beckman 808 70.75 % RESOLUTION NO. 2005-65 FOR MEMBER OF THE COUNCIL, POSITION NUMBER FOUR (4) NAME OF CANDIDATE NUMBER OF VOTES RECEIVED PERCENTAGE Randy L. Patro 483 45.39 % Felicia Kyle 581 54.61 PROPOSED CHARTER AMENDMENTS AMENDMENT NO. 1 AMENDING SECTION 1.02 FOR 745 71.98% AGAINST 290 28.02% AMENDMENT NO. 2 AMENDING SECTION 3.01 FOR 766 74.95% AGAINST 256 25.05% AMENDMENT NO. 3 AMENDING SECTION 3.08 FOR 922 87.39% AGAINST 133 12.61 AMENDMENT NO. 4 AMENDING SECTION 6.13 FOR 867 85.08% AGAINST 152 14.92% AMENDMENT NO. 5 AMENDING SECTION 6.14 FOR 898 87.70% AGAINST 126 12.30% SECTION II. The City Council of the City of Pearland, Texas, hereby officially and affirmatively declares that the results as shown above are the real and true results of the election held on May 13, 2006, within the City of Pearland, Texas, that the candidate elected for Member of Council, Position Number Two (2) is declared to Helen Beckman and the candidate elected for Member of the Council, Position Number Four (4) is declared to 2 RESOLUTION NO. 2006-65 be Felicia Kyle, and said above parties are hereby declared duly elected to said respective offices, subject to taking of their Oaths of Office and Statements of Elected Officers as provided by the laws of the State of Texas. SECTION III. The City Council of the City of Pearland, Texas, hereby officially and affirmatively declares that Amendment Numbers 1 through 5 (attached hereto as Exhibit "A" passed. SECTION IV. The following Exhibit A, (Charter Amendments), Exhibit B (Cumulative Report) & Exhibit C (Canvass Report) are attached hereto and made a part hereof by reference. PASSED, APPROVED, ADOPTED, and ORDERED this 22nd day of May, A. D., 2006`�‘001",14,,�4 •% �; Mayor ti 14108I111I1N`,```‘ 'I • /nL/6M/Se. ary APPROVED AS TO FORM: Darrin M. Coker City Attorney 3 Exhibit "A" Resolution No. R2006-65 2005 CITY OF PEARLAND CHARTER REVIEW COMMISSION'S PROPOSED CHARTER AMENDMENTS AND RECOMMENDATION CHARTER AMENDMENTS Section 1.02. Incorporation. The inhabitants of the City of Pearland in Brazoria, and Hams and Foit Bend Counties, .. Texas, within the corporate limits as now established and as hereafter altered, shall continue to be and are hereby constituted a municipal body politic and corporate, in perpetuity, under the name "CITY OF PEARLAND," hereinafter referred to as the "city," and having such powers, privileges, rights, duties and immunities as are herein provided. Section 3.01. Number, selection and term. The legislative and governing body of the city shall consist of mayor and five (5) council members and shall be known as the "city council of the City of Pearland, Brazoria, a Harris and Fort Bend Counties, Texas." (a) The mayor shall be elected from the city at large. The councilmembers shall be elected from the city at large by positions and shall be known as positions 1, 2, 3, 4 and 5. (b) The mayor shall be the presiding officer of the city council and shall be recognized as the head of the city government for all ceremonial purposes and by the governor for purposes of_ military law. The mayor shall be allowed to vote only in case of a tie vote. T he mayor shall not be'included m any ealcuTat on of the number of-votes needed for the city council to take.any action:autlionzed by`this charter, except when the mayor is allowed to vote in the case of a de vote. Section 3.08. Meeting of the city council. The city council shall hold at least two (2) regular meetings in each month at a time to be fixed by said city council by ordinance or resolution fixing the dates of such regular meetings. As many additional special meetings may be held during the month as may be necessary for the transaction of all business of the city and its citizens. All meetings shall be public, except where authorized by law, and shall be held at the city hall, provided, .. however, the city council may designate another place for such meetings after publishing the due notice thereof in one (1) issue of the official newspaper of said city. The city secretary, upon written request of the mayor or any two councilmembers, shall call special meetings of the city council, notice of such special meetings shall be given to ' 2005 Proposed Amendments each member of the city council at;least seven two4(72)7bours:before the start of_the meeting, which said notice shall state the date for such meeting and the subject to be considered at such meeting, and no other subject shall be there considered except with unanimous consent of the city council. Said notice to the city council shall be sufficient if delivered to the councilmembers in person, or in the event of the inability to locate said councilmember within the City of Pearland, Texas, delivery of such notice to his or her home shall be sufficient. Section 4.08. Department of Health and Sanitation. (c) Duties of the health authority: The city health authority shall advise the city manager on a program of public health; shall cooperate in the preparation of sanitary code; shall cooperate with nearby cities on problems of health and sanitation; shall cooperate with the commissioner's court of Brazoria, and Hams a id,Forf Bend Counties, Texas and its (their) agencies, and with the state health department and other departments of the state government in matters pertaining to health and sanitation. Section 6.13. Initiative. Qualified voters of the City of Pearland may initiate legislation by submitting a petition addressed to the city council which requests the submission of a proposed ordinance or resolution to a vote of the qualified voters of the city. Said petition must be signed by qualified voters of the city equal in number to c at least thirty (30) per cent of the number cast at the regular last municipal election of the city, or one hundred fifty (150) qualified voters, whichever is greater, and each copy of the petition shall have attached to it a copy of the proposed legislation. The petition shall be signed as provided in section 6.03 of this charter. The petition may consist of one (1.) or more notarized copies as permitted in section 6.05 of this charter. Such petition shall be filed with the person performing the duties of city secretary. Within five (5) days after the filing of such petition, the person performing the duties of city secretary shall certify such petition or return same to petitioners. After certification, the person performing the duties of the city secretary shall present said petition and proposed ordinance or resolution to the city council at the next regular meeting. Upon presentation to the city council of the petition and draft of the proposed ordinance or resolution, it shall become the duty of the city council within ten (10) days after receipt thereof, to pass and adopt such ordinance or resolution without alteration as to meaning or effect in the opinion of the persons filing the petition or to call a special election, to be held within thirty (30) days thereafter, at which the qualified voters of the City of Pearland shall vote on the question of adopting or rejecting the proposed legislation. However, if any other municipal election is to be held within sixty (60) days after the filing of the petition, the question may be voted on at such election. No ordinance shall be proposed by an initiative petition which is on the same subject as an ordinance so submitted and defeated at an election held within the proceeding twelve (12) months. . 2005 Proposed Amendments Section 6.14. Referendum. Qualified voters of the City of Pearland may require that any ordinance or resolution with the exception of ordinances or resolution levying taxes or issuing tax or revenue bonds, passed by the city council be submitted to the voters of the city for approval or disapproval , by submitting a petition for this purpose within thirty (30) days after final passage of said ordinances or resolution or within thirty (30) days after is publication. Said petition shall be addressed, prepared, signed and verified as required for petitions initiating legislation, as provided in section 6.13 of this charter and_ shall be submitted to the person performing the duties of city secretary. Immediately uUpon the filing of such petition,^the city secretary shall present said petition to the city council afthe nextsegula"r ineeting ofahe city council. Thereupon the city council shall immediately at_ es'anie ineeting reconsider such ordinance or resolution and if it does not entirely repeal the same, shall submit it to popular vote as provided in section 6.13 of this charter. Pending the holding of such election, such ordinance or resolution shall be suspended from taking effect and shall not later take effect unless a majority of the qualified voters voting thereon at such election shall vote in favor thereof. 1 i 1 1 0 1 f r a i I I i • t 1 1 1 ti,t,SIDII La Resolution No. R2006-65 - Cumulative Report - Unofficial City of Pearland - Municipal Officers and Special Election - May 13, 2006 Page 1 of 2 05/13/2006 09:15 PM Total Number of Voters: 1,142 of 0=0.00% Precincts Reporting 2 of 2= 100.00% Party Candidate ` Early Election Total COUNCILMEMBER,POSITION TWO(2),Vote For 1 Helen Beckman 287 100.00% 541 100.00% 808 100.00% Cast Votes: 287 74.58% 541 89.01% 808 70.75% Over Votes: 0 0.00% 0 0.00% 0 0.00% Under Votes: 91 25.42% 243 30.99% 334 29.25% COUNCILMEMBER,POSITION FOUR(4),Vote For 1 Randy L.Patro 153 44.81% 330 45.77% 483 45.39% Felicia Kyle 190 55.39% 391 54.23% 581 54.61% Cast Votes: 343 95.81% 721 91.98% 1,084 93.17% Over Votes: 0 0.00% 0 0.00% 0 0.00% Under Votes: 15 4.19% 63 8.04% 78 8.83% PROPOSED AMENDMENT NO.1,Vote For 1 For 249 78.38% 498 89.98% 745 71.98% Against 77 23.82% 213 30.04% 290 28.02% Cast Votes: 328 91.06% 709 90.43% 1,035 90.83% Over Votes: 0 0.00% 0 0.00% 0 0.00% Under Votes: 32 8.94% 75 9.57% 107 9.37% PROPOSED AMENDMENT NO.2,Vote For 1 For 258 79.50% 510 72.88% 768 74.95% Against 88 20.50% 190 27.14% 258 25.05% Cast Votes: 322 89.94% 700 89.29% 1,022 89.49% Over Votes: 0 0.00% 0 0.00% 0 0.00% Under Votes: 36 10.08% 84 10.71% 120 10.51% PROPOSED AMENDMENT NO.3,Vote For 1 For 297 88.68% 825 88.81% 922 87.39% Against 38 11.34% 95 13.19% 133 12.81% Cast Votes: 335 93.58% 720 91.84% 1,055 92.38% Over Votes: 0 0.00% 0 0.00% 0 0.00% Under Votes: 23 8.42% 84 8.18% 87 7.82% • tt I i ► ► ► ► e 1 I I 1 I ► I I 1 1 1 Cumulative Report - Unofficial City of Pearland - Municipal Officers and Special Election - May 13, 2006 • Page 2 of 2 05/13/2006 09:15 PM Total Number of Voters : 1,142 of 0=0.00% L ` L Precincts Reporting 2 of 2 = 100.00° Party CandidateII 1■ Early 1■ Election Total 1■ PROPOSED AMENDMENT NO.4,Vote For 1 For 272 85.80% 595 84.78% 867 85.08% Against 45 14.20% 107 15.24% 152 14.92% Cast Votes: 317 88.55% 702 89.54% 1,019 89.23% Over Votes: 0 0.00% 0 0.00% 0 0.00% Under Votes: 41 11.45% 82 10.46% 123 10.77% PROPOSED AMENDMENT NO.5,Vote For 1 For 289 89.20% 809 87.00% 898 87.70% Against 35 10.80% 91 13.00% 126 12.30% Cast Votes: 324 90.50% 700 89.29% 1,024 89.87% Over Votes: 0 0.00% 0 0.00% 0 0.00% Under Votes: 34 9.50% 84 10.71% 118 10.33% i I 1 t A r t t f t / 1 t t f L....i'Olt _ $ t a Canvass Report — Total Voters — Unofficial Resolution No. R2006-65 : City of Pearland — Municipal Officers and Special Election — May 13, 2006 Page 1 of 7 05/19/2008 01:05 PM Total Number of Voters: 1,142 of 0=0.00% Precincts Repot-ling 2 of 2 = 100.00° COUNCILMEMBER, POSITION TWO (2) Precinct Early Election Total Registered Percent Voting Day Ballots Cast Voters Turnout c Ballots Ballots m Cast Cast I e u m o c O i 512 136 241 377 0 0.00% 258 258 546 222 543 785 0 0.00% 550 550 On) r 'MI Ii' ilti.h i .-Suppressed due to low voter turnout i I I I i 1 i + I i i I i i I 1 i i 1 Canvass Report — Total Voters — Unofficial City of Pearland — Municipal Officers and Special Election — May 13, 2006 Page 2 of 7 05/19/2000 01:05 PM Total Number of Voters : 1,142 of 0=0.00% Precincts Reporting 2 of 2= 100.00% COUNCILMEMBER, POSITION FOUR (4) Precinct Early Election Total Registered Percent Voting Day Ballots Cast Voters Turnout Ballots Ballots ` 0 Cast Cast J m a >. u o v F 0 A LL cc 512 138 241 377 0 0.00% 146 210 358 546 ' si 222 543 785 Lev 0 0.00% 337 371 708 ' 10111 ji: 11 fl .ay 0` v4 11 ; 11 t,t 1 F}. l'i 1 , ;.. 1 •-Suppressed due to low voter turnout I l /1 I 1 r t r I I I 1 i 1 1 i 1 I 1 Canvass Report — Total Voters — Unofficial City of Pearland — Municipal Officers and Special Election — May 13, 2006 . Page 3 of 7 05/19/2006 01:05 PM Total Number of Voters: 1,142 of 0=0.00% Precincts Reporting 2 of 2= 100.00% PROPOSED AMENDMENT NO. 1 Precinct Early Election Total Registered Percent Voting Day Ballots Cast Voters Turnout Ballots Ballots Cast Cast N m a E a u- o, o a 512 136 241 377 0 0.00% 243 108 349 548 yyrr 222 51 l43 785 0 0.00% 502 184 888 , f liI.J,: ,t4Y " , s{`i ... . .[., ... {. 41i t(�I 'don� - r • -Suppressed due to low voter turnout i I a f i a 1 i 1 1 l 1 1 i 1 1 a f a • Canvass Report — Total Voters — Unofficial City of Pearland — Municipal Officers and Special Election — May 13, 2006 . Page 4 of 7 05/19/200B 01:05 PM . Total Number of Voters: 1,142 of 0=0.00% Precincts Reporting 2 of 2= 100.00°A • PROPOSED AMENDMENT NO. 2 Precinct Early Election Total Registered Percent 1 Voting Day Ballots Cast Voters Turnout Ballots Ballots Cast Cast H „ c 2 u.o O en 4 H 512 138 241 377 0 0.00% 243 102 345 548 222 543 785 0 0.00% 523 154 877 tl,h Aril C. 111 ! . t;i Ij i i ' .., i"_ . 11, ' 1 i itid44. • .-Suppressed due to low voter turnout I I i 1 1 r t r e t i i i 1 1 1 1 1 I Canvass Report — Total Voters — Unofficial City of Pearland — Municipal Officers and Special Election — May 13, 2006 . Page 5 of 7 05/19/2006 01:05 PM Total Number of Voters: 1,142 of 0=0.00% Precincts Reporting 2 of 2 = 100.00% PROPOSED AMENDMENT NO. 3 i Precinct Early Election Total Registered Percent Voting Day Ballots Cast Voters Turnout Ballots Ballots Cast Cast „ ii ` 3 u. A o al Q 512 138 241 377 0 0.00% 316 42 358 546 222 543 785 0 0.00% 606 91 697 f1'7 1 °, i k+ • At ikr 1 f I:.; ,4 f ',`..; {.,•`Ti V „r'N i" � ' } -i• 1a 1. � dik �K:�4�'� � .! V1 w _. Pe.�� ��. �:���.f° `�' � f. �r� i r. .r � . .. �����1� � ��(���, u.. ..�y�� D � . � In :t ' . ,'1'.'; P ..Suppressed due to low voter turnout R i ! • S t it I • I e i a a I i I i Canvass Report — Total Voters — Unofficial City of Pearland — Municipal Officers and Special Election — May 13, 2006 . Page 6 of 7 05/19/2006 01:05 PM Total Number of Voters: 1,142 of 0=0.00% Precincts Reporting 2 of 2= 100.00% PROPOSED AMENDMENT NO.4 Precinct Early Election Total Registered Percent Voting Day Ballots Cast Voters Turnout Ballots Ballots Cast Cast 9; n LL cn p Q 1- 512 138 241 377 0 0.00% 295 54 349 548 222 543 765 0 0.00% 572 98 670 il.# I 0 ; 4iV �• Ii :, t ,;i ;itq•-Suppressed due to low voter turnout I I I I I I I I i i + 1 I I I I 1 1 1 Canvass Report — Total Voters — Unofficial City of Pearland — Municipal Officers and Special Election — May 13, 2006 Page 7 of 7 05/19/2006 01:05 PM Total Number of Voters: 1,142 of 0=0.00% Precincts Reporting 2 of 2= 100.00% PROPOSED AMENDMENT NO. 5 l Precinct Early Election Total Registered Percent Voting Day Ballots Cast Voters Turnout Ballots Ballots Cast Cast n „ LL R o 4 4 t 512 138 241 377 0 0.00% 308 45 351 548 222 543 785 0 0.00% 592 81 873 .-Suppressed due to low voter turnout EXHIBIT B DEBT SERVICE SCHEDULE FOR THE BONDS AND THE CITY'S OUTSTANDING DEBT Fiscal Year Current Less: Total Ending Debt Service The Refunded Pius: The Bonds Debt Service 9-30 Requirements(a) Bonds Principal Interest Requirements 2006 S 11,661,443 S 461.539 S 11,199,903 2007 11,007,335 1,109,596 S 50,000 S 1,917,992 11,865,731 2008 11.023,364 1,113,664 50.000 1,332,194 11,491,894 2009 12.559,713 1,115,473 50,000 1,530,194 13,024,434 2010 12,888.503 1,114,675 50,000 1,528,194 13,352,021 2011 12.719,523 1,116,725 320,000 1,520,794 13.443,592 2012 12,723,571 1,1 15,755 385,000 1,506,694 13,499,510 2013 12,572,344 971,491 400,000 1,490,994 13,491,847 2014 12,586,134 977,435 410.000 1,474.794 13,493,493 2015 12,579,939 975,285 430,000 1,457,994 13,492,648 .. 2016 11,603,824 445,000 1,440,216 13,489,039 2017 11,618,074 460,000 1,421,263 13,499,336 2018 11,641,321 480,000 1,401,288 13,522,609 2019 8,866,286 1.335,030 1,361,050 11,562,336 2020 8,844,451 1,485,000 1,293,888 11,623,338 2021 8,822,403 1,580,000 1.217,263 11,619,665 2022 8,805,496 1,675,000 1,135,888 11,616,384 2023 8,425,206 2,150,000 1,040,263 11,615,469 2024 8,528,281 2,150,000 932,763 11,611,044 2025 8,504,781 2,270,000 822,263 11,597,044 2026 8,490,422 2,395,000 705.638 11.591,059 2027 8,481,019 2,525,000 585,794 11.591,813 2028 7,468,813 3,690,000 438,188 11,597,000 2029 4.033.375 7.380.000 175.275 11.588.650 ;246.455.621 S. .071.638 L32.165.000 ., 27 930.884 ;296.479.859 (a) Includes the outstanding debt service requirements associated with debt assumed by the City through the annexation of Brazoria County Municipal Utility District No.5. r rEXHIBIT C rSAVINGS SCHEDULE FOR THE BONDS I r r r r r r r r r I r r r r i I I I 1 I I a 1 a a i i 1 I 1 1 1 i City of Pearland, Texas-General Obligation Debt Refunding Analysis Savings Report . REVISED Final Numbers-June 2,2006 • Maturing Proceeds @ Interest Total Escrowed FY Begins Cumulative PV of Savings Dates Amount Issue Date Coupon Yield Amount Debt Service Debt 10/01 Savings 4.71271611% Savings 06/08/2006 09/01/2006 461,539.38 461,539.38 461,539.38 456,609.25 03/01/2007 4.000 3.700000 283,645.31 283,645.31 644,973.13 361,327.82 822,867.20 349,238.82 09/01/2007 189,096.88 189,096.88 464,623.13 275,526.25 1,098,393.45 260,177.22 03/01/2008 4.000 3.710000 189,096.88 189,096.88 652,413.13 463,316.25 1,561,709.70 427,433.94 09/01/2008 189,096.88 189,096.88 461,250.63 272,153.75 1,833,863.45 245,296.28 03/01/2009 4.000 3.710000 189,096.88 189,096.88 653,552.50 464,455.62 2,298,319.07 408,983.74 09/01/2009 189,096.88 189,096.88 461,920.00 272,823.12 2,571,142.19 234,708.15 03/01/2010 4.000 3.730000 189,096.88 189,096.88 658,512.50 469,415.62 3,040,557.81 394,538.79 09/01/2010 189,096.88 189,096.88 456,162.50 267,065.62 3,307,623.43 219,298.33 03/01/2011 270,000 272,770.20 4.000 3.760000 189,096.88 459,096.88 657,342.50 198,245.62 3,505,869.05 159,039.91 09/01/2011 183,696.88 183,696.88 459,382.50 275,685.62 3,781,554.67 216,073.65 03/01/2012 285,000 287,017.80 4.000 3.860000 183,696.88 468,696.88 659,798.75 191,101.87 3,972,656.54 146,331.49 09/01/2012 177,996.88 177,996.88 455,956.25 277,959.37 4,250,615.91 207,940.63 03/01/2013 300,000 300,687.00 4.000 3.960000 177,996.88 477,996.88 70,745.63 -407,251.25 3,843,364.66 -297,649.83 09/01/2013 171,996.88 171,996.88 900,745.63 728,748.75 4,572,113.41 520,362.77 03/01/2014 310,000 308,353.90 4.000 4.080000 171,996.88 481,996.88 48,717.50 -433,279.38 4,138,834.03 -302,260.64 09/01/2014 165,796.88 165,796.88 928,717.50 762,920.62 4,901,754.65 519,969.77 03/01/2015 330,000 325,673.70 4.000 4.180000 165,796.88 495,796.88 25,142.50 -470,654.38 4,431,100.27 -313,390.64 09/01/2015 159,196.88 159,196.88 950,142.50 790,945.62 5,222,045.89 514,535.95 03/01/2016 345,000 341,570.70 4.125 4.250000 159,196.88 504,196.88 -504,196.88 4,717,849.01 -320,445.68 09/01/2016 152,081.25 152,081.25 -152,081.25 4,565,767.76 -94,431.12 03/01/2017 360,000 358,444.80 4.250 4.300000 152,081.25 512,081.25 -512,081.25 4,053,686.51 -310,644.38 09/01/2017 144,431.25 144,431.25 -144,431.25 3,909,255.26 -85,599.45 03/01/2018 380,000 376,515.40 4.250 4.350000 144,431.25 524,431.25 -524,431.25 3,384,824.01 -303,657.17 09/01/2018 136,356.25 136,356.25 -136,356.25 3,248,467.76 -77,135.66 03/01/2019 395,000 393,080.30 4.500 4.550000 136,356.25 531,356.25 -531,356.25 2,717,111.51 -293,664.27 09/01/2019 12?,468.75 127,468.75 -127,468.75 2,589,642.76 -68,826.27 03/01/2020 415,000 431,508.70 5.000 4.490000 127,468.75 542,468.75 -542,468.75 2,047,174.01 -286,160.97 09/01/2020 117,093.75 117,093.75 -117,093.75 1,930,080.26 -60,346.84 03/01/2021 435,000 451,260.30 5.000 4.520000 117,093.75 552,093.75 -552,093.75 1,377,986.51 -277,983.39 09/01/2021 106,218.75 106,218.75 -106,218.75 1,271,767.76 -52,250.73 03/01/2022 455,000 470,920.45 5.000 4.550000 106,218.75 561,218.75 -561,218.75 710,549.01 -269,717.14 09/01/2022 94,843.75 94,843.75 -94,843.75 615,705.26 -44,531.80 03/01/2023 480,000 495,648.00 5.000 4.580000 94,843.75 574,843.75 -574,843.75 40,861.51 -263,691.75 09101/2023 82,843.75 82,843.75 -82,843.75 -41,982.24 -37,127.15 03/01/2024 505,000 522,669.95 5.000 4.550000 82,843.75 587,843.75 -587,843.75 -629,825.99 -257,382.48 09/01/2024 70,218.75 70,218.75 -70,218.75 -700,044.74 -30,036.92 03/01/2025 525,000 542,535.00 5.000 4.570000 70,218.75 595,218.75 -595,218.75 -1,295,263.49 -248,750.54 09/01/2025 57,093.75 57,093.75 -57,093.75 -1,352,357.24 -23,311.01 03/01/2026 550,000 567,495.50 5.000 4.590000 57,093.75 607,093.75 -607,093.75 -1,959,450.99 -242,166.20 09/01/2026 43,343.75 43,343.75 -43,343.75 -2,002,794.74 -16,891.55 03/01/2027 580,000 580,000.00 4.750 4.750000 43,343.75 623,343.75 -623,343.75 -2,626,138.49 -237,331.69 09/01/2027 29,568.75 29,568.75 -29,568.75 -2,655,707.24 -10,998.82 i Page-7 i I I 1 I I I I I I I I I 1 I I i I 1 MaturingProceeds Interest Total Escrowed FY Begins Cumulative PY of Savings @ 10/01 Dates Amount Issue Date Coupon Yield Amount Debt Service Debt Savings Savings 4.71271611% 03/01/2028 610,000 604,095.20 4.750 4.821850 29,568.75 639,568.75 -639,568.75 -3,295,275.99 -232,426.54 09/01/2028 15,081.25 15,081.25 -15,081.25 -3,310,357.24 -5,354.53 03/01/2029 635,000 628,853.20 4.750 4.820000 15,081.25 650,081.25 -650,081.25 -3,960,438.49 -225,494.77 $8,165,000 $8,259,100.10 $5,867,076.65 $14,032,076.65 $10,071,638.16 -3,960,438.49 -9,121.24 Acc Int -7,353.77 -7,353.77 $7,353.77 $7,353.77 Grnd Total $8,165,000 $8,259,100.10 $5,859,722.88 $14,024,722.88 $10,071,638.16 -3,953,084.72 -1,767.47 • PEARLANDCITYOFGO:RUN06REF NEW06REF AGGREF Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:18 v7.53 i Page-8 r CITY OF PEARLA D N , TEXAS r $32,165,000 PERMANENT IMPROVEMENT AND REFUNDING BONDS SERIES 2006 r r r r TRANSCRIPT OF PROCEEDINGS VOL II of II r r r Andrews Kurth LLP 600 Travis, Suite 4200 Houston,Texas 77002 (713)220-4200 N HOU:2585006.1 r CITY OF PEARLAND, TEXAS PERMANENT IMPROVEMENT AND REFUNDING BONDS SERIES 2006 INDEX OF CONTENTS Closing Memorandum 1 I. BOND PROCEEDINGS AND DOCUMENTS Ordinance Authorizing Issuance of the Bonds 2 rEscrow Agreement (with Verification Report) 3 Preliminary Official Statement 4 Official Statement 5 rPaying Agent/Registrar Agreement 6 II. CERTIFICATES General Certificate 7 Signature Identification and No-Litigation Certificate 8 Federal Tax Certificate 9 Form 8038G 10 Official Statement Certificate 11 1 15c2-12 Certificate 12 r Closing Certificate of Bond Insurer 13 III. OPINIONS r Approving Opinion of Bond Counsel 14 HOU:2573913.1 r Opinion of Attorney General of Texas with 15 Certificate of Comptroller of Public Accounts Opinion of Counsel to the Bond Insurer 16 1 Reliance Letter 17 IV. MISCELLANEOUS Receipt and Cross-Receipt 18 Registrar's Receipt 19 • Escrow Agents Receipt 20 Winning Bid 21 Notices of Redemption(with Acknowledgement of Receipt) 22 • r. Resolutions Authorizing Issuance of Refunded Obligations 23 Certificate of Paying Agent for Refunded Obligations 24 r, Rating Letters 25 r. Insurance Policy 26 Bond Review Board Questionnaire 27 r. Specimen Bond 28 F,' "IIr„, „„ 2 ve • HOU:2573913.1 SIGNATURE IDENTIFICATION AND NO-LITIGATION CERTIFICATE • THE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § CITY OF PEARLAND § We, the undersigned officers of the City of Pearland, Texas (the "City"), certify that we officially signed, by our manual or facsimile signatures, on behalf of the City, the following described bonds, to wit: CITY OF PEARLAND, TEXAS PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006, dated June 1, 2006, and aggregating $32,165,000 (the "Bonds"). That the Bonds have been duly and officially executed by the undersigned with their manual or facsimile signatures in the same manner appearing hereon, and the undersigned hereby adopt and ratify their respective signatures in the manner appearing on each of the Bonds, whether in manual or facsimile form, as the case may be, as their own signatures. That on the date of such signing and on the date hereof, we were and are the duly chosen, qualified and acting officers authorized to execute the Bonds, and holding the official titles set forth below opposite such signatures. • We further certify that no litigation is pending or, to our knowledge, threatened in any court to restrain or enjoin the issuance or delivery of the Bonds, or the levy, collection or application of the ad valorem taxes or revenues pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity of the Bonds, the ordinance dated May 8, 2006, authorizing the issuance, sale and delivery of the Bonds (the "Bond Ordinance"), or contesting the powers of the City or the authorization of the Bonds or the Bond Ordinance, or contesting in any way the accuracy, completeness or fairness of the Official Statement. We further certify that the seal that has been impressed, or placed in facsimile, upon each of the Bonds is the legally adopted, proper and only official seal of the City, such official seal being impressed upon this certificate. We further certify that no petition or other request has been filed with or presented to any official of the City requesting that any of the proceedings authorizing the Bonds be submitted to a referendum or other election. HOL:2 73957.1 We further certify that Bill Eisen is the City Manager of the City and that his signature as set forth below is genuine. City Manager, City of Pearland, Texas We further certify that the information and data contained in the General Certificate dated May 8, 2006,remain true and correct as of this date. [Signature Page Follows] MIL Van HOU:2573957.I r WITNESS OUR HANDS AND THE SEAL OF THE CITY thisAkx_e, f , 2006. SIGNATURES TITLE OF OFFICE P. Tom Reid, Mayor City of Pearland, Texas Young Lorfing, City Secretary ```,,`� of it oil of Pearland, Texas �••••-•••• : '''' �``,` s 3a ): E ., ►�/ ',411e me, on this day personally appeared the foregoing individuals, known to me to be the persons whose names were subscribed in my presence to the foregoing instrument. Given under my hand and seal of office this q M6, , 2006. t T, �`�p11111111111111/NN/ ���� PNIV eq� N'•Pw Pie' Notary Public • r� Z <y Typed or Printed Name: r09.20 0.• My Commission Expires: ry oa- o9 -ao10 I r, (Notary Seal) • ■ I I HOU:2573957.1 FEDERAL TAX CERTIFICATE City of Pearland,Texas Permanent Improvement and Refunding Bonds, Series 2006 I, the undersigned officer of the City of Pearland, Texas of Brazoria and Harris Counties, Texas, a political subdivision of the State of Texas (together with any successor to its duties and functions, the "City") make this certification for the benefit of all persons interested in the exclusion from gross income and certain other treatment for federal income tax purposes of the interest to be paid on the City's Permanent Improvement and Refunding Bonds, Series 2006 (the "Bonds") in the aggregate principal amount of $32,165,000, which are being issued and delivered simultaneously with the delivery of this certificate (the "Certificate"). I do hereby certify as follows: 1. General. I am the duly chosen, qualified and acting officer of the City for the t office shown below my signature. In such capacity, I am charged, along with others, with responsibility for issuing the Bonds. I am familiar with the facts, estimates and expectations certified herein, and I am duly authorized to execute and deliver this Certificate. I am familiar ► with the provisions of the Ordinance adopted on May 8, 2006, authorizing the issuance of the Bonds (the "Ordinance"), and particularly the provisions thereof relating to the treatment of the Bonds and the interest thereon for federal income tax purposes. I am aware of the provisions of ► the Internal Revenue Code of 1986, as amended (the "Code"), including Sections 103 and 141 through 150 thereof, and the Treasury Regulations (the "Regulations") promulgated under the �� Code. This Certificate is being executed and delivered pursuant to the relevant provisions of the ► Code and Sections 1.141-1 through 1.141-15, 1.148-0 through 1.148-11, 1.149(d), 1.149(g)-1, r. 1.150-1 and 1.150-2 of the Regulations. Certain terms used herein have the same meanings as given to those terms in the Code and the Regulations. Capitalized terms used in this Certificate ► (unless otherwise indicated herein) shall have the meanings ascribed to them in the Ordinance. r2. Reasonable Expectations. As an officer of the City responsible for issuing the ► Bonds, the undersigned hereby certifies, in good faith, that the City's expectations, as of the Issue Date (as defined herein), regarding the amount and use of the gross proceeds of the Bonds and other matters relevant to the treatment of interest on the Bonds for federal income tax ► purposes are accurately and completely stated herein, that all of such expectations are reasonable rand are based on the facts and estimates stated in this Certificate, that all of the facts and estimates stated in this Certificate are accurate. The undersigned has relied on certain representations made by Citigroup Global Markets, Inc., the lead underwriter of the underwriting group that purchased the Bonds from the City (the"Initial Purchaser") in the Certificate of Initial Purchaser, attached hereto as Exhibit A and certain representations of RBC Capital Markets, the financial advisor to the City (the "Financial Advisor") in the Certificate of Financial Advisor, attached hereto as Exhibit B. The undersigned is aware of no other facts, estimates or circumstances which would indicate that any of the expectations stated herein are not reasonable. 3. Description of Governmental Purposes. The City is issuing the Bonds pursuant to the Ordinance to provide funds,which will be used for: N i ■ HOU:2580481.1 (a) acquiring, constructing, repairing and improving City streets and bridges (the"Project"); and (b) refunding, pursuant to an Escrow Agreement (the "Escrow Agreement"), between the City and Wells Fargo Bank, N.A. (the "Escrow Agent"), a portion of the City's outstanding indebtedness described in the Report (as defined below) as certain debt of the Brazoria County Municipal Utility District No. 5 (the "District") annexed by r the City,including: (i) the District's Unlimited Tax Bonds, Series 1995 (the "Series 1995 Bonds") in the aggregate principal amount of$1,415,000, maturing in the years 2006 through 2015 (the"Series 1995 Refunded Bonds"); (ii) the District's Unlimited Tax Bonds, Series 1998 (the "Series 1998 Bonds") in the aggregate principal amount of$1,495,000, maturing in the years 2006 through 2015 (the"Series 1998 Refunded Bonds"); (iii) the District's Unlimited Tax Refunding Bonds, Series 1998-A (the "Series 1998-A Bonds") in the aggregate principal amount of $3,045,000, maturing in the years 2007 through 2012 (the "Series 1998-A Refunded Bonds"); rand (iv) the District's Unlimited Tax Bonds, Series 1999 (the "Series 1999 �• Bonds") in the aggregate principal amount of$1,935,000, maturing in the years 2006,2008, 2010,2012 and 2015 (the"Series 1999 Refunded Bonds"). r. (c) to pay the costs issuing the Bonds and of refunding the Refunded Bonds. The Series 1995 Bonds, the Series 1998 Bonds, the Series 1998-A Bonds and the Series r. 1999 Bonds will be referred to herein as the "Prior Bonds." The Series 1995 Refunded Bonds, the Series 1998 Refunded Bonds, the Series 1998-A Refunded Bonds and the Series 1999 Refunded Bonds will be referred to herein collectively as the "Refunded Bonds." The Refunded r‘ Bonds are being refunded and defeased in order to restructure the annual debt service requirements of the City thereby creating more level debt service requirements for the City. The Series 1995 Refunded Bonds and the Series 1998-A Refunded Bonds will be called on June 6, 2006, a date that is within 90 days of the date hereof. The Series 1998 Refunded Bonds and the Series 1999 Refunded Bonds will be called on September 1, 2006, a date that is within 90 days p of the date hereof. The escrow fund established with the Escrow Agent pursuant to the Escrow Agreement for the purpose of refunding and defeasing the Refunded Bonds is referred to as the "Escrow Fund." 4. Accountants' Report. At the request of the City, RBC Capital Markets, has prepared a series of schedules and a report based thereon dated as of June 8, 2006, detailing all relevant aspects of the investment and application of the proceeds of the Bonds and the City's program to refund the Refunded Bonds, including the debt service requirements of the Refunded Bonds, the dates on which the principal of, redemption premium, if any, and interest on, the • Refunded Bonds will be paid with the proceeds of the Bonds and certain other matters referred to herein and therein (including all schedules, appendices and attachments thereto, the"Report"). • IP -2- 1 HOU:2580481.1 5. The Refunded Bonds. (a) Issuance and Purpose. With respect to the Refunded Bonds: r (i) The Series 1995 Bonds were issued on November 1, 1995, in accordance with the provisions of a resolution adopted by the District on or about October 30, 1995 (the "Series 1995 Resolution"). The proceeds of the Series 1995 Bonds were used for new capital projects. In connection with the issuance of the Series 1995 Bonds, the District executed the Federal Tax Certificate (the "1995 Federal Tax Certificate"), dated November 1, 1995. The City confirms the statements and representations contained in the 1995 Federal Tax Certificate concerning the use and investment of the proceeds of the Series 1995 Bonds. T (ii) The Series 1998 Bonds were issued on March 1, 1998, in accordance with the provisions of a resolution adopted by the District on or about r February 9, 1998 (the "Series 1998 Resolution"). The proceeds of the Series 1998 Bonds were used for new capital projects. In connection with the issuance Ir. of the Series 1998 Bonds, the District executed the Federal Tax Certificate (the r "1998 Federal Tax Certificate"), dated February 9, 1998. The City confirms the statements and representations contained in the 1998 Federal Tax Certificate r` concerning the use and investment of the proceeds of the Series 1998 Bonds. r r (iii) The Series 1998-A Bonds were issued on April 1, 1998, in accordance with the provisions of a resolution adopted by the District on or about t March 13, 1998 (the "Series 1998-A Resolution"). The proceeds of the Series r 1998-A Bonds were used to refund the District's Series 1992 Bonds. In connection with the issuance of the Series 1998-A Bonds, the.District executed • the Federal Tax Certificate (the "1998-A Federal Tax Certificate"), dated April 1, r 1998. The City confirms the statements and representations contained in the 1998-A Federal Tax Certificate concerning the use and investment of the proceeds of the Series 1998-A Bonds and the Series 1992 Bonds. F. (iv) The Series 1999 Bonds were issued on November 1, 1999, in r accordance with the provisions of a resolution adopted by the District on or about r October 25, 1999 (the "Series 1999 Resolution, collectively with Series 1995 Resolution, the Series 1998 Resolution, the Series 1998-A Resolution, the "Prior Resolutions"). The proceeds of the Series 1999 Bonds were used for new capital r projects. In connection with the issuance of the Series 1999 Bonds, the District executed the Federal Tax Certificate (the "1999 Federal Tax Certificate"), dated November 1, 1999. The City confirms the statements and representations r contained in the 1999 Federal Tax Certificate concerning the use and investment of the proceeds of the Series 1999 Bonds. P (b) No Private Activity Bonds. No obligation which is part of the Prior _ Bonds is or was a private activity bond within the meaning of Section 141(a) of the Code or an industrial development bond or private loan bond under Section 103 of the Internal Revenue Code of 1954. None of the facilities financed or refinanced or to be financed or my t. ■ -3- t HOU:2580481.1 refinanced with proceeds of the Prior Bonds has been or is expected to be disposed of, or used in any manner other than as provided in the Prior Resolutions, prior to the final maturity date of the Bonds. (c) No Other Refundings. No portion of the proceeds of the Prior Bonds has been or will be used to pay, directly or indirectly, principal of, or interest or redemption premium on, another issue of obligations of which the City or a related party with respect to the City is or was an obligor except as described herein. (d) Not a Conduit Loan. None of the proceeds of the Prior Bonds is or was proceeds of an obligation issued by another governmental entity and loaned to the City to carry out the governmental purpose of such other obligation. 6. Unspent Proceeds of the Refunded Bonds. The City has identified all amounts on hand as of the date hereof which constitute proceeds of Refunded Bonds and will identify all ► amounts, if any, which in the future will constitute proceeds of the Refunded Bonds (such as transferred proceeds, if any, and investment proceeds, if any; collectively, the "Unspent Proceeds"), the funds in which such amounts (to the extent, if any, currently on hand) are held, • all investments which are allocable to such amounts, the governmental purposes for which such r• amounts were originally borrowed and will be expended, and the dates by which such expenditures are expected to be paid. As of the date hereof, no proceeds of the Refunded Bonds remain unexpended. There are no other amounts that may be considered Unspent Proceeds of the r. Refunded Bonds and none are expected to arise after the date hereof. 7. Replacement Proceeds of the Refunded Bonds. 1 (a) Refunded Debt Service Balance. The City has determined the amount of • the Debt Service Balance (as defined below) as of the date hereof and the portion of the r Debt Service Balance properly allocable to the Refunded Bonds (the "Refunded Debt Service Balance"). r. (i) The term "Debt Service Balance"means the sum of: (A) the balances of all debt service funds, reserve funds, replacement funds, and all similar funds and all other r. amounts and investments on hand and reasonably expected to be used (or to have been used, as if the Bonds had not been issued and the Refunded Bonds had not been refunded), directly or indirectly (such as, by the generation of income to be used), and (B) the balances of all funds and all other amounts and investments that are pledged, directly or indirectly, to pay principal of, or redemption premium or interest on, the indebtedness of the City outstanding immediately prior to the issuance of the Bonds and payable from ad valorem ■ taxes of the City, including the Refunded Bonds. For this purpose, a pledge includes, but is not limited to, any I ■ • -4- HOU:2580481.1 arrangement, regardless of its form, which provides reasonable assurance that the amount will be available to pay principal or interest, even if the City encounters financial difficulty. A pledge to a guarantor or an agreement to maintain an amount at a particular level or balance for the direct or indirect benefit of a bondholder or a guarantor would constitute a pledge for this purpose. (ii) The City has a debt service fund for the purpose of payment of debt service on the Refunded Bonds, as well as all other outstanding tax-exempt debt of the City (the "Existing Debt Service Fund"), and has on hand in the Existing Debt Service Fund certain amounts allocable to the Refunded Bonds. The current balance in the Existing Debt Service Fund allocable to the Refunded Bonds (the "Refunded Debt Service Balance") is $ , of which $ represents an amount of taxes levied for the current year and on hand to pay the current debt service on the Refunded Bonds, had the Bonds not been issued and the Refunded Bonds not been refunded. The remainder of the Refunded Debt Service Balance equal to $ represents the amount held by the City as a reserve for the Refunded Bonds. The portion of the Refunded r. Debt Service Balance in the amount of$ will be transferred to the Debt Service Fund and used on to pay the principal of, premium, if any, and interest on the Bonds on March 1, 2007, the first interest payment date of the Bonds. The r• remainder of the Refunded Debt Service Balance in the amount of$ • will be transferred to the Debt Service Fund for the Bonds and held as a reserve for the Bonds. Prior to disbursement to pay debt service on the Bonds, such r. amount will be invested for an allowable temporary period, as applicable. (b) No Other Replacement Proceeds of Refunded Bonds. r- (i) Other than the Refunded Debt Service Balance, there are no • amounts on hand which at any time had a sufficiently direct nexus to the r. Refunded Bonds or to the governmental purposes of the Refunded Bonds to conclude that such amounts would have been used for that governmental purpose if the proceeds of the Refunded Bonds had not been or will not be used for that r. governmental purpose. (ii) Other than the Refunded Debt Service Balance, there are no other r. funds, amounts, or investments on hand which at any time were pledged, intended or expected to be used to pay debt service on the Refunded Bonds or which otherwise constitute gross proceeds of the Refunded Bonds. (iii) The term to maturity of the Refunded Bonds is not longer than reasonably necessary for the respective governmental purposes of the Refunded Bonds. The weighted average maturity of the Refunded Bonds does not exceed 120 percent of the average reasonably expected economic life of the projects and facilities financed or refinanced by the Refunded Bonds, determined in the same • manner as provided under Section 147(b) of the Code. For this purpose, any e ■ _5_ HOU:2580481.I proceeds of the Refunded Bonds that have been, or will be, used to finance working capital expenditures have been assigned an expected economic life of zero. 8. Proceeds of the Bonds. The sales proceeds from the sale of the Bonds is $32,514,893.20, which represents the aggregate principal amount of the Bonds of $32,165,000.00 plus net original issue premium of$349,893.20. 9. Use of Proceeds of the Bonds. The sales proceeds from the sale of the Bonds will be expended and applied by the City as follows: (a) Proceeds of the Bonds in the amount of$24,090,000.00 will be used by ► the City to pay costs of the Project (the"Construction Proceeds"). (b) Proceeds of the Bonds in the amount of$3,479,051.00 will be deposited in ► the Escrow Fund on the date hereof and used to purchase United States Treasury Securities-State and Local Government Series (the "Escrowed Securities"), the proceeds �. of which will be used together with the beginning cash balance of$4,522,571.26, to pay r the principal of, redemption premium, if any, and interest on the Refunded Bonds. r' (c) Proceeds of the Bonds in the amount of $4,522,571.54 represent the • beginning cash balance in the Escrow Fund, and will be used to pay the principal of, r. redemption premium, if any, and interest on the Refunded Bonds. r (d) Proceeds of the Bonds in the amount of $106,420.00 represents the Underwriters' compensation and will be retained by the Underwriters from the sales proceeds as a cost to the City of issuing the Bonds. r (e) Proceeds of the Bonds in the amount of approximately $161,150.00 will r` be used by the City to pay costs of issuance of the Bonds. r. (f) Proceeds of the Bonds in the amount of$150,900.00 will be disbursed on the date hereof to pay the insurance premium for the Bonds. (g) Proceeds of the Bonds in the amount of$4,800.66 represents a rounding amount that will be used to pay additional costs of issuance, if any, and thereafter will be March 1, 2007,to pay interest on the Bonds. 10. Pre-Issuance Accrued Interest. In addition to the sale proceeds described in paragraph 9, the City will receive, upon the issuance of the Bonds, the amount of $29,850.99 representing interest on the Bonds accruing during the period from June 1, 2006, to the date hereof. Such amount will be deposited in the City's Permanent Improvement and Refunding Bonds, Series 2006 Bonds Debt Service Fund (the "Debt Service Fund") and, along with all investment earnings therefrom, will be disbursed to pay interest on the Bonds on March 1, 2007, the first interest payment date on the Bonds. Because the amount of $29,850.99 represents accrued interest on the Bonds for a period of less than one year and will be used to pay interest • on the Bonds within one year from the Issue Date, such amount constitutes pre-issuance accrued interest on the Bonds and, as such, is not considered proceeds. • -6- HOU:258048I.I 11. Transferred Proceeds. Any proceeds of the Refunded Bonds remaining unspent as of the date proceeds of the Bonds are used to discharge principal of a Refunded Bond will be subject to becoming transferred proceeds of the Bonds. The Report reflects the amount of proceeds of the Bonds that will be used to refund the Refunded Bonds and the date or dates on which each of such amounts will be so used. The Report also reflects the dates on which principal of the Refunded Bonds is scheduled to be discharged with proceeds of the Bonds. All of the proceeds of the Refunded Bonds has been spent, and the City does not expect to receive or to have on hand at any time while the Bonds are outstanding any amounts or investments representing proceeds of the Refunded Bonds. Therefore, there will be no proceeds of the Refunded Bonds that will become transferred proceeds of the Bonds other than those described above in this paragraph. 12. Replacement Proceeds. There are no amounts on hand, and there are no amounts expected to be received, other than amounts identified herein as proceeds of the Bonds and amounts to be held in the Debt Service Fund for the payment of debt service on the Bonds (as discussed in paragraphs 10 and 22) which have or will have at any time a sufficiently direct rnexus to the Bonds or to any governmental purpose of the Bonds to conclude that such amounts • would have been used for that governmental purpose if the proceeds of the Bonds were not used or to be used for that governmental purpose. More specifically-- r. (a) Sinking Funds and Pledged Funds. Other than the Debt Service Fund • and the amounts and investments on deposit therein from time to time, there are not now r. and will not be at any time while the Bonds are outstanding-- ' (i) any debt service fund, reserve fund, replacement fund, any similar r. fund, or any amount or investment reasonably expected to be used, directly or r indirectly (such as, by the generation of income to be used), to pay principal or r interest on the Bonds; and (ii) any fund, amount, or investment that is directly or indirectly • pledged to pay principal or interest on the Bonds. A pledge includes, but is not limited to, any arrangement, regardless of its form, which provides reasonable assurance that the amount will be available to pay principal or interest, even if the City encounters financial difficulty. A pledge to a guarantor or an agreement to r� maintain an amount at a particular level or balance for the direct or indirect benefit of bondholder or a guarantor would constitute a pledge for this purpose. • (b) No Other Replacement Proceeds. There will be no other replacement proceeds allocable to the Bonds. Based on the reasonable expectations of the City as of • the date hereof, the term of the Bonds is not longer than, and the City will not allow the Bonds to remain outstanding longer than, is reasonably necessary for the governmental purposes for which the Bonds are being issued. The weighted average maturity of the • Bonds does not exceed 120 percent of the reasonably expected economic life of the capital projects being financed and refinanced by the Bonds, determined in the same manner as provided under Section 147(b) of the Code. In addition, none of the proceeds • of the Bonds will be used to finance working capital expenditures. RI • -7- HOU:2580481.1 r 13. No Other Issue. There are no other tax-exempt obligations issued byCity the or any related party of the City which (a) are sold at the same time as the Bonds (within 15 days), (b)are reasonably expected to be paid from the same source of funds as the Bonds and (c)have been or will be sold pursuant to the same plan of financing as the Bonds. 14. No Excess Gross Proceeds. (a) The Project. All of the proceeds of the Bonds described in paragraph 9(a), and all investment proceeds therefrom, will be used to pay costs associated with the Project. (b) Refunding Escrow. All of the proceeds of the Bonds described in paragraphs 9(b) and 9(c), including all investment proceeds therefrom, if any, will be deposited in the Escrow Fund. The City does not expect any investment proceeds or other amounts constituting proceeds of the Bonds in the Escrow Fund other than the amounts reflected in the Report. All proceeds of the Bonds deposited in the Escrow Fund and all investment proceeds therefrom will be used within 90 days of the date hereof to pay the principal of, and redemption premium, if any, and interest on the Refunded Bonds, as reflected in the Report. (c) Issuance and Insurance Costs. All proceeds of the Bonds described in paragraphs 9(d) through 9(f), and all investment proceeds therefrom (although, no investment proceeds are expected on the amount described in paragraph 9(d)), will be used to pay costs of issuing and insuring the Bonds. (d) Rounding Amount. All of the proceeds of the Bonds described in paragraph 9(g) and all investment proceeds therefrom will be used to pay additional costs of issuance, if any, and if not so needed, will be deposited in the Debt Service Fund and used on March 1, 2007, the first interest payment date for the Bonds, to pay debt service ron the Bonds. (e) Pre-Issuance Accrued Interest. The amount described in paragraph 10 will be used to pay pre-issuance accrued interest on the Bonds, and all investment earnings on such amount will be used to pay interest on the Bonds on the first interest payment date. (f) Unspent Proceeds. The Unspent Proceeds with respect to the Refunded Bonds, if any, will be treated as described in paragraph 6 above. As discussed in paragraph 6, there are no other replacement proceeds allocable to the Refunded Bonds other than the Refunded Debt Service Amount, all of which will be used to pay debt service on the Bonds. (g) Debt Service Fund. All of the amounts expected to constitute gross proceeds of the Bonds which are not referred to in the preceding sentences of this paragraph are amounts which will be on deposit in the Debt Service Fund from time to time and which will be used to pay debt service on the Bonds. r r HOU:2580481.1 -g- r Accordingly, the City expects that there are and will be no amounts which represent gross proceeds of the Bonds other than the amounts which are expected to be allocable to (i) the payment of the principal of, redemption premium, if any, and interest on the Refunded Bonds and other costs related to the refunding of the Refunded Bonds, (ii) the payment of pre-issuance accrued interest on the Bonds, (iii) a reasonably required reserve or replacement fund for the Bonds, (iv) the payment of the costs of issuing and insuring the Bonds, (v) the payment of expenditures for the governmental purposes for which such amounts were originally borrowed, or(vi)replacement proceeds that will be used or maintained for the governmental purpose of the Bonds, including the payment of debt service thereon on particular dates. Based on the foregoing, the City reasonably expects that the amount of the proceeds from the issuance of the Bonds, plus all investment proceeds to be received with respect to the Bonds, does not exceed by rany amount, the amount required for the governmental purposes for which the Bonds are being issued. 15. Temporary Period Requirements for the Bonds. (a) Compliance with Yield Restriction on Proceeds. With respect to all amounts constituting proceeds of the Bonds at any time, the City reasonably expects that such amounts will be invested for an allowable temporary period (and, to such extent, may be invested without regard to the yield on the Bonds), will be invested at a yield not materially higher than the yield on the Bonds,or will not be invested pending expenditure or reinvestment at a yield not materially higher than the yield on the Bonds. (b) Construction Proceeds. With respect to the Construction Proceeds described in paragraph 9(a), the City expects that: (i) The City has incurred or will incur within six months of the date hereof substantially binding obligations to one or more unrelated parties (not subject to contingencies within the City's or the third party's control)to which the City is obligated to expend at least 5 percent of the net sale proceeds of the Bonds constituting Construction Proceeds. (ii) The City reasonably expects that the completion of the Project and the allocation of the net sale proceeds constituting Construction Proceeds to expenditures for the Project will proceed with due diligence. (iii) The City reasonably expects that at least 85 percent of the net sale proceeds of the Bonds constituting Construction Proceeds will have been expended on the Project prior to June 8, 2009. Any such Construction Proceeds not expended prior to June 8, 2009 will be invested at a yield not "materially higher"than the yield on the Bonds, except as set forth in paragraph 23 below. (iv) The City expects that all investment proceeds from the Construction Proceeds and from the reinvestment of such investment proceeds 1 will be expended within three years from the date hereof or within one year after receipt of such investment income, whichever is later. All such investment proceeds not expended prior to such date will be invested on and after such date HOU:258048 .I r until final expenditure at a yield which is not materially higher than the yield on the Bonds, except as provided in paragraph 23 below. (c) Other Proceeds. With respect to the proceeds of the Bonds other than the Construction Proceeds, the City expects that: ' (i) The sale proceeds described in paragraphs 9(b) and 9(c) and all investment proceeds therefrom, will be invested in the Escrowed Securities at a yield not higher than the yield on the Bonds. (ii) The sale proceeds described in paragraph 9(d), which represents the underwriter's compensation will be retained by the Underwriters and will not be received or invested by the City. (iii) The sale proceeds described in paragraphs 9(e) and 9(f), and all investment proceeds therefrom, will be used to pay costs of issuing and insuring the Bonds. To the extent not spent within 30 days from the date hereof, such amounts will be invested at a yield not materially higher than the yield on the Bonds. (iv) The sale proceeds described in paragraph 9(g), and all investment proceeds therefrom, will be used to pay additional costs of issuance, if any. To the extent not so required, such amount will be deposited in the Debt Service Fund, and used on March 1, 2007, the first interest payment date for the Bonds, to pay interest on the Bonds. (v) As stated in paragraph 6, all proceeds of the Refunded Bonds were spent prior to the date hereof. On the date that proceeds of the Bonds are used to pay principal on the Refunded Bonds, no proceeds of the Refunded Bonds will remain unexpended. There are no other amounts which are expected to be eligible to become transferred proceeds of the Bonds. (vi) Other than the sale proceeds and investment proceeds referred to above in this paragraph 15 there are no other amounts which are expected to constitute proceeds of the Bonds. (d) Replacement Proceeds of the Bonds. Based on the expectations set forth in this Certificate, all amounts constituting replacement proceeds of the Bonds, if any, are expected to qualify at all times until spent for either the temporary period of 13 months applicable to a bona fide debt service fund or as a reasonably required reserve or replacement fund for the Bonds and, in either case, may be invested, to such extent, without regard to yield restriction. To the extent amounts constitute replacement proceeds of the Bonds that do not qualify for either of such exceptions, such amounts will be invested at a yield not materially higher than the yield on the Bonds. (e) All Amounts in Compliance. Based on the foregoing, the City reasonably expects that all gross proceeds of the Bonds will be invested for an allowable temporary period (and, to such extent, may be invested without regard to the yield on the 1 -l 0- HOU:2580481.1 r Bonds), will be invested (or will be treated as invested) at a yield not materially higher than the yield on the Bonds, will not be invested pending expenditure, or will be invested as a reasonably required reserve or replacement fund for the Bonds (and, to such extent, may be invested without regard to the yield on the Bonds). All gross proceeds of the Refunded Bonds will be invested (or will be treated as invested) at a yield not materially higher than the yield on the Prior Bonds. To the extent any amounts constituting gross proceeds of the Bonds or of the Refunded Bonds are not received, invested, or expended as described herein, the City will restrict the investment and reinvestment of such 1 amounts to a yield, not materially higher than the yield on the Bonds or on the Prior Bonds, as applicable. The City will monitor all receipts, investments, reinvestments, and expenditures while the Bonds are outstanding in order to assure that the foregoing expectations are realized. 16. No Overissuance. Based on the expectations set forth in the preceding paragraphs, the amount of the proceeds from the issuance of the Bonds, plus all investment proceeds to be received with respect to the Bonds, does not exceed by any amount, the amount required for the governmental purposes for which the Bonds are being issued, as described in paragraph 3 above. 17. Flow of Funds. Under the Ordinance, the City is obligated to levy, assess and collect an ad valorem tax on property located in the City in an amount sufficient to pay debt service on the Bonds. All taxes levied, assessed and collected by the City for and on account of the Bonds will be deposited into the Debt Service Fund. 18. Issue Price. The term "Issue Price," with respect to the entire issue of Bonds, means the aggregate of the initial offering prices for all of the Bonds, plus pre-issuance accrued interest as of date of issue on the entire issue of Bonds (unless as otherwise indicated herein). For substantially identical Bonds, the Issue Price is the first price at which a substantial amount (i.e., at least ten percent) was sold to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters and wholesalers). Based on the foregoing and on the Certificate Regarding Issue Price, attached as Exhibit A and incorporated herein by reference, the Issue Price of the Bonds, without taking into account any costs of ' issuance or pre-issuance accrued interest, is$32,514,893.20. 19. Yield on the Bonds. For purposes of this Certificate, the term "yield" shall have the meaning ascribed to it in Section 148(h) of the Code and the Regulations in effect thereunder and, when used with respect to the Bonds, shall mean that interest rate which when used as a discount factor to compute the present value as of the Issue Date of all scheduled payments of rprincipal of and interest on the Bonds produces an amount equal to (i)the Issue Price of the Bonds, plus (ii)pre-issuance accrued interest on the Bonds as of the Issue Date. Yield on the Bonds shall not take into account or reflect any underwriter's discount or cost of issuance of the rBonds. For purposes hereof, yield is and shall be calculated on the basis of a 360-day year with interest compounded semi-annually. rThe yield on the Bonds subject to optional redemption and maturing in the years 2020 through 2026, as identified in Exhibit C and C-1 of the Report (the "Yield-to-Call Bonds") is computed by treating each of these Yield-to-Call Bonds as retired at par plus accrued interest on ,_ HOU:2580481.1 r March 1, 2016, because such Yield-to-Call Bonds are issued at an Issue Price that exceeds the stated redemption price at maturity of such Yield-to-Call Bonds by more than one-fourth of one percent multiplied by the product of the stated redemption price at maturity of such Yield-to-Call Bonds and the number of complete years to the first optional redemption date for the Yield-to- Call Bonds, and the treatment of these Yield-to-Call Bonds as retired on March 1, 2016, produces the lowest yield on the Yield-to-Call Bonds. Except for the Yield-To-Call Bonds, the yield with respect to the Bonds subject to optional redemption is computed by treating each Bond as retired at the stated redemption price on the final maturity date because (i)the City has no present intention to redeem prior to maturity the Bonds which are subject to optional redemption, (ii) no Bond is subject to optional redemption at any time for a price less than the retirement price at final maturity plus accrued interest, (iii) no Bond is subject to optional redemption within five years of the Issue Date, (iv) no Bond subject to optional redemption is issued at an Issue Price that exceeds the stated redemption price at maturity of such Bond by more than one-fourth of one percent multiplied by the product of the stated redemption price at maturity of such Bond and the number of complete years to the first optional redemption date for such Bond; and (v) no Bond subject to optional redemption bears interest at a rate that increases during the term of the Bond. The insurance premium (the "Insurance Premium") paid to insure the Bonds, constitutes a fee for a qualified guarantee; thus the Insurance Premium in the amount of$150,900.00 will be treated as additional interest on the Bonds for the purpose of calculating the yield on the Bonds. The Insurance Premium represents a fee for a qualified guarantee based on the representations rset forth below: (a) Interest Savings. The present value of the interest savings expected to be realized as a result of such guarantee exceeds the present value of the Insurance Premium discounted at a rate equal to the yield on the Bonds which results assuming recovery of the Insurance Premium. (b) Guarantee In Substance. The guarantee imposes secondary liability on Financial Guaranty Insurance Company ("FGIC") that unconditionally shifts substantially all of the credit risk for all or part of the payments on the Bonds. FGIC is not a co-obligor and does not expect to make any payments other than payments for which it will be reimbursed immediately. FGIC and related parties thereto will not use more than ten percent of the gross proceeds of the Bonds that are guaranteed by FGIC. (c) Reasonable Charges. The Insurance Premium does not exceed a reasonable arms-length charge for the transfer of credit risk. The Insurance Premium is separately stated from all other fees and payments payable by the City to FGIC for any other direct or indirect services other than transfer of the credit risk. The Insurance rPremium does not include payment for the cost of underwriting or remarketing the Bonds or for the cost of casualty insurance for property financed or refinanced by the Bonds. The Insurance Premium is not refundable upon redemption of the Bonds prior to rmaturity. F T HOU:2580481.1 -12- r The Bonds due 2029 (the "Term Bonds") are subject to mandatoryredemption. The yield on the Term Bonds is calculated by treating the outstanding stated principal amounts payable on the mandatory redemption dates as payments on such dates based on representations of the Financial Advisor that the stated redemption price at maturity of such Term Bonds does not exceed the issue price of such Term Bonds by more than one-fourth of one percent multiplied by the product of the stated redemption price at maturity and the number of years to the date of the weighted average maturity (determined by taking into account the mandatory redemption schedule) of such Term Bonds. The yield on the Bonds, calculated in this manner and as verified in the Report or 4.712716 percent. 20. Weighted Average Maturity. As calculated bythe Financial tY Advisor in the manner described below and set forth in the Certificate of Financial Advisor, Exhibit B hereto, the weighted average maturity of the Bonds and the Refunded Bonds is 17.999 years and 5.299 years, respectively, which is the sum of the products of the Issue Price of each group of identical Bonds and the number of years to maturity (determined separately for each group of identical rBonds and taking into account mandatory redemptions), divided by the aggregate sale proceeds of the Bonds. 21. Debt Service Fund. The City created pursuant to the Ordinance the Debt Service Fund to be used primarily to achieve a proper matching of revenues and debt service on the Bonds within each bond year. The City expects that the taxes levied, assessed and collected each year, and amounts received from investment of moneys held in the Debt Service Fund, will be sufficient to pay debt service each year on the Bonds. The City will adjust the annual tax rates as necessary, taking into account other moneys available or to be available for the payment of debt service on the Bonds. The portion of the Debt Service Fund which will be depleted by the payment of debt service on the Bonds at least once each bond year, except for a reasonable carryover amount not to exceed the greater of(a) one year's earnings on the Debt Service Fund for the immediately preceding bond year or(b) one-twelfth of the principal and interest payments on the issue for the immediately preceding bond year, will constitute a bona fide Debt Service r Fund and will be treated as a separate fund (the "Bona Fide Portion") for purposes of this Certificate. Amounts, other than proceeds of the Bonds, remaining in the Debt Service Fund, after the annual payment of all principal of and interest and premium, if any, on the Bonds, other than the reasonable carryover amount described in the preceding sentence will be treated for purposes of this Certificate as a separate fund (the "Reserve Portion"). The City reasonably expects that the sum of any amounts in the Debt Service Fund which (i) are allocable to such r Reserve Portion or (ii) are allocable to the Bona Fide Portion, but are not spent for the payment of debt service on the Bonds within 13 months after the date of receipt of such amount, together with the amounts on deposit in the Reserve Fund, will not exceed the least of(x) 10 percent of the Issue Price (as defined in paragraph 18), (y) the maximum annual principal and interest requirements on the Bonds, or (z) 125 percent of the average annual principal and interest requirement on the Bonds, at any time so long as the Bonds are outstanding. To the extent any such accumulations exceed such amount, the excess amount will be invested at a yield not in excess of the yield on the Bonds, except as set forth in paragraph 23 below. r -13- HOU:2580481. r 22. No Other Sinking Funds. Other than the Debt Service Fund, there are no othe r funds or accounts comprised of investment property established by and on behalf of the City (a) which are expected to be used, or expected to generate earnings to be used, to pay debt service on the Bonds, or which are reserved or pledged as collateral for payment of debt service on the Bonds and (b) for which there is reasonable assurance that amounts therein will be available to rpay debt service on the Bonds if the City encounters financial difficulties. Use of amounts in the Debt Service Fund is described above. There is no other fund established, or to be created or established, which would be treated as a sinking fund with respect to the Bonds. 23. Minor Portion. The Cityexpectsthat the gross proceeds of the Bonds, including all proceeds received with respect to the Bonds and all investment proceeds received on such ramounts, and all other amounts pledged or anticipated to be used to pay principal of and interest on the Bonds, other than amounts representing a portion of the Bona Fide Portion of the Debt Service Fund, will be expended in accordance with paragraphs 9 and 15 above. To the extent that such amounts remain unexpended or are otherwise on hand following the periods set forth in paragraph 15 above exceeds the amount specified in this paragraph 23, the City will invest such amounts, other than a minor portion in an amount not exceeding the lesser of 5 percent of the sale proceeds of the Bonds or$100,000 in the aggregate, at a yield not materially higher than the yield on the Bonds. r24. Identification of Replacement Proceeds. Notwithstanding the expectations of the City as stated above in paragraph 12 the City will (at all times while the Bonds are outstanding) identify all replacement proceeds with respect to the Bonds, including any sinking fund created for repayment of the principal or interest on the Bonds or any other amounts held in any fund of the City reasonably expected by the City to be used to pay the principal of or interest on the Bonds. If the City identifies any replacement proceeds and determines that a temporary period pursuant to Section 1.148-2(e) of the Regulations is not applicable to such replacement proceeds, the City will limit the yield on the investment of such replacement proceeds to the yield on the Bonds until such proceeds are treated as spent in accordance with the Regulations. The City acknowledges that failure to properly identify replacement proceeds and account for the investment and expenditure thereof as required by the Regulations may result in interest on the Bonds being includable in the gross income of the holders of the Bonds. 25. Compliance with Rebate Requirements. The City has covenanted in the Ordinance that, unless the Bonds meet an exception to the rebate requirement, it will take all necessary steps to comply with the requirement that rebatable arbitrage earnings on the investment of the gross proceeds of the Bonds, within the meaning of Section 148(f) of the Code, be rebated to the federal government. Specifically, the City will (i) maintain separate records r regarding the amount and timing of disbursements of proceeds of the Bonds (ii) maintain records regarding the investment of the gross proceeds of the Bonds as may be required to calculate the amount earned on the investment of the gross proceeds of the Bonds which are part of a reasonably required reserve or replacement fund separately from records of amounts in other funds or accounts maintained for the Bonds amounts on deposit in the funds and accounts of the ' City allocable to other bond issues of the City or moneys which do not represent gross proceeds of any Bond of the City (iii) calculate at such times as required by applicable Regulations, the rebatable amount earned from the investment of the gross proceeds of any Bond of the City, (iv) calculate at such times as required by applicable Regulations, the rebatable amount earned from -14- HOU:2580481.1 r . the investment of the gross proceeds of the Bonds which are part of a reasonably required reserve q or replacement fund, and (v) pay, not less often than every fifth anniversary date of the delivery of the Bonds or on such other dates as permitted or required by applicable Regulations, all amounts required to be rebated and all penalties required to be paid to the federal government. The City acknowledges that the purposes of compliance with Section 148 of the Code, gross proceeds of the Bonds must be accounted for on the basis of a reasonable, consistently applied method of accounting, not employed in whole or in part as an artifice or device. The City will employ accountants or other persons with expertise in performing the rebate calculations as is necessary to insure compliance with the Code. The City will employ legal counsel as is necessary to resolve the interpretive issues involved in complying with the rebate requirements of the Code. Further, the City will not indirectly pay any amount otherwise payable to the rfederal 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. In the event that the City fails to comply with the rebate requirements of the Code, the City agrees to take all steps available under the Code to bring the Bonds into compliance with the Code; such steps include paying any penalty, interest or other amounts which will allow the City to return to compliance with the rebate requirements of the Code. If the City is required to pay rebate or other amounts, such as penalties and interest, to the United States with respect to the Bonds pursuant to Section 148(f) of the Code in order to prevent the Bonds from constituting arbitrage bonds or being otherwise classified or treated such that interest on the Bonds would not be excludable from the gross income of the holders thereof for federal income tax purposes, the City will timely make such payments from available funds of the City and the City reasonably expects that it will have the ability to make such payments from available funds of the City in the event such payments become necessary. The undersigned reasonably expects that the City will fulfill its covenants and representations in this regard. rThe City hereby makes the following elections with respect to the Construction Proceeds of the Bonds: DO NOT ELECT ELECT N/A ❑ ® ❑ 1. To use actual facts to apply the provisions of paragraphs (e) through (m) of section 1.148-7 of the Regulations. r ❑ ® ❑ 2. To exclude earnings on a reasonably required reserve or replacement fund from the definition of "available constructions proceeds" for purposes of the spending requirements. Section 1.148-7(i)(2) of the Regulations. t ❑ ® ❑ 3. To treat the portion of the Bond that is not a refunding issue as two, and only two, separate issues, one of which (a) meets the definition of a construction issue and (b) is reasonably expected as of the date hereof to finance all of the construction expenditures to be financed by the Bonds. Section HOU:2580481.1 F 1.148-7(j)(1) of the Regulations. ❑ ® 1 4. To pay a penalty (the "1-1/2" penalty) to the United States in lieu of the obligation to pay arbitrage rebate on available construction proceeds in the event that the Bonds fail to satisfy any of the semiannual spending requirements for the two-year rebate exception. Section 1.148-7(k)(1)of the Regulations. 26. Not a Refunding of Any Other Bonds. No portion of the proceeds of the Bonds are expected to be used to pay any principal of or interest on any issue of governmental obligations other than the Bonds and the Refunded Bonds. 27. Not a Reimbursement. No portion of the proceeds of the Bonds will be allocated to, or otherwise used to reimburse, any expenditure paid by the City, either actually or constructively,prior to the date of issue. 28. No Change in Use. The City does not expect to dispose of any portion of any project related to the Bonds or the Refunded Bonds, or to change the use of the proceeds of the Bonds or the Refunded Bonds while any of the Bonds are outstanding. 29. Not a Hedge Bond. Neither the Bonds nor the Refunded Bonds are "hedge bonds"within the meaning of Section 1.149(g)-1 of the Regulations. 30. No Abusive Arbitrage Device. The Bonds are not and will not be a part of an issue in which an abusive arbitrage device (as defined in Section 1.148-10(a) of the Regulations) is used. Without limiting the foregoing, the 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, and (ii) increasing the burden on the market for tax-exempt obligations. In this regard, the City issued the Bonds for the primary purpose of accomplishing the bona fide governmental purposes set forth in paragraph 3 of this Certificate. Based on all the facts and circumstances, the City has not issued the Bonds in an amount higher than is reasonably necessary to accomplish the governmental purposes of the Bonds, the City has not issued the Bonds earlier than is reasonably necessary to accomplish the governmental purposes of the Bonds and the City is not allowing the Bonds to remain outstanding longer than is reasonably necessary to accomplish the governmental purposes of the Bonds. The City would have issued the Bonds regardless of any arbitrage benefit, which it may rrealize in connection with the Bonds. In fact, the City reasonably expects that even if the Bonds were not tax-exempt obligations and if market rates of interest on taxable and tax-exempt obligations were equal to each other and to the rates at which the Bonds are in fact now being issued, the City would have issued the Bonds, notwithstanding the loss of any opportunity to borrow at lower tax-exempt rates and invest at higher taxable rates. (a) No Impermissible Sinking Fund. No portion of the Bonds has a maturity determined primarily for the purpose of creating a sinking fund with respect to T -16_ HOU:2580481.1 F the Bonds the yield on which will be blended with the yield on the investment of other proceeds of the Bonds to reduce the negative arbitrage related to such investment. (b) No Working Capital. Except for an amount that does not exceed 5 percent of the Sale Proceeds of the Bonds (and that is directly related to capital expenditures financed by the Bonds), the City will only expend proceeds of the Bonds for (i) costs that would be chargeable to the capital accounts of the Project if the City's income were subject to federal income taxation and (ii) interest on the Bonds in an amount that does not cause the aggregate amount of interest paid on all of the Bonds to exceed that amount of interest on the Bonds that is attributable to the period that commences on the date hereof and ends on the later of(A) the date that is three years ffrom the issue date of the Bonds or (B) the date that is one year after the date on which the Project is placed in service. (c) No Related Sinking Fund. No portion of the Bonds has a maturity determined primarily for the purpose of creating a sinking fund with respect to the Bonds the yield on which will be blended with the yield on the Escrowed Securities to reduce the negative arbitrage in the Escrow Fund. (d) No Noncallable Bonds. The Refunded Bonds do not include any noncallable bonds refunded for the primary purpose of investing the proceeds of the Bonds in the Escrow Fund allocable to the noncallable bonds at a yield that is higher than the yield on the Bonds in order to reduce negative arbitrage in the Escrow Fund. (e) No Window Refunding. No portion of the Bonds has been structured with the primary purpose of making available released revenues that will allow the City to avoid transferred proceeds, to invest such released revenues at a yield materially higher than the yield on the Bonds or to pay principal and interest on another issue of obligations of the City. (f) No Sale of a Conduit Loan. No portion of the gross proceeds of the Bonds or the Refunded Bonds has been or will be used to acquire, finance or refinance a fconduit loan. (g) No Re-refunding. None of the Refunded Bonds has been refunded or defeased except pursuant to the issuances of the Bonds. 31. Allocations and Accounting. The proceeds of the Bonds will be allocated to expenditures not later than 18 months after the later of the date the expenditure is made or the date the Project is placed in service, but in no event later than the date that is 60 days after the fifth anniversary of the date hereof or the retirement of the last Bonds, if earlier. The allocation f of proceeds will be made by employing the direct-tracing method of accounting, unless the City elects otherwise. 32. No Private Use, Payments or Loan Financing. (a) General. The City reasonably expects, as of the date hereof, that no action or event during the entire stated term of the Bonds will cause either the "private -17- HOU:2580481.1 r business tests" or the "private loan financing test," as such terms are defined in the Regulations, to be met. (i) No portion of the proceeds of the Bonds, or the facilities refinanced by the Bonds, will be used in a trade or business of a nongovernmental person. For purposes of determining use, the City will apply rules set forth in applicable Regulations and Revenue Procedures promulgated by the Internal Revenue Service, including, among others, the following rules: (A) any activity carried on by a person other than a natural person or a state or local governmental unit will be treated as a trade or business of a nongovernmental person; (B) the use of all or any portion of the proceeds of the Bonds is treated as the direct use of proceeds; (C) a nongovernmental person will be treated as a private business user of proceeds of the Bonds as a result of ownership, actual or beneficial use of the proceeds pursuant to a lease, or a management or incentive payment contract, or certain other arrangements such as a take-or-pay or other output-type contract; and (D) the private business use test is met if a nongovernmental person has special legal entitlements to use directly or indirectly the proceeds of the Bonds. (ii) The City has not taken and will not take any deliberate action that would cause or permit the use of any portion of the proceeds of the Bonds, or the facilities refinanced by the Bonds, to change such that such portion will be deemed to be used in the trade or business of a nongovernmental person for so long as any of the Bonds remain outstanding (or until an opinion of nationally recognized bond counsel is received to the effect that such change in use will not adversely affect the excludability from gross income for federal income tax purposes of interest payable on the Bonds). For this purpose any action within the rcontrol of the City is treated as a deliberate action. A deliberate action occurs on the date the City enters into a binding contract with a nongovernmental person for use of the proceeds of the Bonds that is not subject to any material contingencies. (iii) portion No of the proceeds of the Bonds will be directly or indirectly used to make or finance a loan to any person other than a state or local rgovernmental unit. (b) Dispositions of Personal Property in the Ordinary Course. Dispositions of personal property financed or refinanced with any portion of the proceeds of the Bonds will occur in the ordinary course of an established governmental program and will satisfy the following requirements: (i) The weighted average maturity of the portion of the Bonds financing personal property is not greater than 120 percent of the reasonably expected actual use of such personal property for governmental purposes; (ii) The reasonably expected fair market value of such personal property on the date of disposition will be not greater than 25 percent of its cost; r_ T _i8_ HOU:2580481.I r (iii) Such personal property will no longer be suit able p Y for its governmental purposes on the date of disposition; and r (iv) The City is required to deposit amounts received from such disposition in a commingled fund with substantial tax or other governmental revenues and the City reasonably expects to spend such amounts on governmental programs within 6 months from the date of commingling. F33. No Arbitrage. On the basis of the foregoing facts, estimates and circumstances, it is expected that the proceeds of the Bonds will not be used in a manner that would cause any of the Bonds to be an "arbitrage bond" within the meaning of Section 148 of the Code and the Regulations. To the best of the knowledge and belief of the undersigned, there are no other facts, estimates or circumstances that would materially change such expectations. [SIGNATURE PAGE FOLLOWS] • F r r r r_ r r r_ r -I9- HOU:2580481.1 WITNESS MY HAND, this 8th day of June, 2006. CITY OF PEARLAND, TEXAS By: Cum Claire Manthei Director of Fiinance r_ EXHIBIT A—Certificate Regarding Issue Price EXHIBIT B—Certificate of Financial Advisor r r r r r r r r r r HOU:2580481.2 EXHIBIT A CERTIFICATE REGARDING ISSUE PRICE P P p p p p p 1 V f_ i I r E HOU2580481.1 r EXHIBIT B CERTIFICATE OF FINANCIAL ADVISOR The undersigned hereby certifies with respect to the sale of City of Pearland, Texas Permanent Improvement and Refunding Bonds, Series 2006 (the"Bonds"), as follows: 1. The undersigned is a duly authorized representative of RBC Capital Markets, the financial advisor (the "Financial Advisor") to the City of Pearland, Texas (the "City") in connection with the sale and delivery of the Bonds. In this capacity, the undersigned is familiar with the facts stated herein. 2. Based on the scheduled debt service on the Bonds, an amount of not less than $ maintained in the Debt Service Fund for the Bonds is consistent with accepted standards of prudent fiscal management for similar governmental entities in order to provide a reserve against periodic fluctuations in the amount and timing of revenue collections of the City and unanticipated financial problems of the City. 3. The weighted average maturity of the Bonds and the Refunded Bonds is 17.999 years and 5.299 years, respectively. The weighted average maturity is the sum of the products of the Issue Price of each group of identical Bonds and the number of years to maturity(determined separately for each group of identical Bonds and taking into account mandatory redemptions), divided by the aggregate sale proceeds of the Bonds. 4. With respect to the issuance of the Bonds, the representations set forth in paragraph 30 of the Federal Tax Certificate are, to the best of our knowledge, true, correct and complete. [SIGNATURE PAGE FOLLOWS] r r c F r_ V r Bd HOU:2580481.i The Financial Advisor hereby authorizes the City to rely on the statements made herein in connection with making the representations set forth in the Federal Tax Certificate to which this Certificate is attached and in connection with compliance by the City with the provisions of the Code regarding the exclusion from gross income of the interest on the Bonds. Further, we hereby authorize Andrews Kurth LLP, Bond Counsel to the City, to rely on the statements made herein in connection with its opinion that interest on the Bonds is excludable from gross income for federal income tax purposes. �• EXECUTED and DELIVERED as of and on the 8th day of June, 2006. RBC CAPITAL MARKETS By: Ry O'Hara -I( V e President 1. p. so so i B-2 pp HOU:2580481.2 .. 06/07/2006 16:38 2816521738 PEARLAND PURCHASING PAGE 02/03 Form 8038-G Information Return for Tax-Exempt Governmental Obligations ► Under Internal Revenue Code section 149(e) OMB No.1545a720 (Rev,November 2000) pa gee separate Instructions. weDlCenrner'.0'the TreaNry Caution: 1f the issue price is under$100,000, use Form 8038-GC, Internal Aevrnue Snnnc lanar Reporting Authority If Amended Return, check here ► Q 1 issuer'e name 2. Issuer's employer identification number City of Pearland, Texas 74-6028909 IA 3 Number and street(or P.O.box If mail is not delivered to street address) Roorn/sulte 4 Report number 3519 Libert Drive 3 2006-1 5 City,town,or post office,state,and ZiP code 6 Date of issue Pearland, Texas 77581 06/08/2006 7 Name of issue 8 CUSIP number Permanent Improvement and Refundincr Bonds, Series 2006 704862XC0 9 Name and title of officer or legal representative whom the IRS may call for more information 10 Teloono'ro number of officer or Vega!representative ads Kathryn V. Garner, Bond Counsel (713) 220-3948 Part II Type of Issue(check applicable boxes)and enter the Issue price) See Instructions and attach schedule 11 ❑ Education I_111 N/A . 12 0 Health and hospital 12 N/A 13 0 Transportation 13 N/A 14 0 Public safety _14 N/A 15 0 Environment(including sewage bonds) 15 I N/A ... 16 0 Housing 16 N/A 17 ❑ 17 N/AUtilities 32,514,893.20 18 ❑x Other.Describe re. various Improvements 18 19 if obligations are TANS or RANs,check box ► ❑ If obligations are BANS,check box ►❑ 20 If obligations are in the form of a lease or installment sale,check box 0.0 , Description of Obligations. (Complete for the entire issue for which this form iS being filed.) (a) Final maturity date (h) Issue price (c) Stated redemption (d) Weighted (e) Yield Mee at maturity aver3Be maturity A. 21 03/01/2029 $ 32,514,893.20 ' 5 32,185,000.001 17.999 years 4.712716 e/a Uses of Proceeds Of Bond issue (including underwriters'discount) 22 Proceeds used for accrued interest L22 r 29,850.99 . 23 issue price of entire issue(enter amount from line 21,column(b)) _23 32,514,893.20 24 Proceeds used for bond Issuance costs(including underwriters'discount) 24 267,570.00 ?;; 25 Proceeds used for credit enhancement 25 150,900.00 26 Proceeds allocated to reasonably required reserve or replacement fund 26 0.00 . 27 Proceeds used to currently refund prior issues 27 8,001,622.54 r, 28 Proceeds used to advance refund prior issues 28 0.00 29 Total(add lines 24 through 28) 29 8,420,092.54 30 Nonrefunding proceeds of the issue(subtract line 29 from line 23 and enter amount here) 30 24.094,800.66 Part V Description of Refunded Bonds(Complete part only for refunding bonds.) 31 Enter the remaining weighted average maturity of the bonds to be currently refunded ► 5.299 years 32 Enter the remaining weighted average maturity of the bonds to be advance refunded It. years 33 Enter the last date on which the refunded bonds will be called pp6/09/06, 09/01/06 _ 34 Erter the date(s)the refunded bonds were issued P. 11/01/1995 r 03/01/1998 r 04/O1/1998;11/01/1999 Mial Miscellaneous 35 Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) 35 N/A .. 36a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract(see instructions) 38a N/A b Enter the final maturity date of the guaranteed investment contract ► 37 Pooled tnancings: a Proceeds of this issue that are to be used tc make loans to other governmental units 37a N/A b If this issue is a loan made from the proceeds of another tax-exempt issue, check box _ . ►0 and enter ttie name of the Issuer P and the date of the issue ► 38 If the issuer has designated the issue under section 265(b)(3)(B)(i)(III)(small issuer exception),check box 0 39 If the issuer has elected to pay a penalty in lieu of arbitrage rebate,check box I. 0 40 If the issuer has identified a hedge,check box ❑- ... Under penalties of perjury,I declare that 1 have examined this return end accempanytng schedules and statements.and to the best of my knowledge and belief,they aro true.correct end complete, Sign K21,...L0 (\ Claire Manthei Here ' \Y'�s_ Director of Finance -^ Slgn*ture or isadcn0 authorized representative Date ' Type or print name enc title For Paperwork Reduction Act Notice,see page 2 of the Instructions. Cat.No.53773$ Form 8038-G 1Rev.11-2000) 06/07/2006 16:38 2816521738 PEARLAND PURCHASING PAGE 03/03 ing WITNESS MY HAND, this 8th day of June, 2006. CITY OF PEARLAND, TEXAS By: CIaire Manthei Director of Fiinanee EXHIBIT A—Certificate Regarding Issue Price EXHIBIT B—Certificate of Financial Advisor HOU:25Rt148).2 S OFFICIAL STATEMENT CERTIFICATE r THE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § CITY OF PEARLAND § I, the undersigned Mayor of the City of Pearland, Texas (the "City"), acting solely in my official capacity, do hereby certify on behalf of the City that: 1. I have reviewed the Official Statement of the City dated May 8. 2006 (the "Official Statement"), relating to the $32,165,000 CITY OF PEARLAND, TEXAS PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006. 2. To the best of my knowledge and belief, as of the date hereof. the descriptions and statements of or pertaining to the City contained in the Official Statement, on the date thereof, on the date of sale of the Bonds, and on the date hereof, are true and correct in all material respects. 3. To the best of my knowledge and belief, as of the date of the Official Statement and the date hereof, insofar as it relates to the City and its affairs, including its financial affairs, the Official Statement did not and does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading. 4. To the best of my knowledge and belief, the descriptions and statements of or pertaining to entities other than the City and such entities' activities, including financial data, have been obtained from sources which are believed to be•reliable and there is no reason to believe that such descriptions and statements are untrue in any material respect. 5. There has been no material adverse change in the financial condition of the City since September 30. 2005, the date of the last audited financial statements of the City appearing in the Official Statement. [Signature Page Follows] S S HOU:2573966.1 r EXECUTED this *I., day of Aim , 2006, the date of payment for and delivery of the Bonds. Tom Reid Mayor, City of Pearland, Texas r r r r r f r r 2 HOU2573966.1 I RULE 15c2-12 CERTIFICATE The undersigned authorized representative of the City of Pearland, Texas (the "City") certifies as follows that: 1. The City Council of the City has authorized the undersigned to execute a certificate pertaining to the distribution of a preliminary official statement pertaining to the issuance and sale of the City's obligations designated as "City of Pearland, Texas Permanent Improvement and Refunding Bonds, Series 2006", dated June 1, 2006, in the aggregate principal amount of approximately $32,165,000 (the "Bonds"). 2. The preliminary official statement, dated April 24, 2006, has been reviewed by the undersigned and is deemed final as of its date (subject to the permissible omissions described in Rule 15c2-12) within the meaning of the provisions of 17 C.F.R. §240.15c2-12(b)(1). 3. Based upon this review, Citigroup Global Markets Inc., as the authorized representative of a group of underwriters, is authorized to distribute the preliminary official statement in its offering and sale of the Bonds. 4. The undersigned has executed this certificate in the capacity hereinafter shown for and on behalf of the City. [Signature Page Follows] 1 I r HOU.2573970.I r r EXECUTED AND DELIVERED, this 01. day of , 2006. ir IF ,_____... ,, ,,, ..)------Le Mayor ICity of Pearland, Texas i V Ir r r V r r II V IF Ir V ITHOU:2573970.1 FDIC Financial Guaranty Insurance Company 125 Park Avenue New York,NY 10017 T 212.312.3000 F 212.312.3093 June 8, 2006 City of Pearland Andrews Kurth LLP Re: $32,165,000.00 in aggregate principal amount of City of Pearland,Texas Permanent Improvement and Refunding Bonds, Series 2006 rLadies and Gentlemen: In connection with the issuance of the above-referenced obligations (the "Bonds"), Financial Guaranty Insurance Company ("Financial Guaranty") is issuing a municipal bond insurance policy guaranteeing the payment of principal and interest on the Bonds when due(the"Insurance Policy"). This letter is to advise you that: (i) The Insurance Policy is an unconditional and recourse obligation of Financial Guaranty (enforceable by or on behalf of the holder of the Bonds) to pay the r scheduled payments of principal and interest on the Bonds when due in the event of a failure by the City of Pearland, Texas, Texas (the "Issuer") to make such payments. (ii) The insurance premium is required to be paid as a condition to the issuance of the Insurance Policy and is a charge for the transfer of substantially all of the credit risk for the payment of principal and interest on the Bonds. (iii) Financial Guaranty is not a co-obligor on the Bonds. ' (iv) Except for the premium paid to Financial Guaranty for the Insurance Policy, Financial Guaranty (and any related party within the meaning of section 1.150-1(b) of the Income Tax Regulations) will not use any portion of the proceeds of the Bonds. r FGIC June 8, 2006 (v) No portion of the premium paid to Financial Guaranty for the Insurance Policy represents a payment for any direct or indirect services, other than the transfer of credit risk, including costs of underwriting or remarketing the Bonds or the cost of insurance for casualty to property financed with the proceeds of the Bonds. (vi) The Issuer is not entitled to a refund of any portion of the premium paid for the Insurance Policy in the event that any of the Bonds are retired prior to their stated maturity rVery truly yours, Carmen Zucker Counsel 06010220 r r r r r r r A N D R E W S Andrews&Kurth L.L.P. 600 Travis,Suite 4200 ATTORNEYS K U R T H LLP Houston,Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com June 8, 2006 WE HAVE ACTED as Bond Counsel for the City of Pearland, Texas (the "City") in connection with an issue of bonds (the"Bonds") described as follows: rCITY OF PEARLAND, TEXAS PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006, dated June 1, 2006, in the aggregate principal amount of $32,165,000 maturing on March 1, 2007 through March 1, 2027, inclusive and on March 1, 2029. The Bonds are issuable in fully registered form only, in denominations of$5,000 or integral multiples thereof, bear interest and may be transferred and exchanged as set out in the Bonds and in the ordinance (the "Ordinance") adopted by the City Council of the City authorizing their issuance. WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds from gross income under federal income tax law. In such capacity we have examined the Constitution and laws of the State of Texas; federal income tax law; and a transcript of certain certified proceedings pertaining to the issuance of the Bonds and the bonds and certificates of obligation that are being refunded (the "Refunded Obligations") with the proceeds of the Bonds, as described in the Ordinance. The transcript contains certified copies of certain proceedings of the City and Wells Fargo Bank, N.A., Houston, Texas (the "Escrow Agent"); the report (the "Report") of Grant Thornton LLP, certified public accountants, which verifies the sufficiency of the deposits made with the Escrow Agent for the defeasance of the Refunded Obligations and the mathematical accuracy of certain computations of the yield on the Bonds and the obligations acquired with the proceeds of the Bonds; certain certifications and representations and other material facts within the knowledge and control of the City, upon which we rely; and certain other customary documents and instruments authorizing and relating to the issuance of the Bonds and the firm banking and financial arrangements for the discharge and final payment of the Refunded Obligations. We have also examined executed Bond No. R-1 of this issue. ' WE HAVE NOT BEEN REQUESTED to examine, and have not investigated or verified, any original proceedings, records, data or other material, but have relied upon the transcript of certified proceedings. We have not assumed any responsibility with respect to the financial condition or capabilities of the City or the disclosure thereof in connection with the sale of the Bonds. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. BASED ON SUCH EXAMINATION, it is our opinion as follows: HOU:2570369.1 Austin Dallas Houston London Los Angeles New York The Woodlands Washington. DC June 8, 2006 Page 2 ' (1) The transcript of certified proceedings evidences complete legal authority for the issuance of the Bonds in full compliance with the Constitution and laws of the State of Texas presently in effect; the Bonds constitute valid and legally binding obligations of the City enforceable in accordance with the terms and conditions thereof, except to the extent that the rights and remedies of the owners of the Bonds may be limited by laws heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors of ' political subdivisions and the exercise of judicial discretion in appropriate cases; and the Bonds have been authorized and delivered in accordance with law; (2) The Bonds are payable, both as to principal and interest, from the receipts of an annual ad valorem tax levied, within the limits prescribed by law, fupon taxable property located within the City, which taxes have been pledged irrevocably to pay the principal of and interest on the Bonds; and (3) The escrow agreement between the City and the Escrow Agent (the "Escrow Agreement") has been duly executed and delivered and constitutes a binding and enforceable agreement in accordance with its terms; the establishment of the Escrow Fund pursuant to the Escrow Agreement and the deposit made therein constitute the making of firm banking and financial arrangements for the discharge and final payment of the Refunded Obligations; in reliance upon the accuracy of the calculations contained in the Report, the Refunded Obligations, having been discharged and paid, are no longer outstanding and the lien on and pledge of ad valorem taxes and other revenues as set forth in the ordinance authorizing their issuance will be appropriately and legally defeased; the holders of the Refunded Obligations may obtain payment of the principal of, redemption premium, if any, and interest on the Refunded Obligations only out of the funds provided therefor now held in escrow for that purpose by the Escrow Agent pursuant to the terms of the Escrow Agreement; and therefore the Refunded Obligations are deemed to be fully paid and no longer outstanding, except for the purpose of being paid from the funds provided therefor in such Escrow Agreement. ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our further opinion that, subject to the restrictions hereinafter described, interest on the Bonds is excludable rfrom gross income of the owners thereof for federal income tax purposes under existing law and is not subject to the alternative minimum tax on individuals or, except as hereinafter described, corporations. The opinion set forth in the first sentence of this paragraph is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax rHOU:2570369.1 rJune 8, 2006 Page 3 ' purposes. The City has covenanted in the Ordinance to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. The Code and the existing regulations, rulings and court decisions thereunder, upon which the foregoing opinions of Bond Counsel are based, are subject to change, which could prospectively or retroactively result in the inclusion of the interest on the Bonds in gross income of the owners thereof for federal income tax purposes. INTEREST ON all tax-exempt obligations, including the Bonds, owned by a corporation (other than an S corporation, a regulated investment company, a real estate investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securitization investment trust (FASIT)) will be included in such corporation's adjusted current earnings for purposes of calculating such corporation's alternative minimum taxable income. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. Purchasers of Bonds are directed to the discussion entitled "TAX EXEMPTION" set forth in the Official Statement. EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or local tax consequences under present law, or future legislation, resulting from the ownership of, receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Prospective l purchasers of the Bonds should be aware that the ownership of tax-exempt obligations, such as the Bonds, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies,property and casualty insurance companies, certain foreign ' corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax- exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations and individuals otherwise qualified for the earned income tax credit. For the foregoing reasons, prospective purchasers should consult their tax advisors as to the consequences of investing in the Bonds. E 7867/7866 r r rHOU:2570369.1 ATTORNEY GENERAL OF TEXAS GREG ABBOTT rJune 7, 2006 rTHIS IS TO CERTIFY that City of Pearland, Texas (the "Issuer"), has submitted to me City of Pearland. Texas, Permanent Improvement and Refunding Bonds, Series 2006 (the "Bonds"), in the aggregate principal amount of $32,165,000, for approval. The Bonds are dated June 1, 2006, numbered R-1 through R-22, and were authorized by Ordinance No. 1266 of the Issuer passed on May 8, 2006. I have examined the law and such certified proceedings and other papers as I deem necessary to render this opinion. As to questions of fact material to my opinion, I have relied upon representations of the rIssuer contained in the certified proceedings and other certifications of public officials furnished to me without undertaking to verify the same by independent investigation. I express no opinion relating to any official statement or any other offering material relating to the Bonds. rBased on my examination,I am of the opinion,as of the date hereof and under existing law, as follows: r (1) The Bonds have been issued in accordance with law and are valid and binding obligations of the Issuer. (2) In accordance with the provisions of the law,including an Escrow Agreement dated as of May 8,2006,firm banking arrangements have been made for the discharge and final payment or redemption of the obligations being refunded upon deposit of an amount sufficient to pay said obligations when due. (3) The Bonds are payable from the proceeds of an annual ad valorem tax levied,within the limits prescribed by law, against all taxable property in the Issuer. rTherefore,the Bonds are approved. r I ' POST OFFICE Box 12548, AUSTIN, TEXAS 78711-2548 TEL:(512)463-2100 WWW.OAG.STATE.TX.US An Equal Employment Oppartnni/y Employer • Printed an Recycled Paper City of Pearland,Texas,Permanent Improvement and Refunding Bonds, Series 2006-$32,165,000 -Page 2- rThe Comptroller is instructed that she may register the Bonds without the cancellation of the underlying securities being refunded thereby. • . rAttorney Gee ral of the State of Texas No.44877 Book No 2006-Ft JCH I r i i r r r r r t I r OFFICE OF COMPTROLLER OF THE STATE OF TEXAS ' I, Melissa Mora , Bond Clerk n Assistant Bond Clerk in the office of the Comptroller of the State of Texas, do hereby certify that, acting under the direction and authority of the Comptroller on the 7th day of June, 2006, I signed the name of the Comptroller to the certificate of registration endorsed upon the: City of Pearland, Texas, Permanent Improvement and Refunding Bonds, Series 2006, numbered R-1/R-2 d ted June 1, 2006' and that in signing the certificate of registration I used the following signatur : 41 *?" IN WITNESS EREOF I hake exec certificate this the 7th day of June, 2006. I, Carole Keeton Strayhorn, Comptroller of Public Accounts of the State of Texas, certify that the person who has signed the above certificate was duly designated and appointed by me under authority vested in me by Chapter 403, Subchapter H, Government Code, with authority to sign my name to all certificates of registration, and/or cancellation of bonds required by law to be registered and/or cancelled by me, and was acting as such on the date first mentioned in this certificate, and that the bonds/certificates described in this certificate have been duly registered in the office of the Comptroller, under Registration Number 71488. r GIVEN under my hand and seal of office at Austin, Texas, this the 7th day of June, 2006. l CAROLE KEETON STRAYHORN Comptroller of Public Accounts of the State of Texas r OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, CAROLE KEETON STRAYHORN, Comptroller of Public Accounts of the State of Texas, do hereby certify that the attachment is a true and correct copy of the opinion of the Attorney General approving the: City of Pearland, Texas, Permanent Improvement and Refunding Bonds, Series 2006 numbered R-1/R-22, of the denomination of $ various, dated June 1 , 2006, as authorized by issuer, interest various percent, under and by authority of which said bonds/certificates were registered electronically in the office of the a Comptroller, on the 7th day of June, 2006, under Registration Number 71488. Given under my hand and seal of office, at Austin, Texas, the 7th day of June, 2006. CAROLE KEETON STRAYHORN Comptroller of Public Accounts of the State of Texas FGIC Financial Guaranty Insurance Company 125 Park Avenue New York,NY 10017 T 212.312.3000 F 212.312.3093 kr June 8, 2006 r City of Pearland rCitigroup Global Markets Inc., as Underwriter or as Representative of the Underwriters Re: $32,165,000.00 in aggregate principal amount of City of Pearland, Texas Permanent Improvement and Refunding Bonds, Series 2006 r Ladies and Gentleman: rI am Counsel of Financial Guaranty Insurance Company ("Financial Guaranty"), and have been requested to render an opinion concerning the issuance by Financial Guaranty r of its Municipal Bond New Issue Insurance Policy (the "Policy") in connection with the issuance of the captioned obligations (the "Bonds"). I have examined such documents and records as I have deemed relevant for purposes of this opinion, including (a) the r Certificate of Incorporation of Financial Guaranty, including all amendments thereto, (b) the amended By-laws of Financial Guaranty as in effect on the date hereof, (c) the certificate of authority issued to Financial Guaranty by the Superintendent of Insurance of r the State of New York, (d) the certificate of authority issued to Financial Guaranty by the Commissioner of Insurance of the State of Texas, (e) the executed Policy and (f) the statements in the Official Statement dated May 8, 2006, relating to the Bonds (the r "Official Statement")under the caption "BOND INSURANCE". On the basis of the foregoing, it is my opinion that: r (1) Financial Guaranty is a stock insurance corporation validly existing and in good standing under the laws of the State of New York and qualified to do business therein and is licensed and authorized to issue its financial guaranty insurance policies under the laws of the State of Texas. r (2) The Policy is valid and binding upon Financial Guaranty and enforceable in accordance with its terms, subject to applicable laws affecting creditors' rights generally. r r FDIC June 8, 2006 (3) Financial Guaranty, as an insurance company, is not eligible for relief under the Federal Bankruptcy Laws. Any proceedings for the liquidation, conservation or rehabilitation of Financial Guaranty would be governed by the provisions of the Insurance Law of the State of New York. r (4) The statements described above in the Official Statement relating to Financial Guaranty and the Policy accurately and fairly present the summary information r set forth therein and do not omit any material fact with respect to the description of Financial Guaranty relative to the material terms of the Policy or the ability of Financial Guaranty to meet its obligations under the Policy. r Very truly yours, apv.A•sei ,ZeAdah, Carmen Zucker Counsel 06010220 r fr r r r r r. r r AN D R E W S 600 Travis,Suite 4200 Houston,ATTORNEYS K U R T H LLP Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com June 8, 2006 Financial Guaranty Insurance Company r 125 Park Avenue New York,New York 10017 Re: $ 32,165,000 City of Pearland, Texas Permanent Improvement and Refunding Bonds, Series 2006 Ladies and Gentlemen: We have this day issued our opinion as Bond Counsel in connection with the referenced Bonds. Please be advised that you may rely upon such opinion as if it were addressed to you. Very truly yours, r )Zi./ISLL 7867/7866 r r r r r r r r HOU:2584555.1 Austin Beijing Dallas Houston London Los Angeles New York The Woodlands Washington. DC r r $32,165,000 CITY OF PEARLAND, TEXAS r PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006 rRECEIPT AND CROSS RECEIPT r June 8, 2006 r I, the undersigned, a duly authorized representative of Wells Fargo Bank, N.A., hereby r acknowledge receipt on behalf of the City of Pearland, Texas (the "City") of the full purchase price for the City's Permanent Improvement and Refunding Bonds, Series 2006, in the total amount of$32,287,424.19 (representing the principal amount of the Bonds, plus a net premium r of$349,893.20 and less an underwriting discount of$257,320.00 and plus accrued interest in the amount of$29,850.99) on the date hereof. WELLS FARGO BANK,N.A. Houston, Texas By: Name: Christina Faith Title: Vice President r I, the undersigned, a duly authorized representative of Citigroup Global Markets, Inc., hereby acknowledge receipt from the City of the initial bonds of its Permanent Improvement and Refunding Bonds, Series 2006, dated June 1, 2006, which have been delivered to the rundersigned in proper form on the date hereof. 1 CITIGROUP GLOBAL MARKETS, INC. r By: Name: Title: HOU:2585223.I r r $32,165,000 165 000 CITY OF PEARLAND, TEXAS PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006 RECEIPT AND CROSS RECEIPT r June 8, 2006 r I, the undersigned, a duly authorized representative of Wells Fargo Bank, N.A., hereby acknowledge receipt on behalf of the City of Pearland, Texas (the "City") of the full purchase price for the City's Permanent Improvement and Refunding Bonds, Series 2006, in the total amount of $38,282,441.61 (representing the par amount of the Bonds of $32,257,573.20 r (representing the principal amount of the Bonds, plus a net premium of$349,893.20 and less an underwriting discount of$257,320.00) on the date hereof. rWELLS FARGO BANK,N.A. Houston,Texas r r By: Name: Title: r r I, the undersigned, a duly authorized representative of Citigroup Global Markets Inc., hereby acknowledge receipt from the City of the initial bonds of its Permanent Improvement and Refunding Bonds, Series 2006, dated June 1, 2006, which have been delivered to the rundersigned in proper form on the date hereof. CITIGROUP GLOBAL MARKETS INC. r By: Name: Charles Reed Title: Director r r HOU:2585223.1 f $32,165,000 CITY OF PEARLAND, TEXAS PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006 1 REGISTRAR'S RECEIPT I The undersigned duly authorized representative of Wells Fargo Bank, N.A., the paying agent/registrar for the $32,165,000 City of Pearland, Texas, Permanent Improvement and Refunding Bonds, Series 2006, certifies that said bonds have been duly registered in accordance with the Ordinance dated May 8, 2006, and have been delivered to the purchaser of said bonds. Executed and delivered this June 8, 2006. WELLS FARGO BANK,N.A. Houston, Te as r. 1 By: Name: ;hristina Faith Title: lice President I I r r r r HOU:2585214.1 ESCROW AGENT'S RECEIPT The undersigned, acting through its duly authorized officer, as Escrow Agent (the "Escrow Agent") under the Escrow Agreement, dated as of May 8, 2006 (the "Escrow Agreement"), between it and the City of Pearland, Texas (the "City"), relating to the City's Permanent Improvement and Refunding Bonds, Series 2006 (the "Refunding Bonds"), hereby acknowledges receipt of the following: 1. A copy of the Escrow Agreement with the Report (as defined in the Escrow Agreement) attached; and 2. The following securities and funds which have been deposited to the Escrow Fund as provided in Section 2.1 of the Escrow Agreement as of the date hereof: (a) As the beginning cash balance for the Escrow Fund as shown in the Report, $4,522,571.54; (b) the initial Limited Yield Securities with a purchase price of $3,479,051.00. As a result of the receipt of the foregoing, the Escrow Agreement between the Escrow Agent and the City has become effective as of the date hereof. IN WITNESS WHEREOF, I have hereunto set my hand this June 8, 2006. WELLS FARGO BANK, N.A. Houston, Texas By: tiZif Name: Christina Fai Title: Vice President HOU:2485395.1 r r OFFICIAL BID FORM rMay 8,2006 Mayor and City Council r City of Pearland 3519 Liberty Drive Pearland,Texas 77581 rGentlemen: Subject to the terms of your Official Notice of Sale and Official Statement, dated April 24, 2006, which are incorporated herein by reference,we hereby submit the following bid for the$32,165,000* CITY OF PEARLAND, r TEXAS, PERMANENT IMPROVEMENT AND REFUNDING BONDS, SERIES 2006, dated June 1, 2006. This offer is being made for all said Bonds and for not less than all. r For said legally issued Permanent Improvement and Refunding Bonds, we will pay you the_par value thereof, plus accrued interest from their date to the date of delivery to us,plus a cash premium of$17,577.20 for the Bonds maturing and bearing interest per annum as follows: r Maturity Principal Interest Maturity Principal Interest Date Amount* Rate Date Amount* Rate March 1,2007(a) $ 50,000 t{.00 % March 1,2019(a)(b) $1,335,000 41.50. r March 1,2008(a) 50,000 Y,o2 March 1,2020(a)(b) 1,485,000 S•vo March 1,2009(a) 50,000 �(.p2 March 1,2021(a)(b) 1,580,000 S.00 March 1,2010(a) 50,000 co- o March 1,2022(a)(b) 1,675,000 S-c» r March 1,2011(a) 320,000 y.vv March 1,2023(a)(b) 2,150,000 S.00 March 1,2012(a) 385,000 Y•ov March 1,2024(a)(b) 2,150,000 S 00 March 1,2013(a) 400,000 tj.o., March 1,2025(a)(b) 2,270,000 S. 00 March 1,2014(a) 410,000 Y.*fa March 1,2026(a)(b) 2,395,000 S.o' r March 1,2015(a) 430,000 t{.00 March 1,2027(a)(b) 2,525,000 �/-�S March 1,2016(a) 445,000 �(.(LS March 1,202.8(a)(b) 3,690,000 T Y•?S March 1,2017(a)(b) 460,000 Y.L5 March 1,2029(a)(b) 7,380,000 T Y.?5 rMarch 1,2018(a)(b) 480,000 Y-25 (a) At the option of the Initial Purchaser, any or all of such serial maturities may be designated as term bonds r subject to mandatory sinking fund redemption as follows; provided that the mandatory sinking fund amount in each year shall equal the amounts shown above as maturing in such year. r Term Bonds Years of First Maturity Date Mandatory Principal Amount Interest (March 1) Redemption of Term Bonds* Rate 2 o21 zoZs $ /if o?o,000 y.7s % r 0,0 0,0 r (b) Subject to optional redemption and payment, at the option of the City, in whole or, from time to time, in part, on March 1, 2016, or on any date thereafter at a price equal to the principal amount thereof, plus raccrued interest to the date fixed for redemption. * Preliminary,subject to change. See"Adjustment of Principal Amounts." r r Interest cost,in accordance with the above bid, is: OM Total Interest Cost from June 1,2006 $ 2 y3 g�O ‘,s6 , Less: Premium $ 2 5 7.2.O NET INTEREST COST $ 38 03'.,6O NET EFFECTIVE INTEREST RATE 11.7951!'/ % '�1 - The Initial Bonds shall be registered in the name of L 1 'I'y�' '�Y�"�` °'��' , which •will, upon payment for the — Bonds, be cancelled by the Paying Agent/Registrar. The Bonds will then be registered in the name of Cede & Co. (DTC's partnership nominee),under the Book-Entry-Only System. , Cashier's Check of the ! V—' Bank, /l q r r I r✓ Texas, in the amount of$643,300 which represents our Good Faith Deposit (is attached hereto) or(has been made available to you prior to the opening of this Bid), and is submitted in accordance with the terms as set forth in the "Official Notice of Sale" and "Official Statement." We agree to accept delivery of the Bonds utilizing the Book-Entry-Only System through DTC and make payment for the Initial Bond in immediately available funds in the Corporate Trust Office, Wells Fargo Bank,N.A.,Houston, Texas,not later than 10:00 AM,CST,on June 8, 2006,or thereafter on the date the Bonds are tendered for delivery, — pursuant to the terms set forth in the Notice of Sale and Bidding Instructions. It will be the obligation of the purchaser of the Bonds to complete the DTC Eligibility Questionnaire. The undersigned agrees to complete, execute and deliver to the City, by the date of delivery of the Bonds, a certificate relating to the "issue price" of the Bonds in the form and to the effect attached to or accompanying the Official Notice of Sale,with such changes thereto as may be acceptable to the City and its Bond Counsel. Respectfully submitted, By Auth zed R presentative — ACCEPTED this 8th day of May,2006,the City Council,City of Pearland,Texas. _ 0% ‘4�111111111/ n •N. a_`�e7. Jr 4 .Aro �► i Mayor ATTEST: e \ s ier i /fill e (For your information you will find attached a list of the group of purchasers associated with us in this proposal) F 11, CITY OF PEARLAND,TEXAS May 8, 2006 JPMorgan Chase Bank,National Association Issuer Administrative Services 2001 Bryan Street, 10`h Floor Dallas,Texas 75201 Re: Brazoria County Municipal Utility District No. 5 Unlimited Tax Bonds, Series 1995; Brazoria County Municipal Utility District No. 5 Unlimited Tax Bonds, Series 1998; Brazoria County Municipal Utility District No. 5 Unlimited Tax Refunding Bonds, Series 1998-A; and Brazoria County Municipal Utility District No. 5 Unlimited Tax Bonds, Series 1999 Ladies and Gentlemen: The City of Pearland, Texas (the "City") has annexed Brazoria County Municipal Utility District No. 5 (the "District") and assumed all outstanding obligations of the District. In connection with the refunding by City of the referenced bonds (collectively, the "Refunded Obligations"), the resolutions authorizing the issuance of the Refunded Obligations (the "Resolutions") require that written notice be sent in the name of the District not less than 30 days prior to a redemption date. As paying agent/registrar for the Refunded Obligations, JPMorgan Chase Bank, National Association(as successor in interest to Texas Commerce Bank National Association, Houston, Texas and Chase Bank of Texas National Association, Houston, Texas, as applicable), is instructed to send notices in connection with each Refunded Obligation in accordance with the Resolutions. Please acknowledge receipt of this letter and the enclosed forms of notice and your waiver of the 45-day paying agent/registrar notice provisions required by the Resolutions by signing in the spaces provided. CITY OF PEARLAND, TEXAS • By: r/Yrt 1r2t-t-49 ' Mayor Receipt Acknowledged this 1° day of 1 , 2006: JPMORGAN CH 4NK,NATIONAL ASSOCIATION By: Name: Bred HnunSel, AVP Title: r HOU:2573975.1 NOTICE OF REDEMPTION NOTICE is hereby given that the City of Pearland, Texas (the "City") has called for redemption the following assumed obligations of the City (the "Refunded Obligations") on September 1, 2006: BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 5 UNLIMITED TAX BONDS, SERIES 1998, dated March 1, 1998, maturing on September 1, 2007 through and including September 1, 2015, and aggregating in the principal amount of$1,410,000, as shown below: Certificate Maturity Principal Principal Being Number (September 1) Amount Interest Rate Redeemed •- R-9 2007 $90,000 4.500% $90,000 R-10 2008 95,000 4.600 95,000 R-11 2009 100,000 4.500 100,000 R-12 2010 105,000 4.500 105,000 R-13 2011 115,000 4.600 115,000 R-14 2012 125,000 4.600 125,000 R-15 2013 245,000 4.600 245,000 R-16 2014 260,000 4.600 260,000 R-17 2015 275,000 4.600 275,000 The redemption price for the above obligations is 100% of the par amount thereof plus accrued interest to the date of redemption. Redemption of the above bonds is conditioned entirely upon the closing of the City's Permanent Improvement and Refunding Bonds, Series 2006, and receipt by the Paying Agent therefore of the proceeds of such bonds for the purpose of redeeming the Refunded Obligations. Upon the City's making due provision for the payment of the redemption price thereof, the obligations shall become due and payable on the redemption date and the interest thereon shall cease to accrue from and after the date of redemption. The redemption price for the obligations shall be paid upon presentation and surrender by the holder thereof at the principal payment office of JPMorgan Chase Bank, National Association. Dated: May 8, 2006. CITY OF PEARLAND, TEXAS Mayor in urn HOU:2573975.I NOTICE OF REDEMPTION NOTICE is hereby given that the City of Pearland, Texas (the "City") has called for redemption the following assumed obligations of the City (the "Refunded Obligations") on June 9, 2006: BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 5 UNLIMITED TAX REFUNDING BONDS, SERIES 1998-A, dated April 1, 1998, maturing on March 1, 2007 through and including March 1, 2012, and aggregating in the principal amount of$3,045,000, as shown below: Certificate Maturity Principal Principal Being Number (March 1) Amount Interest Rate Redeemed R-9 2007 $450,000 4.600% S450,000 R-10 2008 475,000 4.700 475,000 R-11 2009 495,000 4.700 495,000 R-12 2010 520,000 4.750 520,000 R-13 2011 540,000 4.800 540,000 R-14 2012 565,000 4.900 565,000 a The redemption price for the above obligations is 100% of the par amount thereof plus accrued interest to the date of redemption. Redemption of the above bonds is conditioned entirely upon the closing of the City's Permanent Improvement and Refunding Bonds, Series 2006, and receipt by the Paying Agent therefore of the proceeds of such bonds for the purpose of redeeming the Refunded Obligations. Upon the City's making due provision for the payment of the redemption price thereof, the obligations shall become due and payable on the redemption date and the interest thereon shall cease to accrue from and after the date of redemption. a The redemption price for the obligations shall be paid upon presentation and surrender by the holder thereof at the principal payment office of JPMorgan Chase Bank, National Association. Dated: May 8, 2006. CITY OF PEARLAND, TEXAS Mayor i a i HO[;.2573975 I r rNOTICE OF REDEMPTION r NOTICE is hereby given that the City of Pearland, Texas (the "City") has called for redemption the following assumed obligations of the City (the "Refunded Obligations") on September 1, 2006: TBRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 5 UNLIMITED TAX BONDS, SERIES 1999, dated November 1, 1999, maturing on September 1 rin the years 2008 and 2010 and on September 1, 2012 through and including September 1, 2015, and aggregating in the principal amount of $1,860,000, as shown below: r Certificate Maturity Principal Principal Being r Number R-4 (September 1) Amount $165,000(a� Interest Rate Redeemed 2008 5.125% $165,000 *** *** *** *** *** r R-5*** 2010 180,000(a) 5.350 180,000 *** *** *** *** R-6 2012 190,000) 5.450 190,000 r R-7 R-8 2013 420,000 445,000 5.400 420,000 2014 5.450 445,000 R-9 2015 460,000 5.600 460,000 r (a) Represents a Term Bond r The redemption price for the above obligations is 100% of the par amount thereof plus accrued interest to the date of redemption. Redemption of the above bonds is conditioned entirely upon the closing of the City's Permanent Improvement and Refunding Bonds, Series r 2006, and receipt by the Paying Agent therefore of the proceeds of such bonds for the purpose of redeeming the Refunded Obligations. Upon the City's making due provision for the payment of the redemption price thereof, the obligations shall become due and payable on the redemption rdate and the interest thereon shall cease to accrue from and after the date of redemption. The redemption price for the obligations shall be paid upon presentation and surrender by r the holder thereof at the principal payment office of JPMorgan Chase Bank, National Association. rDated: May 8, 2006. CITY OF PEARLAND, TEXAS r ,___,),, V,J ,,,i) r Mayor r rHOU:2573975.1 r • . rNOTICE OF REDEMPTION r NOTICE is hereby given that the City of Pearland, Texas (the "City") has called for redemption the following assumed obligations of the City (the "Refunded Obligations") on June 9, 2006: FBRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 5 UNLIMITED TAX BONDS, SERIES 1995, dated November 1, 1995, maturing on September r 1, 2006 through and including September 1, 2015, and aggregating in the principal amount of$1,415,000, as shown below: r Certificate Maturity Principal Principal Being Number (September 1) Amount Interest Rate Redeemed R-9 2006 $100,000 5.600% $100,000 FR-10 2007 110,000 5.700 110,000 R-11 2008 115,000 5.800 115,000 R-12 2009 125,000 6.000 125,000 rR-13 2010 135,000 6.000 135,000 R-14 2011 145,000 6.000 145,000 R-15 2012 155,000 6.125 155,000 rR-16 2013 165,000 6.125 165,000 R-17 2014 175,000 6.250 175,000 r R-18 2015 190,000 6.250 190,000 The redemption price for the above obligations is 100% of the par amount thereof plus r accrued interest to the date of redemption. Redemption of the above bonds is conditioned entirely upon the closing of the City's Permanent Improvement and Refunding Bonds, Series 2006, and receipt by the Paying Agent therefore of the proceeds of such bonds for the purpose of r redeeming the Refunded Obligations. Upon the City's making due provision for the payment of the redemption price thereof, the obligations shall become due and payable on the redemption date and the interest thereon shall cease to accrue from and after the date of redemption. r The redemptionprice for the obligations shall be paid upon presentation and surrender by P g the holder thereof at the principal payment office of JPMorgan Chase Bank, National rAssociation. rDated: May 8, 2006. CITY OF PEARLAND, TEXAS r i 4., r Mayor r rHOU2573975.1 PF RESOLUTION AUTHORIZING THE ISSUANCE OF $2 , 020, 000 UNLIMITED TAX BONDS, SERIES 1995; PRESCRIBING THE TERMS AND PROVISIONS THEREOF; MAKING PROVISION FOR THE PAYMENT OF THE INTEREST THEREON AND THE PRINCIPAL THEREOF; AUTHORIZING THE SALE THEREOF; AND CONTAINING OTHER PROVISIONS RELATING TO THE SUBJECT IT IS HEREBY ORDERED BY THE BOARD OF DIRECTORS OF BRAZORIA coUNTY MUNICIPAL UTILITY DISTRICT No. 5 THAT: ARTICLE ONE STATUTORY AUTHORITY, RECITALS AND FINDINGS SECTION 1 . 01 : AUTHORITY FOR THE DISTRICT. Brazoria County Municipal Utility District No. 5 (the "District" ) of Brazoria bounty, Texas , is a conservation and reclamation district created pursuant to the provisions of Article XVI , Section 59 , of the Texas constitution by order of the Texas Water Rights Commission dated March 18, 1981, and confirmed at an election held within the District on April 4 , 1981 . SECTION 1 . 02 : PURPOSES OF THE DISTRICT. The District was organized, created and established for the following purposes : (a) the control , storage, preservation, and distribution of its storm water and floodwater, the water of its rivers and streams for irrigation, power, and all other useful purposes ; (b) the reclamation and irrigation of its arid, semi-arid, and other land needing irrigation; (c) the reclamation and drainage of its overflowed land and other land needing drainage; (d) the conservation and development of its forests , water, and hydroelectric power; (e) the navigation of its inland and coastal water; ( f ) the control , abatement, and change of any shortage or harmful excess of water; (g) the protection, preservation, and restoration of the purity and sanitary condition of water within the state; -- and (h) the preservation of all natural resources of the state . iLR\60809.1\BONDRESOLUTION2021 SECTION 1 . 03 : POWERS OF THE DISTRICT. The District is 00or1Zed to purchase, construct, acquire, own, operate, maintain, reaaa1improve, or extend inside and outside its boundaries any l works, improvements, facilities, plants, equipment, and an fiances necessary to accomplish the purposes of its creation, anp1uding all works , improvements, facilities, plants , equipment, 'lances incident, helpful, or necessary to: and app (a) supply water for municipal uses , domestic uses , power, and commercial purposes and all other beneficial uses or controls; (b) collect, transport, process, dispose of, and control all domestic, industrial, or communal wastes whether in fluid, solid, or composite state; (c) gather, conduct, divert, and control local storm water or other local harmful excesses of water in the District; (d) irrigate the land in the District; (e) alter land elevation in the District where it is needed; ( f) navigate coastal and inland waters of the District; and (g) provide parks and recreational facilities for the inhabitants in the District. SECTION 1 . 04 : AUTHORITY OF THIS RESOLUTION. The District is authorized to issue bonds for the purposes of purchasing, constructing, acquiring, owning, operating, repairing, improving, or extending any District works , improvements , facilities , plants, equipment, and appliances needed to accomplish the purposes , except for the purpose of providing parks and recreation facilities, for which the District was created, including works, improvements, facilities , plants , equipment, and appliances needed to provide a waterworks system, sanitary sewer system, and drainage system or solid waste disposal system, or to make payment of sums due or to become due under contracts for such purposes . SECTION 1 . 05 : FINDINGS . It is hereby found, determined and declared that: (a) the matters and facts set out in this Article One are true and correct; (b) at an election held on November 7 , 1987 , the District was authorized to issue the bonds of the District in the maximum amount of $17 ,670 , 000 , for the purpose or purposes of purchasing, constructing, acquiring, owning, operating, repairing, improving, or extending a waterworks system, a sanitary sewer system, and a LLR\60809.1\BONDR.ESOLUTION2021 2 aA a — drainage and storm sewer system for the District and all additions to such systems and all works, improvements , facilities, plants, equipment, appliances , interests in property, and contract rights needed therefor and administrative facilities needed in connection therewith, and for refunding all or part of the principal of or interest on the District ' s bonds, and to provide for the payment of principal of and interest on bonds by the levy and collection of a sufficient tax upon all taxable property within said District; (c) the election described in Paragraph (b) hereof was called and held under and in strict conformity with the Constitution and laws of the State of Texas, and of the United States of America, and the Board of Directors has heretofore officially declared the results of said election and declared that the District was legally created and authorized to issue the bonds described in Paragraph (b) ; (d) the District has heretofore issued to acquire and construct various phases of a waterworks, sanitary sewer, and drainage system for the District $1, 735 , 000 Unlimited Tax Bonds, Series 1982 (the "Series 1982 Bonds" ) ; $2, 750, 000 Unlimited Tax Bonds, Series 1983 (the "Series 1983 Bonds" ) ; $1, 620, 000 Unlimited Tax Bonds, Series 1984 (the "Series 1984 Bonds" ) ; and $6 , 065 , 000 Unlimited Tax Refunding Bonds , Series 1992 (the "Series 1992 Refunding Bonds" ) , to refund parts of the Series 1982 Bonds, the Series 1983 Bonds, and the Series 1984 Bonds . (e) the District intends to issue $2 ;020 , 000 in bonds (the "Bonds" ) to provide funds to reimburse a developer for construction of water distribution, sanitary sewer collection, and drainage facilities serving Southdown Subdivision, Section 5 and for phase 3 of a storm water detention pond; to finance the District ' s share of a water plant expansion and a wastewater treatment plant expansion; to pay certain engineering costs associated with the design and construction of such facilities; to pay land costs for a detention pond site and for a buffer zone easement; to pay interest on funds advanced to the District; to set aside interest payments on the Bonds; and to pay the costs of issuing the Bonds . As a result of the issuance of the Bonds , the District ' s remaining authorized but unissued bonds for the purposes of financing improvements to the District ' s water, sewer, and drainage systems or any other lawful purpose will be $9 , 585 , 000; ( f) the District has been authorized to levy taxes , and the taxes to be collected will be sufficient to make the :.:1\60809.1\BONDRESOLVPION2021 3 a principal and interest payments on the Bonds authorized by this Resolution; (g) the Board of Directors reserves the right to issue the remaining $9 , 585 ,000 in bonds which were voted on at the election described in Paragraph (b) hereof in one or more series at a future date or dates when, in the Board ' s judgment, such amounts are required for the authorized purposes . ARTICLE TWO DEFINITIONS AND INTERPRETATIONS SECTION 2 . 01 : DEFINITIONS . When used in this Resolution, except in Article Five, and in any order amendatory or supplemental hereto, the terms listed below shall have the meanings specified below, unless it is otherwise expressly provided or unless the oontext otherwise requires : Additional Bonds . The term "Additional Bonds" shall mean the additional bonds which the District expressly reserves the right to issue in Section 9,01 of this Resolution. Authorized Investments . r " The term "Authorized Investments" shall mean all direct or indirect obligations of the United States or. one of its agencies , the State of Texas, or any county, city, school district, or other political subdivision of the State and certificates of deposit of state or national banks or savings and loan associations within the State provided that they are secured in the manner provided for the security of the funds of counties of the State of Texas . Board of Directors . The term "Board of Directors" or "Board" shall mean the governing body of the District. Bondholders . The term "Bondholder" or "Bondholders" shall mean the holder or holders of a Bond or Bonds , as the context requires . Bond Register. The term "Bond Register" shall mean the books of registration kept by the Paying Agent/Registrar in which are maintained the papers and addresses of and the principal amount of the Bonds Registered to each Holder. -131\60809.1\BONDRESOLVIION2021 4 !PPIPPIPPP-- Bond Resolution. — The term "Bond Resolution" or "Resolution" shall mean this ' resolution and all amendments hereof and supplements hereto. Bonds . The term "Bond" or "Bonds" shall mean any obligation of the District authorized and issued pursuant to this Resolution, whether ially delivered or issued in exchange for, upon transfer of, or of any Bond previously issued. in lieu Business Day. The term "Business Day" shall mean any day which is not a Saturday, Sunday, legal holiday, or a day on which the Paying Agent/Registrar is authorized by law or executive order to remain closed Debt Service Fund. The term "Debt Service Fund" shall mean the District ' s Debt Service Fund which is established and affirmed in Section 7 . 01 of this Resolution. Definitive Bonds . The term "Definitive Bond" or "Definitive Bonds" shall mean the Initial Bond, as defined herein, as it may be transferred and converted into or exchanged for fully registered Bonds in the denomination of $5 , 000 or any integral multiple of $5, 000 . Depository. The term "Depository" shall mean the bank or banks which the District may select from time to time as its depository or depositories . District . The term "District" shall mean Brazoria County Municipal Utility District No. 5 and any other public agency succeeding to the powers , rights , privileges and functions of the District and, when appropriate, the Board of Directors of the District . Fiscal Year. The term "Fiscal Year" shall mean the accounting period for the District, which is currently the period ending September 30 , 1996 , and thereafter shall be the twelve-month period beginning on October 1 of each year and ending on September 30 of the following LLR\60809.1\BONDREsoLuTION2021 5 but which may be changed from time to time by the Board of 1 yearCtors . Dire Governmental Securities . The term "Governmental Securities" shall mean direct pligations of, or obligations the timely payment of the principal o d Interest on which are fully and unconditionally guaranteed of a the United States of America. in!, Holders . The term "Holder" or "Holders" when used with respect to any Bona eans the Person in whose name such Bond is registered in the Bon Register. Initial Bond. The term "Initial Bond" shall mean the Bond authorized to be issued hereunder which have the registration certificate executed on behalf of the Comptroller of Public Accounts of the State of Texas endorsed thereon, as contemplated by Section 5 . 06 hereof . Initial Date. The term "Initial Date" means November 1 , 1995 . Interest Payment Date . The term "Interest Payment Date" shall mean the Stated Maturity of an installment of interest on any Bonds . Maturity. The term "Maturity" when used with respect to any Bond means the date on which the principal of such Bond becomes due and payable as therein and herein provided, whether at the Stated Maturity or call for redemption. Net Revenues . The term "Net Revenues" shall mean the moneys received by the District from the ownership or operation of the District ' s waterworks , sanitary sewer, drainage and storm sewer systems , as well as under specific contracts , after deducting the costs of .00 operating, maintaining, and repairing the System and administration of the District . LLR\60809.1\BONDRESOLUTI0N2021 6 MEI ,,.,rstanding Bonds . The term "Outstanding Bonds" shall mean the previously issued 5 that remain outstanding, specifically the remaining $165, 000 rondcipal amount of the Series 1984 Bonds and $5 , 820, 000 of the friies 1992 Refunding Bonds . paying Agent/Registrar. The term "Paying Agent/Registrar" means the Person named as Agent/Registrar" herein until successor PayingFR • ,Re irar shall have become such pursuant to the Agent visions • of this Resolution, and thereafter "Paying Arent/Registrar" shall mean such successor Paying Agent/Registrar. person. The term "Person" means any individual , corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, or government or any agency or political subdivision thereof. predecessor Bonds . The term "Predecessor Bonds" of any particular Bond means every previous Bond evidencing all or a portion of the same debt as that evidenced by such particular Bond, and, for the purposes of this definition, any Bond registered and delivered pursuant to Section 3 . 08 in lieu of a mutilated, lost, destroyed, or stolen Hold shall be deemed to evidence the same debt as the mutilated, lost, destroyed, or stolen Bond. • Purchaser. • The term "Purchaser" has the meaning stated in Section 11 . 01 . Record Date . The term "Record Date" for the interest payable on any Interest Payment Date means the fifteenth ( 15th) day (whether or not a business day) of the calendar month next preceding such Interest Payment Date . Redemption Date. The term "Redemption Date, " when used with respect to any Bond to be redeemed, means the date fixed for such redemption pursuant to the terms of this Resolution. LLR\60809.1\BONDRESOLLTION2021 7 • APdem tion Price. 1 The term "Redemption Price" when used with respect to any Bond be redeemed means the price at which it is to be redeemed torsuant to the terms of this Resolution, excluding installments of Qnterest whose Stated Maturity is on or before the Redemption Date. Stated Maturity. The term "Stated Maturity" when used with respect to any Bond or any installment of interest thereon means the date specified in Such Bond as the fixed date on which the principal of such Bond or such installment of interest is due and payable. S�,stem The term "System" shall mean the District ' s waterworks , sanitary sewer, drainage, and storm sewer systems presently existing or to be constructed, all additions thereto, and all works, improvements , facilities , plants, equipment, and appliances connected therewith. SECTION 2 . 02 : INTERPRETATIONS . The titles and headings of the articles and sections of this Resolution 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 Resolution 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 taxes levied in payment thereof . ARTICLE THREE AUTHORIZATION, DESCRIPTION, AND EXECUTION OF BONDS SECTION 3 . 01 : AMOUNT, NAME, PURPOSE AND AUTHORIZATION. The Bonds of the District, to be known and designated as Brazoria County Municipal Utility District No. 5 Unlimited Tax Bonds , Series 1995, shall be issued in the aggregate principal amount of Two Million Twenty Thousand and No/100 Dollars ( $2 , 020 , 000 . 00 ) for the purposes of purchasing and constructing extensions and additions to the District ' s existing water and sanitary sewer system and drainage system and paying the costs of issuance of the Bonds , in the form specified herein and bearing the terms herein provided, under and in strict conformity with the Constitution and laws of the State of Texas , particularly Section 59 of Article XVI of the Constitution of Texas , Chapters 49 and 54 of the Texas Water Code, as amended, and Article 717k-2 , Vernon' s Texas Civil Statutes , as amended. SECTION 3 . 02 : DATE, DENOMINATION, INTEREST RATE, AND MATURITIES . The Bonds shall be issued in fully registered form in LLR\60809.1\BONDRESOLUTION2021 8 F • the denomination of $5, 000 or any integral multiple thereof . The Initial Bond shall be dated November 1 , 1995, and all Bonds tered and delivered bythe Paying Agent/Registrar shall be reed November 1 , 1995 . The Bonds shall mature in the respective principal amounts on September 1 of the respective years and bear Interest from the Initial Date until maturity or redemption at the respective rates per annum set forth below: Principal Year of Interest Amount Maturity Rate $ 55 , 000 1998 4 . 75% 60 , 000 1999 5 . 00 65, 000 2000 5 . 00 75, 000 2001 5 . 10 80, 000 2002 5 .20 85 , 000 2003 5 . 30 90 , 000 2004 5 . 40 95 , 000 2005 5 . 50 100 , 000 2006 5 . 60 110 , 000 2007 5 . 70 115 , 000 2008 5 . 80 125 , 000 2009 6 . 00 135 , 000 2010 6 . 00 145 , 000 2011 6 . 00 155 , 000 2012 6 . 125 165 , 000 2013 6 . 125 175 , 000 2014 6 . 25 190 , 000 2015 6 . 25 • SECTION 3 . 03 : INTEREST PAYMENT DATES . The interest on the Bonds shall be payable on September 1 , 1996 , and semiannually thereafter on March 1 and September 1 of each year until the maturity or redemption date of the Bonds . The amount of interest on the Bonds payable on each Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months . SECTION 3 . 04 : MEDIUM AND PLACE OF PAYMENT. The Bonds shall be payable without exchange or collection charges, in any coin or currency of the United States of America which on the respective dates of payment is legal tender for the payment of debts due the United States of America, upon presentation and surrender of the certificate representing the Bonds as they become due, or at their earliest redemption date, at the principal trust office of the Paying Agent/Registrar. SECTION 3 . 05 : EXECUTION OF BONDS . The Bonds shall be signed by the President or Vice President and attested by the Secretary or Assistant Secretary of the Board of Directors by the manual or facsimile signatures , and the official seal of the L:.R\60809.1\BONDRESOLLrTION2021 9 District shall be impressed or placed in facsimile thereon. The facsimile signatures on the Bonds shall have the same effect as the Bonds had been signed manually and in person, and the if facsimile seal on the Bonds shall have the same effect as if the o fficial seal of the District had been manually impressed upon each of the Bonds . Bonds bearing the manual or facsimile signatures of individuals who were at the time the proper officers of the District shall bind the District, notwithstanding that such individuals or either of them shall cease to hold such offices prior to the certification or registration and delivery of such Bonds or shall not have held such offices at the date of such Bonds , all as provided in the Bond Procedures Act of 1981 , as amended . Any Bond may be signed on behalf of the District by the actual or facsimile signature of such person as, at the actual time of execution of such Bond, shall be the proper officer of the District, although at the time of the Initial Date of the Bonds or the adoption of this Resolution, any such person was not said officer. Minor typographical and other minor errors in the text of any Bond or minor defects in the seal or facsimile signature on any Bond shall not affect the validity or enforceability of such Bond if it has been duly authenticated by the paying Agent/Registrar. SECTION 3 . 06 : PAYING AGENT/REGISTRAR. The District shall at all times maintain a Paying Agent/Registrar meeting the qualifications herein described, for the performance of the duties hereunder . Texas Commerce Bank National Association in Dallas , Texas , is hereby appointed Paying Agent/Registrar for such purposes . The District reserves the right to appoint a successor Paying Agent/Registrar by (a) filing with the Person then performing such function a certified copy of a resolution or ordinance giving notice of the termination• of the Agreement and appointing a successor, and (b) causing notice to be given to each Bondholder and the Municipal Advisory Council of Texas . Every Paying Agent/Registrar appointed hereunder shall at all times be a corporation organized and doing business under the laws of the United States of America or of any State , authorized under such laws to exercise trust powers , and subject to supervision or examination by Federal or State authority. The form of agreement submitted by the Person named above as Paying Agent/Registrar is hereby approved, and an appropriate official of the District is hereby authorized to execute such agreement for and on behalf of the District. SECTION 3 . 07 : REGISTRATION, DELIVERY AND TRANSFER OF BONDS . -• Initially one Bond (the "Initial Bond" ) representing the entire principal amount of the Bonds shall be issued in the name of the Purchaser (as defined herein) , or its designee, executed and submitted to the Attorney General of Texas for approval , and thereupon certified by the Comptroller of Public Accounts of the State of Texas by manual signature of an appropriate official in such office. At any time thereafter the Holder may deliver the ILR\60609.1\BONDRESOLUTION2021 10 Initial Bond to the Paying Agent/Registrar for transfer or exchange, accompanied by instruction from the Purchaser or such designee designating the Persons, maturities, and principal amounts to and in which the Initial Bond is to be transferred or exchanged and the addresses of such Persons, and the Paying Agent/Registrar shall thereupon, within not more than three ( 3) Business Days, register and deliver Definitive Bonds upon authorization of the District as provided in such instructions . In the event that the Purchaser provides written instructions to the paying Agent/Registrar at least five (5) Business Days prior to the date of delivery of the Initial Bond to the Purchaser, then the Paying Agent/Registrar shall transfer or exchange Definitive Bonds for the Initial Bond on the date of delivery upon payment for and surrender for exchange or transfer of the Initial Bond by the Purchaser. No Bond shall be entitled to any right or benefit under this Resolution, or be valid or obligatory for any purpose, unless there appears on such Bond either a certificate of registration substantially in the form provided in $ection 5 . 03, executed by the Comptroller of Public Accounts of the State of Texas or his duly authorized agent by manual signature, or a certificate of registration substantially in the form provided in Section 5 . 04 , as appropriate, executed by the paying Agent/Registrar by manual signature, and either such certificate upon any Bond shall be conclusive evidence, and the only evidence, that such Bond has been duly certified or registered and delivered. The District shall cause to be kept at the principal office of the Paying Agent/Registrar a register (herein referred to as the "Bond Register" ) in which, subject to such reasonable regulations as it may prescribe, registration of the Bonds and of transfers of the Bonds shall be made as provided herein. Upon surrender for transfer of any Bond at the principal office of the Paying Agent/Registrar, the District shall execute and the Paying Agent/Registrar shall register and deliver, in the name of the designated transferee or transferees, one or more new Bonds of the same Stated Maturity, of any authorized denominations, bearing the same rate of interest, and of like aggregate principal amount, upon surrender of the Bond to be exchanged at the principal office of the Paying Agent/Registrar. Whenever any Bonds are so surrendered for exchange, the District shall execute, and the Paying Agent/Registrar shall register and deliver, the Bonds which the Holder of Bonds making the exchange is entitled to receive. All Bonds issued upon any transfer or exchange of Bonds shall be the valid obligations of the District, evidencing the same debt, and entitled to the same benefits under this Resolution, as the Bonds surrendered upon such transfer or exchange . Every Bond presented or surrendered for transfer or exchange shall be duly endorsed or be accompanied by a written instrument of transfer in form satisfactory to the Paying Agent/Registrar duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to the Holder for any registration, transfer, or exchange of Bonds, but the District or the Paying Agent/Registrar may require LLR\60809.1\BONDRESOLUTION2021 11 11717 pay"' ent of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any trans Agent/Registrar the District nor the Pa gent/Re istrar 9 shall be required (a) to issue, transfer or exchange any Bond during the period beginning at the opening of business on a Record Date and ending at the close of business on the next succeeding Interest Payment Date, or (b) to transfer or exchange any Bond selected for redemption in whole or in part Where such redemption is scheduled to occur within thirty ( 30) calendar days . SECTION 3 . 08 : MUTILATED, DESTROYED, LOST, AND STOLEN BONDS . ,f (a) any mutilated Bond is surrendered to the Paying Agent/Registrar, or the District and the Paying Agent/Registrar receive evidence to their satisfaction of the destruction, loss, or theft of any Bond, and (b) there is delivered to the District and the Paying Agent/Registrar such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the District or the Paying Agent/Registrar that such Bond has been acquired by a bona fide purchaser, the District shall execute and upon its request the Paying Agent/Registrar shall register and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost, or stolen Bond, a new Bond of the same Stated Maturity and of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost, or stolen Bond has become or is about to become due and payable, the District in its discretion may, instead of issuing a new Bond, pay such Bond. Upon the issuance of any new Bond under this Section, the District may require the payment by the Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Paying Agent/Registrar, bond printing and legal fees ) connected therewith. Every new Bond issued pursuant to this Section in lieu of any mutilated, destroyed, lost, or stolen Bond shall constitute a replacement of the prior obligation of the District, whether or not the mutilated, destroyed, lost, or stolen Bond shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Resolution equally and ratably with all other outstanding bonds . The procedures set forth in the Paying Agent/Registrar Agreement, approved in Section 3 . 06 hereof , shall also be available with respect to mutilated, destroyed, lost or stolen Bonds . The provisions of this Section are exclusive and shall preclude ( to the extent lawful ) all other rights and remedies with respect to the replacement and payment of mutilated, destroyed, lost, or stolen Bonds . SECTION 3 . 09 : CANCELLATION. All bonds surrendered for payment, redemption, transfer, exchange, or replacement, if surrendered to the Paying Agent/Registrar, shall be promptly cancelled by it and, if surrendered to the District, shall be L..A\60809.I\BONORESOLL'TION2021 12 ivered to the Paying Agent/Registrar and, if not already shall be promptly cancelled by the Paying strar. The District may at any time deliver to the ent/Registrar for cancellation any Bonds previously or registered and delivered which the District may have in any manner whatsoever, and all Bonds so delivered a 11 be promptly cancelled by the Paying Agent/Registrar. All cancelled Bonds held by the Paying Agent/Registrar shall be disposed of as directed by the District . ARTICLE FOUR REDEMPTION OF BONDS BEFORE MATURITY SECTION 4 . 01 : REDEMPTION OF BONDS. The District reserves i the right to redeem the Bonds maturing on September 1 , 2006 , or herea_`ter, prior to their scheduled maturities , in whole, or om time to time in part, in such manner as the District may determine, in integral multiples of $5 , 000, on September 1 , 2005, or on any date thereafter, at a price equal to the principal amount of the Bonds to be redeemed plus accrued interest thereon to the date fixed for redemption. SECTION 4 . 02 : NOTICE TO PAYING AGENT/REGISTRAR OF REDEMPTION. The exercise by the District of its option to redeem any Bonds shall be entered in the minutes of the Board of Directors of the District . The District shall , at least forty- fiVe (45) days prior to the Redemption Date (unless a shorter '. notice shall be satisfactory to the Paying Agent/Registrar) , notify the Paying Agent/Registrar of such Redemption Date and of the principal amount of Bonds of each Stated Maturity to be redeemed . f SECTION 4 . 03 : MANNER OF REDEMPTION. If less than all of the Outstanding Bonds of the same Stated Maturity are to be redeemed, the particular Bonds to be redeemed shall be selected by the Registrar by lot or other random method from the Bonds which have not previously been called for redemption. The District shall promptly notify the Paying Agent/Registrar in writing of the Bonds selected for redemption and, in the case of any Bond selected for partial redemption, the principal amount thereof to be redeemed. For purposes of this Resolution, unless the context otherwise requires , all provisions relating to the redemption of Bonds shall relate, in the case of any Bond redeemed or to be redeemed only in part, to the portion of the principal of such Bond which has been or is to be redeemed . SECTION 4 . 04 : NOTICE TO HOLDERS OF REDEMPTION. Notice of redemption shall be mailed by the Paying Agent/Registrar in the name of and at the expense of the District, not less than thirty (30) days prior to the Redemption Date, to each Holder of Bonds to be redeemed. All notices of redemptions shall include a :.LR\60809.1\BONDRESOLUTION2021 13 ment as to (a) the Redemption Date, (b) the Redemption ctate (c) the principal amount of the Bonds to be redeemed and, priiess than all Bonds are to be redeemed, the identification if in the case of partial redemption, the respective principal (and'ts) of the Bonds to be redeemed, (d) that on the Redemption amoUnthe Redemption Price of each of the Bonds to be redeemed Date become due and payable and that interest thereon shall cease vrilaccrue from and after such date, and (e) that such Bonds are to be surrendered for payment of the Redemption Price at the tfinCipal office of the Paying Agent/Registrar, and the address pf such office. 0 SECTION 4 . 05 : PAYMENT FOR REDEEMED BONDS. Notice of mp redetion having been given as aforesaid, the Bonds so to be on the mption te, ome at deemed i one Price, and from and after such (unless due and d payable re the e Redempt District shall default in the payment of the Redemption Price) such Bonds shall cease to bear interest. Upon the surrender of such Bonds for redemption in accordance with such notice, such Bonds shall be paid by the Paying Agent/Registrar at the Redemption Price out of money supplied by the District . Installments of interest with a Stated Maturity on or prior to the Redemption Date shall be payable to the Holders of such Bonds registered as such on the relevant Record Dates according to their terms . If any Bond called for redemption shall not be so paid on the date set for redemption by reason of the failure of the District to provide collected funds , the same shall continue to bear interest from the Redemption Date at the rate borne by such Bond . SECTION 4 . 06 : PARTIAL REDEMPTION. Any' Bond which is to be redeemed only in part shall be surrendered. at the office of the paying Agent/Registrar ( if payment is to be made to other than the registered Holder with due endorsement by, or a written instrument of transfer in form satisfactory to the Paying Agent/Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing) , and the District shall execute and the Paying Agent/Registrar shall register and deliver to the Holder of such Bond, without service charge to the Holder, a new Bond or Bonds of the same Stated Maturity and of any authorized denomination or denominations as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Bond so surrendered. ARTICLE FIVE FORM OF BONDS AND CERTIFICATES SECTION 5 . 01 : FORMS GENERALLY . The Bonds , the Registration Certificates of the Comptroller of Public Accounts of the State of Texas , the Certificates of Registration, and the forms of L:.R\60809.1\BONDRESOLUT1ON2021 14 • signment to be printed on each of the Bonds , shall be Asbstantially in the forms set forth in this Article with such su ropriate insertions, omissions, substitutions , and other variations as are permitted or required by this Resolution, and ar have such letters, numbers, or other marks of identification m including identifying numbers and letters of the Committee on Uniform securities Identification Procedures of the American Bankers Association any such opinion of counsel s and endorsements nnas including any reproductionY P ) mar consistently herewith, be established by the District or { determined by the officers executing such Bonds as evidenced by y- 1i their execution thereof . Any portion of the text of any Bonds 1 mar be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Bond. The Definitive Bonds shall be printed, lithographed, or engraved, produced by any combination of these methods, or produced in any other similar canner, all as determined by the officers executing such Bonds as evidenced by their execution thereof, but the Initial Bond submitted to the Attorney General of Texas may be typewritten or Photocopied or otherwise reproduced. I SECTION 5 . 02 : FORM OF BONDS. The Bonds authorized by this Resolution shall be in substantially the following form, with such omissions, insertions, and variations as may be necessary and desirable and consistent with the terms of this Resolution: :.I.P\60809.1\BONDRESOLITr ION2021 15 1 r - UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF BRAZORIA I REGISTERED REGISTERED BER AMOUNT BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT No. 5 UNLIMITED TAX BOND SERIES 1995 Interest Rate: Stated Maturity: Initial Date: CUSIP: November 1 , 1995 BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT No. 5, a conservation and reclamation district, a body politic and corporate and a governmental agency created under the constitution and laws of the State of Texas, situated in Brazoria County, Texas (herein, the "District" ) , FOR VALUE RECEIVED hereby acknowledges itself indebted to and PROMISES TO PAY TO (the "Holder" ) , or registered assigns, on the Stated Maturity specified above, the sum of DOLLARS (or so much thereof as shall not have been paid upon prior redemption) and to pay interest thereon from the later of the Initial Date or the most recent Interest Payment Date to which interest has been paid or duly provided for, on September 1 , 1996, and thereafter semiannually on March 1 and September 1 in each year, at the per annum rate of interest specified above, computed on the basis of a 360-day year of twelve 30-day months . The principal of this Bond is payable at the agency of the District, which shall be the principal office of the Paying Agent/Registrar executing the registration certificate appearing hereon, upon presentation and surrender of this Bond. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will be paid to the person in whose name this Bond (or one or more Predecessor Bonds, as defined in the Resolution hereinafter defined) , is registered at the close of business on the Record Date for such interest, which shall be the fifteenth ( 15th) day of the month next preceding such Interest Payment Date. All such payments may be made by the Paying Agent/Registrar by check dated as of the Interest Payment Date and mailed to the registered Holder. -LA\60809.1\BONDRESOLtrTION2021 16 i i _ , THE DATE OF THE INITIAL BOND OF THIS ISSUE, in conformity Nith the Resolution authorizing the issuance of the series of Bonds of which this Bond is a part (herein the "Resolution" ) , is November 1, 1995 . THIS BOND IS ONE OF AN AUTHORIZED ISSUE OF BONDS, designated B ra?oria County Municipal Utility District No. 5 Unlimited Tax Bonds Series 1995 (hereinafter sometimes called the "Bonds" ) doregaating Two Million Twenty Thousand and No/100 Dollars a 000 . 00 ) . The Bonds are issued for the purpose of purchasing and constructing extensions of and additions to the District ' s existing water and sanitary sewer system and drainage s5,stem, and paying the costs of issuance of the Bonds , all under and in strict conformity with the Constitution and laws of the i State of Texas, particularly Section 59 of Article XVI of the constitution of Texas, Chapters 49 and 54 , Texas Water Code, as amended, and Article 717k-2, Vernon' s Texas Civil Statutes, as amended. THE DISTRICT RESERVES THE RIGHT TO REDEEM the Bonds of this issUe maturing on September 1, 2006 , or thereafter, prior to their scheduled maturities, in whole, or from time to time in Pa ' in such manner as the District may determine, in integral multiples of $5 , 000, on September 1, 2005, or on any date thereafter, at a price equal to the principal amount of the Bonds to be redeemed plus accrued interest thereon to the date fixed for redemption. -• AS PROVIDED IN THE BOND Resolution and subject to certain limitations therein set forth, this Bond is transferable on the Bond Register of the District, upon surrender of this Bond for transfer at the principal office of the Paying Agent/Registrar, duly endorsed by or accompanied by a written instrument of transfer in form satisfactory to the Paying Agent/Registrar duly executed by the registered Holder hereof or his attorney duly authorized in writing, and thereupon one or more new fully registered Bonds of the same Stated Maturity, of authorized denominations , bearing the same rate of interest, and for the same aggregate principal amount will be issued to the designated transferee or transferees . NEITHER THE DISTRICT NOR THE PAYING AGENT/REGISTRAR shall be required ( i ) to issue, transfer, or exchange any Bond during a period beginning at the opening of business on a Record Date and ending at the close of business on the next succeeding Interest Payment Date, or ( ii ) to transfer or exchange any Bond so selected for redemption in whole or in part when such redemption is scheduled to occur within thirty ( 30) calendar days . THE DISTRICT, THE PAYING AGENT/REGISTRAR, and any agent of either of them may treat the person in whose name this Bond is registered as the owner hereof for the purpose of receiving �- payment as herein provided and for all other purposes , whether or ;.i.R\60809.1\BONDRESOLVTION2021 17 MD gthis Bond be overdue, and neither the District, the Paying ot t�Registrar, nor any such agent shall be affected by notice Agethe contrary. too THIS BOND, AND THE OTHER BONDS OF THE SERIES OF WHICH IT IS is payable from the proceeds of a continuing, direct A pual ad valorem tax levied, without limit as to rate or amount, annle in the uP°n al Resolution onrforraymo more complete Dstrict.descrip Referenceo of thes made funds to the with and pledged to the payment of this Bond and the char9edof which it is a part. By acceptance of this Bond, the Series Holder hereof expressly assents to all of the provisions of the Resolution IN ADDITION TO THE RIGHT TO ISSUE BONDS OF INFERIOR LIEN, the District has reserved the right to issue Additional Bonds , as de fined in the Resolution, which may be secured by a lien on and _ pledge of the Net Revenues resulting from the ownership or operation of the District ' s waterworks, sanitary sewer, and drainage and storm sewer system. Such Additional Bonds may be payable solely from such revenues or solely from taxes or may be '! payable from a combination of taxes and such revenues . The District has also reserved the right to issue Special Project Bonds , as defined in the Resolution, which will be payable from and secured by the proceeds of a contract or contracts with .. persons , corporations, municipal corporations, political subdivisions , or other entities . Reference is made to the Resolution for a complete description of the right to issue Additional Bonds and Special Project Bonds . IT IS HEREBY CERTIFIED, RECITED AND, REPRESENTED that the issuance of this Bond and the series of , Bonds of which it is a part is duly authorized by law; that all acts, conditions , and things required to exist and to be done precedent to and in the issuance of this Bond and said series of Bonds to render the same lawful and valid have been properly done and performed and have happened in regular and due time, form and manner as required by law; that due provision has been made for the payment of the interest on and the principal of this Bond and the series of Bonds of which it is a part by levy of a continuing, direct annual ad valorem tax upon all taxable property within the District sufficient for said purposes; and that the issuance of this series of Bonds does not exceed any Constitutional or statutory limitation. a. IN WITNESS WHEREOF, BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT No . 5 has caused this Bond to be executed by the facsimile signatures of the President and Secretary of its Board of Directors and its official seal to be impressed or placed in facsimile hereon, all as of the 1st day of November, 1995 . :.LR\60809.1\BONDRESOLUTION2021 18 BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT No. 5 ' By: President, Board of Directors ATTEST. Secretary Board of Directors (SEAL) SECTION 5 . 03 : FORM OF REGISTRATION CERTIFICATE OF COMPTROLLER OF PUBLIC ACCOUNTS . The Initial Bond shall be registered by the Comptroller of Public Accounts of the State of Texas as provided by law. The registration certificate of said Comptroller of Public Accounts shall be printed on the back of said Initial Bond in substantially the following form: OFFICE OF THE COMPTROLLER S OF PUBLIC ACCOUNTS S REGISTER NO. STATE OF TEXAS S I HEREBY CERTIFY THAT there is on file and of record in my office a certificate to the effect that the Attorney General of the State of Texas has approved this Bond, and further that this Bond has been registered this day by me. WITNESS my signature and seal of office this day of , 1995 . Comptroller of Public Accounts of the State of Texas (COMPTROLLER' S SEAL) SECTION 5 . 04 : FORM OF AUTHENTICATION CERTIFICATE OF PAYING AGENT/REGISTRAR. On the front of all Bonds other than the Initial Bond, the Authentication Certificate of the Paying Agent/Registrar shall be printed in substantially the following form: :.LR\A 0809.1\BONDRESOLtT:IoN 2 021 19 AUTHENTICATION CERTIFICATE is hereby certified that this Bond has been delivered t II' the Bond Resolution described in the text of this — F�tsuain exchange for or in replacement of a bond, bonds, or a poi dion of a bond approved by the Attorney General of the State Texas and registered by the Comptroller of Public Accounts of 0f State of Texas . Texas Commerce Bank National Association, Dallas, Texas pate of Authentication: By: Authorized Signature — SECTION 5 . 05 : FORM OF ASSIGNMENT. On the back of all Bonds other than the Initial Bond, the form of Assignment shall be printed in substantially the following form: ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sells , assigns , and transfers unto (Print or typewrite name, address, and zip code of Transferee) : (Social Security or other identifying number of Transferee: ) the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints as attorney to transfer the — within Bond on the books kept for registration thereof, with full power of substitution in the premises . Dated: Registered Owner(s) NOTICE: The signature(s ) on this assignment must correspond with the name( s ) of the registered Holder(s) as shown on the face of this Bond in every particular, without enlargement or change whatsoever. ..A\60809.1\BONDRESOLUTION2021 20 • IPPIIIP— Signature Guaranteed NOTICE; Signature( s ) must be Oar- Stock member Exchangem oor the a York g New ercial bank or trust company. co The following abbreviations, when used in the inscription on faCe of the within Bond or above Assignment, shall be construed the though they were written out in full according to applicable aslaws or regulations : TEN COM -- as tenants UNIF GIFT MIN ACT in common Custodian (Cust. ) (Minor) TEN ENT -- as tenants by under Uniform Gifts to Minors Act the entireties State �• JT TEN -- as joint tenants with rights of survivorship and not as tenants in common Additional abbreviations may also be used though not in the above list. SECTION 5 . 06 : FORM OF INITIAL BOND. The Initial Bond shall be in the form set forth in Section 5 . 02 of , this Article, except that: (a) immediately under the name of the bond the headings "Interest Rate" and "Stated Maturity" and "CUSIP" shall all be eliminated. (b) in the first paragraph: ( i ) the words "on the Stated Maturity specified above" shall be deleted and the following will be inserted: "on the first day of September in each of the years indicated below and bearing interest at the per annum rates in accordance with the following schedule: Principal Year of Interest Amount Maturity Rate [Information to be inserted from schedules in Section 3 . 02 hereof , incorporating the Principal Amount, Year of Maturity, and Interest Rate of the Bonds . ] LLR\60809.1\BONDRESOLUTION2021 21 ( ii ) the words "executing the registration certificate appearing hereon" shall be deleted and an additional sentence shall be added to the paragraph as follows : "The initial Paying Agent/Registrar is Texas Commerce Bank National Association, Dallas , Texas . " ( iii ) the words " (or one or more Predecessor Bonds, as defined in the Resolution hereinafter defined) " shall be deleted . (c) the Initial Bond for the Bond shall be numbered T-1 . (d) the adjective "facsimile" modifying the noun "signatures" in the last paragraph shall be deleted. SECTION 5 . 07 : CUSIP REGISTRATION. The President of the Board of Directors or the Paying Agent/Registrar may secure the printing of identification numbers on the front of the Bonds through the CUSIP service Bureau Division of Standard & Poors Corporation, New York, New York. SECTION 5 . 08 : LEGAL OPINION. The approving opinion of Coats, Ro$e, Yale, Holm, Ryman & Lee, P.C. , Houston, Texas, bond counsel, may be printed on the back of the Bonds over the certification of the Secretary of the Board of Directors which may be executed in facsimile. ARTICLE SIX SECURITY OF THE BONDS SECTION 6 . 01 : SECURITY OF BONDS . The Bonds are secured by and payable from the levy of a continuing, direct annual ad valorem tax, without limit as to rate or amount, upon all taxable property within the District . SECTION 6 . 02 : LEVY OF TAX. To pay the interest on the Bonds , and to create a sinking fund for the payment of the principal thereof when due, and to pay the expenses of assessing and collecting such taxes , there is hereby levied, and shall be assessed and collected in due time, a continuing, direct annual ad valorem tax, without limit as to rate or amount, on all taxable property in the District for each year while any of the Bonds are outstanding . All of the proceeds of such collections , except expenses incurred in that connection, shall be paid into the Debt Service Fund, and the aforementioned tax and such payments into such fund shall continue until the Bonds and the interest thereon have been fully paid and discharged, and such proceeds shall be used for such purposes and no other. While said Bonds , or any of them, are outstanding and unpaid, an ad valorem tax each year at a rate from year to year as will be ample and sufficient to provide funds to pay the interest on said Bonds and to provide the necessary sinking fund to pay the principal when due, full LLP.\60809.1\80NDRESOLLIIION2021 22 _ r iowance being made for delinquencies and costs of collection, al 1 be levied, assessed, and collected and applied to the payment 5nalrincipal and interest on the Bonds . In determining the amount °f pxe5 which should be levied each year, the Board may consider ofetaher proceeds from the sale of Bonds have been placed in escrow pay interest during construction and whether the Board t° sonably expects to have revenue or receipts available from other fearces which are legally available to pay principal of or interest sOuredemption price on the Bonds . ° SECTION 6 . 03 : CONSOLIDATION OF DISTRICT. The laws of the ate of Texas permit the District to be consolidated with one or S Sta conservation and reclamation districts . In the event the District is consolidated with another district or districts, the District reserves the right to: (a) consolidate the System with a similar system of one or more districts with which the District is consolidating and operate and maintain the systems as one consolidated system ( herein for purposes of this section the "Consolidated System" ) ; (b) apply the net revenues from the operation of the Consolidated System to the payment of principal, interest, redemption price and bank charges on the revenue bonds or the combination tax and revenue bonds (herein for purposes of this section the "Revenue Bonds" ) of the District and of the district or districts with which the District is consolidating (herein collectively the "Consolidating Districts" ) without preference to any series of bonds (except subordinate lien revenue bonds which shall continue to be subordinate to the first lien revenue bonds of the Consolidating Districts ) ; and (c) pledge the net revenues of the Consolidated System to the payment of principal , interest, redemption price, and bank charges on revenue bonds which may be issued by the Consolidating Districts on a parity with the outstanding first lien revenue bonds of the Consolidating Districts . ARTICLE SEVEN FLOW OF FUNDS AND INVESTMENTS SECTION 7 . 01 : CREATION OF FUNDS . The establishment of the Debt Service Fund is hereby affirmed. Such fund shall be kept separate and apart from all other funds of the District . The Debt Service Fund shall constitute a trust fund which shall be held in trust for the benefit of the Bondholders and, to the extent permitted by law, the Holders of Additional Bonds , if any. SECTION 7 . 02 : SECURITY OF FUNDS . Any cash balance in any fund shall , to the extent not insured by the Federal Deposit :.:A\60809.1\BONDRESOLVTION2021 23 on- pun urance Corporation or its successor, be continuously secured by IWira.n pledge to the District of securities eligible under the valida of Texas to secure the funds of municipal utility districts , la`j5 an aggregate market value, exclusive of accrued interest, at 1 " times equal to the uninsured cash balance in the fund to which Stich securities are pledged. SECTION 7 . 03 : GENERAL OPERATING FUND. The establishment of General Operating Fund is hereby affirmed. The District shall dee t as collected, the Revenues posi (except earnings and profits in Section r' der 09 hereof ) froml the operationt of the sSyst m as rointodthe General 7 r Fund. Preferentially,y, all moneys deposited in the general Operating Fund shall be used for the purpose of paying the maintenance and operation expenses of the System. The District may accumulate and maintain an operating reserve in the General operating Fund equal to two (2 ) months ' average maintenance and operation expenses as estimated for that Fiscal Year ( the „operating Reserve" ) . SECTION 7 . 04 : DEBT SERVICE FUND. The District shall deposit or cause to be deposited into the Debt Service Fund the aggregate of the following at the time specified: (a) as soon as practicable after the Bonds are sold, accrued interest on the Bonds from the Initial Date to the date of delivery of the Bonds to the Purchaser; (b) as soon as practicable after the Bonds are sold, capitalized interest on the Bonds ; and (c) taxes levied and collected pursuant to Section 6 . 02 hereof , less costs of collection, as collected. Not later than five ( 5) days prior to any principal and/or interest ,on payment date on the Bonds, the Board of Directors shall cause the transfer of moneys out of the Debt Service Fund to the Paying Agent/Registrar in an amount not less than that which is sufficient to pay the principal which matures on such date, the interest which accrues on such date, and the Paying Agent/Registrar ' s fees for handling such payments on that date. SECTION 7 . 05 : CONSTRUCTION FUND. The establishment of the Construction Fund is hereby affirmed. The proceeds from the sale of the Bonds , after making the deposits to the Debt Service Fund from the proceeds of the Bonds as specified in Section 7 . 04 above, shall be deposited into the Construction Fund and shall be used solely for the expenses incident to the issuance of the Bonds and the costs of acquiring, purchasing, and constructing the facilities for which the Bonds were sold. The District shall have the authority to retain the following described monies in the Construction Fund and may expend such sums LLR\60809.1\BONDRFSOLUTION2021 24 ARTICLE EIGHT TAX EXEMPTION SECTION 8 . 01 Definitions . When used in this Article, the terms listed below shall have the meanings specified below, unless is otherwise expressly provided or unless the context otherwise it requires : 'Code" means the Internal Revenue Code of 1986 , as amended by .. anY amendments thereto enacted prior to the Issue Date . "Computation Date" has the meaning set forth in Section 1 . 148- 3(e) of the Regulations . "Gross Proceeds" has the meaning set forth in Section 1 . 148- 1(b) of the Regulations . "Investment" has the meaning stated in section 1 . 148-1 (b) of the Regulations and includes : ( 1 ) Stock : a share of stock in a corporation or a right to subscribe for or to receive such a share, ( 2 ) Debt : any indebtedness or evidence thereof, including without limitation United States Treasury bonds, notes , and bills (whether or not of the State and Local Government Series ) and bank deposits (whether or not certificated or interest bearing or made pursuant to a depository contract) , ( 3) Annuities and Deferred Payments : any annuity contract, or any other deferred payment contract acquired to fund an obligation of the District, or I ( 4 ) Other Property: any other investment-type property, "Issue Date" means the date on which the Bonds are initially authenticated and delivered to the Purchaser against payment therefor . "Issue Price" of the Bonds of any series and stated maturity means the amounts set out in paragraph 4 of the Certificate of Underwriters executed on the Closing Date. r" "Net Sale Proceeds" has the meaning set forth in section 1. 148-1 (b) of the Regulations . "Proceeds" has the meaning set forth in section 1 . 148-1 (b) of the Regulations . "Rebate Amount" has the meaning set forth in section 1 . 148-3 of the Regulations . LLR\G0809.1\BONDRESOLVTION2021 26 r "Regulations" shall mean the temporary or final Income Tax Regulations applicable to the Bonds issued pursuant to Sections 141 t" ulations shall 4.ough 150 of he al alsoCode. refer any Any to reference succes or a section of the provision to such Regtion hereafter promulgated by the Internal Revenue Service pursuant to Sections 141 through 150 of the Code and applicable to the "Sale Proceeds" has the meaning set forth in section 1 . 148- 1(b) of the Regulations . a "Taxable Investment" means any Investment other than ( 1 ) Non-AMT Tax Exempt Obligations : an obligation the interest on which is excluded from the gross income, as defined in section 61 of the Code, of the owners thereof for federal income tax purposes (or, when such obligation was issued, was purported by the evidence of such obligation to be so excluded) and which is not a preference item, as defined in section 57 of the Code, ( 2 ) Tax Exempt Mutual Funds : an interest in a regulated investment company to the extent that at least 95% of the income to the holders of such interest is interest that is excludable from gross income under section 103 (a) of the Code, ( 3) Demand SLGS : one-day certificates of indebtedness issued by the United States Treasury pursuant to the Demand Deposit State and Local Government Series program described in 31 C . F.R. part 344 , if the District in good faith attempts to comply with all the requirements of such program relating to the investment of Gross Proceeds, and . ( 4 ) Exempt Temporary Investments : Taxable Investments which are held for the credit of the 1994 Debt Service Fund. "Yield" of ( 1) Taxable Investments : Taxable Investments to any date means the actuarial "yield" of all such Taxable Investments on or before such date as "yield" is defined in section 1 . 148-5 (b) of the Regulations , and ( 2 ) Bonds : Any series of bonds means the actuarial "yield" of such Bonds, as defined in section 1 . 148-4 of the Regulations , and for the Bonds shall be specified in a certificate executed by an officer of the Board on the Issue Date . :.:.R\60B09.1\BONDRESOLUTION2021 27 SECTION 8 . 02 . Covenant To Maintain Tax-Exempt Status of A. Not to Cause Interest to Become Taxable . The District 1 all not use, permit the use of , or omit to use Gross Proceeds or 5 b other amounts (or any property acquired, constructed, or anyroved with Gross Proceeds ) in a manner which, if made or Ii°mptted, respectively, (or take or omit to take any other action vnic B h if taken e r respectively) , cause on to be includable in the gross income, as defined in a Lion 61 of the Code, of the owners thereof for federal income tax purposes . The District shall adopt and comply with the 1 pr°visions of such amendments hereof and supplements hereto as may, n the opinion of nationally recognized bond counsel, be necessary `° preserve or perfect such exclusion. Without limiting the ge nerality of the foregoing, the District shall comply with each of the specific covenants in this Section at all times prior to the last maturity of Bonds , unless and until the District shall have received a written opinion of nationally recognized bond counsel to the effect that failure to comply with such covenant will not adversely affect the excludability of interest on any Bond from the ...• gross income of the owner thereof for federal income tax purposes, and thereafter such covenant shall no longer be binding upon the 1 District to the extent described in such opinion, anything in any other Subsection of this Section to the contrary notwithstanding. B. No Private Use or Payments . At all times prior to the last Maturity of Bonds , the District shall neither ( 1) use nor permit the use of Gross Proceeds (or any property acquired, constructed or improved with Gross Proceeds or income from the investment thereof) in any trade or business carried on by any Person (or in any activity of any Person other than an individual) other than a state or local government, nor (2) directly or indirectly impose or accept any charge or other payment for use of Gross Proceeds (or use of any property acquired, constructed, or improved with Gross Proceeds or income from the investment thereof) in any trade or business carried on by any Person (or in any activity of any Person other than an individual ) other than a state or local government, unless either ( i ) such use is merely as a member (and, except possibly for the amount of use and any corresponding rate adjustment, is extended by the District on the same terms as to all other members) of the general public or ( ii ) such charge or payment consists of taxes of general application within the District or interest earned on temporary Investments acquired with Gross Proceeds pending application of such Gross Proceeds for their intended purposes . For purposes of this Subsection B, property is considered to be "used" by a Person if : 2 8 LLR\60809.1\BONDRESOLUTION2021 (a) Sale or Lease: it is sold or otherwise disposed of, or leased, to such Person; (b) Management Contract: it is operated, managed, or otherwise physically employed, utilized, or consumed by such person, excluding operation or management pursuant to an agreement which meets the conditions described in I .R.S. Rev. Proc. 93-19 ; (c) Capacity, Output, or Service Commitment : capacity in or output or service from such property is reserved or committed to such Person under a take-or-pay, output, incentive payment, or similar contract or arrangement; (d) Preferential Service: such property is used to provide service to (or such service is committed to or reserved for) such Person on a basis or terms which (except possibly for the amount of use and any corresponding rate adjustment ) are different from the basis or terms on which such service is provided (or committed or reserved) to members of the public generally; (e) Developer: such Person is a developer and a significant amount of property acquired, constructed, or improved with proceeds from the sale of a series of bonds of which the Bonds are a part serves only a limited area substantially all of which is owned by such Person, or a limited group of developers, unless such area is developed and sold to (and occupied by) members of the general public with reasonable speed; or ( f ) Other Incidents of Ownership:, substantial burdens and benefits of ownership of such property are otherwise effectively transferred to such Person, but the temporary investment of Gross Proceeds pending application for their intended purposes shall not constitute "use" of Gross Proceeds . C. No Private Loan. The District shall not use Gross Proceeds to make or finance loans to any Person other than a state or local government, excluding loans consisting of temporary investments of Gross Proceeds pending application of such Gross Proceeds for their intended purposes . For purposes of this Subsection C, Gross Proceeds are considered to be "loaned" to a Person if ( 1 ) property acquired, constructed, or improved with Gross Proceeds is sold or leased to such Person 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 under a take-or-pay, output, or similar contract or arrangement, or ( 3) indirect benefits , or burdens and benefits of ownership, of Gross Proceeds or such property are otherwise transferred to such Person in a transaction which is the economic equivalent of a loan . LLR\60809.1\BOHDRESOLITTIOR2021 29 a D. Not to Invest at Higher Yield. The District shall not, at time prior to the final Maturity of the Bonds, directly or any rattly invest Gross Proceeds in any Taxable Investment (or use indi proceeds to replace money so invested) , if, as a result of GrosSinvestment, the Yield of all Taxable Investments acquired with s representing an investment of) Gross Proceeds (or money (orlaced thereby) , whether then held or previously disposed of, to rep date of such investment exceeds the Yield of the Bonds . Notwithstanding the foregoing, however, the following Investments be °bsec D:excluded from the limitation described in this t 5 ( 1 ) Three-Year Period for Sale Proceeds : Taxable Investments acquired with (or representing an investment of) proceeds from the sale of the Bonds or earnings from the investment thereof, to the extent such Taxable Investments are held during the three-year period beginning on the Issue Date; ( 2 ) One-Year Period for Earnings on Sale Proceeds : Taxable Investments acquired with (or representing an investment of ) income from investment of proceeds from the sale of the Bonds, to the extent such Taxable Investments are held during the first year after receipt of such income; ( 3 ) 1995 Debt Service Fund Deposits : Taxable Investments acquired with (or representing an investment of) amounts held for the credit of the Debt Service Fund for the payment of the debt service on the Bonds during the then current bond year (the "1995 Debt Service Fund" ) , but only during the first 13 months after the date of deposit of such amounts to the Debt Service Fund; ( 4 ) Debt Service Fund Deposits : Taxable Investments acquired with (or representing an investment of) amounts held for the credit of the Debt Service Fund in excess of the amounts held for the credit of the 1995 Debt Service Fund to the extent such Taxable Investments are held during the first 30 days after the date of deposit of such amounts to the Debt Service Fund or, if held more than 30 days after deposit, do not exceed 10% of the stated principal amount of the Bonds; and ( 5) Other Investments : any other Taxable Investments acquired with (or representing an investment of ) Gross Proceeds described in Clause ( 3 ) of the definition thereof , to the extent the aggregate amount of Gross Proceeds invested in such Taxable Investments does not exceed the lesser of $100 , 000 or 5% of the proceeds from sale of the Bonds . The District shall not use any money to pay principal of or interest on the Bonds , or pledge (or permit to be pledged) or otherwise restrict any money, funds , or Taxable Investments so as to give reasonable assurance of their availability for such a LLP,\50809.1\BONDRESOLUTION2021 30 Pupose, except in each case amounts deposited to the Debt Service Fond. E. No Federal Guarantees, Etc . The District shall not either (a) use Gross Proceeds in an amount which exceeds 5% of the roceeds from the sale of the Bonds ( i ) to make loans which are PUaranteed in whole or in part by the United States or any agency = 9 instrumentality thereof, including any entity with statutory °° thority to borrow from the United States, or ( ii ) to invest in or account in a institution to extent cial any deposit posit or account is insurednunder federal law by theeFederal SU-h Deposit Insurance Corporation, the National Credit Union Admin- istration, or any similar federally-chartered corporation, or (b) °therwise permit payment of principal of or interest on the Bonds t° be directly or indirectly guaranteed in whole or in part by the United States or any agency or instrumentality thereof, including any entity with statutory authority to borrow from the United states (e.g. , by the investment of amounts held for the credit of .. the Debt Service Fund in federally-guaranteed or federally-insured obligations ) . Notwithstanding the foregoing, however, the District may acquire: ( 1 ) Certain Temporary Investments : Investments described in Subsections D( 1 ) , D( 3 ) , or D( 4 ) of this Section, whether or not federally-guaranteed or federally-insured, to the extent such Investments are held during the period described in such Subsection; ( 2 ) Treasury Investments : Investments issued by the United States Treasury; and ( 3) Investments Permitted by Regulations : Any other Investments permitted by regulations of the United States Department of Treasury issued under section 149 (b) ( 3 ) (B) (v) of the Code. F. Not to Divert Arbitrage Profits . Prior to the final Maturity of the Bonds , the District shall not at any time invest amounts held for the credit of the Construction Fund or the Debt Service Fund in any Investment purchased at other than an arm' s length price or for which there is not an established market at the time of investment, except possibly for Investments described in Subsection D( 2 ) of this Section to the extent such Investments are acquired and mature or are disposed of during the period described in such Subsection. G. To File Informational Report. The District shall execute and file with the Secretary of the Treasury, not later than the 15th day of the second calendar month after the close of the calendar quarter in which the Issue Date occurs (or by such later date as such Secretary may permit for reasonable cause or may prescribe with respect to any portion of such statement) , a statement containing the information and in the form required by LLA\50809.1\BONDRESOLUTION2021 31 • 4ection 149 (e) of the Code or the Regulations promulgated Hereunder. c H. Not to Cause Bonds to Become Hedge Bonds . The District arrants and represents that: ( 1 ) the District reasonably expects that at least 85% of the Net Sale Proceeds of the Bonds will be used to carry P' i out the governmental purposes of the Bonds within three years from the Issue Date, and .. ( 2 ) not more than 50% of the Proceeds of the Bonds will be invested in nonpurpose investments (as defined in section 148 ( f) ( 6 ) (A) of the Code) having a substantially guaranteed Yield for four years or more. I . Payment of Rebate Amount. Except to the extent otherwise provided in section 148( f) of the Code and the regulations and rulings thereunder, ( 1 ) The District shall account for all Gross Proceeds (including all receipts and expenditures thereof) on its books of account separately and apart from all other funds (and receipts, expenditures, and investments thereof) and shall maintain all records of such accounting with the transcript of proceedings relating to the issuance of the Bonds until six years after the final Computation Date. The District may, however, to the extent permitted by law, commingle Gross Proceeds of the Bonds with other money of the District, provided that the District separately accounts for each receipt and expenditure of such Gross Proceeds and the obligations acquired therewith. a• ( 2 ) Not less frequently than each Computation Date, the District shall either ( i ) cause to be calculated by a nationally recognized accounting or financial advisory firm or ( ii) calculate .. and cause its calculations to be verified by a nationally recognized accounting or financial advisory firm, in either case in accordance with rules set forth in section 148( f ) of the Code and section 1 . 148-3 of the Regulations and rulings thereunder, the Rebate Amount with respect to the Bonds . The District shall maintain such calculations with the official transcript of the proceedings relating to the issuance of the Bonds until six years after the final Computation Date. ( 3) As additional consideration for the purchase of the Bonds by the Purchasers and the loan of money represented thereby, and in order to induce such purchase by measures designed to preserve the excludability of the interest thereon from the gross income of the owners thereof for federal income tax purposes , the District shall remit to the United States the amount described in paragraph ( 2 ) above and the amount described in paragraph ( 4 ) below, at the times , in the installments, to the place, in the manner, and accompanied by such forms or other information as is or LLR\60809.1\BONDRESOLVIION2021 32 required by section 148( f) of the Code and the Regulations Trve ulings thereunder. ( 4 ) The District shall exercise reasonable diligence to re55Ugr h a 2 no and, if s are made in the su h error is made,calculations er and required by a rag' ( ) , promptly pa correct such error within a reasonable amount of time to eafter, including payment to the United States of any interest cnerany penalty required by section 1 . 148-3 (h) of the Regulations . an SECTION 8 . 03 . Qualified Tax-Exempt Obligations . The District Hereby designates the Bonds as "qualified tax-exempt obligations" per5Uent to Section 265(b) ( 3) of the Code. The District hereby warrants and represents that (a) the aggregate face amount (or, in the case of obligations on which interest is paid less frequently than semiannually, the aggregate Issue Price) of all debt obligations issued or expected to be issued by the District in the calendar year of the Closing Date ( including the Bonds) is not reasonably expected to exceed $10, 000, 000; (b) there are no other Persons which derive their authority from or are subject to the control of the District and which have authority to issue obligations described in section 103 of the Code; and ( c) consequently, the Bonds are eligible to be "qualified tax-exempt obligations" pursuant to section 265 (b) ( 3 ) of the Code. The President of the Board is hereby authorized to take such other action as may be necessary to make effective the designation herein. ARTICLE NINE ADDITIONAL BONDS AND REFUNDING BONDS fin SECTION 9 . 01 : ADDITIONAL BONDS . The District expressly reserves the right to issue, in one or more installments , for the purpose of completing, repairing, improving, extending, enlarging, or replacing the System or any other lawful purpose: (a) the unissued unlimited tax bonds which were authorized at the bond elections described in Section 1 . 05 of this Resolution; and (b) such other unlimited tax bonds as may hereafter be authorized at subsequent elections . a LLA\60809.1\BONDRESOLUTION2021 33 SECTION 9 . 02 : REVENUE BONDS . The District expressly reserves the right to issue revenue bonds in one or more installments for I the purpose of completing, repairing, improving , extending, _ enlarging or replacing the System, which will be payable solely the Net Revenues and such bonds may y be payable from and equally secured by a lien on and pledge of the Net Revenues, if Such revenue bonds are approved by the voters of the District. SECTION 9 . 03 : INFERIOR LIEN BONDS. The District also reserves the right to issue inferior lien bonds and pledge the Net Revenues to the payment thereof, such pledge to be subordinate in all respects to the lien of previously issued Additional Bonds and Revenue Bonds . SECTION 9 . 04 : SPECIAL PROJECT BONDS. The District further reserves the right to issue bonds in one or more installments for the purchase, construction, improvement, extension, replacement, enlargement, or repair of water, sewer and/or drainage facilities necessary under a contract or contracts with persons , corporations, municipal corporations, political subdivisions, or other entities, Such bonds to be payable from and secured by the proceeds of such contract or contracts . The District further reserves the right to refund such bonds . SECTION 9 . 05 : REFUNDING BONDS. The District further reserves the right to issue Refunding Bonds in any manner permitted by law to refund any Bonds and Additional Bonds at or prior to their respective dates of maturity or redemption. ARTICLE TEN SECTION 10 . 01 : PERSONS DEEMED OWNERS. The District, the paying Agent/Registrar, and any agent of either of them may treat j the Person in whose name any Bond is registered as the owner of such Bond for the purpose of receiving payment of the principal (and Redemption Price) of and interest on such Bond and for all other purposes whatsoever, and to the extent permitted by law, neither the District, the Paying Agent/Registrar, nor any agent of either of them shall be affected by notice to the contrary. SECTION 10 . 02 : NOTICES TO HOLDERS; WAIVER. Wherever this Resolution provides for notice to Bondholders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first—class postage prepaid, to each Holder of such Bonds , at the address of such Holder as it appears in the Bond Register. In any case where notice to Holders of Bonds is given by mail , neither the failure to mail such notice to any particular Holder of Bonds , nor any defect in any notice so mailed, shall affect the sufficiency of such notice with respect to all other Bonds . Where this Resolution provides for notice in any manner, such notice may be waived in Writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent LLA\60809.1\BONDRESOLUSION2021 34 — f such notice. Waivers of notice by Holders shall be filed with the Paying Agent/Registrar, but such filing shall not be a condition precedent to the validity of any action taken in reliance Pon such waiver. SECTION 10 . 03 : DUTIES OF DISTRICT OFFICIALS . The President end the Secretary of the Board of Directors and other appropriate officers and agents of the District are hereby authorized and directed to do any and all things necessary and/or convenient to carry out the provisions of this Resolution. ` ARTICLE ELEVEN SALE AND DELIVERY OF BONDS SECTION 11 . 01 : SALE OF BONDS; BOND PURCHASE AGREEMENT. The Bonds are hereby sold and shall be delivered to Southwest .. Securities , Inc. ; Oppenheimer & Co. , Inc. ; and The GMS Group, Inc. (the "Purchaser" ) pursuant to the taking of public bids ; therefor on October 30, 1995, for a price of $1 , 963,440 . 00 plus ; accrued interest from the Initial Date to the date of delivery. Delivery of the Bonds to the Purchaser shall be made as soon as practicable after the adoption of this Resolution, upon payment therefor, in accordance with the terms of the sale . Purchaser' s ' obligation to accept delivery of the Bonds is subject to it being furnished an approving legal opinion of Coats, Rose, Yale, Holm, Ryman & Lee, P.C. , bond counsel to the District, approving the Bonds as to their validity and that the interest thereon is exempt from Federal taxation, said opinion to be dated and delivered as of the date of delivery and payment for the Bonds . The Board hereby finds and determines that the net effective interest rate of the issue or series of bonds authorized by this Resolution is 6 . 1511% . SECTION 11 . 02 : APPROVAL, REGISTRATION AND DELIVERY. The President of the Board of Directors of the District and representatives of Coats , Rose, Yale, Holm, Ryman & Lee, P .C. are hereby authorized and directed to submit the Bonds, and a transcript of the proceedings relating to the issuance of the Bonds, to the Attorney General of the State of Texas for approval and, following said approval, to submit the Initial Bonds to the Comptroller of Public Accounts of the State of Texas for registration. Upon registration of the Initial Bond, the Comptroller of Public Accounts (or a deputy designated in writing to act for the Comptroller) shall manually sign the Comptroller' s registration certificate prescribed herein to be printed and endorsed on the Initial Bond. After the Initial Bond has been registered and signed by the Comptroller, they shall be delivered to the Underwriter, but only upon receipt of the full purchase price. LLR\60809.1\BONDRESOLUTION2021 35 — ARTICLE TWELVE SPECIFIC OBLIGATIONS OF BOARD The Board on behalf of the District expressly stipulates and „ovenants that, for the benefit of the Purchaser and any and all 5Ub5equent Holders of the Bonds (and enforceable by any one or all of said Holders) , in addition to all other provisions hereof, it will ' (a) Fix and maintain rates and collect charges for the facilities and services rendered by the District which, together with any taxes levied for maintenance purposes, will provide revenues sufficient at all times to pay all reasonable administration expenses of the District and all efficient operation and adequate maintenance expenses of the System. The Board has enacted and will maintain in effect an order fixing rates and charges for services which contains, among other provisions, a requirement for periodic billing of all customers of the District and a prohibition against the furnishing of water or sewer service without charge to any person, firm, organization, or corporation. (b) Subject to the provisions of Article Six of this Resolution, levy an ad valorem tax that will be ample and sufficient to provide funds to pay the interest on the Bonds and to provide the necessary sinking fund. (c) Not mortgage or otherwise encumber the physical properties of the System, nor sell , lease or otherwise dispose of any substantial portion of such physical properties , unless said properties of the System are deemed by the Board of Directors of the District to be unnecessary to the operation of the System. (d) Maintain the System in good condition and operate it in an efficient manner and at a reasonable cost. (e) Maintain insurance on the System of a kind and in an amount which usually would be carried by municipal corporations and political subdivisions in Texas operating similar facilities . ( f ) Keep records and accounts and employ an independent certified public accountant of recognized integrity and ability to direct the installation of the required accounting procedures and to audit its affairs at the close of each fiscal year. The fiscal year of the District is from October 1 to September 31 of the following year, or such other fiscal year as the Board of Directors may hereafter designate . Said audits shall include a statement in detail of the income and -:.x\60809.1\BoNDRESOLUTION2021 36 expenditures of the System for each year; a balance sheet as of the end of the year; the auditor' s comments regarding the manner in which the District has carried out the requirements of all Bond Resolutions ; his recom- mendations, if any, for changes or improvements in the operation of the District 's plants, facilities, and improvements; a list of insurance policies in force as of the date of the audit including the amount, expiration date, risk covered, and name of the insurer for each such policy; and the number of properties connected to the System as of the end of the fiscal year. The audit report shall be delivered to each member of the Board not later than 120 days after the close of each fiscal year, and shall be retained and filed in the office of the auditor. Copies of said audit shall be filed as required by law and maintained in the office of the District, available for inspection by any interested person or persons during normal office hours . ARTICLE THIRTEEN DEFEASANCE OF OBLIGATIONS OF DISTRICT SECTION 13 . 01 : DEFEASANCE. If the District shall pay or cause to be paid, or there shall otherwise be paid to the Holders, the principal of and interest on the Bonds, at the times and in the manner stipulated in this Resolution, then the pledge of any taxes or other money, securities, and funds pledged under this Resolution and all covenants , agreements, and other obligations of the District to the Holders of Bonds shall thereupon cease, terminate, and become void and be discharged and satisfied, and the Paying j Agent/Registrar shall pay over or deliver all money held by it under this Resolution to the District. Bonds or interest installments for the payment of which money shall have been set aside and shall be held in trust by the Paying Agent/Registrar or with any other bank or trust company which has agreed to hold the same for such purpose (through deposit by the District of funds for such payment or otherwise) at the Stated Maturity thereof shall be deemed to have been paid within the meaning and with the effect expressed above in this Section. All Bonds shall be deemed to have been paid, prior to their Stated Maturity, within the meaning and with the effect expressed above in this Section, if there shall have been deposited with the Registrar either (a) money in an amount which shall be sufficient to make such payment, (b) Governmental Securities certified by an independent public accounting firm of national reputation to be of such maturities and interest payment dates and to bear such interest as will , without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, be sufficient to make such payment, or (c) a combination of money and Governmental Securities together so certified to be sufficient to make such payment, provided that all the expenses :.i.A\60809.1\BONDRESOLVSION2021 37 ill11 .. ing to the Bonds with respect to which such deposit is made eftalhave been paid or the payment thereof provided for to the ' She15faction of the Paying Agent/ Registrar (and to such other bank efttrust company) . r o SECTION 13 . 02 : PARTIAL DEFEASANCE. In the event such deposit made with respect to some but not all of the Bonds then r iutstanding, the District shall designate the Stated Maturities of oU ponds with respect to which such deposit is made. If such deposit BonI be sufficient to provide for the payment of the principal of 5halinterest on some but not all Outstanding Bonds of a particular and d Maturity so designated, the Paying Agent/Registrar shall state Select the Outstanding Bonds of such Stated Maturity with respect s Which such deposit is made by such random method as the Paying P Agent/Registrar shall deem fair and appropriate and which may rovide for the selection of portions (equal to and leaving Paredes ed than n$5 000 authorized Notwithsta ding anything herein denomination the r no such deposit shall have the effect described in this � � la ger contrary, P A rticle if made during the subsistence of a default in the payment of any Bond (a) unless made with respect to all of the Bonds then outstanding, cr (b) unless accompanied by an opinion of counsel of recognized standing in the field of federal income taxation to the effect that neither such deposit nor the investment thereof shall F• adversely affect the excludability of interest on any Bond from the gross income of any owner thereof for federal income tax purposes . SECTION 13 . 03 : INVESTMENTS . No money or Governmental N. securities so deposited shall be invested or reinvested unless in Governmental Securities and unless such money and Governmental Securities not invested and such new investments are together certified by an independent public accounting firm of national reputation to be of such amounts, maturities , and interest payment dates and to bear such interest as will, without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, be sufficient to make such payment. Neither Governmental Securities nor money deposited with the Paying Agent/Registrar or other bank or trust company pursuant to this Section, nor principal or interest payments on any such Governmental Securities, shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of, and interest on such Bonds . Any cash received from such principal of and interest on such investment securities deposited with the Paying Agent/Registrar, if not needed for such purpose, shall , to the extent practicable, be reinvested in Governmental Securities (which may be non-interest bearing) maturing at times and in amounts sufficient to pay when due the principal of and interest on such Bonds on and prior to the — maturity thereof , and interest earned from such reinvestments shall be paid over to the District as received by the Paying Agent/Registrar, free and clear of any trust, lien, or pledge and used in accordance with applicable law. Any payment for Governmental Securities purchased for the purpose of reinvesting um LLR\60809.1\BONDRESOLIlrION2021 38 0 as �pvernmentalr said ities shall be made only against delivery of such SECTION 13 . 04 : RETIREMENT OF BONDS . At such times as a Bond 5hail be deemed to be paid hereunder, as aforesaid, it shall no longer be entitled to the benefits of this Resolution, except for the purposes of any such payment from such money or Governmental Securities, and for the provisions of Section 3 . 07 and 3 . 08 relating to transfer, exchange, and replacement of Bonds and the covenants of the District contained in Article Eight . At such tunes as all of the Bonds are retired, or provision is made for their payment, money in the Debt Service Fund, if any, may be transferred to the General Operating Fund of the District, provided that any money held by the Paying Agent/Registrar which has been Provided for the payment of interest or principal and not so tilized for any reason shall continue to be held for a period of four calendar years , and if not claimed, the same may be returned to the General Operating Fund of the District subject, however, to applicable unclaimed property laws of the State of Texas . ARTICLE FOURTEEN MISCELLANEOUS PROVISIONS SECTION 14 . 01 : OPEN MEETING. The Board of Directors officially finds, determines and declares that this Resolution was reviewed, carefully considered, and adopted at a regular meeting of the Board beginning at 5 : 00 p.m. , Central Standard Time, on October 30, 1995, and that a sufficient written notice of the date, hour, place, and subject of this meeting was posted at a place readily accessible and convenient to the public 'within the District i and on bulletin boards located at a place convenient to the public in the Brazoria County Courthouse for the time required by law preceding this meeting, as required by the Texas Government Code, Section 551 . 043 , as amended, and that this meeting has been open to the public as required by law at all times during which this I Resolution and the subject matter hereof has been discussed, considered, and acted upon. The Board of Directors further ratifies , approves , and confirms such written notice and the contents and posting thereof. SECTION 14 . 02 : UNCLAIMED MONIES . Notwithstanding any other provision of this Resolution to the contrary, the Texas Property Code requires that all monies ( including principal and interest payments on the Bonds ) which are unclaimed after three years be turned over to the Texas State Treasurer if (a) the owner' s last known address as shown in the records of the Paying Agent/Registrar is in Texas , or (b) if the holder of such unclaimed monies is a Texas governmental entity or a Texas corporation and ( i ) the owner' s identity is unknown or there is no known address for the owner or ( ii ) the last known address of the owner is in a state whose escheat or unclaimed property law is inapplicable to such monies . Bondholders are advised to be cognizant of the provisions LLR\60809.i\BONDRESOLUTION2021 39 Texas Property Code, particularly Chapters 71 , 72 , and 74 thof as such provisions relate to the escheatment of unclaimed chef to the Texas State Treasurer. co,o SECTION 14 . 03 : RELATED MATTERS. To satisfy in a timely all of the District ' s obligations under this Resolution, the oannedent and Secretary of the Board of Directors of the District prey' 1 other appropriate officers and agents of the District are and al authorized and directed to take all other actions that are personably necessary to provide for the issuance, sale, and rea,°ery of the Bonds including, without limitation, executing and delivering on behalf of the District all certificates, consents, del ts, requests, and other documents as may be reasonably necessary to satisfy the District' s obligations under this R esolution and to direct the transfer and application of funds of District consistent with the provisions of this Resolution.the SECTION 14 . 04 : PAYING AGENT/REGISTRAR. The form of agreement Setting forth the duties of the Paying Agent/Registrar is hereby pp rov a ed, and the appropriate officials of the District are hereby authorized to execute such agreement for and on behalf of the District. SECTION 14 . 05 : OFFICIAL STATEMENT. The Board of Directors of the District hereby ratifies , authorizes, and approves, in connection with the sale of the Bonds, the preparation and distribution of the Preliminary Official Statement, dated pctober 23, 1995, and a final Official Statement substantially in the same form containing such additional information and amendments as may be necessary to conform to the terms ,of the Bonds and this Resolution. The appropriate officials of the District are hereby authorized to sign such Official Statement and/or to deliver certificates pertaining to such Official Statement as prescribed therein, dated as of the date of payment for and delivery of the 1 Bonds. SECTION 14 . 06 : REMEDIES IN EVENT OF DEFAULT. In addition to any other rights and remedies provided by the laws of the State of Texas, the District covenants and agrees that in the event of default in payment of principal of or interest on any of the Bonds When due, or, in the event it fails to make the payments required to be made into the Debt Service Fund, as defined in Section 7 . 01, or defaults in the observance or performance of any other of the covenants , conditions , or obligations set forth in this Resolution, the Holders shall be entitled to a writ of mandamus issued by a court of competent jurisdiction compelling and requiring the District and the officials thereof to observe and perform the covenants , obligations , or conditions prescribed in this Resolution. Any delay or omission to exercise any right or power accruing upon any default shall not impair any such right or power or be construed to be a waiver of any such default or acquiescence therein, and every such right and power may be exercised from time to time and as often as may be deemed expedient. LLR\60809.1\BONDRESOLUTIOH2O21 40 rillill."----- In consideration of the purchase and acceptance of the Bonds prized to be issued hereunder by the Holders, the provisions of 0th Resolution shall constitute a contract between the District thisthe Holders ; and the covenants and agreements herein set forth andbe performed on behalf of the District shall be for the equal t t tection, and securityof each of the Holders . The Cenefl regardless eardless of the time or times of their issue or maturity, B�adi Abe of equal rank without preference, priority, or distinction Bond over any other, except as expressly provided herein. of any SECTION 14 . 07 : AMENDMENTS TO BOND Resolution. The District without the consent of or notice to any Holders of the Bonds , mayid change, or modify this Resolution as may be required (a) by amen the Pr°visions hereof, (b) for the purpose of curing any ambiguity, inconsistency, or formal defect or omission herein, or (c) in CO the with any other change which is not to the prejudice of the Holders of the Bonds . Except for such amendments , changes , or modifications , the District shall not amend, change, or modify this Resolution in any manner without the consent of the Holders of the Bonds. SECTION 14 . 08 : NO PERSONAL LIABILITY. No recourse shall be had for payment of the principal of or interest on any Bonds or for any claim based thereon or in this Resolution, against any official or employee of the District or any person executing any Bonds . SECTION 14 . 09 : EFFECTIVE DATE OF Resolution. This Resolution shall take effect and be in full force and effect upon and after its passage. PASSED AND APPROVED this 30th day of October, 1995 . • /s/ Ricki A. Willoughby President, Board of Directors Brazoria County Municipal Utility District No. 5 ATTEST: /s/ Kelly C . Flanagan Secretary/Treasurer, Board of Directors Brazoria County Municipal Utility District No. 5 4 1 L \60809.1\BONDRESOLUTION2021 L' RESOLUTION AUTHORIZING THE ISSUANCE OF $1, 980 , 000 uNLIMITED TAX BONDS , SERIES 1998 ; PRESCRIBING THE TERMS arm PROVISIONS THEREOF; MAKING PROVISION FOR THE PAYMENT OF THE INTEREST THEREON AND THE PRINCIPAL THEREOF; AuTHORIZING THE SALE THEREOF; AND CONTAINING OTHER PROVISIONS RELATING TO THE SUBJECT IT IS HEREBY ORDERED BY THE BOARD OF DIRECTORS OF BRAZORIA MUNICIPAL UTILITY DISTRICT No. 5 THAT: SOY ARTICLE ONE STATUTORY AUTHORITY, RECITALS AND FINDINGS SECTION 1 . 01 : AUTHORITY FOR THE DISTRICT. Brazoria County yunicipal Utility District No. 5 (the "District" ) of Brazoria y�unty, Texas , is a conservation and reclamation district created ✓ursuant to the provisions of Article XVI, Section 59 , of the Texas C•cnstitution by order of the Texas Water Rights Commission dated March 18 , 1981, and confirmed at an election held within the ✓istrict on April 4 , 1981 . SECTION 1 . 02 : PURPOSES OF THE DISTRICT. The District was r :rganized, created and established for the following purposes : (a) the control, storage, preservation, and distribution of its storm water and floodwater, the water of its rivers and streams for irrigation, power, and all other useful purposes ; (b) the reclamation and irrigation of its arid, semi-arid, and other land needing irrigation; �► (c) the reclamation and drainage of its overflowed land and other land needing drainage; (d) the conservation and development of its forests, water, and hydroelectric power; (e) the navigation of its inland and coastal water; (f) the control , abatement, and change of any shortage or harmful excess of water; (g) the protection, preservation, and restoration of the purity and sanitary condition of water within the state ; and (h) the preservation of all natural resources of the state . = 60809.1\BONDRESOLV210N2021 r SECTION 1 . 03 : POWERS OF THE DISTRICT. The District is authorized to purchase, construct, acquire, own, operate, maintain, repair, improve, or extend inside and outside its boundaries any and all works, improvements, facilities, plants, equipment , and appliances necessary to accomplish the purposes of its creation, including all works, improvements, facilities, plants , equipment, and appliances incident, helpful, or necessary to: (a) supply water for municipal uses, domestic uses, power, and commercial purposes and all other beneficial uses or controls; (b) collect, transport, process, dispose of, and control all domestic, industrial, or communal wastes whether in fluid, solid, or composite state; (c) gather, conduct, divert, and control local storm water or other local harmful excesses of water in the District; (d) irrigate the land in the District ; (e) alter land elevation in the District where it is needed; (f) navigate coastal and inland waters of the District; and (g) provide parks and recreational facilities for the inhabitants in the District . SECTION 1 . 04 : AUTHORITY OF THIS RESOLUTION. The District is authorized to issue bonds for the purposes of purchasing, constructing, acquiring, owning, operating, repairing , improving, or extending any District works, improvements', facilities, plants, equipment , and appliances needed to accomplish the purposes , except for the purpose of providing parks and recreation facilities , for which the District was created, including works, improvements, facilities, plants, equipment, and appliances needed to provide a waterworks system, sanitary sewer system, and drainage system or 01111 solid waste disposal system, or to make payment of sums due or to become due under contracts for such purposes . SECTION 1 . 05 : FINDINGS . It is hereby found, determined and declared that : (a) the matters and facts set out in this Article One are true and correct; (b) at elections held on April 4 , 1981, November 8 , 1983 , and November 7, 1987, the District was authorized to issue the bonds of the District in the maximum amount of $23 , 775 , 000, for the purpose or purposes of purchasing, constructing, acquiring, owning, operating , repairing, •• improving, or extending a waterworks system, a sanitary LLR\60809.1\BONDRESOLUTION2021 2 sewer system, and a drainage and storm sewer system for the District and all additions to such systems and all works, improvements, facilities, plants, equipment , appliances, interests in property, and contract rights needed therefor and administrative facilities needed in connection therewith, and for refunding all or part of the principal of or interest on the District ' s bonds, and to provide for the payment of principal of and interest on bonds by the levy and collection of a sufficient tax upon all taxable property within said District ; (c) the elections described in Paragraph (b) hereof were called and held under and in strict conformity with the Constitution and laws of the State of Texas , and of the United States of America, and the Board of Directors has heretofore officially declared the results of said elections and declared that the District was legally created and authorized to issue the bonds described in Paragraph (b) ; (d) the District has heretofore issued to acquire and construct various phases of a waterworks, sanitary sewer, and drainage system for the District $1, 735 , 000 Unlimited Tax Bonds, Series 1982 (the "Series 1982 Bonds" ) ; $2 , 750 , 000 Unlimited Tax Bonds, Series 1983 (the "Series 1983 Bonds" ) ; $1, 620 , 000 Unlimited Tax Bonds, Series 1984 (the "Series 1984 Bonds" ) ; $6, 065, 000 Unlimited Tax Refunding Bonds, Series 1992 (the "Series 1992 Refunding Bonds" ) , to refund parts of the Series 1982 Bonds , the Series 1983 Bonds, and the Series 1984 Bonds; and $2 , 020 , 000 Tax Bonds, Series 1995 (the "Series 1995 Bonds" ) ; (e) the District intends to issue $1, 980 , 000 in bonds (the "Bonds" ) to provide funds to reimburse a developer for construction of water distribution, sanitary sewer collection, and drainage facilities serving Southdown Subdivision, Sections 6 and 7 ; to reimburse a developer for construction of water distribution, sanitary sewer collection, and drainage facilities for Crystal Lake Subdivision, Sections 1 and 2 ; to finance the District' s share of a water plant expansion (remote water well) and a wastewater treatment plant expansion; to pay certain engineering costs associated with the design and construction of such facilities; to pay interest on funds advanced to the District; to set aside interest payments on the Bonds ; and to pay the costs of issuing the Bonds . As a result of the issuance of the Bonds, the District' s remaining authorized but unissued bonds for the purposes of financing improvements to the District ' s water, sewer, and drainage systems or any other lawful purpose will be $7 , 605 , 000 ; LI.R\60809.1\BONDRESOLVIION2021 3 .. (f) the District has been authorized to levy taxes , and the taxes to be collected will be sufficient to make the principal and interest payments on the Bonds authorized by this Resolution; (g) the Board of Directors reserves the right to issue the remaining $7, 605 , 000 in bonds which were voted on at the election described in Paragraph (b) hereof in one or more series at a future date or dates when, in the Board' s judgment, such amounts are required for the authorized purposes . ARTICLE TWO DEFINITIONS AND INTERPRETATIONS SECTION 2 . 01 : DEFINITIONS . When used in this Resolution, except in Article Five, and in any order amendatory or supplemental hereto, the terms listed below shall have the meanings specified below, unless it is otherwise expressly provided or unless the context otherwise requires : Additional Bonds . The term "Additional Bonds" shall mean the additional bonds which the District expressly reserves the right to issue in Section 9.01 of this Resolution. Authorized Investments . The term "Authorized Investments" shall mean all direct or - indirect obligations of the United States or One of its agencies, the State of Texas, or any county, city, school district , or other political subdivision of the State and certificates of deposit of state or national banks or savings and loan associations within the State provided that they are secured in the manner provided for the security of the funds of counties of the State of Texas . •- Board of Directors . The term "Board of Directors" or "Board" shall mean the governing body of the District . Bondholders . The term "Bondholder" or "Bondholders" shall mean the holder or holders of a Bond or Bonds, as the context requires . -LR\60809.1\BONDRESOLUTION2021 4 N. Bond Register. The term "Bond Register" shall mean the books of registration -. Kept by the Paying Agent/Registrar in which are maintained the papers and addresses of and the principal amount of the Bonds Registered to each Holder. Bond Resolution. The term "Bond Resolution" or "Resolution" shall mean this Resolution and all amendments hereof and supplements hereto . Bonds . The term "Bond" or "Bonds" shall mean any obligation of the District authorized and issued pursuant to this Resolution, whether .. initially delivered or issued in exchange for, upon transfer of , or in lieu of any Bond previously issued. Business Day. The term "Business Day" shall mean any day which is not a gpturday, Sunday, legal holiday, or a day on which the Paying Agent/Registrar is authorized by law or executive order to remain closed. Debt Service Fund. The term "Debt Service Fund" shall mean the District ' s Debt Service Fund which is established and affirmed., in Section 7 . 01 of this Resolution. Definitive Bonds . The term "Definitive Bond" or "Definitive Bonds" shall mean the Initial Bond, as defined herein, as it may be transferred and converted into or exchanged for fully registered Bonds in the denomination of $5 , 000 or any integral multiple of $5 , 000 . Depository. The term "Depository" shall mean the bank or banks which the District may select from time to time as its depository or depositories . District . The term "District" shall mean Brazoria County Municipal Utility District No . 5 and any other public agency succeeding to the powers, rights, privileges and functions of the District and, when appropriate, the Board of Directors of the District . LLR\60809.1\BONDREsOLUrION2021 5 S p• Fiscal Year. The term "Fiscal Year" shall mean the accounting period for the District , which is currently the period ending September 30 , 1998, and thereafter shall be the twelve-month period beginning on r October 1 of each year and ending on September 30 of the following year, but Directors . which may be changed from time to time by the Board of Governmental Securities . The term "Governmental Securities" shall mean direct Pa of of , or obligations the timely payment of the principal of and interest on which are fully and unconditionally guaranteed by, the United States of America. Holders . The term "Holder" or "Holders" when used with respect to any Bond means the Person in whose name such Bond is registered in the Bond Register. Initial Bond. r. The term "Initial Bond" shall mean the Bond authorized to be issued hereunder which have the registration certificate executed on behalf of the Comptroller of Public Accounts of the State of Texas endorsed thereon, as contemplated by Section 5 . 07 hereof . Initial Date . The term "Initial Date" means March 1, 1998 . Interest Payment Date . The term "Interest Payment Date" shall mean the Stated Maturity of an installment of interest on any Bonds . i Maturity. The term "Maturity" when used with respect to any Bond means the date on which the principal of such Bond becomes due and payable as therein and herein provided, whether at the Stated Maturity or call for redemption. Net Revenues . The term "Net Revenues" shall mean the moneys received by the District from the ownership or operation of the District' s waterworks , sanitary sewer, drainage and storm sewer systems, as well as under specific contracts, after deducting the costs of LLR\60809.1\BONDRESOLUTION2021 6 pp"--- r operating, maintaining, and repairing the System and administration of the District . Outstanding Bonds . r The term "Outstanding Bonds" shall mean the previously issued bonds that remain outstanding, specifically the remaining $60 , 000 •• principal amount of the Series 1984 Bonds; $5, 525, 000 of the Series 1992 Refunding Bonds ; and $2 , 020 , 000 of the Series 1995 Bonds . pyinq Agent/Registrar. The term "Paying Agent/Registrar" or "Registrar" means the person named as "Paying Agent/Registrar" herein until a successor �. paying Agent/Registrar shall have become such pursuant to the applicable provisions of this Resolution, and thereafter "Paying Agent/Registrar" shall mean such successor Paying Agent/Registrar. Person. The term "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, or government or any agency or political subdivision thereof . r Predecessor Bonds . The term "Predecessor Bonds" of any particular Bond means every previous Bond evidencing all or a portion of the same debt as that evidenced by such particular Bond, and, for the purposes of this definition, any Bond registered and delivered pursuant to Section 3 . 08 in lieu of a mutilated, lost , • destroyed, or stolen Bond shall be deemed to evidence the same debt as the mutilated, lost, destroyed, or stolen Bond. Purchaser. The term "Purchaser" has the meaning stated in Section 11 . 01 . Record Date . The term "Record Date" for the interest payable on any Interest Payment Date means the fifteenth (15th) day (whether or not a business day) of the calendar month next preceding such Interest Payment Date . Redemption Date . The term "Redemption Date, " when used with respect to any Bond to be redeemed, means the date fixed for such redemption pursuant to the terms of this Resolution. :331\60809.1\HONDR.ESOLUTION2021 7 PP"P — Redemption Price . The term "Redemption Price" when used with respect to any Bond to be redeemed means the price at which it is to be redeemed terms of this ing purereSt whoset to eSt Stated Maturity is on ornbeforeuthe Redempllments tion Date. inter Redemption Stated Maturity. The term "Stated Maturity" when used with respect to any Bond or any installment of interest thereon means the date specified in Such Bond as the fixed date on which the principal of such Bond or such installment of interest is due and payable . .. S�s�• The term "System" shall mean the District' s waterworks, sanitary sewer, drainage, and storm sewer systems presently existing or to be constructed, all additions thereto, and all works, improvements, facilities, plants, equipment, and appliances connected therewith. SECTION 2 . 02 : INTERPRETATIONS . The titles and headings of the articles and sections of this Resolution 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 Resolution 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 taxes levied in payment thereof . ARTICLE THREE AUTHORIZATION, DESCRIPTION, AND EXECUTION OF BONDS .� SECTION 3 . 01 : AMOUNT, NAME, PURPOSE AND AUTHORIZATION. The Bonds of the District, to be known and designated as Brazoria County Municipal Utility District No. 5 Unlimited Tax Bonds , Series 1998, shall be issued in the aggregate principal amount of One Million Nine Hundred Eighty Thousand and No/100 Dollars ($1, 980 , 000 . 00) for the purposes of purchasing and constructing extensions and additions to the District' s existing water and sanitary sewer system and drainage system and paying the costs of issuance of the Bonds , in the form specified herein and bearing the terms herein provided, under and in strict conformity with the Constitution and laws of the State of Texas, particularly Section 59 of Article XVI of the Constitution of Texas, and Chapters 49 and 54 of the Texas Water Code, as amended. SECTION 3 . 02 : DATE, DENOMINATION, INTEREST RATE, AND MATURITIES . The Bonds shall be issued in fully registered form in the denomination of $5 , 000 or any integral multiple thereof . The ::A\60809.1\BONDRESOLUTION2 021 8 S Initial Bond shall be dated March 1, 1998 , and all Bonds registered and delivered by the Paying Agent/Registrar shall be dated March 1, 1998 The Bonds shall mature in the respective principal amounts • on $eptember 1 of the respective years and bear interest from the Initial Date until maturity or redemption at the respective rates per annum set forth below: Principal Year of Interest Amount Maturity Rate $ 65 , 000 1999 6 . 20% 65, 000 2000 6 . 20 65, 000 2001 6 . 20 65 , 000 2002 6 . 10 70 , 000 2003 4 . 20 75 , 000 2004 4 . 30 80 , 000 2005 4 .40 85 , 000 2006 4 . 45 90 , 000 2007 4 . 50 95 , 000 2008 4 . 60 100, 000 2009 4 . 50 105 , 000 2010 4 . 50 115 , 000 2011 4 . 60 - 125 , 000 2012 4 . 60 245, 000 2013 4 . 60 260, 000 2014 4 . 60 275 , 000 2015 4 . 60 SECTION 3 . 03 : INTEREST PAYMENT DATES . The interest on the Bonds shall be payable on September 1, 1998 , and semiannually thereafter on March 1 and September 1 of each year until the maturity or redemption date of the Bonds . The amount of interest on the Bonds payable on each Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months . SECTION 3 . 04 : MEDIUM AND PLACE OF PAYMENT. The Bonds shall be payable without exchange or collection charges, in any coin or currency of the United States of America which on the respective dates of payment is legal tender for the payment of debts due the United States of America, upon presentation and surrender of the certificate representing the Bonds as they become due, or at their earliest redemption date, at the principal trust office of the Paying Agent/Registrar. SECTION 3 . 05 : EXECUTION OF BONDS . The Bonds shall be signed by the President or Vice President and attested by the Secretary or Assistant Secretary of the Board of Directors by the manual or facsimile signatures, and the official seal of the District shall be impressed or placed in facsimile thereon. The facsimile signatures on the Bonds shall have the same effect as :.LR\60809.:\BONDRESOLUTION2021 9 a i ifthe Bonds had been signed manually and in person, and the facsimile seal on the Bonds shall have the same effect as if the official seal of the District had been manually impressed upon ach of the Bonds . Bonds bearing the manual or facsimile e gnatures of individuals who were at the time the proper Si officers of the District shall bind the District, notwithstanding .. that such individuals or either of them shall cease to hold such offices prior to the certification or registration and delivery of such Bonds or shall not have held such offices at the date of such Bonds , all as provided in the Bond Procedures Act of 1981 , as amended. Any Bond may be signed on behalf of the District by the actual or facsimile signature of such person as, at the actual time of execution of such Bond, shall be the proper officer of the District, although at the time of the Initial Date of the Bonds or the adoption of this Resolution, any such person was not said officer. Minor typographical and other minor errors in the text of any Bond or minor defects in the seal or facsimile signature on any Bond shall not affect the validity or enforceability of such Bond if it has been duly authenticated by the Paying Agent/Registrar. SECTION 3 . 06 : PAYING AGENT/REGISTRAR. The District shall at all times maintain a Paying Agent/Registrar meeting the qualifications herein described, for the performance of the duties hereunder. Chase Bank of Texas National Association in Dallas, Texas, is hereby appointed Paying Agent/Registrar for such purposes . The District reserves the right to appoint a successor Paying Agent/Registrar by (a) filing with the Person then performing such function a certified copy of a resolution or ordinance giving notice of the termination of the Agreement and appointing a successor, and (b) causing notice to be given to each Bondholder and the Municipal Advisory Council of Texas . Every Paying Agent/Registrar appointed hereunder shall at all times be a corporation organized and doing business under the laws of the United States of America or of any State , authorized under such laws to exercise trust powers, and subject to supervision or examination by Federal or State authority. The form of agreement submitted by the Person named above as Paying Agent/Registrar is hereby approved, and an appropriate official of the District is hereby authorized to execute such agreement for and on behalf of the District . ► SECTION 3 . 07 : REGISTRATION, DELIVERY, AND TRANSFER OF BONDS . Initially one Bond (the "Initial Bond" ) representing the entire principal amount of the Bonds shall be issued in the name of the Purchaser (as defined herein) , or its designee, executed and submitted to the Attorney General of Texas for approval , and thereupon certified by the Comptroller of Public Accounts of the State of Texas by manual signature of an appropriate official in such office . At any time thereafter the Holder may deliver the Initial Bond to the Paying Agent/Registrar for transfer or exchange, accompanied by instruction from the Purchaser or such :.:.R\60809.1\BONDRESOLUTION2021 10 designee designating the Persons, maturities , and principal mounts to and in which the Initial Bond is to be transferred or a exchanged and the addresses of such Persons, and the Paying Agent/Registrar shall thereupon, within not more than three (3) Business Days, register and deliver Definitive Bonds upon authorization of the District as provided in such instructions . In the event that the Purchaser provides written instructions to the paying Agent/Registrar at least five (5) Business Days prior to the date of delivery of the Initial Bond to the Purchaser, then the Paying Agent/Registrar shall transfer or exchange Definitive Bonds for the Initial Bond on the date of delivery upon payment for and surrender for exchange or transfer of the Initial Bond by the Purchaser. No Bond shall be entitled to any right or benefit under this Resolution, or be valid or obligatory for any purpose, unless there appears on such Bond either a certificate of registration substantially in the form provided in Section 5 . 03 , executed by the Comptroller of Public Accounts of the State of Texas or his duly authorized agent by manual signature, or a certificate of registration substantially in the form provided in Section 5 . 04 , as appropriate, executed by the paying Agent/Registrar by manual signature, and either such certificate upon any Bond shall be conclusive evidence, and the only evidence, that such Bond has been duly certified or registered and delivered. The District shall cause to be kept at the principal office of the Paying Agent/Registrar a register (herein referred to as the "Bond Register" ) in which, subject to such reasonable regulations as it may prescribe, registration of !Pr , the Bonds and of transfers of the Bonds shall be made as provided herein. Upon surrender for transfer of any Bond at the principal payment office of the Paying Agent/Registrar, the District shall execute and the Paying Agent/Registrar shall register and deliver, in the name of the designated transferee or transferees, one or more new Bonds of the same Stated Maturity, of any authorized denominations, bearing the same rate of interest , and of like aggregate principal amount, upon surrender of the Bond to be exchanged at the principal payment office of the Paying Agent/Registrar. Whenever any Bonds are so surrendered for exchange, the District shall execute, and the Paying Agent/Registrar shall register and deliver, the Bonds which the Holder of Bonds making the exchange is entitled to receive . All Bonds issued upon any transfer or exchange of Bonds shall be the valid obligations of the District, evidencing the same debt , and entitled to the same benefits under this Resolution, as the Bonds surrendered upon such transfer or exchange . Every Bond presented or surrendered for transfer or exchange shall be duly endorsed or be accompanied by a written instrument of transfer in form satisfactory to the Paying Agent/Registrar duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to the Holder for any registration, transfer, or exchange of Bonds, but the District or the Paying Agent/Registrar may require payment of a sum sufficient to cover • any tax or other governmental charge that may be imposed in 1:2\60809.1\BONDRESOLUTION2021 11 r i ,onneCtion with any transfer or exchange of Bonds . Neither the District nor the Paying Agent/Registrar shall be required (a) to sue, transfer or exchange any Bond during the period beginning is the opening of business on a Record Date and ending at the gt lose of business on the next succeeding Interest Payment Date, or (b) to transfer or exchange any Bond selected for redemption in whole or in part where such redemption is scheduled to occur within thirty (30) calendar days. SECTION 3 . 08 : MUTILATED, DESTROYED, LOST, AND STOLEN BONDS . If (a) any mutilated Bond is surrendered to the Paying Agent/Registrar, or the District and the Paying Agent/Registrar receive evidence to their satisfaction of the destruction, loss, or theft of any Bond, and (b) there is delivered to the District and the Paying Agent/Registrar such security or indemnity as may be required by them to save each of them harmless , then, in the _ absence of notice to the District or the Paying Agent/Registrar that such Bond has been acquired by a bona fide purchaser, the District shall execute and upon its request the Paying Agent/Registrar shall register and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost, or stolen Bond, a new Bond of the same Stated Maturity and of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost, or stolen Bond has become or is about to become due and payable, the District in its discretion may, instead of issuing a new Bond, pay such Bond. Upon the issuance of any new Bond under this Section, the District may require the payment by the Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and . any other expenses (including the fees and expenses of the Paying Agent/Registrar, bond printing, and legal fees) connected therewith . Every new Bond issued pursuant to this Section in lieu of any mutilated, destroyed, lost, or stolen Bond shall constitute a replacement of the prior obligation of the District, whether or not the mutilated, destroyed, lost, or stolen Bond shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Resolution equally and ratably with all other outstanding bonds . The procedures set forth in the Paying Agent/Registrar Agreement , approved in Section 3 . 06 hereof , shall also be available with respect to mutilated, destroyed, lost , or stolen Bonds . The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement and payment of mutilated, destroyed, lost, or stolen Bonds . SECTION 3 . 09 : CANCELLATION. All bonds surrendered for payment , redemption, transfer, exchange, or replacement , if surrendered to the Paying Agent/Registrar, shall be promptly cancelled by it and, if surrendered to the District, shall be delivered to the Paying Agent/Registrar and, if not already cancelled, shall be promptly cancelled by the Paying LLR\60809.1\BONDRESOLUTION2021 12 ;gent/Registrar. The District may at any time deliver to the paying Agent/Registrar for cancellation any Bonds previously certified or registered and delivered which the District may have acquired in any manner whatsoever, and all Bonds so delivered Shall be promptly cancelled by the Paying Agent/Registrar . All cancelled Bonds held by the Paying Agent/Registrar shall be disposed of as directed by the District . ARTICLE FOUR REDEMPTION OF BONDS BEFORE MATURITY SECTION 4 . 01 : REDEMPTION OF BONDS . The District reserves the right to redeem the Bonds maturing on September 1, 2007 , or thereafter, prior to their scheduled maturities, in whole , or from time to time in part, in such manner as the District may determine, in integral multiples of $5 , 000, on September 1 , 2006 , or on any date thereafter, at a price equal to the principal amount of the Bonds to be redeemed plus accrued interest thereon to the date fixed for redemption. SECTION 4 . 02 : NOTICE TO PAYING AGENT/REGISTRAR OF REDEMPTION. The exercise by the District of its option to redeem any Bonds shall be entered in the minutes of the Board of Directors of the District . The District shall, at least forty- five (45) days prior to the Redemption Date (unless a shorter notice shall be satisfactory to the Paying Agent/Registrar) , notify the Paying Agent/Registrar of such Redemption Date and of the principal amount of Bonds of each Stated Maturity to be redeemed. SECTION 4 . 03 : MANNER OF REDEMPTION. ' If less than all of the Outstanding Bonds of the same Stated Maturity are to be redeemed, the particular Bonds to be redeemed shall be selected by the Registrar by lot or other random method from the Bonds which have not previously been called for redemption. The District shall promptly notify the Paying Agent/Registrar in writing of the Bonds selected for redemption and, in the case of any Bond selected for partial redemption, the principal amount thereof to be redeemed. For purposes of this Resolution, unless the context otherwise requires, all provisions relating to the redemption of Bonds shall relate, in the case of any Bond redeemed or to be redeemed only in part , to the portion of the principal of such Bond which has been or is to be redeemed. SECTION 4 . 04 : NOTICE TO HOLDERS OF REDEMPTION. Notice of redemption shall be mailed by the Paying Agent/Registrar in the name of and at the expense of the District , not less than thirty (30) days prior to the Redemption Date, to each Holder of Bonds to be redeemed. All notices of redemptions shall include a statement as to (a) the Redemption Date, (b) the Redemption Price, (c) the principal amount of the Bonds to be redeemed and, LLA\60809.1\BONDRESOLVTION2021 13 s /11""P".- it less than all Bonds are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the Bonds to be redeemed, (d) that on the Redemption Date the Redemption Price of each of the Bonds to be redeemed Will become due and payable and that interest thereon shall cease to accrue from and after such date, and (e) that such Bonds are t0 be surrendered for payment of the Redemption Price at the principal payment office of the Paying Agent/Registrar, and the address of such office . SECTION 4 . 05 : PAYMENT FOR REDEEMED BONDS . Notice of redemption having been given as aforesaid, the Bonds so to be redeemed shall , on the Redemption Date, become due and payable at the Redemption Price, and from and after such date (unless the District shall default in the payment of the Redemption Price) such Bonds shall cease to bear interest . Upon the surrender of such Bonds for redemption in accordance with such notice, such Bonds shall be paid by the Paying Agent/Registrar at the Redemption Price out of money supplied by the District . Installments of interest with a Stated Maturity on or prior to the Redemption Date shall be payable to the Holders of such Bonds registered as such on the relevant Record Dates according to their terms . If any Bond called for redemption shall not be so paid on the date set for redemption by reason of the failure of the District to provide collected funds, the same shall continue to bear interest from the Redemption Date at the rate borne by such Bond. SECTION 4 . 06 : PARTIAL REDEMPTION. Any Bond which is to be redeemed only in part shall be surrendered at the office of the paying Agent/Registrar (if payment is to be made to other than the registered Holder with due endorsement by, or a written instrument of transfer in form satisfactory to the Paying Agent/Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing) , and the District shall execute and the Paying Agent/Registrar shall register and deliver to the Holder of such Bond, without service charge to the Holder, a new Bond or Bonds of the same Stated Maturity and of any .•, authorized denomination or denominations as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Bond so surrendered. ARTICLE FIVE .. FORM OF BONDS AND CERTIFICATES SECTION 5 . 01 : FORMS GENERALLY. The Bonds, the Registration Certificates of the Comptroller of Public Accounts of the State r' of Texas, the Certificates of Registration, the legend to be placed on the Bonds relating to municipal bond guaranty insurance, and the form of Assignment to be printed on each of LI.R\60809.1\BONDRESOLUTZON2021 14 the Bonds shall be substantially in the forms set forth in this Article with such appropriate insertions, omissions, substitutions, and other variations as are permitted or required by this Resolution, and may have such letters , numbers, or other marks of identification (including identifying numbers and letters of the Committee on Uniform Securities Identification procedures of the American Bankers Association ["CUSIP"] ) and such legends and endorsements (including any reproduction of any opinion of counsel) thereon as may, consistently herewith, be established by the District or determined by the officers executing such Bonds as evidenced by their execution thereof . Any portion of the text of any Bonds may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Bond. The Definitive Bonds shall be printed, lithographed, or engraved, produced by any combination of these methods, or produced in any other similar manner, all as determined by the officers executing such Bonds as evidenced by their execution thereof, but the Initial Bond submitted to the Attorney General of Texas may be typewritten or photocopied or otherwise reproduced. SECTION 5 . 02 : FORM OF BONDS . The Bonds authorized by this Resolution shall be in substantially the following form, with such omissions, insertions, and variations as may be necessary and desirable and consistent with the terms of this Resolution: • P LLR160809.1\BONDRESOLUTION2021 15 a Pr'w- UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF BRAZORIA REGISTERED REGISTERED NUMBER AMOUNT � $ BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT No . 5 UNLIMITED TAX BOND SERIES 1998 Interest Rate : Stated Maturity: Initial Date : CUSIP : March 1, 1998 BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT No . 5 , a conservation and reclamation district, a body politic and corporate and a governmental agency created under the Constitution and laws of the State of Texas, situated in Brazoria County, Texas (herein, the "District" ) , FOR VALUE RECEIVED hereby acknowledges itself indebted to and PROMISES TO PAY TO r (the "Holder" ) , or registered assigns, on the Stated Maturity specified above, the sum of P. DOLLARS (or so much thereof as shall not have been paid upon prior redemption) and to pay interest thereon from the later of the Initial Date or the most recent Interest Payment Date to which interest has been paid or duly provided for, on September 1, 1998 , and thereafter semiannually on March 1 and September 1 in each year, at the per annum rate of interest specified above , computed on the basis of a 360-day year of twelve 30-day months . The principal of this Bond is payable at the agency of the District, which shall be the principal payment office of the Paying Agent/Registrar executing the registration certificate appearing hereon, upon presentation and surrender of this Bond. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will be paid to the person in whose name this Bond (or one or more Predecessor Bonds , as defined in the Resolution hereinafter defined) , is registered at the close of business on the Record Date for such interest , which shall be the fifteenth (15th) day of the month next preceding such Interest Payment Date . All such payments may be made by the Paying Agent/Registrar by check dated as of the Interest Payment Date and mailed to the registered Holder . -.s\aO O9.1\BONDRESOLUTION2o21 16 THE DATE OF THE INITIAL BOND OF THIS ISSUE, in conformity th the Resolution authorizing the issuance of the series of gongs of which this Bond is a part (herein the "Resolution" ) , is March 1, 1998 . THIS BOND IS ONE OF AN AUTHORIZED ISSUE OF BONDS, designated Brazoria County Municipal Utility District No. 5 Unlimited Tax Bonds, Series 1998 (hereinafter sometimes called the "Bonds" ) aggregating One Million Nine Hundred Eighty Thousand and No/100 Dollars ($1, 980 , 000 . 00) . The Bonds are issued for the purpose of " purchasing and constructing extensions of and additions to the District' s existing water and sanitary sewer system and drainage system, and paying the costs of issuance of the Bonds , all under and in strict conformity with the Constitution and laws of the State of Texas, particularly Section 59 of Article XVI of the Constitution of Texas, and Chapters 49 and 54 , Texas Water Code, as amended. THE DISTRICT RESERVES THE RIGHT TO REDEEM the Bonds of this issue maturing on September 1, 2007, or thereafter, prior to their scheduled maturities, in whole, or from time to time in part, in such manner as the District may determine, in integral multiples of $5 , 000 , on September 1, 2006 , or on any date thereafter, at a price equal to the principal amount of the Bonds to be redeemed plus accrued interest thereon to the date fixed for redemption. AS PROVIDED IN THE BOND Resolution and subject to certain limitations therein set forth, this Bond is transferable on the Bond Register of the District, upon surrender of this Bond for transfer at the principal payment office of the Paying Agent/Registrar, duly endorsed by or accompanied by a written instrument of transfer in form satisfactory to the Paying Agent/Registrar duly executed by the registered Holder hereof or his attorney duly authorized in writing, and thereupon one or more new fully registered Bonds of the same Stated Maturity, of authorized denominations, bearing the same rate of interest , and for the same aggregate principal amount will be issued to the designated transferee or transferees . NEITHER THE DISTRICT NOR THE PAYING AGENT/REGISTRAR shall be required (i) to issue, transfer, or exchange any Bond during a period beginning at the opening of business on a Record Date and ending at the close of business on the next succeeding Interest Payment Date, or (ii) to transfer or exchange any Bond so selected for redemption in whole or in part when such redemption is scheduled to occur within thirty (30) calendar days . THE DISTRICT, THE PAYING AGENT/REGISTRAR, and any agent of either of them may treat the person in whose name this Bond is registered as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes , whether or not this Bond be overdue, and neither the District , the Paying mom :,LR\60609.1\BONDAESOLVIION2021 17 • agent/Registrar, nor any such agent shall be affected by notice to the contrary. THIS BOND, AND THE OTHER BONDS OF THE SERIES OF WHICH IT IS pp T, is payable from the proceeds of a continuing, direct annual ad valorem tax levied, without limit as to rate or amount , on all taxable property within the District . Reference is made Pto the Resolution for a more complete description of the funds charged with and pledged to the payment of this Bond and the series of which it is a part . By acceptance of this Bond, the Holder hereof expressly assents to all of the provisions of the Resolution. IN ADDITION TO THE RIGHT TO ISSUE BONDS OF INFERIOR LIEN, the District has reserved the right to issue Additional Bonds , as defined in the Resolution, which may be secured by a lien on and pledge of the Net Revenues resulting from the ownership or operation of the District' s waterworks, sanitary sewer, and drainage and storm sewer system. Such Additional Bonds may be payable solely from such revenues or solely from taxes or may be sayable from a combination of taxes and such revenues . The District has also reserved the right to issue Special Project Bonds, as defined in the Resolution, which will be payable from and secured by the proceeds of a contract or contracts with persons, corporations, municipal corporations, political subdivisions , or other entities . Reference is made to the Resolution for a complete description of the right to issue Additional Bonds and Special Project Bonds . IT IS HEREBY CERTIFIED, RECITED, AND REPRESENTED that the issuance of this Bond and the series of Bonds of which it is a part is duly authorized by law; that all acts, conditions , and things required to exist and to be done precedent to and in the issuance of this Bond and said series of Bonds to render the same lawful and valid have been properly done and performed and have happened in regular and due time, form, and manner as required by law; that due provision has been made for the payment of the interest on and the principal of this Bond and the series of Bonds of which it is a part by levy of a continuing, direct annual ad valorem tax upon all taxable property within the District sufficient for said purposes; and that the issuance of this series of Bonds does not exceed any Constitutional or statutory limitation. IN WITNESS WHEREOF, BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT No . 5 has caused this Bond to be executed by the facsimile signatures of the President and Secretary of its Board of Directors and its official seal to be impressed or placed in facsimile hereon, all as of the 1st day of March, 1998 . L+.R\60809.1\BONDRESOLUTION2021 18 BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT No . 5 By: President , Board of Directors ATTEST: rSecretary, Board of Directors r (SEAL) SECTION 5 . 03 : FORM OF REGISTRATION CERTIFICATE OF COMPTROLLER OF PUBLIC ACCOUNTS . The Initial Bond shall be registered by the Comptroller. of Public Accounts of the State of Texas as provided by law. The registration certificate of said comptroller of Public Accounts shall be printed on the back of said Initial Bond in substantially the following form: OFFICE OF THE COMPTROLLER § OF PUBLIC ACCOUNTS § REGISTER. NO. a STATE OF TEXAS § I HEREBY CERTIFY THAT there is on file and of record in my office a certificate to the effect that the Attorney General of the State of Texas has approved this Bond, and further that this Bond has been registered this day by me . WITNESS my signature and seal of office this day of , 199 Comptroller of Public Accounts of the State of Texas r (COMPTROLLER' S SEAL) SECTION 5 . 04 : FORM OF AUTHENTICATION CERTIFICATE OF PAYING AGENT/REGISTRAR. On the front of all Bonds other than the Initial Bond, the Authentication Certificate of the Paying Agent/Registrar shall be printed in substantially the following form: \60B 09.1\BONDRESOLSP:ION2 021 19 a AUTHENTICATION CERTIFICATE It is hereby certified that this Bond has been delivered Pursuant to the Bond Resolution described in the text of this Bond, in exchange for or in replacement of a bond, bonds , or a portion of a bond approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas . Chase Bank of Texas , National Association Date of Authentication: By: Authorized Signature SECTION 5 . 05 : FORM OF ASSIGNMENT. On the back of all Bonds other than the Initial Bond, the Form of Assignment shall be printed in substantially the following form: ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sells, assigns , and transfers unto (Print or typewrite name, address , and zip code of Transferee) : (Social Security or other identifying number of Transferee : the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints as attorney to transfer the within Bond on the books kept for registration thereof , with full power of substitution in the premises . Dated: Registered Owner (s) NOTICE: The signature (s) on this assignment must correspond with the name (s) of the registered Holder (s) as shown on the face of this Bond in every particular, without enlargement or change whatsoever . 20 IL \60809.1\SONDRESOLUTION2021 Signature Guaranteed NOTICE; Signatures) must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. The following abbreviations, when used in the inscription on the face of the within Bond or above Assignment , shall be construed as though they were written out in full according to applicable laws or regulations : TEN COM -- as tenants UNIF GIFT MIN ACT in common Custodian (Cust . ) (Minor) r TEN ENT -- as tenants by under Uniform Gifts to Minors Act the entireties State JT TEN -- as joint tenants with rights of survivorship and not as tenants in common Additional abbreviations may also be used though not in the above list . SECTION 5 . 06 : INSURANCE STATEMENT. On the back of all Bonds, the following statement of insurance shall be printed: STATEMENT OF INSURANCE MBIA Insurance Corporation (the "Insurer" ) has issued a policy containing the following provisions, such policy being on file at Chase Bank of Texas National Association, Houston, Texas . The Insurer, in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations , the full and complete payment required to be made by or on behalf of the Issuer to Chase Bank of Texas National Association or its successor (the "Paying Agent" ) of /■ an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory L7J1'\60809.1\BONDRESOLUTION2021 21 PPP— sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payment of principal would have been due had there not been any such acceleration) ; and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of "'competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts . " "Obligations" shall mean: $1, 980 , 000 BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO . 5 UNLIMITED TAX BONDS SERIES 1998 Upon receipt of telephonic or telegraphic notice , such notice subSequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment , whichever is later, will make a deposit of funds, in an account with State Street Bank and Trust Company, N.A. , in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due . Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations , together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to State Street Bank and Trust Company, N.A. , State Street Bank and Trust Company, N.A. shall disburse to such owners or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent , the Issuer, or any designee of the Issuer for such purpose . The term owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the underlying security _ for the Obligations . Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street , Armonk, New York 10504 and such service of process shall be valid and binding . =LR\.60e09.1\BONDRESOLU710N2021 2 2 i i This policy is non-cancellable for any reason. The premium on Chic policy is not refundable for any reason including the payment Prior to maturity of the Obligations . D ISCLOSURE OF GUARANTY FUND NONPARTICIPATION: In the event the Insurer is unable to fulfill its contractual obligation under this policy or contract or application or certificate or evidence of coverage, the policyholder or certificateholder is not protected by an insurance guaranty fund or other solvency protection arrangement . META INSURANCE CORPORATION SECTION 5 . 07 : FORM OF INITIAL BOND. The Initial Bond shall be in the form set forth in Section 5 . 02 of this Article, except that : (a) immediately under the name of the bond the headings "Interest Rate" and "Stated Maturity" and "CUSIP" shall all be eliminated. (b) in the first paragraph: (i) the words "on the Stated Maturity specified above" shall be deleted and the following will be inserted: "on the first day of September in each of the years indicated below and bearing interest at the per annum rates in accordance with the following schedule : Principal Year of Interest Amount Maturity Rate AA [Information to be inserted from schedules in Section 3 . 02 hereof, incorporating the Principal Amount, Year of Maturity, and Interest Rate of the Bonds . ] (ii) the words "executing the registration certificate appearing hereon" shall be deleted and an additional sentence shall be added to the paragraph as follows : "The initial Paying Agent/Registrar is Chase Bank of Texas National Association, Dallas , Texas . " (iii) the words " (or one or more Predecessor Bonds, as defined in the Resolution hereinafter defined) " shall be deleted. (c) the Initial Bond for the Bond shall be numbered T-1 . (d) the adjective "facsimile" modifying the noun " signatures" in the last paragraph shall be deleted. SECTION 5 . 08 : CUSIP REGISTRATION. The President of the Board of Directors or the Paying Agent/Registrar may secure the printing 23 L:.12\60809.1\BONDRESOLV:ION2021 of identification numbers on the front of the Bonds through the CUSIp service Bureau Division of Standard & Poors Corporation, New york, New York. SECTION 5 . 09 : LEGAL OPINION. The approving opinion of Coats, Rose, Yale, Holm, Ryman & Lee, P .C. , Houston, Texas, bond counsel, may be printed on the back of the Bonds over the certification of the secretary of the Board of Directors which may be executed in facsimile . ARTICLE SIX SECURITY OF THE BONDS SECTION 6 . 01 : SECURITY OF BONDS. The Bonds are secured by and payable from the levy of a continuing, direct annual ad valorem tax, without limit as to rate or amount, upon all taxable property within the District . SECTION 6 . 02 : LEVY OF TAX. To pay the interest on the Bonds, and to create a sinking fund for the payment of the principal thereof when due, and to pay the expenses of assessing and collecting such taxes, there is hereby levied, and shall be assessed and collected in due time, a continuing, direct annual ad .. valorem tax, without limit as to rate or amount, on all taxable property in the District for each year while any of the Bonds are outstanding . All of the proceeds of such collections, except expenses incurred in that connection, shall be paid into the Debt Service Fund, and the aforementioned tax and such payments into such fund shall continue until the Bonds and the interest thereon have been fully paid and discharged, and such proceeds shall be •. used for such purposes and no other. While said Bonds , or any of them, are outstanding and unpaid, an ad valorem tax each year at a rate from year to year as will be ample and sufficient to provide funds to pay the interest on said Bonds and to provide the necessary sinking fund to pay the principal when due, full allowance being made for delinquencies and costs of collection, shall be levied, assessed, and collected and applied to the payment •• of principal and interest on the Bonds . In determining the amount of taxes which should be levied each year, the Board may consider whether proceeds from the sale of Bonds have been placed in escrow to pay interest during construction and whether the Board reasonably expects to have revenue or receipts available from other sources which are legally available to pay principal of or interest or redemption price on the Bonds . SECTION 6 . 03 : CONSOLIDATION OF DISTRICT. The laws of the State of Texas permit the District to be consolidated with one or more conservation and reclamation districts . In the event the District is consolidated with another district or districts , the District reserves the right to: r LLR\60809.1\BONDRESOLLT1ON2021 24 1PPP- (a) consolidate the System with a similar system of one or more districts with which the District is consolidating and operate and maintain the systems as one consolidated system (herein for purposes of this section the "Consolidated System") ; (b) apply the net revenues from the operation of the Consolidated System to the payment of principal, interest, redemption price, and bank charges on the revenue bonds or the combination tax and revenue bonds (herein for purposes of this section the "Revenue Bonds") of the District and of the district or districts with which the District is consolidating (herein collectively the "Consolidating Districts") without preference to any series of bonds (except subordinate lien revenue bonds which shall continue to be subordinate to the first lien revenue bonds of the Consolidating Districts) ; and (c) pledge the net revenues of the Consolidated System to the payment of principal, interest, redemption price, and bank charges on revenue bonds which may be issued by the Consolidating Districts on a parity with the outstanding first lien revenue bonds of the Consolidating Districts . ARTICLE SEVEN FLOW OF FUNDS AND INVESTMENTS SECTION 7 . 01 : CREATION OF FUNDS . The establishment of the Debt Service Fund is hereby affirmed. Such fund shall be kept separate and apart from all other funds of the District . The Debt Service Fund shall constitute a trust fund 'which shall be held in trust for the benefit of the Bondholders and, to the extent permitted by law, the Holders of Additional Bonds, if any. SECTION 7 . 02 : SECURITY OF FUNDS . Any cash balance in any fund shall, to the extent not insured by the Federal Deposit Insurance Corporation or its successor, be continuously secured by a valid pledge to the District of securities eligible under the laws of Texas to secure the funds of municipal utility districts, having an aggregate market value, exclusive of accrued interest , at all times equal to the uninsured cash balance in the fund to which such securities are pledged. SECTION 7 . 03 : GENERAL OPERATING FUND. The establishment of the General Operating Fund is hereby affirmed. The District shall deposit, as collected, the Revenues (except earnings and profits derived from the investment of the funds as provided in Section 7 .09 hereof) from the operation of the System into the General .• Operating Fund. Preferentially, all moneys deposited in the General Operating Fund shall be used for the purpose of paying the maintenance and operation expenses of the System. The District may LLR\60009.1\BONDRESOLUTION2021 25 accumulate and maintain an operating reserve in the General operating Fund (the "Operating Reserve" ) . SECTION 7 . 04 : DEBT SERVICE FUND. The District shall deposit or cause to be deposited into the Debt Service Fund the aggregate Of the following at the time specified: (a) as soon as practicable after the Bonds are sold, accrued interest on the Bonds from the Initial Date to the date of delivery of the Bonds to the Purchaser; (b) as soon as practicable after the Bonds are sold, capitalized interest on the Bonds; and (c) taxes levied and collected pursuant to Section 6 . 02 hereof , less costs of collection, as collected. Not later than five (5) days prior to any principal and/or interest payment date on the Bonds, the Board of Directors shall cause the transfer of moneys out of the Debt Service Fund to the Paying Agent/Registrar in an amount not less than that which is sufficient co pay the principal which matures on such date, the interest which accrues on such date, and the Paying Agent/Registrar' s fees for handling such payments on that date. SECTION 7 . 05 : CONSTRUCTION FUND. The establishment of the Construction Fund is hereby affirmed. The proceeds from the sale of the Bonds, after making the deposits to the Debt Service Fund from the proceeds of the Bonds as specified in Section 7 . 04 above, shall be deposited into. the Construction Fund and shall be used solely for the expenses incident to the issuance of the Bonds and the costs of acquiring, purchasing, and constructing the facilities for which the Bonds were sold. The District shall have the authority to retain the following described monies in the Construction Fund and may expend such sums for any item which may be properly paid by the District from its Construction Fund upon the approval of the Texas Natural Resource Conservation Commission. (a) The balance of the District' s Construction Fund, if any, remaining unexpended from the proceeds of the sale of the Bonds after completion of the acquisition, purchase and construction of the facilities for which the Bonds were sold; and r (b) All interest, income, and increment accruing to the District as a result of the temporary investment of the proceeds of the sale of the Bonds which are placed in the District ' s Construction Fund. Upon completion of the acquisition, purchase, and construction Irof all facilities, any unspent monies remaining from the sale of LLR\E0809.1\BONDRESOLSTSION2021 26 Bonds, and the interest earned on such monies, shall be deposited into the District' s Debt Service Fund. SECTION 7 . 06 : BOND REDEMPTION FUND. The District reserves the right to create one or more funds to be known as "Bond Redemption Funds" in connection with any issue or issues of Additional Bonds or Revenue Bonds which are term bonds , and to Provide for the transfer of Net Revenues into a Bond Redemption Fund for the purpose of redeeming all or a specified part of such Additional Bonds or Revenue Bonds prior to maturity. SECTION 7 . 07 : INVESTMENTS, EARNINGS . Moneys deposited into the Debt Service Fund, and any other fund or funds which the District may lawfully create may be invested or reinvested in Authorized Investments . All investments and any profits realized from or interest accruing on such investments shall belong to the fund from which the moneys for such investments were taken; provided, however, that at the discretion of the Board of Directors the profits realized from and interest accruing on investments made from any fund may be transferred to the Debt Service Fund. If any moneys are so invested, the District shall have the right to have sold in the open market a sufficient amount of such investments to meet its obligations in the event any fund does not have sufficient uninvested funds on hand to meet the obligations payable out of such fund. Under such circumstances, the District shall give notice to the Depository to sell such investments in the open market . After such sale the moneys resulting therefrom shall belong to the fund from which the moneys for such investments were initially taken. The District shall not be responsible to the Bondholders for any loss arising out of the sale of any investments . ARTICLE EIGHT TAX EXEMPTION SECTION 8 . 01 Definitions . When used in this Article, the terms listed below shall have the meanings specified below, unless it is otherwise expressly provided or unless the context otherwise requires : "Code" means the Internal Revenue Code of 1986 , as amended by any amendments thereto enacted prior to the Issue Date . "Computation Date" has the meaning set forth in Section 1 . 148- - 3 (e) of the Regulations . "Gross Proceeds" has the meaning set forth in Section 1 . 148- 1 (b) of the Regulations . "Investment" has the meaning stated in section 1 . 148-1 (b) of the Regulations and includes : LLR\60609.1\BONDRESOLVTION2021 27 .... r111111.1.6-- - (1) Stock: a share of stock in a corporation or a right to subscribe for or to receive such a share, (2) Debt : any indebtedness or evidence thereof , including without limitation United States Treasury bonds, notes, and bills (whether or not of the State and Local Government Series) and bank deposits (whether or not certificated or interest bearing or made pursuant to a depository contract) , (3) Annuities and Deferred Payments : any annuity contract , or any other deferred payment contract acquired to fund an obligation of the District, or (4) Other Property: any other investment-type property. "Issue Date" means the date on which the Bonds are initially "' authenticated and delivered to the Purchaser against payment therefor. "Issue Price" of the Bonds of any series and stated maturity means the amounts set out in paragraph 4 of the Certificate of Underwriters executed on the Closing Date . "Net Sale Proceeds" has the meaning set forth in section 1 . 148-1 (b) of the Regulations . "Proceeds" has the meaning set forth in section 1 . 148-1 (b) of the Regulations . "Rebate Amount" has the meaning set forth in section 1 . 148-3 of the Regulations . "Regulations" shall mean the temporary or final Income Tax .. Regulations applicable to the Bonds issued pursuant to Sections 141 through 150 of the Code . Any reference to a section of the Regulations shall also refer to any successor provision to such section hereafter promulgated by the Internal Revenue Service . pursuant to Sections 141 through 150 of the Code and applicable to the Bonds . .. "Sale Proceeds" has the meaning set forth in section 1 . 148- 1 (b) of the Regulations . "Taxable Investment" means any Investment other than (1) Non-AMT Tax Exempt Obligations : an obligation the interest on which is excluded from the gross income, as defined in section 61 of the Code, of the owners thereof for federal income tax purposes (or, when such obligation was issued, was purported by the evidence of such obligation to be so excluded) and which is not a preference item, as defined in section 57 of the Code, M :.:.d\60809.1\BONDRESOLUTION2021 28 (2 ) Tax Exempt Mutual Funds : an interest in a regulated investment company to the extent that at least 95% of the income to the holders of such interest is interest that is excludable from gross income under section 103 (a) of the Code, (3) Demand SLGS : one-day certificates of indebtedness issued by the United States Treasury pursuant to the Demand Deposit State and Local Government Series program described in 31 C. F.R. part 344 , if the District in good faith attempts to comply with all the requirements of such program relating to the investment of Gross Proceeds, and (4) Exempt Temporary Investments : Taxable Investments which are held for the credit of the 1995 Debt Service Fund. "Yield" of (1) Taxable Investments : Taxable Investments to any date means the actuarial "yield" of all such Taxable Investments on or before such date as "yield" is defined in section 1. 148-5 (b) of the Regulations, and (2) Bonds : Any series of bonds means the actuarial "yield" of such Bonds, as defined in section 1 . 148-4 of the Regulations, and for the Bonds shall be specified in a certificate executed by an officer of the Board on the Issue Date . SECTION 8 . 02 . Covenant To Maintain Tax-Exempt Status of Bonds . A. Not to Cause Interest to Become Taxable . The District shall not use, permit the use of, or omit to use Gross Proceeds or any other amounts (or any property acquired, constructed, or improved with Gross Proceeds) in a manner which, if made or omitted, respectively, (or take or omit to take any other action which if taken or omitted, respectively) , would cause interest on any Bond to be includable in the gross income, as defined in section 61 of the Code, of the owners thereof for federal income tax purposes . The District shall adopt and comply with the provisions of such amendments hereof and supplements hereto as may, in the opinion of nationally recognized bond counsel , be necessary to preserve or perfect such exclusion. Without limiting the generality of the foregoing, the District shall comply with each of the specific covenants in this Section at all times prior to the last Maturity of Bonds, unless and until the District shall have received a written opinion of nationally recognized bond counsel to the effect that failure to comply with such covenant will not adversely affect the excludability of interest on any Bond from the gross income of the owner thereof for federal income tax purposes , and thereafter such covenant shall no longer be binding upon the District to the extent described in such opinion, anything in any other Subsection of this Section to the contrary notwithstanding. LLR\60809.1\BONDRESOLUTION2021 29 B. No Private Use or Payments . At all times prior to the last Maturity of Bonds, the District shall neither (1) use nor permit the use of Gross Proceeds (or any property acquired, constructed or improved with Gross Proceeds or income from the investment thereof) in any trade or business carried on by any Person (or in any activity of any Person other than an individual) other than a state or local government, nor (2) directly or indirectly impose or accept any charge or other payment for use of Gross Proceeds (or use of any property acquired, constructed, or improved with Gross Proceeds or income from the investment thereof) in any trade or business carried on by any Person (or in any activity of any Person other than an individual) other than a state or local government, unless either (i) such use is merely as a member (and, except possibly for the amount of use and any corresponding rate adjustment, is extended by the District on the same terms as to all other members) of the general public or (ii) such charge or payment consists of taxes of general application within the District or interest earned on temporary Investments acquired with Gross proceeds pending application of such Gross Proceeds for their intended purposes . For purposes of this Subsection B, property is considered to be "used" by a Person if : (a) Sale or Lease : it is sold or otherwise disposed of, or leased, to such Person; (b) Management Contract : it is. operated, managed, or otherwise physically employed, utilized, or consumed by such Person, excluding operation or management pursuant to an agreement which meets the conditions described in I .R. S . Rev. Proc . 97-13 ; (c) Capacity, Output , or Service Commitment : capacity in or output or service from such property is reserved or committed to such Person under a take-or-pay, output, incentive payment, or similar contract or arrangement ; (d) Preferential Service : such property is used to provide service to (or such service is committed to or reserved for) such Person on a basis or terms which (except possibly for the amount of use and any corresponding rate adjustment) are different from the basis or terms on which such service is provided (or committed or reserved) to members of the public generally; (e) Developer: such Person is a developer and a significant amount of property acquired, constructed, or improved with proceeds from the sale of a series of bonds of LIA\b0B09.1\BONDRESOLUSION2021 30 which the Bonds are a part serves only a limited area substantially all of which is owned by such Person, or a limited group of developers, unless such property carries out — an essential governmental function, use by such Person is during an initial development period, and such property is developed and sold to (and occupied by) members of the general public in accordance with the Regulations ; or (f) Other Incidents of Ownership: substantial burdens and benefits of ownership of such property are otherwise effectively transferred to such Person, but the temporary investment of Gross Proceeds pending application for their intended purposes shall not constitute "use" of Gross proceeds . C. No Private Loan. The District shall not use Gross proceeds to make or finance loans to any Person other than a state or local government, excluding loans consisting of temporary investments of Gross Proceeds pending application of such Gross proceeds for their intended purposes. For purposes of this Subsection C, Gross Proceeds are considered to be "loaned" to a Person if (1) property acquired, constructed, or improved with Gross Proceeds is sold or leased to such Person 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 under a take-or-pay, output , or similar contract or arrangement , or (3 ) indirect benefits , or burdens and benefits of ownership, of Gross Proceeds or such property are otherwise transferred to such Person in a transaction which is the economic equivalent of a loan. D. Not to Invest at Higher Yield. The District shall not , at any time prior to the final Maturity of the Bonds , directly or indirectly invest Gross Proceeds in any Taxable Investment (or use Gross Proceeds to replace money so invested) , if , as a result of such investment, the Yield of all Taxable Investments acquired with (or representing an investment of) Gross Proceeds (or money replaced thereby) , whether then held or previously disposed of , to the date of such investment exceeds the Yield of the Bonds . Notwithstanding the foregoing, however, the following Investments shall be excluded from the limitation described in this Subsection D: (1) Three-Year Period for Sale Proceeds : Taxable Investments acquired with (or representing an investment of) — proceeds from the sale of the Bonds or earnings from the investment thereof, to the extent such Taxable Investments are held during the three-year period beginning on the Issue Date; — (2 ) One-Year Period for Earnings on Sale Proceeds : Taxable Investments acquired with (or representing an investment of) income from investment of proceeds from the LLR\60809.1\BONDRESOLL'r10N2021 3 1 am • — /FPI"— sale of the Bonds, to the extent such Taxable Investments are field during the first year after receipt of such income; (3) 1998 Debt Service Fund Deposits : Taxable Investments acquired with (or representing an investment of) amounts held for the credit of the Debt Service Fund for the payment of the debt service on the Bonds during the then current bond year (the "1998 Debt Service Fund" ) , but only during the first 13 months after the date of deposit of such amounts to the Debt Service Fund; (4) Debt Service Fund Deposits : Taxable Investments acquired with (or representing an investment of) amounts held for the credit of the Debt Service Fund in excess of the amounts held for the credit of the 1998 Debt Service Fund to the extent such Taxable Investments are held during the first 30 days after the date of deposit of such amounts to the Debt Service Fund or, if held more than 30 days after deposit, do not exceed 10% of the stated principal amount of the Bonds ; and (5) Other Investments : any other Taxable Investments acquired with (or representing an investment of) Gross Proceeds described in Clause (3) of the definition thereof , to the extent the aggregate amount of Gross Proceeds invested in such Taxable Investments does not exceed the lesser of $100 , 000 or 5% of the proceeds from sale of the Bonds . The District shall not use any money to pay principal of or interest on the Bonds, or pledge (or permit to be pledged) or otherwise restrict any money, funds, or Taxable Investments so as to give reasonable assurance of their availability for such purpose, except in each case amounts deposited to the Debt Service Fund. E. No Federal Guarantees, Etc. The District shall not either (a) use Gross Proceeds in an amount which exceeds 5% of the proceeds from the sale of the Bonds (i) to make loans which are guaranteed in whole or in part by the United States or any agency or instrumentality thereof, including any entity with statutory authority to borrow from the United States, or (ii) to invest in any deposit or account in a financial institution to the extent such deposit or account is insured under federal law by the Federal Deposit Insurance Corporation, the National Credit Union Admin- istration, or any similar federally-chartered corporation, or (b) otherwise permit payment of principal of or interest on the Bonds to be directly or indirectly guaranteed in whole or in part by the United States or any agency or instrumentality thereof , including any entity with statutory authority to borrow from the United States (e .g. , by the investment of amounts held for the credit of the Debt Service Fund in federally-guaranteed or federally-insured obligations) . Notwithstanding the foregoing, however, the District may acquire : 1\BONDRISOLUTION2021 32 row— _ (1) Certain Temporary Investments : Investments described in Subsections D (1) , D (3 ) , or D (4) of this Section, whether or not federally-guaranteed or federally-insured, to the extent such Investments are held during the period described in such Subsection; (2) Treasury Investments : Investments issued by the United States Treasury; and (3 ) Investments Permitted by Regulations : Any other Investments permitted by regulations of the United States Department of Treasury issued under section 149 (b) (3 ) (B) (v) of the Code . F. Not to Divert Arbitrage Profits . Prior to the final Maturity of the Bonds, the District shall not at any time invest amounts held for the credit of the Construction Fund or the Debt service Fund in any Investment purchased at other than an arm' s length price or for which there is not an established market at the time of investment, except possibly for Investments described in Subsection D (2) of this Section to the extent such Investments are acquired and mature or are disposed of during the period described in such Subsection. G. To File Informational Report . The District shall execute and file with the Secretary of the Treasury, not later than the 15th day of the second calendar month after the close of the calendar quarter in which the Issue Date occurs (or by such later date as such Secretary may permit for reasonable cause or may prescribe with respect to any portion of., such statement) , a statement containing the information and in the form required by section 149 (e) of the Code or the Regulations promulgated thereunder. H. Not to Cause Bonds to Become Hedge Bonds . The District warrants and represents that : (1) the District reasonably expects that at least 85% of the Net Sale Proceeds of the Bonds will be used to carry out the governmental purposes of the Bonds within three years from the Issue Date, and (2) not more than 50% of the Proceeds of the Bonds will be invested in nonpurpose investments (as defined in section 148 (f) (6) (A) of the Code) having a substantially guaranteed Yield for four years or more . I . Payment of Rebatable Arbitrage . Except to the extent otherwise provided in section 148 (f) of the Code and the regulations and rulings thereunder, (1) The District shall account for all Gross Proceeds (including all receipts and expenditures thereof) on its books of .LR\;0809.1\BONDRESOLUTION2021 33 account separately and apart from all other funds (and receipts, expenditures, and investments thereof) and shall maintain all records of such accounting with the transcript of proceedings relating to the issuance of the Bonds until six years after the final Computation Date . The District may, however, to the extent permitted by law, commingle Gross Proceeds of the Bonds with other money of the District , provided that the District separately accounts for each receipt and expenditure of such Gross Proceeds and the obligations acquired therewith. (2) Not less frequently than each Computation Date, the District shall either (i) cause to be calculated by a nationally recognized accounting or financial advisory firm or (ii) calculate and cause its calculations to be verified by a nationally recognized accounting or financial advisory firm, in either case in accordance with rules set forth in section 148 (f) of the Code and section 1 . 148-3 of the Regulations and rulings thereunder, the Rebate Amount with respect to the Bonds . The District shall maintain such calculations with the official transcript of the proceedings relating to the issuance of the Bonds until six years after the final Computation Date . (3) As additional consideration for the purchase of the Bonds by the Purchasers and the loan of money represented thereby, and in order to induce such purchase by measures designed to preserve the excludability of the interest thereon from the gross income of the owners thereof for federal income tax purposes, the District shall remit to the United States the amount described in paragraph (2) above and the amount described in paragraph (4) below, at the times, in the installments, to the place, in the manner, and accompanied by such forms or other information as is or may be required by section 148 (f) of the Code and the Regulations and rulings thereunder. (4) The District shall exercise reasonable diligence to assure that no errors are made in the calculations required by paragraph (2) and, if such error is made, to discover and promptly to correct such error within a reasonable amount of time thereafter, including payment to the United States of any interest and any penalty required by section 1 . 148-3 (h) of the Regulations . SECTION 8 . 03 . Qualified Tax-Exempt Obligations . The District hereby designates the Bonds as "qualified tax-exempt obligations" pursuant to Section 265 (b) (3) of the Code . The District hereby warrants and represents that (a) the aggregate face amount (or, in the case of obligations on which interest is paid less frequently than semiannually, the aggregate amount of principal and interest due at maturity) of all debt obligations issued or expected to be issued by the District in the calendar year of the Issue L..K\60809.1\BONDRESOLUTION2021 34 Date (including the Bonds) is not reasonably expected to exceed $10 , 000 , 000 ; (b) there are no other Persons which derive their authority from or are subject to the control of the District and which have authority to issue obligations described in section 103 of the Code ; and (c) consequently, the Bonds are eligible to be "qualified tax-exempt obligations" pursuant to section 265 (b) (3 ) of the Code . The President of the Board is hereby authorized to take such other action as may be necessary to make effective the designation herein. ARTICLE NINE ADDITIONAL BONDS AND REFUNDING BONDS SECTION 9 . 01 : ADDITIONAL BONDS . The District expressly reserves the right to issue, in one or more installments, for the purpose of completing, repairing, improving, extending, enlarging, or replacing the System or any other lawful purpose : (a) the unissued unlimited tax bonds which were authorized at the bond elections described in Section 1 . 05 of this Resolution; and (b) such other unlimited tax bonds ,as may hereafter be authorized at subsequent elections . SECTION 9 . 02 : REVENUE BONDS . The District expressly reserves the right to issue revenue bonds in one or more installments for the purpose of completing, repairing, improving, extending, enlarging, or replacing the System, which will be payable solely from the Net Revenues and such bonds may be payable from and equally secured by a lien on and pledge of the Net Revenues , if such revenue bonds are approved by the voters of the District . SECTION 9 . 03 : INFERIOR LIEN BONDS . The District also reserves the right to issue inferior lien bonds and pledge the Net Revenues to the payment thereof , such pledge to be subordinate in all respects to the lien of previously issued Additional Bonds and Revenue Bonds . SECTION 9 . 04 : SPECIAL PROJECT BONDS . The District further reserves the right to issue bonds in one or more installments for the purchase, construction, improvement, extension, replacement, enlargement , or repair of water, sewer, and/or drainage facilities necessary under a contract or contracts with persons , corporations, municipal corporations, political subdivisions , or other entities, such bonds to be payable from and secured by the proceeds of such LLB\50809.1\BONDRESOLUT:ON2021 35 contract or contracts . The District further reserves the right to refund such bonds . SECTION 9 . 05 : REFUNDING BONDS . The District further reserves the right to issue Refunding Bonds in any manner permitted by law to refund any Bonds and Additional Bonds at or prior to their respective dates of maturity or redemption. ARTICLE TEN SECTION 10 . 01 : PERSONS DEEMED OWNERS . The District, the paying Agent/Registrar, and any agent of either of them may treat the person in whose name any Bond is registered as the owner of such Bond for the purpose of receiving payment of the principal (and Redemption Price) of and interest on such Bond and for all other purposes whatsoever, and to the extent permitted by law, neither the District, the Paying Agent/Registrar, nor any agent of either of them shall be affected by notice to the contrary. SECTION 10 . 02 : NOTICES TO HOLDERS; WAIVER. Wherever this aesolution provides for notice to Bondholders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder of such Bonds, at the address of such Holder as it appears in the Bond Register. In any case where notice to Holders of Bonds is given by mail, neither the failure to mail such notice to any particular Holder of Bonds, nor any defect in any notice so mailed, shall affect the sufficiency of such notice with respect to all other Bonds . Where this Resolution provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event , and such waiver shall be the equivalent of such notice . Waivers of notice by Holders shall be filed with the Paying Agent/Registrar, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 10 . 03 : DUTIES OF DISTRICT OFFICIALS . The President or any Vice President and the Secretary or any Assistant Secretary of the Board of Directors and other appropriate officers and agents of the District are hereby authorized and directed to do any and all things necessary and/or convenient to carry out the provisions of this Resolution. ARTICLE ELEVEN SALE AND DELIVERY OF BONDS SECTION 11 . 01 : SALE OF BONDS; BOND PURCHASE AGREEMENT. The Bonds are hereby sold and shall be delivered to Dean Witter Reynolds, CIBC Oppenheimer Corp. , Banc One Capital Corp . , and Crews & Associates (the "Purchaser" ) pursuant to the taking of public bids therefor on February 9 , 1998 , for a price of $1 , 920 , 600 . 00 :.:.R\£0809.1\BONBRESOLUTSON2021 36 a !PPP...— accrued interest from the Initial Date to the date of p1uiverY Delivery of the Bonds to the Purchaser shall be made as deln as practicable after the adoption of this Resolution, upon s°° t therefor, in accordance with the terms of the sale . en pa 'haser s obligation to accept delivery of the Bonds is subject Corit being furnished an approving legal opinion of Coats , Rose, Holm, Ryman & Lee, P.C. , bond counsel to the District, Yalroving the Bonds as to their validity and that the interest hereon is exempt from Federal taxation, said opinion to be dated and delivered as of the date of delivery and payment for the Bonds . the Board hereby finds and determines that the net effective interest rate of the issue or series of bonds authorized by this Resolution is 4 . 8673%, which is the lowest net effective interest rate bid to the District, as required by law. SECTION 11 . 02 : APPROVAL, REGISTRATION AND DELIVERY. The president of the Board of Directors of the District and representatives of Coats, Rose, Yale, Holm, Ryman & Lee, P.C . are hereby authorized and directed to submit the Bonds , and a transcript of the proceedings relating to the issuance of the Bonds, to the Attorney General of the State of Texas for approval and, following said approval, to submit the Initial Bond to the Comptroller of Public Accounts of the State of Texas for registration. Upon registration of the Initial Bond, the Comptroller of Public Accounts (or a deputy designated in writing to act for the Comptroller) shall manually sign the Comptroller' s registration certificate prescribed herein to be printed and endorsed on the Initial Bond. After the Initial Bond has been registered and signed by the Comptroller, it shall be delivered to the Underwriter, but only upon receipt of the full purchase price . ARTICLE TWELVE • SPECIFIC OBLIGATIONS OF BOARD The Board on behalf of the District expressly stipulates and covenants that, for the benefit of the Purchaser and any and all subsequent Holders of the Bonds (and enforceable by any one or all of said Holders) , in addition to all other provisions hereof , it will : (a) Fix and maintain rates and collect charges for the facilities and services rendered by the District which, together with any taxes levied for maintenance purposes , will provide revenues sufficient at all times to pay all reasonable administration expenses of the District and all efficient operation and adequate maintenance expenses of the System. The Board has enacted and will maintain in effect an order fixing rates and charges for services which contains, among other provisions , a requirement for periodic billing of all customers of the District and a prohibition against the furnishing of water or sewer US\60809.1\BONDRESOLUTSON2011 37 a r service without charge to any person, firm, organization, ror corporation. (b) Subject to the provisions of Article Six of this Resolution, levy an ad valorem tax that will be ample and sufficient to provide funds to pay the interest on the Bonds and to provide the necessary sinking fund. (c) Not mortgage or otherwise encumber the physical properties of the System, nor sell, lease, or otherwise dispose of any substantial portion of such physical properties, unless said properties of the System are deemed by the Board of Directors of the District to be unnecessary to the operation of the System. (d) Maintain the System in good condition and operate it in an efficient manner and at a reasonable cost . (e) Maintain insurance on the System of a kind and in an amount which usually would be carried by municipal corporations and political subdivisions in Texas operating similar facilities . (f) Keep records and accounts and employ an independent certified public accountant of recognized integrity and ability to direct the installation of the required accounting procedures and to audit its affairs at the close of each fiscal year. The fiscal year of the District is from October 1 to September 31 of the following year, or such other fiscal year as the Board of Directors may hereafter designate:. Said audits shall include a statement in detail, of the income and expenditures of the System for each year; a balance sheet as of the end of the year; the auditor' s comments regarding the manner in which the District has carried out the requirements of all Bond Resolutions ; his recom- mendations, if any, for changes or improvements in the operation of the District' s plants , facilities, and improvements; a list of insurance policies in force as of the date of the audit including the amount, expiration date, risk covered, and name of the insurer for each such policy; and the number of properties connected to the System as of the end of the fiscal year. The audit report shall be delivered to each member of the Board not later than 120 days after the close of each fiscal year and shall be retained and filed in the office of the auditor. Copies of said audit shall be filed as required by law and maintained in the office of the District , available for inspection by any interested person or persons during normal office hours . Li.R\60809.1\BONDRESCiWTION2021 38 ARTICLE THIRTEEN DEFEASANCE OF OBLIGATIONS OF DISTRICT SECTION 13 . 01: DEFEASANCE. If the District shall pay or cause to be paid, or there shall otherwise be paid to the Holders, the principal of and interest on the Bonds, at the times and in the manner stipulated in this Resolution, then the pledge of any taxes or other money, securities, and funds pledged under this Resolution and all covenants, agreements, and other obligations of the District to the Holders of Bonds shall thereupon cease, terminate, and become void and be discharged and satisfied, and the Paying Agent/Registrar shall pay over or deliver all money held by it under this Resolution to the District. Bonds or interest installments for the payment of which money shall have been set aside and shall be held in trust by the Paying Agent/Registrar or with any other bank or trust company which has agreed to hold the same for such purpose (through deposit by the District of funds for such payment or otherwise) at the Stated Maturity thereof shall be deemed to have been paid within the meaning and with the effect expressed above in this Section. All Bonds shall be deemed to have been paid, prior to their Stated Maturity, within the meaning and with the effect expressed above in this Section, if there shall have been deposited with the Registrar either (a) money in an amount which shall be sufficient to make such payment, (b) Governmental Securities certified by an independent public accounting firm of national reputation to be of such maturities and interest payment dates and to bear such interest as will, without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, be sufficient to make such payment, or (c) a combination of money and Governmental Securities together so certified to be sufficient to make such payment, provided that all the expenses pertaining to the Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for to the satisfaction of the Paying Agent/ Registrar (and to such other bank or trust company) . SECTION 13 . 02 : PARTIAL DEFEASANCE. In the event such deposit is made with respect to some but not all of the Bonds then outstanding, the District shall designate the Stated Maturities of Bonds with respect to which such deposit is made . If such deposit shall be sufficient to provide for the payment of the principal of and interest on some but not all Outstanding Bonds of a particular Stated Maturity so designated, the Paying Agent/Registrar shall select the Outstanding Bonds of such Stated Maturity with respect to which such deposit is made by such random method as the Paying Agent/Registrar shall deem fair and appropriate and which may provide for the selection of portions (equal to and leaving unredeemed an authorized denomination) of Bonds a denomination larger than $5 , 000 . Notwithstanding anything herein to the contrary, no such deposit shall have the effect described in this :.I R\F0B09.1\BONDR£SOLUTION2021 3 9 Article if made during the subsistence of a default in the payment of any Bond (a) unless made with respect to all of the Bonds then outstanding, or (b) unless accompanied by an opinion of counsel of recognized standing in the field of federal income taxation to the effect that neither such deposit nor the investment thereof shall adversely affect the excludability of interest on any Bond from the gross income of any owner thereof for federal income tax purposes . SECTION 13 . 03 : INVESTMENTS . No money or Governmental $ecurities so deposited shall be invested or reinvested unless in Governmental Securities and unless such money and Governmental Securities not invested and such new investments are together certified by an independent public accounting firm of national reputation to be of such amounts, maturities, and interest payment dates and to bear such interest as will, without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, be sufficient to make such payment . Neither Governmental Securities nor money deposited with the Paying Agent/Registrar or other bank or trust company pursuant to this Section, nor principal or interest payments on any such Governmental Securities, shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of, and interest on such Bonds . Any cash received from such principal of and interest on such investment securities deposited with the Paying Agent/Registrar, if not needed for such purpose, shall , to the extent practicable, be reinvested in Governmental Securities (which may be non-interest bearing) maturing at times and in amounts sufficient to pay when due the principal of and interest on such Bonds on and prior to the maturity thereof, and interest earned from such reinvestments shall be paid over to the District as received by the Paying Agent/Registrar, free and clear of any trust, lien, or pledge and used in accordance with applicable law. Any payment for Governmental Securities purchased for the purpose of reinvesting cash as aforesaid shall be made only against delivery of such Governmental Securities . SECTION 13 . 04 : RETIREMENT OF BONDS . At such times as a Bond shall be deemed to be paid hereunder, as aforesaid, it shall no longer be entitled to the benefits of this Resolution, except for the purposes of any such payment from such money or Governmental Securities, and for the provisions of Section 3 . 07 and 3 . 08 relating to transfer, exchange, and replacement of Bonds and the covenants of the District contained in Article Eight . At such times as all of the Bonds are retired, or provision is made for their payment , money in the Debt Service Fund, if any, may be transferred to the General Operating Fund of the District , provided that any money held by the Paying Agent/Registrar which has been provided for the payment of interest or principal and not so utilized for any reason shall continue to be held for a period of four calendar years , and if not claimed, the same may be returned to the General Operating Fund of the District, subject , however, to applicable unclaimed property laws of the State of Texas . LLR\60809.1\BONDRESOLLTION2021 40 ARTICLE FOURTEEN CONTINUING DISCLOSURE SECTION 14 . 01 : ANNUAL REPORTS . The District shall provide ( to the state information depository ( "SID" ) , within six annually ter (6) months after the financial information fandcoperati g data wih fiscal year th respect espe t to g in or the ' 19.-t of thegeneral type included in the Official Statement District YP authorized by Section 16 . 05 of this Bond Resolution, being the information described in Section 14 . 04 hereof . Any financial Statements so to be provided shall be (1) in accordance with generally accepted accounting principles and (2) audited, if the District commissions an audit of such statements and the audit is complete within the period during which they must be provided. If audited financial statements are not so provided, then the District shall provide unaudited financial statements as part of the annual report and shall provide audited financial statements for the applicable fiscal year to the SID, when and if audited financial statements become available . If the District changes its fiscal year, it will notify the SID of the change (and of the date of the new fiscal year) prior to the next day by which the District would otherwise be required to provide financial information and operating data pursuant to this Article. r The financial information and operating data to be provided pursuant to this Article may be set forth in full in one or more documents or may be included by specific reference to any document including an official statement or other offering document, if it is available from the Municipal Securities Rulemaking Board ("MSRB" ) that heretofore has been provided to the SID or filed with the United States Securities and Exchange Commission ( "SEC" ) . IPP SECTION 14 . 02 : MATERIAL EVENTS NOTICES . The District shall notify any SID and either each nationally recognized municipal securities information repository ( "NRMSIR" ) or the MSRB, in a timely manner, of any of the following events with respect to the Bonds, if such event is material within the meaning of the federal securities laws : 1 . Principal and interest payment delinquencies ; 2 . Non-payment related defaults ; 3 . Unscheduled draws on debt service reserves reflecting financial difficulties; 4 . Unscheduled draws on credit enhancements, if any, reflecting financial difficulties ; :.:.R\50809.1\BONDRESOLUTION2021 41 5 . Substitution of credit or liquidity providers, if any, ar their failure to perform; 6 . Adverse tax opinions or events affecting the tax-exempt status of the Bonds; 7 . Modifications of the rights of the Owners of the Bonds ; 8 . Bond calls; 9 . Defeasance; 10 . Release, substitution, or sale of property securing payment of the Bonds ; and 11 . Rating changes . SECTION 14 . 03 : LIMITATION, DISCLAIMERS, AND AMENDMENTS . The District shall be obligated to observe and perform the covenants specified in this Article for so long as, but only for so long as, the District remains an "obligated person" with respect to the Bonds within the meaning of the Rule, except that the District, in any event, will give the notice required by Section 14 . 02 of any Bond calls and defeasance that cause the District to no longer be an "obligated person. " The provisions of this Article are for the sole benefit of the Holders of the 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 District 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 undertake to provide any other information that may be relevant or material to a complete presentation of the District' s financial results, conditions, prospects or hereby undertakes to update any information provided in accordance with this Article or otherwise, except as expressly provided herein. The District does not make any representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date . UNDER NO CIRCUMSTANCE SHALL THE DISTRICT BE LIABLE TO THE OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE DISTRICT, 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 IN TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. No default by the District in observing or performing its obligations under this Article shall comprise a breach of or a LLR\60809.1\BONDRESOLUTION2021 42 !ppplippmm--- gisfault under the Resolution for purposes of any other provision of Resolution. Nothing in this Article is intended or shall act to disclaim, waive or otherwise limit the duties of the District under federal and state securities laws . The District may amend its continuing disclosure agreement 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 District , if but only if (1) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the primary offering in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (2) either (a) the Holders of a majority in aggregate principal amount of the outstanding bonds consent to such amendment or (b) any person unaffiliated with the District (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the Holders of the Bonds . The District may amend or repeal this Article if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction determines that such provisions are invalid or unenforceable, but .only to the extent that its right to do so would not prevent the Underwriter from lawfully purchasing the Bonds in the initial offering. If the District amends the agreement , it will include with any financial information or operating data next provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. The District has not previously made a continuing disclosure agreement in accordance with SEC Rule 15c2-12 . 12 . SECTION 14 . 04 : DESCRIPTION OF ANNUAL FINANCIAL INFORMATION. The following information is referred in Section 14 . 01 of this Article : a. Annual Financial Statements and Operating Data . The financial information and operating data with respect to the District to be provided annually are as specified below: (i) Appendix B to the Official Statement : Financial Statements and Auditor' s Report . b. Accounting Principles . The accounting principles referred to in Section 14 . 01 are generally accepted accounting principles for governmental units as prescribed by the Governmental Accounting Standards Board from time to time, as such principles may be changed from time to time to comply with state law or regulation, or as otherwise stated in the financial statements . ..w\60809.1\HONDR£SOLUTION2021 43 • rP"'- ARTICLE FIFTEEN MUNICIPAL BOND INSURANCE POLICY PAYMENTS UNDER THE POLICY A. In the event that, on the second Business Day, and again on the Business Day, prior to the payment date on the Bonds, the Registrar has not received sufficient moneys to pay all principal of and interest on the Bonds due on the second following or following, as the case may be, Business Day, the Registrar shall immediately notify the Insurer or its designee on the same Business Day by telephone or telegraph, confirmed in writing by registered or certified mail , of the amount of the deficiency. B. If the deficiency is made up in whole or in part prior to or on the payment date, the Registrar shall so notify the Insurer or its designee . C. In addition, if the Registrar has notice that any Owner of the Bonds has been required to disburse payments of principal or interest on the Bonds to a trustee in Bankruptcy or creditors or others pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Owner within the meaning of any applicable bankruptcy laws, then the Registrar shall notify the Insurer or its designee of such fact by telephone or telegraphic notice, confirmed in writing by registered or certified mail . D. The Registrar is hereby irrevocably designated, appointed, directed and authorized to act as ' attorney-in-fact for the Owners of the Bonds as follows : • (1) If and to the extent there is a deficiency in amounts required to pay interest on the Bonds, the Registrar shall (a) execute and deliver to State Street Bank and Trust Company, N.A. , or its successors under the Policy (the "Insurance Paying Agent" ) , in form satisfactory to the Insurance Paying Agent, an instrument appointing the Insurer as agent for the Owners of the Bonds in any legal proceeding related to the payment of such interest and an assignment to the Insurer of the claims for interest to which such deficiency relates and which are paid by the Insurer, (b) receive as designee of the respective Owners (and not as Registrar) in accordance with the tenor of the Policy payment from the Insurance Paying Agent with respect to the claims for interest so assigned, and (c) disburse the same to such respective Owners; and (2) If and to the extent of a deficiency in amounts required to pay principal of the Bonds, the Registrar shall (a) execute and deliver to the Insurance Paying Agent in form satisfactory to the Insurance Paying Agent an instrument R\E0809.1\BONDRESOLL:ION2021 44 appointing the Insurer as agent for such Owner in any legal proceeding relating to the payment of such principal and an assignment to the Insurer of any of the - Bonds surrendered to the Insurance Paying Agent of so much of the principal amount thereof as has not previously been paid or for which moneys are not held by the Registrar and available for such payment (but such assignment shall be delivered only if payment from the Insurance Paying Agent is received) , (b) receive as designee of the respective Owners (and not as Registrar) in accordance with the tenor of the Policy payment therefor from the Insurance Paying Agent, and (c) disburse the same to such Owners . E. payments with respect to claims for interest on and Pr incipal of Bonds disbursed by the Registrar from proceeds of the policy shall not be considered to discharge the obligation of the Issuer with respect to such Bonds, and the Insurer shall become the wner of such unpaid Bonds and claims for the interest in o accordance with the tenor of the assignment made to it under the provisions of this subsection or otherwise . . F. Irrespective of whether any such assignment is executed and delivered, the Issuer and the Registrar hereby agree for the benefit of the Insurer that : (1) They recognize that to the extent the Insurer makes payments , directly or indirectly (as by paying through the Registrar) , on account of principal of or interest on the Bonds, the Insurer will be subrogated to the rights of such Owners to receive the amount of such principal and interest from the Issuer, with interest thereon as provided and solely from the sources stated in this Bond Resolution and the Bonds; and (2) They will accordingly pay to the Insurer the amount of such principal and interest (including principal and interest recovered under subparagraph (ii ) of the first paragraph of the Policy, which principal and interest shall be deemed past due and not to have been paid) , with interest thereon as provided in this Bond Resolution and the Bonds, but only from the sources and in the manner provided herein for the payment of principal of and interest on the Bonds to Owners , and will otherwise treat the Insurer as the owner of such rights to the amount of such principal and interest . G. In connection with the issuance of additional Bonds , the Issuer shall deliver to the Insurer a copy of the disclosure document, if any, circulated with respect to such additional Bonds . 45 LL.R\LOB09.1\BONDRESOLU'r2ON2021 H. Copies of any amendments made to the documents executed in connection with the issuance of the Bonds which are consented to by the Insurer shall be sent to Standard & Poor' s Corporation. ' I The Insurer shall receive notice of the resignation or of the Registrar and the appointment of a successor removal thereto. J. The Insurer shall receive copies of all notices required to be delivered to Owners of the Bonds and, on an annual basis, copies of the Issuer' s audited financial statements and Annual Budget . Notices : Any notice that is required to be given to an Owner of the Bonds or to the Registrar pursuant to this Bond Resolution shall also be provided to the Insurer. All notices required to be given to the Insurer under this Bond Resolution shall be in writing and shall be sent by registered or certified mail addressed to MBIA nsurance Corporation, 113 King Street, Armonk, New York 10504 , Attention: Surveillance . ARTICLE SIXTEEN MISCELLANEOUS PROVISIONS SECTION 16 . 01 : OPEN MEETING. The Board of Directors officially finds, determines, and declares that this Resolution was reviewed, carefully considered, and adopted at a regular meeting of the Board beginning at 12 : 30 p.m. , Central Standard Time, on February 9 , 1998 , and that a sufficient written notice of the date, hour, place, and subject of this meeting was posted at a place readily accessible and convenient to the public within the District and on bulletin boards located at a place convenient to the public in the Brazoria County Courthouse for the time required by law preceding this meeting, as required by the Texas Government Code, Section 551 . 043 , as amended, and that this meeting has been open to the public as required by law at all times during which this Resolution and the subject matter hereof has been discussed, considered, and acted upon. The Board of Directors further ratifies, approves, and confirms such written notice and the contents and posting thereof . SECTION 16 . 02 : UNCLAIMED MONIES . Notwithstanding any other provision of this Resolution to the contrary, the Texas Property Code requires that all monies (including principal and interest payments on the Bonds) which are unclaimed after three years be turned over to the Texas State Treasurer if (a) the owner' s last known address as shown in the records of the Paying Agent/Registrar is in Texas, or (b) if the holder of such unclaimed monies is a Texas governmental entity or a Texas corporation and (i) the owner' s identity is unknown or there is no known address for the owner or (ii) the last known address of the owner is in a state whose escheat or unclaimed property law is inapplicable to such -:.R\E0809.1\BONDRESOLUT:ON2021 46 !PPP monies Bondholders are advised to be cognizant of the provisions of the Texas Property Code, particularly Chapters 71, 72 , and 74 thereof as such provisions relate to the escheatment of unclaimed nies to the Texas State Treasurer. mo SECTION 16 . 03 : RELATED MATTERS. To satisfy in a timely a nner a mall of the District' s obligations under this Resolution, the President and Secretary of the Board of Directors of the District and all other appropriate officers and agents of the District are hereby authorized and directed to take all other actions that are reasonably necessary to provide for the issuance, sale , and delivery of the Bonds including, without limitation, executing and delivering on behalf of the District all certificates , consents , , requests, and other documents as may be reasonably recejpts necessary to satisfy the District' s obligations under this Resolution and to direct the transfer and application of funds of the District consistent with the provisions of this Resolution. SECTION 16 . 04 : PAYING AGENT/REGISTRAR. The form of agreement setting forth the duties of the Paying Agent/Registrar is hereby 2pproved, and the appropriate officials of the District are hereby authorized to execute such agreement for and on behalf of the District . SECTION 16 . 05 : OFFICIAL STATEMENT. The Board of Directors of the District hereby ratifies, authorizes, and approves , in connection with the sale of the Bonds, the preparation and distribution of the Preliminary Official Statement, dated January 27, 1998 , and a final Official Statement substantially in the same form containing such additional information and amendments as may be necessary to conform to the terms df the Bonds and this Resolution. The appropriate officials of the District are hereby authorized to sign such Official Statement and/or to deliver certificates pertaining to such Official Statement as prescribed therein, dated as of the date of payment for and delivery of the Bonds. SECTION 16 . 06 : REMEDIES IN EVENT OF DEFAULT. In addition to any other rights and remedies provided by the laws of the State of Texas, the District covenants and agrees that in the event of default in payment of principal of or interest on any of the Bonds when due, or, in the event it fails to make the payments required to be made into the Debt Service Fund, as defined in Section 7 . 01, or defaults in the observance or performance of any other of the covenants, conditions , or obligations set forth in this Resolution, the Holders shall be entitled to a writ of mandamus issued by a court of competent jurisdiction compelling and requiring the District and the officials thereof to observe and perform the covenants, obligations, or conditions prescribed in this Resolution. Any delay or omission to exercise any right or power accruing upon any default shall not impair any such right or power or be construed to be a waiver of any such default or acquiescence -�.60809.1\BONDRESOLUTION2021 4 7 therein, and every such right and power may be exercised from time time and as often as may be deemed expedient . to In consideration of the purchase and acceptance of the Bonds a,thorized to be issued hereunder by the Holders, the provisions of his Resolution shall constitute a contract between the District and the Holders; and the covenants and agreements herein set forth to be performed on behalf of the District shall be for the equal benefit, protection, and security of each of the Holders . The Bonds, regardless of the time or times of their issue or maturity, ,hall be of equal rank without preference, priority, or distinction of any Bond over any other, except as expressly provided herein. SECTION 16 . 07 : AMENDMENTS TO BOND RESOLUTION. The District without the consent of or notice to any Holders of the Bonds, may end, change, or modify this Resolution as may be required (a) by am the provisions hereof, (b) for the purpose of curing any ambiguity, inconsistency, or formal defect or omission herein, or (c) in connection with any other change which is not to the prejudice of the Holders of the Bonds . Except for such amendments, changes , or fiodifications, the District shall not amend, change, or modify this Resolution in any manner without the consent of the Holders of the Bonds . SECTION 16 . 08 : NO PERSONAL LIABILITY. No recourse shall be had for payment of the principal of or interest on any Bonds or for any claim based thereon or in this Resolution against any official or employee of the District or any person executing any Bonds . SECTION 16 . 09 : EFFECTIVE DATE OF RESOLUTION. This Resolution shall take effect and be in full force and effect upon and after its passage . PASSED AND APPROVED this 9th day of February, 1998 . /s/ Ricki A. Willoughby President, Board of Directors Brazoria County Municipal Utility District No. 5 ATTEST: /s/ Kelly C . Flanagan Secretary/Treasurer, Board of Directors Brazoria County Municipal Utility District No . 5 --n,6J809.1\80NDRESOLUTZON2021 48 RESOLUTION AUTHORIZING THE ISSUANCE OF $4,555,000 UNLIMITED ah REFUNDING BONDS, SERIES 1998-A; AUTHORIZING THE REDEMPTION PRIOR TO MATURITY OF CERTAIN OUTSTANDING BONps; AUTHORIZING THE ADVANCE REFUNDING OF CERTAIN OUTSTANDING BONDS AND THE EXECUTION AND DELIVERY OF AN ESCROW AGREEMENT AND THE PURCHASE OF CERTAIN ESCROWED SECURITIES; AND CONTAINING OTHER MATTERS RELATED THERETO ;t ATE OF TEXAS L_01-NTy OF BRAZORIA WHEREAS, Brazoria County Municipal Utility District No. 5 (the "District") has „oretofore issued its $1,735,000 Unlimited Tax Bonds, Series 1982 (the "Series 1982 Bonds"); 0 Unlimited Tax Bonds, Series 1983 (the "Series 1983 Bonds"); S1,620,000 Unlimited Ta` Bonds, Series 1984 (the "Series 1984 Bonds"); $6,065,000 Unlimited Tax Refunding Bonds I the "Series 1992 Bonds"); $2,020,000 Unlimited Tax Bonds, Series 1995 (the "Series 1995 Bonds"); and $1,980,000 Unlimited Tax Bonds, Series 1988 (the "Series 1988 Bonds"); and WHEREAS, the District desires to refund certain of the outstanding bonds from the Series lag' Bonds (the "Refunded Bonds") in advance of their maturities; and WHEREAS, at an election held on 7 November 1987, the voters of the District, by a vote of/8 "For" and 5 "Against," authorized the District to issue $17,670,000 in bonds for the purpose of refunding any bonds or other evidences of indebtedness of the District issued or to be issued for any lawful purpose of the District, as well as financing improvements to the District's water, sewer, and drainage systems, and further that such authorization was in place of unissued bonds authorized at the District's earlier bond elections, held on 4 April 1981 and 8 November 1983, for the purpose of financing improvements to the District's water, sewer, and drainage systems; and WHEREAS, Article 717k, Vernon's Texas Civil Statutes, as amended, provides that the District is authorized to issue refunding bonds for the purpose of refunding the Refunded Bonds In advance of their maturities, and to accomplish such refunding by depositing directly with a paying agent for the Refunded Bonds the proceeds of such refunding bonds, together with other available funds, in an amount sufficient to provide for the payment or redemption of the Refunded Bonds, and that such deposit shall constitute the making of firm banking and financial arrangements for the discharge and final payment or redemption of the Refunded Bonds; and sir WHEREAS, as described in this Resolution, the District intends to issue S4,555,000 in bonds (the "Bonds") to refund the Refunded Bonds in the amount of$4,005,000. As a result of the issuance of the Bonds, the District's remaining authorized but unissued bonds for the purpose of refunding any bonds or other evidences of indebtedness issued or to be issued for any lawful purpose or for the purpose of financing improvements to the District's water, sewer, and drainage LLR 3949.2 B'RESOLUTION202I j will be S7,055,000. After issuance of the Bonds, none of the principal amount of the 11t982 Bonds; none of the principal amount of the Series 1983 Bonds; none of the principal ;cries of the Series 1984 Bonds; S1,360,000 in total principal amount of the Series 1992 Bonds; 311lounl, No in total principal amount of the Series 1995 Bonds; and S 1,980,000 in total principal Junt of the Series 1998 Bonds will remain outstanding; and WHEREAS, the Board of Directors of the District has found and determined that the ,;,uance of the Bonds will restructure the District's debt by reducing the debt service payments from 1998 through 2012 and that the issuance of the Bonds will also (i) reduce the District's ��er aQe annual debt service payments; and (ii) decrease the District's total debt service payments. jhe Board of Directors has further found and determined that such refunding will allow the pistrict to pay its debt service while lowering taxes and that such benefits are sufficient `osideration for the refunding of the Refunded Bonds; and WHEREAS, the District desires to enter into an escrow agreement (the "Escrow yreement") with Chase Bank of Texas, National Association, Houston, Texas, a national banking association (the "Escrow Agent"), as authorized in Article 717k, Vernon's Texas Civil titatutes, pursuant to which proceeds of the Bonds herein authorized will be deposited, invested, and applied in a manner sufficient to provide for the full and timely payment of all interest on and principal of the Refunded Bonds; and r. WHEREAS, upon the issuance of the 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 resolutions authorizing the issuance of the Refunded Bonds shall be, with respect to the Refunded Bonds, discharged, terminated and defeased; Now, Therefore BE IT RESOLVED BY THE BOARD OF DIRECTORS OF BRAZORIA COUNTY MgUNICIPAL UTILITY DISTRICT NO. 5 THAT: 1. Definitions. Throughout this Resolution the following terms and expressions as used .. herein shall have the meanings set forth below: The term "Bonds" shall mean the S4,555,000 Brazoria County Municipal Utility District \o. 5 Unlimited Tax Refunding Bonds, Series 1998-A, authorized in this Resolution, unless the context clearly indicates otherwise. The term "Business Day" shall mean any day which is not a Saturday, Sunday, legal holiday, or a day on which the Registrar is authorized by law or executive order to remain closed. The term "City" shall mean the City of Pearland, Texas, or any other municipal corporation succeeding to the powers, rights, privileges, and functions of the City and, when appropriate, the City Council of the City. LLR 5949.2 B'RESOLUTIO\202I 2 V The term "Code" shall mean the Internal Revenue Code of 1986, as amended, and the Iapplicable regulations thereunder and under the Internal Revenue Code of 1954. The term "Dated Date" shall mean 1 April 1998. The term "Debt Service Fund" shall mean the interest and sinking fund established by the District by the resolution adopted by the District for its Series 1982 Bonds as reaffirmed pursuant 10 section 19 of this Resolution. The term "District" shall mean Brazoria County Municipal Utility District No. 5 of Brazoria County, Texas. The term "Escrowed Securities" shall mean the open market United States Treasury obligations or United States Treasury Securities, State and Local Government Series, originally purchased with proceeds of the Bonds. The term "Financial Security" shall mean Financial Security Assurance, Inc., New York, ,New York. The term "Governmental Obligations" or Governmental Securities" shall mean (1) non-callable direct obligations of, or obligations the timely payment of the principal of and interest on which are fully and unconditionally guaranteed by, the United States of America, or c) to the extent permitted by Texas law at the time of any deposit, as evidenced by an approving opinion of nationally recognized bond counsel, obligations issued by or on behalf of any state or political subdivision or municipality thereof which, at the time of deposit, have been assigned ratings in the highest rating category of both Moody's Investors.Service, Inc. and Standard & Poor's Corporation, or any successor to the bond rating operations of either such corporations, but in the case of both clauses (1) and (2) herein, only if such obligations may not be called for redemption prior to maturity. The term "Interest Payment Date" shall mean 1 September 1998 and each 1 March and 1 September thereafter until maturity or earlier redemption of the Bonds. The term "issuance Date" shall mean the date on which the Bonds are delivered to and paid for by the Underwriter. The term "Municipal Bond Guaranty Insurance Policy" shall mean the municipal bond insurance policy issued by Financial Security insuring the payment when due of the principal of and interest on the Bonds as provided therein. The term "Outstanding Bonds" shall mean the previously issued bonds that remain outstanding after the refunding of the Refunded Bonds; specifically, the term refers to the unrefunded bonds of the Series 1992 Bonds, the Series 1995 Bonds, and the Series 1998 Bonds. LLR'5949.2‘Bi.ESOLLT1ON202 I 3 - - The term "Owner" or "Registered Owner" shall mean any person who shall be the red owner of any of the Bonds or any Outstanding Bonds. rc:,iste The term "Record Date," when used in connection with any Bonds, shall mean the close of business on the fifteenth (15th) calendar day of the month next preceding each Interest payment Date. The term "Refurded Bonds" shall mean the District's Series 1992 Bonds maturing on 1 March in the years 2004 to 2007, inclusive, and 2012 in the principal amount of S4,005,000. The term "Register" shall mean the books of registration kept by the Registrar in which — are maintained the names and addresses of, and the principal amounts of the Bonds registered to, each Owner. The term "Registrar" or "Paying Agent/Registrar" shall mean Chase Bank of Texas, National Association, Houston, Texas, a national banking association, and its successors in the capacities of paying agent and Registrar for the Bonds. The term "Regulations" shall mean the temporary or final Income Tax Regulations applicable to the Bonds issued pursuant to sections 141 through 150 of the Code. Any reference to a section of the Regulations shall also refer to any successor provision to such section hereafter promulgated by the Internal Revenue Service pursuant to sections 141 through 150 of the Code applicable to the Bonds. The term "Resolution" as used herein and in the Bonds shall mean this Resolution authorizing the Bonds. The term "Revenues" shall mean the moneys received by the District from the ownership and operation of the District's System, after deduction of the reasonable costs of administration, efficient operation and adequate maintenance of the System, as well as under specific contracts. The term "Stated Maturity" when used with respect to any Bond or any installment of interest thereon shall mean the date specified in such Bond as the fixed date on which the principal of such Bond or such installment of interest is due and payable. The term "System" shall mean all of the District's waterworks, sanitary sewer, and drainage and storm sewer system providing water, sewer, and drainage services to consumers within the District, presently existing or to be constructed, all additions thereto, and all works, improvements, facilities, plants, equipment, and appliances connected therewith. The term "Underwriter" shall mean Dain Rauscher Incorporated. a LLR 5949.I•BVRESOLLTION2021 4 a 2. Authorizations Consideration. The Bonds shall be issued in fully registered form, ithout coupons, in the total authorized aggregate principal amount of Four Million Five Hundred �; i ftv-Five Thousand Dollars ($4,555,000) for the purposes of refunding certain of the District's F Series 1992 Bonds, as authorized at the election of 7 November 1987 described in the preamble to this Resolution. It is hereby found and determined that such refunding will restructure the District's debt by reducing the District's debt service payments from 1998 through 2012 and that the issuance of the Bonds will also: (i) reduce the District's average debt service payments; and (ii) decrease the District's total debt service payments. It is further found and determined that such refunding \‘.11 allow the District to pay its debt service while lowering taxes and that such benefits are sufficient consideration for the refunding of the Refunded Bonds. 3. Designation, Dates and Interest Payment Dates. The Bonds shall be designated as the "Brazoria County Municipal Utility District No. 5 Unlimited Tax Refunding Bonds, Series 1998-A, and shall be dated 1 April 1998. The Bonds shall bear interest at the rates set forth in section 4 of this Resolution from the later of 1 September 1998 or the most recent Interest r payment Date to which such interest has been paid or duly provided for, calculated on the basis of a 360-day year of twelve 30-day months, payable on 1 September 1998, and semiannually thereafter on 1 March and 1 September of each year until maturity or prior redemption. 4. Initial Bon& Number and Denominations. The Bonds shall be initially issued as one bond (the "Initial Bond"), in the aggregate principal amount of$4,555,000 and bearing interest at the rates and maturing on 1 March in each of the years in the amounts set forth in the schedules below. The Initial Bond may be transferred and exchanged as set out in this Resolution. The bonds delivered on transfer of or in exchange for the Initial Bond and other Bonds (the "Definitive Bonds") shall be numbered in order of their authentication by the Registrar, shall be in the denomination of$5,000 or integral multiples thereof, and shall mature on the 1st day of March in each of the years indicated below and bear interest at the per annum rates in accordance with the following schedules: Principal Year of Interest a Amount Maturity Rate $ 50,000 1999 4.40% Ir 55,000 2000 4.40 55,000 2001 4.50 60,000 2002 4.50 60,000 2003 4.50 390,000 2004 4.50 410,000 2005 4.50 430,000 2006 4.60 450,000 2007 4.60 475,000 2008 4.70 P LLR,3949.2\B/RESOLUT1ON2021 5 r 1• 495,000 2009 4.70 520,000 2010 4.75 540,000 2011 4.80 565,000 2012 4.90 5. Execution of Bonds; Seal. The Bonds, including the Initial Bond, shall be signed by the president or Vice President of the Board of Directors of the District and countersigned by the Secretary or Assistant Secretary of the Board of Directors of the District by their manual, lithographed, or facsimile signatures, and the official seal of the District shall be impressed or placed in facsimile thereon. Such facsimile signatures on the Bonds shall have the same effect as if each of the Bonds had been signed manually and in person by each of said officers, and such facsimile seal on the Bonds shall have the same effect as if the official seal of the District ' had been manually impressed upon each of the Bonds. If any officer of the District whose manual or facsimile signature shall appear on the Bonds shall cease to be such officer before the authentication of such Bonds or before the delivery of such Bonds, such manual or facsimile signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in such office, all as provided in the Bond Procedures Act of 1981, as amended. 6. Approval by Attorney General; Registration by Comptroller. The Initial Bond shall be delivered to the Attorney General of Texas for approval and shall be registered by the Comptroller of Public Accounts of the State of Texas. The manually executed registration certificate of the Comptroller of Public Accounts, substantially in the form provided in section 16 of this Resolution, shall be affixed or attached to the Initial Bond. 7. Authentication. Except for the Initial Bond, which need not be authenticated by the Registrar, only such Bonds as shall bear thereon an Authentication Certificate, substantially in the form provided in section 16 of this Resolution, manually executed by an authorized representative of the Registrar, shall be entitled to the benefits of this Resolution or shall be valid or obligatory for any purpose. Such duly executed Authentication Certificate shall be conclusive evidence that the Bond so authenticated was delivered by the Registrar hereunder. 8. Payment of Principal and Interest. The Registrar is hereby appointed as the Registrar and paying agent for the Bonds. The principal of the Bonds shall be payable, without exchange or collection charges, in any coin or currency of the United States of America which, on the date of payment, is legal tender for the payment of debts due the United States of America, upon their presentation and surrender as they respectively become due and payable, at the principal payment office of the Registrar. The interest on each Bond shall be payable by check payable on the Interest Payment Date, mailed by the Registrar on or before each Interest Payment Date to the Owner of record as of the Record Date, to the address of such Owner as shown on the Register. Any accrued interest payable at maturity on a Bond shall be paid upon presentation and surrender of such Bond at the principal payment office of the Registrar. If the date for payment of the principal of or interest on any Bond is not a Business Day, then the date for such payment shall be the next succeeding Business Day. 1r LLR 3949.213/RESOLLTION2021 6 a 9, Successor Reeistrars. The District covenants that at all times while any Bonds are �, standing it will provide a national or state banking corporation organized under the laws of 1 a tJ t United States or any State, with trust powers and subject to supervision or examination by it deral or state authority, to act as Registrar for the Bonds. The District reserves the right to Fe deae the Registrar for the Bonds on not less than thirty (30) days' written notice to the Registrar. so long as any such notice is effective not less than thirty (30) days prior to the next i �jcceeding principal or interest payment date on the Bonds. Promptly upon the appointment of ��; successor Registrar, the previous Registrar shall deliver the Register or copies thereof to the ne". Registrar, and the new Registrar shall notify each Owner, by United States mail, first class, hostage prepaid, of such change and of the address of the new Registrar. Each Registrar hereunder, by acting in that capacity, shall be deemed to have agreed to the provisions of this section. 110 10. Special Record Date. If interest on any Bond is not paid on any Interest Payment continues unpaid for thirty (30) days thereafter, the Registrar shall establish a new Date and record date for the payment of such interest, to be known as a Special Record Date. The Registrar shall establish a Special Record Date when funds to make such interest payment are received from or on behalf of the District. 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, postaee prepaid, not later than five (5) days prior to the Special Record Date, to each Owner of record of an affected Bond as of the close of business on the day prior to the mailing of such notice. 11. Ownership., Unclaimed Principal and Interest. Subject to the further provisions of ithis section 11, the District, the Registrar, and any other person may treat the person in whose name any Bond is registered as the absolute Owner of such Bond for the purpose of making and receiving payment of the principal of or interest on such Bond, and for all other purposes, ois ‘vhether such Bond is overdue, and neither the District nor the Registrar shall be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the Owner of any Bond in accordance with this section 11 shall be valid and effectual and shall discharge the liability of the District and the Registrar upon such Bond to the extent of the sums paid. Amounts held by the Registrar which represent principal of and interest on the Bonds remaining unclaimed by the Owner after the expiration of three years from the date such amounts have become due and payable shall be reported and returned to the District to be reported and disposed of by the District in accordance with the provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. 12. Resistration, Transfer, and Exchange. So long as any Bonds remain outstanding, the Registrar shall keep the Register at its principal payment and, subject to such reasonable regulation as it may prescribe, the Registrar shall provide for the registration and transfer of Bonds in accordance with the terms of this Resolution. P LLR'5949.2'JB/RESOLuTION2021 7 Each Bond shall be transferable only upon the presentation and surrender thereof at the Principal payment office of the Registrar, duly endorsed for transfer, or accompanied by an Pr sohment duly executed by the registered Owner or his authorized representative in form assII satisfactory to the Registrar. Upon due presentation of any Bond in proper form for transfer, the Registrar shall authenticate and deliver in exchange therefor, within three(3) Business Days after such presentation, a new Bond or Bonds, registered in the name of the transferee or transferees, in authorized denominations and of the same maturity and aggregate principal amount and bearing interest at the same rate as the Bond or Bonds so presented. All Bonds shall be exchangeable upon presentation and surrender thereof at the principal P avment office of the Registrar for a Bond or Bonds of the same maturity and interest rate in any authorized denomination, in an aggregate amount equal to the unpaid principal amount of the Bond or Bonds presented for exchange. The Registrar shall be and is hereby authorized to authenticate and deliver exchange Bonds in accordance with the provisions of this section 12. Each Bond delivered in accordance with this section 12 shall be entitled to the benefits and security of this Resolution to the same extent as the Bond or Bonds in lieu of which such Bond is delivered. A new Bond or Bonds registered and delivered in exchange or transfer shall be in denominations of S5,000 or any integral multiple and shall bear interest at the same rate and be for a like aggregate principal amount as the Bond or Bonds surrendered for exchange or transfer. No service charge will be made for any transfer or exchange, but the District or the Registrar may require the Owner of any Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of such Bond. Neither the District nor the Registrar shall be required to transfer or to exchange any Bond or Bonds during the period beginning at the opening of business on a Record Date and ending at the close of business on the next succeeding Interest Payment Date or to transfer or exchange any Bond selected for redemption, in whole or in part, where such redemption is scheduled to occur within thirty (30) calendar days. 13. Mutilated, Lost, or Stolen Bonds. Upon the presentation and surrender to the Registrar of a mutilated Bond, the Registrar shall authenticate and deliver in exchange therefor a replacement Bond of like maturity, interest rate, and principal amount, bearing a number not contemporaneously outstanding. The District or the Registrar may require the Owner of a mutilated Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith, including the fees and expenses of the Registrar. If any Bond is lost, apparently destroyed, or wrongfully taken, the District, pursuant to the applicable laws of the State of Texas and in the absence of notice or knowledge that such Bond has been '., acquired by a bona fide purchaser, shall execute and the Registrar shall authenticate and deliver a replacement Bond of like maturity, interest rate, and principal amount, bearing a number not Iw" LLR 3949.2\8/RESOLUTION2021 8 S contemporaneously outstanding. The District or the Registrar may require the Owner of a lost. apparently destroyed, or wrongfully taken Bond, before any replacement Bond is issued, to: (1) furnish to the District and the Registrar satisfactory evidence of the ownership of and the circumstances of the loss, destruction, or theft of such Bond; (2) furnish such security or indemnity as may be required by the Registrar and the District to save them harmless; (3) pay all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Registrar, and any tax or other governmental charge that may be imposed; and (4) meet any other reasonable requirements of the District and the Registrar. If after the delivery of a replacement Bond a bona fide purchaser of the original Bond in lieu of which such replacement Bond was issued presents for payment such original Bond, the District and the Registrar shall be entitled to recover such replacement Bond from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, costs, or expense incurred by the District or the Registrar in connection therewith. If any such mutilated, lost, apparently destroyed, or wrongfully taken Bond has become or is about to become due and payable, the District in its discretion may, instead of issuing a replacement Bond, authorize the Registrar to pay such Bond. Each replacement Bond delivered in accordance with this section 13 shall be entitled to the benefits and security of this Resolution to the same extent as the Bond or Bonds in lieu of which such replacement Bond is delivered. 14. Cancellation of Bonds. All Bonds paid in accordance with this Resolution, and all Bonds in lieu of which exchange Bonds or replacement Bonds are authenticated and delivered in accordance herewith, shall be cancelled and destroyed upon the making of proper records regarding such destruction. The Registrar shall furnish the District with an appropriate certificate of destruction of such Bonds. 15. Optional Redemption. The District reserves the right, at its option, to redeem prior to maturity the Bonds, including the Term Bonds, maturing on 1 March 2007 and thereafter, in whole or from time to time in part, in such manner as the District may select, on 1 March 2006, or on any date thereafter, at a price equal to the principal amount of the Bonds, or portions thereof so called for redemption, plus accrued interest to the date of redemption. Principal amounts may be redeemed only in integral multiples of S5,000. If fewer than all the Bonds are redeemed at any time, the particular Bonds to be redeemed shall be selected by LLR'5949.2\&RESOLUTION2021 9 i the District in denominations of$5,000 or any integral multiple thereof within any one maturity. The Owner of any Bond, all or a portion of which has been called for redemption, shall be required to present same to the Registrar for payment of the redemption price on the portion of the Bond so called for redemption and issuance of a new Bond in the principal amount equal to the portion of such Bond not redeemed. If a Bond subject to redemption is in a denomination larger than $5,000, a portion of such Bond may be redeemed, but only in integral multiples of 55,000. Upon surrender of any Bond for redemption in part, the Registrar, in accordance with section 12 hereof, shall authenticate and deliver in exchange therefor a Bond or Bonds of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered. Notice of any redemption identifying the Bonds to be redeemed in whole or in part shall be given by the Registrar at least thirty (30) days prior to the date fixed for redemption by sending written notice by first class mail to the Owner of each Bond to be redeemed in whole or in part at the address shown on the Register. Such notices shall state the redemption date, the redemption price, the place at which the Bonds are to be surrendered for payment, and, if less than all Bonds outstanding are to be redeemed, the numbers of the Bonds or portions thereof to be redeemed. Any notice given as provided in this section 15 shall be conclusively presumed to have been duly given, regardless of whether 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 Bonds or portions thereof to be redeemed, plus accrued interest to the date fixed for redemption. When Bonds have been called for redemption in whole or in part and due provision has been made to redeem same as herein provided, the Bonds or portions thereof so redeemed shall no longer be regarded as outstanding except for the purposes of receiving payment solely from the funds so provided for redemption, and the rights of the Owners to collect interest which would otherwise accrue after the redemption date on any Bond'•or portion thereof called for redemption shall terminate on the date fixed for redemption. • 16. Form of the Bonds. The form of the Bonds, including the form of the Registrar's Authentication Certificate and the form of Assignment, along with the form of Registration Certificate of the Comptroller of Public Accounts of the State of Texas to be attached or affixed to the Initial Bond for the Bonds initially issued, shall be, respectively, substantially as follows, with such additions, deletions, and variations as may be necessary or desirable and not prohibited by this Resolution: r LLR 5949.2`B/R.ES O LL'TIO N 2021 1 0 — a TPPPP-- FORM OF BOND — United States of America State of Texas REGISTERED REGISTERED I NUMBER AMOUNT S .• BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 5 UNLIMITED TAX REFUNDING BOND SERIES 1998-A INTEREST RATE MATURITY DATE DATED DATE CUSIP No. 1 April 1998 BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 5 (the "District"), a conservation and reclamation district, a body politic and corporate and a governmental agency created under the Constitution and laws of the State of Texas, situated in Brazoria County, Texas, FOR VALUE RECEIVED,hereby acknowledges itself indebted to and PROMISES TO PAY TO or registered assigns, on the Maturity Date specified above, the sum of DOLLARS (or so much thereof as shall not have been paid upon prior redemption) upon presentation and surrender of this bond at the principal payment office of Chase Bank of Texas, National Association, Houston, Texas (the "Registrar"), and to pay interest thereon from the later of the Dated Date or the most recent Interest Payment Date to which interest has been paid or duly provided for, on 1 September 1998 and thereafter semiannually on 1 March and 1 September in each year at the per annum rate of interest specified above, computed on the basis of a 360-day year of twelve 30-day months. The principal of this Bond is payable at the agency of the District, which shall be the principal payment office of the Registrar executing the Authentication Certificate appearing hereon, upon presentation and surrender of this Bond. The interest so payable and punctually paid or duly provided for on any Interest Payment Date will be paid to the owner in whose name ' this Bond (or one or more predecessor Bonds) is registered at the close of business on the Record Date for such interest which shall be the fifteenth (15th) day of the month next preceding such Interest Payment Date. All such payments may be made by the Registrar by check dated as of a the Interest Payment Date and mailed to the Registered Owner. a a LLR'3949.2\B/RESOLUTION202I I I a REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH ON THE REVERSE HEREOF, WHICH PROVISIONS SHALL HAVE THE S jME FORCE AND EFFECT AS IF SET FORTH AT THIS PLACE. IN WITNESS WHEREOF, this Bond has been signed with the manual or facsimile simature of the President or Vice President of the Board of Directors of the District and countersigned with the manual or facsimile signature of the Secretary or Assistant Secretary of the Board of Directors of the District, and the official seal of the District has been duly impressed, or placed in facsimile, on this Bond. BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 5 OF BRAZORIA COUNTY, TEXAS By: [Facsimile Signature] President, Board of Directors ATTEST: [Facsimile Signature] Secretary, Board of Directors (SEAL) (Back Panel of Bonds) Brazoria County Municipal Utility District. No. 5 Unlimited Tax Refunding Bonds (TEXT CONTINUED) THIS BOND is one of a duly authorized series of Bonds, aggregating S4,555,000 (the "Bonds"), issued for the purpose of refunding certain of the District's $6,065,000 Unlimited Tax Refunding Bonds, Series 1992, pursuant to a resolution adopted by the Board of Directors of the District on 13 March 1998 (the "Resolution") and by authority of an election held 7 November 1987, all under and in strict conformity with the Constitution and laws of the State of Texas. The Bonds are subject to redemption prior to maturity and pay interest semiannually until maturity or earlier redemption. THE DISTRICT RESERVES THE RIGHT TO REDEEM, at its option, Bonds maturing on 1 March 2007 and thereafter, prior to their scheduled maturities, in whole or from time to time in part, in integral multiples of $5,000, on 1 March 2006, or on any date thereafter, at a price equal to the principal amount of the Bonds or portions thereof so called for redemption, plus accrued interest to the date of redemption. Reference is made to the Resolution for complete details concerning the manner of redeeming Bonds. WI,n49.2 B:RESOLl'TION2021 1 2 NOTICE OF ANY REDEMPTION shall be given at least thirty(30) days prior to the date fixed for redemption by first class mail, addressed to the Registered Owners of each Bond to be redeemed in whole or in part at the address shown on the books of registration kept by the Registrar. When Bonds or portions thereof have been called for redemption, and due provision has been made to redeem the same, the principal amounts so redeemed shall be payable solely from the funds provided for redemption, and interest which would otherwise accrue on the amounts called for redemption shall terminate on the date fixed for redemption. AS PROVIDED IN THE BOND RESOLUTION and subject to certain limitations as therein set forth, this Bond is transferable on the Register of the District, upon surrender of this Bond for transfer at the principal office of the Registrar, duly endorsed by the Owner, or accompanied by written instrument of transfer in form satisfactory to the Registrar, duly executed by the Registered Owner hereof or his attorney duly authorized in writing, and thereupon one or more new fully registered Bonds of the same Maturity Date, of authorized denominations, bearing the same rate of interest, and for the same aggregate principal amount, will be issued to the designated transferee or transferees. NEITHER THE DISTRICT NOR THE REGISTRAR shall be required (i) to issue, transfer, or exchange any Bond during a period beginning at the opening of business thirty (30) days before the day of the first mailing of a notice of redemption of Bonds hereunder and ending at the close of business on the day of such mailing, or (ii) to transfer or exchange any Bond so selected for redemption in whole or in part when such redemption is scheduled to occur within thirty (30) calendar days. THE DISTRICT, THE REGISTRAR, and any agent of either of them may treat the persons in whose name this Bond is registered as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether this Bond be overdue, and neither the District, the Registrar, nor any such agent shall be affected by notice to the contrary. THIS BOND, AND THE OTHER BONDS OF THE SERIES OF WHICH IT IS A PART, is payable from the proceeds of a direct annual ad valorem tax levied, without limit as to rate or amount, upon all taxable property within the District. Reference is made to the Resolution for more complete description of the funds charged with and pledged to the payment of this Bond and the series of which it is a part. By acceptance of this Bond, the Owner hereof expressly assents to all of the provisions of the Resolution. IT IS HEREBY CERTIFIED, RECITED, AND COVENANTED that this Bond has been duly and validly issued and delivered; that all acts, conditions, and things required or proper to be performed, to exist, and to be done precedent to or in the issuance and delivery of this Bond. and the series of Bonds of which it is a part, to render the same lawful and valid, have been performed, exist, and have been done in accordance with law; and that due provision has been made for the payment of the interest on and the principal of this Bond, and the series of Bonds LLR 5949.T9'RESOLUTIOti202 I 13 a PPP- a of which it is a part, by the levy of a direct, annual ad valorem tax upon all taxable property within the District sufficient for said purposes, as provided in the Resolution; and that the issuance of this series of Bonds does not exceed any Constitutional or statutory limitation. Form of Registration Certificate of Comptroller of Public Accounts OFFICE OF THE COMPTROLLER § OF PUBLIC ACCOUNTS § REGISTER NO. STATE OF TEXAS § I HEREBY CERTIFY THAT this Bond has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Bond has been registered '► by the Comptroller of Public Accounts of the State of Texas. WITNESS MY SIGNATURE AND SEAL this day of , 1998. Comptroller of Public Accounts of the State of Texas (SEAL) a a s LLR 5949.2\B/RESOLL TI ON2021 14 a Form of Registrar's Authentication Certificate AUTHENTICATION CERTIFICATE It is hereby certified that this Bond has been delivered pursuant to the Resolution described in the text of this Bond, in exchange for or in replacement of a bond, bonds, or a portion of a bond approved by the Attorney General of the State of Texas and registered by the comptro11er of Public Accounts of the State of Texas. Date of Authentication: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION By: Authorized Signature Form of Assignment ASSIGNMENT For value received, the undersigned hereby sells, assigns, and transfers unto (Please print or type name, address, and zip code of Transferee) (Please insert Social Security or Taxpayer Identification Number of Transferee): the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer said Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated: Registered Owner(s) NOTICE: The signature(s) above must correspond to the name(s) of the registered owner(s) as shown on the face of this Bond in every particular, without any alteration, enlargement, or change whatsoever. r LLR 3949.2\E RESOLUTION2021 15 •• Signature Guaranteed: --TICE: Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. Statement of Insurance Financial Security Assurance Inc. ("Financial Security"), New York, New York, has delivered its municipal bond insurance policy with respect to the scheduled payments due of principal of and interest on this Bond to Chase Bank of Texas, National Association, 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 Financial Security or the Paying Agent. 17. Form of Initial Bond. The Initial Bond shall be in the form set forth in section 16 of this Resolution except that: a. immediately under the name of the Bond, the headings "Interest Rate," "Maturity Date," and "CUSIP No." shall all be eliminated. b. in the first paragraph: (i) after the words "the sum of' shall be inserted "FOUR MILLION FIVE HUNDRED FIFTY-FIVE THOUSAND" before the word "DOLLARS" (ii) the words "on the Maturity Date specified above" shall be deleted and the following shall be inserted: "on the first day of March in each of the years indicated below in the following principal installments and bearing interest at the per annum rates in accordance with the following schedule: Principal Year of Interest Amount Maturity Rate [Information to be inserted from the schedule in section 4 hereof]" (iii) the words "executing the Authentication Certificate appearing hereon" shall be deleted and an additional sentence shall be added to the paragraph as follows: "The Initial Registrar is Chase Bank of Texas, National Association, Houston, Texas." LLR 5949.2 BIRESOLL71o\202I 16 (iv) the words "(or one or more predecessor Bonds)" shall be deleted. c. the Initial Bond shall be numbered T-1. d. the words "Facsimile Signature" in the signature block shall be deleted. The signature block shall be placed at the end of the text. e. the test shall be organized in order from start to close, using one side of each page and eliminating the instruction for placing text on the reverse. -- f. the assignment block shall be omitted. 18. Legal Opinions: CUSIP. The respective legal opinions of Coats, Rose, Yale, Holm, Ryman & Lee, P.C., Houston, Texas, Bond Counsel, and Fulbright & Jaworski, L.L.P., Houston, Texas, Special Tax Counsel, and CUSIP numbers may be printed on the Bonds, but errors or omissions in the printing of such opinions or such numbers shall have no effect on the validity of the Bonds. 19. Debt Service Fund. The following fund is hereby created and/or reaffirmed: Debt Service Fund. The Debt Service Fund is hereby reaffirmed to be the same fund that was created in the resolution authorizing the issuance of the Series 1982 Bonds. 20. Security of the Bonds. The Bonds are secured by and payable from the levy of a continuing, direct, annual ad valorem tax, without limit as to rate or amount, upon all taxable property within the District. To pay the interest on the Bonds and to create a sinking fund for the payment of the principal thereof when due, and to pay the expenses of assessing and collecting such taxes, there is hereby levied, and shall be assessed and collected in due time, a continuing, direct, annual ad valorem tax, without limit as to rate or amount, on all taxable property in the District for each year while any of the Bonds are outstanding. All of the proceeds of such collections, except expenses incurred in that connection, shall be paid into the Debt Service Fund, which is hereby reaffirmed to be the same fund that was created in the resolution authorizing the issuance of the Series 1982 Bonds, and the aforementioned tax and such payments into such Debt Service Fund shall continue until the Bonds and the interest thereon have been fully paid and discharged, and such proceeds shall be used for such purposes and no other. While said Bonds, or any of them, are outstanding and unpaid, an ad valorem tax each year at a rate from year to year as will be ample and sufficient to provide funds to pay the interest on said Bonds and to provide the necessary sinking fund to pay the principal when due, full allowance _ being made for delinquencies and costs of collection, shall be levied, assessed, and collected and applied to the payment of principal and interest on the Bonds. 21. Remedies in Event of Default. In addition to any other rights and remedies provided by the laws of the State of Texas, the District covenants and agrees that in the event of default in payment of principal of or interest on any of the Bonds when due, or, in the event it fails to make the payments required to be made into the Debt Service Fund, as defined in Section 19, or defaults in the observance or performance of any other of the covenants, conditions, or MB LL R'S949.2\B/RESOLUT1ON 2021 17 obligations set forth in this Resolution, the Registered Owners shall be entitled to a writ of mandamus issued by a court of competent jurisdiction compelling and requiring the District and the officials thereof to observe and perform the covenants, obligations, or conditions prescribed in this Resolution. Any delay or omission to exercise any right or power accruing upon any default shall not impair any such right or power or be construed to be a waiver of any such default or acquiescence therein, and every such right and power may be exercised from time to time and as often as may be deemed expedient. In consideration of the purchase and acceptance of the Bonds authorized to be issued hereunder by the Registered Owners, the provisions of this Resolution shall constitute a contract between the District and the Registered Owners; and the covenants and agreements herein set forth to be performed on behalf of the District shall be for the equal benefit, protection, and security of each of the Registered Owners. The Bonds, regardless of the time or times of their issue or maturity, shall be of equal rank without preference, priority, or distinction of any Bond over any other, except as expressly provided herein. 22. Further Proceedings. After the Initial Bond shall have been executed, it shall be the duty of the President of the Board of Directors of the District and other appropriate officials and agents of the District to deliver the Initial Bond and all pertinent records and proceedings to the Attorney General of the State of Texas for examination and approval by the Attorney General. After the Initial Bond shall have been approved by the Attorney General, it shall be delivered to the Comptroller of Public Accounts of the State of Texas for registration. Upon registration of the Initial Bond, the Comptroller of Public Accounts (or Comptroller's bond clerk or an assistant bond clerk lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's Registration Certificate prescribed herein and the seal of said Comptroller shall be impressed, or placed in facsimile, thereon. 23. Sale; Bond Purchase Agreement. The Bonds are hereby sold and shall be delivered to the Underwriter at a price of S4,408,835.90 plus accrued interest to the date of delivery, in accordance with the terms of a Bond Purchase Agreement presented to and approved by the Board of Directors, which price and terms are hereby found and determined to be the most advantageous and reasonably obtainable by the District. The President of the Board of Directors and other appropriate officials of the District are hereby authorized and directed to execute such Bond Purchase Agreement on behalf of the District, and the President of the Board and all other officers, agents, and representatives of the District are hereby authorized to do any and all things necessary or desirable to satisfy the conditions set out therein and to provide for the issuance and delivery of the Bonds. 24. Definitions Pertaining to Tax Exempt Status of the Bonds. When used in Sections 24 through 27, the terms listed below shall have the meanings specified below, unless it is otherwise expressly provided or unless the context otherwise requires: "Code" means the Internal Revenue Code of 1986, as amended by any amendments thereto enacted prior to the Issue Date. LLR 5949.2'\B/RESOLUT1ON2021 18 "Computation Date" has the meaning set forth in Section 1.148-3(e) of the Regulations. "Gross Proceeds" has the meaning set forth in Section 1.148-1(b) of the Regulations. "Investment" has the meaning stated in section 1.148-1(b)of the Regulations and includes: (1) Stock: a share of stock in a corporation or a right to subscribe for or to receive such a share, (2) Debt: any indebtedness or evidence thereof, including without limitation United States Treasury bonds, notes, and bills (whether or not of the State and Local Government Series) and bank deposits (whether or not certificated or interest bearing or made pursuant to a depository contract), (3) Annuities and Deferred Payments: any annuity contract, or any other deferred payment contract acquired to fund an obligation of the District, or (4) Other Property: any other investment-type property. "Issue Date" means the date on which the Bonds are initially authenticated and delivered to the Purchaser against payment therefor. a "Issue Price" of the Bonds of any series and stated maturity means the amounts set out in paragraph 4 of the Certificate of Underwriters executed on the Closing Date. "Net Sale Proceeds" has the meaning set forth in section 1.148-1(b) of the Regulations. "Proceeds" has the meaning set forth in section 1.148-1(b) of the Regulations. "Rebate Amount" has the meaning set forth in section 1.148-3 of the Regulations. r "Regulations" shall mean the temporary or final Income Tax Regulations applicable to the Bonds issued pursuant to Sections 141 through 150 of the Code. Any reference to a section of the Regulations shall also refer to any successor provision to such section hereafter promulgated by the Internal Revenue Service pursuant to Sections 141 through 150 of the Code and applicable to the Bonds. "Sale Proceeds" has the meaning set forth in section 1.148-1(b) of the Regulations. LLR`5949.2,BiRESOLeTION2021 19 "Taxable Investment" means any Investment other than (1) Non-AMT Tax Exempt Obligations: an obligation the interest on which is excluded from the gross income, as defined in section 61 of the Code, of the owners thereof for federal income tax purposes (or, when such obligation was issued, was purported by the evidence of such obligation to be so excluded) and which is not a preference item, as defined in section 57 of the Code, (2) Tax Exempt Mutual Funds: an interest in a regulated investment company to the extent that at least 95% of the income to the holders of such interest is interest that is excludable from gross income under section 103(a) of the Code, (3) Demand SLGS: one-day certificates of indebtedness issued by the United States Treasury pursuant to the Demand Deposit State and Local Government Series program described in 31 C.F.R. part 344, if the District in good faith attempts to comply with all the requirements of such program relating to the investment of Gross Proceeds, and (4) Exempt Temporary Investments: Taxable Investments which are held for the credit of the Current Account of the Debt Service Fund. "Yield" of (1) Taxable Investments: Taxable Investments to any date means the actuarial "yield" of all such Taxable Investments on or before such date as "yield" is defined in section 1.148-5(b) of the Regulations, and (2) Bonds: Any series of bonds means the actuarial "yield" of such Bonds, as defined in section 1.148-4 of the Regulations, and for the Bonds shall be specified in a certificate executed by an officer of the Board on the Initial Date. 25. Covenant To Maintain Tax-Exempt Status of Bonds. A. Not to Cause Interest to Become Taxable. The District shall not use, permit the use of, or omit to use Gross Proceeds or any other amounts (or any property acquired, constructed, or improved with Gross Proceeds or proceeds of the Refunded Bonds) in a manner which (or take or omit to take any other action which if taken or omitted, respectively), if made or omitted, respectively, would cause interest on any Bond to be includable in the gross income, as defined in section 61 of the Code, of the owners thereof for federal income tax purposes. The District shall adopt and comply with the provisions of such amendments hereof and supplements hereto as may, in the opinion of nationally recognized bond counsel, be necessary to preserve or perfect such exclusion. Without limiting the generality of the foregoing, the District shall comply with each of the specific covenants in this Section at all times prior to the last maturity of Bonds, unless and until the District shall have received a written opinion of nationally recognized bond LLR'S949.2`H'RESOL1 T1OV202I 20 counsel to the effect that failure to comply with such covenant will not adversely affect the e cludability of interest on any Bond from the gross income of the owner thereof for federal income tax purposes, and thereafter such covenant shall no longer be binding upon the District to the extent described in such opinion, anything in any other Subsection of this Section to the contrary notwithstanding. B. No Private Use or Payments. At all times prior to the last maturity date of Bonds, whether by stated maturity or earlier redemption, the District shall neither (I) use nor permit the use of Gross Proceeds (or any property acquired, constructed or improved with Gross Proceeds or with proceeds from the sale of a series of bonds of which the Refunded Bonds are a part or income from the investment thereof) in any trade or business carried on by any Person (or in any activity of any Person other than a natural person) other than a state or local government, nor (2) directly or indirectly impose or accept any charge or other payment for use of Gross Proceeds (or use of any property acquired, constructed, or improved with Gross Proceeds or with proceeds from the sale of a series of bonds of which the Refunded Bonds are a part or income from the investment thereof) in any trade or business carried on by any Person (or in any activity of any Person other than a natural person) other than a state or local government, unless either (i) such use is merely as a member (and, except possibly for the amount of use and any corresponding rate adjustment, is extended by the District on the same terms as to all other members) of the general public or (ii) such charge or payment consists of taxes of general application within the District or interest earned on temporary Investments acquired with Gross Proceeds pending application of such Gross Proceeds for their intended purposes. For purposes of this Subsection B, property is considered to be "used" by a Person if: (a) Sale or Lease: it is sold or otherwise disposed of, or leased, to such Person; (b) Management Contract: it is operated, managed, or otherwise physically employed, utilized, or consumed by such Person, excluding operation or management pursuant to an agreement which meets the conditions described in I.R.S. Rev. Proc. 97-13; (c) Capacity, Output, or Service Commitment: capacity in or output or service from such property is reserved or committed to such Person under a take- ` or-pay, output, incentive payment, or similar contract or arrangement; (d) Preferential Service: such property is used to provide service to (or such service is committed to or reserved for) such Person on a basis or terms which (except possibly for the amount of use and any corresponding rate LLR 3949.2'BURESOLuTION2021 21 • adjustment) are different from the basis or terms on which such service is provided (or committed or reserved) to members of the public generally; (e) Developer: such Person is a developer and a significant amount of property acquired, constructed, or improved with proceeds from the sale of a series of bonds of which the Refunded Bonds are a part serves only a limited area substantially all of which is owned by such Person. or a limited group of developers, unless such property carries out an essential wit ; governmental function, use by such Person is during a initial development period, and such property is developed and sold to (and occupied by) members of the general public in accordance with the Regulations; or (f) Other Incidents of Ownership: substantial burdens and benefits of ownership of such property are otherwise effectively transferred to such Person, but the temporary investment of Gross Proceeds or proceeds of bonds of any series of which the , Refunded Bonds are a part pending application for their intended purposes shall not constitute "use" of Gross Proceeds or such proceeds. C. No Private Loan. The District shall not use Gross Proceeds to make or finance loans to any Person other than a state or local government, excluding loans consisting of temporary investments of Gross Proceeds pending application of such Gross Proceeds for their intended purposes. For purposes of this Subsection C, Gross Proceeds are considered to be "loaned" to a Person if(I) property acquired, constructed, or improved with Gross Proceeds or with proceeds from the sale of bonds of the series of which a Refunded Bond is a part is sold or leased to such �r Person 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 under a take-or-pay, output, or similar contract or arrangement, or (3) indirect benefits, or burdens and benefits of ownership, of Gross Proceeds or such property are otherwise transferred to such Person in a transaction which is the economic equivalent of a loan. D. Not to Invest at Higher Yield. The District shall not, at any time prior to the final maturity date of the Bonds, directly or indirectly invest Gross Proceeds in any Taxable Investment (or use Gross Proceeds to replace money so invested), if, as a result of such investment, the Yield of all Taxable Investments acquired with (or representing an investment of) Gross Proceeds (or money replaced thereby), whether then held or previously disposed of, to the date of such investment exceeds the Yield of the Bonds. Notwithstanding the foregoing, however, the following Investments shall be excluded from me limitation described in this Subsection D: (1) Thirty-Day Period for Sale Proceeds: Taxable Investments acquired with (or representing an investment of) proceeds from the sale of the Bonds, to the extent such Taxable Investments are held during the thirty days after the Issue Date; LLR 5949.2 B RESOLL'T10N202I 22 Tr- (2) 1998 Debt Service Fund Deposits: Taxable Investments acquired with '(or representing an investment of) amounts held for the credit of the Debt Service Fund for payment of the debt service on the Bonds during the then current bond — year (the "1998 Debt Service Fund"), but only during the first 13 months after the i date of deposit of such amounts to the Debt Service Fund; I j (3) Debt Service Fund Deposits: Taxable Investments acquired with (or representing an investment of) amounts deposited in the Debt Service Fund allocated to the Bonds but in excess of the amounts held for the credit of the 1998 Debt Service Fund to the extent such Taxable Investments are held during the first 30 days after the date of deposit of such amounts to such 1998 Debt Service Fund or, if held more than 30 days after deposit, do not exceed 10% of the proceeds of the Bonds; and (4) Other Investments: any other Taxable Investments acquired with (or representing an investment of) Gross Proceeds and allocable to a Refunded Bond of any series, to the extent the aggregate amount of Gross Proceeds invested in such Taxable Investments does not exceed the lesser of $100,000 or 5% of the proceeds from .. sale of the Bonds. The District shall not use any money to pay principal of or interest on the Bonds, or pledge (or 'a permit to be pledged) or otherwise restrict any money, funds, or Taxable Investments so as to give reasonable assurance of their availability for such purpose, except in each case amounts deposited to the Debt Service Fund. r � E. Investment of Certain Funds Allocable to the Refunded.Bonds. The District shall not directly or indirectly invest unspent amounts allocable to Refunded Bonds of any series in any rInvestment (or use such amounts to replace money so invested) prior to the date on which such amounts shall become Gross Proceeds pursuant thereto, if as a result of such investment the Yield to the date of such investment of all Taxable Investments acquired with such amounts so allocable P (or with money replaced thereby), whether then held or previously disposed of, exceeds the Yield of the series of bonds of which such Refunded Bonds are a part, unless the aggregate amount of Gross Proceeds invested in such Taxable Investments does not exceed the product of(a) the lesser _ of S100,000 or 5% of the proceeds from the sale of all bonds of the series of which such Refunded Bond is a part and (b) a fraction, the numerator of which is equal to the aggregate principal amount of the Refunded Bonds of such series and the denominator of which is equal to the aggregate original principal amount of all bonds of such series. F. No Federal Guarantees, Etc. The District shall not either (a) use Gross Proceeds in an amount which exceeds 5% of the proceeds from the sale of the Bonds (i) to make loans which are guaranteed in whole or in part by the United States or any agency or instrumentality thereof, _ including any entity with statutory authority to borrow from the United States, or (ii) to invest in any deposit or account in a financial institution to the extent such deposit or account is insured under federal law by the Federal Deposit Insurance Corporation, the National Credit Union LLR 5949.2\B/RESOLUTION202I 23 a _ Administration, or any similar federally-chartered corporation, or (b) otherwise permit payment of principal of or interest on the Bonds to be directly or indirectly guaranteed in whole or in part by the United States or any agency or instrumentality thereof, including any entity with statutory authority to borrow from the United States (e.g., by the investment of amounts held for the credit of the Debt Service Fund in federally-guaranteed or federally-insured obligations). 1 notwithstanding the foregoing, however, the District may acquire: (1) Certain Temporary Investments: Investments described in Subsection D(2) of this Section, whether or not federally-guaranteed or federally-insured, to the extent such Investments are held during the period described in such Subsection; (2) Treasury Investments: Investments issued by the United States Treasury; and (3) Investments Permitted by Regulations: any other Investments permitted by regulations of the United States Department of Treasury issued under section 149(b)(3)(B)(v) of the Code. G. Not to Divert Arbitrage Profits. Prior to the final maturity of the Bonds, the District shall not at any time invest amounts held for the credit of the Debt Service Fund in any Investment purchased at other than an arm's length price or for which there is not an established market at the time of investment, except possibly for Investments described in Subsection D(2) of this Section to the extent such Investments are acquired and mature or are disposed of during the period described in such Subsection. H. No Excess Proceeds. The District shall apply all amounts received from the sale of the Bonds, all transferred proceeds, as defined in Section 1.148-1(b) of the Regulations, and all income from the investment thereof (I) to pay principal of or interest on the Refunded Bonds, �., (2) in the case of accrued interest received from the Purchaser on the Issuance Date, to pay interest on the Bonds on the immediately succeeding Interest Payment Date, (3) to pay the administrative costs of repaying the Refunded Bonds, carrying and repaying the Bonds, and purchasing, carrying, and selling or redeeming Investments acquired with such amounts, or a (4) in the case of such amounts described in such Clause (3), for the purposes for which the bonds of the respective series of which the related Refunded Bonds is a part were issued, except possibly for an amount which does not exceed 1% of the Sale Proceeds of the Bonds. U.K 3949.2'B•RESOLCTION2021 24 To File Informational Report. The District shall execute and file with the Secretary of the Treasury, not later than the 15th day of the second calendar month after the close of the calendar quarter in which the Closing Date occurs (or by such later date as such Secretary may permit for reasonable cause or may prescribe with respect to any portion of such statement), a statement containing the information and in the form required by section 149(e) of the Code or the Regulations promulgated thereunder. J. Not to Cause Bonds to Become Hedge Bonds. The District covenants and represents that: (1) the District reasonably expected to use at least 85% of the spendable proceeds of each series of bonds which were refunded by the Refunded Bonds (the "Original Bonds") to carry out the governmental purposes of such bonds within three years from the date each such series was issued, and (2) not more than 50% of the proceeds of each series of Original Bonds were a part were invested in nonpurpose investments (as defined in section 148(f)(6)(A) of the Code) having a substantially guaranteed yield for four years or more. a K. Payment of Rebatable Arbitrage,. Except to the extent otherwise provided in section 148(f) of the Code and the regulations and rulings thereunder, (1) The District shall account for all Gross Proceeds (including all receipts and expenditures thereof) on its books of account separately and apart from all other a funds (and receipts, expenditures, and investments thereof) and shall maintain all records of such accounting with the transcript of.proceedings relating to the issuance of the Bonds until six years after the final. Computation Date. The District may, however, to the extent permitted by law, commingle Gross Proceeds of the Bonds with other money of the District, provided that the District separately accounts for each receipt and expenditure of such Gross Proceeds and the obligations acquired therewith. (2) Not less frequently than each Computation Date, the District shall either (i) cause to be calculated by a nationally recognized accounting or financial advisory firm or (ii) calculate and cause its calculations to be verified by a nationally recognized accounting or financial advisory firm, in either case in accordance with rules set forth in Section 148(f) of the Code and Section 1.148-3 of the Regulations and rulings thereunder, the Rebate Amount with respect to the Bonds. The District shall maintain such calculations with the official transcript of the proceedings relating to the issuance of the Bonds until six years after the final Computation Date. (3) As additional consideration for the purchase of the Bonds by the initial purchasers and the loan of money represented thereby, and in order to induce such purchase LLR'S 949.2,B!RESOLUTION 2°2 I 2 5 by measures designed to preserve the excludability of the interest thereon from the gross income of the owners thereof for federal income tax purposes, the District shall remit to the United States the amount described in paragraph (2) above and the amount described in paragraph (4) below, at the times, in the installments, to the place, in the manner, and accompanied by such forms or other information as is or may be required by section 148(f) of the Code and the Regulations and rulings thereunder. (4) The District shall exercise reasonable diligence to assure that no errors are made in the calculations required by paragraph (2) and, if such error is made, to discover and promptly to correct such error within a reasonable amount of time thereafter, including payment to the United States of any interest and any penalty under section 1.148-3(h) of the Regulations. 26. Qualified Advance Refunding. The District represents that the Bonds are being issued exclusively to refund the Refunded Bonds and that: (1) Less than 25% of the debt service on the Series 1992 Bonds has been secured or derived, either directly or indirectly, by payments made with respect to property used in the trade or business of any person other than the District, and no proceeds of any such series of bonds have been used directly or indirectly to make or finance loans to any person. (2) The Refunded Bonds are being called for redemption, and will be redeemed, not later than the earliest date on which they may be redeemed. (3) The Bonds are being issued solely for the purposes stated in this Bond Resolution. The debt service savings achieved by the District are a result solely of the interest rates on the Bonds being lower than the interest rates on the Refunded Bonds. In the issuance of the Bonds the District has employed no "device" to obtain a material financial advantage (based on arbitrage), within the meaning of section 149(d)(4) of the Code, apart from savings attributable to lower interest rates. (4) After the Initial Date, any remaining unspent proceeds of the Refunded Bonds will be invested so as to produce a Yield not greater than the Yield on the issue of Refunded Bonds from which such proceeds were derived. 27. Qualified Tax-Exempt Obligations. The District hereby designates the Bonds as "qualified tax-exempt obligations" pursuant to Section 265(b)(3) of the Code. The District hereby warrants and represents that LLR 3949.2\B RESOLUTION202I 26 (a) the aggregate face amount (or, in the case of obligations on which interest is paid less frequently than semiannually, the aggregate amount of principal I and interest due at Maturity) of all debt obligations issued or expected to be issued by the District in the calendar year of the Closing Date (including the Bonds) is not reasonably expected to exceed S 10,000,000; 1 (b) there are no other Persons which derive their authority from or are subject to the control of the District and which have authority to issue obligations described in section 103 of the Code; and (c) consequently, the Bonds are eligible to be "qualified tax-exempt obligations" pursuant to section 265(b)(3) of the Code. The President or any other officer of the Board is hereby authorized to take such other ;lction as may be necessary to make effective the designation herein. 28. lise of Proceeds. Proceeds from the sale of the Bonds shall, promptly upon receipt L;v the District, be applied as follows: (a) Accrued interest shall be deposited into the Debt Service Fund. (b) The balance of the proceeds from the sale of the Bonds shall be applied to establish an escrow fund (the "Escrow Fund") to refund the Refunded Bonds, as more fully provided below and, to the extent not otherwise provided for, to pay all expenses arising in connection with the issuance of the Bonds, the establishment of the Escrow Fund, and the refunding of the Refunded Bonds. Any proceeds of the Bonds remaining after making all such deposits and payments shall be deposited into the Debt Service Fund. 29. Redemption of Refunded Bonds. The District hereby irrevocably calls the following bonds of the District for redemption prior to maturity on the dates set forth below, at a price of par, and authorizes and directs notice of such redemption to be given in accordance with the resolutions authorizing the issuance of such bonds: Bonds To Be Redeemed Redemption Date Series 1992 Bonds; 1 March 2001 Maturities 2004 through 2007, inclusive, and 2012 30. Escrow Agreement. The discharge and defeasance of the Refunded Bonds, and the establishment of the Escrow Fund, shall be effected pursuant to the terms and provisions of an LLR`3949.2\B/RESOLUTION2021 27 a r jo.nal row Agreement to be entered into by and between the District and Chase Bank of Texas, Association, Houston, Texas, as Escrow Agent, the terms and provisions of which are I„reby approved, subject to such insertions, additions, and modifications as shall be necessary (a) cam' out the program designed for the District by Underwriter and which shall be certified as the mathematical accuracy by Deloitte & Touche, certified public accountants, whose report ;hall be attached to the Escrow Agreement (the "Verification Report"); (b) to maximize the pistnct's present value savings and/or to minimize the District's costs of refunding; (c) to comply ,;ith all applicable laws and regulations relating to the refunding of the Refunded Bonds; and (d) I, carry out the other intents and purposes of this Resolution. The President or Vice President of the Board of Directors is hereby authorized to execute and deliver such Escrow Agreement on behalf of the District in multiple counterparts and the Secretary or Assistant Secretary is hereby authorized to attest thereto and affix the District's seal. r 31. Purchase of United States Treasury Securities - State and Local Government Series. To assure the purchase of the Escrowed Securities referred to in the Escrow Agreement, the president or Vice President of the Board of Directors is hereby authorized to agree to purchase, and purchase or direct to be purchased, United States Treasury Securities - State and Local Government Series, in such amounts and maturities and bearing interest at such rates as may be provided for in the Escrow Agreement, and to execute, or authorize to be executed, any and all purchase agreements, commitments, letters of authorization, and other documents necessary to effect the foregoing, and any actions heretofore taken for such purpose are hereby ratified and pi approved. 32. Additional Bonds and Refunding Bonds. The District expressly reserves the right to issue, in one or more installments, for the purpose of completing,repairing, improving, extending, enlarging, or replacing the System or for any other lawful purpose, such unlimited tax bonds as may hereafter be authorized at future elections (the "Additional Bonds"). Such Additional Bonds on may be payable from and equally secured by a pledge of and lien on the Revenues, if such revenue bonds are approved by the voters of the District. The District also reserves the right to issue additional revenue bonds ("Revenue Bonds") in one or more installments for the purpose of completing, repairing, improving, extending, enlarging, or replacing the System, which will be payable solely from the Revenues. Such Revenue Bonds may be payable from and equally secured by a lien on and pledge of the Revenues, if such revenue bonds are approved by the voters of the District. The District also reserves the right to issue inferior lien bonds and pledge the Revenues to the payment thereof, such pledge to be subordinate in all respects to the Bonds, and previously issued Additional Bonds and Revenue Bonds. r The District further reserves the right to issue bonds in one or more installments for the purchase, construction, improvement, extension, replacement, enlargement or repair of water, sewer and/or drainage facilities necessary under a contract or contracts with persons, corporations, municipal corporations, political subdivisions, or other entities, such bonds to be payable from LLR•5949 2 B:RESOLL'TIO`202I 28 I11d secured by the proceeds of such contract or contracts. The District further reserves the right " refund such bonds. The District further reserves the right to issue in any manner permitted by law: (i) the issued unlimited tax refunding bonds authorized at the bond election held 7 November 1987; anA (ii) such other unlimited tax refunding bonds as may hereafter be authorized at subsequent elections to refund any Bonds and Additional Bonds at or prior to their respective dates of maturity or redemption. 33. Related Matters. To satisfy in a timely manner all of the District's obligations under this Resolution, the Bond Purchase Agreement with the Underwriter, and the Escrow Agreement, the President and Secretary of the Board of Directors of the District and all other appropriate officers and agents of the District are hereby authorized and directed to take all other actions that are reasonably necessary to provide for the refunding of the Refunded Bonds including, without limitation, executing and delivering on behalf of the District all certificates, consents, receipts, requests, and other documents as may be reasonably necessary to satisfy the District's obligations under the Escrow Agreement, the Bond Purchase Agreement, and this Resolution and to direct the transfer and application of funds of the District consistent with the provisions of such Escrow ,Agreement and this Resolution. 34. Registrar. The form of agreement setting forth the duties of the Registrar is hereby approved, and the appropriate officials of the District are hereby authorized to execute such agreement for and on behalf of the District. a 35. Official Statement. The Board of Directors of the District hereby ratifies, authorizes, and approves, in connection with the sale of the Bonds, the preparation and distribution of the preliminary Official Statement, dated 12 March 1998, and a final Official Statement substantially in the same form containing such additional information and amendments as may be necessary to conform to the terms of the Bonds, this Resolution, and the Bond Purchase Agreement for the Bonds. The appropriate officials of the District are hereby authorized to sign such Official Statement and/or to deliver certificates pertaining to such Official Statement as prescribed therein, dated as of the date of payment for and delivery of the Bonds. 36. Amendments to Bond Resolution. The District may, without the consent of or notice to any Holders of the Bonds, amend, change, or modify this Resolution as may be required (a)by the provisions hereof, (b) for the purpose of curing any ambiguity, inconsistency, or formal defect or omission herein, or (c) in connection with any other change which is not to the prejudice of the Holders of the Bonds. Except for such amendments, changes, or modifications, the District shall not amend, change, or modify this Resolution in any manner without the consent of the Holders of the Bonds. LLR'S949.211/RESOLUT1ON202I 29 37. Defeasance of Obligations of District A. If the District shall pay or cause to be paid, or there shall otherwise be paid to the owners, the principal of and interest on the Bonds, at the times and in the manner stipulated in this Resolution, then the pledge of any taxes or other money, securities, and funds pledged under this Resolution and all covenants, agreements, and other obligations of the District to the Owners of Bonds shall thereupon cease, terminate, and become void and be discharged and satisfied, and the paying Agent/Registrar shall pay over or deliver all money held by it under this Resolution to the District. Bonds or interest installments for the payment of which money shall have been set aside and shall be held in trust by the Paying Agent/Registrar or with any other bank or trust company which has agreed to hold the same for such purpose (through deposit by the District of funds for such payment or otherwise) at the Stated Maturity thereof shall be deemed to have been paid ,,ithin the meaning and with the effect expressed above in this section. All Bonds shall be • deemed to have been paid, prior to their Stated Maturity, within the meaning and with the effect expressed above in this section, if there shall have been deposited with the Registrar either (a) money in an amount which shall be sufficient to make such payment, (b) Governmental Securities Certified by an independent public accounting firm of national reputation to be of such maturities and interest payment dates and to bear such interest as will, without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, be sufficient to make such payment, or (c) a combination of money and Governmental Securities together so certified to be sufficient to make such payment, provided that all the expenses pertaining to the Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for to the satisfaction of the Paying Agent/ Registrar (and to such other bank or trust company). • B. In the event such deposit is made with respect to some but not all of the Bonds then outstanding, the District shall designate the Stated Maturities of Bonds with respect to which such deposit is made. If such deposit shall be sufficient to provide for the payment of the principal of and interest on some but not all Outstanding Bonds of a particular Stated Maturity so designated, the Paying Agent/Registrar shall select the Outstanding Bonds of such Stated Maturity with respect to which such deposit is made by such random method as the Paying Aeent/Registrar shall deem fair and appropriate and which may provide for the selection of portions(equal to and leaving unredeemed an authorized denomination) of Bonds a denomination larger than S5,000. Notwithstanding anything herein to the contrary, no such deposit shall have the effect described in this section if made during the subsistence of a default in the payment of any Bond (a) unless made with respect to all of the Bonds then outstanding, or (b) unless accompanied by an opinion of counsel of recognized standing in the field of federal income taxation to the effect that neither such deposit nor the investment thereof shall adversely affect the excludability of interest on any Bond from the gross income of any owner thereof for federal income tax purposes. LLR.5949.21s/RESOLuTION202I 30 C. No money or Governmental Securities so deposited shall be invested or reinvested unless in Governmental Securities and unless such money and Governmental Securities not invested and such new investments are together certified by an independent public accounting firm of national reputation to be of such amounts, maturities, and interest payment dates and to bear such interest as will, without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, be sufficient to make such payment. Neither Governmental Securities nor money deposited with the Paying Agent/Registrar or other bank or trust company pursuant to this section, nor principal or interest payments on any such Governmental Securities, shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of, and interest on such Bonds. Any cash received from such principal of and interest on such investment securities deposited with the Paying Agent/Registrar, if not needed for such purpose, shall, to the extent practicable, be reinvested in Governmental Securities (which may be non-interest bearing) maturing at times and in amounts sufficient to pay when due the principal of and interest on such Bonds on and prior to the maturity thereof, and interest earned from such reinvestments shall be paid over to the District as received by the Paying Agent/Registrar, free and clear of any trust, lien, or pledge and used in accordance with applicable law. Any payment for Governmental Securities purchased for the purpose of reinvesting cash as aforesaid shall be made only against delivery of such Governmental Securities. D. At such times as a Bond shall be deemed to be paid hereunder, as aforesaid, it shall no longer be entitled to the benefits of this Resolution, except for the purposes of any such payment from such money or Governmental Securities, and for the provisions of section 12 relating to transfer, exchange, and replacement of Bonds and the covenants of the District contained in section 24. At such times as all of the Bonds are retired, or provision is made for their payment, money in the Debt Service Fund, if any, may. be transferred to the General Operating Fund of the District, provided that any money held by the Paying Agent/Registrar which has been provided for the payment of interest or principal and not so utilized for any reason shall continue to be held for a period of four calendar years, and if not claimed, the same may be returned to the General Operating Fund of the District, subject, however, to applicable unclaimed property laws of the State of Texas. 38. Continuing Disclosure. A. Annual Reports. The District shall provide annually to the state information depository ("SID"), within six (6) months after the end of each fiscal year ending in or after 1998, financial information and operating data with respect to the District of the general type included in the Official Statement authorized by section 35 of this Bond Resolution, being the information described in this section. Any financial statements so to be provided shall be (I) in accordance with generally accepted accounting principles and (2) audited, if the District commissions an audit of such statements and the audit is complete within the period during which they must be provided. If audited financial statements are not so provided, then the District shall provide unaudited financial statements as part of the annual report and shall provide audited LLR 3949.2\B,RESOLUTION202I 31 F ow In tjnancial statements for the applicable fiscal year to the SID, when and if audited financial Statements become available. If the District changes its fiscal year, it will notify the SID of the change (and of the date of the new fiscal year) prior to the next day by which the District would otherwise be required to provide financial information and operating data pursuant to this section. The financial information and operating data to be provided pursuant to this section may be set forth in full in one or more documents or may be included by specific reference to any document including an official statement or other offering document, if it is available from the Municipal Securities Rulemaking Board ("MSRB") that heretofore has been provided to the SID or filed with the United States Securities and Exchange Commission ("SEC"). B. Material Events Notices. The District shall notify any SID and either each nationally recognized municipal securities information repository ("NRMSIR") or the MSRB, in a timely manner, of any of the following events with respect to the Bonds, if such event is material within the meaning of the federal securities laws: r• 1. Principal and interest payment delinquencies; 2. Non-payment related defaults; 3. Unscheduled draws on debt service reserves reflecting financial difficulties; r 4. Unscheduled draws on credit enhancements, if any, reflecting financial difficulties; 5. Substitution of credit or liquidity providers, if any, or their failure to perform; f ' 6. Adverse tax opinions or events affecting the tax-exempt status of the Bonds; 7. Modifications of the rights of the Owners of the Bonds; r 8. Bond calls; r 9. Defeasance; 10. Release, substitution, or sale of property securing payment of the Bonds; and 11. Rating changes. C. Limitation, Disclaimers, and Amendments. The District shall be obligated to observe and perform the covenants specified in this section for so long as, but only for so long as, the District remains an "obligated person" with LLR•5949.2,B/RESOLL'TnON2021 32 respect to the Bonds within the meaning of the Rule, except that the District, in any event, will y_ive the notice required by this section of any Bond calls and defeasance that cause the District to no longer be an "obligated person." The provisions of this section are for the sole benefit of the Owners of the Bonds and nothing in this section express or implied shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The District undertakes to provide only the information, operating data, financial statements, and notices which it has expressly financial agreed to provide pursuant to this section and does not undertake to provide any other information that may be relevant or material to a complete presentation of the District's financial results, conditions, prospects or hereby undertakes to update any information provided in accordance with this section or otherwise, except as expressly provided herein. The District does not make any representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. UNDER NO CIRCUMSTANCE SHALL THE DISTRICT BE LIABLE TO THE OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE DISTRICT, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS SECTION, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR IN TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. No default by the District in observing or performing its obligations under this section shall comprise a breach of or a default under the Resolution for purposes of any other provision of this Resolution. Nothing in this section is intended or shall act to disclaim, waive, or otherwise limit the duties of the District under federal and state securities laws. The District may amend its continuing disclosure agreement 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 District, if but only if (1) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the primary offering 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 of the outstanding bonds consent to such amendment or (b) any person unaffiliated with the District (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the Owners of the Bonds. The District may amend or repeal this section if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction determines that such provisions are invalid or unenforceable, but only to the extent that its right to do so would not prevent the Underwriter from lawfully purchasing the Bonds in the initial LLR 3949.211,RESOLL'TION2021 33 i ' • no, If the District amends the agreement, it will include with any financial information or operati ng data next provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact f any change in the type of financial information and operating data so provided. D. Description of Annual Financial Information. The following information is referred to in part A of this section. a. Annual Financial Statements and Operating Data. The financial information and operating data with respect to the District to be provided annually are as specified below: (i) Appendix C to the Official Statement: Financial Statements and Auditor's Report. b. Accounting Principles. The accounting principles referred to in part A of this section are generally accepted accounting principles for governmental units as prescribed by the Govermnental Accounting Standards Board from time to time, as such principles may be changed from time to time to comply with state law or regulation, or as otherwise stated in the financial statements. 39. Municipal Bond Insurance Financial Security has made a commitment to issue a municipal bond guaranty insurance policy (the "Municipal Bond Guaranty Insurance Policy") relating to the Bonds effective as of the date of issuance of the Bonds. Under the terms of the Municipal Bond Guaranty Insurance Policy, Financial Security guarantees timely payment of principal of and interest on the Bonds. Financial Security will make such payments to the Paying Agent on the date due for payment or within one business day after receipt of notice of nonpayment, whichever is later. The insurance will extend for the term of the Bonds and, once issued, cannot be canceled. 40. No Personal Liability. No recourse shall be had for payment of the principal of or interest on any Bonds or for any claim based thereon, or on this Resolution, against any official or employee of the District or any person executing any Bonds. 41. Open Meeting. It is hereby officially found and determined that the meeting at which this Resolution was adopted was open to the public, and public notice of the time, place, and purpose of said meeting was given, all as required by the Texas Government Code, Section 551.043, as amended. LLR 5949.2'B'RESOLLTION202 I 34 pASSED AND APPROVED this 13th day of March, 1998. /s/ Ricki A. Willoughby President, Board of Directors .,rTEST: s Kelly C. Flanagan ��cretary. Board of Directors (SEAL) a P a LLR 3949.2 B/RESOLUTION2021 35 RESOLUTION AUTHORIZING THE ISSUANCE OF $2 , 300 , 000 UNLIMITED TAX BONDS, SERIES 1999 ; PRESCRIBING THE TERMS AND PROVISIONS THEREOF; MAKING PROVISION FOR THE PAYMENT OF THE INTEREST THEREON AND THE PRINCIPAL THEREOF; AUTHORIZING THE SALE THEREOF; AND CONTAINING OTHER PROVISIONS RELATING TO THE SUBJECT IT IS HEREBY ORDERED BY THE BOARD OF DIRECTORS OF BRAZORIA CDTy MUNICIPAL UTILITY DISTRICT No. 5 THAT: ARTICLE ONE STATUTORY AUTHORITY, RECITALS AND FINDINGS SECTION 1 . 01 : AUTHORITY FOR THE DISTRICT. Brazoria County Municipal Utility District No. 5 (the "District" ) of Brazoria county, Texas, is a conservation and reclamation district created rovis 59, of the Texas PlIrsuant to theOnstitution byp l orderofonsthe Texas Water Rightsof Article XVI, SectionComm Commission dated March 18 , 1981, and confirmed at an election held within the District on April 4 , 1981 . SECTION 1 . 02 : PURPOSES OF THE DISTRICT. The District was organized, created and established for the following purposes : (a) the control , storage, preservation, and distribution of its storm water and floodwater, the water of its rivers and streams for irrigation, power, and all other useful purposes; (b) the reclamation and irrigation of its arid, semi-arid, and other land needing irrigation; (c) the reclamation and drainage of its overflowed land and other land needing drainage; (d) the conservation and development of its forests , water, and hydroelectric power; (e) the navigation of its inland and coastal water; (f) the control , abatement , and change of any shortage or harmful excess of water; (g) the protection, preservation, and restoration of the purity and sanitary condition of water within the state ; and (h) the preservation of all natural resources of the state . LLR\60809.1\BONDRESOLVTION2021 SECTION 1 . 03 : POWERS OF THE DISTRICT. The District is authorized to purchase, construct, acquire, own, operate, maintain, repair, improve, or extend inside and outside its boundaries any and all works, improvements, facilities, plants, equipment , and appliances necessary to accomplish the purposes of its creation, including all works, improvements, facilities, plants, equipment, and appliances incident, helpful, or necessary to: (a) supply water for municipal uses, domestic uses, power, and commercial purposes and all other beneficial uses or controls ; (b) collect, transport, process, dispose of, and control all domestic, industrial, or communal wastes whether in fluid, solid, or composite state; (c) gather, conduct, divert, and control local storm water or other local harmful excesses of water in the District; (d) irrigate the land in the District; (e) alter land elevation in the District where it is needed; (f) navigate coastal and inland waters of the District ; and (g) provide parks and recreational facilities for the inhabitants in the District . SECTION 1 . 04 : AUTHORITY OF THIS RESOLUTION. The District is authorized to issue bonds for the purposes of purchasing, constructing, acquiring, owning, operating, repairing, improving, or extending any District works, improvements, facilities, plants, equipment, and appliances needed to accomplish the purposes, except for the purpose of providing parks and recreation facilities, for which the District was created, including works, improvements , facilities, plants, equipment, and appliances needed to provide a waterworks system, sanitary sewer system, and drainage system or solid waste disposal system, or to make payment of sums due or to become due under contracts for such purposes . SECTION 1 . 05 : FINDINGS . It is hereby found, determined and declared that : (a) the matters and facts set out in this Article One are true and correct; (b) at elections held on April 4 , 1981, November 8 , 1983 , and November 7 , 1987 , the District was authorized to issue the bonds of the District in the maximum amount of $23 , 775 , 000 , for the purpose or purposes of purchasing, constructing, acquiring, owning, operating, repairing, improving, or extending a waterworks system, a sanitary 1:A\60809.1\BONDRESOLVIION2021 2 sewer system, and a drainage and storm sewer system for the District and all additions to such systems and all works, improvements, facilities, plants , equipment, appliances, interests in property, and contract rights needed therefor and administrative facilities needed in connection therewith, and for refunding all or part of the principal of or interest on the District ' s bonds, and to provide for the payment of principal of and interest on bonds by the levy and collection of a sufficient tax upon all taxable property within said District ; the bonds authorized by the election of November 7 , 1987 , replaced the authorized but unissued bonds of the earlier elections ; (c) the elections described in Paragraph (b) hereof were called and held under and in strict conformity with the Constitution and laws of the State of Texas, and of the United States of America, and the Board of Directors has heretofore officially declared the results of said elections and declared that the District was legally created and authorized to issue the bonds described in Paragraph (b) ; (d) the District has heretofore issued to acquire and construct various phases of a waterworks, sanitary sewer, and drainage system for the District $1, 735 , 000 Unlimited Tax Bonds, Series 1982 (the "Series 1982 Bonds" ) ; $2 , 750 , 000 Unlimited Tax Bonds, Series 1983 (the "Series 1983 Bonds" ) ; $1, 620, 000 Unlimited Tax Bonds, Series 1984 (the "Series 1984 Bonds" ) ; $6 , 065 , 000 Unlimited Tax Refunding Bonds, Series 1992 (the "Series 1992 Refunding Bonds" ) , to refund parts of the Series 1982 Bonds, the Series 1983 Bonds , and the Series 1984 Bonds ; $2 , 020 , 000 Unlimited Tax Bonds , Series 1995 (the "Series 1995 Bonds" ) ; $1 , 980 , 000 Unlimited Tax Bonds, Series 1998 (the "Series 1998 Bonds" ) ; and $4 , 555, 000 Unlimited Tax Refunding Bonds, Series 1998A (the "Series 1998A Refunding Bonds" ) to refund certain maturities of the Series 1992 Refunding Bonds; (e) the District intends to issue $2 , 300 , 000 in bonds (the "Bonds" ) out of the bonds authorized at the November 7 , 1987 , election, to provide funds to reimburse a developer for construction of water distribution, sanitary sewer collection, and drainage facilities serving Southdown Subdivision, Sections 8-11 and utilities along County Road 94 ; to set aside funds for the District' s share of construction of water distribution, sanitary sewer collection, and drainage facilities for Southdown Subdivision, Sections 12 and 13 ; to finance the District ' s share of water plant improvements and detention pond rehabilitation; to finance a water line :.LR\60809.1\BONDRESOLUTION2021 3 711111111".-- replacement and improvements to lift station number two in Southdown Subdivision; to pay certain engineering costs associated with the design and construction of such facilities; to pay interest on funds advanced to the District; to set aside interest payments on the Bonds; and to pay the costs of issuing the Bonds . As a result of the issuance of the Bonds, the District ' s remaining authorized but unissued bonds for the purposes of financing improvements to the District ' s water, sewer, and drainage systems or any other lawful purpose will be $4 , 755, 000 ; (f) the District has been authorized to levy taxes , and the taxes to be collected will be sufficient to make the principal and interest payments on the Bonds authorized by this Resolution; (g) the Board of Directors reserves the right to issue the remaining $4 , 755, 000 in bonds which were voted on at the election described in Paragraph (b) hereof in one or more series at a future date or dates when, in the Board' s judgment, such amounts are required for the authorized purposes . ARTICLE TWO DEFINITIONS AND INTERPRETATIONS SECTION 2 . 01 : DEFINITIONS . When used , in this Resolution, except in Article Five, and in any order amendatory or supplemental rereto, the terms listed below shall have the meanings specified below, unless it is otherwise expressly provided or unless the context otherwise requires : Additional Bonds . The term "Additional Bonds" shall mean the additional bonds which the District expressly reserves the right to issue in Section 9.01 of this Resolution. Authorized Investments . The term "Authorized Investments" shall mean all direct or indirect obligations of the United States or one of its agencies , the State of Texas, or any county, city, school district , or other political subdivision of the State and certificates of deposit of state or national banks or savings and loan associations within the State provided that they are secured in the manner provided for the security of the funds of counties of the State of Texas . Board of Directors . The term "Board of Directors" or "Board" shall mean the governing body of the District . Bondholders . The term "Bondholder" or "Bondholders" shall mean the holder Holders of a Bond or Bonds, as the context requires . or Bond Re ister. The term "Bond Register" shall mean the books of registration by the Paying Agent/Registrar in which are maintained the Kept and addresses of and the principal amount of the Bonds .:apertered to each Holder. �egls Bond Resolution. The term "Bond Resolution" or "Resolution" shall mean this lution and all amendments hereof and supplements hereto. 2eso god. The term "Bond" or "Bonds" shall mean any obligation of the District authorized and issued pursuant to this Resolution, whether initially delivered or issued in exchange for, upon transfer of, or f any Bond previously issued. in lieu oMAW Business Day. The term "Business Day" shall mean any day which is not a Saturday, Sunday, legal holiday, or a day on which the Paying Agent/Registrar is authorized by law or executive order to remain closed. a Debt Service Fund. The term "Debt Service Fund" shall mean the District ' s Debt Service Fund which is established and affirmed in Section 7 . 01 of this Resolution. Definitive Bonds . The term "Definitive Bond" or "Definitive Bonds" shall mean the Initial Bonds, as defined herein, as they may be transferred and converted into or exchanged for fully registered Bonds in the denomination of $5 , 000 or any integral multiple of $5 , 000 . Depositor'. The term "Depository" shall mean the bank or banks which the District may select from time to time as its depository or depositories . LL11\60809.1\BONDRESOLUTION2021 5 i District . The term "District" shall mean Brazoria County Municipal tility District No. 5 and any other public agency succeeding to the powers, rights, privileges and functions of the District and, when appropriate, the Board of Directors of the District . Financial Guaranty_ The term "Financial Guaranty" shall mean Financial Guaranty Insurance Company. Fiscal Year. The term "Fiscal Year" shall mean the accounting period for the District, which is currently the period ending September 30 , 1998 , and thereafter shall be the twelve-month period beginning on October 1 of each year and ending on September 30 of the following year, but which may be changed from time to time by the Board of Directors . Governmental Securities . The term "Governmental Securities" shall mean direct obligations of, or obligations the timely payment of the principal of and interest on which are fully and unconditionally guaranteed by, the United States of America. Holders . • The term "Holder" or "Holders" when used with respect to any Bond means the Person in whose name such Bond is registered in the Bond Register. Initial Bonds . The term "Initial Bonds" shall mean the Serial Bond and the Term Bonds authorized to be issued hereunder which have the registration certificate executed on behalf of the Comptroller of Public Accounts of the State of Texas endorsed thereon, as contemplated by Section 5 . 07 and 5 . 08 hereof . Initial Date . The term "Initial Date" means November 1 , 1999 . Interest Payment Date . The term "Interest Payment Date" shall mean the Stated Maturity of an installment of interest on any Bonds . LLR\60809.1\BONDRESOLUTI0N2021 6 Maturit The term "Maturity" when used with respect to any Bond means date on which the principal of such Bond becomes due and sayable as therein and herein provided, whether at the Stated Maturity or call for redemption. Municiral Bond Guaranty Insurance Policy. The term "Municipal Bond Guaranty Insurance Policy" shall mean the municipal bond insurance policy issued by Financial Guaranty insuring payment when due of the principal of and interest on the Bonds as provided therein. Net Revenues . The term "Net Revenues" shall mean the moneys received by the District from the ownership or operation of the District ' s Waterworks, sanitary sewer, drainage and storm sewer systems , as Well as under specific contracts, after deducting the costs of operating, maintaining, and repairing the System and administration of the District . Outstanding Bonds . The term "Outstanding Bonds" shall mean the previously issued bonds that remain outstanding, specifically the remaining $1, 125 , 000 principal amount of the Series 1992 Refunding Bonds; $1, 905 , 000 of the Series 1995 Bonds; $1, 915, 000 of the Series 1998 Bonds ; $4 , 505, 000 of the Series 1998A Refunding Bonds ; and all of the Bonds authorized by this Resolution, except : (i) Bonds theretofore cancelled by the Paying Agent/Registrar or delivered to the Paying Agent/ Registrar for cancellation; (ii) Bonds for whose payment or redemption money in the necessary amount has been theretofore deposited with the Paying Agent/Registrar in trust for the Holders of such Bonds, provided that, if such Bonds are to be redeemed, notice of such redemption has been duly given pursuant to this Resolution, irrevocably provided for to the satisfaction of the Paying Agent/Registrar, or waived; (iii) Bonds in exchange for or in lieu of which other Bonds have been registered and delivered pursuant to this Resolution; and (iv) Bonds alleged to have been mutilated, destroyed, lost, or stolen which have been paid as provided in Section 3 . 08 . LLR\60809.1\BONDRESOLIISION2021 7 s The term "Outstanding" shall also mean any Bonds the principal and/or interest of which is paid by Financial Guaranty pursuant to ane Municipal Bond Guaranty Insurance Policy. wing Agent/Registrar. The term "Paying Agent/Registrar" or "Registrar" means the - person named as "Paying Agent/Registrar" herein until a successor ing Agent/Registrar shall have become such pursuant to the applicable provisions of this Resolution, and thereafter "Paying Agent/Registrar" shall mean such successor Paying Agent/Registrar. Pew. r I The term "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, or government or any agency or Political subdivision thereof . Predecessor Bonds . The term "Predecessor Bonds" of any particular Bond means every previous Bond evidencing all or a portion of the same debt as that evidenced by such particular Bond, and, for the purposes of this definition, any Bond registered and delivered pursuant to section 3 . 08 in lieu of a mutilated, lost, destroyed, or stolen Bond shall be deemed to evidence the same debt as the mutilated, lost, destroyed, or stolen Bond. Purchaser. The term "Purchaser" has the meaning stated in Section 11 . 01 . Record Date . The term "Record Date" for the interest payable on any Interest Payment Date means the fifteenth (15th) day (whether or not a business day) of the calendar month next preceding such Interest Payment Date . Redemption Date . The term "Redemption Date, " when used with respect to any Bond to be redeemed, means the date fixed for such redemption pursuant to the terms of this Resolution. Redemption Price . The term "Redemption Price" when used with respect to any Bond to be redeemed means the price at which it is to be redeemed pursuant to the terms of this Resolution, excluding installments of interest whose Stated Maturity is on or before the Redemption Date . LLR\60809.1\BONDRESOLUTION2021 8 $erial Bonds . The term "Serial Bonds" shall mean the $1, 325, 000 of the Bonds what mature serially on September 1, 2013 through 2015, inclusive, set forth in Section 3 . 02 hereof . os ,• Stated Maturity. The term "Stated Maturity" when used with respect to any Bond or any installment of interest thereon means the date specified in Duch Bond as the fixed date on which the principal of such Bond or such installment of interest is due and payable . g�stem. The term "System" shall mean the District ' s waterworks, anitary sewer, drainage, and storm sewer systems presently S existing or to be constructed, all additions thereto, and all works, improvements, facilities, plants, equipment, and appliances connected therewith. Term Bonds . The term "Term Bonds" shall mean the $165, 000 of the Bonds that matures on September 1, 2002 , subject to mandatory sinking fund redemption on September 1 in the years set forth in Section 3 .02 hereof; the $130 , 000 of the Bonds that matures on September 1, (. 2004 , subject to mandatory sinking fund redemption on September 1 in the years set forth in Section 3 . 02 hereof ; the $145 , 000 of the Bonds that matures on September 1, 2006 ;. subject to mandatory ,., sinking fund redemption on September 1 in the years set forth in Section 3 . 02 hereof ; the $165, 000 of the Bonds that matures on September 1, 2008 , subject to mandatory sinking fund redemption on September 1 in the years set forth in Section 3 . 02 hereof ; the $180, 000 of the Bonds that matures on September 1, 2010 , subject to mandatory sinking fund redemption on September 1 in the years set forth in Section 3 . 02 hereof ; and the $190, 000 of the Bonds that matures on September 1, 2012 , subject to mandatory sinking fund redemption on September 1 in the years set forth in Section 3 . 02 hereof . SECTION 2 . 02 : INTERPRETATIONS . The titles and headings of the articles and sections of this Resolution 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 Resolution 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 taxes levied in payment thereof . LLR\60809.1\BONDRESOLUTION2021 9 ARTICLE THREE AUTHORIZATION, DESCRIPTION, AND EXECUTION OF BONDS SECTION 3 . 01 : AMOUNT, NAME, PURPOSE AND AUTHORIZATION. The of the District, to be known and designated as Brazoria 9ornty Municipal Utility District No. 5 Unlimited Tax Bonds, Series .g99 shall be issued in the aggregate principal amount of Two -lion Three Hundred Thousand and No/100 Dollars ($2 , 300 , 000 . 00) Mi the purposes of purchasing and constructing extensions and aaaitions to the District ' s existing water and sanitary sewer tem and drainage system and paying the costs of issuance of the sS`,Snds, in the form specified herein and bearing the terms herein owided, under and in strict conformity with the Constitution and Dr Paws of the State of Texas, particularly Section 59 of Article XVI la the Constitution of Texas, and Chapters 49 and 54 of the Texas water Code, as amended. SECTION 3 . 02 : DATE, DENOMINATION, INTEREST RATE, AND TtJRITIES . The Bonds shall be issued in fully registered form in ie denomination of $5 , 000 or any integral multiple thereof . The Initial Bonds shall be dated November 1, 1999 , and all Bonds .egistered and delivered by the Paying Agent/Registrar shall be dated November 1, 1999 . The Bonds shall mature in the respective drincipal amounts on September 1 of the respective years and bear nterest from the Initial Date until maturity or redemption at the r J respective rates per annum set forth below: $165, 000 Term Bonds Due : September 1, 2002 Interest Rate 4 . 65% Subject to mandatory sinking fund redemption on September 1 in the Pr years and amounts as follows, subject to reduction by prior cancellation or optional redemption: Principal Amount Redemption Date $50 , 000 September 1, 2000 55 , 000 September 1, 2001 60 , 000 September 1, 2002 $130 , 000 Term Bonds Due : September 1, 2004 Interest Rate 4 . 85% Subject to mandatory sinking fund redemption on September 1 in the years and amounts as follows, subject to reduction by prior cancellation or optional redemption: R\60809.1\BONDRESOLUTION2021 1 0 F Princi al Amount Redemption Date $65 , 000 September 1, 2003 65, 000 September 1, 2004 $145, 000 Term Bonds Due : September 1, 2006 Interest Rate 5 . 00% to mandatory sinking fund redemption on September 1 in the =ubJectand amounts as follows, subject to reduction by prior °aellation or optional redemption: •^anc } y Principal Amount Redemption Date $70, 000 September 1, 2005 75, 000 September 1, 2006 $165, 000 Term Bonds Due : September 1, 2008 Interest Rate 5 . 125% _;Ibject to mandatory sinking fund redemption on September 1 in the ,,ears and amounts as follows, subject to reduction by prior cancellation or optional redemption: principal Amount Redemption Date $80, 000 September 1, 2007 85 , 000 September 1, 2008 $180 , 000 Term Bonds Due: September 1, 2010 Interest Rate 5 . 35% Subject to mandatory sinking fund redemption on September 1 in the years and amounts as follows, subject to reduction by prior ancellation or optional redemption: Principal Amount Redemption Date $90 , 000 September 1, 2009 90, 000 September 1, 2010 ‘6 010 9.1\BONDRE BOLLIX ON2 021 11 S $190, 000 Term Bonds Due : September 1, 2012 Interest Rate 5 .45% sinking fund ect to and amounts mandatory asf follows, subject n toon reduction o September byl in the SubDprior .ear ilation or optional redemption: a pr ncipal Amount Redemption Date $95, 000 September 1, 2011 95 , 000 September 1, 2012 $1, 325 , 000 Serial Bonds Principal Year of Interest Amount Maturity Rate $420 , 000 2013 5 . 40% 445 , 000 2014 5 . 45 460 , 000 2015 5 . 60 SECTION 3 . 03 : INTEREST PAYMENT DATES . The interest on the — Bonds shall be payable on September 1, 2000, and semiannually thereafter on March 1 and September 1 of each year until the maturity or redemption date of the Bonds . The amount of interest on the Bonds payable on each Interest Payment Date shall be computed on the basis of a 360-day year of .twelve 30-day months . SECTION 3 . 04 : MEDIUM AND PLACE OF PAYMENT. The Bonds shall be payable without exchange or collection charges, in any coin or currency of the United States of America which on the respective dates of payment is legal tender for the payment of debts due the United States of America, upon presentation and surrender of the certificate representing the Bonds as they become due , or at their earliest redemption date, at the principal trust office of the Paying Agent/Registrar. SECTION 3 . 05 : EXECUTION OF BONDS . The Bonds shall be signed by the President or Vice President and attested by the Secretary or Assistant Secretary of the Board of Directors by the manual or facsimile signatures, and the official seal of the District shall be impressed or placed in facsimile thereon. The facsimile signatures on the Bonds shall have the same effect as if the Bonds had been signed manually and in person, and the facsimile seal on the Bonds shall have the same effect as if the official seal of the District had been manually impressed upon each of the Bonds . Bonds bearing the manual or facsimile signatures of individuals who were at the time the proper IA\60809.1\BONDRESOLUTION2021 12 cers of the District shall bind the District, notwithstanding offi such individuals or either of them shall cease to hold such plat s prior to the certification or registration and delivery officeh Bonds or shall not have held such offices at the date of of SUgonds� all as provided in the Bond Procedures Act of 1981, su.-amended. Any Bond may be signed on behalf of the District by as actual or facsimile signature of such person as, at the Ole 1 time of execution of such Bond, shall be the proper a ffieer of the District, although at the time of the Initial Date o the Bonds or the adoption of this Resolution, any such person of not said officer. Minor typographical and other minor errors nsthe text of any Bond or minor defects in the seal or facsimile nature on any Bond shall not affect the validity or einforceability of such Bond if it has been duly authenticated by the paying Agent/Registrar. SECTION 3 . 06 : PAYING AGENT/REGISTRAR. The District shall at all times maintain a Paying Agent/Registrar meeting the qualifications herein described, for the performance of the duties hereunder. Chase Bank of Texas National Association in Dallas, Texas, is hereby appointed Paying Agent/Registrar for such purposes . The District reserves the right to appoint a successor Paying Agent/Registrar by (a) filing with the Person then performing such function a certified copy of a resolution or ordinance giving notice of the termination of the Agreement and appointing a successor, and (b) causing notice to be given to each Bondholder and the Municipal Advisory Council of Texas . every Paying Agent/Registrar appointed hereunder shall at all times be a corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise trust powers, and subject to supervision or examination by Federal or State authority. The form of agreement submitted by the Person named above as Paying Agent/Registrar is hereby approved, and an appropriate official of the District is hereby authorized to execute such agreement for and on behalf of the District . SECTION 3 . 07 : REGISTRATION, DELIVERY, AND TRANSFER OF BONDS . Initially seven Bonds (the "Initial Bonds" ) representing the entire principal amount of the Bonds shall be issued in the name of the Purchaser (as defined herein) , or its designee, executed and submitted to the Attorney General of Texas for approval, and thereupon certified by the Comptroller of Public Accounts of the State of Texas by manual signature of an appropriate official in such office . At any time thereafter the Holder may deliver the Initial Bonds to the Paying Agent/Registrar for transfer or exchange, accompanied by instruction from the Purchaser or such designee designating the Persons , maturities , and principal amounts to and in which the Initial Bonds are to be transferred or exchanged and the addresses of such Persons, and the Paying Agent/Registrar shall thereupon, within not more than three (3) Business Days, register uR160809.1\BONDRESOLVSION2021 13 1 and deliver Definitive Bonds upon authorization of the District as provided in such instructions . In the event that the Purchaser provides written instructions to the Paying Agent/Registrar at least five (5) Business Days prior to the date of delivery of the Initial Bonds to the Purchaser, then the paying Agent/Registrar shall transfer or exchange Definitive Bonds for the Initial Bonds on the date of delivery upon payment for and surrender for exchange or transfer of the Initial Bonds by the Purchaser. No Bond shall be entitled to any right or benefit under this Resolution, or be valid or obligatory for any p urpose, unless there appears on such Bond either a certificate of registration substantially in the form provided in Section 5 . 03 , executed by the Comptroller of Public Accounts of the State of Texas or his duly authorized agent by manual Signature , or a certificate of registration substantially in the form provided in Section 5 . 04 , as appropriate, executed by the paying Agent/Registrar by manual signature, and either such certificate upon any Bond shall be conclusive evidence, and the only evidence, that such Bond has been duly certified or registered and delivered. The District shall cause to be kept at the principal office of the Paying Agent/Registrar a register (herein referred to as the "Bond Register" ) in which, subject to such reasonable regulations as it may prescribe, registration of the Bonds and of transfers of the Bonds shall be made as provided herein. Upon surrender for transfer of any Bond at the principal payment office of the Paying Agent/Registrar, the District shall execute and the Paying Agent/Registrar shall register and deliver, in the name of the designated transferee or transferees, one or more new Bonds of the same Stated Maturity, of any authorized denominations, bearing the same rate of interest , and of like aggregate principal amount, upon surrender of the Bond to be exchanged at the principal payment office of the Paying Agent/Registrar. Whenever any Bonds are so surrendered for exchange, the District shall execute, and the Paying Agent/Registrar shall register and deliver, the Bonds which the Holder of Bonds making the exchange is entitled to receive . All Bonds issued upon any transfer or exchange of Bonds shall be the valid obligations of the District, evidencing the same debt , and entitled to the same benefits under this Resolution, as the Bonds surrendered upon such transfer or exchange . Every Bond presented or surrendered for transfer or exchange shall be duly endorsed or be accompanied by a written instrument of transfer in form satisfactory to the Paying Agent/Registrar duly executed by the Holder thereof or his attorney duly authorized in writing . No r• service charge shall be made to the Holder for any registration, transfer, or exchange of Bonds, but the District or the Paying Agent/Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Bonds . Neither the District nor the Paying Agent/Registrar shall be required (a) to issue, transfer or exchange any Bond during the period beginning at the opening of business on a Record Date and ending at the LLR\60809.1\BONDRESOLU:ION2021 14 r close of business on the next succeeding Interest Payment Date, (b) to transfer or exchange any Bond selected for redemption or in whole or in part where such redemption is scheduled to occur within thirty (30) calendar days . SECTION 3 . 08 : MUTILATED, DESTROYED, LOST, AND STOLEN BONDS . f (a) any mutilated Bond is surrendered to the Paying Agent/Registrar, or the District and the Paying Agent/Registrar receive evidence to their satisfaction of the destruction, loss, or theft of any Bond, and (b) there is delivered to the District and the Paying Agent/Registrar such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the District or the Paying Agent/Registrar that such Bond has been acquired by a bona fide purchaser, the District shall execute and upon its request the Paying Agent/Registrar shall register and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost, or stolen Bond, a new Bond of the same Stated Maturity and of like tenor and principal amount, bearing a number not contemporaneously outstanding . In case any such mutilated, destroyed, lost, or — i stolen Bond has become or is about to become due and payable, the District in its discretion may, instead of issuing a new Bond, pay such Bond. Upon the issuance of any new Bond under this Section, the District may require the payment by the Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Paying Agent/Registrar, bond printing, and legal fees) connected therewith. Every new Bond issued pursuant to this Section in lieu of any mutilated, destroyed, lost, or stolen Bond shall constitute a replacement of the prior obligation of the District, , whether or not the mutilated, destroyed, lost, or stolen Bond shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Resolution equally and ratably with all other outstanding bonds . The procedures set forth in the Paying Agent/Registrar Agreement , approved in Section 3 . 06 hereof , shall also be available with respect to mutilated, destroyed, lost , or stolen Bonds . The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement and payment of mutilated, destroyed, lost, or stolen Bonds . SECTION 3 . 09 : CANCELLATION. All bonds surrendered for payment , redemption, transfer, exchange, or replacement , if surrendered to the Paying Agent/Registrar, shall be promptly cancelled by it and, if surrendered to the District , shall be delivered to the Paying Agent/Registrar and, if not already cancelled, shall be promptly cancelled by the Paying Agent/Registrar. The District may at any time deliver to the Paying Agent/Registrar for cancellation any Bonds previously certified or registered and delivered which the District may have acquired in any manner whatsoever, and all Bonds so delivered UR\60809.1\BONDRESOLVIION2021 15 � II 911/11F - all be promptly cancelled by the Paying Agent/Registrar. All en le11ed Bonds held by the Paying Agent/Registrar shall be 4isposed of as directed by the District . ARTICLE FOUR REDEMPTION OF BONDS BEFORE MATURITY SECTION 4 . 01 : REDEMPTION OF BONDS . The District reserves he right to redeem the Bonds maturing on September 1, 2007 , or hereafter, prior to their scheduled maturities, in whole , or from time to time in part, in such manner as the District may determine, in integral multiples of $5, 000 , on September 1, 2006 , Or on any date thereafter, at a price equal to the principal amount of the Bonds to be redeemed plus accrued interest thereon to the date fixed for redemption. SECTION 4 . 02 : NOTICE TO PAYING AGENT/REGISTRAR OF REDEMPTION. The exercise by the District of its option to redeem any Bonds shall be entered in the minutes of the Board of ,. Directors of the District . The District shall, at least forty- five (45) days prior to the Redemption Date (unless a shorter notice shall be satisfactory to the Paying Agent/Registrar) , notify the Paying Agent/Registrar of such Redemption Date and of the principal amount of Bonds of each Stated Maturity to be redeemed. SECTION 4 . 03 : MANNER OF REDEMPTION. If less than all of the Outstanding Bonds of the same Stated Maturity are to be redeemed, the particular Bonds to be redeemed shall be selected by the Registrar by lot or other random method from the Bonds which have not previously been called for redemption. The District shall promptly notify the Paying Agent/Registrar in writing of the Bonds selected for redemption and, in the case of any Bond selected for partial redemption, the principal amount thereof to be redeemed. For purposes of this Resolution, unless the context otherwise requires, all provisions relating to the redemption of Bonds shall relate, in the case of any Bond redeemed or to be redeemed only in part , to the portion of the principal of such Bond which has been or is to be redeemed. SECTION 4 . 04 : NOTICE TO HOLDERS OF REDEMPTION. Notice of redemption shall be mailed by the Paying Agent/Registrar in the name of and at the expense of the District, not less than thirty (30) days prior to the Redemption Date, to each Holder of Bonds to be redeemed. All notices of redemptions shall include a statement as to (a) the Redemption Date, (b) the Redemption Price, (c) the principal amount of the Bonds to be redeemed and, if less than all Bonds are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the Bonds to be redeemed, (d) that on the Redemption Date the Redemption Price of each of the Bonds to be redeemed :.iA\60809.1\BONDRESOLUTION2021 16 1 1 1911r- Will become due and payable and that interest thereon shall cease to accrue from and after such date, and (e) that such Bonds are { to be surrendered for payment of the Redemption Price at the rincipal payment suchyoffi ment office of the Paying Agent/Registrar, and the address SECTION 4 . 05 : PAYMENT FOR REDEEMED BONDS . Notice of redemption having been given as aforesaid, the Bonds so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price, and from and after such date (unless the District shall default in the payment of the Redemption Price) such Bonds shall cease to bear interest . Upon the surrender of such Bonds for redemption in accordance with such notice, such Bonds shall be paid by the Paying Agent/Registrar at the Redemption Price out of money supplied by the District . Installments of interest with a Stated Maturity on or prior to the Redemption Date shall be payable to the Holders of such Bonds registered as such on the relevant Record Dates according to their terms . If any Bond called for redemption shall not be so paid on the date set for redemption by reason of the failure of the District to provide collected funds, the same shall continue to bear interest from the Redemption Date at the rate borne by such Bond. SECTION 4 . 06 : PARTIAL REDEMPTION. Any Bond which is to be redeemed only in part shall be surrendered at the office of the paying Agent/Registrar (if payment is to be made to other than the registered Holder with due endorsement by, or a written instrument of transfer in form satisfactory to the Paying Agent/Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing) , and the District shall execute and the Paying Agent/Registrar shall register and deliver to the Holder of such Bond, without service charge to the Holder, a new Bond or Bonds of the same Stated Maturity and of any authorized denomination or denominations as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Bond so surrendered. SECTION 4 . 07 : MANDATORY REDEMPTION. The Term Bonds are subject to mandatory sinking fund redemption on September 1 in the years and in the amounts set forth below (subject to reduction by prior cancellation or optional redemption as hereinafter provided) at a price equal to the principal amount of the Bonds or the portions thereof so called for redemption plus accrued interest to the date fixed for redemption: :.:.R\60 B 0 9.1\BONDRESOLtST I0272 0 21 17 1 $165 , 000 Term Bonds Principal Amount Redemption Date $50 , 000 September 1, 2000 55 , 000 September 1, 2001 60 , 000 September 1, 2002 $130, 000 Term Bonds Principal Amount Redemption Date $65, 000 September 1, 2003 65 , 000 September 1, 2004 $145 , 000 Term Bonds Principal Amount Redemption Date $70 , 000 September 1, 2005 75 , 000 September 1, 2006 $165 , 000 Term Bonds Principal Amount Redemption Date $80 , 000 September 1, 2007 85 , 000 September 1, 2008 $180 , 000 Term Bonds Principal Amount Redemption Date $90 , 000 September 1, 2009 90 , 000 September 1, 2010 $190, 000 Term Bonds Principal Amount Redemption Date $95 , 000 September 1, 2011 95 , 000 September 1, 2012 On or before July 15 of every year in which there are mandatory redemption requirements as set forth above for Term Bonds, the Paying Agent/Registrar (i) shall determine the LLR\60809.1\HONDRESOLUTION2021 18 ncipal amount of Terms Bonds of the particular maturity that prit be mandatorily redeemed on September 1 of such year after must into account deliveries for cancellation and optional ca}c axing of Term Bonds of such maturity as more fully provided redo.' (ii) shall elect by lot or other customary random method ner Term Bonds of such maturity (or portions thereof) to be .. anda m torily redeemed on September 1 of such year and (iii) shall mire notice thereof in the manner herein provided. The mandatory edemption requirements stated above for the Term Bonds shall be =educed by the principal amount of any Term Bonds of such aa maturity purchased and delivered or tendered to the Paying m-ent/Registrar for cancellation by July 10 of such year. In addition, if in the exercise of its right of optional redemption contained herein the District shall redeem less than all of the Term Bonds of a particular maturity then outstanding, the mandatory redemption requirements in any year for the Terms Bonds of such maturity shall, at the option of the District , be reduced by the principal amount of such Term Bonds optionally redeemed and which has not previously been made the basis for credit against the mandatory redemption requirements for the Term Bonds . ARTICLE FIVE FORM OF BONDS AND CERTIFICATES SECTION 5 . 01 : FORMS GENERALLY. The Bonds, the Registration Certificates of the Comptroller of Public Accounts of the State of Texas, the Certificates of Registration, the legend to be placed on the Bonds relating to municipal bond guaranty insurance, and the form of Assignment to '•be printed on each of the Bonds shall be substantially in the .forms set forth in this Article with such appropriate insertions, omissions, substitutions, and other variations as are permitted or required by this Resolution, and may have such letters, numbers , or other marks of identification (including identifying numbers and letters of the Committee on Uniform Securities Identification Procedures of the American Bankers Association ("CUSIP") ) and such legends and endorsements (including any reproduction of any opinion of counsel) thereon as may, consistently herewith, be established by the District or determined by the officers executing such Bonds as evidenced by their execution thereof . Any portion of the text of any Bonds may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Bond. The Definitive Bonds shall be printed, lithographed, or engraved, produced by any combination of these methods, or produced in any other similar manner, all as determined by the officers executing such Bonds as evidenced by their execution thereof, but the Initial Bonds submitted to the Attorney General of Texas may be typewritten or photocopied or otherwise reproduced. LLR\60809.1\BONDRESOLUTION2021 19 SECTION 5 . 02 : FORM OF BONDS . The Bonds authorized by this e5olution shall be in substantially the following form, with omissions, insertions, and variations as may be necessary ` adesirable and consistent with the terms of this Resolution: 1 an I I I I I I I r r • • PD r 2 0::.A\60809.1\BONDRESOTION2021 LU UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF BRAZORIA REGISTERED REGISTERED 04BER AMOUNT BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT No. 5 UNLIMITED TAX BOND SERIES 1999 Interest Rate : Stated Maturity: Initial Date : CUSIP: November 1, 1999 BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT No. 5 , a conservation and reclamation district, a body politic and corporate and a governmental agency created under the Constitution and laws of the State of Texas, situated in Brazoria bounty, Texas (herein, the "District" ) , FOR VALUE RECEIVED hereby acknowledges itself indebted to and PROMISES TO PAY TO (the "Holder" ) , or registered assigns, on the Stated Maturity specified above, the sum of ,n, DOLLARS (or so much thereof as shall not have been paid upon prior redemption) and to pay interest thereon from the later of the Initial Date or the most recent Interest Payment Date to which interest has been paid or duly provided for, on September 1, 2000, and thereafter semiannually on September 1 and March 1 in each year, at the per annum rate of interest specified above, computed on the basis of a 360-day year of twelve 30-day months . The principal of this Bond is payable at the agency of the District, which shall be the principal payment office of the Paying Agent/Registrar executing the registration certificate appearing hereon, upon presentation and surrender of this Bond. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will be paid to the person in whose name this Bond (or one or more Predecessor Bonds, as defined in the Resolution hereinafter defined) , is registered at the close of business on the Record Date for such interest, which shall be the fifteenth (15th) day of the month next preceding such Interest Payment Date. All such payments may be made by the Paying Agent/Registrar by check dated as of the Interest Payment Date and mailed to the registered Holder. 21 :,.R\60809.1\BONDRESOLUTION2021 — THE DATE OF THE INITIAL BONDS OF THIS ISSUE, in conformity the Resolution authorizing the issuance of the series of ,rltns of which this Bond is a part (herein the "Resolution" ) , is — Bond mb er 1, 1999 . pve THIS BOND IS ONE OF AN AUTHORIZED ISSUE OF BONDS , designated oria County Municipal Utility District No. 5 Unlimited Tax $onas, Series 1999 (hereinafter sometimes called the "Bonds" ) aggregating Two Million Three Hundred Thousand and No/100 Dollars ($Z 300 , 000 . 00) . The Bonds are issued for the purpose of purchasing and constructing extensions of and additions to the strict ' s existing water and sanitary sewer system and drainage Di and paying the costs of issuance of the Bonds , all under SYat in strict conformity with the Constitution and laws of the pate of Texas, particularly Section 59 of Article XVI of the Constitution of Texas, and Chapters 49 and 54 , Texas Water Code, as amended. THE DISTRICT RESERVES THE RIGHT TO REDEEM the Bonds of this issue maturing on September 1, 2007, or thereafter, prior to their scheduled maturities, in whole, or from time to time in part, in such manner as the District may determine , in integral multiples of $5, 000, on September 1, 2006, or on any date the al to the mount of the Bnds to bfter, at a eredeemed plus caccrued interest principal thereona to the date fixed for redemption. THE BONDS MATURING in 2002 , 2004 , 2006 , 2008 , 2010 , and 2012 (the "Term Bonds" ) will be subject to mandatory sinking fund redemption on September 1 in the years and in the amounts set forth below, subject to reduction by prior cancellation or optional redemption: $165 , 000 Term Bonds Due : September 1, 2002 Principal Amount Redemption Date $50 , 000 September 1, 2000 55 , 000 September 1, 2001 60 , 000 September 1, 2002 $130 , 000 Term Bonds Due : September 1, 2004 Principal Amount Redemption Date $65 , 000 September 1, 2003 65 , 000 September 1, 2004 I :.IA\60809.1\BONDRESOLUTION2021 22 411/FPF - - $145 , 000 Term Bonds Due : September 1, 2006 Principal Amount Redemption Date $70 , 000 September 1, 2005 75 , 000 September 1, 2006 $165 , 000 Term Bonds Due : September 1, 2008 Principal Amount Redemption Date $80 , 000 September 1, 2007 85 , 000 September 1, 2008 $180 , 000 Term Bonds Due : September 1, 2010 Principal Amount Redemption Date $90 , 000 September 1, 2009 90 , 000 September 1, 2010 $190 , 000 Term Bonds Due : September 1, 2012 Principal Amount Redemption Date $95 , 000 September 1, 2011 95 , 000 September 1, 2012 The Term Bonds to be redeemed shall be selected by lot or 1 other customary random method. The Term Bonds shall be redeemed at a price equal to the principal amount of the Bonds or portions L ' thereof so called for redemption, plus accrued interest to the date of redemption. Reference is made to the Resolution for complete details concerning the manner of mandatorily redeeming Term Bonds . AS PROVIDED IN THE BOND Resolution and subject to certain limitations therein set forth, this Bond is transferable on the Bond Register of the District, upon surrender of this Bond for transfer at the principal payment office of the Paying Agent/Registrar, duly endorsed by or accompanied by a written L instrument of transfer in form satisfactory to the Paying Agent/Registrar duly executed by the registered Holder hereof or his attorney duly authorized in writing, and thereupon one or more new fully registered Bonds of the same Stated Maturity, of L ` .R\60809.1\BONDRESOLUTION2021 23 orized denominations, bearing the same rate of interest , and at/ the same aggregate principal amount will be issued to the ffosignated transferee or transferees . NEITHER THE DISTRICT NOR THE PAYING AGENT/REGISTRAR shall be rewired (i) to issue, transfer, or exchange any Bond during a erlod beginning at the opening of business on a Record Date and ending at the close of business on the next succeeding Interest payment Date, or (ii) to transfer or exchange any Bond so Selected for redemption in whole or in part when such redemption is scheduled to occur within forty-five (45) calendar days . THE DISTRICT, THE PAYING AGENT/REGISTRAR, and any agent of either of them may treat the person in whose name this Bond is registered as the owner hereof for the purpose of receiving Payment as herein provided and for all other purposes, whether or not this Bond be overdue, and neither the District , the Paying Agent/Registrar, nor any such agent shall be affected by notice to the contrary. THIS BOND, AND THE OTHER BONDS OF THE SERIES OF WHICH IT IS A PART, is payable from the proceeds of a continuing, direct annual ad valorem tax levied, without limit as to rate or amount , upon all taxable property within the District . Reference is made to the Resolution for a more complete description of the funds charged with and pledged to the payment of this Bond and the series of which it is a part . By acceptance of this Bond, the Holder hereof expressly assents to all of the provisions of the Resolution. • IN ADDITION TO THE RIGHT TO ISSUE BONDS OF INFERIOR LIEN, the District has reserved the right to issue Additional Bonds , as defined in the Resolution, which may be secured by a lien on and pledge of the Net Revenues resulting from the ownership or operation of the District ' s waterworks, sanitary sewer, and drainage and storm sewer system. Such Additional Bonds may be payable solely from such revenues or solely from taxes or may be payable from a combination of taxes and such revenues . The District has also reserved the right to issue Special Project Bonds, as defined in the Resolution, which will be payable from and secured by the proceeds of a contract or contracts with persons, corporations, municipal corporations , political subdivisions, or other entities . Reference is made to the Resolution for a complete description of the right to issue Additional Bonds and Special Project Bonds . IT IS HEREBY CERTIFIED, RECITED, AND REPRESENTED that the issuance of this Bond and the series of Bonds of which it is a part is duly authorized by law; that all acts , conditions , and things required to exist and to be done precedent to and in the issuance of this Bond and said series of Bonds to render the same lawful and valid have been properly done and performed and have happened in regular and due time, form, and manner as required by 24 :.LR\60809.1\BONDRESOLUTION2021 that due provision has been made for the payment of the 10/ est on and the principal of this Bond and the series of iota'' of which it is a part by levy of a continuing, direct ;o� 1 ad valorem tax upon all taxable property within the 3on�aict sufficient for said purposes; and that the issuance of ;istrseries of Bonds does not exceed any Constitutional or tnl5utory limitation. .tat IN WITNESS WHEREOF, BRAZORIA COUNTY MUNICIPAL UTILITY ISTRICT No. 5 has caused this Bond to be executed by the facsimile signatures of the President and Secretary of its Board ts of simileors and hereon, lalloaslofal theeal 1stto dayeofmNovember, 1ressed or 999 . in fats BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT No . 5 S By: President, Board of Directors ;TEST: Secretary, Board of Directors (SEAL) SECTION 5 . 03 : FORM OF REGISTRATION CERTIFICATE OF COMPTROLLER OF PUBLIC ACCOUNTS . The Initial Bonds shall be registered by the Comptroller of Public Accounts of the State of e. Texas as provided by law. The registration certificate of said Comptroller of Public Accounts shall be printed on the back of said Initial Bonds in substantially the following form: OFFICE OF THE COMPTROLLER § OF PUBLIC ACCOUNTS § REGISTER NO . STATE OF TEXAS § I HEREBY CERTIFY THAT there is on file and of record in my office a certificate to the effect that the Attorney General of the State of Texas has approved this Bond, and further that this Bond has been registered this day by me . 25 .4a\60809.1\BONDRESMUTION2021 - WITNESS my signature and seal of office this day of , 1999 . Comptroller of Public Accounts of the State of Texas (COMPTROLLER' S SEAL) i SECTION 5 . 04 : FORM OF AUTHENTICATION CERTIFICATE OF PAYING T REGISTRAR. On the front of all Bonds other than the P,G al Bonds, the Authentication Certificate of the Paying Inent/Registrar shall be printed in substantially the following fay: AUTHENTICATION CERTIFICATE It is hereby certified that this Bond has been delivered pursuant to the Bond Resolution described in the text of this Sond, in exchange for or in replacement of a bond, bonds, or a portion of a bond approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas . Chase Bank of Texas , National Association Date of Authentication: By: Authorized Signature SECTION 5 . 05 : FORM OF ASSIGNMENT. On the back of all Bonds other than the Initial Bonds, the Form of Assignment shall be printed in substantially the following form: ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sells , assigns , and transfers unto (Print or typewrite name, address , and zip code of Transferee) : (Social Security or other identifying number of Transferee : the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints as attorney to transfer the within Bond on the books kept for registration thereof , with full power of substitution in the premises . Dated: Registered Owner (s) L:.R\60809.1\BONDRESOLUSION2021 26 1111111.11F— NOTICE: The signature (s) on this assignment must correspond with the name (s) of the registered Holder (s) as shown on the face of this Bond in every particular, without enlargement or change whatsoever. Signature Guaranteed NpTICE: Signature (s) must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. The following abbreviations, when used in the inscription on .. ' the face of the within Bond or above Assignment, shall be construed as though they were written out in full according to applicable laws or regulations : a TEN COM -- as tenants UNIF GIFT MIN ACT in common Custodian (Gust . ) (Minor) TEN ENT -- as tenants by under Uniform Gifts to Minors Act the entireties State JT TEN -- as joint tenants with rights of survivorship and not as tenants in common Additional abbreviations may also be used though not in the above list . SECTION 5 . 06 : INSURANCE STATEMENT. On the back of all Bonds, the following statement of insurance shall be printed: STATEMENT OF INSURANCE Financial Guaranty Insurance Company ("Financial Guaranty" ) has issued a policy containing the following provisions with respect to Brazoria County Municipal Utility District No. 5 $2, 300, 000 Unlimited Tax Bonds, Series 1999 (the "Bonds" ) , such policy being on file at the principal office of Chase Bank of Texas, National Association, as paying agent (the "Paying Agent" ) : Financial Guaranty hereby unconditionally and irrevocably agrees to pay for disbursement to the Bondholders that portion of the principal of and interest on the Bonds which is then due for :.:3t\60809.1\BONDRESOLUTION2021 27 t and which the issuer of the Bonds (the "Issuer" ) shall have oa?ied to provide . Due for payment means, with respect to "caiin cipal, the stated maturity date thereof, or the date on which same shall have been duly called for mandatory sinking fund eeemption and does not refer to any earlier date on which the ent of principal of the Bonds is due by reason of call for peaemption (other than mandatory sinking fund redemption) , acceleration or other advancement of maturity, and with respect to est, the stated date for payment of such interest . inter upon receipt of telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified from a Bondholder or the Paying Agent to Financial Guaranty meat the required payment of principal or interest has not been ,jade by the Issuer to the Paying Agent, Financial Guaranty on the { due date of such payment or within one business day after receipt du notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with State Street Bank and Trust .ompany, N.A. , or its successor as its agent (the "Fiscal Agent" ) , Sufficient to make the portion of such payment not paid by the Issuer. Upon presentation to the Fiscal Agent of evidence satisfactory to it of the Bondholder' s right to receive such Dayment and any appropriate instruments of assignment required to `,est all of such Bondholder' s right to such payment in Financial Guaranty, the Fiscal Agent will disburse such amount to the Bondholder. As used herein the term "Bondholder" means the person other than the Issuer or the borrower (s) of bond proceeds who at the time of nonpayment of a Bond is entitled under the' terms of such Bond to payment thereof . The policy is non-cancellable for any reason. FINANCIAL GUARANTY INSURANCE COMPANY SECTION 5 . 07 : FORM OF INITIAL BOND FOR SERIAL BOND. The Initial Bond for the Serial Bonds shall be in the form set forth in Section 5 . 02 of this Article, except that : (a) immediately under the name of the bond the headings "Interest Rate" and "Stated Maturity" and "CUSIP" shall all be eliminated. (b) in the first paragraph: (i) the words "on the Stated Maturity specified above" shall be deleted and the following will be inserted: "on the first day of September in each of the years indicated below and bearing interest at the per annum rates in accordance with the following schedule : 28 LLR\60809.1\HONDRESCLVTION2021 Principal Year of Interest Amount Maturity Rate formation to be inserted from schedules in Section 3 . 02 hereof, fln orating the Principal Amount, Year of Maturity, and Interest Rate o f the Bonds . ) (ii) the words " executing the registration certificate appearing hereon" shall be deleted and an additional sentence shall be added to the paragraph as follows : "The initial Paying Agent/Registrar is Chase Bank of Texas National Association, Dallas, Texas . " (iii) the words " (or one or more Predecessor Bonds, as defined in the Resolution hereinafter defined) " shall be deleted. (c) the Initial Bond for the Serial Bonds shall be numbered S-1 . (d) the adjective "facsimile" modifying the noun "signatures" in the last paragraph shall be deleted. SECTION 5 . 08 : FORM OF INITIAL BONDS FOR THE TERM BONDS . The Initial Bonds for the Term Bonds shall be in the form set forth in Section 5 . 02 of this Resolution except that : (a) immediately under the name of the Bond, the heading "CUSIP No. " shall be eliminated; the Interest Rate shall be filled in as appropriate ; the Maturity Date shall be filled in as appropriate; and the appropriate amount of each bond shall be listed. (b) in the first paragraph: (i) after the words "the sum of" shall be inserted the appropriate amount before the word "DOLLARS" (ii) the words "executing the registration certificate appearing hereon" shall be deleted and an additional sentence shall be added to the paragraph as follows : "The initial Paying Agent/Registrar is Chase Bank of Texas, National Association, Dallas, Texas . " (iii) the words " (or one or more predecessor Bonds as defined in the Resolution hereinafter defined) " shall be deleted. (c) in the fifth paragraph of the Bonds , the words "THE BONDS MATURING in 2002 , 2004 , 2006 , 2008 , 2010 and 2012 (the "Term Bonds" ) " shall be deleted and replaced with "THIS BOND IS A TERM BOND and" ; only the appropriate mandatory sinking fund information shall be included. a LLR\60809.1\BONDRESOLUTION2021 29 (d) the Initial Bonds for the Term Bonds shall be numbered T-1 for the Term Bonds maturing 2002 , T-2 for the Term Bonds maturing 2004, T-3 for the Term Bonds maturing 2006, T-4 for the Term Bonds maturing 2008 , T-5 for the Term Bonds maturing 2010, and T-6 for the Term Bonds maturing 2012 . (e) the adjective "facsimile" modifying the noun "signatures" in the last paragraph shall be deleted. SECTION 5 . 09 : CUSIP REGISTRATION. The President of the Board irectors or the Paying Agent/Registrar may secure the printing identification numbers on the front of the Bonds through the =JSIp $ervice Bureau Division of Standard & Poors Corporation, New New York. SECTION 5 . 10 : LEGAL OPINION. The approving opinion of Coats, Wyse, Yale, Ryman & Lee, P. C. , Houston, Texas, bond counsel , may be ^.inted on the back of the Bonds over the certification of the secretary of the Board of Directors which may be executed in ;acslmile . ARTICLE SIX SECURITY OF THE BONDS SECTION 6 . 01 : SECURITY OF BONDS . The Bonds are secured by and payable from the levy of a continuing, direct annual ad valorem :ax, without limit as to rate or amount, upon all taxable property 'iithin the District . SECTION 6 . 02 : LEVY OF TAX. To pay the interest on the Bonds, and to create a sinking fund for the payment of the principal :hereof when due, and to pay the expenses of assessing and collecting such taxes, there is hereby levied, and shall be assessed and collected in due time, a continuing, direct annual ad valorem tax, without limit as to rate or amount, on all taxable ! oroperty in the District for each year while any of the Bonds are outstanding. All of the proceeds of such collections , except expenses incurred in that connection, shall be paid into the Debt Service Fund, and the aforementioned tax and such payments into such fund shall continue until the Bonds and the interest thereon have been fully paid and discharged, and such proceeds shall be used for such purposes and no other. While said Bonds , or any of them, are outstanding and unpaid, an ad valorem tax each year at a rate from year to year as will be ample and sufficient to provide funds to pay the interest on said Bonds and to provide the necessary sinking fund to pay the principal when due, full allowance being made for delinquencies and costs of collection, shall be levied, assessed, and collected and applied to the payment of principal and interest on the Bonds . In determining the amount of taxes which should be levied each year, the Board may consider whether proceeds from the sale of Bonds have been placed in escrow 3\60B09.1\BommisOLUTION2021 1 interest during construction and whether the Board Pnably expects to have revenue or receipts available from other 35oCe5 which are legally available to pay principal of or interest ;:oTdemption price on the Bonds . SECTION 6 . 03 : CONSOLIDATION OF DISTRICT. The laws of the 'ate of Texas permit the District to be consolidated with one or conservation and reclamation districts. In the event the ^ strict is consolidated with another district or districts, the ;.i5trict reserves the right to: (a) consolidate the System with a similar system of one or more districts with which the District is consolidating and operate and maintain the systems as one consolidated system (herein for purposes of this section the "Consolidated System" ) ; (b) apply the net revenues from the operation of the Consolidated System to the payment of principal, interest, redemption price, and bank charges on the �. revenue bonds or the combination tax and revenue bonds (herein for purposes of this section the "Revenue Bonds" ) of the District and of the district or districts with which the District is consolidating (herein collectively the "Consolidating Districts" ) without preference to any series of bonds (except subordinate lien revenue bonds which shall continue to be subordinate to the first lien revenue bonds of the Consolidating Districts) ; and (c) pledge the net revenues of the Consolidated System to the payment of principal , interest, redemption price, and bank charges on revenue bonds which may be issued by the Consolidating Districts on a parity with the outstanding first lien revenue bonds of the Consolidating Districts . ARTICLE SEVEN FLOW OF FUNDS AND INVESTMENTS SECTION 7 . 01 : CREATION OF FUNDS . The establishment of the Debt Service Fund is hereby affirmed. Such fund shall be kept separate and apart from all other funds of the District . The Debt Service Fund shall constitute a trust fund which shall be held in trust for the benefit of the Bondholders and, to the extent permitted by law, the Holders of Additional Bonds , if any. SECTION 7 . 02 : SECURITY OF FUNDS . Any cash balance in any fund shall, to the extent not insured by the Federal Deposit Insurance Corporation or its successor, be continuously secured by a valid pledge to the District of securities eligible under the laws of Texas to secure the funds of municipal utility districts, having an aggregate market value, exclusive of accrued interest, at :.L3i\6 0 8 0 9.1\BONDI2ESO LUT I ON2 021 31 s equal to the uninsured cash balance in the fund to which j.i tsecurities are pledged. SECTION 7 . 03 : GENERAL OPERATING FUND. The establishment of ,eneral Operating Fund is hereby affirmed. The District shall ,ne t as collected, the Revenues (except earnings and profits :eposld� from the investment of the funds as provided in Section jerivhereof) from the operation of the System into the General - o9ting Fund. Preferentially, all moneys deposited in the =ceeal operating Fund shall be used for the purpose of paying the •entenance and operation expenses of the System. The District may -aln late and maintain an operating reserve in the General 3oc'�muing Fund (the "Operating Reserve" ) . .oerat SECTION 7 . 04 : DEBT SERVICE FUND. The District shall deposit cause to be deposited into the Debt Service Fund the aggregate the following at the time specified: (a) as soon as practicable after the Bonds are sold, accrued interest on the Bonds from the Initial Date to the date of delivery of the Bonds to the Purchaser; (b) as soon as practicable after the Bonds are sold, capitalized interest on the Bonds ; and (c) taxes levied and collected pursuant to Section 6 . 02 hereof, less costs of collection, as collected. ,;ot later than five (5) days prior to any principal and/or interest oaynent date on the Bonds, the Board of Directors shall cause the transfer of moneys out of the Debt Service Fund to the Paying ;gent/Registrar in an amount not less than that which is sufficient :opay the principal which matures on such date, the interest which accrues on such date, and the Paying Agent/Registrar ' s fees for handling such payments on that date. SECTION 7 . 05 : CONSTRUCTION FUND. The establishment of the Construction Fund is hereby affirmed. The proceeds from the sale of the Bonds, after making the deposits to the Debt Service Fund from the proceeds of the Bonds as specified in Section 7 . 04 above, = shall be deposited into the Construction Fund, except for $729 , 043 which will be escrowed in a separate escrow account , as required by the Texas Natural Resource Conservation Commission, and shall be used solely for the expenses incident to the issuance of the Bonds and the costs of acquiring, purchasing, and constructing the facilities for which the Bonds were sold. The District shall have the authority to retain the following described monies in the Construction Fund and may expend such sums for any item which may be properly paid by the District from its Construction Fund upon the approval of the Texas Natural Resource Conservation Commission. (a) The balance of the District ' s Construction Fund, if any, remaining unexpended from the proceeds of the sale of the Bonds after completion of the acquisition, purchase and construction of the facilities for which the Bonds were sold; and (b) All interest, income, and increment accruing to the District as a result of the temporary investment of the proceeds of the sale of the Bonds which are placed in the District ' s Construction Fund. Upon completion of the acquisition, purchase, and construction of all facilities, any unspent monies remaining from the sale of the Bonds, and the interest earned on such monies, shall be deposited into the District ' s Debt Service Fund. SECTION 7 . 06 : BOND REDEMPTION FUND. The District reserves the right to create one or more funds to be known as "Bond Redemption Funds" in connection with any issue or issues of Additional Bonds or Revenue Bonds which are term bonds, and to provide for the transfer of Net Revenues into a Bond Redemption Fund for the purpose of redeeming all or a specified part of such additional Bonds or Revenue Bonds prior to maturity. SECTION 7 . 07 : INVESTMENTS, EARNINGS . Moneys deposited into the Debt Service Fund, and any other fund or funds which the District may lawfully create may be invested or reinvested in Authorized Investments . All investments and any profits realized from or interest accruing on such investments shall belong to the fund from which the moneys for such investments were taken; provided, however, that at the discretion of the Board of Directors the profits realized from and interest accruing on investments made from any fund may be transferred to the Debt. Service Fund. If any moneys are so invested, the District shall have the right to have sold in the open market a sufficient amount of such investments to meet its obligations in the event any fund does not have sufficient uninvested funds on hand to meet the obligations payable out of such fund. Under such circumstances, the District shall give {{ notice to the Depository to sell such investments in the open market . After such sale the moneys resulting therefrom shall belong to the fund from which the moneys for such investments were initially taken. The District shall not be responsible to the Bondholders for any loss arising out of the sale of any ' investments . ARTICLE EIGHT TAX EXEMPTION SECTION 8 . 01 Definitions . When used in this Article, the terms listed below shall have the meanings specified below, unless it is otherwise expressly provided or unless the context otherwise requires : 33 - :.I.A\60809.1\BONDRESOLUTION2021 " means the Internal Revenue Code of 1986 , as amended by 0Cnaments thereto enacted prior to the Issue Date . mhetati0n Date" has the meaning set forth in Section 1 . 148- "C°of t . e "Gross proceeds" has the meaning set forth in Section 1 . 148- — of the Regulations . _ ► "Investment" has the meaning stated in section 1 . 148-1 (b) of Retions and includes : gula (1) Stock: a share of stock in a corporation or a right to subscribe for or to receive such a share, (2) Debt : any indebtedness or evidence thereof , including without limitation United States Treasury bonds, n°tee, and bills (whether or not of the State and Local GoVernment Series) and bank deposits (whether or not certificated or interest bearing or made pursuant to a depository contract) , (3) Annuities and Deferred Payments : any annuity contract, or any other deferred payment contract acquired to fund an obligation of the District, or (4) Other Property: any other investment-type property. "Issue Date" means the date on which the Bonds are initially henticated and delivered to the Purchaser against payment o•efor. "Issue Price" of the Bonds of any series and stated maturity __a;;s the amounts set out in paragraph 4 of the Certificate of :Ierwriters executed on the Closing Date . "Net Sale Proceeds" has the meaning set forth in section : :48-1 (b) of the Regulations . "Proceeds" has the meaning set forth in section 1 . 148-1 (b) of : e Regulations . "Rebate Amount" has the meaning set forth in section 1 . 148-3 :f the Regulations . "Regulations" shall mean the temporary or final Income Tax egulations applicable to the Bonds issued pursuant to Sections 141 :::rough 150 of the Code . Any reference to a section of the Regulations shall also refer to any successor provision to such section hereafter promulgated by the Internal Revenue Service ;::rsuant to Sections 141 through 150 of the Code and applicable to :he Bonds . --% EGO 09.1\BONDAESOLUTION2021 34 e e proceeds" has the meaning set forth in section 1 . 148- of t .sal Regulations . . — • ,taxable Investment" means any Investment other than (1) Non-AMT Tax Exempt Obligations : an obligation the est on which is excluded from the gross income, as innterdeed in section 61 of the Code, of the owners thereof for fination was federal incoe purposes theevidencehen such of such obligation to be Issued, was purportedby 9 so excluded) and which is not a preference item, as defined in section 57 of the Code, (2) Tax Exempt Mutual Funds : an interest in a regulated investment company to the extent that at least 95% of the income to the holders of such interest is interest that is excludable from gross income under section 103 (a) of the Code, (3) Demand SLGS : one-day certificates of indebtedness issued by the United States Treasury pursuant to the Demand Deposit State and Local Government Series program described in C.F.R. part 344 , if the District in good faith attempts to comply with all the requirements of such program relating to the investment of Gross Proceeds, and (4) Exempt Temporary Investments : Taxable Investments which are held for the credit of the 1999 Debt Service Fund. "Yield" of (1) Taxable Investments : Taxable Investments to any date means the actuarial "yield" of all such Taxable Investments on or before such date as "yield" is defined in section 1 . 148-5 (b) of the Regulations, and (2) Bonds : Any series of bonds means the actuarial "yield" of such Bonds , as defined in section 1 . 148-4 of the Regulations, and for the Bonds shall be specified in a certificate executed by an officer of the Board on the Issue Date . SECTION 8 . 02 . Covenant To Maintain Tax-Exempt Status of ^ds A. Not to Cause Interest to Become Taxable . The District :::all not use, permit the use of , or omit to use Gross Proceeds or any other amounts (or any property acquired, constructed, or =roved with Gross Proceeds) in a manner which, if made or =:tted, respectively, (or take or omit to take any other action if taken or omitted, respectively) , would cause interest on any Bond to be includable in the gross income , as defined in section 61 of the Code, of the owners thereof for federal income :ax purposes . The District shall adopt and comply with the =% 60109.1\SONDAESOLUTION2021 35 s of Such amendments hereof and supplements hereto as may, Sion• ion of nationally recognized bond counsel , be necessary ::tee opi a or perfect such exclusion. Without limiting the eSe� f the foregoing, the District shall comply with each of ality.° covenants in this Section at all times prior to the 'especifity of Bonds, unless and until the District shall have Matur Written opinion of nationally recognized bond counsel to d a that failure to comply with such covenant will not SelY a f fect the excludability of interest on any Bond from the e- come of the owner thereof for federal income tax purposes, r < ineafter such covenant shall no longer be binding upon the =het to the extent described in such opinion, anything in any 1.%—isubsection of this Section to the contrary notwithstanding . r } private Use or Payments . At all times prior to the B �. of Bonds, the District shall neither - Maturity (1) use nor permit the use of Gross Proceeds (or any property acquired, constructed or improved with Gross Proceeds or income from the investment thereof) in any trade or business carried on by any Person (or in any activity of any Person other than an individual) other than a state or local government, nor (2) directly or indirectly impose or accept any charge or other payment for use of Gross Proceeds (or use of any property acquired, constructed, or improved with Gross proceeds or income from the investment thereof) in any trade or business carried on by any Person (or in any activity of any Person other than an individual) other than a state or local government, -:ess either (i) such use is merely as a member (and, except --ssibly for the amount of use and any corresponding rate , -;:stment, is extended by the District on the same terms as to all .• er members) of the general public or (ii) such charge or payment -sists of taxes of general application within the District or . :.rest earned on temporary Investments acquired with Gross ::seeds pending application of such Gross Proceeds for their .-:ended purposes . For purposes of this Subsection B, property is :: sidered to be "used" by a Person if : (a) Sale or Lease : it is sold or otherwise disposed of , or leased, to such Person; r (b) Management Contract : it is operated, managed, or otherwise physically employed, utilized, or consumed by such Person, excluding operation or management pursuant to an agreement which meets the conditions described in I .R. S . Rev. Proc. 97-13 ; (c) Capacity, Output , or Service Commitment : capacity in or output or service from such property is reserved or r - :e:s.1\BONORESOLUTION2021 36 Committed to such Person under a take-or-pay, output , incentive payment, or similar contract or arrangement ; (d) Preferential Service : such property is used to pro service to (or such service is committed to or Deserved for) such Person on a basis or terms which (except p°ssibly for the amount of use and any corresponding rate adjustment) are different from the basis or terms on which such service is provided (or committed or reserved) to members of the public generally; (e) Developer: such Person is a developer and a Significant amount of property acquired, constructed, or improved with proceeds from the sale of a series of bonds of which the Bonds are a part serves only a limited area substantially all of which is owned by such Person, or a limited group of developers, unless such property carries out an essential governmental function, use by such Person is during an initial development period, and such property is developed and sold to (and occupied by) members of the general public in accordance with the Regulations; or (f) Other Incidents of Ownership: substantial burdens and benefits of ownership of such property are otherwise effectively transferred to such Person, .ut the temporary investment of Gross Proceeds pending application ;Or their intended purposes shall not constitute "use" of Gross roceeds . C. No Private Loan. The District shall not use Gross Proceeds to make or finance loans to any Person other than a state :r local government, excluding loans consisting of temporary investments of Gross Proceeds pending application of such Gross Proceeds for their intended purposes . For purposes of this Subsection C, Gross Proceeds are considered to be "loaned" to a t Person if (1) property acquired, constructed, or improved with Gross Proceeds is sold or leased to such Person 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 under a take-or-pay, output, or similar contract or arrangement , or (3) indirect benefits, or burdens and benefits of ownership, of Gross Proceeds or such property are otherwise transferred to such Person in a transaction which is the economic equivalent of a loan. D. Not to Invest at Higher Yield. The District shall not, at any time prior to the final Maturity of the Bonds, directly or indirectly invest Gross Proceeds in any Taxable Investment (or use Gross Proceeds to replace money so invested) , if , as a result of such investment, the Yield of all Taxable Investments acquired with for representing an investment of) Gross Proceeds (or money replaced thereby) , whether then held or previously disposed of , to the date of such investment exceeds the Yield of the Bonds . :.I.R\60809.1\BONDRESOLUTION2021 3 7 — authority to borrow from the United States, or (ii) to invest in deposit or account in a financial ion the extent any deposit or account is insured under federalt law b o Such Py the Federal Deposit Insurance Corporation, the National Credit Union Admin- i5tration, or any similar federally-chartered corporation, or (b) otherwise permit payment of principal of or interest on the Bonds Ito be directly or indirectly guaranteed in whole or in part by the United States or any agency or instrumentality thereof , including any entity with statutory authority to borrow from the United States (e .g . , by the investment of amounts held for the credit of the Debt Service Fund in federally-guaranteed or federally-insured 1 obligations) . Notwithstanding the foregoing, however, the District I may acquire : 1 (1) Certain Temporary Investments : Investments described in Subsections D (1) , D (3) , or D (4) of this Section, whether or not federally-guaranteed or federally-insured, to the extent such Investments are held during the period described in such Subsection; (2) Treasury Investments : Investments issued by the United States Treasury; and (3) Investments Permitted by Regulations : Any other Investments permitted by regulations of the United States Department of Treasury issued under section 149 (b) (3 ) (B) (v) of the Code . F. Not to Divert Arbitrage Profits. Prior to the final Maturity of the Bonds, the District shall not at any time invest amounts held for the credit of the Construction Fund or the Debt Service Fund in any Investment purchased at other than an arm' s length price or for which there is not an established market at the time of investment, except possibly for Investments described in — I Subsection D (3) of this Section to the extent such Investments are acquired and mature or are disposed of during the period described in such Subsection. G. To File Informational Report . The District shall execute and file with the Secretary of the Treasury, not later than the 15th day of the second calendar month after the close of the calendar quarter in which the Issue Date occurs (or by such later date as such Secretary may permit for reasonable cause or may prescribe with respect to any portion of such statement) , a 1 statement containing the information and in the form required by section 149 (e) of the Code or the Regulations promulgated thereunder. H. Not to Cause Bonds to Become Hedge Bonds . The District warrants and represents that : (1) the District reasonably expects that at least 85% of the Net Sale Proceeds of the Bonds will be used to carry '� LLA\60809.1\BONDRESOLIITSON2021 39 IT out the governmental purposes of the Bonds within three years from the Issue Date, and (2) not more than 50% of the Proceeds of the Bonds will be invested in nonpurpose investments (as defined in section 148 (f) (6) (A) of the Code) having a substantially guaranteed Yield for four years or more. payment of Rebatable Arbitrage. Except to the extent °therwise provided in section 148 (f) of the Code and the ., lations and rulings thereunder, 'egu (1) The District shall account for all Gross Proceeds including all receipts and expenditures thereof) on its books of ccount separately and apart from all other funds (and receipts , as expendit of ssu h and accounting investmentwith thethereof) shall of maintain proceedings records to the issuance of the Bonds until six years after the `elating final Computation Date . The District may, however, to the extent ermitted by law, commingle Gross Proceeds of the Bonds with other P of the District, provided that the District separately m°cou for each receipt and expenditure of such Gross Proceeds accounts P xP and the obligations acquired therewith. _. (2) Not less frequently than each Computation Date, the District shall either (i) cause to be calculated by a nationally ..eCognized accounting or financial advisory firm or (ii) calculate and cause its calculations to be verified by a nationally recognized accounting or financial advisory firm, in either case in accordance with rules set forth in section 148 (f) of the Code and section 1 . 148-3 of the Regulations and rulings thereunder, the Rebate Amount with respect to the Bonds . The District shall maintain such calculations with the official transcript of the proceedings relating to the issuance of the Bonds until six years after the final Computation Date . (3) As additional consideration for the purchase of the Bonds by the Purchasers and the loan of money represented thereby, and in order to induce such purchase by measures designed to preserve the excludability of the interest thereon from the gross income of the owners thereof for federal income tax purposes, the District shall remit to the United States the amount described in paragraph (2) above and the amount described in paragraph (4) below, at the times, in the installments, to the place , in the manner, and accompanied by such forms or other information as is or may be required by section 148 (f) of the Code and the Regulations and rulings thereunder. -. (4) The District shall exercise reasonable diligence to assure that no errors are made in the calculations required by paragraph (2) and, if such error is made, to discover and promptly to correct such error within a reasonable amount of time , :S.R\60809.1\BONDRESOLU7ION2021 40 tnereafter, including payment to the United States of any interest and any penalty required by section 1. 148-3 (h) of the Regulations . SECTION 8 . 03 . Qualified Tax-Exempt Obligations . The District slereby designates the Bonds as "qualified tax-exempt obligations" pursuant to Section 265 (b) (3) of the Code. The District hereby warrants and represents that (a) the aggregate face amount (or, in the case of obligations on which interest is paid less frequently than semiannually, the aggregate amount of principal and interest due at maturity) of all debt obligations issued or expected to be issued by the District in the calendar year of the Issue Date (including the Bonds) is not reasonably expected to exceed $10 , 000 , 000 ; (b) there are no other Persons which derive their authority from or are subject to the control of the District and which have authority to issue obligations described in section 103 of the Code; and (c) consequently, the Bonds are eligible to be "qualified tax-exempt obligations" pursuant to section 265 (b) (3 ) of the Code . The President of the Board is hereby authorized to take such other action as may be necessary to make effective the designation herein. ARTICLE NINE . rADDITIONAL BONDS AND REFUNDING BONDS SECTION 9 . 01 : ADDITIONAL BONDS . The District expressly reserves the right to issue, in one or more installments, for the purpose of completing, repairing, improving, extending, enlarging, or replacing the System or any other lawful purpose : (a) the unissued unlimited tax bonds which were authorized at the bond elections described in Section 1 . 05 of this Resolution; and (b) such other unlimited tax bonds as may hereafter be authorized at subsequent elections . SECTION 9 . 02 : REVENUE BONDS . The District expressly reserves the right to issue revenue bonds in one or more installments for the purpose of completing, repairing, improving, extending, enlarging, or replacing the System, which will be payable solely from the Net Revenues and such bonds may be payable from and equally secured by a lien on and pledge of the Net Revenues, if such revenue bonds are approved by the voters of the District . 41 LLR\60809.1\BONDRESOLUTION2021 SECTION 9 . 03 : INFERIOR LIEN BONDS . The District also reserves the right to issue inferior lien bonds and pledge the Net Revenues to the payment thereof, such pledge to be subordinate in all respects to the lien of previously issued Additional Bonds and Revenue Bonds . SECTION 9 . 04 : SPECIAL PROJECT BONDS . The District further reserves the right to issue bonds in one or more installments for the purchase, construction, improvement, extension, replacement, enlargement, or repair of water, sewer, and/or drainage facilities necessary under a contract or contracts with persons, corporations, municipal corporations, political subdivisions, or other entities, Such bonds to be payable from and secured by the proceeds of such contract or contracts . The District further reserves the right to refund such bonds . SECTION 9 . 05 : REFUNDING BONDS . The District further reserves the right to issue Refunding Bonds in any manner permitted by law to refund any Bonds and Additional Bonds at or prior to their respective dates of maturity or redemption. am ARTICLE TEN SECTION 10 . 01 : PERSONS DEEMED OWNERS . The District , the paying Agent/Registrar, and any agent of either of them may treat the Person in whose name any Bond is registered as the owner of such Bond for the purpose of receiving payment of the principal (and Redemption Price) of and interest on such Bond and for all other purposes whatsoever, and to the extent permitted by law, neither the District , the Paying Agent/Registrar, nor any agent of either of them shall be affected by notice • to the contrary. SECTION 10 . 02 : NOTICES TO HOLDERS; WAIVER. Wherever this Resolution provides for notice to Bondholders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder of such Bonds, at the address of such Holder as it appears in the Bond Register . In any case where notice to Holders of Bonds is given by mail, neither the failure to mail such notice to any particular Holder of Bonds , nor any defect in any notice so mailed, shall affect the sufficiency of such notice with respect to all other Bonds . Where this Resolution provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice . Waivers of notice by Holders shall be filed with the Paying Agent/Registrar, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 10 . 03 : DUTIES OF DISTRICT OFFICIALS . The President or any Vice President and the Secretary or any Assistant Secretary of the Board of Directors and other appropriate officers and agents 1.1660809.1\BONDRESOLUTION2021 42 of the District are hereby authorized and directed to do any and afltthing necessary eces a and/or convenient to carry out the provisions his ARTICLE ELEVEN SALE AND DELIVERY OF BONDS SECTION 11 . 01 : SALE OF BONDS; BOND PURCHASE AGREEMENT. The fonds are hereby sold and shall be delivered to First Southwest 9ompany (the "Purchaser" ) pursuant to the taking of public bids therefor on October 25, 1999, for a price of $2, 231, 000 . 00 plus accrued interest from the Initial Date to the date of delivery. Delivery of the Bonds to the Purchaser shall be made as soon as P racticable after the adoption of this Resolution, upon payment therefor, in accordance with the terms of the sale . Purchaser ' s obligation to accept delivery of the Bonds is subject to it being furnished an approving legal opinion of Coats, Rose, Yale, Ryman & Lee, P.C. , bond counsel to the District, approving the Bonds as to their validity and that the interest thereon is exempt from Federal taxation, said opinion to be dated and delivered as of the date of delivery and payment for the Bonds . The Board hereby finds and determines that the net effective interest rate of the issue or series of bonds authorized by this Resolution is 5 . 67407%, which is the lowest net effective interest rate bid to the District , as required by law. IMM SECTION 11 . 02 : APPROVAL, REGISTRATION AND DELIVERY. The President of the Board of Directors of the District and representatives of Coats, Rose, Yale, Ryman & Lee, P . C. are hereby authorized and directed to submit the Bonds, and a transcript of the proceedings relating to the issuance of the Bonds , to the Attorney General of the State of Texas for approval and, following said approval, to submit the Initial Bonds to the Comptroller of Public Accounts of the State of Texas for registration. Upon registration of the Initial Bonds, the Comptroller of Public Accounts (or a deputy designated in writing to act for the Comptroller) shall manually sign the Comptroller ' s registration certificate prescribed herein to be printed and endorsed on the Initial Bonds . After the Initial Bonds have been registered and signed by the Comptroller, they shall be delivered to the Underwriter, but only upon receipt of the full purchase price . ARTICLE TWELVE SPECIFIC OBLIGATIONS OF BOARD The Board on behalf of the District expressly stipulates and covenants that, for the benefit of the Purchaser and any and all subsequent Holders of the Bonds (and enforceable by any one or all of said Holders) , in addition to all other provisions hereof , it will: LLR\60809.1\BONDRESOLUf1ON2021 43 (a) Fix and maintain rates and collect charges for the facilities and services rendered by the District which, together with any taxes levied for maintenance purposes, I will provide revenues sufficient at all times to pay all reasonable administration expenses of the District and all efficient operation and adequate maintenance expenses of the System. The Board has enacted and will maintain " in effect an order fixing rates and charges for services which contains, among other provisions, a requirement for periodic billing of all customers of the District and a • prohibition against the furnishing of water or sewer service without charge to any person, firm, organization, or corporation. Pe (b) Subject to the provisions of Article Six of this Resolution, levy an ad valorem tax that will be ample and sufficient to provide funds to pay the interest on the • Bonds and to provide the necessary sinking fund. (c) Not mortgage or otherwise encumber the physical properties of the System, nor sell, lease, or otherwise dispose of any substantial portion of such physical properties, unless said properties of the System are deemed by the Board of Directors of the District to be unnecessary to the operation of the System. (d) Maintain the System in good condition and operate it in r i an efficient manner and at a reasonable cost . (e) Maintain insurance on the System '.of a kind and in an amount which usually would be . carried by municipal P6 corporations and political subdivisions in Texas operating similar facilities . (f) Keep records and accounts and employ an independent certified public accountant of recognized integrity and ability to direct the installation of the required accounting procedures and to audit its affairs at the close of each fiscal year. The fiscal year of the District is from October 1 to September 31 of the following year, or such other fiscal year as the Board of Directors may hereafter designate . Said audits shall include a statement in detail of the income and expenditures of the System for each year; a balance sheet as of the end of the year; the auditor ' s comments regarding the manner in which the District has carried out the requirements of all Bond Resolutions ; his recom- mendations, if any, for changes or improvements in the operation of the District ' s plants, facilities, and improvements; a list of insurance policies in force as of the date of the audit including the amount, expiration date, risk covered, and name of the insurer for each such policy; and the number of properties connected to the 44 LLR\60809.1\BONDRESOLUTI0N2021 System as of the end of the fiscal year. The audit report shall be delivered to each member of the Board not later than 120 days after the close of each fiscal year and shall be retained and filed in the office of the '' auditor. Copies of said audit shall be filed as required by law and maintained in the office of the District, available for inspection by any interested person or persons during normal office hours . ARTICLE THIRTEEN re DEFEASANCE OF OBLIGATIONS OF DISTRICT SECTION 13 . 01 : DEFEASANCE. If the District shall pay or cause to be paid, or there shall otherwise be paid to the Holders, the principal of and interest on the Bonds, at the times and in the manner stipulated in this Resolution, then the pledge of any taxes or other money, securities, and funds pledged under this Resolution and all covenants, agreements, and other obligations of the District to the Holders of Bonds shall thereupon cease, terminate, and become void and be discharged and satisfied, and the Paying Agent/Registrar shall pay over or deliver all money held by it under this Resolution to the District. Bonds or interest installments for the payment of which money shall have been set aside and shall be held in trust by the Paying Agent/Registrar or with any other bank or trust company which has agreed to hold the same for such purpose (through deposit by the District of funds for such payment or otherwise) at the Stated Maturity thereof shall be deemed to have 'been paid within the meaning and with the effect expressed above in this Section. All Bonds shall be deemed to have been paid, prior to their Stated Maturity, within the meaning and with the effect expressed above in this Section, if there shall have been deposited with the Registrar either (a) money in an amount which shall be sufficient to make such payment, (b) Governmental Securities certified by an independent public accounting firm of national reputation to be of such maturities and interest payment dates and to bear such interest as will, without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, be sufficient to make such payment, or (c) a combination of money and Governmental Securities together so certified to be sufficient to make such payment, provided that all the expenses pertaining to the Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for to the satisfaction of the Paying Agent/ Registrar (and to such other bank or trust company) . SECTION 13 . 02 : PARTIAL DEFEASANCE. In the event such deposit is made with respect to some but not all of the Bonds then outstanding, the District shall designate the Stated Maturities of Bonds with respect to which such deposit is made. If such deposit shall be sufficient to provide for the payment of the principal of LLR\60809.1\BONDRESOLUTION2021 45 latrest on some but not all Outstanding Bonds of a particular SCate Maturity designated, the Paying Agent/Registrar shall Gelect the Outstanding Bonds of such Stated Maturity with respect Co which such deposit is made by such random method as the Paying Agent/Registrar shall deem fair and appropriate and which may Provide for the selection of portions (equal to and leaving unredeemed an authorized denomination) of Bonds a denomination larger than $5, 000 . Notwithstanding anything herein to the contrary; no such deposit shall have the effect described in this Article if made during the subsistence of a default in the payment of any Bond (a) unless made with respect to all of the Bonds then outstanding, or (b) unless accompanied by an opinion of counsel of recognized standing in the field of federal income taxation to the effect that neither such deposit nor the investment thereof shall adversely affect the excludability of interest on any Bond from the gross income of any owner thereof for federal income tax purposes . SECTION 13 . 03 : INVESTMENTS . No money or Governmental $ecurities so deposited shall be invested or reinvested unless in a" Governmental Securities and unless such money and Governmental Securities not invested and such new investments are together certified by an independent public accounting firm of national reputation to be of such amounts, maturities, and interest payment dates and to bear such interest as will, without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, be sufficient to make such payment . Neither Governmental Securities nor money deposited with the Paying Agent/Registrar or other bank or trust company pursuant to this Section, nor principal or interest payments on any such Governmental Securities, shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of , and interest on such Bonds . Any cash received from such principal of and interest on such investment securities deposited with the Paying Agent/Registrar, if not needed for such purpose, shall, to the extent practicable, be reinvested in Governmental Securities (which may be non-interest bearing) maturing at times and in amounts sufficient to pay when due the principal of and interest on such Bonds on and prior to the maturity thereof , and interest earned from such reinvestments shall be paid over to the District as received by the Paying Agent/Registrar, free and clear of any trust, lien, or pledge and used in accordance with applicable law. Any payment for Governmental Securities purchased for the purpose of reinvesting cash as aforesaid shall be made only against delivery of such Governmental Securities. SECTION 13 . 04 : RETIREMENT OF BONDS . At such times as a Bond shall be deemed to be paid hereunder, as aforesaid, it shall no longer be entitled to the benefits of this Resolution, except for the purposes of any such payment from such money or Governmental Securities, and for the provisions of Section 3 . 07 and 3 . 08 relating to transfer, exchange, and replacement of Bonds and the covenants of the District contained in Article Eight . At such 1 LLR\60809.1\BONDRESOLUTION2021 46 times as all of the Bonds are retired, or provision is made for eir payment , money in the Debt Service Fund, if any, may be transferred to the General Operating Fund of the District, provided that any money held by the Paying Agent/Registrar which has been a .ded for the payment of interest or principal and not so ptovl ilized for any reason shall continue to be held for a period of I Four calendar years, and if not claimed, the same may be returned to the General Operating Fund of the District, subject, however, to applicable unclaimed property laws of the State of Texas . ARTICLE FOURTEEN CONTINUING DISCLOSURE SECTION 14 . 01 : ANNUAL REPORTS . The District shall provide annually to each nationally recognized municipal securities information repository ("NRMSIR" ) and the state information depository ("SID" ) , within six (6) months after the end of each fiscal year ending in or after 1999, financial information and operating data with respect to the District of the general type included in the Official Statement authorized by Section 15 . 05 of this Bond Resolution, being the information described in Section 14 . 04 hereof . Any financial statements so to be provided shall be (1) in accordance with generally accepted accounting principles and (2) audited, if the District commissions an audit of such statements and the audit is complete within the period during which they must be provided. If audited financial statements are not so provided, then the District shall provide unaudited financial statements as part of the annual report and shall provide audited financial statements for the applicable fiscal year to each NRMSIR and the SID, when and if audited financial statements become available . If the District changes its fiscal year, it will notify each NRMSIR and the SID of the change (and of the date of the new fiscal year) prior to the next day by which the District would otherwise be required to provide financial information and operating data pursuant to this Article. The financial information and operating data to be provided pursuant to this Article may be set forth in full in one or more documents or may be included by specific reference to any document including an official statement or other offering document , if it is available from the Municipal Securities Rulemaking Board ("MSRB" ) that heretofore has been provided to each NRMSIR and the SID or filed with the United States Securities and Exchange Commission ( "SEC" ) . SECTION 14 . 02 : MATERIAL EVENTS NOTICES . The District shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Bonds, if such event is material within the meaning of the federal securities laws : LLR\60809.1\BONDRESOLUTION2021 47 r2 . Principal and interest payment delinquencies; Non-payment related defaults; 3 • Unscheduled draws on debt service reserves reflecting financial difficulties; Unscheduled draws on credit enhancements, if any, 4 • y reflecting financial difficulties; 5 . Substitution of credit or liquidity providers, if any, or their failure to perform; 6 . Adverse tax opinions or events affecting the tax-exempt status of the Bonds; 7 . Modifications of the rights of the Owners of the Bonds; 8 . Bond calls; 9 . Defeasance; 10 . Release, substitution, or sale of property securing payment of the Bonds; and 11 . Rating changes . The District shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the District to provide •• financial information or operating data in accordance with this resolution by the time required as set forth in this section. SECTION 14 . 03 : LIMITATION, DISCLAIMERS, AND AMENDMENTS . The District shall be obligated to observe and perform the covenants specified in this Article for so long as , but only for so long as, the District remains an "obligated person" with respect to the Bonds within the meaning of the Rule, except that the District, in any event, will give the notice required by Section 14 . 02 of any Bond calls and defeasance that cause the District to no longer be an "obligated person. " The provisions of this Article are for the sole benefit of the Holders of the 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 District 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 undertake to provide any other information that may be relevant or material to a complete presentation of the District 's financial results, conditions, prospects or hereby undertakes to update any information provided in accordance with this Article or otherwise, except as expressly — LLR\60809.1\BONDRESOLUTION2021 48 Illovided herein. The District does not make any representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date . UNDER NO CIRCUMSTANCE SHALL THE DISTRICT BE LIABLE TO THE R OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR D,GES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE ISTRICT, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY D vENANT SPECIFIED IN THIS ARTICLE, BUT EVERY RIGHT AND REMEDY OF SCy SUCH PERSON, IN CONTRACT OR IN TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC SRg0RMANCE. No default by the District in observing or performing its obligations under this Article shall comprise a breach of or a default under Resolution. Resolution for purposes of any other provision of this Nothing in this Article is intended or shall act to disclaim, waive or otherwise limit the duties of the District under federal and state securities laws . The District may amend its continuing disclosure agreement 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 District, if but only if (1) the agreement , as amended, would have permitted an underwriter to purchase or sell Bonds in the primary offering in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of.. such amendment , as well as such changed circumstances, and (2) either (a) the Holders of a majority in aggregate principal amount of the outstanding bonds consent to such amendment or (b) any person unaffiliated with the District (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the Holders of the Bonds . The District may amend or repeal this Article if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction determines that such provisions are invalid or unenforceable, but only to the extent that its right to do so would not prevent the Underwriter from lawfully purchasing the Bonds in the initial offering. If the District amends the agreement, it will include with any financial information or operating data next provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. The District has not previously made a continuing disclosure agreement in accordance with SEC Rule 15c2-12 . LLR\60609.1\BONDRESOLUTION2021 49 SECTION 14 . 04 : DESCRIPTION OF ANNUAL FINANCIAL INFORMATION. The following information is referred in Section 14 . 01 of this Article: a. Annual Financial Statements and Operating Data. The 1 financial information and operating data with respect to the District to be provided annually are as specified below: (i) Appendix B to the Official Statement : Financial Statements and Auditor' s Report; and (ii) Quantitative financial information and operating 1 data of the general type included in the Official Statement under the headings "DISTRICT DEBT" and "TAX DATA. " b. Accounting Principles . The accounting principles referred to in Section 14 . 01 are generally accepted accounting principles for governmental units as prescribed by the Governmental Accounting Standards Board from time to time, as such principles may be changed from time to time to comply with state law or regulation, or as otherwise stated in the financial statements . ARTICLE FIFTEEN MISCELLANEOUS PROVISIONS SECTION 15 . 01 : OPEN MEETING. The Board of Directors officially finds, determines, and declares that this Resolution was reviewed, carefully considered, and adopted at'•a regular meeting of the Board beginning at 6 :30 p.m. , Central Daylight Time, on October 25 , 1999, and that a sufficient written notice of the date, hour, place, and subject of this meeting was posted at a place readily accessible and convenient to the public within the District and on bulletin boards located at a place convenient to the public in the Brazoria County Courthouse for the time required by law preceding this meeting, as required by the Texas Government Code, Section 551 . 043 , as amended, and that this meeting has been open to the public as required by law at all times during which this Resolution and the subject matter hereof has been discussed, considered, and acted upon. The Board of Directors further ratifies, approves, and confirms such written notice and the contents and posting thereof . SECTION 15 . 02 : UNCLAIMED MONIES . Notwithstanding any other provision of this Resolution to the contrary, the Texas Property Code requires that all monies (including principal and interest payments on the Bonds) which are unclaimed after three years be turned over to the Texas State Treasurer if (a) the owner' s last known address as shown in the records of the Paying Agent/Registrar is in Texas, or (b) if the holder of such unclaimed monies is a Texas governmental entity or a Texas corporation and (i) the owner's identity is unknown or there is no known address for the LLR\60809.1\BONDRESOLVt10N2021 5 0 owner or (ii) the last known address of the owner is in a state hose escheat or unclaimed property law is inapplicable to such monies . Bondholders are advised to be cognizant of the provisions of the Texas Property Code, particularly Chapters 71, 72 , and 74 thereof as such provisions relate to the escheatment of unclaimed monies to the Texas State Treasurer. SECTION 15 . 03 : RELATED MATTERS. To satisfy in a timely I manner all of the District ' s obligations under this Resolution, the president and Secretary of the Board of Directors of the District and all other appropriate officers and agents of the District are j hereby authorized and directed to take all other actions that are reasonably necessary to provide for the issuance, sale, and delivery of the Bonds including, without limitation, executing and delivering on behalf of the District all certificates, consents , receipts, requests, and other documents as may be reasonably necessary to satisfy the District ' s obligations under this Resolution and to direct the transfer and application of funds of the District consistent with the provisions of this Resolution. SECTION 15 . 04 : PAYING AGENT/REGISTRAR. The form of agreement setting forth the duties of the Paying Agent/Registrar is hereby approved, and the appropriate officials of the District are hereby authorized to execute such agreement for and on behalf of the District . SECTION 15 . 05 : OFFICIAL STATEMENT. The Board of Directors of .0 I the District hereby ratifies, authorizes, and approves, in connection with the sale of the Bonds, the preparation and distribution of the Preliminary Official Statement, dated August 30 , 1999, and a final Official Statement substantially in the same form containing such additional information and amendments as may be necessary to conform to the terms of the Bonds and this Resolution. The appropriate officials of the District are hereby authorized to sign such Official Statement and/or to deliver certificates pertaining to such Official Statement as prescribed therein, dated as of the date of payment for and delivery of the Bonds . SECTION 15 . 06 : REMEDIES IN EVENT OF DEFAULT. In addition to any other rights and remedies provided by the laws of the State of Texas, the District covenants and agrees that in the event of default in payment of principal of or interest on any of the Bonds when due, or, in the event it fails to make the payments required to be made into the Debt Service Fund, as defined in Section 7 . 01, or defaults in the observance or performance of any other of the covenants, conditions, or obligations set forth in this Resolution, the Holders shall be entitled to a writ of mandamus issued by a court of competent jurisdiction compelling and requiring the District and the officials thereof to observe and perform the covenants, obligations, or conditions prescribed in this Resolution. Any delay or omission to exercise any right or power accruing upon any default shall not impair any such right or power a LLR\60B09.1\BONDRESOLVSION2021 51 or be construed to be a waiver of any such default or acquiescence therein, and every such right and power may be exercised from time to time and as often as may be deemed expedient . In consideration of the purchase and acceptance of the Bonds authorized to be issued hereunder by the Holders, the provisions of this Resolution shall constitute a contract between the District and the Holders; and the covenants and agreements herein set forth to be performed on behalf of the District shall be for the equal benefit, protection, and security of each of the Holders . The Bonds, regardless of the time or times of their issue or maturity, shall be of equal rank without preference, priority, or distinction of any Bond over any other, except as expressly provided herein. SECTION 15 . 07 : AMENDMENTS TO BOND RESOLUTION. The District may, without the consent of or notice to any Holders of the Bonds, amend, change, or modify this Resolution as may be required (a) by the provisions hereof, (b) for the purpose of curing any ambiguity, inconsistency, or formal defect or omission herein, or (c) in connection with any other change which is not to the prejudice of the Holders of the Bonds. Except for such amendments, changes, or modifications, the District shall not amend, change, or modify this Resolution in any manner without the consent of the Holders of the Bonds . SECTION 15 . 08 : NO PERSONAL LIABILITY. No recourse shall be had for payment of the principal of or interest on any Bonds or for any claim based thereon or in this Resolution against any official or employee of the District or any person executing any Bonds . SECTION 15 . 09 : EFFECTIVE DATE OF RESOLUTION. This Resolution shall take effect and be in full force and effect upon and after its passage . — 52 LLR\60809.1\BONDRESOLUTION2021 PASSED AND APPROVED this 25th day of October, 1999 . /s/ Ricki A. Willoughby President, Board of Directors Brazoria County Municipal Utility District No . 5 ATTEST: /s/ Steve A. Hughes Assistant Secretary, Board of Directors Brazoria County Municipal Utility District No. 5 (SEAL) • LLR\60809.1\BONDRESOLDTION2021 53 r CERTIFICATE OF PAYING AGENT FOR REFUNDED BONDS rI, the undersigned authorized officer of the JPMorgan Chase Bank, National Association (the "Bank"), as successor in interest to Texas Commerce Bank National Association, Houston, Texas and Chase Bank of Texas National Association, Houston, Texas do hereby, for the following bonds (the"Bonds"): BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 5 UNLIMITED rTAX BONDS, SERIES 1995, dated November 1, 1995, maturing on September 1, 2006 through and including September 1, 2015, and aggregating in the principal amount of$1,415,000 BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 5 UNLIMITED TAX BONDS, SERIES 1998, dated March 1, 1998, maturing on September 1, r2007 through and including September 1, 2015, and aggregating in the principal amount of$1,410,000 BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 5 UNLIMITED TAX REFUNDING BONDS, SERIES 1998-A, dated April 1, 1998, maturing on March 1, 2007 through and including March 1, 2012, and aggregating in the principal amount of$3,045,000 BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 5 UNLIMITED TAX BONDS, SERIES 1999, dated November 1, 1999, maturing on September 1 in the years 2008 and 2010 and on September 1, 2012 through and including r September 1, 2015, and aggregating in the principal amount of$1,860,000 agree, on behalf of the Bank, to continue to serve as Paying Agent/Registrar for the Bonds, and to limit the Bank's remedies for nonpayment of fees under the Paying Agent/Registrar Agreement currently in effect for such Bonds, if any,to an action for amounts due and owing thereunder. rEXECUTED this M A`I l , 2006. JPMORGAN CHASE BANK,NATIONAL ASSOCIATION r By: Name: Title: Brad Hounsel, AVP r r rHOU:2576409.1 TheMMGmw,Nlleaepwres STANDARD 55 water Street,38th Floor New York,NY 10041-041-0003 tel 212 438.2074 Q P O O R'C reference no.:775044 111 June 6,2006 Financial Guaranty Insurance Co. 125 Park Avenue, 5th Floor New York,NY 10017 Attention: Mr. Jeffrey Fried, Senior Managing Director Re: $32,165,000 City of Pearland, Texas Permanent Improvement and Refunding Bonds, Series 2006, dated:June 1,2006,Serial Bonds due:March 1, 2007-2027; Term Bonds due: March 1,2029, (POLICY#06010220) rDear Mr. Fried: Standard&Poor's has reviewed the rating on the above-referenced obligations. After such review, we have changed the rating to"AAA"from"A+". The rating reflects our assessment of the likelihood of repayment of principal and interest based on the bond insurance policy your company is providing. Therefore,rating adjustments may result from changes in the financial position of your company or from alterations in the documents governing the issue. The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you but does not represent an audit. We undertake no duty of due diligence or independent.verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent to being named an"expert"under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a"market rating"nor is it a recommendation to buy, hold,or sell the obligations. This letter constitutes Standard& Poor's permission to you to disseminate the above-assigned rating to interested parties. Standard &Poor's reserves the right to inform its own clients, subscribers, and the public of the rating. Standard&Poor's relies on the issuer and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. This rating is based on financial information and documents we received prior to the issuance of this letter. Standard & Poor's assumes that the documents you have provided to us are final. If any subsequent changes were made in the final documents,you must notify us of such changes by sending us the revised final documents with the changes clearly marked. r r r r r Mr. Jeffrey Fried Page 2 June 6, 2006 r Standard&Poor's is pleased to be of service to you. For more information please visit our website at www.standardandpoors.com. If we can be of help in any other way,please contact us. Thank you for choosing Standard &Poor's and we look forward to working with you again. rSincerely yours, Standard&Poor's Ratings Services a division of The McGraw-Hill Companies,Inc. r „04,,,,,,tara,f4531.;„/04, r ms • r r r r r r r r r r w Moody's Investors Service w 99 Church Street New York, NY June 6, 2006 Financial Guaranty Insurance Company 125 Park Avenue, 5th Floor New York, NY 10017 w To Whom It May Concern: Moody's Investors Service has assigned the rating of Aaa (Financial Guaranty Insurance Company Insured - Policy No. 06010220) to the $32,165,000.00, City of Pearland, Texas - Permanent Improvement and Refunding Bonds, Series 2006, dated June 1, 2006 which sold on May 8, 2006. The rating is based upon an insurance policy provided by Financial Guaranty Insurance Company. Should you have any questions regarding the above, please do not hesitate to contact Karen Malkowski at (201) 395-6370. Sincerely yours, Sean Cullen Senior Vice President SC / DC FEEiIC TX DISCLOSURE OF GUAR. FUND Financial Guaranty Insurance Company NONPARTICIPATION 125ParkAvenue In the event the insurer is unable to New York,NY10017 tuIfill its contractual obligation under T 212.312.3000 this policy or contract or application or T 800.352.0001 certificate or evidence of coverage, the policyholder or certificateholder is not protected by an insurance guaranty fund Municipal Bond or other solvency protection arrangement, New Issue Insurance Police Issuer: City of Pearland.Texas Policy Number: 06010220 Control Number: 0010001 Bonds: S32,165,000.00 in aggregate principal Premium: S150.900.00 amount of Permanent Improvement and Refunding Bonds, Series 2006 f Financial Guaranty Insurance Company("Financial Guaranty"), a New York stock insurance company, in consideration of the payment of the premium and subject to the terms of this Policy,hereby unconditionally and irrevocably agrees to pay U.S. Bank Trust National Association or its successor, as its agent (the "Fiscal Agent"), for the benefit of Bondholders, that portion of the principal and interest on the above- described debt obligations (the "Bonds") which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. Financial Guaranty will make such payments to the Fiscal Agent on the date such principal or interest becomes Due for Payment or on the Business Day next following the day on which Financial Guaranty shall have received Notice of Nonpayment,whichever is later. The Fiscal Agent will disburse to the Bondholder the face amount of principal and interest which is then Due for Payment but is unpaid by reason of Nonpayment by the Issuer but only upon receipt by the Fiscal Agent,in form reasonably satisfactory to it,of (i) evidence of the Bondholder's right to receive payment of the principal or interest Due for Payment and (ii) evidence, including any appropriate instruments of assignment, that all of the Bondholder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Financial Guaranty. Upon such disbursement, Financial Guaranty shall become the owner of the Bond, appurtenant coupon or right to payment of principal or interest on such Bond and shall be fully subrogated to all of the Bondholder's rights thereunder,including the Bondholder's right to payment thereof. rThis Policy is non-cancellable for any reason. The premium on this Policy is not refundable for any reason, including the payment of the Bonds prior to their maturity. This Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bond. As used herein,the term`Bondholder"means,as to a particular Bond,the person other than the Issuer who, at the time of Nonpayment,is entitled under the terms of such Bond to payment thereof. "Due for Payment" means, when referring to the principal of a Bond, the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity and means, when referring to interest on a Bond, the stated date for payment of interest. "Nonpayment" in respect of a Bond means the failure of the Issuer to have provided sufficient funds to the paying agent for payment in full of all principal and interest Due for Payment on such Bond. "Notice" means telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from a Bondholder or a paying agent for the FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company.FGIC Corporation. Form 9000(10/93) Page 1 of 2 FDIC Financial Guaranty Insurance Company 125 Park Avenue New York,NY 10017 T 212.312.3000 T 800.352-0001 Municipal Bond ?dew Issue Insurance Police r Bonds to Financial Guaranty. "Business Day" means any day other than a Saturday, Sunday or a day on which the Fiscal Agent is authorized by law to remain closed. In Witness Whereof, Financial Guaranty has caused this Policy to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. IPresident 7CtoCia,4C—. r Effective Date: June 8,2006 Authorized Representative U.S.Bank Trust National Association acknowledges that it has agreed to perform the duties of Fiscal Agent under this Policy. I •. Authorized Officer V p F I r FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company,FGIC Corporation, Form 9000(10/93) Page 2 of 2 r FDIC r Financial Guaranty Insurance Company 125 Park Avenue New York.NY 10017 r T 212.312.3000 T 800.352.0001 rEndorsement To Financial Guaranty Insurance Company rInsurance Policy rPolicy Number: 06010220 Control Number: 0010001 r It is further understood that the term"Nonpayment"in respect of a Bond includes any payment of principal or interest made to a Bondholder by or on behalf of the issuer of such Bond which has been recovered from such Bondholder pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final,nonappealable order of a court having competent jurisdiction. rNOTHING HEREIN SHALL BE CONSTRUED TO WAIVE, ALTER, REDUCE OR AMEND COVERAGE IN ANY OTHER SECTION OF THE POLICY. IF FOUND CONTRARY TO THE r POLICY LANGUAGE, THE TERMS OF THIS ENDORSEMENT SUPERSEDE THE POLICY LANGUAGE. r In Witness Whereof, Financial Guaranty has caused this Endorsement to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. r ,,,_ , . z ram_ r President �/(7_.- rEffective Date: June 8,2006 Authorized Representative Acknowledged as of the Effective Date written above: PP rJ^ -- r rAuthorized Officer U.S.Bank Trust National Association, as Fiscal Agent r r FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company.FGIC Corporation. rForm E-0002(10/93) Page 1 of 1 $32,165,000 City of Pearland, Texas Permanent Improvement and Refunding Bonds, Series 2006 The following information is included in the transcript submitted to the Office of the Attorney General for the purpose of obtaining Attorney General approval of the issuance of the referenced certificates of obligation, as required by H.B. 1564, 74th Legislature. Regular Session (Tex. Laws 1995, ch. 383. at 2930). A. No disclosure document has been prepared for this issue. 1. Name of bond issue: City of Pearland, Texas Permanent Improvement and Refunding Bonds, Series 2006 2. a) par amount of issue: $32,165,000 b) dollar amount of bond premium, if any: $482,165.40 c) dollar amount of bond original issue discount. if any: $132.272.20 3. Dated date: June 1, 2006 4. Closing date (expected delivery date, on or about): June 8, 2006 5. By year, maturity amounts, coupon rates, prices or yields: See Official Statement. (If no reoffering yield (NRO) indicated, please provide yield separately.) 6. Call provisions, including premiums, if any: See Official Statement. 7. Mandatory redemption provisions: See Official Statement. 8. Debt-service schedule, principal and interest, and annual totals, with fiscal year identified: See Exhibit A _ 9. Use of derivative products associated with financing: N/A 10. If applicable, schedule of bonds refunded, including, by year, principal amount, coupon, and interest cost: See Exhibit B. 11. Pledge: tax (ad valorem, sales, other), revenue, combination: Ad valorem taxes. 12. Type of credit enhancement (including PSF guarantee): FGIC Bond Insurance. 13. Rating service(s) and rating(s) assigned to issue: N/A B. Additional Information 1. Type of sale: Competitive 2. Pricing: May 8, 2006 3. If purchaser of bonds is a governmental entity, such as the Texas Water Development Board, please name purchaser: N/A 4. If a refunding bond issue, please provide final schedule of cash and present value savings (loss): See Exhibit C. ,,. 5. If a school district refunding bond issue, and the refunding involves "old debt" per the Texas Education Code, please provide schedule of principal and interest payments of refunding bonds associated with "old debt": N/A If the same issue also involves "new debt." please provide a schedule of principal and interest payments on the "new debt" portion as well. These two schedules r together should equal total debt service by maturity: N/A HOU2583170.1 r r6. CAB's and CIB's — please provide the per annum bond interest rates by maturity as shown in the bond order document: N/A r7. Costs of Issuance—please provide best estimate of costs. If final costs are significantly different, please submit changes directly to the rTexas Bond Review Board. Call (512) 463-1741 or(512) 475-4802 (FAX). r SERVICE 1 FIRM ONE-TIME FEE i ANNUAL FEE(a) (in dollars) Bond Rating Moody's 15,150.00 r Standard& Poor's 15,000.00 Fitch N/A Other General Costs of Issuance (b) $132,300 $500.00 Any Specialized Costs of Issuance (c) $3,500.00 r 'Credit Facility N/A Bond Insurance N/A _ Total Underwriting Spread (d) $267,570.00 Did underwriter pay rating fee(s) j No Which one(s)? Did underwriter pay bond insurance fee? Yes PARTICIPANTS FIRM Financial Advisor RBC Capital Markets t Bond Counsel Andrews Kurth LLP Paving Agent/Registrar; Escrow Agent; Authenticating Agent Wells Fargo Bank, N.A. r Underwriters Citigroup Global Markets, Inc. Trustee None Underwriter's Counsel None r (a) relates to the ongoing fees or recurring costs of a financing for services such as paying agent, remarketing agent, credit provider and other similar services (may be expressed as r a formula as appropriate) (b) e.g., bond counsel, financial advisor, paying agent, printing, AG approval (c) e.g., remarketing fees, escrow verification fees, etc. r (d) the cost for marketing and selling the bonds, including takedown, structuring fee. underwriting risk and expenses. rPERSON COMPLETING FORM: Name: Marcus W. Deitz Telephone No. (713) 220-4876 Fax No. (713) 238-7125 r r r r rHOU:2583170.1 F EXHIBIT A DEBT SERVICE SCHEDULE V p I r I f V r f r I I f rHOU:2583170.1 own witspi moos I City of Pearland, Texas-General Obligation Debt Aggregation Report REVISED Final Numbers-June 2,2006 Face Principal Interest Annual Total PV to 0610212006 Dates Amount Amount Amount Total FY Begins 10/01 @ 0.00000000% 03/01/2007 50,000.00 50,000.00 1,151,395.31 1,201,395.31 1,201,395.31 09/01/2007 766,596.88 766,596.88 1,967,992.19 766,596.88 03/01/2008 50,000.00 50.000.00 766,596.88 816,596.88 816,596.88 09/01/2008 765,596.88 765,596.88 1,582,193.76 765,596.88 03/01/2009 50,000.00 50,000.00 765,596.88 815,596.88 815,596.88 09/01/2009 764,596.88 764,596.88 1,580,193.76 764,596.88 03/01/2010 50,000.00 50,000.00 764,596.88 814,596.88 814,596.88 09/01/2010 763,596.88 763,596.88 1,578,193.76 763,596.88 03/01/2011 320,000.00 320,000.00 763,596.88 1,083,596.88 1,083,596.88 09/01/2011 757,196.88 757,196.88 1,840,793.76 757,196.88 03/01/2012 385,000.00 385,000.00 757,196.88 1,142,196.88 1,142,196.88 09/01/2012 749,496.88 749,496.88 1,891,693.76 749,496.88 03/01/2013 400,000.00 400,000.00 749,496.88 1,149,496.88 1,149,496.88 09/01/2013 741,496.88 741,496.88 1,890,993.76 741,496.88 03/01/2014 410,000.00 410,000.00 741,496.88 1,151,496.88 1,151,496.88 09/01/2014 733,296.88 733,296.88 1,884,793.76 733,296.88 03/01/2015 430,000.00 430,000.00 733,296.88 1,163,296.88 1,163,296.88 09/01/2015 724,696.88 724,696.88 1,887,993.76 724,696.88 03/01/2016 445,000.00 445,000.00 724,696.88 1,169,696.88 1,169,696.88 09/01/2016 715,518.75 715,518.75 1,885,215.63 715,518.75 03/01/2017 460,000.00 460,000.00 715,518.75 1,175,518.75 1,175,518.75 09/01/2017 705,743.75 705,743.75 1,881,262.50 705,743.75 03/01/2018 480,000.00 480,000.00 705,743.75 1,185,743.75 1,185,743.75 09/01/2018 695,543.75 695,543.75 1,881,287.50 695,543.75 03/01/2019 1,335,000.00 1,335,000.00 695,543.75 2,030,543.75 2,030,543.75 09/01/2019 665,506.25 665,506.25 2,696,050.00 665,506.25 03/01/2020 1,485,000.00 1,485,000.00 665,506.25 2,150,506.25 2,150,506.25 09/01/2020 628,381.25 628,381.25 2,778,887.50 628,381.25 03/01/2021 1,580,000.00 1,580,000.00 . 628,381.25 2,208,381.25 2,208,381.25 09/01/2021 588,881.25 588,881.25 2,797,262.50 588,881.25 03/01/2022 1,675,000.00 1,675,000.00 588,881.25 2,263,881.25 2,263,881.25 09/01/2022 547,006.25 547,006.25 2,810,887.50 547,006.25 03/01/2023 2,150,000.00 2,150,000.00 547,006.25 2,697,006.25 2,697,006.25 09/01/2023 493,256.25 493,256.25 3,190,262.50 493,256.25 03/01/2024 2,150,000.00 2,150,000.00 493,256.25 2,643,256.25 2,643,256.25 09/01/2024 439,506.25 439,506.25 3,082,762.50 439,506.25 03/01/2025 2,270,000.00 2,270,000.00 439,506.25 2,709,506.25 2,709,506.25 09/01/2025 382,756.25 382,756.25 3,092,262.50 382,756.25 03/01/2026 2,395,000.00 2,395,000.00 382,756.25 2,777,756.25 2,777,756.25 09/01/2026 322,881.25 322,881.25 3,100,637.50 322,881.25 03/01/2027 2,525,000.00 2,525,000.00 322,881.25 2,847,881.25 2,847,881.25 09/01/2027 262,912.50 262,912.50 3,110,793.75 262,912.50 03/01/2028 3,690,000.00 3,690,000.00 262,912.50 3,952,912.50 3,952,912.50 09/01/2028 175,275.00 175,275.00 4,128,187.50 175,275.00 r Page-3 Face Principal Interest Annual Total PV to 06/02/2006 - Dates Amount Amount Amount Total FY Begins 10/01 @ 0.00000000% 03/01/2029 7,380,000.00 7,380,000.00 175,275.00 7,555,275.00 7,555,275.00 7,555,275.00 Totals $32,165,000.00 $32,165,000.00 $27,930,876.65 $60,095,876.65 $60,095,876.65 $60,095,876.65 Component Face Amt Prin Amt Cost/Proceeds WAM -----Title From To °/. NEW06 24,000,000.00 24,000,000.00 24,255,793.10 18.970 yrs Permanent Improvement&Refunding Bonds,Seri 100,000 NEWO6REF 8,165,000.00 8,165,000.00 8,259,100.10 15.149 yrs Permanent Improvement and Refunding Bonds,Se 100.000 Totals $32,165,000.00 532,165,000.00 $32,514,893.20 17.999 yrs PEARLANDCITYOFGO:AGGNEW06 Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:17 v7.53 i Page-4 r rEXHIBIT B SCHEDULE OF REFUNDED BONDS I I I I r 1 f i r r i I S E r HOU:2583170.1 a a a I I a a a a a a I a a a a a a a City of Pearland, Texas-General Obligation Debt REVISED Final Numbers-June 2,2006 Dated Date=03/01/2006 UIL Tax Bonds,Series 1995 Delivery Date=0310112006 Brazoria Co MUD#5 Term Bond Bond Coupon Interest Total Fiscal Year Debt Service _ Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call 06/09/2006 - - - - - - - - - 1,438,207.63 09/01/2006 - 100,000.00 * 100,000.00 5.600 5.600000 100.000000 42,626.25 142,626.25 142,626.25 - 03/01/2007 - - - - - - 39,826.25 39,826.25 - - 09/01/2007 - 110,000.00 * 110,000.00 5.700 5.700000 100.000000 39,826.25 149,826.25 189,652.50 - 03/01/2008 - - - - - - 36,691.25 36,691.25 - - 09/01/2008 - 115,000.00 ' 115,000.00 5.800 5.800000 100.000000 36,691.25 151,691.25 188,382.50 - 03/01/2009 - - - - - - 33,356.25 33,356.25 - - 09/01/2009 - 125,000.00 ' 125,000.00 6.000 6.000000 100.000000 33,356.25 158,356.25 191,712.50 - 03/01/2010 - - - - - - 29,606.25 29,606.25 - - 09/01/2010 - 135,000.00 ' 135,000.00 6.000 6.000000 100.000000 29,606.25 164,606.25 194,212.50 - 03/01/2011 - - - - - - 25,556.25 25,556.25 - - 09/01/2011 - 145,000.00 ' 145,000.00 6.000 6.000000 100.000000 25,556.25 170,556.25 196,112.50 - 03/01/2012 - - - - - - 21,206.25 21,206.25 - - 09/01/2012 - 155,000.00 ' 155,000.00 6.125 6.125000 100.000000 21,206.25 176,206.25 197,412.50 - 03/01/2013 - - - - - - 16,459.38 16,459.38 - - 09/01/2013 - 165,000.00 ' 165,000.00 6.125 6.125000 100.000000 16,459,38 181,459.38 197,918.76 - 03/01/2014 - - - - - - 11,406.25 11,406.25 - - 09/01/2014 - 175,000.00 ' 175,000.00 6.250 6.250000 100.000000 11,406.25 186,406.25 197,812.50 - 03/01/2015 - - - - - - 5,937.50 5,937.50 - - 09/01/2015 - 190,000.00 ' 190,000.00 6.250 6.250000 100.000000 5,937.50 195,937.50 201,875.00 - Total - 1,415,000.00 1,415,000.00 482,717.51 1,897,717.51 1,897,717.51 1,438,207.63 Acc Int - - - - - - - brand Totals - 1,415,000.00 1,415,000.00 482,717.51 1,897,717.51 1,897,717.51 1,438,207.63 •-Bonds callable ... 06/09/2006 @ 100.000 TIC(Incl,all expenses)....6.11522757% Average Coupon 6.12391386% Net Eff.Int.Rate(Texas Vernon's)= 6.123914%(with Adjstmnt of$0.00). TIC(Arbitrage TIC) 6.11522757% Average Life(yrs)... 5.57 IRS Form 8038-G NIC =6.123914%(with Adjstmnt of$0,00). Bond Years 7,882.50 WAM(yrs) 5.570671 NIC= 6.123914%(with Adjstmnt of$0.00). PEARLANDCITYOFGO:OLD95MUD5R Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:19 v7.53 i Page-14 1 I I I t I I i 1 i I i I 1 i i i i i City of Pearland, Texas-General Obligation Debt REVISED Final Numbers-June 2,2006 Dated Date=0310112006 UIL Tax Bonds,Series 1998 Delivery Date=03/01/2006 Brazoria Co MUD#5 Term Bond Bond Coupon Interest Total Fiscal Year Debt Service Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call 09/01/2006 - 85,000.00 85,000.00 4.450 4.450000 100.000000 34,173.75 119,173.75 119,173.75 1,529,173.75 03/01/2007 - - - - - - 32,282.50 32,282.50 - - 09/01/2007 - 90,000.00 ' 90,000.00 4.500 4.500000 100.000000 32,282.50 122,282.50 154,565.00 03/01/2008 - - - - - - 30,257.50 30,257.50 - - 09/01/2008 - 95,000.00 ' 95,000.00 4.600 4.600000 100.000000 30,257.50 125,257.50 155,515.00 - 03/01/2009 - - - - - - 28,072.50 28,072.50 - - 09/01/2009 - 100,000.00 ' 100,000.00 4.500 4.500000 100.000000 28,072.50 128,072.50 156,145.00 - 03/01/2010 - - - - - - 25,822.50 25,822.50 - - 09/01/2010 - 105,000.00 ' 105,000.00 4.500 4.500000 100.000000 25,822.50 130,822.50 156,645.00 - 03/01/2011 - - - - - - 23,460.00 23,460.00 - - 09/01/2011 - 115,000.00 ' 115,000.00 4.600 4.600000 100.000000 23,460.00 138,460.00 161,920.00 - 03/01/2012 - - - - - - 20,815.00 20,815.00 - - 09/01/2012 - 125,000.00 ' 125,000.00 4.600 4.600000 100.000000 20,815.00 145,815.00 166,630.00 - 03/01/2013 - - - - - - 17,940.00 17,940.00 - - 09/01/2013 - 245,000.00 ' 245,000.00 4.600 4.600000 100.000000 17,940.00 262,940.00 280,880.00 - 03/01/2014 - - - - - - 12,305.00 12,305.00 - - 09/01/2014 - 260,000.00 ' 260,000.00 4.600 4.600000 100.000000 12,305.00 272,305.00 284,610.00 - 03/01/2015 - - - - - - 6,325.00 6,325.00 - - 09/01/2015 - 275,000.00 ' 275,000.00 4.600 4.600000 100.000000 6,325.00 281,325.00 287,650.00 - Total - 1,495,000.00 1,495,000.00 428,733.75 1,923,733.75 1,923,733.75 1,529,173.75 Acc Int - - - - - - - Grand Totals - 1,495,000.00 1,495,000.00 428,733.75 1,923,733.75 1,923,733.75 1,529,173.75 '-Bonds callable ... 09/01/2006 @ 100.000 TIC(Incl.all expenses)....4.58808164% Average Coupon 4.58906877% Net Elf. Int.Rale(Texas Vernon's)= 4.589069%(with Adjstmnt of$0.00). TIC(Arbitrage TIC) 4.58808164% Average Life(yrs)... 6.25 IRS Form 8038-G NIC =4.589069%(with Adjstmnt of$0.00). Bond Years 9,342.50 WAM(yrs) 6.249164 NIC= 4.589069%(with Adjstmnt of$0.00). PEARLANDCITYOFGO:OLD98MUD5R Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:19 v7.53 L Page-15 I I i 1 1 I 1 i I 1 I I 1 I I 1 a a i City of Pearland, Texas-General Obligation Debt REVISED Final Numbers-June 2,2006 Dated Date=03/01/2006 UIL Tax Refunding Bonds,Series 1998A Delivery Date=03/01/2006 Brazoria Co MUD#5 Term Bond Bond Coupon Interest Total Fiscal Year Debt Service Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call 06/09/2006 - - - - - - - - 3,084,361.97 09/01/2006 - - - - - 72,297.50 72,297.50 72,297.50 - 03/01/2007 - 450,000.00 ' 450,000.00 4.600 4.600000 100.000000 72,297.50 522,297.50 - - 09/01/2007 - - - - - - 61,947.50 61,947.50 584,245.00 - 03/01/2008 - 475,000.00 * 475,000.00 4.700 4.700000 100.000000 61,947.50 536,947.50 - - 09/01/2008 - - - - - - 50,785.00 50,785.00 587,732.50 - 03/01/2009 495,000.00 •' 495,000.00 4.700 4.700000 100.000000 50,785.00 545,785,00 - - - 09/01/2009 - - - - - - 39,152.50 39,152,50 584,937.50 - 03/01/2010 - 520,000.00 ' 520,000.00 4.750 4.750000 100.000000 39,152.50 559,152,50 - - 09/01/2010 - - - - - - 26,802.50 26,802.50 585,955.00 - 03/01/2011 540,000.00 ' 540,000.00 4.800 4.800000 100.000000 26,802.50 566,802.50 - - 09/01/2011 - - - - - - 13,842.50 13,842.50 580,645.00 - 03/01/2012 - 565,000.00 ' 565,000.00 4.900 4.900000 100.000000 13,842,50 578,842.50 578,842.50 - Total - 3,045,000.00 3,045,000.00 529,655.00 3,574,655.00 3,574,655.00 3,084,361.97 Acc Int - - - - - - - rand Totals - 3,045,000.00 3,045,000.00 529,655.00 3,574,655.00 3,574,655.00 3,084,361.97 '-Bonds callable... 06/09/2006 @ 100.000 TIC(Incl.all expenses)....4.78831644% Average Coupon 4.79109000% Net Eff. Int.Rate(Texas Vernon's)= 4.791090%(with Adjslmnt of$0.00). TIC(Arbitrage TIC) 4.78831644% Average Life(yrs)... 3.63 IRS Form 8038-G NIC =4.791090%(with Adjstmnt of$0.00). Bond Years 11,055.00 WAM(yrs) 3.630542 NIC= 4.791090%(with Adjstmnt of$0.00). • PEARLANDCITYOFGO:OLD98AMUD5R Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:19 v7.53 Page-16 I I I I I I 1 I I I I I I I 1 I I I 1 City of Pearland, Texas-General Obligation Debt REVISED Final Numbers-June 2,2006 Dated Date=03/01/2006 U/L Tax Bonds,Series 1999 Delivery Date=03/01/2006 Brazoria Co MUD#5 Term Bond Bond Coupon Interest Total Fiscal Year Debt Service Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call 09/01/2006 75,000.00 (1) 75,000.00 75,000.00 5.000 5.000000 100.000000 52,441.88 127,441.88 127,441.88 1,987,441.88 03/01/2007 - - - - - - 50,566.88 50,566.88 - - 09/01/2007 - (2) 80,000.00 ' 80,000.00 5.125 5.125000 100.000000 50,566.88 130,566.88 181,133.76 - 03/01/2008 - - - - - - 48,516.88 48,516.88 - - 09/01/2008 165,000.00 (2) 85,000.00 ' 85,000.00 5.125 5.125000 100.000000 48,516.88 133,516.88 182,033.76 - 03/01/2009 - - - - - - 46,338.75 46,338.75 - - 09/01/2009 - (3) 90,000.00 * 90,000.00 5.350 5.350000 100.000000 46,338.75 136,338.75 182,677.50 - 03/01/2010 - - - - - - 43,931.25 43,931.25 - - 09/01/2010 180,000.00 (3) 90,000.00 ' 90,000.00 5.350 5.350000 100.000000 43,931.25 133,931.25 177,862.50 - 03/01/2011 - - - - - - 41,523.75 41,523.75 - - 09/01/2011 - (4) 95,000.00 * 95,000.00 5.450 5.450000 100.000000 41,523.75 136,523.75 178,047.50 - 03/01/2012 - - - - - - 38,935.00 38,935.00 - - 09/01/2012 190,000.00 (4) 95,000.00 ' 95,000.00 5.450 5.450000 100.000000 38,935.00 133,935.00 172,870.00 - 03/01/2013 - - - - - - 36,346.25 36,346.25 - - 09/01/2013 - 420,000.00 ' 420,000.00 5.400 5.400000 100.000000 36,346.25 456,346.25 492,692.50 - 03/01/2014 - - - - - 25,006.25 25,006.25 - 09/01/2014 - 445,000.00 ' 445,000.00 5.450 5.450000 100.000000 25,006.25 470,006.25 495,012.50 - 03/01/2015 - - - - - - 12,880.00 12,880.00 - - 09/01/2015 - 460,000.00 • 460,000.00 5.600 5.600000 100.000000 12,880.00 472,880.00 485,760.00 - Total 610,000.00 1,935,000.00 1,935,000.00 740,531.90 2,675,531.90 2,675,531.90 1,987,441.88 Acc Int - - - - - - - Grand Totals 610,000.00 1,935,000.00 1,935,000.00 740,531.90 2,675,531.90 2,675,531.90 1,987,441.88 •-Bonds callable .. 09/01/2006 @ 100.000 TIC(Incl.all expenses)....5.46815587% Average Coupon 5.47224755% Net Eff. Int.Rate(Texas Vernon's)= 5.472248%(with Adjstmnt of$0.00). TIC(Arbitrage TIC) 5.46815587% Average Life(yrs)... 6.99 IRS Form 8038-G NIC =5.472248%(with Adjstmnt of$0.00). Bond Years 13,532.50 WAM(yrs) 6.993540 NIC= 5.472248%(with Adjstmnt of$0.00). Term bonds and their respective sinking payments are marked by "(n)" where each"n"identifies each respective term bond. PEARLANDCITYOFGO:OLD99MUD5R Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:19 v7.53 r Page-17 I I 1 I 1 i i i a 1 a a a a a a 1 1 I City of Pearland, Texas-General Obligation Debt Aggregation Spreadsheet Report REVISED Final Numbers-June 2,2006 Data are Principal Amounts Data are to Maturity FY 10/01 Dates Totals OLD95MUD5R OLD98MUD5R OLD98AMUD5R OLD99MUD5R 09/01/2006 260,000.00 100,000.00 85,000.00 75,000.00 03/01/2007 450,000.00 450,000.00 09/01/2007 280,000.00 110,000.00 90,000.00 80,000.00 03/01/2008 475,000.00 475,000.00 09/01/2008 295.000.00 115,000.00 95,000.00 85,000.00 03/01/2009 495,000.00 495,000.00 09/01/2009 315,000.00 125,000.00 100,000.00 90,000.00 03/01/2010 520,000.00 520,000.00 09/01/2010 330,000.00 135,000.00 105,000.00 90,000.00 03/01/2011 540,000 00 540,000.00 09/01/2011 355,000.00 145,000.00 115,000.00 95,000.00 03/01/2012 565,000.00 565,000.00 09/01/2012 375,000.00 155,000.00 125,000.00 95,000.00 03/01/2013 0.00 09/01/2013 830,000.00 165,000.00 245,000.00 420,000.00 03/01/2014 0.00 09/01/2014 880,000.00 175,000.00 260,000.00 445,000.00 03/01/2015 0.00 09/01/2015 925,000.00 190,000.00 275,000.00 460,000.00 Totals $7,890,000.00 81,415,000.00 $1,495,000.00 53,045,000.00 $1,935,000.00 Component Face Amt Title From To OLD95MUD5R $1,415,000.00 U/L Tax Bonds,Series 1995 OLD98MUD5R $1,495,000.00 U/L Tax Bonds,Series 1998 OLD98AMUD5R $3,045,000.00 U/L Tax Refunding Bonds,Series 1998A OLD99MUD5R $1,935,000.00 U/L Tax Bonds,Series 1999 • PEARLANDCITYOFGO:AGGREF Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:18 v7.53 1 Page-13 r rEXHIBIT C 1 SAVINGS SCHEDULE I r r r r r i r r F i r r r rHOU:2583170.1 City of Pearland, Texas-General Obligation Debt Refunding Analysis Savings Report REVISED Final Numbers-June 2,2006 Maturing Proceeds @ Interest Total Escrowed FY Begins Cumulative PV of Savings 1 /01 Dates Amount Issue Date Coupon Yield Amount Debt Service Debt Savings Savings 4.71271611% 06/08/2006 09/01/2006 461,539.38 461,539.38 461,539.38 456,609.25 03/01/2007 4.000 3.700000 283,645.31 283,645.31 644,973.13 361,327.82 822.867.20 349,238.82 09/01/2007 189,096.88 189,096.88 464,623.13 275,526.25 1,098,393.45 260,177.22 03/01/2008 4.000 3.710000 189,096.88 189,096.88 652,413.13 463,316.25 1,561,709.70 427,433.94 09/01/2008 189,096.88 189,096.88 461,250.63 272,153.75 1,833,863.45 245,296.28 03/01/2009 4.000 3.710000 189,096.88 189,096.88 653,552.50 464,455.62 2,298,319.07 408,983.74 09/01/2009 189,096.88 189,096.88 461,920.00 272,823.12 2,571,142.19 234,708.15 03/01/2010 4.000 3.730000 189,096.88 189,096.88 658,512.50 469.415.62 3,040,557.81 394,538.79 09/01/2010 189,096.88 189,096.88 456,162.50 267,065.62 3,307,623.43 219,298.33 03/01/2011 270,000 272,770.20 4.000 3.760000 189,096.88 459,096.88 657,342.50 198,245.62 3,505,869.05 159,039.91 09/01/2011 183,696.88 183,696.88 459,382.50 275,685,62 3,781,554.67 216,073.65 03/01/2012 285,000 287,017.80 4.000 3.860000 183,696.88 468,696.88 659,798.75 191,101.87 3,972,656,54 146,331.49 09/01/2012 177,996.88 177,996.88; 455,956.25 277,959.37 4,250,615.91 207,940.63 03/01/2013 300,000 300,687.00 4.000 3.960000 177,996.88 477,996.88 70,745.63 -407,251.25 3,843,364.66 -297,649.83 09/01/2013 171,996.88 171,996.88 900,745.63 728,748.75 4,572,113.41 520,362,77 03/01/2014 310,000 308,353.90 4.000 4.080000 171,996.88 481,996.88 48,717.50 -433,279.38 4,138,834.03 -302,260.64 09/01/2014 165,796.88 165,796.88 928,717.50 762,920.62 4,901,754,65 519,969.77 03/01/2015 330,000 325,673.70 4.000 4.180000 165,796.88 495,796.88 25,142.50 -470,654,38 4,431,100.27 -313,390.64 09/01/2015 159,196.88 159,196.88 950,142.50 790,945.62 5,222,045.89 514,535.95 03/01/2016 345,000 341,570.70 4.125 4.250000 159,196.88 504,196.88 -504,196.88 4,717,849,01 -320,445.68 09/01/2016 152,081.25 152,081.25 -152,081.25 4,565,767.76 -94,431.12 03/01/2017 360,000 358,444.80 4.250 4.300000 152,081.25 512,081.25 -512,081.25 4,053,686.51 -310,644.38 09/01/2017 144,431.25 144,431.25 -144,431,25 3,909,255.26 -85,599.45 03/01/2018 380,000 376,515.40 4.250 4.350000 144,431.25 524,431.25 -524,431.25 3,384,824.01 -303,657.17 09/01/2018 136,356.25 136,356.25 -136,356.25 3,248,467.76 -77,135.66 03/01/2019 395,000 393,080.30 4.500 4.550000 136,356.25 531,356.25 -531,356.25 2,717,111.51 -293,664.27 09/01/2019 127,468.75 127,468.75 -127,468.75 2,589,642.76 -68,826.27 03/01/2020 415,000 431,508.70 5.000 4.490000 127,468.75 542,468.75 -542,468.75 2,047,174.01 -286,160.97 09/01/2020 117,093.75 117,093.75 -117,093.75 1,930,080.26 -60,346.84 03/01/2021 435,000 451,260.30 5.000 4.520000 117,093.75 552,093.75 -552,093.75 1,377,986.51 -277,983.39 09/01/2021 106,218.75 106,218.75 -106,218,75 1,271,767.76 -52,250.73 03/01/2022 455,000 470,920.45 5.000 4.550000 106,218.75 561,218.75 -561,218.75 710,549,01 -269,717.14 09/01/2022 94,843.75 94,843.75 -94,843.75 615,705.26 -44,531.80 03/01/2023 480,000 495,648.00 5.000 4.580000 94,843.75 574,843.75 -574,843.75 40,861.51 -263,691.75 09/01/2023 82,843.75 82,843.75 -82,843.75 -41,982,24 -37,127.15 03/01/2024 505,000 522,669.95 5.000 4.550000 82,843.75 587,843.75 -587,843.75 -629,825.99 -257,382.48 09/01/2024 70,218.75 70,218.75 -70,218.75 -700,044.74 -30,036.92 03/01/2025 525,000 542,535.00 5.000 4.570000 70,218.75 595,218.75 -595,218.75 -1,295,263.49 -248,750.54 09/01/2025 57,093.75 57,093.75 -57,093.75 -1,352,357.24 -23,311.01 03/01/2026 550,000 567,495.50 5.000 4.590000 57,093.75 607,093.75 -607,093.75 -1,959,450.99 -242,166.20 09/01/2026 43,343.75 43,343.75 -43,343.75 -2,002,794.74 -16,891.55 03/01/2027 580,000 580,000.00 4.750 4.750000 43,343.75 623,343.75 -623,343,75 -2,626,138.49 -237,331.69 09/01/2027 29,568.75 29,568.75 -29,568.75 -2,655,707.24 -10,998.82 1 Page-7 I I 1 1 1 I I I I 1 I 1 I 1 1 i I 1 4 Maturing Proceeds @ Interest Total Escrowed FY Begins Cumulative PV of Savings Dates Amount Issue Date Coupon Yield Amount Debt Service Debt 10/01 Savings 4.71271611% Savings 03/01/2028 610,000 604,095.20 4,750 4.821850 29,568.75 639,568.75 -639,568.75 -3,295,275.99 -232,426.54 09/01/2028 15,081.25 15,081.25 -15,081.25 -3,310,357.24 -5,354.53 03/01/2029 635,000 628,853.20 4.750 4.820000 15,081.25 650,081.25 -650,081.25 -3,960,438.49 -225,494.77 58,165,000 $8,259,100.10 55,867,076.65 $14,032,076.65 $10,071,638.16 -3,960,438.49 -9,121.24 Acc Int -7,353.77 -7,353.77 $7,353.77 $7,353.77 Grnd Total 58,165,000 $8,259,100.10 $5,859,722.88 $14,024,722.88 $10,071,638.16 -3,953,084.72 -1,767.47 PEARLANDCITYOFGO:RUN06REF NEW06REF AGGREF Prepared by:RRC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/02/2006 @ 14:18 v7.53 Page-8 I 1 I I I I I I r r I I I I I I I I UNITED STATES OF AMERICA STATE OF TEXAS CITY OF PEARLAND,TEXAS PERMANENT IMPROVEMENT AND REFUNDING BONDS,SERIES 2006 NUMBER DENOMINATION R-1 S50.000 •• REGISTERED REGISTERED INTEREST RATE: DATED DATE: MATURITY DATE: CUSIP: 4.000% June 1,2006 March 1,2007 vy 704862 WF 4 .. , REGISTERED OWNER: CITIGROUP GLOBAL MARKETS,INC. •,' • • PRINCIPAL AMOUNT: FIFTY THOUSAND AND NO/100 D• ' • • • THE CITY OF PEARLAND,TEXAS. a municipal corpora o ' .tat= exas (the"City"), for value received,hereby promises to pay to the Registered Owner identifie ' ` e o •istered assigns, on the maturity en date specified above (or on earlier redemption as herein provi. . , u.\ sen . ion and surrender of this Bond at the office of Wells Fargo Bank,N.A.,Houston, Texas or its - - • •e .ying AgentiRegistrar"), the principal amount identified above (or so much thereof as shall no .ve . • . .r deemed to have been paid upon prior redemption)payable in any coin or currency of the Unite. es o • •.a ca which on the date of payment of such principal is legal tender for the payment of debts du e I R,• S . es of America, and to pay interest thereon at the rate shown above, calculated on a basis of a 3 a- year c. .sed of twelve 30-day months,from the later of the Dated Date identified above or the most rec interes yment date to which interest has been paid or duly provided for. Interest on this Bond is payabl• .n 1, 7, and each September 1 and March 1 thereafter until maturity or earlier redemption of this Bo • ,•c ec United States mail, first class, postage prepaid.by the Paying Agent/Registrar to the Register- • record as of the close of business on the 15th business day of the calendar month immediately preceding th. ca. terest payment date,as shown on the registration books kept by the Paying Agent/Registrar. • rue. :' t payable at maturity or earlier redemption shall be paid upon presentation and surrender oft . • the o . e of the Paving Agent/Registrar. THIS BOND IS ' 0 .DULY AUTHORIZED SERIES OF BONDS (the "Bonds") in the aggregate principal amount of S3 . ,i I su-. rsuant to an ordinance adopted by the City Council of the City on May 8, 2006 (the "Ordinance' • . 'lose of providing funds for permanent public improvements in the City and refunding certain outsta . g o. .tions of the City, under and pursuant to the authority of Chapters 1207 and 1331, Texas Government C. .s amended, the City's Home Rule Charter, and an election held on November 6, 2001. Proceeds of the Bonds will also be used to pay costs of issuance of the Bonds and other professional services related thereto. THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Bond either (i) is registered by the Comptroller of Public Accounts of the State of Texas by due execution of the registration certificate endorsed hereon or(ii) is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. THE CITY RESERVES THE RIGHT, at its option. to redeem. prior to their maturity. Bonds maturing on and after March 1,2017,in whole or in part.on March 1.2016,or any date thereafter,at par plus accrued interest to the date fixed for redemption. IMO Page 1 of 6 �• HOU:2577851.] THE BONDS MATURING ON March 1, 2029 (the "Term Bonds") are subject to mandatory sinking fund redemption in the following amounts (subject to reduction as hereinafter provided), on the following dates, in each case at a redemption price equal to the principal amount of the Bonds or the portions thereof so called for redemption plus accrued interest to the date fixed for redemption: Mandatory Redemption Dates Principal Amounts Term Bonds Maturing March I, 2029 March 1,2028 S 3.690.000 March 1,2029 (maturity) 7.380,000 The particular Term Bonds to be redeemed shall be selected by the Registrar by lot or other customary random selection method, on or before January I of each year in which Term Bonds are to be .atorily redeemed. The principal amount of Term Bonds to be mandatorily redeemed in each year shall be reduce.' the principal amount of such Term Bonds that have been optionally redeemed on or before January 1 . - -.?' d which have not been made the basis for a previous reduction. "- BONDS MAY BE REDEEMED IN PART only in integral m. '•le $5,0C# If a Bond subject to redemption is in a denomination larger than $5,000, a portion of suc 'on.' ,'be emed, but only in integral multiples of$5,000. In selecting portions of Bonds for redemption, :on. - .e treated as representing that number of Bonds of$5,000 denomination which is obtained • •iv• l\ le p cipal amount of such Bond by $5.000. Upon surrender of any Bond for redemption in part, • •• t/Registrar. in accordance with the provisions of the Ordinance, shall authenticate and deliv: • ex. •• " efor a Bond or Bonds of like maturity and interest rate in an aggregate principal amount equal to th edw` ,-d 'onion of the Bond so surrendered. NOTICE OF ANY SUCH REDEMPTI• identi g :onds or portions thereof to be redeemed,shall be sent by United States mail, first class, p• tag• •epaid, y the Registered Owners thereof at their addresses as .� shown on the books of registration kept b •ayi .;••- 'egistrar, not less than thirty(30) days before the date fixed for such redemption. By the • fi. .• for . ption, due provision shall be made with the Paying Agent/Registrar for the payment of the • .tio.. 'rice of the Bonds called for redemption. If such notice of redemption is given, and if due • .n .a•u.., ...yment is made, all as provided above. the Bonds which are to — be so redeemed thereby aut. . .hall . edeemed prior to their scheduled maturities, they shall not bear interest after the date fixed • a' .tion, and they shall not be regarded as being outstanding except for the purpose of being paid . - fu co provided for such payment. THIS BO. . ;,t =' .-'' .FERABLE only upon presentation and surrender at the office of the Paying Agent/Registrar, accompanies ,, an assignment duly executed by the Registered Owner or its authorized representative,subject to a s and conditions of the Ordinance. THIS BOND IS EXCHANGEABLE at the office of the Paying Agent/Registrar for a Bond or Bonds of the same maturity and interest rate and in the principal amount of$5,000 or any integral multiple thereof,subject to the terms and conditions of the Ordinance THE PAYING AGENT/REGISTRAR is not required to accept for transfer or exchange any 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 such limitation shall not apply to the transfer or exchange by the Registered Owner of an unredeemed portion of a Bond called for redemption in part. THE CITY OR PAYING AGENT/REGISTRAR may require the Registered Owner of any Bond to pay a .. sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of a Bond. Any fee or charge of the Paying Agent/Registrar for a transfer or exchange shall be paid by the City. •� THE REGISTERED OWNER of this Bond by acceptance hereof,acknowledges and agrees to be bound by all the terms and conditions of the Ordinance. Page 2 of 6 r HOU':2577851.1 mon IT IS HEREBY DECLARED AND REPRESENTED that this Bond has been duly and validly issued and delivered: that all acts,conditions and things required or proper to be performed,exist and to be done precedent to or in the issuance and delivery of this Bond have been performed, exist and have been done .•ccordance with law; that the Bonds do not exceed any constitutional or statutory limitation; and that annual valo"`;y taxes sufficient to provide for the payment of the interest on and principal of this Bond, as such inte est . 'd such principal matures,have been levied and ordered to be levied, within the limits prescrib- aw, • • n • •xable property in the City and have been irrevocably pledged for such payment. REFERENCE IS HEREBY MADE TO THE ORDINAN cop R • is filed with the Paying Agent/Registrar, for the full provisions thereof, to all of w e ere. • • •ers of the Bonds assent by acceptance of the Bonds. IN WITNESS WHEREOF, the City ha it o seal to be impressed or placed in facsimile hereon and this Bond to be signed by the or and co igned by the City Secretary by their manual, lithographed or printed facsimile signatur (AUTHENTICATION OR CITY OF PEARLANID,TEXAS REGISTRATION CERTIFIC• • Mayor (SE II%--,nt _,,, . ``�a`y cri �,,....,, • �i COUNTERSIGNED: */r -cZ • �I,i • (j)- City Secretary • • Page 3 of 6 Hnt):2577851.1 • FORM OF COMPTROLLER'S REGISTRATION CERTIFIC The following form of Comptroller's Registration Certificate shall . ached `K • each of the Bonds initially delivered: OFFICE OF THE COMPTROLLER § F' d. i u O OF PUBLIC ACCOUNTS § THE STATE OF TEXAS § • I hereby certify that this bond has bee 'xamtned. c ie s to validity and approved by the Attorney General of the State of Texas, and that .on, �:s bee •gis d by the Comptroller of Public Accounts of the State of Texas. ' • WITNESS MY S • P P S OF OFF this (SEAL) ` Co ptroller of Publi Accounts of the State of Texas r r Page 4 of 6 HOU:25 7 7851.1 ASSIGNMENT •h • "' For value received,the undersigned hereby sells,assigns and transfers unto . (Please print or type name,address zi. •. ere-) (Please insert Social Security or T en ti. `u ber of Transferee) �. the within bond and all rights nd and ere irrevocably constitutes and appoints rn fer such bond on the books kept for registration thereof, with full power of substit in ises. DATED: Signature Guarant• ; .h NOTICE: Signature .e guaranteed by a NOTICE: The signature above must correspond to the member firm of the New ork Stock Exchange or a name of the registered owner as shown on the face of commercial bank or trust company. this bond in every particular, without any alteration, enlargement or change whatsoever. r Page 6 of 6 HOU:2577851.1 STATEMENT OF INSURANCE Financial Guaranty Insurance Company ("Financial Guaranty") has issued a policy containing the following provisions with respect to the Bonds,such policy being on file at the principal office of '. lls Fargo Bank, N.A.,Houston,Texas,as paying agent(the"Paying Agent"): • Financial Guaranty hereby unconditionally and irrevocably agrees fo -nt to the Bondholders that portion of the principal or accreted value(if applicable)o •n. . -re .. th- •nds • ich is then due for payment and which the issuer of the Bonds (the "Issuer") shall . fai :. : pro 'de e for payment means, with respect to principal or accreted value (if applicable st: .':,sat - • . ereof, or the date on which the same shall have been duly called for mandatory si g -. .n . roes not refer to any earlier date on which the payment of principal or accreted v. - (i lic. . ends is due by reason of call for redemption (other than mandatory sinking fund P. . . ), le •n other advancement of maturity, and with respect to interest, the stated date for p. en -. such int-re • • Upon receipt of telephonic o �-le, sic • .sequently confirmed in writing, or written notice by • registered or certified mail, .on•' . r or e Paying Agent to Financial Guaranty that the required payment of principal,accreted valu- (as • has not been made by the Issuer to the Paying Agent,Financial Guaranty on the • - o r.ti , -.ymen within one business day after receipt of notice of such nonpayment, whichever is la wi • ake seposit of funds, in an account with U.S. Bank Trust National Association, or its successor as its :,• a s is _ Agent"), sufficient to make the portion of such payment not paid by the Issuer. Upon presentation to th= scal Agent of evidence satisfactory to it of the Bondholder's right to receive such payment and any • . ate instruments of assignment required to vest all of such Bondholder's right to such payment in Financial Guaranty,the Fiscal Agent will disburse such amount to the Bondholder. As used herein the term "Bondholder" means the person other than the Issuer or the borrower(s) of bond proceeds who at the time of nonpayment of a Bond is entitled under the terms of such Bond to payment thereof. The policy is non-cancellable for any reason. FINANCIAL GUARANTY INSURANCE COMPANY Page 5 of 6 HOU:2577851.t