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R2006-075 05-22-06 RESOLUTION NO. R- a 664.-7 s RESOLUTION OF THE CITY OF PEARLAND, TEXAS APPROVING THE RESOLUTION AUTHORIZING THE ISSUANCE OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS, SERIES 2006; AUTHORIZING A CONTINUING DISCLOSURE UNDERTAKING IN CONNECTION WITH SUCH BONDS; AND MAKING VARIOUS FINDINGS AND PROVISIONS RELATED TO THE SUBJECTS WHEREAS, on January 21, 1995, the voters of the City of Pearland, Texas (the "City") approved the levy of a one-half of one percent sales and use tax (the "Sales Tax") to be used for the benefit of the Pearland Economic Development Corporation (the ' "Corporation"), including, among other things, for paying the costs of acquisition and construction of streets and roads and drainage and related improvements which promote • or develop new or expanded business enterprises (the "Project"); WHEREAS, the City, by Ordinance No. R95-36 duly adopted on May 22, 1995, authorized the creation of the Corporation to act on behalf of the City by receiving and expending revenues from the Sales Tax for various projects which promote or develop new or expanded business enterprises; WHEREAS, on June 26, 1995, the Corporation was duly created, incorporated, chartered and organized pursuant to Article 5190.6, Texas Revised Civil Statutes (the "Act"); WHEREAS, pursuant to the Act, the Corporation is authorized to issue bonds for the purposes of paying the costs of the Project, said bonds being payable from and secured by the proceeds of the Sales Tax; WHEREAS, the Corporation desires to issue and sell its Sales Tax Revenue Bonds, Series 2006 in an aggregate principal amount of $10,235,000 (the "Series 2006 Bonds") for the purposes of(i) paying the costs of the Project and (ii) paying the costs of issuing the Series 2006 Bonds; WHEREAS, in connection with the issuance of the Series 2006 Bonds, the City. has agreed, on behalf of the City and the Corporation, to provide certain financial information and operating data annually in accordance with the Rule (as defined herein); and WHEREAS, the City and the Corporation have previously entered into that certain Amended and Restated Agreement Regarding the Construction and Maintenance of Street and Bridge Improvements in connection with the Project (the "Amended and Restated Agreement"). NOW, THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS, as follows: 1 HOU:2574652.1 1. Findings and Determinations. It is hereby officially found and determined that all of the facts recited in the preamble hereto are true and correct and the preamble is incorporated into and made a part of this Ordinance. 2. Tax Levy and Pledge. The City has covenanted and agreed in the Amended and Restated Agreement and hereby authorizes the appropriate City officials to take all steps necessary and authorized under the Act and other applicable laws to continuously levy and collect the Sales Tax at the rate of%2% so long as any of the Series 2006 Bonds and any Additional Bonds (as defined in the Amended and Restated Agreement) are outstanding in the manner and to the maximum extent permitted by applicable law. The City hereby agrees that it will not cause a reduction, abatement, or exemption in the Sales Tax, or in the rate in which it is authorized to be collected. The City also agrees that any repeal of the right and power to levy the Sales Tax will not be effective until all the Series 2006 Bonds and any Additional Bonds have been paid in full or until they are legally defeased in accordance with the resolutions authorizing their issuance. The City hereby agrees to pay to the Corporation, by a direct deposit into the Corporation's Sales Tax Revenue Fund, 100% of the revenues collected from the annual levy and assessment of the Sales Tax, less any amounts due to the Comptroller of Public Accounts of the State of Texas for collection costs and other charges, for the term of the Amended and Restated Agreement. 3. Approval of Bond Resolution. The City hereby authorizes the Corporation to adopt the resolution authorizing the issuance of the Corporation's Sales Tax Revenue Bonds, Series 2006, in the aggregate principal amount of$10,235,000 (the "Bond Resolution"), substantially in the form attached hereto as Exhibit "A," and hereby approves said Bond Resolution and the issuance of the bonds described therein. 4. Continuing Disclosure Undertaking. (a) The City hereby agrees to provide annually to each NRMSIR and any SID, within six months after the end of each fiscal year ending in or after 2006, financial information and operating data with respect to the Corporation and the City of the general type included in the final Official Statement authorized by Section 9.3 of the Bond Resolution, being the financial information and operating data described in the Official Statement under the captions "HISTORICAL PLEDGED REVENUES," DEBT SERVICE SCHEDULE" AND "MANAGEMENT AND OPERATION OF THE CORPORATION" in the Official Statement. Any financial statements so to be provided shall be (1) prepared in accordance with the accounting principles described in Appendix C to the Official Statement and (2) audited, if the City commissions an audit of such statements and the audit is completed within the period during which they must be provided. If audited financial statements are not so provided, then the City shall provide audited financial statements for the applicable fiscal year to each NRMSIR and any SID, when and if audited financial statements become available. If the City changes its fiscal year, it will notify each NRMSIR and any SID of the change (and of the date of the new fiscal year end) prior to the next date by which the 2 HOU:2574652.1 City otherwise would be required to provide financial information and operating data pursuant to this Ordinance. The financial information and operating data to be provided pursuant to this Ordinance 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. • (b) The City hereby agrees to notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Series 2006 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 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 Series 2006 Bonds; 7. Modifications to rights of holders of the Series 2006 Bonds; 8. Bond calls; 9. Defeasances; 10. Release, substitution, or sale of property securing repayment of the Series 2006 Bonds; and • 11. 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 this Ordinance by the time required by this Ordinance. (c) The City shall be obligated to observe and perform the covenants specified in this Paragraph 4 for so long as, but only for so long as, the City or the Corporation remains an "obligated person" with respect to the Series 2006 Bonds within the meaning of the Rule, except that the City in any event will give the notice required by this 3 HOU:2574652.1 Ordinance of any Bond calls and defeasance that cause the City or the Corporation to be no longer such an "obligated person." The provisions of this Paragraph 4 are for the sole benefit of the holders and beneficial owners of the Series 2006 Bonds, and nothing in this Paragraph 4, 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 Paragraph 4-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 Paragraph 4 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. 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 PARAGRAPH 4, 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 Paragraph 4 shall constitute a breach of or default under this Ordinance for purposes of any other provision of this Ordinance. Nothing in this Paragraph 4 is intended or shall act to disclaim, waive, or otherwise limit the duties of the City or the Corporation under federal and state securities laws. The provisions of this Paragraph 4 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 or the Corporation, but only if (1) the provisions of this Paragraph 4, as so amended, would have permitted an underwriter to purchase or sell the Series 2006 Bonds in the primary offering of the Series 2006 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 the Bond Resolution 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 Series 2006 Bonds. If the City so amends the provisions of this Paragraph 4, it shall include with any amended financial information or operating data next provided in accordance with its Paragraph 4 an 4 HOU:2574652.1 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 Paragraph 4 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 Paragraph 4 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 Series 2006 Bonds, giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. (d) As used in this Ordinance, the following terms have the meanings ascribed to such terms below: "MSRB" means the Municipal Securities Rulemaking Board. "NRMSIR" means each person whom the SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to time. "Rule"means SEC Rule 15c2-12, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. "SID" means any person designated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule from time to time. 6. Further Actions. The Mayor, City Secretary and the other officials of the City are hereby authorized,jointly and severally, to execute and deliver such certificates, documents, or papers necessary and advisable, and to'take such actions as are necessary to carry out the intent and purposes of this Ordinance. 7. Severability. If any word, phrase, clause, sentence, paragraph, section or other part of this Ordinance, or the application thereof to any person or circumstance, shall ever be held to be invalid or unconstitutional by any court of competent jurisdiction, the remainder of this Ordinance and the application of such word, phrase, clause, sentence, paragraph, section or other part of this Ordinance to any other persons or circumstances shall not be affected thereby. 8. Effective Date. This Ordinance shall be in full force and effect from and upon adoption. 9. Repealer. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency. 5 HOU:2574652.1 PASSED AND APPROVED on'this 22nd day of May, 2006. Mayor ATTEST: Sec / 4� Qea�iva�r�, .$vARL' Q c •••. • . _ O. S-1 HOU:2574652.1 EXHIBIT A BOND RESOLUTION See Tab . HOU:2574652.1 MATURITY SCHEDULE OF THE BONDS FISCAL YEAR PRINCIPAL AMOUNT 2007 $50,000 2008 $165,000 2009 $170,000 2010 $180,000 2011 $185,000 2012 $200,000 2013 $210,000 2014 $215,000 - 2015 $230,000 2016 $240,000 2017 $255,000 2018 $265,000 2019 .$280,000 2020 $300,000 2021 $310,000 2022 $325,000 2023 $345,000 2024 $365,000 2025 $385,000 2026 $405,000 2027 $1,190,000 2028 $1,255,000 2029 $1,320,000 2030 $1,390,000 PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS SERIES 2006 TRANSCRIPT OF PROCEEDINGS • Andrews Kurth LLP 600 Travis, Suite 4200 Houston, Texas 77002 (713) 220=4200 HOU:648931.1 • PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS, SERIES 2006 INDEX OF DOCUMENTS BOND AUTHORIZATION PROCEEDINGS Corporation's Resolution Calling Public Hearing and Authorizing Publication of Notice of Public Hearing and Right to Petition 1 Affidavit of Publication of Notice of Public Hearing and Right to Petition 2 City's Resolution Authorizing Issuance of the Bonds 3 Corporation's Resolution Authorizing Issuance of the Bonds 4 Paying Agent/Registrar Agreement 5 Preliminary Official Statement and Official Notice of Sale 6 Official Statement 7 CERTIFICATES Signature Identification and No-Litigation Certificate 8 General Certificate of the Corporation 9 General Certificate of the City 10 Official Statement Certificate 11 Federal Tax Certificate and Form 8038-G 12 Certificate of Bond Insurer/Surety Bond Provider 13 OPINIONS Opinion of Bond Counsel 14 Guaranty Opinion 15 Opinion of Attorney General of Texas with Certificate 16 of Comptroller of Public Accounts Opinion of Counsel to the Bond Insurer/Surety Bond Provider 17 HOU:2578714.1 CLOSING DOCUMENTS Receipt and Cross Receipt 18 Registrar's Receipt 19 Municipal Bond Insurance Policy 20 Surety Bond 21 Financial Guaranty Agreement(for Surety Bond) 22 Reliance Letter 23 Rating Letters 24 Winning Bid 25 Specimen Bond 26 Bond Review Board Questionnaire 27 HOU:2578714.1 CERTIFICATE FOR RESOLUTION STATE OF TEXAS § COUNTIES OF HARRIS AND BRAZORIA § We, the undersigned officers of the Board of Directors (the "Board") of the Pearland Economic Development Corporation(the"Corporation"), hereby certify as follows: 1. The Board of the Corporation convened in a regular meeting on March 6, 2006, at the regular meetingplace thereof, within the City of Pearland, Texas, and the roll was called of � the duly constituted officers and members of the Board, to-wit: Randall Ferguson Chairman Helen Beckman Secretary Lucy Stevener Director Felicia Kyle Director George Sandars Director Ed Thompson Director Gary Idoux Director and all of such persons were present, thus constituting a quorum. Whereupon, among other business, the following was transacted at such meeting: a written RESOLUTION CALLING PUBLIC HEARING, AUTHORIZING PUBLICATION OF NOTICE OF PUBLIC HEARING AND RIGHT TO PETITION, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO was duly introduced for the consideration of the Board and read in full. It was then duly moved and seconded that said resolution be adopted; and, after due discussion, such motion, carrying with it the adoption of said resolution,prevailed and carried by the following vote: 7 AYES 0 NOES 2. That a true, full and correct copy of the aforesaid resolution adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate; that such resolution has been duly recorded in the Board's minutes of such meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the Board's minutes of such meeting pertaining to the adoption of such resolution; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of the Board as indicated therein; that each of the officers and members of the Board was duly and sufficiently notified officially and personally, in advance, of the date, hour, place and purpose of the aforesaid meeting, and that the resolution would be introduced and considered for adoption at 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 HOU:2554093.1 • t ' required by law; and that public notice of the date, hour, place and subject of such meeting was given as required by Chapter 551, Texas Government Code, as amended. - SIGNED AND SEALED this (4 day of March, 2006. h an • Secretary • • • HOU:2554093.1 RESOLUTION CALLING PUBLIC HEARING, AUTHORIZING PUBLICATION OF NOTICE OF PUBLIC HEARING AND RIGHT TO PETITION, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO WHEREAS, the City of Pearland, Texas (the "City"), by Ordinance No. R95-36 duly adopted on May 22, 1995, authorized the creation of the Pearland Economic Development Corporation(the "Corporation") to act on behalf of the City by receiving and expending sales tax revenues for various projects, including the acquisition and construction of streets and roads and drainage and related improvements which promote or develop new or expanded business enterprises (the "Project"); and WHEREAS, on January 21, 1995, the voters of the City approved the levy of a one-half of one percent sales and use tax to be used for the benefit of the Corporation, includingthe � Project (the"Sales Tax"); and WHEREAS, on June 26, 1995, the Corporation was duly created, incorporated, chartered and organized pursuant to Article 5190.6, Texas Revised Civil Statutes, as amended (the "Act"); and WHEREAS, pursuant to the Act, the Corporation is authorized to issue bonds for the purpose of constructing the Project, said bonds being payable from and secured by the proceeds of the Sales Tax; and WHEREAS, pursuant to the Act, the Corporation is required to publish notice of the Corporation's intent to undertake the Project and the Corporation must also hold a public hearing with respect to such Project. BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION THAT: Section 1. Findings and Determinations. The facts recited in the preamble hereto are found and declared to be true and correct and are hereby adopted by the Board of Directors of the Corporation(the "Board") and made a part of this Resolution for all purposes. Section 2. Authorization of Notice and Public Hearing. The Board hereby authorizes the Executive Director of the Corporation to take any and all actions necessary to cause the Notice of Public Hearing and Right To Petition attached hereto as Exhibit A to be published on behalf of the Corporation in a newspaper which is of general circulation in the City, with such publication to occur not later than Wednesday, March 22, 2006. The Board further determines that a public hearing on the Project shall be held in the City Council Chambers at Pearland City Hall, 3519 Liberty Drive, Pearland, Texas, on Monday, May 22, 2006 at 5:00 p.m. as described on Exhibit A hereto. Section 3. Authorization of a Preliminary Official Statement. The Board hereby approves the preparation and distribution by the Corporation's financial advisor to prospective purchasers of the Bonds of the Preliminary Official Statement, as the same may be completed, HOU:2549352.3 modified, or supplemented with the approval of the Executive Director of the Corporation or other authorized officers and agents of the Board. Section 4. Authorization of Other Matters Relating Thereto. The President and Secretary of the Board, the Executive Director of the Corporation and other officers and agents of the Corporation are hereby authorized and directed to do any and all things necessary or desirable to carry out the provisions of this Resolution. Section 5. Effective Date. This Resolution shall take effect immediately upon passage. Section 6. Public Meeting. It is officially found, determined and declared that the meeting at which this Resolution is adopted was open to the public and public notice of the time, place and subject matter of the public business to be considered at such meeting, including this Resolution,was given all as required by the Texas Government Code,Chapter 551, as amended. HOU:2549352.3 EXHIBIT A NOTICE OF PUBLIC HEARING AND RIGHT TO PETITION TO ALL INTERESTED PERSONS AND PARTIES: NOTICE IS HEREBY GIVEN that the Board of Directors of the Pearland Economic Development Corporation (the "Corporation") will meet at its regular meeting place in the City of Pearland (the "City") City Council Chambers at Pearland City Hall, 3519 Liberty Drive, Pearland, Texas at 5:00 p.m. on Monday, May 22, 2006, which is the time and place the Corporation will hold a public hearing on the proposed construction of two lanes of Bailey Oiler Road running west from SH 35 and existing Oiler Drive to Veterans Drive, including the acquisition of all necessary rights of way, the construction of drainage and sewage lines along the proposed construction and associated improvements, the construction of a two lane rail overpass across the Burlington Northern Lines along the construction route, the construction of four lane transition turn-in lanes at SH 35 and Veterans Drive and median cuts for future development along the construction route (collectively, the "Project"). A portion of the proceeds from the levy of the one-half of one percent sales and use tax, approved by the voters of the City on January 21, 1995, for the benefit of the Corporation, will be used by the Corporation to pay the costs of the Project, including paying principal and interest on bonds issued by the Corporation for the Project. IF WITHIN 60 DAYS after the publication of this corrected notice the Corporation receives a petition from more than 10% of the registered voters of the City requesting that an election be held before the Project is developed or the proceeds of such sales and use tax are used to pay for such Project, then the Corporation will not develop the Project or use the proceeds of the sales and use tax to pay the costs of the Project unless and until approved at an election called and held in the City for such purpose. Petitions may be submitted to the City Secretary, City of Pearland, 3519 Liberty Drive,Pearland, Texas 77581. HOU:2549352.3 AFFIDAVIT OF PUBLICATION The Friendswood Reporter News P.O. Box 954 Friendswood, Texas 77546 State of Texas Galveston and Harris Counties I, Lloyd Morrow, hereby certify that the notice hereby appended was published in THE REPORTER NEWS, a newspaper of general circulation in Galveston, Harris and Brazoria Counties, for I issues, as follows: No. Date (II CIA g 20 No. Date 20 No. Date 20 No. Date 20 No. Date 20 0q):1\ CFO Subscribe and sworn to before me this 3'O day of /`'[G ' 20 :00 LAURA ANN EMMONS Notary Public,State of Texas06; N4 .0 • , 4. Commission Expires 09-09-20 ,rro.•. • aura Ann Emmons, Publisher Notary Public, State of Texas i ! , . . . . . . _ . LEGALS -. . , , , . .... . .. •.•,4,ehliel*INA':0100*;"•P _ . ..•:,,,:iz:i0;',1.q ..:.:- K,..i..,:47,..,;,.,..:,....:•,:: . . ,:'..N0.11dEOPPUBILICAW,.' HEARING •..--":"„%"3.311,'=;$,Ii 1431.4M-41.0 1 : T,ICkaitPlerkgB1,, :r.aliiiiiAlltheitiaard'i,Vf it, • DiteetorlfolithaReartarta-,? ' --E6i$6#ietV0-4160,-.44.: tiet0iiiiiiiri,:::K5-; : : (t60 IF-.INITHItt..601DAYS;:,after! . . • 1 Toteatatien)..rjt„Ineet,lat the publication;of this:.!cor. itefebttiatleeaftab..i.010a.iti?; reoted i,.: .:nottc.ef,- the : . . . . . Iiiiti5,c,ity4eft.:00etlehctit4 Corporation receives t.,,peh, ...... . . . . Tityli0.0ityki.t.' atincil tietylt;orri,..;!Ma!a:i.t?tarti1,9Fra"-"of , ! Chielbetelt?eatland•Dity . twregtatarectvateta;pfthS-• Z",',,,:ite:0,-:;: itt•±444,,,N,ox,. • . .... Halk,3519:5Mber.ty2Drivei. ditylieittieetiaMttiir anleted4- ' ! PSAIrlatiOe*as at,:t5fpty, tionibeillefcosecufeAhe, i, ---, LEGAL .... . - . riu .'ori•.,i/oUdjit;:itiieii,?a, Project is developed or the 2006 whiCtiiSt-titeliMeand proceeds- --of-auchaeles.,and , ,.... !..„... • place the,POrPgratictrt-wiII. useJaii,-are4jsed•;ta.,,psyttor /PY.Ciun4Lartingi-71:FiMD! '-- haltt-A:litrblia,teating*the such Project,:-:then'the City Secretary 1-::'•L';!,,,-,:,.-. piatioie-aratinettedtiatiM'. Corperetiee will:not develop tWciiierfekatiEtaileylliSf the Projeat at,,,,use.400,!pro• is , fladtf running west ceada‘pf 4heili'sajes,aad use. ' Thia:siteaccassible-lo '.: ,', -...3g-irerig.eiiiejtegi..dieilOrilie tex4otpayithk..c.osis.;.1*Ihe disabled for :' special assistance please ta".4.eletatiS7'-„Dri)ie,including "Project-unless and..uptil . . . ',, ., :Ittililaattiiiiitiokif rall'Inat an election call at 281.'eteS4- approved' 652;1655t.priorlo--.theneet- satT';tigtita.!L.pftiaktbe,con, calleal.,andf.beld..leithe(Pty ....,..,,.. _._„. .. • ittg!"::tol:',that appropriate- . . attaittatt'0,c1rairlage:-.and forzSuch.',purpase.,,,,,RetitiOns ..':e0a,iiiaeStati9:!ittiraii, may be subthittadzte'lbe attakeMantepaataMada. e6ed !aaiiatteattotfartd- City Searataryi,,-1Ditypot I ! aSiotteted::titOtoVeMetitai• -P d'artancW;O:&.1 pc:Liberty Drive, Pearland; Texas the"--icetiStrUctionaf.a.two .-77581. ' .. laretraih.oyerpasscacross, ,..,....„..,....._., treetirltrigtelilklorthe 1111'..". ' •liriesrajerigiteittiestructieR,, At.-.Saidthearingall,interest- •.I:i&II"'JfII4i0:00!frfidfiin•-.Pf;'. ed!ipartiea,,ehall'bave-Ithe. • four lane transition turn t in.,• right•ant,:appetttittjty lo.), . • tattres..-atviHir!-1.35 and.il: apaeatiandibateitd,an the Vetetans-iDriVaiandtmedtan eubjeo,. ::: i.,„..• „.- • - - dute)litif?:,tetutef--:deVeloptient alantiheggattatta,CtiptytoUte . (collectively the erojaar). , ! A portion of the proceeds tiaiiihileotithiabnei•-half • of one tihlifieibeit4eiei:and use4aitkaapteveddly.<.the *iittatia::iltif She:-City t!';on •• jariaity":"21;!--!:1:90p,:f et the I I 'betifitAitlheftoraorationi-- . . •!,.....:. . . ,. ... . willeA?Srtised imbv-the- -,... •,, . Corperetipittioay;the costs: ... :. 161 ilh-e:13-tajadt!,iiiial u d ing, ,• . ilaYing;,tirnciaal,tartctiintetest on4ands-JaaUkaty,the, Corporation Jor4tipifffteject„! .•. -I , . --- ! 1 I , . I ' CERTIFICATE FOR RESOLUTION 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 22, 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 Mayor Richard Tetens Mayor Pro-Tern Helen Beckman Councilmember Steve Saboe Councilmember Felicia Kyle Councilmember Kevin Cole Councilmember and all of said persons were present except Tom Reid, thus constituting a quorum. Whereupon, among other business, the following was transacted at said meeting: a written RESOLUTION OF THE CITY OF PEARLAND, TEXAS APPROVING THE RESOLUTION AUTHORIZING THE ISSUANCE OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS, SERIES 2006; AUTHORIZING A CONTINUING DISCLOSURE UNDERTAKING IN CONNECTION WITH SUCH BONDS; AND MAKING VARIOUS FINDINGS AND PROVISIONS RELATED TO THE SUBJECTS (the "Resolution") was duly introduced for the consideration of the City Council. It was then duly moved and seconded that the Resolution be adopted; and, after due discussion, such motion, carrying with it the adoption of the Resolution,prevailed and carried by the following vote: AYES: 5 NAYS: 0 1 1 HOU:2574652.1 2. That a true, full, and correct copy of the Resolution adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate; that the Resolution has been duly recorded in the City Council's minutes of 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 Resolution; that the persons named in the above and foregoing paragraph are the duly chosen, qualified, and acting officers and members of the City Council as indicated therein; that each of the officers and members of the City Council was duly and sufficiently notified officially and personally, in advance, of the date, hour, place,.and subject of the aforesaid meeting, and that the Resolution would be introduced and considered for adoption at said meeting, and each of such officers and members consented, in advance, to the holding of such meeting for such purpose; that said meeting was open to the public as required by law; and that public notice of the date, hour, place, and subject of such meeting was given as required by Chapter 551, Texas Government Code, as amended. SIGNED AND SEALED this May , 2006. C' Secret Mayor 001 Mot. CIC r 4 s .am • come tip • 41,4 ItirtainieteSt- 2 HOU:2574652.1 RESOLUTION NO. R-2006-75 RESOLUTION OF THE CITY OF PEARLAND, TEXAS APPROVING THE RESOLUTION AUTHORIZING THE ISSUANCE OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS, SERIES 2006; AUTHORIZING A CONTINUING DISCLOSURE UNDERTAKING IN CONNECTION WITH SUCH BONDS; AND MAKING VARIOUS FINDINGS AND PROVISIONS RELATED TO THE SUBJECTS WHEREAS, on January 21, 1995, the voters of the City of Pearland, Texas (the "City") approved the levy of a one-half of one percent sales and use tax (the "Sales Tax") to be used for. the benefit of the Pearland Economic Development Corporation (the "Corporation"), including, among other things, for paying the costs of acquisition and construction of streets and roads and drainage and related improvements which promote or develop new or expanded business enterprises (the"Project"); • WHEREAS, the City, by Ordinance No. R95-36 duly adopted on May 22, 1995, authorized the creation of the Corporation to act on behalf of the City by receiving and • expending revenues from the Sales Tax for various projects which promote or develop new or expanded business enterprises; • WHEREAS, on June 26, 1995, the Corporation was duly created, incorporated, chartered • and organized pursuant to Article 5190.6, Texas Revised Civil Statutes (the"Act"); WHEREAS, pursuant to the Act, the Corporation is authorized to issue bonds for the purposes of paying the costs of the Project, said bonds being payable from and secured by the proceeds of the Sales Tax; WHEREAS, the Corporation desires to issue and sell its Sales Tax Revenue Bonds, Series 2006 in an aggregate principal amount of$10,235,000 (the "Series 2006 Bonds") for the purposes of(i) paying the costs of the Project and (ii)paying the costs of issuing the Series 2006 Bonds; WHEREAS, in connection with the issuance of the Series 2006 Bonds, the City has agreed, on behalf of the City and the Corporation, to provide certain financial information and operating data annually in accordance with the Rule(as defined herein); and WHEREAS, the City and the Corporation have previously entered into that certain Amended and Restated Agreement Regarding the Construction and Maintenance of Street and BridgeImprovementsAgreement"). m connechon with the Project (the"Amended and Restated Agreement ). NOW, THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS, as follows: 3 HOU:2574652.1 1. Findings and Determinations. It is hereby officially found and determined that all of the facts recited in the preamble hereto are true and correct and the preamble is incorporated into and made a part of this Ordinance. 2. Tax Levy and Pledge. The City has covenanted and agreed in the Amended and Restated Agreement and hereby authorizes the appropriate City officials to take all steps necessary and authorized under the Act and other applicable laws to continuously levy and collect the Sales Tax at the rate of %2% so long as any of the Series 2006 Bonds and any Additional Bonds (as defined in the Amended and Restated Agreement) are'outstanding in the manner and to the maximum extent permitted by applicable law. The City hereby agrees that it will not cause a reduction, abatement, or exemption in the Sales Tax, or in the rate in which it is authorized to be collected. The City also agrees that any repeal of the right and power to levy the Sales Tax will not be effective until all the Series 2006 Bonds and any Additional Bonds have been paid in full or until they are legally defeased in accordance with the resolutions authorizing their issuance. The City hereby agrees to pay to the Corporation, by a direct deposit into the Corporation's Sales Tax Revenue Fund, 100% of the revenues collected from' the annual levy and assessment of the Sales Tax, less any amounts due to the Comptroller of Public Accounts of the State of Texas for collection costs and other charges, for the term of the Amended and Restated Agreement. 3. Approval of Bond Resolution. The City hereby authorizes the Corporation to adopt the resolution authorizing the issuance of the Corporation's Sales Tax Revenue Bonds, Series 2006, in the aggregate principal amount of $10,235,000 (the "Bond Resolution"), substantially in the form attached hereto as Exhibit "A," and hereby approves said Bond Resolution and the issuance of the bonds described therein. 4. Continuing Disclosure Undertaking. (a) The City hereby agrees to provide annually to each NRMSIR and any SID, within six months after the end of each fiscal year ending in or after 2006, financial information and operating data with respect to the Corporation and the City of the general type included in the final Official Statement authorized by Section 9.3 of the Bond Resolution, being the financial information and operating data described in the Official Statement under the captions "HISTORICAL PLEDGED REVENUES," DEBT SERVICE SCHEDULE" AND "MANAGEMENT AND OPERATION OF THE CORPORATION" in the Official Statement. Any financial statements so to be provided shall be (1) prepared in accordance with the accounting principles described in Appendix C to the Official Statement and (2) audited, if the City commissions an audit of such statements and the audit is completed within the period during which they must be provided. If audited financial statements are not so provided, then the City shall provide audited financial statements for the applicable fiscal year to each NRMSIR and any SID, when-and if audited financial statements become available. If the City changes its fiscal year, it will notify each NRMSIR and any SID of the change (and of the date of the new fiscal year end) prior to the next date by which the City otherwise would be required to provide financial information and operating data pursuant to this Ordinance. 4 HOU:2574652.1 The financial information and operating data to be provided pursuant to this Ordinance 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. (b) The City hereby agrees to notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Series 2006 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 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 Series 2006 Bonds; 7. Modifications to rights of holders of the Series 2006 Bonds; 8. Bond calls; 9. Defeasances;. 10. Release, substitution, or sale of property securing repayment of the Series 2006 Bonds; and 11. 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 this Ordinance by the time required by this Ordinance. (c) The City shall be obligated to observe and perform the covenants specified in this Paragraph 4 for so long as, but only for so long as, the City or the Corporation remains an "obligated person"with respect to the Series 2006 Bonds within the meaning of the Rule, except that the City in any event will give the notice required by this Ordinance of any Bond calls and defeasance that cause the City or the Corporation to be no longer such an"obligated person." The provisions of this Paragraph 4 are for the sole benefit of the holders and beneficial owners of the Series 2006 Bonds, and nothing in this Paragraph 4, express or implied, shall give 5 HOU:2574652.1 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 Paragraph 4 and does not hereby undertake to provide any other information that maybe 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 Paragraph 4 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. 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 PARAGRAPH 4, 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 Paragraph 4 shall constitute a breach of or default under this Ordinance for purposes of any other provision of this Ordinance. Nothing in this Paragraph 4 is intended or shall act to disclaim, waive, or otherwise limit the duties of the City or the Corporation under federal and state securities laws. The provisions of this Paragraph 4 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 or the Corporation,but only if (1) the provisions of this Paragraph 4, as so amended, would have permitted an underwriter to purchase or sell the Series 2006 Bonds in the primary offering of the Series 2006 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 the Bond Resolution 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 Series 2006 Bonds. If the City so amends the provisions of this Paragraph 4, it shall include with any amended financial information or operating data next provided in accordance with its Paragraph 4 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 Paragraph 4 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 Paragraph 4 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 6 HOU:2574652.1 primary offering of the Series 2006 Bonds, giving effect to (a) such provisions as so amended and(b) any amendments or interpretations of the Rule. (d) As used in this Ordinance, the following terms have the meanings ascribed to such terms below: "MSRB"means the Municipal Securities Rulemaking Board. "NRMSIR" means each person whom the .SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to time. "Rule"means SEC Rule 15c2-12, as amended from time to time. "SEC"means the United States Securities and Exchange Commission. "SID" means any person designated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule from time to time. 6. Further Actions. The Mayor, City Secretary and the other officials of the City are hereby authorized,jointly and severally,.to execute and deliver such certificates, documents, or papers necessary and advisable, and to take such actions as are necessary to carry out the intent and purposes of this Ordinance. 7. Severability. If any word, phrase, clause, sentence, paragraph, section or other part of this Ordinance, or the application thereof to any person or circumstance, shall ever be held to be invalid or unconstitutional by any court of competent jurisdiction, the remainder of this Ordinance and the application of such word, phrase, clause, sentence, paragraph, section or other part of this Ordinance to any other persons or circumstances shall not be affected thereby. 8. Effective Date. This Ordinance shall be in full force and effect from and upon adoption. 9. Repealer. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency. 7 HOU:2574652.1 I - -, PASSED AND APPROVED on this 22nd day of May, 2006. , .===i1-)711?) Mayor ATTEST: /i. _�' Cif Secret.` f)\ �iIfililtitt • • to � r • S-i HOU:2574652.1 EXHIBIT A BOND RESOLUTION See Tab 4 • , 4 HOU:2574652.1 CERTIFICATE FOR RESOLUTION STATE OF TEXAS § COUNTY OF HARRIS § We, the undersigned officers of the Board of Directors (the"Board") of the Pearland Economic Development Corporation(the"Corporation"),hereby certify as follows: 1. The Board of the Corporation convened in a regular meeting on May 22, 2006, at the regular meeting place thereof, within the City of Pearland,Texas, and the roll was called of the duly constituted officers and members of the Board, to-wit: Randall Ferguson Chairman and President Lucy Stevener Secretary Helen.Beckman Director Felicia Kyle Director Steve Saboe Director George Sandars Director Ed Thompson Director and all of such persons were present except Steve Saboe, thus constituting a quorum. Whereupon, among other business, the following was transacted at such meeting: a written RESOLUTION AUTHORIZING THE ISSUANCE OF $10,235,000 PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS, SERIES 2006; AND CONTAINING OTHER PROVISIONS RELATED THERETO was duly introduced for the consideration of the Board. It was then duly moved and seconded that such resolution be adopted; and, after due discussion, such motion, carrying with it the adoption of such resolution, prevailed and carried by the following vote: 6 AYES 0 NOES HOU:2574645.3 2. That a true, full and correct copy of the above-referenced resolution adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate; that such resolution has been duly recorded in the Board's minutes of such meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the Board's minutes of such meeting pertaining to the adoption of such resolution; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of the Board as indicated therein; that each of the officers and members of the Board was duly and sufficiently notified officially and personally, in advance, of the date, hour, place and purpose of the above-referenced meeting, and that the resolution 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 Chapter 551, Texas Government Code, as amended. SIGNED AND SEALED this 22nd day of May, 2006. R all Ferguson Chairman and President Lucy Stevener Secretary (SEAL) 2 HOU:2574645.1 RESOLUTION AUTHORIZING THE ISSUANCE OF $10,235,000 PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS, SERIES 2006; AND CONTAINING OTHER PROVISIONS RELATED THERETO BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION: ARTICLE I FINDINGS AND DETERMINATIONS Section 1.1: Findings and Determinations. It is hereby officially found and determined that: On January 21, 1995, the voters of the City approved the levy of one-half of one percent (1/2%) sales and use tax to be used for the benefit of the Corporation (the "Sales Tax"), including, among other things, paying the costs of acquisition and construction of streets and roads and drainage and related improvements which promote or develop new or expanded business enterprises. The CityCouncil of the Cityof Pearland Texas (the "City"), byOrdinance No. R95- �) � Y )� 36 duly adopted on May 22, 1995, authorized the creation of the Pearland Economic Development Corporation (the "Corporation") to act on behalf of the City by receiving and expending sales tax revenues for various projects which promote or develop new or expanded business enterprises. (c) On June 26, 1995, the Corporation was duly created, incorporated, chartered and organized pursuant to Article 5190.6, Texas Revised Civil Statutes, as amended(the"Act"). (d) The construction of two lanes of Bailey Oiler Road running west from SH 35 and existing Oiler Drive to Veterans Drive, including the acquisition of all necessary rights of way, the construction of drainage and sewage lines along the proposed construction and associated improvements, the construction of a two lane rail overpass across the Burlington Northern Lines along the construction route, the construction of four lane transition turn-in lanes at SH 35 and Veterans Drive and median cuts for future development along the construction route (the "Project") is important to the economic growth and development of the City and will benefit the City's residents by aiding the City's efforts to encourage growth and development, stimulate commerce, promote or develop new or expanded business enterprises, and enhance the health, safety, and welfare of the City's residents. (e) As permitted by the Act, the Corporation desires to issue sales tax revenue bonds upon the terms and conditions and for the purposes herein provided. 3 HOU:2574645.3 ARTICLE II DEFINITIONS AND INTERPRETATIONS Section 2.1: Definitions. In this Resolution, the following terms shall have the following meanings,unless the context clearly indicates otherwise: "Act" shall mean Article 5190.6, Texas Revised Civil Statutes, as amended. "Additional Parity Bonds" shall mean the additional bonds permitted to be issued by the Corporation pursuant to Section 6.1 of this Resolution. "Attorney General" shall mean the Attorney General of the State of Texas. "Board of Directors" shall mean the governing body of the Corporation. "Bond Insurance Policy" shall mean the financial guaranty insurance policy issued by the Bond Insurer insuring the payment when due of the principal of and interest on the Bonds, as provided therein. "Bond Insurer" shall mean Ambac Assurance Corporation,or any successor thereto. "Bond" or"Bonds" shall mean the Corporation's Sales Tax Revenue Bonds, Series 2006, but only to the extent such Bonds are Outstanding within the meaning of this Resolution. "Business Day" shall mean any day other than (i) a Saturday, Sunday, or other day on which banking institutions in the city where the principal corporate trust office of the Paying Agent/Registrar is located are authorized by law or executive order to close, or (ii) a day on which the New York Stock Exchange is closed. "City" shall mean the City of Pearland, Texas, a municipal corporation and home-rule city, and where appropriate, the City Council 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 Construction Fund created pursuant to Section 9.4 of this Resolution. "Corporation" shall mean the Pearland Economic Development Corporation, and any successor thereto. "Debt Service Fund" shall mean the Debt Service Fund created pursuant to Section 5.2 of this Resolution. "Debt Service Requirement" shall mean the amount necessary to pay the principal of, premium, if any, and interest due and owing on the Bonds, and any Additional Parity Bonds, 4 HOU:2574645.3 during each Fiscal Year of the Corporation. The Debt Service Schedule for the Bonds is attached to this Resolution as Exhibit A. "Fiscal Year" shall mean the fiscal year of the Corporation, which is currently the twelve- month period beginning on October 1 of each year and ending on September 30 of the following year. "Outstanding," when used with reference to the Bonds shall mean, as of a particular date, the principal amount of all such Bonds theretofore delivered by the Corporation as provided in or contemplated by this Resolution, except: (a) any such Bond canceled by or on behalf of the Corporation at or before such date; (b) any such Bond paid or with respect to which provision for payment has been made pursuant to the provisions of this Resolution or otherwise defeased as permitted by applicable law; or (c) any such Bond in lieu of or in substitution for which another Bond shall have been delivered pursuant to this Resolution. "Owner" or "Registered Owner," when used with respect to any Bond, shall mean the person or entity in whose name such Bond is registered in the Register. Any reference to a particular percentage or proportion of the Owners shall mean the Owners at a particular time of the specified percentage or proportion in aggregate principal amount of all Bonds then Outstanding under this Resolution, exclusive of Bonds held by the Corporation. "Parity Bonds" shall mean the Corporation's Sales Tax Revenue and Refunding Bonds, Series 2005, the Corporation's Sales Tax Revenue Bonds, Series 1997, the Bonds, each series of Additional Parity Bonds from time to time hereafter issued by the Corporation, and any refunding bonds issued to refund the Bonds or any Additional Parity Bonds, but only to the extent such Parity Bonds remain Outstanding. "Paying Agent/Registrar" shall mean Wells Fargo Bank, N.A., Minneapolis, Minnesota, and its successors in that capacity. "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 prior redemption. "Pledged Revenues" shall mean (a) 100% of the Sales Tax Revenues and (b) 100% of all of the interest income from the investment or deposit of moneys in the Revenue Fund, the Debt Service Fund and the Reserve Fund. "Project" shall mean the construction of two lanes of Bailey Oiler Road running west from SH 35 and existing Oiler Drive to Veterans Drive, including the acquisition of all necessary rights of way, the construction of drainage and sewage lines along the proposed construction and associated improvements, the construction of a two lane rail overpass across the Burlington Northern Lines along the construction route, the construction of four lane transition turn-in lanes at SH 35 and Veterans Drive and median cuts for future development along the construction route. "Purchaser" shall mean the initial purchaser of the Bonds as defined in Section 9.1 of this Resolution. "Record Date" shall mean, for any Payment Date, the fifteenth (15th) calendar day of the month next preceding each Payment Date. 5 HOU:2574645.3 "Register" shall mean the books of registration kept by the Paying Agent/Registrar in which are maintained the names and addresses of, and the principal amounts of the Bonds registered to, each Owner. "Reserve Fund" shall mean the Reserve Fund created pursuant to Section 5.2 of this Resolution. "Reserve Fund Requirement" shall mean an amount (which may consist of money or authorized investments, or any combination thereof) equal to 100% of the average annual debt service on any Parity Bonds, the Bonds and any Additional Parity Bonds then Outstanding. "Reserve Fund Surety Bond" shall mean the surety bond issued by the Reserve Fund Surety Bond Insurer guaranteeing certain payments into the Reserve Fund with respect to the Bonds, as provided therein and subject to the limitations set forth therein. "Reserve Fund Surety Bond Insurer" shall mean Ambac Assurance Corporation, or any successor thereto. "Resolution" shall mean this Resolution Authorizing the Issuance of $10,235,000 Pearland Economic Development Corporation Sales Tax Revenue Bonds, Series 2006, and all amendments hereof and supplements hereto. "Revenue Fund" shall mean the Revenue Fund created pursuant to Section 5.2 of this Resolution. "Sales Tax" shall mean the 1/2 of 1% sales and use tax authorized to be levied by the City for the benefit of the Corporation for the promotion and development of new and expanded business enterprises pursuant to an election held on January 21, 1995. "Sales Tax Revenues" shall mean 100% of the funds collected by the City from the levy of the Sales Tax, without deduction, offset or credit for any administrative charges or expenses incurred by the City or the Corporation in connection with the levy and collection of the Sales Tax, other than any amounts due and owing to the Comptroller for collection costs and other charges. "Surplus Fund" shall mean the Surplus Fund created pursuant. to Section 5.2 of this Resolution. Section 2.2: Interpretations. All terms defined herein and all pronouns used in this Resolution 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 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 Parity Bonds and the validity of the lien on and pledge of the Pledged Revenues to secure the payment of the Parity Bonds. 6 HOU:2574645.3 ARTICLE III TERMS OF THE BONDS Section 3.1: Name, Amount, Purpose, Authorization. The Bonds shall be issued in fully registered form, without coupons, in the aggregate principal amount of TEN MILLION TWO HUNDRED THIRTY FIVE THOUSAND AND NO/100 DOLLARS ($10,235,000) for the purposes permitted by the Act, including particularly (1) acquiring and constructing streets and roads, drainage and related improvements within the City, specifically• the Project, and(2)paying the costs of issuing the Bonds. Section 3.2: Designation, Date, and Payment Dates. The Bonds shall be dated June 15, 2006, and designated as the PEARLAND ECONOMIC DEVELOPMENT' CORPORATION SALES TAX REVENUE BONDS, SERIES 2006, and shall bear interest at the rates set forth in Section 3.3 of this Resolution from the later of June 15, 2006, or the most ' recent Payment Date to which interest has been paid or duly provided for, calculated on the basis of a 360-day year composed of twelve 30-day months, payable on March 1, 2007, and semiannually thereafter on September 1 and March 1 of each year until maturity or prior redemption. • Section 3.3: Initial Bonds; Numbers; Denomination; Interest Rates and Maturities. Except for the initial Bond, the Bonds shall be initially issued bearing the numbers,in the principal amounts, and bearing interest at the rates set forth below, and may be transferred and exchanged as set out in this Resolution. The Bonds shall mature, subject to prior redemption in accordance with this Resolution,.on September 1 in each of the years and in the amounts set out in the following schedule. Bonds delivered on 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 5.000% R-2 2008 165,000 4.500 R-3 2009 170,000 4.250 R-4 2010 180,000 4.250 R-5 2011 185,000 5.000 R-6 2012 200,000 5.000 R-7 2013 210,000 5.000 R-8 2014 215,000 5.000 R-9 2015 230,000 5.000 R-10 2016 240,000 4.250 R-11 2017 255,000 4.250 R-12 2018 265,000 4.375 R-13 2019 280,000 4.375 R-14 2020 300,000 4.500 7 HOU:2574645.3 Bond Year of Principal Interest Number Maturity Amount Rate R-15 2021 310,000 4.500 *** *** *** *** R-16 2024 1,035,000 5.000 • *** *** *** *** R-17 2027 1,980,000 5.000 *** *** *** *** R-18 2030 3,965,000 4.750 Section 3.4: Optional Redemption. (a) The Corporation reserves the right, at its option, to redeem Bonds maturing on or after September 1, 2017, in whole, or from time to time in part, on September 1, 2016 or on any date thereafter, at par plus accrued interest on the amounts called for redemption to the date fixed for redemption. If less than all of the Bonds are to be redeemed, the Corporation shall determine the particular Bonds or portions thereof to be redeemed. (b) The Bonds maturing on September 1 in the years 2024, 2027 and 2030 (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 the portions thereof so called for redemption plus accrued interest to the date fixed for redemption: Mandatory Redemption Dates Principal Amounts Term Bonds Maturing September 1,2024 September 1,2022 $325,000 September 1,2023 345,000 September 1,2024 365,000 Term Bonds Maturing September 1,2027 September 1,2025 $385,000 September 1,2026 405,000 September 1,2027 1,190,000 Term Bonds Maturing September 1,2030 September 1,2028 $1,255,000 September 1,2029 1,320,000 September 1,2030 1,390,000 The particular Term Bonds to be redeemed shall be selected by the Registrar by lot or other customary random selection method, on or before September 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 September 1 of such year and which have not been made the basis for a previous reduction. (c) Principal amounts may be redeemed 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. Upon surrender of any Bond for redemption in part, the Paying Agent/Registrar, in accordance with Section 3.11 of this Resolution, shall authenticate and deliver in exchange therefor a Bond or Bonds of like maturity 8 HOU:2574645.3 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 to be redeemed in whole or in part shall be given by the Paying Agent/Registrar at least thirty days prior to the date fixed for redemption by sending written notice by first class mail, postage prepaid, to the Owner of each Bond to be redeemed in whole or in part at the address shown on the Register. Such notices shall state the redemption date, the redemption price, and the place at which Bonds are to be surrendered for payment and, if less than all Bonds outstanding are to be redeemed in any one maturity, the numbers of the Bonds or portions thereof of such maturity to be redeemed. In selecting portions of Bonds for redemption, the Paying Agent/Registrar shall treat each Bond as representing that number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Bond by$5,000. The Paying Agent/Registrar shall select the particular Bonds to be redeemed within any given maturity by lot or other random method. Any notice given as provided in this Section 3.4 shall be conclusively presumed to have been duly given, whether or not the Owner receives such notice. By the date fixed for redemption, due provision shall be made with the Paying Agent/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 the same as herein provided, the Bonds or portions thereof so redeemed shall no longer be regarded as Outstanding except for the purpose 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. Section 3.5: Execution of Bonds. The Bonds shall be signed on behalf of the Corporation by the Chairman and countersigned by the Secretary by their manual, lithographed, or facsimile signatures 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. If any officer of the Corporation 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. Section 3.6: Approval By Attorney General: Registration by Comptroller. The Bonds to be initially issued shall be delivered to the Attorney General for examination and approval and shall be registered by the Comptroller. The manually. executed registration certificate of the Comptroller substantially in the form provided in Article IV of this Resolution shall be affixed or attached to the Bonds to be initially issued. Section 3.7: Authentication. Except for the Bonds to be initially issued, which need not be authenticated, only such Bonds as shall bear thereon a certificate of authentication substantially in the form provided in Article IV of this Resolution, manually executed by an authorized representative of the Paying Agent/Registrar, shall be entitled to the benefits of this Resolution 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. 9 HOU:2574645.3 Section 3.8_ Payment of Principal and Interest. The principal of the Bonds shall be payable, without exchange or collection charges, in any coin or currency of the United States of America which, on the date of payment, is legal tender for the payment of debts due the United States of America, upon their presentation and surrender as they respectively become due and payable at the principal corporate trust office of the Paying Agent/Registrar. The interest on each Bond shall be payable by check payable on the Payment Date,mailed by the Paying Agent/Registrar on or before each Payment Date to the Owner of record as of the Record Date, to the address of such Owner as shown on the Register, or by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the Owner. If the date for the payment of principal or interest on any Bond is not a Business Day, then the date for such payment shall be the next succeeding Business Day, and payment on such date shall have the same force and effect as if made on the original date such payment was due. Section 3.9: Special Record Date. If interest on any Bond is not paid on any Payment Date and continues unpaid for thirty (30) days thereafter, the Registrar shall establish a new record date for the payment of such interest, to be known as a "Special Record Date." The Registrar shall establish a. Special Record Date when funds to make such interest payment are received from or on behalf of the Corporation. 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 Owner or record of an affected Bond as of the close of business on the day prior to the mailing of such notice. Section 3.10: Ownership. The Corporation, 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 of or interest on such Bond, and for all other purposes, whether or not such Bond is overdue, and neither the Corporation nor the Paying Agent/Registrar shall be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the Owner of any Bond in accordance with this Section 3.10 shall be valid and effectual and shall discharge the liability of the Corporation and the Paying Agent/Registrar upon such Bond to the extent of the sums paid. Section 3.11: Registration, Transfer and Exchange. So long . as any Bonds remain outstanding, the Paying Agent/Registrar shall keep the Register at its principal corporate trust office in Minneapolis, Minnesota, and, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of Bonds in accordance with the terms of this Resolution. Each Bond shall be transferable only upon the presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar, duly endorsed for transfer, or accompanied by an assignment duly executed by the registered Owner or his authorized representative in form satisfactory to the Paying Agent/Registrar. Upon due presentation of any Bond in proper form for transfer, the Paying Agent/Registrar shall authenticate and deliver in 10 HOU:2574645.3 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 the same maturity and aggregate principal amount and bearing interest at the same rate as the Bond or Bonds so presented. All Bonds shall be exchangeable upon presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar for a Bond or Bonds of the same maturity and interest rate, in an aggregate 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 3.11. Each Bond delivered in accordance with this Section 3.11 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. The Corporation or the Paying Agent/Registrar may require the Owner of any Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of such Bond. Any fee or charge of the Paying Agent/Registrar for such transfer or exchange shall be paid by the Corporation. The Paying Agent/Registrar shall not be required to transfer or exchange any Bond called for redemption, in whole or in part, during the 45-day period immediately prior to the redemption date; provided, however, that such limitation• shall not apply to the transfer or exchange by the Owner of the unredeemed portion of a Bond called for redemption in part. Section 3.12: Book-Entry Only System. (a) 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 subsection (b)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 holder of the Bond, 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 holder of the Bond, as shown in the Register of any amount with respect to principal of Bonds,premium, if any, or interest on the Bonds. 11 HOU:2574645.3 • • Except as provided in subsection (c) of this Section 3.12, 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. (b) • Payments and Notices to Cede & Co. Notwithstandingany ym 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 3.13: 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 certified 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 holders of the Bonds transferring or exchanging Bonds shall designate, in accordance with the provisions of this Ordinance. Section 3.14: Cancellation of Bonds. All Bonds paid or redeemed 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 canceled and destroyed upon the making of proper records regarding such payment or redemption. The Paying Agent/Registrar shall furnish the Corporation with appropriate certificates of destruction of such Bonds. Section 3.15: Damaged, Mutilated, Lost, or Stolen 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 like maturity, interest rate and principal amount, bearing a number not contemporaneously 12 HOU:2574645.3 outstanding. The Corporation or the Paying Agent/Registrar may require the 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. If any Bond is lost, apparently destroyed, or wrongfully taken, the Corporation, 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 Paying Agent/Registrar shall authenticate and deliver, a replacement Bond of like maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding, provided that the Owner thereof shall have: (1) furnished to the Corporation and the Paying Agent/Registrar satisfactory evidence of the ownership of and the circumstances of the loss, destruction or theft of such Bond; (2) furnished such security or indemnity as may be required by the Paying Agent/Registrar and the Corporation to save them harmless; 3paid all expenses and charges in connection therewith, including, but notlimited p g g, to, printing costs, legal fees, fees of the Paying Agent/Registrar and any tax or other governmental charge that may be imposed; and (4) met any other reasonable requirements of the Corporation 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 Corporation 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 Corporation or the Paying Agent/Registrar in connection therewith. If any such damaged, mutilated, lost, apparently destroyed or wrongfully taken Bond has become or is about to become due and payable, the Corporation 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 3.15 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. ARTICLE IV FORM OF BONDS AND CERTIFICATES Section 4.1: Forms. The form of the Bonds, including the form of Statement of Insurance, the form of the Paying Agent/Registrar's Authentication Certificate, the 13 HOU:2574645.3 1 4 , 1 form of Assignment and the form of the Comptroller's Registration Certificate which shall be attached or affixed to the Bonds initially issued, shall be, respectively, substantially as shown in Exhibit B hereto, with such additions, deletions and variations as may be necessary or desirable and not prohibited by this Resolution. Section 4.2: Legal Opinion; Cusip Numbers. The approving opinion of Andrews Kurth LLP, Houston, Texas, and CUSIP Numbers may be printed on the Bonds, but errors or omissions in the printing of such opinion or such numbers shall have no effect on the validity of the Bonds. ARTICLE V SECURITY AND SOURCE OF PAYMENT FOR ALL PARITY BONDS Section 5.1: Pledge and Source of Payment. The Corporation hereby covenants and agrees that all Pledged Revenues shall be deposited and paid into the special funds established in Section 5.2 of this Resolution, and shall be applied in the manner set out herein, to provide for the payment of principal, interest and any redemption premium of the Parity Bonds and all expenses of paying the same. The Parity Bonds shall constitute special obligations of the Corporation that shall be payable solely from, and shall be equally and ratably secured by a first lien on, the Pledged Revenues, as collected and received by the Corporation, which Pledged Revenues shall, in the manner herein provided, be set aside and pledged to the payment of the Parity Bonds in the Debt Service Fund and Reserve Fund, and any excess Sales Tax Revenues shall be set aside in the Surplus Fund as hereinafter provided, and the Parity Bonds shall be in all respects on a parity with and of equal dignity with one another. The owners of the Parity Bonds shall never have the right to demand payment out of any funds raised or to be raised by ad valorem taxation. The owners of the Parity Bonds shall never have the right to demand payment.. from Sales Tax Revenues in excess of those collected from the Sales Tax. Section 5.2: Special Funds. The following special funds are hereby created, and such funds shall be maintained and accounted for as hereinafter provided, so long as any Parity Bonds remain Outstanding: (a) the Revenue Fund; (b) the Debt Service Fund; . (c) the Reserve Fund; and (d) the Surplus Fund. The Revenue Fund and the Surplus Fund shall be maintained and accounted for as separate accounts on the books of the Corporation. The Debt Service Fund and any moneys held in the Reserve Fund shall be maintained at an official depository bank of the Corporation separate and apart from all other funds and accounts of the City or the Corporation and shall constitute trust funds which shall be held in trust for the benefit of the Owners of the Parity Bonds and the proceeds of which shall be and are hereby pledged to the payment of the Parity Bonds. All of the 14 HOU:2574645.3 funds named above shall be used solely as provided herein so long as any Parity Bonds remain Outstanding. • Section 5.3: Flow of Funds. All Pledged Revenues shall be deposited as collected into the Revenue Fund. Money from time to time on deposit to the credit of the Revenue Fund shall be applied as follows in the following order or priority: (a) First, to make all deposits into the Debt Service Fund required by this Resolution, and any resolution authorizing the issuance of Parity Bonds or Additional Parity Bonds; (b) Second, to make any rebate payments required pursuant to Section 9.5 of this Resolution; (c) Third, to reimburse the Reserve Fund Surety Bond Insurer and any other issuer of a surety bond issued in satisfaction of the Reserve Fund Requirement, any amounts advanced under the Reserve Fund Surety Bond or such other surety bonds; (d) Fourth, to pay interest to the Reserve Fund Surety Bond Insurer and any other issuer of a surety bond issued in satisfaction of the Reserve Fund Requirement, for any amounts advanced under the Reserve Fund Surety Bond or such other surety bonds; (e) Fifth, to make all deposits into the Reserve Fund required by this Resolution, any resolutions authorizing Parity Bonds and any resolution authorizing the issuance of Additional Parity Bonds; (f) Sixth, to make the transfers required by any resolutions authorizing the issuance or incurrence of subordinate lien obligations (subject to the prior requirements of any resolutions authorizing the issuance of Parity Bonds or Additional Parity Bonds); and • (g) Seventh, to make all deposits into the Surplus Fund as required by this Resolution, 1 said funds to be used for any lawful purpose. Whenever the total amounts on deposit to the credit of the Debt Service Fund and the Reserve Fund shall be equivalent to the sum of the aggregate principal amount of all Outstanding Parity Bonds plus the aggregate amount of all interest accrued and to accrue thereon, no further payments need be made into the Debt Service Fund or the Reserve Fund. Section 5.4: Debt Service Fund. On or before the last Business Day of each month, beginning July, 2006, so long as any Parity Bonds remain Outstanding, there shall be deposited into the Debt Service Fund from the Revenue Fund such amounts, in approximately equal monthly installments, as will be sufficient to accumulate the amount required to pay the Debt Service Requirement on the next Payment Date. If in any month the Corporation shall fail to make the full transfer to the Debt Service Fund required by this Resolution, amounts equivalent to such deficiency shall be transferred to the Debt Service Fund from the first available and unallocated money in the Revenue Fund in the following month or months, and such transfers shall be in addition to the other amounts required to be transferred to the Debt Service Fund. 15 HOU:2574645.3 Money deposited to the credit of the Debt Service Fund shall be used soley for the purpose of paying principal (at maturity or prior redemption or to purchase Parity Bonds issued as term bonds in the open market to be credited against mandatory redemption requirements), interest, and any redemption premium on the Parity Bonds, plus all bank charges and other costs and expenses related to such payment. On or before each Payment Date on the Parity Bonds, the Corporation shall transfer from the Debt Service Fund to the paying agents for the Parity Bonds an amount equal to the principal, interest and any redemption premium payable on the Parity Bonds on such date, together with an amount equal to all bank charges and other costs and expenses relating to such payment. The paying agents for the Parity Bonds shall destroy all paid Parity Bonds and shall provide the Corporation with an appropriate certificate of destruction. Section 5.5: Reserve Fund. The Corporation shall initially deposit in the Reserve Fund, within five years from the date of delivery of the Bonds; in equal monthly installments, an amount which after such five-year period shall equal the Reserve Fund Requirement. After such five-year period, so long thereafter as the Reserve Fund contains such amount, no deposits shall be required to be made into the Reserve Fund, and any excess amounts may be transferred to the Revenue Fund, the Debt Service Fund or the Surplus Fund. But, if and whenever the balance in the Reserve Fund is reduced below such amount, monthly deposits into the Reserve Fund from the first available and unallocated money in the Revenue Fund shall be resumed and continued until the Reserve Fund has been restored to such amount. The Reserve Fund shall be used to pay the principal of and interest on the Parity Bonds at any time when there is not sufficient money available in the Debt Service Fund for such purpose and it may be used finally to pay and retire the last Parity Bonds to mature or be redeemed. In lieu of cash or investments, the Reserve Fund Requirement may be satisfied in whole or in part with one or more surety bonds issued by an insurance company rated in the highest rating category by Standard & Poor's Ratings Group and Moody's Investors Service, and, if rated by A.M. Best & Company, also rated in the highest rating category by A.M. Best & Company, including the Reserve Fund Surety Bond pursuant to the Financial Guaranty. Agreement, a form of which is included in Exhibit C hereto, the terms and provisions of which are hereby approved. The Chairman is.hereby authorized and directed to execute and deliver such Guaranty Agreement on behalf of the Corporation, in multiple counterparts and the Secretary is hereby authorized to attest thereto, together with such changes, additions, deletions and amendments thereto as such officers shall deem necessary or appropriate. Such Reserve Fund Surety Bond may be drawn upon only after all cash or investments held in the Reserve Fund have been used or applied. If the Reserve Fund Requirement is satisfied with the Reserve, Fund Surety Bond and one or more surety bonds authorized under this Section, draws on the Reserve Fund Surety Bond and such other surety bonds shall be made on a pro rata basis. The provisions of Exhibit D relating to the Reserve Fund Surety Bond. Insurer are hereby incorporated herein for all purposes. Notwithstanding anything in this Resolution to the contrary, the Bonds may not be redeemed pursuant to Section 3.4 unless all amounts owed to the Reserve Fund Surety Bond Insurer pursuant to the Guaranty Agreement have been paid in full. Section 5.6: Surplus Fund. After making any transfers which may be required into the Debt Service Fund, the Reserve Fund, or any other fund or funds created in any 16 HOU:2574645.3 resolution authorizing the issuance of Parity Bonds, any money remaining in the Revenue Fund shall be considered surplus, and may be deposited on any Payment Date into the Surplus Fund and used by the Corporation for any lawful purpose. Section 5.7: Deficiencies in Funds. If in any month there shall not be deposited into any fund maintained pursuant to this Article the full amounts required herein; amounts equivalent to such deficiency shall be set apart and paid into such fund or funds from the first available and unallocated money in the Revenue Fund, and such payment shall be in addition to the amounts otherwise required to be paid into such funds during the succeeding month or months. Section 5.8:. Investment of Funds; Transfer of Investment Income. Money in the Revenue Fund, the Debt Service. Fund and the Reserve Fund may, at the option of the Corporation, be invested in any manner permitted by law for public funds; provided that all such deposits and investments shall be made in such manner that the money required to be expended from any fund will be available at the proper time or times, and provided further that in no event shall such deposits or investments of money in the Reserve Fund mature later than the final maturity date of the Parity Bonds. All such investments shall be valued in terms of current market value as of the last Business Day of the Corporation's Fiscal Year. All such investments shall be promptly sold when necessary to prevent any default in connection with the Parity Bonds. All interest and income derived from such deposits and investments shall be transferred or credited as received to the Revenue Fund, and shall constitute Pledged Revenues. Section 5.9: Security for Uninvested Funds. So long as. any Parity Bonds remain Outstanding, all uninvested money on deposit in, or credited to, the Revenue Fund, the Debt Service Fund and the Reserve Fund shall be secured by the pledge of security, as provided by Texas law. . ARTICLE VI ADDITIONAL BONDS Section 6.1: Additional Parity Bonds. In addition to inferior lien bonds; the Corporation expressly reserves the right hereafter to issue, in one or more series, Additional Parity Bonds for purposes permitted by law, which Additional Parity Bonds, when issued, shall be payable from and secured by liens on and pledges of the Pledged Revenues in the same manner and to the same extent as the Bonds and any other Additional Parity Bonds; and the Additional Parity Bonds, when issued, shall be payable from the Debt Service Fund and shall be in all respects of equal dignity and on a parity with the Bonds and any other Additional Parity Bonds. It is specifically provided, however, that no Additional Parity Bonds shall be issued unless: (a) Principal of the Additional Parity Bonds is payable on September 1 and interest is payable on March 1 and September 1; 17 HOU:2574645.3 . (b) The Debt Service Fund and the Reserve Fund each contains the amount of money then required to be on deposit therein; (c) For any twelve (12) consecutive months of the preceding 18-month period immediately preceding the month in which the resolution authorizing such Additional Parity Bonds is adopted (the "Base Period"), the Pledged Revenues were equal to at least 1.25% of the average annual principal and interest requirements on all Parity Bonds that will be Outstanding after the issuance of the series of Additional Parity Bonds then proposed to be issued, as certified by the Chairman of the Corporation, an authorized officer of the City, or by an independent certified public accountant or firm of independent certified public accountants; and (d) Provision is made in the resolution authorizing the Additional Parity Bonds then proposed to be issued that (1) additional deposits will be made into the Debt Service Fund sufficient to provide for the principal and interest requirements on the Additional Parity Bonds and (2) deposits will be made into the Reserve Fund of such amount, or one or more surety bonds will be provided, so that it will contain a balance not less than the Reserve Fund Requirement on all Parity Bonds that will be Outstanding after the issuance of such series of Additional Parity Bonds. • Section 6.2: Subordinate Lien Bonds. The Corporation reserves the right to issue, for any purpose authorized under the Act,bonds, notes or other obligations secured in whole or in part by liens on the Pledged Revenues that are junior and subordinate to the lien on Pledged Revenues securing payment of the Parity Bonds. Such subordinate lien obligations may be further secured by any other source of payment lawfully available for such purposes. ARTICLE VII PAYING AGENT/REGISTRAR Section 7.1: Paying Agent/Registrar; Computation of Amount of Interest. (a) Wells Fargo Bank, N.A., Minneapolis, Minnesota, is hereby• appointed Paying Agent and Registrar for the Bonds. The Paying Agent/Registrar Agreement shall be substantially in the form attached hereto as Exhibit E, the terms and provisions of which are hereby approved, and the Chairman is hereby authorized and directed to execute and deliver such Paying Agent/Registrar Agreement on behalf of the Corporation, in multiple counterparts and the Secretary is hereby authorized to attest thereto, together with such changes, additions, deletions and amendments thereto as such officers shall deem necessary or appropriate. Such initial Paying Agent/Registrar and any successor Paying Agent/Registrar, by undertaking the performance of the duties of the Paying Agent/Registrar hereunder, and in consideration of the payment of any fees pursuant to the terms of any contract between the Paying Agent/Registrar and the Corporation and/or the deposits of money pursuant to this Resolution, shall be deemed to accept and agree to abide by the terms of this Resolution. (b) All money transferred to the Paying Agent/Registrar by the Corporation under this Resolution(except sums representing Paying Agent/Registrar's fees) shall be held in trust for the benefit of the Registered Owners, shall be the property of the Corporation, and shall be disbursed in accordance with this Resolution. 18 HOU:2574645.3 (c) The Paying Agent/Registrar, in its individual or any other capacity, may become an Owner or pledgee of Bonds with the same rights it would have if it was not the Paying/Agent Registrar. (d) The dollar amount of interest due and payable from time to time shall be computed by the Paying Agent/Registrar. (e) The Paying Agent/Registrar shall hold in escrow on behalf of the Corporation the Bonds initially issued by the Corporation and approved by the Attorney General and shall deliver such Bonds in accordance with this Resolution and the Bond Purchase Agreement. (f) All matured Bonds presented to the Paying Agent/Registrar for payment shall be paid without the necessity of further instructions from the Corporation. Such Bonds shall be canceled as provided herein. Amounts held by the Paying Agent/Registrar which represent principal of and interest on the Bonds remaining unclaimed by the Owner after the expiration of three (3) years from the date such amounts have become due and payable shall be reported and disposed of by the Paying Agent/Registrar in accordance with the applicable provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. The Paying Agent/Registrar shall have no liability to the Owners of the Bonds,by virtue of actions taken in compliance with this Section. (g) The Paying Agent/Registrar shall deliver a written demand for payment, in a form acceptable to.the Reserve Fund Surety Bond Insurer, at least three business days prior to the date on which a draw under the Reserve Fund Surety Bond will be required. The Paying Agent/Registrar shall maintain adequate records, verified with the Reserve Fund Surety Bond Insurer, regarding the amount available to be drawn at any given time under the Reserve Fund Surety Bond and regarding to the amounts paid and owing to the Reserve Fund Surety Bond Insurer under the terms of the Guaranty Agreement. Section 7.2: Successor Paying Agents/Registrars. If the Paying Agent/Registrar or its successors become unable for any reason to act as Paying Agent/Registrar hereunder,the Corporation covenants that it will appoint a qualified bank or trust company as the' Paying Agent/Registrar for the Bonds. No successor Paying Agent/Registrar shall be appointed unless the Corporation shall have the first given 60 days' written notice, by first class mail, to each Registered Owner of Bonds. ARTICLE VIII COVENANTS AND PROVISIONS RELATING TO ALL PARITY BONDS Section 8.1: Punctual Payment of Parity Bonds. The Corporation will punctually pay or cause to be paid the interest and premium, if any, on and principal of all Parity Bonds according to the terms thereof and will faithfully do and perform, and at all times fully observe, any and all covenants, undertakings, stipulations and provisions contained in this Resolution and in any resolution authorizing the issuance of Additional Parity Bonds. ' 19 HOU:2574645.3 Section 8.2: Accounts, Records, and Audits. So long as any Parity Bonds remain Outstanding, the Corporation covenants and agrees that it will maintain a proper and complete system of records and accounts in which full, true and proper entries will be made of all dealings, transactions, business and affairs which in any way affect or pertain to the Sales Tax Revenues or the Pledged Revenues. The Corporation shall after the close of each of its Fiscal Years cause an audit report of such records and accounts to be prepared by an independent certified public accountant or independent firm of certified public accountants. Each year promptly after such audit report is prepared, the Corporation shall furnish a copy thereof without cost to the Municipal Advisory Council of Texas, the major municipal rating agencies and any owners of Parity Bonds who shall request same. Section 8.3: Pledge and Encumbrance of Pledged Revenues. The Corporation covenants and represents that it has the lawful power to create a lien on and to pledge the Pledged Revenues to secure the payment of the Parity Bonds and has lawfully exercised such power under the Constitution and laws of the State of Texas. The Corporation further covenants and represents that, other than to the payment of the Parity Bonds, the Pledged Revenues are not and will not be made subject to any other lien pledge or encumbrance to secure the payment of any debt or obligation of the Corporation, unless such 'lien, pledge or encumbrance is junior and subordinate to the lien and pledge securing payment of the Parity Bonds. The Corporation covenants to take all such actions as may be necessary or required from time to time under Texas law to preserve or perfect the priority of the first lien on Pledged Revenues created in this section. Section 8.4: Bondowners' Remedies. This Resolution shall constitute a contract between the Corporation and the Owners of the Parity Bonds from time to time Outstanding and this Resolution shall be and remain irrepealable until the Parity Bonds and the interest thereon shall be fully paid or discharged or provision therefor shall have been made as provided herein. In the event of a default in the payment of the principal of or interest or premium, if any, on any of the Parity Bonds or a default in the performance of any duty or covenant provided by law or in this Resolution, the Owner or Owners of any of the Parity Bonds may pursue all legal remedies afforded.by the Constitution and laws of the State of Texas to compel the,Corporation to remedy such default and to prevent further default or defaults. Without in any way limiting the generality of the foregoing, it is expressly provided that any Owner of any of the.Parity Bonds may at law or in equity, by suit, action, mandamus, or other proceedings, enforce and compel performance of all duties required to be performed by.the Corporation under this Resolution, including the deposit of the Pledged Revenues into the special funds herein provided, and the application of such Pledged Revenues in the manner required in this Resolution. Section 8.5: Discharge by Deposit. The Corporation may defease the provisions of this Resolution and discharge its obligation to the Owners of any or all of the Bonds to pay principal thereof and interest and redemption premium, if any, thereon in any manner now or hereafter permitted by law. Upon such defeasance and discharge, such Bonds . shall no longer be regarded to be Outstanding or unpaid. Notwithstanding anything'herein to the contrary, in the event that the principal and/or interest due on the Bonds shall be paid by the Bond Insurer pursuant to the Bond Insurance 20 HOU:2574645.3 Policy, the Bonds shall remain outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the Corporation, and the assignment and pledge of all covenants, agreements and other obligations of the Corporation to the Owners shall continue to exist and shall run to the benefit of the Bond Insurer, and the Bond Insurer shall be subrogated to the rights of such Owners. Section 8.6: Confirmation and Levy of Sales Tax. (a) The Corporation hereby represents the City has duly complied with the provisions of the Act for the levy of the Sales Tax at the rate voted at the election held by and within the City_on January 21, 1995,and such Sales Tax is being imposed within the corporate limits of the City and the receipts of such Sales Tax are being remitted to the City by the Comptroller of Public Accounts on a monthly basis. (b) While any Bonds are Outstanding, the Corporation covenants, agrees and warrants to. take and pursue all action permissible to cause the Sales Tax, at said rate or at a higher rate if legally permitted, to be levied and collected continuously, in the manner and to the maximum extent permitted by law, and to cause no reduction, abatement or exemption in the Sales Tax or rate of tax below the rate stated, confirmed and ordered in subsection (a) of this Section to be ordered or permitted while any Bonds shall remain Outstanding. (c) If hereafter authorized by law to apply, impose and levy the Sales Tax on any taxable items or transactions that are not subject to the Sales Tax on the date of the adoption hereof, to the extent it legally may do so, the Corporation agrees to use its best efforts to cause the City to take such action as may be required to subject such taxable items or transactions to the Sales Tax. (d) The Corporation agrees to take and pursue all action legally permissible to cause the Sales Tax to be collected and remitted and deposited as herein required and as required by the Act, at the earliest and most frequent times permitted by law. (e) The Corporation agrees to use its best efforts to cause the City to comply with the Act and shall cause the Sales Tax Revenues to be deposited to the credit of the Revenue Fund in their entirety immediately upon receipt by the City. In the alternative and if legally authorized, the Corporation shall, by appropriate notice, direction, request or other legal method, use its good- faith efforts to cause the Comptroller of Public Accounts of the State of Texas (the "Comptroller") to pay all Sales Tax Revenues directly to the Corporation for deposit to the Revenue Fund. Section 8.7: Representations as to Security for the Bonds. (a) The Corporation represents and warrants that, except for the Parity Bonds, the Pledged Revenues are and will be and remain free and clear of any pledge, lien, charge or encumbrance thereon or with respect thereto prior to, or of equal rank with, the pledge and lien created in or authorized by this Resolution except as expressly provided herein. (b) The Bonds and the provisions of this Resolution are and will be the valid and legally enforceable obligations of the Corporation in accordance with their terms and the terms of this 21 HOU:2574645.3 Resolution,subject only to any applicable bankruptcy or insolvency laws or to any laws affecting creditors rights generally. (c) The Corporation shall at all times, to the extent permitted by law, defend, preserve and protect the pledge of the Pledged Revenues and all the rights of the Owners against all claims and demands of all persons whomsoever, and shall take such action necessary to protect the priority of the pledge of the Pledged Revenues. (d) The Corporation will take, and use its best efforts to cause the City to take, all steps reasonably necessary and appropriate to collect all delinquencies in the collection of the Sales Tax to the fullest extent permitted by the Act. (e) The provisions, covenants, pledge and lien on and against the Pledged Revenues, as herein set forth, are established and shall be for the equal benefit, protection and security of the Owners of Parity Bonds without distinction as to priority and rights under this Resolution. Section 8.8: No Recourse Against Corporation Officers. No recourse shall be had for the payment of principal of or interest on any Parity Bonds or for any claim based thereon or on this Resolution against any officer of the Corporation or any person executing any Parity Bonds. Section 8.9: Amendment to Resolution. The Corporation may, with the consent_of Owners holding a majority in aggregate principal amount of the Bonds then Outstanding affected thereby,.amend, add to, or rescind any of the provisions of this Resolution; provided that, without the consent of all Owners of Outstanding Bonds, no such amendment, addition or rescission shall (1) extend the time or times of payment of the principal of, premium, if any, and interest on the Bonds, reduce the principal amount thereof, the redemption price therefor, or the rate of interest thereon, or in any other way modify the,terms of payment of the principal of, premium, if any, or interest on the Bonds, (2) give any preference to any Bond over any other Bond, or (3) reduce the aggregate principal amount of Bonds required to be held by Owners for consent to any such amendment, addition or rescission. ARTICLE IX PROVISIONS CONCERNING SALE AND APPLICATION OF PROCEEDS OF BONDS Section 9.1: Sale of Bonds; Insurance. The sale of the Bonds to Morgan Keegan & Co., Inc. (the "Purchaser") at a price of the par value thereof 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 F. 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 4.795987%, after receiving sealed bids pursuant 22 HOU:2574645.3 ' to an Official Notice of Sale and Preliminary Official Statement prepared and distributed in connection with the sale of the Bonds. The Corporation 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 C 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 Corporation 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 9.2: Approval, Registration and Delivery. The Chairman of the Corporation is hereby authorized to have control and custody of the Bonds and all necessary records and proceedings pertaining thereto pending their delivery, and the Chairman and other appropriate officers of the Corporation 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 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 to be attached or affixed to each Bond initially delivered. Section 9.3: Offering Documents; Ratings. The Board of Directors of the Corporation hereby ratifies, authorizes and approves, in connection with the sale of the Bonds, the preparation and distribution of the Notice of Sale and Preliminary Official Statement, a copy of which is attached hereto as Exhibit G. A form of final Official Statement is attached hereto as Exhibit H, which is substantially the same as the Preliminary Official, except for the additional information necessary to conform the final Official Statement to the terms of this Resolution. Further, the Board of Directors of the Corporation hereby ratifies, authorizes and approves the actions of the Chairman, the Corporation's financial advisor and other consultants in seeking ratings on the Bonds from one or more of Moody's Investors Service, Inc. or Standard Poor's Ratings Group, and such actions are hereby ratified and confirmed. Section 9.4: Application of Proceeds of Bonds. Proceeds from the sale of the Bonds shall,promptly upon receipt by the Corporation,be applied as follows: (i) Accrued interest shall be deposited into the Debt Service Fund created in Section 5.2 of this Resolution; 23 HOU:2574645.3 (ii) A portion of the proceeds shall be applied to pay expenses arising in connection with the issuance of the Bonds, 'including payment of the premiums for the Reserve Fund Surety Policy, if any; and (iii) The remaining proceeds shall be deposited into the Construction Fund, which is hereby created by the Corporation, to be used for the purposes permitted by the Act, including particularly constructing the Project, all under and pursuant to the authority of the Act. Section 9.5: Tax Exemption. The Corporation 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 Corporation 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 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 Corporation shall comply with each of the following covenants: (a) The Corporation will use all of the proceeds of the Bonds to (i) provide funds for the Project, which will be owned and operated by the Corporation and (ii) to pay the costs of issuing the Bonds. The Corporation will not use any portion of the proceeds of the Bonds to pay the principal of or interest or redemption premium on, any other obligation of the Corporation or a related person. (b) The Corporation will not directly or indirectly take any action, or omit to take any action, which action or omission would cause the Bonds 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 Pledged Revenues collected by the Corporation, 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 Corporation reasonably expects that the proceeds of the Bonds will not be used in a manner that would cause the Bonds or any portion thereof to be an "arbitrage bond" within the meaning of Section 148 of the Code. (e) At all times while the Bonds are outstanding, the Corporation will identify and properly account for all amounts constituting gross proceeds of the Bonds in accordance with the Regulations. The Corporation will monitor the yield on the investments of the proceeds of the Bonds and, to the extent required by the Code 24 HOU:2574645.3 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 Corporation 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 Corporation will not take any action or knowingly omit to take any action that, 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 Corporation represents that not more than fifty percent (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 within the meaning of Section 149(g)(3)(A)(ii) of the Code, and the Corporation reasonably expects that at least eighty-five percent (85%) of the spendable proceeds of the Bonds will be used to carry out the governmental purpose of the Bonds within the three-year period beginning on the date of issue of the Bonds. (h) The Corporation will take all necessary steps to comply with the requirement that certain amounts earned by the Corporation on the investment of the gross proceeds of the Bonds, if any, be rebated to the federal government. Specifically, the Corporation 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 Corporation allocable to other obligations of the Corporation or moneys which do not represent gross proceeds of any obligations of the Corporation 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 any gross proceeds, (iii) calculate, at such times as are required by applicable Regulations, the amount of excess arbitrage profits, if any, earned from the investment of the gross proceeds of the Bonds and (iv) timely pay, as required by applicable Regulations, all amounts. required to be rebated to the federal government. In addition, the Corporation will exercise reasonable diligence to assure that no errors are made in the calculations required by the preceding sentence and, if such an error is made, to discover and promptly correct such error within a reasonable amount of time thereafter, including payment to the federal government of any delinquent amounts owed to it, interest thereon and any penalty. (i) The Corporation will not directly or indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement 25 HOU:2574645.3 1 i with respect to the gross proceeds of the Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or a larger loss than would have resulted if such arrangement had been at arm's length and had the yield on the Bonds not been relevant to either party. (j) The Corporation 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 Corporation 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 Corporation to exploit the difference between tax-exempt and taxable interest rates to gain a material financial advantage, or(ii) increasing the burden on the market for tax-exempt obligations. (1) Proper officers of the Corporation 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 date of issuance of the Bonds and stating whether there are facts, estimates or circumstances that would materially change the Corporation's expectations. On or after the date of issuance of the Bonds, the Corporation 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 Bond holders and any subsequent Bond holder and bond counsel to the Corporation. In complying with the foregoing covenants, the Corporation may rely upon an unqualified opinion issued to the Corporation by nationally recognized bond counsel that any action by the Corporation 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 Resolution, the Corporation's representations and obligations under the covenants and provisions of this Section 9.5 shall survive the defeasance and discharge of the Bonds for as long,as such matters are relevant to the exclusion of interest on the Bonds from the gross income of the owners for federal income tax purposes. ARTICLE X MISCELLANEOUS 26 HOU:2574645.3 Section 10.1: Related Matters. In order that the Corporation shall satisfy, in a timely manner, all of its obligations under this Resolution, the Chairman, the Secretary and other appropriate officers and agents of the Corporation are hereby authorized and directed to take all other actions that are reasonably necessary to provide for issuance and delivery of the Bonds, including executing by manual or facsimile signature and delivering on behalf of the Corporation all certificates, consents, receipts, requests, notices, investment agreements and other documents as may be reasonably necessary to satisfy the Corporation's obligations under this Resolution and to direct the transfer and application of funds of the Corporation consistent with the provisions of this Resolution. If requested by the Attorney General of Texas or his representatives, the Chairman may authorize such ministerial changes in the written text of this Resolution as are necessary to obtain the Attorney General's approval and as he determines are consistent with the intent and purposes of this Resolution, which determination shall be final. Section 10.2: Further Proceedings. The Chairman, Secretary and other appropriate officers of the Corporation are hereby authorized and directed to do any and all things necessary and/or convenient to carry out the terms of this Resolution. Section 10.3: Severability. If any section, paragraph, clause or provision of this Resolution 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 Resolution. Section 10.4: Open Meeting. It is hereby found, determined and declared that a sufficient written notice of the date, hour, place and subject of the meeting of the Corporation at which this Resolution was adopted was posted at a place convenient and readily accessible at all times to the general public at the City Hall of the City for the time required by law preceding this meeting, as required by the Open Meetings Act, Chapter 551, Texas Government Code, as amended, and that this meeting has been open to the public as required by law at all times during which this Resolution and the subject matter thereof has been discussed, considered and formally acted upon. The Corporation further ratifies, approves and confirms such written notice and the contents and posting thereof. Section 10.5: 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 officer or employee of the Corporation or any person executing any Bonds. Section 10.6: Repealer. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency. Section 10.7: Governing Law. This Resolution shall be construed in accordance with and governed by the laws of the State of Texas. Section 10.8: Effective Date. This Resolution shall become effective immediately upon passage by this Corporation and signature of the Chairman of the Corporation. 27 HOU:2574645.3 [The remainder of this page intentionally left blank] HOU:2574645.3 PASSED AND APPROVED this 22"a day of May, 2006. CHA AN ATTEST: cdej9„_._x/&ejA_e____ SECRETARY Exhibits: A—Debt Service Schedule B—Form of Bond C—Municipal Bond Insurance Provisions D—Bond Insurance/Surety Bond Provision E—Paying Agent/Registrar Agreement F—Winning Bid G—Notice of Sale and Preliminary Official Statement H—Official Statement S-1 HOU:2574645.1 EXHIBIT A DEBT SERVICE SCHEDULE • A-1 HOU:2574645.3 I i EXHIBIT B FORM OF BOND UNITED STATES OF AMERICA STATE OF TEXAS I NUMBER DENOMINATION IR- REGISTERED REGISTERED PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE BOND SERIES 2006 'INTEREST RATE: DATED DATE: 2MATURITY DATE: 2CUSIP: June 15, 2006 September 1, REGISTERED OWNER: PRINCIPAL AMOUNT: DOLLARS: 'THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION (the "Corporation"), a corporation created to act on behalf of the City of Pearland, Texas (the"City"), in the County of Brazoria, in the State of Texas, for value received hereby promises to pay, but solely from certain Pledged Revenues as hereinafter provided, to the Registered Owner identified above or registered assigns, on the Maturity Date specified above, upon presentation and surrender of this Bond at the principal payment office of Wells Fargo Bank, N.A., Minneapolis, t Initial Bond shall be numbered T-1. 2 Omitted from initial Bond. 3 The first sentence of the initial Bond shall read as follows: "THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION (the "Corporation"), a corporation created to act on behalf of the City of Pearland,Texas(the"City"),in the County of Brazoria,in the State of Texas, for value received hereby promises to pay,but solely from certain Pledged Revenues as hereinafter provided,to the Registered Owner identified above or registered assigns, on September 1 of each of the years and in the principal amounts set forth in the following schedule: [Insert information regarding years of maturity,principal amounts and interest rates from Section 3.3 of the Resolution.] upon presentation and surrender of this Bond at the principal payment office of Wells Fargo Bank,N.A.,Minneapolis,Minnesota,or its successor(the"Paying Agent/Registrar"), the principal amounts identified above, 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 the United States of America,and to pay, solely from such Pledged Revenues, interest thereon at the rate shown above, calculated on the basis of a 360-day year, composed of twelve 30-day months, from the later of the Dated Date specified above, or the most recent interest payment date to which interest has been paid or duly provided for." B-1 HOU:2574645.3 Minnesota, or its successor (the "Paying Agent/Registrar"), the principal amount identified above, 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 the United States of America, and to pay, solely from such Pledged Revenues, interest thereon at the rate shown above, calculated on the basis of a 360-day.year, composed of twelve 30-day months, from the later of the Dated Date specified above or the most recent interest payment date to which interest has been paid or duly provided for. Interest on this Bond is payable by check sent by United States mail, first class, postage prepaid, payable on March 1 and September 1, beginning on March 1, 2007, mailed to the registered owner as shown on the books of registration kept by the Paying Agent/Registrar as of the fifteenth (15) calendar day of the month next preceding each interest payment date, or by such other method, acceptable to the Paying Agent/Registrar, requested by and at the risk and expense of the registered owner. Any accrued interest payable at. maturity or earlier redemption shall be paid upon presentation and surrender of this Bond at the principal corporate trust office of the Paying Agent/Registrar. THIS BOND IS ONE OF A DULY AUTHORIZED SERIES OF BONDS (the "Bonds") aggregating $10,235,000, issued for the purposes permitted by Article 5190.6, Texas Revised Civil Statutes (the"Act"), including particularly(1) acquiring and constructing streets and roads, drainage and related improvements within the City, and (2) paying the costs of issuing the Bonds, all under and pursuant to the authority of the Act and all other applicable law, and a resolution adopted by the Corporation on May 22, 2006 (the "Resolution"). Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Resolution. 'REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH ON THE REVERSE HEREOF, WHICH PROVISIONS SHALL HAVE THE SAME FORCE AND EFFECT AS IF SET FORTH AT THIS PLACE. 'THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Resolution unless this Bond is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. 4 This paragraph shall be omitted from the initial Bond and any other Bond for which text does not appear on the • back of a printed bond certificate. 5 In the initial Bond,this paragraph shall read: "THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Resolution unless this Bond is registered by the Comptroller of Public Accounts of the State of Texas by due execution of the registration certificate endorsed hereon." . Ir ' B-2 HOU:2574645.3 IN WITNESS WHEREOF, the Corporation has caused this Bond to be executed by the Chairman of the Corporation and countersigned by the Secretary of the Corporation.by the manual, lithographed or printed facsimile signatures. PEARLAND ECONOMIC DEVELOPMENT CORPORATION Chairman COUNTERSIGNED: Secretary (Back Panel of Bond) THE CORPORATION RESERVES THE RIGHT to redeem Bonds maturing on or after September 1, 2017, in whole or from time to time in part, in integral multiples of$5,000, on September 1, 2016, or on any date thereafter at par plus accrued interest on the principal amounts called for redemption to the date fixed for redemption. Reference is made to the Resolution for complete details concerning the manner of redeeming the Bonds. THE BONDS maturing on September 1 in the years 2024, 2027 and 2030 (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 the portions thereof so called for redemption plus accrued interest to the date fixed for redemption: Mandatory Redemption Dates Principal Amounts Term Bonds Maturing September 1,2024 September 1,2022 $325,000 September 1,2023 345,000 September 1,2024 365,000 Term Bonds Maturing September 1,2027 September 1,2025 $385,000 September 1,2026 405,000 September 1,2027 . 1,190,000 Term Bonds Maturing September 1,2030 September 1,2028 $1,255,000 September 1,2029 1,320,000 September 1,2030 1,390,000 The particular Term Bonds to be redeemed shall be selected by the Registrar by lot or other customary random selection method, on or before September 1 of each year in which Term Bonds are to be mandatorilyredeemed. The principal amount of Term Bonds to be mandatoril p p Y B-3 HOU:2574645.3 redeemed in each year shall be reduced by the principal amount of such Term Bonds that have been optionally redeemed on or before September 1 of such year and which have not been made the basis for a previous reduction. NOTICE OF ANY REDEMPTION shall be given at least thirty (30) days prior to the date fixed for redemption by first class mail, postage prepaid, addressed to the registered owner of each Bond to be redeemed in whole or in part at the address shown on the books of registration kept by the Paying Agent/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. THIS BOND AND THE SERIES OF WHICH IT IS A PART are special obligations of the Corporation that are payable from and are equally and ratably secured by a first lien on the Pledged Revenues, as defined and provided in the Resolution, which Pledged Revenues are required to be set aside and pledged to the payment of the Bonds, and all additional bonds issued on a parity therewith, in the Debt Service Fund and Reserve Fund maintained for the payment of all such Bonds, and any excess Sales Tax Revenues are to be set aside in the Surplus Fund and used for any purpose authorized under the Act. THIS BOND AND THE SERIES OF WHICH IT IS A PART ARE PAYABLE SOLELY FROM SUCH PLEDGED REVENUES AND NEITHER THE STATE OF TEXAS (THE "STATE"), THE CITY OF PEARLAND, TEXAS (THE "CITY"), NOR ANY POLITICAL CORPORATION, SUBDIVISION OR AGENCY.OF THE STATE SHALL BE OBLIGATED TO PAY THE SAME OR THE INTEREST THEREON AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE, THE CITY, OR ANY OTHER POLITICAL CORPORATION, SUBDIVISION OR. AGENCY THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR THE INTEREST ON THE BONDS. NEITHER THE BONDS NOR ANY INSTRUMENT' RELATED TO THE BONDS: MAY GIVE A BONDHOLDER A RIGHT TO DEMAND PAYMENT FROM TAX PROCEEDS IN EXCESS OF THOSE COLLECTED FROM THE SALES AND USE TAX IMPOSED BY THE CITY PURSUANT TO THE ACT. THE OWNER HEREOF SHALL NEVER HAVE THE RIGHT TO DEMAND PAYMENT OF THIS BOND OUT OF ANY FUNDS RAISED OR TO BE RAISED BY AD VALOREM TAXATION. THIS BOND IS TRANSFERABLE only upon presentation and surrender at the principal payment office of the Paying Agent/Registrar, duly endorsed for transfer or accompanied by an assignment duly executed by the registered owner or his authorized representative, subject to the terms and conditions'of the Resolution. THE BONDS ARE EXCHANGEABLE at the principal payment office of the Paying Agent/Registrar for Bonds in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Resolution. THE REGISTERED OWNER of this Bond, by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Resolution. B-4 HOU:2574645.3 THE CORPORATION has covenanted in the Resolution that it will at all times provide a legally qualified paying agent and registrar for the Bonds and will cause notice of any change of registrar to be mailed to each registered owner. THE CORPORATION HAS RESERVED THE RIGHT to issue additional parity bonds, subject to the restrictions contained in the Resolution, which may be equally and ratably payable from, and secured by a first lien on and pledge of, the Pledged Revenues in the same manner and to the same extent as this Bond and the series of which it is a part. IT IS HEREBY DECLARED AND REPRESENTED that this Bond has been duly and validly issued and delivered; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the issuance and delivery of this Bond have been performed, existed, and been done in accordance with law; that the Bonds do not exceed any statutory limitation; and that provision has been made for the payment of the principal of and interest on this Bond and all of the Bonds by the creation of the aforesaid lien on and pledge of - the Pledged Revenues. B-5 HOU:2574645.3 FORM OF REGISTRATION CERTIFICATE THE STATE OF TEXAS OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS REGISTER NO. I hereby certify that this Bond has been examined, certified as to validity and approved by the Attorney General of the State of Texas, and that this Bond has been registered by the Comptroller of Public Accounts of the State of Texas. WITNESS MY SIGNATURE AND SEAL OF OFFICE this Comptroller of Public Accounts of the State of Texas (SEAL) FORM OF AUTHENTICATION CERTIFICATE AUTHENTICATION CERTIFICATE This Bond is one of the Bonds described in and delivered pursuant to the within- mentioned Resolution, 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. Minneapolis, Minnesota By: Authorized Signature Date of Authentication: B-6 HOU:2574645.3 FORM OF STATEMENT OF INSURANCE STATEMENT OF INSURANCE Financial Guaranty Insurance Policy No. 30357 (the"Policy") with respect to payments due for principal of and interest on this Bond has been issued by Ambac Assurance Corporation ("Ambac Assurance"). The Policy has been delivered to The Bank of New York,New York,New York,as the Insurance Trustee under said Policy and will be held by such Insurance Trustee or any successor insurance trustee. The Policy is on file and available for inspection at the principal office of the Insurance Trustee and a copy thereof may be secured from Ambac Assurance or the Insurance Trustee.All payments required to be made under the Policy shall be made in accordance with the provisions thereof.The owner of this Bond acknowledges and consents to the subrogation rights of Ambac Assurance as more fully set forth in the Policy. 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: Signature Guaranteed: 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 NOTICE: Signature must be guaranteed by a particular, without any alteration, enlargement member firm of the New York Stock or change whatsoever. exchange or a commercial bank or trust company. B-7 HOU:2574645.3 EXHIBIT C MUNICIPAL BOND INSURANCE POLICY See Tab No. 20 C1 HOU:2574645.3 EXHIBIT D BOND INSURANCE/SURETY BOND PROVISION See Tab No. 21 • D-1 HOU:2574645.3 EXHIBIT E PAYING AGENT/REGISTRAR AGREEMENT See Tab No. 5 - E-1 HOU:2574645.3 EXHIBIT F WINNING BID See Tab No. 25 F-1 HOU:2574645.3 EXHIBIT G NOTICE OF SALE AND PRELIMINARY OFFICIAL STATEMENT See Tab No. 6 G-1 HOU:2574645.3 EXHIBIT H OFFICIAL STATEMENT • See Tab No. 7 H-1 HOU:2574645.3 PAYING AGENT/REGISTRAR AGREEMENT THIS PAYING AGENT/REGISTRAR AGREEMENT dated as of May 22, 2006 (together with any amendments or supplements hereto, the "Agreement") is entered into by and between the PEARLAND ECONOMIC DEVELOPMENT CORPORATION (the "Issuer"), and WELLS FARGO BANK, N.A., 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 Pearland Economic Development Corporation Sales Tax Revenue Bonds, Series 2006 (the "Bonds") 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 resolution authorizing the issuance of the Bonds (the "Resolution"), 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. HOU:2578719.1 Section 1.2. Compensation. As compensation for the Bank's services as Paying Agent/Registrar, the Issuer hereby agrees to pay the Bank the fees set forth in the Bank's fee schedule attached as Exhibit A hereto. The Bank reserves the right to amend the fee schedule at any time, provided the Bank.shall have furnished the Issuer with a written copy of such amended fee schedule at least 75 days prior to the date that the new fees are to become effective. In addition, the Issuer agrees to reimburse the Bank upon its request for all reasonable expenses, disbursements and advances incurred or made by the Bank in accordance with any of the provisions hereof (including the reasonable compensation and the expenses and disbursements of its agents and counsel). ARTICLE II. DEFINITIONS Section 2.1. Definitions. 1� For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: "Bank" means Wells Fargo Bank, N.A., 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 "Pearland Economic Development Corporation Sales Tax Revenue Bonds, Series 2006" authorized by the Resolution. "Issuer"means the Pearland Economic Development Corporation. "Resolution"means the resolution of the Issuer authorizing the issuance of the Bonds. "Paying Agent"means Wells Fargo Bank,National Association. "Person" means any individual, corporation, partnership,joint venture, association,joint stock company, trust, unincorporated organization or government or any agency or political subdivision of a government 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 Resolution. 2 HOU:2578719.1 ARTICLE III. DUTIES OF THE BANK Section 3.1. Initial Delivery of the Bonds. The Bonds will be initially registered and delivered by the Bank to the purchaser designated by the Issuer as set forth in the Resolution. 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 Resolution. 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 Resolution. 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 Resolution. Any changes to Registered Owners for such exchange, replacement and registration shall be made by the Bank only in accordance with the Resolution. The Bank will maintain the books of registration in accordance with the Resolution and the Bank's general practices and procedures in effect from time to time. Section 3.4. Unauthenticated Obligations. 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 t 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 3 HOU:2578719.1 � . 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, 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 Obligations. 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 4 HOU:2578719.1 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. Section 3.9. Indemnification. To the extent permitted by law, the Issuer agrees to indemnify the Bank for, and hold it harmless against, any loss, liability, or expense incurred without negligence or bad faith on its part, arising out of or in connection with its acceptance or administration of its duties hereunder, including the cost and expense against any claim or liability in connection with the exercise or performance of any of its powers or duties under this Agreement. 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. 5 HOU:2578719.1 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. If any provision of this Agreement shall be invalid or unenforceable, the validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired. Section 4.8. 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. Resolutions Govern Conflicts. This Agreement and the Resolution 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 Resolution, the Resolution shall govern. The Bank agrees to be bound by the terms of the Resolution with respect to the Bonds. Section 4.10. Term and Termination. This Agreement shall be effective from and after its date and may be terminated for any reason by the Issuer or the Bank at any time upon 60 days' written notice; provided, however, that no such termination shall be effective until a successor has been appointed and has accepted the duties of the Bank hereunder. In the event of early termination, regardless of circumstances, the Bank shall deliver to the Issuer or its designee all funds, 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. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Section 4.12. Governing Law. This Agreement shall be construed in accordance with and shall be governed by the laws of the State of Texas. 6 HOU:2578719.1 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day . and year first above written. PEARLAND ECONOMIC DEVELOPMENT CORPORATION By: hairma s ' ADDRESS: 3519 Liberty Drive Pearland,Texas 77581 ATTEST: 4/ Secretary WELLS FARGO BANK,N.A. . • By: Title: ADDRESS: 1000 Louisiana Street, Suite 640 Houston, Texas 77002 Attn: Corporate Trust Department . , ATTEST: By: Title: (SEAL) S-1 HOU:2578719.1 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PEARLAND ECONOMIC DEVELOPMENT CORPORATION By: Chairman ADDRESS: 3519 Liberty Drive Pearland, Texas 77581 ATTEST: Secretary WELLS FARGO BANK,N.A. /AmpBy: LJ Title: Vice President ADDRESS: 1000 Louis iana Street , Suite 640 Houston, Texas 77002 Attn: Corporate Trust Department ATTEST: By: co/7/Gt/J— em tle N g President 490 E:"ifJ I "v'OA':A'tw a tD i tv S-1 HOU:2578719.1 EXHIBIT A FEE SCHEDULE • • • • HOU:2578719.1 s 't�_'k Gregory M. Hasty Wells Fargo Bank T j Corporate Trust Services -01 1445 Ross Avenue, 2nd Floor Dallas, Texas 75202 kfi, ...•M ..: : Tel: (214)740-1548 Fax: (214)777-4086 SCHEDULE OF FEES $10,235,000 Pearland Economic Development Corporation Sales Tax Revenue Bonds, Series 2006 To act as PAYING AGENT& REGISTRAR 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. ri 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. 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:Greg Hasty-June 1,2006 Vice President/Business Development Wells Fargo Bank (214)740-1548 Pipeline ID#41914 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 PEARLAND ECONOMIC DEVELOPMENT CORPORATION $10,235,000 SALES TAX REVENUE BONDS, SERIES 2006 Sealed Bids Will Be Received Monday,May 22,2006 at 1:00 P.M. Houston Time 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 $10,235,000 PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS SERIES 2006 THE SALE SALES TAX REVENUE BONDS OFFERED FOR SALE AT COMPETITIVE BIDS: The Board of Directors (the "Board") of the Pearland Economic Development Corporation (the "Corporation") is offering for sale at competitive bid its$10,235,000 Sales Tax Revenue Bonds,Series 2006(the"Bonds). PLACE AND TIME OF SALE: The Board will receive sealed bids until 1:00 P.M.,Houston Time,Monday,May 22, 2006, and the bids will be opened and publicly read at 5:30 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 "Pearland Economic Development Corporation." All bids must be delivered 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 22, 2006, SIGNED Official Bid Forms, in duplicate, to Frank Ildebrando, RBC Capital Markets, 1001 Fannin, Suite 400, Houston, Texas 77002. Subscription to the i-Deal's BIDCOMP Competitive Bidding System is required in order to submit an electronic bid. The Corporation 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 22,2006. 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 Corporation. The Corporation 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 Corporation, 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. BIDS BY TELEPHONE OR FACSIMILE: Bidders must submit, prior b t, to Monday, May 22, 2006, SIGNED Official Bid Forms, in duplicate, to Frank Ildebrando, 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. 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 Corporation. 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"Pearland Economic Development Corporation" in the amount of$204,700 is required. Such Good Faith Deposit shall be in the form of a Cashier's Check,which is to be retained uncashed by the Corporation 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 Corporation prior to the opening of the bids, and shall be accompanied by instructions from the bank on which drawn which authorize its use as a Good Faith Deposit by the Purchaser who shall be named in such instructions. Unless otherwise agreed,the Good Faith Deposit will be returned to the purchaser 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 Corporation 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 Corporation 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 CERTIFICATE: To provide the Corporation 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 the Corporation,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 Corporation and the Corporation's Bond Counsel (as hereinafter defined). In no event will the Corporation 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 Corporation. 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. iii 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 Corporation may require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith. NO-LITIGATION CERTIFICATE: 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. NO MATERIAL ADVERSE CHANGE: The obligations of the Purchaser to take up and pay for the Bonds, and of the Corporation to deliver the Bo nds,onds, 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 Corporation 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,on behalf of the City and the Corporation,will agree 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 resolution containing the agreement described under such heading. GENERAL CONSIDERATIONS FINANCIAL ADVISOR: RBC Capital Markets is employed as Financial Advisor to the Corporation 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 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 Corporation 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. By submission of a bid, the 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 requires. The v 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 Corporation. On the date of the sale,the Board of Directors will,in the Resolution 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. /s/ Randall Ferguson Chairman Pearland Economic Development Corporation May 11,2006 vii OFFICIAL BID FORM May 22,2006 Board of Directors Pearland Economic Development Corporation 3519 Liberty Drive Pearland,Texas 77581 Gentlemen: ' Subject to the terms of your Official Notice of Sale and Official Statement, dated May 11, 2006, which are incorporated herein by reference, we hereby submit the following bid for the $10,235,000 PEARLAND _ ECONOMIC DEVELOPMENT CORPORATION, SALES TAX REVENUE BONDS, SERIES 2006, dated June 15,2006. This offer is being made for all said Bonds and for not less than all. For said legally issued Sales Tax Revenue Bonds, we will pay you the par value thereof,plus accrued interest from their date to the date of delivery to us,plus a cash premium of$ for the Bonds maturing and bearing interest per annum as follows: Maturity Principal Interest Maturity Principal Interest Date Amount Rate Date Amount Rate September 1,2007(a) $ 50,000 % September 1,2019(a)(b) $ 280,000 September 1,2008(a) 165,000 September 1,2020(a)(b) 300,000 September 1,2009(a) 170,000 September 1,2021(a)(b) 310,000 September 1,2010(a) 180,000 September 1,2022(a)(b) 325,000 September 1,2011(a) 185,000 September 1,2023(a)(b) 345,000 September 1,2012(a) 200,000 September 1,2024(a)(b) 365,000 September 1,2013(a) 210,000 September 1,2025(a)(b) 385,000 September 1,2014(a) 215,000 September 1,2026(a)(b) 405,000 September 1,2015(a) 230,000 September 1,2027(a)(b) 1,190,000 September 1,2016(a) 240,000 September 1,2028(a)(b) 1,255,000 September 1,2017(a)(b) 255,000 September 1,2029(a)(b) 1,320,000 September 1,2018(a)(b) 265,000 September 1,2030(a)(b) 1,390,000 (a) At the option of the 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 (September 1) Redemption of Term Bonds Rate $ % (b) Subject to optional redemption and payment, at the option of the Corporation, in whole or, from time to time, in part, on September 1, 2016, or on any date thereafter at a price equal to the principal amount thereof,plus accrued interest to the date fixed for redemption. OFFICIAL BID FORM May 22,2006 Board of Directors Pearland Economic Development Corporation 3519 Liberty Drive Pearland,Texas 77581 Gentlemen: Subject to the terms of your Official Notice of Sale and Official Statement, dated May 11, 2006, which are incorporated herein by reference, we hereby submit the following bid for the $10,235,000 PEARLAND ECONOMIC DEVELOPMENT CORPORATION, SALES TAX REVENUE BONDS, SERIES 2006, dated June 15,2006. This offer is being made for all said Bonds and for not less than all. For said legally issued Sales Tax Revenue Bonds, we will pay you the par value thereof,plus accrued interest from their date to the date of delivery to us,plus a cash premium of$ for the Bonds maturing and bearing interest per annum as follows: Maturity Principal Interest Maturity Principal Interest Date Amount Rate Date Amount Rate September 1,2007(a) $ 50,000 % September 1,2019(a)(b) $ 280,000 September 1,2008(a) 165,000 September 1,2020(a)(b) 300,000 September 1,2009(a) 170,000 September 1,2021(a)(b) 310,000 September 1,2010(a) 180,000 September 1,2022(a)(b) 325,000 September 1,2011(a) 185,000 September 1,2023(a)(b) 345,000 September 1,2012(a) 200,000 September 1,2024(a)(b) 365,000 September 1,2013(a) 210,000 September 1,2025(a)(b) 385,000 September 1,2014(a) 215,000 September 1,2026(a)(b) 405,000 September 1,2015(a) 230,000 September 1,2027(a)(b) 1,190,000 September 1,2016(a) 240,000 September 1,2028(a)(b) 1,255,000 September 1,2017(a)(b) 255,000 September 1,2029(a)(b) 1,320,000 September 1,2018(a)(b) 265,000 September 1,2030(a)(b) 1,390,000 (a) At the option of the 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 (September 1) Redemption of Term Bonds Rate $ % %a (b) Subject to optional redemption and payment, at the option of the Corporation, in whole or, from time to time, in part, on September 1, 2016, or on any date thereafter at a price equal to the principal amount thereof,plus accrued interest to the date fixed for redemption. CERTIFICATE REGARDING ISSUE PRICE The undersigned hereby certifies with respect to the sale of $10,235,000 Pearland Economic Development Corporation(the"Issuer"),Sales Tax Revenue Bonds,Series 2006(the"Bonds"): 1. The undersigned is a duly authorized representative of the underwriter or of the manager of the syndicate of underwriters that purchased the Bonds from the Pearland Economic Development Corporation (the Corporation") pursuant to a competitively bid sale. (Such underwriter or syndicate of underwriters is referred to herein as the"Underwriters"). In this capacity,the undersigned is familiar with the facts stated herein. 2. The term"Initial Offering Prices"means the respective initial offering prices(exclusive of accrued interest)for the Bonds of each maturity(stated in term of dollars or as a percent of par)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 September 1,2007 % $ 280,000 September 1,2019 % 165,000 September 1,2008 % 300,000 September 1,2020 % 170,000 September 1,2009 % 310,000 September 1,2021 % 180,000 September 1,2010 %v 325,000 September 1,2022 % 185,000 September 1,2011 % 345,000 September 1,2023 % 200,000 September 1,2012 % 365,000 September 1,2024 % 210,000 September 1,2013 % 385,000 September 1,2025 % 215,000 September 1,2014 % 405,000 September 1,2026 % 230,000 September 1,2015 % 1,190,000 September 1,2027 % 240,000 September 1,2016 % 1,255,000 September 1,2028 % 255,000 September 1,2017 % 1,320,000 September 1,2029 % 265,000 September 1,2018 % 1,390,000 September 1,2030 % 3. 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 22,2006. 4. 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 20,2006. _ 5. The term "Public" shall not include bond houses, brokers, and similar persons or organizations acting in the capacity of wholesalers or underwriters. 6. Based on the actual facts and reasonable expectations in existence, the Initial Offering Price for each Bond: a. Represented the price (payable in cash, with no other consideration being included, and — exclusive of accrued interest), at which the Underwriters reasonably expected, each such Bond would be sold to the Public;and b. Did not exceed what the Underwriters believed to be the respective fair market value of each such Bond. BOND YEARS Dated: June 15,2006 • Due: As shown below Years Maturity Bond Cumulative Date Amount Years Bond Years September 1,2007 $ 50,000 60.5556 60.5556 September 1,2008 165,000 365.8333 425.3889 September 1,2009 170,000 545.8889 971.2778 September 1,2010 180,000 758.0000 1,729.2778 September 1,2011 185,000 964.0556 2,693.3333 September 1,2012 200,000 1,242.2222 3,935.5556 September 1,2013 210,000 1,514.3333 5,449.8889 September 1,2014 215,000 1,765.3889 7,215.2778 September 1,2015 230,000 2,118.5556 9,333.8333 September 1,2016 240,000 2,450.6667 11,784.5000 September 1,2017 255,000 2,858.8333 14,643.3333 September 1,2018 265,000 3,235.9444 17,879.2778 September 1,2019 280,000 3,699.1111 21,578.3889 September 1,2020 300,000 4,263.3333 25,841.7222 September 1,2021 310,000 4,715.4444 30,557.1667 September 1,2022 325,000 5,268.6111 35,825.7778 September 1,2023 345,000 5,937.8333 41,763.6111 September 1,2024 365,000 6,647.0556 48,410.6667 September 1,2025 385,000 7,396.2778 55,806.9444 September 1,2026 405,000 7,185.5000 63,992.4444 September 1,2027 1,190,000 25,241.2222 89,233.6667 September 1,2028 1,255,000 27,874.9444 117,108.6111 September 1,2029 1,320,000 30,638.6667 147,747.2778 September 1,2030 1,390,000 33,653.4444 181,400.7222 AVERAGE MATURITY— 17.710 YEARS g PRELIMINARY OFFICIAL STATEMENT DATED MAY 11,2006 pc This Preliminary Official Statement is subject to completion and amendment and is intended solely for the solicitation of initial s bids to purchase the Bonds. Upon the sale of the Bonds, the Official Statement will be completed and delivered to the e • Underwriters(defined herein). 2 In the opinion of Bond Counsel, interest on the Bonds is excludable from gross income for federal income tax purposes under w existing law'subject to the matters described under "TAX EXEMPTION" herein, and is not includable in the alternative .`g minimum taxable income of individuals. See "TAX EXEMPTION"for a discussion of the opinion of Bond Counsel, including A. �' the alternative minimum tax on corporations. b L A NEW ISSUE—Book-Entry-Only RATINGS: Moody's Investors Service,Inc. " " Standard&Poor's Ratings Services.." " T See"RATINGS"and"BOND INSURANCE"herein. 7 L. $10,235,000 o PEARLAND ECONOMIC DEVELOPMENT CORPORATION o SALES TAX REVENUE BONDS,SERIES 2006 O• A U c c Bonds Dated: June 15,2006 Due: September 1,as shown on the inside cover The Pearland Economic Development Corporation Sales Tax Revenue Bonds, Series 2006 (the `Bonds") are special limited o y obligations of the Pearland Economic Development Corporation(the"Corporation") issued pursuant to Article 5190.6, Texas T ° c Revised Civil Statutes, as amended, and a resolution adopted by the Board of Directors of the Corporation (the "Bond G Resolution"). 0 • ° 3 The Bonds are being issued to finance the construction and improvement of certain roads and overpasses and related infrastructure [within the City of Pearland, Texas (the "City")] and to pay the costs of issuance of the Bonds, including the o :c purchase of a reserve fund surety policy. See "PROJECT AND PLAN OF FINANCE" and "RESERVE FUND SURETY • e) POLICY." - c Interest on the Bonds shall accrue from June 15,2006(the"Dated Date"),is payable on March 1,2007 and each September 1 c and March 1 thereafter(each a"Payment Date")until maturity or prior redemption,and is calculated on the basis of a 360-day ° year composed of twelve 30-day months. The Bonds are initially issuable only to Cede&Co.,as nominee of The Depository E S .° Trust Company, New York, New York ("DTC") pursuant to the book-entry only system described herein. Beneficial o u 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 Wells Fargo v, Bank, N.A., Minneapolis, Minnesota, the paying agent/registrar (the "Paying Agent/Registrar") to Cede & Co., which will make distribution of the amounts so paid to DTC's participating members for subsequent remittance to the beneficial owners of o the Bonds. The Bonds are subject to redemption prior to maturity as provided herein.See "DESCRIPTION OF THE A� BONDS-Redemption." ffi E g The Bonds are payable from and secured by a lien on and pledge of the Pledged Revenues(as defined herein) which include ; certain receipts of a one-half of one percent('/:%) sales and use tax collected within the boundaries of the City of Pearland, ct E. Texas(the "City")for the benefit of the Corporation. THE BONDS CONSTITUTE SPECIAL LIMITED OBLIGATIONS OF ,• 3 THE CORPORATION PAYABLE SOLELY FROM,AND SECURED BY A LIEN ON AND PLEDGE OF,THE PLEDGED REVENUES, AND ARE NOT PAYABLE FROM NOR SECURED BY ANY OTHER REVENUES, PROPERTY OR • INCOME OF THE CORPORATION. THE BONDS DO NOT CONSTITUTE A DEBT OR OBLIGATION OF THE STATE • f, OF TEXAS OR ANY POLITICAL SUBDIVISION, CORPORATION, OR AGENCY THEREOF, OR OF THE CITY OF o N PEARLAND, TEXAS OR THE COUNTIES OF HARRIS OR BRAZORIA, AND THE HOLDERS THEREOF SHALL • 7 NEVER HAVE THE RIGHT TO DEMAND PAYMENT OF ANY FUNDS RAISED OR TO BE RAISED BY AD F u ai , VALOREM TAXATION. See"SECURITY FOR THE BONDS"and"INVESTMENT CONSIDERATIONS." • °c , g The Corporation has applied for a municipal bond insurance policy to insure the payment of the principal of and interest on the Bonds when due. It is expected such municipal bond insurance policy will be issued concurrently with the delivery of the 1• 3. Bonds. See"BOND INSURANCE"and"RATINGS"herein. Cr E G L N 4 C ° 0 See Inside Cover Page for Maturity and Pricing Schedule .� 2 t E. .2 T- he Bonds are offered for delivery when, as, and if issued and accepted by the Underwriters, and subject to the approving 0 c ° ° opinion of the Attorney General of the State of Texas and the opinion of Andrews Kurth LLP,Houston,Texas,Bond Counsel, g a- s to the validity of the issuance of the Bonds under the Constitution and laws of the State of Texas. The Bonds are expected to a be available for delivery through the facilities of DTC on or about June 20,2006. lA SELLING: MONDAY,MAY 22,2006 UNTIL 1:00 P.M.,HOUSTON TIME PRINCIPAL AMOUNTS,MATURITIES,INTEREST RATES AND PRICES Initial CUSIP Initial CUSIP Maturity Principal Interest Reoffering Nos. Maturity Principal Interest Reoffering Nos. (September 1) Amount Rate Yield(a) (c) (September 1) Amount Rate Yield(a) (c) 2007 $ 50,000 % % 2019(b) $ 280,000 % % 2008 165,000 2020(b) 300,000 2009 170,000 2021(b) 310,000 2010 180,000 2022(b) 325,000 2011 185,000 2023(b) 345,000 2012 200,000 2024(b) 365,000 2013 210,000 2025(b) 385,000 2014 215,000 2026(b) 405,000 2015 230,000 2027(b) 1,190,000 2016 240,000 2028(b) 1,255,000 2017(b) 255,000 2029(b) 1,320,000 2018(b) 265,000 2030(b) 1,390,000 (a) The initial yields will be established by and are the sole responsibility of the Underwriters (hereinafter defined) and may subsequently be changed. (b) The Bonds having stated maturities on or after September 1,2017,are subject to redemption in whole or in part at the option of the Corporation on September 1,2016 or any date thereafter,at a price of par plus accrued and unpaid interest to the date fixed for redemption. See"DESCRIPTION OF THE BONDS-Redemption." (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. ? i ri 1 PEARLAND ECONOMIC DEVELOPMENT CORPORATION Board of Directors Randall Ferguson, Chairman Helen Beckman,Secretary Lucy Stevener Felicia Kyle(1) George Sandars Ed Thompson Gary Idoux Executive Staff Fred Welch,Executive Director Will Benson,Marketing Manager Karen Dickson,Manager,Business Retention&Expansion CITY OF PEARLAND,TEXAS Elected Officials Tom Reid,Mayor Kevin Cole,Mayor Pro-Tem, Council Member Steve Saboe,Council Member Larry Marcott,Council Member Woody Owens,Council Member Richard Tetens,Council Member Certain Appointed Officials Bill Eisen,City Manager Nick Finan,Assistant City Manager Mickiel Hodge,Assistant City Manager Claire Manthei,Director of Finance Young Lorfing, City Secretary Darrin Coker,City Attorney Consultants and Advisors Financial Advisor RBC Capital Markets Certified Public Accountants Pattillo,Brown&Hill,P.C. Bond Counsel Andrews Kurth LLP (1) Felicia Kyle is running for City Council, Position#4. The election will be held Saturday, May 13, 2006. If elected to City Council, Ms. Kyle will no longer serve on the Board of Directors for Pearland Economic Development Corporation. TABLE OF CONTENTS Page Page SALE AND DISTRIBUTION OF THE BONDS 3 Major Retail Establishments in the City 17 Use of Information in Official PRO FORMA DEBT SERVICE SCHEDULE 17 Statement 3 MANAGEMENT AND OPERATION OF THE Sale of the Bonds 3 CORPORATION 18 Prices and Marketability 3 Budgeting and Operations 18 Securities Laws 4 Investments 18 BOND INSURANCE 4 Legal Investments 18 RESERVE FUND SURETY POLICY 4 Investment Policies 19 OFFICIAL STATEMENT SUMMARY 5 Invested Funds of the Corporation 20 INTRODUCTION 7 INVESTMENT CONSIDERATIONS 20 PROJECT AND PLAN OF FINANCE 7 The Sales Tax 20 Purpose 7 Bankruptcy Limitation to Registered The Project 7 Owners'Rights 21 Authority for Issuance of the Bonds 7 THE CITY 21 THE CORPORATION 7 Limitation 21 General 7 General 21 Management 8 Location 21 DESCRIPTION OF THE BONDS 8 LEGAL MATTERS 21 General 8 General 21 Paying Agent/Registrar 8 Forward Looking Statements 22 Transfers and Exchanges of the Bonds 9 TAX EXEMPTION 22 Redemption 9 TAX TREATMENT OF ORIGINAL ISSUE Book-Entry Only System 9 DISCOUNT AND PREMIUM BONDS 23 SECURITY FOR THE BONDS 11 Discount Bonds 23 The City Resolution 11 Premium Bonds 24 The Bond Resolution 11 LITIGATION 25 Pledge Under Bond Resolution 12 LEGAL INVESTMENTS IN TEXAS 25 Limited Obligations 12 RATINGS 25 Collection of Sales Tax Revenues and CONTINUING DISCLOSURE OF the Revenue Fund 12 INFORMATION 25 Additional Parity Bonds and Other Annual Reports 25 Obligations 13 Material Event Notices 26 Remedies 13 Availability of Information From THE SALES TAX 14 NRMSIRs and SID 26 Source and Authorization 14 Limitations and Amendments 26 Other Sales Taxes 14 Audited Financial Report of the City 27 Collection and Administration 15 Compliance With Prior Undertakings 27 HISTORICAL PLEDGED REVENUES 16 FINANCIAL ADVISOR 27 Historical Sales Tax Collections for the GENERAL CONSIDERATIONS 27 Corporation 16 APPENDIX A- EXCERPTS OF CERTAIN PROVISIONS OF THE BOND RESOLUTION APPENDIX B- GENERAL INFORMATION REGARDING THE CITY OF PEARLAND APPENDIX C- AUDITED FINANCIAL STATEMENT OF THE CITY OF PEARLAND FOR THE YEAR ENDED SEPTEMBER 30,2005 APPENDIX D- FORM OF BOND COUNSEL OPINION 2 SALE AND DISTRIBUTION OF THE BONDS Use of Information in Official Statement For the purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, this document constitutes an Official Statement of the Corporation with respect to the Bonds that has been deemed "final" by the Corporation as of its date except for the omission of no more than the information permitted by Rule 15c2-12(a)(1). No dealer, broker, salesman or other person has been authorized by the Corporation to give any information or to make any representations 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 Corporation. All other information contained herein has been obtained from the Corporation,DTC and other sources which are believed to be reliable. Such other information is not guaranteed as to accuracy or completeness by,and is not to be relied upon as,or construed as a promise or representation by,the Issuer or the Underwriters. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy,nor will there be any sale of any Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. 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 an implication that there has been no change in the affairs of the Corporation or other matters described herein since the date hereof. Sale of the Bonds After requesting competitive bids for the Bonds,the Corporation 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$ , 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 Corporation 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 Corporation 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. Certain information set forth herein has been obtained from the Corporation and other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness,and is not to be construed as a representation by the Underwriters. All of the summaries of the statutes, resolutions, contracts, financial statements, reports, agreements, and other related documents set forth in this Official Statement are qualified in their entirety by reference to such documents. These summaries do not purport to be complete statements of such provisions, and reference is made to such documents,copies of which are available from the Corporation. 3 Securities Laws IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE CORPORATION, AND THE STATE OF TEXAS AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY CORPORATION. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 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 an exemption provided thereunder. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been registered or qualified under the securities laws of any other jurisdiction.The Corporation assumes no responsibility for registration or qualification for sale or other disposition 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. BOND INSURANCE The Corporation has made application for municipal bond insurance under the bidder option program. The premium for such insurance,if used, will be paid for by the Underwriter. RESERVE FUND SURETY POLICY The Corporation has applied for and intends to purchase a reserve fund surety bond (the "Surety Bond") with a portion of the proceeds from the sale of the Bonds,in order to satisfy the Reserve Fund Requirement for the Bonds. See"APPENDIX A—EXCERPTS OF CERTAIN PROVISIONS OF THE BOND RESOLUTION." 4 OFFICIAL STATEMENT SUMMARY The following material is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Official Statement,reference to which is made for all purposes. No person is authorized to detach this Official Statement Summary from this Official Statement or to otherwise use it without this entire Official Statement(including the appendices). The Issuer The Pearland Economic Development Corporation(the "Corporation") is a non-profit corporation created by the City of Pearland, Texas (the "City")pursuant to Section 4B of Article 5190.6, Texas Revised Civil Statutes, as amended (the "Act") to promote economic development within the City and the vicinity thereof. See"THE CORPORATION." Use of Proceeds The Bonds are being issued to finance the construction and improvement of certain roads and overpasses and related infrastructure within the City of Pearland, Texas (the "City") and to pay the costs of issuance of the Bonds, including the purchase of a reserve fund surety policy. See "PROJECT AND PLAN OF FINANCE" and "RESERVE FUND SURETY POLICY." Authority for Issuance The Bonds are being issued pursuant to the Constitution and laws of the State of Texas, including particularly the Act and a resolution adopted by the Corporation authorizing the issuance of the Bonds (the "Bond Resolution"). The City Council of the City is expected to approve the issuance of the Bonds by a resolution to be adopted on May 22, 2006 (the "City Resolution"). See "SECURITY FOR THE BONDS—The City Resolution." The Bonds The Bonds are special limited obligations of the Corporation issued in the aggregate principal amount of $10,235,000, and mature on September 1 in the years and in the principal amounts set forth on the inside cover page hereof. Interest on the Bonds accrues from June 15, 2006 and is payable initially on March 1,2007, and on each September 1 and March 1 thereafter until the earlier of maturity or redemption. See"DESCRIPTION OF THE BONDS." Security and Source of Payment The Bonds are payable solely from and secured by a lien on and pledge of the Pledged Revenues(as defined herein),which consists principally of certain receipts of a one-half of one percent('/%) sales and use tax (the "Sales Tax") levied and collected within the City. The Sales Tax was authorized at an election held in the City on January 21, 1995. The Bonds are not secured by or payable from any other revenues,property, or income of the Corporation and are not obligations of the State of Texas, the City, or any other political subdivision, corporation or agency and shall never be payable from any system of ad valorem taxation. See"SECURITY FOR THE BONDS." Redemption The Bonds having stated maturities on or after September 1, 2017, are subject to redemption at the option of the Corporation on September 1, 2016 or any date thereafter, at par plus accrued and unpaid interest to the date fixed for redemption. See "DESCRIPTION OF THE BONDS." Additional Parity Bonds and Other Obligations Subject to certain conditions under the Bond Resolution, the Corporation is authorized to issue additional obligations secured by the pledge of the Pledged Revenues on a parity with and/or subordinate to the pledge of such revenues securing the Bonds. See "SECURITY FOR THE BONDS"and APPENDIX A hereto.' 5 Tax Exemption 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. Bond Insurance . See"BOND INSURANCE." 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) SELECTED FINANCIAL INFORMATION (Unaudited) Fund Balances(as of September 30,2005 Fund Balance $11,949,000 (a) Reserve Fund (b) Historical Sales Tax Collections for the Corporation 2005 2004 2003 2002 2001 Total Sales Tax Revenue $3,891,870 $3,369,173 $2,924,067 $2,515,389 $2,397,275 Coverage Based on Sales Tax Revenue Estimated Average Annual Debt Service of$1,433,923(2006-2030) 2.71 x Estimated Maximum Annual Debt Service of$1,464,013(2017) 2.66 x (a) Debt Service requirements are paid from net revenues of the Corporation. (b) The Reserve Fund is provided by a Surety Policy. 6 OFFICIAL STATEMENT relating to $10,235,000 PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS, SERIES 2006 INTRODUCTION This Official Statement,including the cover page and the Appendices hereto,provides certain information regarding the issuance by the Pearland Economic Development Corporation(the"Corporation")of the bonds captioned above (the"Bonds"). The Bonds are being issued pursuant to Section 4B of Article 5190.6,Texas Revised Civil Statutes, as amended(the"Act"),and pursuant to the provisions of a resolution of the Corporation authorizing the issuance of the Bonds (the "Bond Resolution"). All capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Bond Resolution. The Corporation was created on May 22, 1995 by the City Council of the City of Pearland,Texas(the"City")to act on behalf of the City for the promotion and development of industrial and manufacturing enterprises and to promote and encourage employment and public welfare within the City and the vicinity thereof. At an election held within the City on January 21, 1995,the voters of the City approved a one-half of one percent(WO sales and use tax(the "Sales Tax")the proceeds of which,pursuant to the Act, may(among other things)be pledged to secure obligations of the Corporation issued for the purposes thereof. The Sales Tax became effective July 1, 1995. The Sales Tax, together with all other State and local sales taxes collected in the City,produces a total sales and use tax rate within the City of 8.25%. See"THE SALES TAX." This Official Statement contains brief descriptions of the Bonds and their security,the Corporation,the City and its economy, the Bond Resolution and the City Resolution (hereinafter defined). 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 Corporation at 3519 Liberty Drive; Pearland, Texas 77581 or its Financial Advisor at RBC Capital Markets; 1001 Fannin Street,Suite 400;Houston,Texas 77002. PROJECT AND PLAN OF FINANCE Purpose The Bonds are being issued to finance the construction and improvement of certain roads and overpasses and related infrastructure within the City of Pearland, Texas (the "City") and to pay the costs of issuance of the Bonds, including the purchase of a reserve fund surety policy. See "PROJECT AND PLAN OF FINANCE" and "RESERVE FUND SURETY POLICY." The Project Proceeds of the Bonds will be used within the City to finance the(i)construction of two lanes of Bailey Oiler Road running west from SH 35 and existing Oiler Drive to Veterans Drive, including the acquisition of all necessary rights of way, (ii) the construction of drainage and sewage lines along the proposed construction and associated improvements, (iii) construction of a two lane rail overpass across the Burlington Northern Lines along the construction route, (iv) construction of four lane transition turn-in lanes at SH 35 and Veterans Drive, and (v) median cuts for future development along the construction route(collectively,the"Project"). Authority for Issuance of the Bonds The Bonds are being issued in accordance with the Constitution and general laws of the State of Texas(the"State"), including particularly the Act, and additionally pursuant to the Bond Resolution. The City is expected to approve the issuance of the Bonds pursuant to a resolution adopted on May 22, 2006 (the "City Resolution"). See "SECURITY FOR THE BONDS—The City Resolution." THE CORPORATION General The Corporation is a non-profit corporation created by the City for the purposes of organizing and leading the economic development effort for the City and the surrounding`area. It was created under Section 4B of the Act. The Act, originally enacted in 1979, was amended during the 1989 session of the State Legislature to enhance 7 development in the State by the authorization of a one-half of one percent (1/2%) sales and use tax for economic development. It also required that an economic development corporation be formed to administer the proceeds of the tax. The Act permits an economic development corporation to conduct operations beyond the creating City's limits;thus,the Corporation's objectives are to encourage economic development in the entire Pearland area. Management The Corporation is subject to review by the City Council of the City, which must approve each bond issue of the Corporation and the Corporation's annual budget. The Corporation has entered into an agreement with the City for certain services and maintenance of its financial records and accounts and the payment of the Corporation's bills. The Corporation is overseen by a seven-person citizen board whose members serve without compensation and are appointed to two-year terms by the City Council and may be removed at any time by the City Council. A list of the current board members is provided below: Term Expires Trustee Office (November) Occupation Randall Ferguson Chairman 2007 Banking/Attorney Helen Beckman Secretary 2006 Retired Felicia Kyle Member 2007 Attorney Lucy R.Stevener Member 2007 Business Owner George Sandars Member 2007 Engineer Ed Thompson Member 2006 Insurance Gary Idoux Member 2006 Banker DESCRIPTION OF THE BONDS General The Bonds are dated June 15, 2006 (the "Dated Date") and will accrue interest at the rates indicated on the inside cover page hereof from the later of the Dated Date or the most recent Payment Date(defined below). Interest on the Bonds is payable initially on March 1,2007,and each September 1 and March 1 thereafter(each a"Payment Date") until maturity or prior redemption, and is calculated on the basis of a 360-day year composed of twelve 30-day months. The Bonds mature on September 1 in the years and in the principal amounts set forth on the inside cover page hereof. The Bonds will be issued in book-entry form and initially registered solely in the name of Cede&Co., as 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. For aslong as the Bonds are book- entry bonds, as described below under "Book-Entry Only System," payment of the principal of, premium, if any, and interest on the Bonds will be made and given in accordance with DTC's operational arrangements. Except as provided under the "Book Entry Only System," principal of the Bonds shall be payable upon their presentation and surrender as they respectively become due and payable at the principal corporate trust office of the Paying Agent/Registrar (defined below). The interest on each Bond shall be payable by check payable on the Payment Date, mailed by the Paying Agent/Registrar on or before each Payment Date to the owner of record as of the Record Date,to the address of such owner as shown on the register, or by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the owner. If the specified date for any payment of principal of or interest on the Bonds is not a Business Day, then the date for such payment shall be the next succeeding Business Day, and payment on such date shall have the same force and effect as if made on the original date such payment was due. Paying Agent/Registrar Wells Fargo. Bank, N.A., Minneapolis, Minnesota, is the initial paying agent and registrar (the "Paying Agent/Registrar") for the Bonds. In the Bond Resolution, the Corporation reserves the right to replace the Paying Agent/Registrar, but has covenanted to maintain and provide a Paying Agent/Registrar at all times while the Bonds are outstanding. Any successor Paying Agent/Registrar shall be a commercial bank, trust company or other entity duly qualified and legally authorized to serve as and perform the duties and services of paying agent and registrar for the Bonds. In the event that the entity at any time acting as Paying Agent/Registrar should resign or otherwise cease to act as such, the Corporation has covenanted to appoint a replacement. Upon any change in the Paying Agent/Registrar for the Bonds, the Corporation has agreed to promptly cause a written notice thereof to be sent to each registered owner of the Bonds by first class mail. 8 Transfers and Exchanges of the Bonds So long as any Bonds remain outstanding, the Paying Agent/Registrar must keep at its principal corporate trust office a bond register in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar must provide for the registration and transfer of the Bonds in accordance with the terms of the Bond Resolution. Except as described below under "Book-Entry Only System," 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 corporate trust office of the Paying Agent/Registrar. No service charge will be made for any transfer, but the Corporation or Paying Agent/Registrar may require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith. All transfers must be made within three business days after request and presentation. The Corporation 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 Corporation and the Paying Agent/Registrar of security or indemnity. The Corporation may require payment of taxes, governmental charges and other expenses in connection with any such replacement. Redemption -Optional Redemption- The Bonds scheduled to mature on and after September 1, 2017 are subject to redemption prior to maturity at the option of the Corporation on September 1, 2016 or any date thereafter, in whole or in part in principal amounts of $5,000 or any integral multiple thereof. The maturities of the Bonds to be redeemed shall be selected by the Corporation and the Bonds to be redeemed within a given maturity shall be selected by lot or other random method by the Paying Agent/Registrar. The redemption price for any Bonds so redeemed shall be equal to par plus accrued interest to the redemption date. -Notice of Redemption- Not less than'30 days prior to a redemption date,a notice of redemption will be sent by the Paying Agent/Registrar by United States mail,first-class,postage prepaid,to each registered owner of a Bond to be redeemed in whole or in part at the address of each such owner appearing on the Register. All redemption 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 the Bonds are to be redeemed, an identification of the Bonds or portions thereof to be redeemed. ANY NOTICE GIVEN 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, AND, NOTWITHSTANDING THAT ANY BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH BOND OR PORTION THEREOF SHALL CEASE TO ACCRUE. So long as the Bonds are in book-entry form,any notice of redemption or other notices with respect to the Bonds will be sent only to DTC (or any successor securities depository for the Bonds), and not to the beneficial owners of such Bonds. . 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's 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 Corporation believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof The Corporation 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 Participant, (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. 9 DTC will act as a securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co., DTC's or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds in the aggregate principal amount of each such maturity and will be deposited with DTC. DTC,the world's largest depository,is a limited-purpose trust company organized under the New York Bank 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 85 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 purchases. Beneficial Owners are, however, expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct Participant 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 books 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. The 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, 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 Paying Agent/Registrar and request that copies of notices be provided directly to them. Redemption notices will be sent to DTC. If less than all of the Bonds 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. 10 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 Issuer 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 the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest 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 Issuer or Paying Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by DTC Participants to Beneficial Owners will be governed by standing instructions and customary practices,as is the case with securities held for the accounts of customers in bearer form or registered in "street names," and will be the responsibility of such Participant and not of DTC,the Paying Agent or the Corporation,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 Corporation or the Paying Agent/Registrar,and disbursement of such payment to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Corporation or the Paying Agent/Registrar. Under such circumstances, in the event that a successor securities depository is not obtained,Bond certificates are required to be printed and delivered. The Corporation may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event,Bond certificates will be printed and delivered. The information under this section concerning DTC and DTC's book-entry system has been obtained from sources that the Corporation believes to be reliable,but the Corporation takes no responsibility for the accuracy thereof. THE PAYING AGENT/REGISTRAR AND THE CORPORATION, SO LONG AS THE DTC BOOK-ENTRY SYSTEM IS USED FOR THE BONDS, WILL SEND ANY NOTICE OF PROPOSED AMENDMENT TO THE BOND RESOLUTION, NOTICES OF REDEMPTION, OR OTHER NOTICES WITH RESPECT TO SUCH BONDS ONLY TO DTC. ANY FAILURE BY DTC TO ADVISE ANY DTC PARTICIPANT OR OF ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT TO NOTIFY THE BENEFICIAL OWNERS, OF ANY NOTICES AND THEIR CONTENTS OR EFFECT WILL NOT AFFECT ANY ACTION PREMISED ON ANY SUCH NOTICE. NEITHER THE CORPORATION NOR THE PAYING AGENT/REGISTRAR WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DIRECT PARTICIPANTS, INDIRECT PARTICIPANTS, OR THE PERSONS FOR WHOM DTC PARTICIPANTS ACT AS NOMINEES, WITH RESPECT TO THE PAYMENTS ON THE BONDS OR.THE PROVIDING OF NOTICE TO DIRECT PARTICIPANTS, INDIRECT PARTICIPANTS,OR BENEFICIAL OWNERS. SECURITY FOR THE BONDS The City Resolution On.May 22, 2006, the City Council'of the City will adopt the City Resolution to approve the Bond Resolution and the issuance of the Bonds by the Corporation. In the City Resolution,the City will covenant.and agree that so long as the Bonds are Outstanding it will take and pursue all action necessary and authorized under State law to cause the Sales Tax to be levied and collected continuously at the rate of one-half of one percent(1/2%), and will not cause a reduction,abatement or exemption in the Sales Tax or in the'rate in which it is authorized to be collected. The City will further agree to deposit into the Revenue Fund all of the Sales Tax Revenues collected from the levy and assessment of the Sales Tax,less any amounts due to the Comptroller for collection costs and other charges. The Municipal Sales and Use Tax Act provides that the Sales Tax does not apply to the sale of a taxable item unless the item is also taxable under the Texas Limited Sales,Excise and Use Tax Act. The Sales Tax-is therefore subject to broadening and reduction in the base against which it is levied by action of the State Legislature without the consent of the City or the Corporation. See"INVESTMENT CONSIDERATIONS." • The Bond Resolution ' On May 22, 2006, the Board of Directors of the Corporation will adopt a resolution authorizing the issuance of the Bonds, establishing the revenue financing structure and providing security for the repayment of the Bonds. For a more complete description of the terms of the Bond Resolution,see"APPENDIX A—EXCERPTS OF CERTAIN PROVISIONS OF THE BOND RESOLUTION." 11 Pledge Under Bond Resolution The Bonds, along with any Additional Parity Bonds(as defined herein)issued pursuant to the Bond Resolution,are special limited obligations of the Corporation payable solely from, and secured on a parity by a lien on and pledge of, the Pledged Revenues. Under the Bond Resolution, Pledged Revenues (the "Pledged Revenues") consist primarily of Sales Tax Revenues (defined below), and also include all interest income from the investment or deposit of moneys in the Revenue Fund, the Debt Service Fund and the Reserve Fund created under the Bond Resolution. Sales Tax Revenues (the "Sales Tax Revenues") include all funds collected by the City from the levy of the Sales Tax,less any amounts due or owing to the State Comptroller of Public Accounts(the"Comptroller")for collection costs and certain other charges. The Sales Tax consists of the one-half of one percent('/z%)sales tax authorized to be levied by the City for the benefit of the Corporation for the promotion and development of new and expanded business enterprises pursuant to an election held on January 21, 1995. Pledged Revenues also include all interest income (if any)derived from the investment or deposit of moneys in the Revenue Fund, the Debt Service Fund and the Reserve Fund. Money in the Revenue Fund,the Debt Service Fund and the Reserve Fund may, at the option of the Corporation,be invested in any manner permitted by law for public funds; provided that all such deposits and investments shall be made in such manner that the money required to be expended from any fund will be available at the proper time or times, and provided further that in no event shall such deposits or investments of money in the Reserve Fund mature later than the final maturity date of the Parity Bonds. All such investments shall be valued in terms of current market value as of the last Business Day of the Corporation's Fiscal Year. All such investments shall be promptly sold when necessary to prevent any default in connection with the Parity Bonds. All interest and income derived from such deposits and investments shall be transferred or credited as received to the Revenue Fund, and shall constitute Pledged Revenues. For additional information relating to the investments of the Corporation, see "MANAGEMENT AND OPERATION OF THE CORPORATION—Investments." Pursuant to the Bond Resolution, after all required transfers of the Pledged Revenues have been made into the Debt Service Fund, the Reserve Fund, and any other funds created in any resolution authorizing the issuance of Parity Bonds,any amounts remaining in the Revenue Fund may be transferred semiannually,free of the lien of the Bond Resolution,to the Surplus Fund of the Corporation and used for any lawful purpose. See also"Additional Parity Bonds and Other Obligations"below. Limited Obligations THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE CORPORATION, PAYABLE SOLELY FROM,AND SECURED BY A LIEN ON AND PLEDGE OF,THE PLEDGED REVENUES. THE BONDS ARE NOT PAYABLE FROM OR SECURED BY ANY OTHER REVENUES, PROPERTY OR INCOME OF THE CORPORATION. THERE IS NO MORTGAGE ON ANY OF THE REAL PROPERTY OF THE CORPORATION TO SECURE PAYMENT OF THE BONDS. THE BONDS DO NOT CONSTITUTE A DEBT OR OBLIGATION OF THE STATE OF TEXAS OR ANY POLITICAL SUBDIVISION, CORPORATION, OR AGENCY THEREOF, OR OF THE CITY OF PEARLAND, TEXAS, OR THE COUNTIES OF HARRIS OR BRAZORIA. THE HOLDERS OF THE BONDS SHALL NEVER HAVE THE RIGHT TO DEMAND PAYMENT OF THE BONDS FROM ANY FUNDS RAISED OR TO BE. RAISED BY AD VALOREM TAXATION. Collection of Sales Tax Revenues and the Revenue Fund Pursuant to the Bond Resolution,the Corporation has created a revenue fund(the"Revenue Fund")to be maintained as a separate account on the books of the Corporation. The Corporation has covenanted to deposit all Sales Tax Revenues into the Revenue Fund immediately upon receipt from the City or the Comptroller. The Sales Tax Revenues on deposit in the Revenue Fund shall, on a monthly basis, be transferred into the Debt Service Fund in approximately equal monthly installments in such amounts as will be sufficient to accumulate the total amount required to pay the principal and interest due on the Parity Bonds on the next Payment Date therefor. On or before each Payment Date, the Corporation shall transfer funds on deposit in the Debt Service Fund to the Paying Agent/Registrar in the amounts required by the Bond Resolution for payment of principal and interest on the Parity Bonds and all bank charges or other costs and expenses relating to such payment. See "APPENDIX A - EXCERPTS OF CERTAIN PROVISIONS OF THE BOND RESOLUTION." 12 Additional Parity Bonds and Other Obligations In the Bond Resolution,the Corporation has reserved the right to issue additional bonds("Additional Parity Bonds") payable from and equally and ratably secured by a lien on and pledge of the Pledged Revenues, subject to the prior satisfaction of certain terms and conditions. See "APPENDIX A- EXCERPTS OF CERTAIN PROVISIONS OF THE BOND RESOLUTION." In addition, the Corporation has reserved the right to issue, for any purpose authorized under the Act, additional bonds, notes, or other obligations secured in whole or in part by liens on the Pledged Revenues that are junior and subordinate to the lien on the Pledged Revenues securing payment of the Parity Bonds. Such subordinate lien obligations may be,further secured by any other,source of payment lawfully available for such purposes. See "APPENDIX A-EXCERPTS OF CERTAIN PROVISIONS OF THE BOND RESOLUTION." The Corporation has entered into a development agreement (the "Development Agreement") with the City and a private developer(the"Developer")dated as of December 20,2004 relating to the development of a commercial and retail project on an approximately 127-acre tract of land (the "Tract") located in the City. Under the terms of the Development Agreement, the Corporation has agreed to remit ninety percent (90%) of the Sales Tax which it collects solely from businesses located on such Tract,in order to provide for a portion of the financing required for development of the Tract. The obligation of the Corporation to pay such amounts pursuant to the Development Agreement is subordinate and junior to the pledge of the Sales Tax Revenues to the Bonds and any Additional Parity Bonds; thus, such obligation will be paid solely to the extent that,funds are lawfully available after payment of debt service on the'Bonds and any Additional Parity Bonds. In the Development Agreement,the Corporation has further agreed not to include amounts owed under the Development Agreement in the calculation of Pledged Revenues necessary to satisfy the coverage test for the issuance of Additional Parity Bonds contained in the Bond Resolution. Copies of the Development Agreement may be obtained from the Corporation at,3519 Liberty Drive; Pearland, Texas 77581. Remedies The Bond Resolution does not provide for acceleration of the maturities of the Bonds in the event of a default in payment of principal or interest on the Parity Bonds or a default in the performance by the Corporation of any duty or covenant under the Bond Resolution. Although a registered owner of Bonds could presumably obtain a judgment against the Corporation to carry out, respect, or enforce any covenant or obligation under the Bond Resolution if a default occurred in the payment of the principal or interest on the Bonds, such judgment could not be satisfied by execution against any property of the Corporation other than the Pledged Revenues. Such registered owner's only practical remedy,if a default occurs, is a mandamus or mandatory injunction proceeding to compel the Corporation to observe or perform'any of its obligations under the Bond Resolution. The enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The Bond Resolution does not provide for the appointment of a trustee to represent the interests of the owners of the Bonds upon any failure of the Corporation to perform in accordance with the terms of the Bond Resolution,or upon any other condition. Furthermore, the Corporation is eligible to seek relief from its creditors under the U.S. Bankruptcy Code. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Bond Resolution and the Bonds are qualified with respect to the customary rights of debtors relative to their creditors. See also"INVESTMENT CONSIDERATIONS"herein. A Reserve Fund is created under the Bond Resolution and must be maintained for so long as any Parity Bonds remain Outstanding. The Reserve Fund Requirement (the "Reserve Fund Requirement") is equal to an amount (which may consist of money and/or authorized investments) equal to 100% of the average annual debt service on the Bonds and any Additional Parity Bonds then Outstanding. In lieu of funding the Reserve Fund with cash or investments,the Corporation has applied for and intends to purchase a reserve fund surety bond(the"Surety Bond") with a portion of the proceeds from the sale of the Bonds, in order to satisfy the Reserve Fund Requirement for the Bonds. See "RESERVE FUND .SURETY POLICY" and "APPENDIX A - EXCERPTS OF CERTAIN PROVISIONS OF THE BOND RESOLUTION." In addition,the Corporation has applied for a municipal bond insurance policy to insure the payment of the principal and interest on the Bonds when due. It is expected that such municipal bond insurance policy will be issued concurrently with the delivery of the Bonds. See"BOND INSURANCE"and"RATINGS"herein. 13 THE SALES TAX Source and Authorization The Act authorizes the levy of a sales and use tax at a rate of up to one-half of one percent(' %)to be used by an economic development corporation for the promotion of economic development. The City was authorized by the voters at an election held therein on January 21, 1995 to levy the Sales Tax at the rate of one-half of one percent (1/2%)for the benefit of the Corporation. The imposition,computation, administration, collection and remittance of the Sales Tax is governed by Chapter 151,Texas Tax Code,as amended(the"Texas Limited Sales,Excise,and Use Tax Act")and by Chapter 321,Texas Tax Code,as amended(the"Municipal Sales and Use Tax Act")except to the extent that such chapters are in conflict with the Act, and reference is made thereto for a more complete description of the Sales Tax. State law also permits the City to enter into strategic partnership agreements with municipal utility districts located within the City's extraterritorial jurisdiction, by mutual consent of the City and the municipal utility district. The City has entered into strategic partnership agreements with a number of municipal utility districts. Among other things, such agreements authorize the City to impose its sales and use taxes (including the Sales Tax) within the boundaries of such districts prior to the full annexation of the districts by the City. In general, as applied to the Sales Tax, a taxable item includes any tangible personal property and certain taxable services. "Taxable services"include certain amusement services,cable television services,personal services,motor vehicle parking and storage services, the repair, remodeling, maintenance and restoration of most tangible personal property,certain telecommunications services,credit reporting services,debt collection services, insurance services, information services, real property services, data processing services, real property repair and remodeling, security services, telephone answering services, and Internet access service. Certain items are exempted by State law from sales and use taxes,including items purchased for resale,certain coin-operated machine sales,food products(except food products which are sold for immediate consumption, e.g. by restaurants, lunch counters, etc.), certain health care supplies (including medicines, corrective lens and various therapeutic appliances and devices), certain agricultural items (if the item is to be used exclusively on a farm.or ranch or in the production of agricultural products),gas and electricity purchased for residential and certain other uses(unless a city has taken steps to repeal the exemption), certain property used in manufacturing, telecommunications services, newspapers and magazines, and basic fees for Internet access service. During an annual "tax holiday," school clothing and supplies and other items are exempt. In addition, items which are taxed under other State laws are generally exempted from sales taxes. These items include certain natural resources,cement,motor vehicles and insurance premiums. Alcohol and tobacco products are subject to both State alcohol and tobacco taxes as well as sales taxes. In addition, purchases made by various exempt organizations are not subject to the sales and use taxes. Such organizations include the federal and state governments, political subdivisions, Indian tribes, religious institutions and certain charitable organizations and non-profit corporations. Also, State law provides an exemption from sales taxes on items purchased under a contract in effect when the legislation authorizing such tax(or the increase in the rate thereof) is enacted,up to a maximum of three years. In general, a sale of a taxable item is deemed to occur within the municipality, political subdivision, county or special district in which the sale is consummated. The tax levied on the use, storage or consumption of tangible personal property is considered to be consummated at the location where the item is first stored, used or consumed. Thus,the use is considered to be consummated in a municipality that imposes the use tax and the tax is levied there if the item is shipped from outside the state or from a municipality which does not impose a use tax to a point within the municipality that imposes the use tax. Other Sales Taxes In addition to the Sales Tax levied by the City on behalf of the Corporation,as described above,the State levies and collects a 6.25% sales and use tax against essentially the same taxable items and transactions as the Sales Tax is levied. Under current State law,the maximum aggregate sales and use tax which may be levied within a given area by most authorized political subdivisions and municipalities within such area, including the State and the City, is 8.25%. The current aggregate sales and use tax levied in the City is 8.25%,of which 6.25% is levied by the State, 1% is levied by the City for its general fund, Y2 of 1% is levied by Brazoria County, and V2 of 1% is levied by the City on behalf of the Corporation. 14 Collection and Administration The Comptroller administers and enforces all sales tax laws and collects all sales and use taxes levied by the State, and levying counties, municipalities, political subdivisions, and other special districts having sales tax powers. Certain limited items are taxed for the benefit of the State under non-sales tax statutes, such as certain natural resources and other items described above, and are not subject to the sales tax base available to municipalities, counties, political subdivisions, and other special districts, including the tax base against which the Sales Tax is levied. Municipalities may by local option determine to tax certain telecommunication services on the same basis as the State taxes such services or to opt out of the tax holiday. The City has not opted to repeal the local telecommunication services exemption. The City has not opted out of the tax holiday. With respect to the taxation of the residential use of gas and electricity,the State is not authorized to collect a sales tax, while municipalities,on a local option basis,may tax such use. The City has opted to tax the residential use of gas and electricity. In recent years,several changes in the State sales tax laws have contributed to the growth of local sales tax revenues. These changes have added additional goods and services to the list of taxable items. Other items have been subjected to sales tax on a interim basis or have been taxed pursuant to legislation which includes planned phase- outs of the tax. With certain exceptions, sales and use taxes in the State are collected at the point of sale and are remitted to the Comptroller by the "taxpayer,"who is,generally speaking,the business that collects the tax resulting from a taxable transaction. Taxpayers owing $500 or more in sales and use tax dollars in a calendar month submit their tax collections to the Comptroller on a monthly basis; taxpayers owing less than$500 in sales and use tax dollars in a calendar month or less than $1,500 in a calendar quarter submit their tax collections quarterly. Taxpayers owing less than$1,000 annually may submit their tax collections annually. Generally,taxpayers are required to submit tax reports to the Comptroller on the same date as payment is due. The Comptroller is required by law to distribute funds to the receiving political subdivisions periodically and as promptly as feasible but not less frequently than twice during each fiscal year of the State. Historically,and at the present time,the Comptroller distributes the funds monthly to the City,with the largest payments being made quarterly in February,May, August and November. The Comptroller has initiated a direct deposit program using electronic funds transfers to expedite the distribution of monthly allocation checks. If a political subdivision desires to participate in the electronic funds transfers, it may make application to the Comptroller. The City participates in this program. Otherwise, the Comptroller mails the allocation check, which is typically received by the middle of the month following the month in which the taxpayer reports and remits payment on the tax. The following table sets forth the month in which political subdivisions typically receive their sales and use tax receipts by type of reporting taxpayer. Month Allocation Includes the Following Received Reporting Taxpayers January Monthly February Monthly-Quarterly-Yearly March Monthly April Monthly May Monthly-Quarterly June Monthly July Monthly August Monthly-Quarterly September Monthly October Monthly November Monthly-Quarterly December Monthly The Comptroller is responsible for enforcing the collection of sales and use taxes in the State. Under State law, the Comptroller utilizes sales tax permits, sales tax bonds and audits to encourage timely payment of sales and use taxes. Each entity selling, renting, leasing or otherwise providing taxable goods or services is required to have a sales tax permit. Permits are required for each individual location of a taxpayer and are valid for only one year, requiring an annual renewal. As a general rule, every person who applies for a sales tax permit for the first time or has become delinquent in paying the sales or use tax is required to post security in an amount sufficient to protect against the failure to pay taxes. The Comptroller's audit procedures include auditing the largest 2%of the sales and • 15 use tax taxpayers (who report about 65%of all sales and use taxes in the State annually), every three or four years. Other taxpayers are selected at random or upon some other basis for audits. The Comptroller also engages in taxpayer education programs and mails a report to each taxpayer before the last day of the month, quarter or year that it covers. Once a taxpayer becomes delinquent in the payment of a sales or use tax,the Comptroller may collect the delinquent tax by using one or more of the following methods: (i) collection by an automated collection center or local field office, (ii)estimating the taxpayer's liability based on the highest amount due in the previous 12 months and billing the taxpayer for the estimated amount,(iii)filing liens and requiring a new or increased payment bond,(iv)utilizing forced collection procedures,such as seizing assets of the taxpayer(such as a banking account)or freezing assets of the taxpayer that are in the custody of third parties, (v) removing a taxpayer's sales and use tax permit, and (vi) certifying the account to the Office of the Attorney General of Texas for the filing of suit for collection. A political subdivision may not sue for delinquent taxes unless it joins the Attorney General as a plaintiff or unless it-first receives the permission of the Attorney General and the Comptroller. The Comptroller retains 2% of the tax receipts for collection of,the tax; additionally, under State law, a taxpayer may deduct and withhold 1/2 of 1% of the amount of taxes due on a timely return as reimbursement for the cost of collecting sales and use taxes. In addition, a taxpayer who prepays its tax liability on the basis of a reasonable estimate of the tax liability for a month or quarter in which a prepayment is made may deduct and withhold 1.25% of the amount of the prepayment in addition to the 1/2 of 1%allowed for the cost of collecting the sales and use tax. HISTORICAL PLEDGED REVENUES Historical Sales Tax Collections for the Corporation • The collections of the Corporation shown on this schedule are based on the fiscal year (ending September 30) in which the Corporation actually received payment of the Sales Tax Revenues from the Comptroller and the City. Total Sales Tax Revenues of the Fiscal Year Corporation* 2000 $1,841,918 2001 2,397,275 2002 2,515,389 2003 2,924,067 2004 3,369,173 2005 3,891,870 * Includes only the Sales Tax Revenues pledged to secure the Bonds. Estimated Average Annual Debt Service Requirement(2006-2030) $1,433,923 (a) Coverage Based on Sales Tax Revenue 2.71 x Estimated Maximum Annual Debt Service Requirement(2017) $1,464,013 (a) Coverage Based on Sales Tax Revenue 2.66 x (a) See"PRO-FORMA DEBT SERVICE SCHEDULE." 16 Major Retail Establishments in the City Listed below is a sample of the major retail establishments located within the boundaries of the City. The list was compiled by estimating the largest retailers' square footages by visual inspection,and is not based on the amount of actual sales revenues or sales taxes generated,since such information is deemed confidential and protected by State law. Retailers are listed in alphabetical order. Best Buy Kroger(2 stores) Pet Smart Big Lots Linens&Things Pier One Circuit City Lowe's Randall's(2 stores) CVS Pharmacy Marshall's Ross Dress For Less Eckerds Michael's Strickland Chevrolet Home Depot Office Max Super Target Kohl's Palais Royal Walgreens(2 stores) Koza's Petco Wal-Mart(3 stores) PRO FORMA DEBT SERVICE SCHEDULE Fiscal Year Current ' Total New Total Ending Debt Service Plus: The Bonds Principal Debt Service 9-30 Requirements Principal Interest(a) &Interest Requirements 2006 $ 765,900 $ 765,900 2007 762,275 $ 50,000 $ 650,775 $ 700,775 1,463,050, 2008 762,650 165,000 534,713 699,713 1,462,363 2009 766,850 170,000 526,050 696,050 1,462,900 2010 765,600 180,000 517,125; 697,125 1,462,725 2011 768,088 185,000 507,675 692,675 1,460,763 2012 765,088 200,000 497,963 697,963 1,463,050 2013 765,738 210,000 487,463 697,463 1,463,200 2014 768,738 215,000 476,438 691,438 1,460,175 2015 765,938 230,000 465,150 695,150 1,461,088 2016 767,538 240,000 453,075 693,075 1,460,613 2017 768,538 255,000 440,475 695,475 1,464,013 2018 768,288 265,000 427,088 692,088 1,460,375 2019 766,788 280,000 413,175 693,175 1,459,963 2020 764,588 300,000 398,475 698,475 1,463,063 2021 766,588 310,000 382,725 , 692,725 1,459,313 2022 766,988 325,000 366,450 691,450 1,458,438 2023 766,363 345,000 349,388 694,388 1,460,750 2024 764,550 365,000 331,275 696,275 1,460,825 2025 766,200 385,000 312,113 697,113 1,463,313 2026 766,238 405,000 291,900 696,900 1,463,138 2027 1,190,000 270,638 1,460,638 1,460,638 2028 1,255,000 208,163 1,463,163 1,463,163 2029 1,320,000 142,275 1,462,275 1,462,275 2030 1,390,000 72,975 1,462,975 1,462,975 $16,089,532 $10.235,000 $9,523,542 $19,758.542 $35,848,069 (a) Interest has been estimated at 5.25%for purposes of illustration. 17 MANAGEMENT AND OPERATION OF THE CORPORATION Budgeting and Operations The Corporation's combined statement of revenues, expenditures and changes in fund balances for Fiscal Years 2001 through 2005 are summarized below. • Fiscal Year Ending September 30, 2005 2004(a) 2003 2002 2001 REVENUES: Taxes $ 3,891,870 $3,369,173 $2,924,067 $2,515,389 $2,397,275 Interest 303,129 99,774 33,945 -0- -0- Other 12,000 10,000 5,000 206,383 407,317 Total Revenue $ 4,206,999 $3,478,947 $2,963,012 $2,721,772 $2,804,592 EXPENDITURES: Economic Development $ 1,960,469 $ 715,279 $ 260,325 $ 571,379 $1,079,177 Capital Outlay -0- -0- 300,552 1,269,651 403,722 Debt Service 1,023,698 447,050 446,568 368,779 370,616 Total Expenditures $'2,984,167 $ 1,162,329 $1,007,445 $2,209,809 $1,853,515 REVENUE OVER(UNDER) EXPENDITURES $ 1,222,832 $2,316,618 $1,955,568 $ 511,963 $ 951,077 OPERATING TRANSFERS: In $11,160,448 -0- $ 212,768 $ 411,639 -0- Out (4,354,626) $(1,640,316) (4,195,886) (110,000) $ (322,721) TOTAL REVENUES OVER (UNDER)EXPENDITURES $ 8,028,654 $ 676,302 ($2,027,550) $ 813,602 $ 628,309 Prior Period Adjustments (26,482) -0- -0- (40,684) (372,948) END OF YEAR FUND BALANCE $11,949,880 $3,947,708 $3,271.406 $5,298,956 $4,526,038 (a) Estimated,pending confirmation by the Auditors for the City. Investments The Corporation invests its funds only in investments authorized by State law in accordance with investment policies approved by the Board of Directors of the Corporation and the City Council of the City. Both State law and the Corporation's investment policies are subject to change. Legal Investments Under State law, the Corporation 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 rated 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 Corporation deposits, (7)(a)certificates of deposit and share certificates issued by a depository institution that has its main office or a branch office in the State of Texas, that are (i) guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund or their respective successors, or are secured as to principal by obligations 18 described in clauses(1)through(6)above or in any other manner and amount provided by law for County deposits, and (b) certificates of deposit or share certificates issued by a depository institution that has its main office or a branch office in the State of Texas that participate in the Certificate of Account Registry Service; (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 with maturities that are 270 days or less 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 not less than AAA or its equivalent, (13) bonds issued, assumed,or guaranteed by the State of Israel,and(14)guaranteed investment contracts secured by obligations of the United States of America or its agencies and instrumentalities,other than the prohibited obligations described in the • next succeeding paragraph. The Corporation may invest in such bonds directly or through government investment pools that invest solely in such Bonds provided that the pools are rated no lower than AAA or AAA-m or an equivalent by at least one nationally recognized rating service. The Corporation 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 a market index. Investment Policies Under State law, the Corporation 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 Corporation funds, maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups. All Corporation 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 State law, the Corporation's investments must be made "with judgment and care, under prevailing circumstances, that a person of 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 Corporation 'shall submit an investment report detailing: (1) the investment position of the Corporation, (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 of 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 relates to:(a)adopted investment strategy statements and(b)state law. • 19 Invested Funds of the Corporation As of March 1,2006,the Corporation's funds were invested in the following categories: Percent of Book Market Description Total Value Value Certificates of Deposit 4% $ 518,579 $ 518,579 Money Market Funds 96% 12,334,789 12,334,789 Total $12,853,368 $12,853,368 INVESTMENT CONSIDERATIONS The Sales Tax The primary source of security for the Bonds will be receipts of the Sales Tax Revenues received by the City for the benefit of the Corporation. The generation of revenues from the Sales Tax is closely related to the amount of economic activity in the City. Sales and use tax receipts,unlike other taxes levied by municipalities, immediately reflect changes in the economic conditions. Historically, the Comptroller has remitted sales and use tax allocation checks to municipalities on a monthly basis, but State law currently only requires that such allocation be made at least twice annually and such procedures could change in the future. Additionally,the tax base of taxable items and services subject to State and local sales and use taxes are subject to legislative action, and have been changed in recent years by the State Legislature. State law provides that the Sales Tax cannot be levied against any taxable item or service unless such item or service is also subject to the State,sales and use tax. In recent years the State Legislature has enacted laws permitting the State,together with its political subdivisions,to levy sales and use taxes of up to 8.25%. The current total sales and use tax rate within the City's boundaries is 8.25%(including State,county, and City sales taxes as well as the Sales Tax), which is among the highest sales tax rates in the nation(although the State has no personal or corporate income tax). The rate of the sales and use taxes authorized in the State could be further increased by the State Legislature, and the Corporation has no way of predicting any such increase or the effect that would have on the Sales Tax Revenues which secure the Bonds. State leaders have appointed committees to study methods of achieving greater tax equity within the State's tax system. Any changes which may be enacted by the State legislature could affect the tax base against which the Sales Tax is levied; and the City (and hence the Corporation as the beneficiary of the City's action), except in certain limited instances described below,has no control over the components of the tax base. Neither the City nor the Corporation currently has statutory authority to increase or decrease the maximum authorized rate of the Sales Tax. Tax receipts received by the Corporation are expected to be subject to seasonal variations and to variations caused by the State laws and administrative practices governing the remittance of sales and use tax receipts which authorize different taxpayers to remit the tax receipts at different times throughout the year. The Sales Tax is collected by the Comptroller and remitted(less certain costs of collection and.other charges)to the City along with other City sales and use tax receipts. The City allocates a portion of the receipts to the Corporation which represents the one-half of one percent(1/2%) tax rate of the Sales Tax. Generally, sales and use taxes in the State are collected at the point of a taxable transaction and remitted by the taxpayer to the Comptroller. The Comptroller has the primary responsibility for enforcing sales and use tax laws and collecting delinquent taxes. The collection efforts of the Comptroller are subject to applicable federal bankruptcy code provisions with respect to the protection of debtors. Changes in the tax base against which a sales and use tax is assessed, as well as changes in the rate of such taxes, make projections of future tax revenue collections very difficult. No independent projections have been made with respect to the revenues available to pay debt service on the Bonds. Historical information regarding the sales tax base and Sales Tax collections of the Corporation is included herein, and while the Corporation has no reason to expect that receipts of the Sales Tax Revenues will ever be insufficient to pay its outstanding debt secured by such revenues, it makes no representation that, over the term of the Bonds, sales and services within the City will provide sufficient Sales Tax Revenues to pay principal and interest when due on the Outstanding Parity Bonds. 20 • Bankruptcy Limitation to Registered Owners'Rights The enforceability of the rights and remedies of registered owners of the Bonds is limited by laws relating to bankruptcy, reorganization or other similar laws of general application affecting the rights of creditors of political subdivisions such as the Corporation. If the Corporation proceeded voluntarily under Chapter 9 of the Federal Bankruptcy Code, it could file a plan for an adjustment of its debts. If such a plan were confirmed by the bankruptcy court, it could, among other matters, reduce or eliminate the principal amount of the Corporation's indebtedness, defer or rearrange the Corporation's debt service schedule, reduce or eliminate interest, modify or abrogate collateral or security arrangements, substitute (in whole or in part) other securities, or otherwise compromise and modify the rights and remedies of the registered owners of the Bonds and their claims against the Corporation. THE CITY Limitation The information provided herein and in APPENDIX B with respect to the City is being provided for r the sole purpose of providing economic and demographic information for the City, as such information may be a factor in evaluating the potential for future collections of Sales Tax Revenues. The Bonds do not constitute a debt or obligation of the City, and the Holders thereof shall never have the right to demand payment of any funds raised or to be raised by any system of ad valorem taxation. General The City is a home-rule city governed by a council/manager form of government. The City Council of the City consists of five members elected at-large for three-year staggered terms. The Mayor and City Council provide community leadership,develop policies to guide the City in delivering services and achieving community goals,and encourage citizens awareness and involvement. For additional demographic and economic information relating to the City and surrounding area,see APPENDIX B hereto. Location The City is located in the upper Gulf Coast region of Texas and is situated primarily in the northeast corner of Brazoria County, approximately fifteen 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"). 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 and downtown Houston to the north. The Sam Houston Tollway(Beltway 8)runs near and parallel to the City's northern boundaries in an east-west direction. Interstate Highway 45 lies just east of the City, providing access to the Johnson Space Center and the Port of Galveston to the south and downtown Houston to the north. Additionally, State Highway 35 bisects the City in a north-south direction, providing access to Houston's Hobby airport approximately six miles to the north. • LEGAL MATTERS General Legal matters incident to the authorization, issuance and sale of the Bonds are subject to the approving opinion of the Attorney General of the State and the approval of certain legal matters by Andrews Kurth LLP,Houston,Texas, Bond Counsel, whose opinion will be delivered at the closing of the sale of the Bonds in substantially the form attached hereto as APPENDIX D. In their capacity as Bond Counsel, Andrews Kurth LLP has reviewed the information appearing in this Official Statement under the sections "PROJECT AND PLAN OF FINANCE — Authority for Issuance of the Bonds," "DESCRIPTION OF THE BONDS" (except for the information under the subcaption"Book-Entry Only System"), "SECURITY FOR THE BONDS," "TAX EXEMPTION," "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS,""LEGAL INVESTMENTS IN TEXAS,""CONTINUING DISCLOSURE OF INFORMATION" (except for the information under the subcaption "Compliance with Prior Undertakings"), "LEGAL MATTERS--General" (insofar as such information relates to the opinions of Bond Counsel), and "APPENDIX A — EXCERPTS OF CERTAIN PROVISIONS OF THE BOND RESOLUTION," solely to determine whether such information fairly summarizes the procedures and documents referred to therein and is in accordance with applicable federal and State law with regard to the sale of the Bonds. Bond Counsel has not independently verified the factual information contained in this Official Statement, nor has such firm conducted an 21 investigation of the affairs of the Corporation for the purpose of passing upon the accuracy or completeness of this Official Statement. No person is entitled to rely upon such firms' limited participation 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. The various legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon,or of the future performance of the parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. Forward Looking Statements The statements contained in this Official Statement, and in any other information provided to the reader by the Corporation that are not purely historical,are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,as amended,and Section 21E of the Securities Exchange Act of 1934,as amended,including statements regarding the Corporation's expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the Corporation on the date hereof, and the Corporation assumes no obligation to update any such forward-looking statements. It is important to note that the Corporation's actual results could differ materially from those in such forward-looking statements. The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including students, customers, suppliers, business partners and competitors, and legislative, judicial, and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions,all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Corporation. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement will prove to be accurate. TAX EXEMPTION In the opinion of Andrews Kurth LLP,Houston,Texas,Bond Counsel,interest on the Bonds(1)is excludable under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), from gross income of the owners thereof for federal income tax purposes and (2) is not includable in the alternative minimum taxable income of individuals or corporations,except as described below. The foregoing opinions of Bond Counsel are based on the Code and the regulations, rulings and court decisions thereunder in existence on the date of issue of the 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 Corporation with certain covenants of the Bond Resolution and has relied on representations by the Corporation with respect to matters solely within the knowledge of the Corporation, which Bond Counsel has not independently verified. The covenants and representations relate to, among other things, the use of the proceeds of the Bonds and any facilities financed therewith, the source of repayment of the Bonds, the investment of the proceeds of the Bonds and certain other amounts prior to expenditure, and requirements, that excess arbitrage earned on the investment of the proceeds of the Bonds and certain other amounts be paid periodically to the United States and that the Corporation file an information report with the Internal Revenue Service. If the Corporation should fail to comply with the covenants in the Bond Resolution, or if its representations relating to the Bonds that are contained in the Bond Resolution 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 qualified mutual fund,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 22 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 and set forth below under"TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS," 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 acquisitions or disposition of the Bonds. Bond Counsel's opinion isnot a guarantee of a result,but represents a legal judgment based upon review of existing statutes,regulations,published rulings and court decisions and the representations and covenants of the Corporation described above. No ruling has been sought from the Internal Revenue Service (the "Service") with respect to the matters addressed in the opinion of Bond Counsel,and no assurance can be given that the Service would agree with the opinion of Bond Counsel,if the tax-exempt status of the interest on the Bonds were the subject of an audit. If an audit is commenced, under current procedures the Service is likely to treat the Corporation as the "taxpayer," and the owners would 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 Corporation may have different or conflicting interests from the owners. 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, 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 and individuals otherwise eligible for the earned income credit. Such prospective purchasers should consult their own 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 According to representations of the Underwriters, certain 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 public 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 such 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. 23 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 Bonds of the owner of a Discount Bond or of the Corporation. 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. 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 According to representations of the Underwriters, certain 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 person 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 purchases 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. 24 LITIGATION The Corporation will furnish the Underwriters a certificate, dated as of the date of delivery of the Bonds, executed by the appropriate Corporation officials, acting in their official capacities as such, to the effect that no litigation of any nature is then pending or, to their knowledge, threatened against the Corporation, 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; or in any manner questioning the authority or proceedings for the issuance, execution or delivery of the Bonds;or affecting the validity of the Bonds, or the corporate existence or boundaries of the Corporation. LEGAL INVESTMENTS IN TEXAS Under State law,the Bonds are legal and authorized investments for banks, savings banks,trust companies, savings and loan associations, insurance companies, fiduciaries and trustees, and for the sinking funds of municipalities or other political subdivisions or public agencies of the State. The Corporation has not made any investigation of other laws,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 persons or entities to purchase or invest in the Bonds. RATINGS In connection with the sale of the Bonds, the Corporation 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 . 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 neither the Corporation nor the Financial Advisor undertakes any responsibility to oppose a revision or withdrawal of such rating. 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 the ratings may have an adverse effect on the market price of the Bonds. CONTINUING DISCLOSURE OF INFORMATION In order to provide certain continuing disclosure with respect to the Series 2006 Sales Tax Revenue Bonds in accordance with Rule 15c2-12 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 Sales Tax Revenue 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 City Resolution,the City,on behalf of the City and the Corporation,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 the City or the Corporation remains an obligated person with respect to 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 the financial information and operating data with respect to the City and the Corporation of the general type included in this Official Statement under the captions "Historical Pledged Revenues,""Debt Service Schedule,"and "Management and Operation of the Corporation." 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 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"). 25 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 C 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(11)rating changes. Neither the Bonds nor the City Resolution makes any provision for 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("MSRB"). 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 have done so. The Municipal Advisory Council of Texas has been designated by the State of Texas as a SID and has been approved as such by the SEC staff. The address of the Municipal Advisory Council is 600 West 8th Street, P.O. Box 2177,Austin,Texas 78768-2177,and its telephone number is(512)476-6947. Limitations and Amendments The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations,condition,or prospects or agreed to update any information that is provided,except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell 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 City Resolution for purposes of any other provision of the City Resolution. 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 26 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 SEC Rule 15c2-12. FINANCIAL ADVISOR RBC Capital Markets is employed as Financial Advisor to the Corporation in connection with the issuance of the Bonds. RBC Capital Markets is the trade name under which RBC Damn 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 The financial data and other information contained herein have been obtained from the Corporation's and the City's records,financial statements and other sources which are believed to be reliable. No representation is made as to the accuracy or completeness of the information derived from sources other than the Corporation and the City. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the bonds, statutes, documents, and resolutions contained in this Official Statement are made subject to all of the provisions of such bonds, statutes, documents, and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. The information contained in this Official Statement in the section entitled "APPENDIX C — AUDITED FINANCIAL STATEMENTS OF THE CITY OF PEARLAND FOR THE YEAR ENDED SEPTEMBER 30,2005" has been provided by Pattillo, 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. 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. THIS OFFICIAL STATEMENT has been approved, and the execution and delivery of this Official Statement authorized,by the Board of the Corporation. /s/ Randall Ferguson Chairman,Board of Directors Pearland Economic Development Corporation ATTEST: /s/ Helen Beckman Secretary,Board of Directors Pearland Economic Development Corporation 27 APPENDIX A EXCERPTS OF CERTAIN PROVISIONS OF THE BOND RESOLUTION Excerpts of certain provisions of the Bond Resolution are reproduced in this APPENDIX A. This APPENDIX A is qualified in its entirety to the full provisions of the Bond Resolution,copies of which are available upon request to the Corporation. Section 2.1: Definitions. In this Resolution,the following terms shall have the following meanings,unless the context clearly indicates otherwise: "Act"shall mean Article 5190.6,Texas Revised Civil Statutes,as amended. • "Additional Parity Bonds" shall mean the additional bonds permitted to be issued by the Corporation pursuant to Section 6.1 of this Resolution. "Attorney General"shall mean the Attorney General of the State of Texas. "Board of Directors"shall mean the governing body of the Corporation. "Bond Insurance Policy"shall mean the municipal bond new issuance insurance policy issued by the Bond Insurer that guarantees payment of principal of and interest on the Bonds. "Bond Insurer"shall mean ,or any successor thereto. "Bond" or'`Bonds" shall mean the Corporation's Sales Tax Revenue Bonds, Series 2006, but only to the extent such Bonds are Outstanding within the meaning of this Resolution. "Business Day" shall mean any day other than (i) a Saturday, Sunday, or other day on which banking institutions in the city where the principal corporate trust office of the Paying Agent/Registrar is located are authorized by law or executive order to close, or (ii) a day on which the New York Stock Exchange is closed. "City" shall mean the City of Pearland,Texas, a municipal corporation and home-rule city, and where appropriate,the City Council 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 Construction Fund created pursuant to Section 9.4 of this Resolution. "Corporation" shall mean the Pearland Economic Development Corporation, and any successor thereto. "Debt Service Fund" shall mean the Debt Service Fund created pursuant to Section 5.2 of this Resolution. "Debt Service Requirement" shall mean the amount necessary to pay the principal of, premium, if any, and interest due and owing on the Bonds, and any Additional Parity Bonds, during each Fiscal Year of the Corporation. The Debt Service Schedule for the Bonds is attached to this Resolution as Exhibit A. "Fiscal Year"shall mean the fiscal year of the Corporation, which is currently the twelve-month period beginning on October 1 of each year and ending on September 30 of the following year. "Outstanding," when used with reference to the Bonds shall mean, as of a particular date, the principal amount of all such Bonds theretofore delivered by the Corporation as provided in or contemplated by this Resolution, except: (a) any such Bond canceled by or on behalf of the Corporation at or before such date;(b)any such Bond paid or with respect to which provision for payment has been made pursuant to the provisions of this Resolution or otherwise defeased as permitted by applicable law; or(c)any such Bond in lieu of or in substitution for which another Bond shall have been delivered pursuant to this Resolution. "Owner"or"Registered Owner," when used with respect to any Bond, shall mean the person or entity in whose name such Bond is registered in the Register. Any reference to a particular percentage or proportion of the Owners shall mean the Owners at a particular time of the specified percentage or proportion in aggregate principal amount of all Bonds then Outstanding under this Resolution,exclusive of Bonds held by the Corporation. "Parity Bonds" shall mean the Bonds, each series of Additional Parity Bonds from time to time hereafter issued by the Corporation, and any refunding bonds issued to refund the Bonds or any Additional Parity Bonds,but only to the extent such Parity Bonds remain Outstanding. "Paying Agent/Registrar" shall mean Wells Fargo Bank, N.A., Minneapolis, Minnesota, and its successors in that capacity. "Payment Date", when used in connection with any Bond, shall mean March 1, 2007, and each March 1 and September 1 thereafter until maturity or prior redemption. "Pledged Revenues" shall mean (a) 100% of the Sales Tax Revenues and (b) 100% of all of the interest income from the investment or deposit of moneys in the Revenue Fund,the Debt Service Fund and the Reserve Fund. "Project"shall mean the construction of two lanes of Bailey Oiler Road running west from SH 35 and existing Oiler Drive to Veterans Drive, including the acquisition of all necessary,-rights of way, the construction of drainage and sewage lines along the proposed construction and ' associated improvements, the construction of a two lane rail overpass across the Burlington Northern Lines along the construction route,the construction of four lane transition turn-in lanes at SH 35 and Veterans Drive and median cuts for future development along the construction route. "Purchaser" shall mean the initial purchaser of the Bonds as defined in Section 9.1 of this Resolution. "Record Date" shall mean,for any Payment Date,the fifteenth(15th)calendar day of the month next preceding each Payment Date. "Register" shall mean the books of registration kept by the Paying Agent/Registrar in which are maintained the names and addresses of, and the principal amounts of the Bonds registered to, each Owner. "Reserve Fund"shall mean the Reserve Fund created pursuant to Section 5.2 of this Resolution. "Reserve Fund Requirement" shall mean an amount(which may consist of money or authorized investments,or any combination thereof)equal to 100%of the average annual debt service on the Bonds and any Additional Parity Bonds then Outstanding. "Reserve Fund Surety Bond"shall mean the reserve fund surety bond issued by the Reserve Fund Surety Bond Insurer. "Reserve Fund Surety Bond Insurer" shall mean , or any successor thereto. "Resolution" shall mean this Resolution Authorizing the Issuance of $10,235,000 Pearland Economic Development Corporation Sales Tax Revenue Bonds, Series 2006, and all amendments hereof and supplements hereto. "Revenue Fund"shall mean the Revenue Fund created pursuant to Section 5.2 of this Resolution. "Sales Tax"shall mean the 1/2 of 1%sales and use tax authorized to be levied by the City for the benefit of the Corporation for the promotion and development of new and expanded business enterprises pursuant to an election held on January 21, 1995. "Sales Tax Revenues" shall mean 100% of the funds collected by the City from the levy of the Sales Tax,without deduction, offset or credit for any administrative charges or expenses incurred by the City or the Corporation in connection with the levy and collection of the Sales Tax, other than any amounts due and owing to the Comptroller for collection costs and other charges. "Surplus Fund"shall mean the Surplus Fund created pursuant to Section 5.2 of this Resolution. Section 5.1: Pledge and Source of Payment. The Corporation hereby covenants and agrees that all Pledged Revenues shall be deposited and paid into the special funds established in Section 5.2 of this Resolution, and shall be applied in the manner set out herein, to provide for the payment of principal, interest and any redemption premium of the Parity Bonds and all expenses of paying the same. The Parity Bonds shall constitute special obligations of the Corporation that shall be payable solely from,-and shall be equally and ratably secured by-a first-lien on, the Pledged Revenues, as collected and received by the Corporation, which Pledged Revenues shall, in the manner herein provided,be set aside and pledged to the payment of the Parity Bonds in the Debt Service Fund and Reserve Fund, and any excess Sales Tax Revenues shall be set aside in the Surplus Fund as hereinafter provided, and the Parity Bonds shall be in all respects on a parity with and of equal dignity with one another. The owners of the Parity Bonds shall never have the right to demand payment out of any funds raised or to be raised by ad valorem taxation. The owners of the Parity Bonds shall never have the right to demand payment from Sales Tax Revenues in excess of those collected from the Sales Tax. Section 5.2: Special Funds. The following special funds are hereby created, and such funds shall be maintained and accounted for as hereinafter provided, so long as any Parity Bonds remain Outstanding: (a) the Revenue Fund; (b) the Debt Service Fund; - (c) the Reserve Fund;and (d) the Surplus Fund. The Revenue Fund and the Surplus Fund shall be maintained and accounted for as separate accounts on the books of the Corporation. The Debt Service Fund and'any moneys held in the Reserve Fund shall be maintained at an official depository bank of the Corporation separate and apart from all other funds and accounts of the City or the Corporation and shall constitute trust funds which shall be held in trust for the benefit of the Owners of the Parity Bonds and the proceeds of which shall be and are hereby pledged to the payment of the.Parity Bonds.All of the funds named above shall be used solely as provided herein so long-as any Parity Bonds remain Outstanding. * ** * Section_5.3: Flow of Funds. All Pledged Revenues shall be deposited as collected into the Revenue Fund. Money from time to time on deposit to the credit of the Revenue Fund shall be applied as follows in the following order or priority: (i) First, to make all deposits into the Debt Service Fund required by this Resolution, and any resolution authorizing the issuance of Additional Parity Bonds; (ii) Second,to make any rebate payments required pursuant to Section 9.5 of this Resolution; (iii) Third, to reimburse the Reserve Fund Surety Bond Insurer and any other issuer of a surety bond issued in satisfaction of the Reserve Fund Requirement, any amounts advanced under the Reserve Fund Surety Bond or such other surety bonds; (iv) Fourth,to pay interest to the Reserve Fund Surety Bond Insurer and any other issuer of a surety bond issued in satisfaction of the Reserve Fund Requirement, for any amounts advanced under the Reserve Fund Surety Bond or such other surety bonds; (v) Fifth, to make all deposits into the Reserve Fund required by this Resolution, and any resolution authorizing the issuance of Additional Parity Bonds; (vi) Sixth, to make the transfers required by any resolutions authorizing the issuance or incurrence of subordinate lien obligations (subject to the prior requirements of any resolutions authorizing the issuance of Additional Parity Bonds);and (vii) Seventh, to make all deposits into the Surplus Fund as required by this Resolution, said funds to be used for any lawful purpose. Whenever the total amounts on deposit to the credit of the Debt Service Fund and the Reserve Fund shall be equivalent to the sum of the aggregate principal amount of all Outstanding Parity Bonds plus the aggregate amount of all interest accrued and to accrue thereon, no further payments need be made into the Debt Service Fund or the Reserve Fund. Section 5.4: Debt Service Fund. On or before the last Business Day of each month, beginning July, 2006, so long as any Parity Bonds remain Outstanding,there shall be deposited into the Debt Service Fund from the Revenue Fund such amounts, in approximately equal monthly installments, as will be sufficient to accumulate the amount required to pay the Debt Service Requirement on the next Payment Date. If in any month the Corporation shall fail to make the full transfer to the Debt Service Fund required by this Resolution, amounts equivalent to such deficiency shall be transferred to the Debt Service Fund from the first available and unallocated money in the Revenue Fund in the following month or months, and such transfers shall be in addition to the other amounts required to be transferred to the Debt Service Fund. Money deposited to the credit of the Debt Service Fund shall be used solely for the purpose of paying principal (at maturity or prior redemption or to purchase Parity Bonds issued as term bonds in the open market to be credited against mandatory redemption requirements), interest, and any redemption premium on the Parity Bonds, plus all bank charges and other costs and expenses related to such payment. On or before each Payment Date on the Parity Bonds, the Corporation shall transfer from the Debt Service Fund to the paying agents for the Parity Bonds an amount equal to the principal, interest and any redemption premium payable on the Parity Bonds on such date, together with an amount equal to all bank charges and other costs and expenses relating to such payment. The paying agents for the Parity Bonds shall destroy all paid Parity Bonds and shall provide the Corporation with an appropriate certificate of destruction. Section 5.5: Reserve Fund. The Corporation shall initially deposit in the Reserve Fund, within five years from the date of delivery of the Bonds, in equal monthly installments, an amount which after such five-year period shall equal the Reserve Fund Requirement. After such five-year period,so long thereafter as the Reserve Fund contains such amount, no deposits shall be required to be made into the Reserve Fund, and any excess amounts may be transferred to the Revenue Fund, the Debt Service Fund or the Surplus Fund. But, if and whenever the balance in the Reserve Fund is reduced below such amount, monthly deposits into the Reserve Fund from the first available and unallocated money in the Revenue Fund shall be resumed and continued until the Reserve Fund has been restored to such amount. The Reserve Fund shall be used to pay the principal of and interest on the Parity Bonds at any time when there is not sufficient money available in the Debt Service Fund for such purpose and it may be used finally to pay and retire the last Parity Bonds to mature or be redeemed. In lieu of cash or investments,the Reserve Fund Requirement may be satisfied in whole or in part with one or more surety bonds issued by an insurance company rated in the highest rating category by Standard & Poor's Ratings Group and Moody's Investors Service, and, if rated by A.M. Best & Company, also rated in the highest rating category by A.M. Best & Company, including the Reserve Fund Surety Bond pursuant to the Financial Guaranty Agreement, a form of which is attached hereto as Exhibit F, the terms and provisions of which are hereby approved. The Chairman is hereby authorized and directed to execute and deliver such Financial Guaranty Agreement on behalf of the Corporation, in multiple counterparts and the Secretary is hereby authorized to attest thereto, together with such changes, additions, deletions and amendments thereto as such officers shall deem necessary or appropriate. Such Reserve Fund Surety Bond may be drawn upon only after all cash or investments held in the Reserve Fund have been used or applied. If the Reserve Fund Requirement is satisfied with the Reserve Fund Surety Bond and one or more surety bonds authorized under this Section,draws on the Reserve Fund Surety Bond and such other surety bonds shall be made on a pro rata basis. Notwithstanding anything in this Resolution to the contrary, the Bonds may not be redeemed pursuant to Section 3.4 unless all amounts owed to the Reserve Fund Surety Bond Insurer pursuant to the Financial Guaranty Agreement have been paid in full. Section 5.6: Surplus Fund. After making any transfers which may be required into the Debt Service Fund,the Reserve Fund, or any other fund or funds created in any resolution authorizing the issuance of Parity Bonds,any money remaining in the Revenue Fund shall be considered surplus,and may be deposited on any Payment Date into the Surplus Fund and used by the Corporation for any lawful purpose. ** * * Section6.1: Additional Parity Bonds. In addition to inferior lien bonds, the Corporation expressly reserves the right hereafter to issue,in one or more series,Additional Parity Bonds for purposes permitted by law, which Additional Parity Bonds, when issued, shall be payable from and secured by liens on and pledges of the Pledged Revenues in the same manner and to the same extent as the Bonds and any other Additional Parity Bonds; and the Additional Parity Bonds, when issued, shall be payable from the Debt Service Fund and shall be in all respects of equal dignity and on a parity with the Bonds and any other Additional Parity Bonds. It is specifically provided,however, that no Additional Parity Bonds shall be issued unless: (i) Principal of the Additional Parity Bonds is payable on September 1 and.interest is payable on March 1 and September 1; (ii) The Debt Service Fund and the Reserve Fund each contains the amount of money then required to be on deposit therein; (iii) For any twelve (12) consecutive months of the preceding 18-month period immediately preceding the month in which the resolution authorizing such Additional Parity Bonds is adopted (the "Base Period"), the Pledged Revenues were equal to at least 1.25% of the average annual principal and interest requirements on all Parity Bonds that will be Outstanding after the issuance of the series of Additional Parity Bonds then proposed to be issued, as certified by the Chairman of the Corporation, an authorized officer of the City, or by an independent certified public accountant or firm of independent certified public accountants;and (iv) Provision is made in the resolution authorizing the Additional Parity Bonds then proposed to be issued that (1) additional deposits will be made into the Debt Service Fund sufficient to provide for the principal and interest requirements on the Additional Parity Bonds and(2)deposits will be made into the Reserve Fund of such amount,or one or more surety bonds will be provided, so that it will contain a balance not less than the Reserve Fund Requirement on all Parity Bonds that will be Outstanding after the issuance of such series of Additional Parity Bonds. Section 6.2: Subordinate Lien Bonds. The Corporation reserves the right to issue,for any purpose authorized under the Act, bonds, notes or other obligations secured in whole or in part by liens on the Pledged Revenues that are junior and subordinate to the lien on Pledged Revenues securing payment of the Parity Bonds. Such subordinate lien obligations may be further secured by any other source of payment lawfully available for such purposes. * ** APPENDIX B 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. The information provided in this APPENDIX B is being provided for the sole purpose of providing economic and demographic information for the City, as such information may be a factor in evaluating the potential for future collections of Sales Tax Revenues. However,the Bonds do not constitute a debt or obligation of the City,and the Holders thereof shall never have the right to demand payment of any funds raised or to be raised by any system of ad valorem taxation. 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 April 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 . 2,947,222 119 931,546 879 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 Employment 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. The following is a list of the industrial employers located within the City with employment numbers above 100,as of December 2005. -Major Employers- (100+Employees) Davis-Lynch Randall's Home Depot ShawCor Pipe Protection Kemlon Strickland Chevrolet Kroger Super Target Lowe's Tele-Flow Pauluhn Electric Manufacturing Turbo Care Pearland,City of Wal-Mart Pearland ISD Weatherford Manufacturing Pro Fax Source: Pearland Economic Development Corporation;2005;Texas Workforce Commission -Pearland Employment By Industry Sector- Industrial 36% Retail/Leisure 33% Other 15% Office 10% Healthcare 6% Source: US Census Bureau;TIP Strategies,2000 -Pearland Percentage Population by Occupation- Management,Professional,related 40.9% Sales and Office 29.7% Production, Transportation, Material 10.5% Moving Construction,Extraction,and Maintenance 9.6% Service 9.3% Farming,Forestry,and Fishing .1% Source: US Census Bureau,2000 -Civilian Labor Force- 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 • Source: Texas Workforce Commission. Population and Demographics -City Population- Number %Change 1960 1,497 --- 1970 6,444 +330.46 1980 13,248 +105.59 1990 18,927 +42.87 2000 37,640 +98.87 2005* 69,808 +85.46 * As of December 2005. Source: U.S.Census 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 $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 Furnit.&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 C AUDITED FINANCIAL STATEMENT OF THE CITY OF PEARLAND FOR THE YEAR ENDED SEPTEMBER 30,2005 Attached are the audited financial statements for the City of Pearland, Texas for the Fiscal Year ended September 30, 2005. The financial statements include certain financial information relating to the Corporation, as a legally separate component unit of the City. This information is reported in the financial statements separately from the information related to the primary government of the City and its other component units. The inclusion of the City's financial statements shall in no manner characterize the Bonds as a debt or obligation of the City. As described in the Official Statement, the Bonds are special limited obligations of the Corporation, payable solely from, and secured by a lien on and pledge of, the Pledged Revenues. The Bonds do not constitute a debt or obligation of the City,and the Holders thereof shall never have the right to demand payment of any funds raised or to be raised by any system of ad valorem taxation. �+ I y, a0� r x %• > s Fk iq.? ' �{'� �_ li,I d l U il 4 Q QI 64` ~sx ,p ,! I um, mmo a .,,f Q1,, }y , ,s e A 6i ,(�x, "yA � , .; $ SR 01,1..), `'"4 f I µ{f: . { ..7� ' 7r4, T E X A S ,, :, r. .Y v 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 THIS PAGE LEFT BLANK INTENTIONALLY INTRODUCTORY SECTION cy 'S ktf:C '1\1 T E X A S o 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. i 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 arid 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. MAJOR 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. The 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. in 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 Enrichment 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. Growth Management 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 ACKNOWLEDGEMENTS 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 28`h 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 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. 664411 COMMON 2 President *Cep ofe‘of...P 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 PARKS& EMERGENCY RECREATION MANAGEMENT DIRECTOR OF FIRE FINANCE EMERGENCY MEDICAL SERVICES FINANCE PURCHASING CITY SECRETARY INFORMATION --I GRANTS HUMAN TECHNOLOGY RESOURCES W&S BILLING & COLLECTIONS ix CITY OF PEARLAND,TEXAS LIST OF PRINCIPAL OFFICIALS YEAR ENDED SEPTEMBER 30,2005 ELECTED OFFICIALS Tom Reid Mayor Richard Tetens (Position 1) Council Member Woody Owens (Position 2) Council Member Steve Saboe (Position 3) Council Member Larry Marcott(Position 4) Council Member Kevin Cole (Position 5) Council Member,Mayor Pro-Tem APPOINTED OFFICIALS Bill Eisen City Manager Young Lorfing City Secretary Darrin Coker City Attorney (continued) x 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 THIS PAGE LEFT BLANK INTENTIONALLY FINANCIAL SECTION THIS PAGE LEFT BLANK INTENTIONALLY FifFM 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■www.pbhcpa.com AFFILIATE OFFICES:BROWNSVILLE,TX(956)544-7778■HILLSBORO,TX(254)582-2583 TEMPLE,TX(254)791-3460 U ALBUQUERQUE,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. Pa,4446 tok L.L ? March 10, 2006 2 MANAGEMENT'S DISCUSSION AND ANALYSIS THIS PAGE LEFT BLANK INTENTIONALLY 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: (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. 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$68,951,906 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 COMPARATIVE SCHEDULE OF NET ASSETS SEPTEMBER 30,2005 AND 2004 Governmental Activities Business-type Activities Totals 2005 2004 2005 2004 2005 2004 Current and other asset $ 65,342,583 $ 64,371,013 $ 17,834,831 $ 23,448,781 $ 83,177,414 $ 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 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 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 53,460,282 53,848,203 195,576,908 174,763,689 Net assets: Invested in capital assets, net of related debt 3,084,208 ( 2,537,520) 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 12,369,572 Unrestricted 5,785,107 6,745,647 552,376 4,028,275 6,337,483 10,773,922 Total net assets $ 15,731,107 $ 10,598,631 $ 53,220,799 $ 46,029,901 $ 68,951,906 $ 56,628,532 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. 6 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 $ 12,309,406 $ 11,040,246 $ 11,219,499 $ 11,892,876 $ 23,528,905 $ 22,933,122 Operating grants and contributions 1,154,531 • 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 19,804,541 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 Miscellaneous 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 8,714,401 7,314,239 8,714,401 7,314,239 Public safety 11,856,643 10,524,915 11,856,643 10,524,915 Public works 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 41,483,570 36,001,739 13,624,497 15,265,350 55,108,067 51,267,089 Increases in net assets before transfers 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 ( 1,943,908) ( 98,941) 1,190,651 ( 753,257) ( 98,941) Net assets,ending $ 15,731,107 $ 10,598,631 $ 53,220,799 $ 46,029,901 $ 68,951,906 $ 56,628,532 7 Revenues by Source - Governmental Activities .......:.. . Ad valorem taxes 41% Investment earnings 6% Capital grants and Franchise taxes contributions .. ` ""s : 6% k � � � .,d „roc, Other taxes Operating grants and , ® A contributions t't '; , ',!. `°- Investment earnings 2% Ih 7r $.I p: 4 yw .". „4 Charges for services : 26% Miscellaneous 2% Expenses and Program Revenues - Governmental Activities 14,000,000 12,000,000 ,,l' 10,000,000 '' 8,000,000 Expenses 6,000,000 INRevenues 4,000,000 , *� J ', ke d ',:i E,,ErillAllt 4 II ki - I I I I General Public safety Public works Community Interest on government services long-term debt 8 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. 9 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 $ 2,717,453 $ 2,509,691 $ 367,962 $ 367,962 $ 3,085,415 $ 2,877,653 Buildings and improvements 12,834,943 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/ 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 $ 92,505,150 $ 67,143,104 $ 88,846,250 $ 76,429,323 $ 181,351,400 $ 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 $ 60,175,000 $ 25,345,000 $ $ $ 60,175,000 $ 25,345,000 Revenue bonds payable 32,480,000 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 $ 132,565,000 $ 115,530,000 $ 48,360,000 $ 50,240,000 $ 180,925,000 $ 165,770,000 10 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. Standard Moody's and Poor's Tax Bonds Al A+ W/S Revenue Bonds Baal A All 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. 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. 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, or call (281) 652-1600. For general information, visit the City's website at www.cityofpearland.com: 11 BASIC FINANCIAL STATEMENTS 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 of Pearland ASSETS Cash and investments $ 60,503,560 $ 10,413,796 $ 70,917,356 $ 1,198,360 $ 1,168,096 $ 65,344 Receivables,net of allowances for uncollectibles Accounts 913,860 2,245,558 3,159,418 142 • Property taxes 797,744 797,744 234,287 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 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 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 Community 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 $ 15,731,107 $ 53,220,799 $ 68,951,906 $ 1,635,957 $ 1,223,098 $ ( 11,371,721) 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 Operating Capital • Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Primary Government: Governmental activities: General government $ 8,714,401 $ 185,235 $ 2,380 $ 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 2,939,228 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 government $ 55,108,067 $ 23,528,905 $ 1,154,531 $ 9,483,164 Component Units: Economic Development Corporation $ 2,312,729 $ $ $ TIRZ Developments 1,888,506 Development Authority of Pearland 13,225,937 1,824,418 Total component units $ 17,427,172 $ $ $ 1,824,418 General revenues: Taxes: Property,levied for general purposes Property,levied for debt service Sales Franchise Other Investment earnings Miscellaneous Transfers Total general revenues and transfers Change in net ac ets 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. 13 Net(Expenses)Revenues and Changes in Net Assets Primary Government Component Units Economic Development Governmental Business-type Development TIRZ Authority Activities Activities Total Corporation Developments of Pearland $ ( 7,726,787) $ $ ( 7,726,787) $ $ $ ( 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 9,678,307 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 $ 15,731,107 $ 53,220,799 $ 68,951,906 $ 1,635,957 $ 1,223,098 $ ( 11,371,721) 14 THIS PAGE LEFT BLANK INTENTIONALLY 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 $ 6,945,697 $ 3,843,924 $ 46,538,692 $ 3,175,247 $ 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 53,863 270,306 Accrued interest 1,393 994 2,387 Prepaid items 1,324 1,324 Inventories 69,549 69,549 Total assets $ 10,668,462 $ 4,130,574 $ 46,585,297 $ 3,294,791 $ 64,679,124 LIABILITIES 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 fund 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 $ 4,130,574 $ 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 $ 15,731,107 The notes to the financial statements are an integral part of this statement. 15 THIS PAGE LEFT BLANK INTENTIONALLY 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 $ $ $ 19,745,387 Sales 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 10,816,906 264,555 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 3,534,534 3,534,534 Interest and fiscal charges 5,027,376 527,689 5,555,065 Intergovernmental 1,083,896 1,083,896 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) 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-related 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 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 $ 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. 16 THIS PAGE LEFT BLANK INTENTIONALLY 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 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 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 13- 14) $ 7,076,384 The notes to the financial statements are an integral part of this statement. 17 THIS PAGE LEFT BLANK INTENTIONALLY 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. 18 THIS PAGE LEFT BLANK INTENTIONALLY 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. 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 THIS PAGE LEFT BLANK INTENTIONALLY 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 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 charges on debt ( 2,111,230) Acquisition 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 $ 14,941,398 Cash and investments $ 10,413,796 Restricted cash and investments 4,527,602 Cash and cash equivalents,ending $ 14,941,398 Reconciliation of operating loss to net cash provided by operating activities: Operating loss $ ( 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 $ 5,717,356 The notes to the financial statements are an integral part of this statement. 21 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 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 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) 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 Ancurred, 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 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets,Liabilities and Net Assets or Eauity 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) 26 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 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. 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) 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: 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) 30 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) 31 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) 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 $ 1,152,974 17 Freddie Mac Discount Note 1,851,659 91 Total portfolio $ 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 Nomnajor Water Component General Service Projects Governmental and Sewer Units Total Receivables: Accounts $ 868,158 $ $ 46,605 $ 64,687 $ 2,714,763 $ 142 $ 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 uncollectibles 65,590 469,205 534,795 Net total receivables $ 3,651,892 $ 286,650 $ 46,605 $ 119,544 $ 2,265,637 $ 979,127 $ 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) Unavailable Unearned General fund: Delinquent property taxes receivable $ 500,028 $ Municipal court 393,261 Other 167,061 Debt service fund: Delinquent property taxes receivable 275,445 Nonmajor governmental: Municipal court 3,746 Governmental Funds $ 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 $ 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 $ 67,143,104 $ 25,362,046 $ $ 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 $ 367,962 $ $ $ 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 $ 76,429,323 $ 19,043,614 $ 6,626,687 $ 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 $ - $ - $ 2,384,774 $ 82,000 $ 536,520 $ 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 $ 2,063,264 $ 339,561 $ 2,384,774 $ 82,000 $ 536,520 $ 5,406,119 (continued) 36 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) 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% $ 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) 38 4. DETAILED NOTES ON ALL FUNDS (Continued) Long-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 $ 50,640,860 $ 82,447 $ 1,947,991 $ 48,775,316 $ 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) Long-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) 41 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: Beginning Ending Due Within Balance Additions Reductions Balance One Year Economic Development Corporation: Sales Tax Revenue Bonds $ 4,165,000 $ 11,005,000 $ 4,580,000 $ 10,590,000 $ 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 $ 4,179,540 $ 10,999,013 $ 4,608,191 $ 10,570,362 $ 351,088 Development Authority of Pearland: Tax Increment Revenue Bonds $ $ 13,995,000 $ _ $ 13,995,000 $ 815,000 Total long-term liabilities $ $ 13,995,000 $ $ 13,995,000 $ 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 $ 10,590,000 $ 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 $ 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 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) 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 - 12/31/03 12/31/04 Actuarial value of assets $ 16,390,251 $ 18,772,272 $ 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 $ (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 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) 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$11.7 million and$8.3 million,respectively. 46 CITY OF PEARLAND,TEXAS ECONOMIC DEVELOPMENT CORPORATION ' BALANCE SHEET SEPTEMBER 30,2005 ASSETS Cash and investments $ 4,438,285 Restricted cash and investments for: Construction 6,795,879 Sales taxes receivable 724,743 Accrued interest 20,097 Prepaid items 3,451 Total assets 11,982,455 LIABILITIES AND FUND BALANCE Liabilities: Accounts payable 21,077 Accrued liabilities 11,498 Total liabilities 32,575 Fund balance: Reserved for: Prepaid items 3,451 Construction 6,795,879 Unreserved,undesignated 5,150,550 Total fund balance 11,949,880 Total liabilities and fund balance $ 11,982,455 RECONCILIATION OF FUND BALANCE TO NET ASSETS Fund balance of component unit-Economic Development Corporation $ 11,949,880 Other long-term assets are not available to pay for current-period expenditures and, therefore,are deferred in the funds. 256,439 Long-term liabilities are not due and payable in the current period and therefore are not reported in the funds. ( 10,570,362) Net assets of component unit-Economic Development Corporation $ 1,635,957 58 CITY OF PEARLAND,,TEXAS ECONOMIC DEVELOPMENT CORPORATION STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCE FOR THE YEAR ENDED SEPTEMBER 30,2005 REVENUES Sales taxes $ 3,891,870 Other income 12,000 Investment earnings 303,129 Total revenues 4,206,999 EXPENDITURES Current: Economic development 1,960,469 Debt service: Principal 415,000 Interest and fiscal charges 608,698 Total expenditures 2,984,167 EXCESS(DEFICIENCY)OF REVENUES OVER(UNDER)EXPENDITURES 1,222,832 OTHER FINANCING SOURCES(USES) Capital-related debt issued 11 005,000 Premium from capital-related debt issued 155,448 Payment to escrow agent ( 4,354,626) Total other financing sources(uses) 6,805,822 NET CHANGE IN FUND BALANCE 8,028,654 FUND BALANCE,BEGINNING AS PREVIOUSLY STATED 3,947,708 PRIOR PERIOD ADJUSTMENT ( 26,482) FUND BALANCE,BEGINNING AS RESTATED 3,921,226 FUND BALANCE,ENDING $ 11,949,880 RECONCILIATION FROM NET CHANGE IN FUND BALANCE TO CHANGE IN NET ASSETS Net change in fund balance-Economic Development Corporation $ 8,028,654 The issuance of long-term debt (e.g., bonds) 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. ( 6,134,383) Change in net assets of component unit-Economic Development Corporation $ 1,894,271 59 APPENDIX D FORM OF BOND COUNSEL OPINION AN D R E W S 600 Travis,Suite 4200 ATTORNEYS Houston,Texas 77002 KU RI H LLP 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com ,2006 WE HAVE ACTED as Bond Counsel for the Pearland Economic Development Corporation (the"Corporation") in connection with an issue of bonds(the"Bonds")described as follows: PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS, SERIES 2006, dated June 15, 2006, in the aggregate principal amount of $10,235,000, maturing on September 1 in each year from 2007 through and including 2030. The Bonds are issuable in fully registered form only, in denominations of$5,000 or integral multiples thereof, bear interest, are subject to redemption prior to maturity and may be transferred and exchanged as set out in,the Bonds and in the resolution(the"Resolution")adopted by the Board of Directors of the Corporation 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, as described in the Resolution. The transcript contains certified copies of certain proceedings of the Corporation and the City of Pearland, Texas (the "City"); certain certifications and representations and other material facts within the knowledge and control of the Corporation and the City, upon which we rely; and certain other customary documents and instruments authorizing and relating to the issuance of the Bonds. 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 Corporation or the City or the disclosure thereof in connection with the sale of the Bonds. Our role in connection with the Corporation'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: (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 special obligations of the Corporation enforceable in accordance with the terms and conditions thereof, except to the extent that the rights and Austin Dallas Houston London Los Angeles New York The Woodlands Washington,DC 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 (2) The Bonds are secured by and payable solely, both as to principal and interest, from the receipts of a sales and use tax levied by the City,for the benefit of the Corporation, which taxes have been pledged irrevocably to pay the principal of and interest on the Bonds;and (3) The Bonds are special obligations solely of the Corporation and are not obligations of the State of Texas, the City nor any political corporation, subdivision or agency of the State. 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 Corporation 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 purposes. The Corporation has covenanted in the Resolution 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. SIGNATURE IDENTIFICATION AND NO-LITIGATION CERTIFICATE THE STATE OF TEXAS COUNTIES OF BRAZORIA AND HARRIS § We, the undersigned officers of the Pearland Economic Development Corporation (the "Corporation"), certify that we officially signed,by our manual or facsimile signatures, on behalf of the Corporation,the following described bonds, to wit: PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS, SERIES 2006, dated June 15, 2006, in the original aggregate principal amount of$10,235,000 (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. 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 sales taxes pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity of the Bonds, the resolution dated May 22, 2006, authorizing.the issuance, sale and delivery of the Bonds (the "Resolution"), or contesting the powers of the Corporation or the authorization of the Bonds or the Resolution. We further certify that the information and data contained in the General Certificate dated May 22, 2006, remain true and correct as of this date. HOU:2578721.1 WITNESS OUR HANDS AND THE SEAL OF THE CORPORATION this 2..0 , 2006. SIGNATURES TITLE OF OFFICE Chairman Secretary Before me, on this day p Y ersonall appearedforegoing the fore oin 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 ZZ day of M , 2006. f joa'n/i . (d./✓.//:do/�./.>.illl.�✓.i.�1./dl✓✓1d,.4 Notary Public p�tstYPt/0,, SHANNON NI. MILLER k Typed or Printed Name: NOTARY PUBLIC,STATE OF TEXAS l) yl� MY COMMISSION EXPIRES tl F< MAY 31, 2009 S Y‘OVI. M, IAA S t My Commission Expires: Pten 2,1I, ..O0C1 (Notary Seal) HOU:2578721.1 GENERAL CERTIFICATE We, the undersigned, Chairman and Secretary of the Pearland Economic Development Corporation (the "Corporation"), hereby make and execute this certificate for the benefit of all persons interested in the Corporation's $10,235,000 Sales Tax Revenue Bonds, Series 2006 (the `Bonds"), dated June 15,2006,now in the process of issuance. We certify that: 1. The City Council of the City of Pearland, Texas (the "City"), by Ordinance No. R95-36 duly adopted on.May 22, 1995, authorized the creation of the Corporation to act on behalf of the City by receiving and expending sales tax revenues for various projects, and on June 26, 1995, the Corporation was duly created, incorporated, chartered, and organized pursuant to Article 5190.6,Texas Revised Civil Statutes, as amended(the"Act"). 2. Attached hereto as Exhibit A is a true, correct, and complete copy of the Articles of Incorporation of the Corporation, which were filed with the Secretary of State of Texas on June 26, 1995. The Articles of Incorporation have not been amended, repealed, changed, or altered since June 26, 1995. Attached hereto as Exhibit B is a true, correct, and complete copy of the amended Bylaws of the Corporation, which were adopted by the Corporation on November 2, 1999 and approved by the City Council of the City on April 26, 1999. The Bylaws have been amended, repealed, changed, or altered since April 26, 1999. 3. Attached hereto as Exhibit C is a true, correct, and complete copy of a Certificate of Continued Existence from the Secretary of State of Texas. Attached hereto as Exhibit D is a true, correct, and complete copy of a Certificate of Good Standing from the Comptroller of Public Accounts of the State of Texas. 4. On May 22, 2006, the Board of Directors of the Corporation consisted of the following persons: Randall Ferguson Chairman Helen Beckman Secretary George Sandars Director Lucy Stevener Director Ed Thompson Director Gary Idoux Director Felicia Kyle Director On May 22, 2006, Directors Beckman and Kyle resigned their positions on the Board. New directors have not yet been appointed to the Board of Directors to fill these vacancies. The remaining members of the Board of Directors have remained the same since May 22,2006. 5. An official seal has not been adopted by the corporation, therefore, there is no seal affixed to this certificate. 6. No litigation is pending or, to the best of our knowledge, threatened against the Corporation with respect to the issuance of the Bonds, or the title or authority of the officers and directors of the Corporation. 1 HOU:2578722.1 7. Due notice of all meetings relating to the sale, issuance, and delivery of the Bonds has been given to the directors of the Corporation in accordance with the Corporation's Bylaws and State law. 8.. Attached hereto as Exhibit E is a true and correct copy of a debt service schedule for the Bonds. 9. Attached hereto as Exhibit F is a true and correct copy of.the Affidavit of • Publication relating to the publication of notice for the public hearing held on May 22,_ 2006, pursuant to Section 4B(n)of the Act. 10. The resolution authorizing the issuance of the Bonds and other documents relating to the issuance of the Bonds (the "Bond Documents") (a) have been properly executed by the Corporation and due performance thereof has been authorized by the Corporation, (b) are in substantially the form as approved by or on behalf of the Corporation and (c) are in full force and effect and have not been amended or rescinded except as may have been approved by the Chairman of the Corporation with the advice of Bond Counsel. 11. The Corporation has taken no action that, if finally concluded, would constitute a breach or violation of any of the covenants and provisions of the Bond Documents. 12. The terms and performance of the Bond Documents by the Corporation are not in conflict with the Articles of Incorporation or Bylaws of the Corporation or any other instrument or. restriction to which the Corporation is a part or subject. [Signature page follows.] 2 HOU:2578722.1 • WITNESS OUR HANDS this 22nd day of May, 2006. • PEARLAND ECONOMIC DEVELOPMENT • CORPORATION Secretary S-i V HOU:2578722.1 • EXHIBIT A Articles of Incorporation HOU:2578722.1 ARTICLES OF INCORPORATION OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION A NON-PROFIT CORPORATION WE,THE UNDERSIGNED natural persons, being at least 18 years of age and qualified electors of the City ty of Pearland, Texas, a home rule municipal corporation, acting as incorporators of a public instrumentality and non-profit economic development corporation (the Corporation) under the Development Corporation Act of 1979 (Tex. Rev. Civ. Stat. Ann. art. 5190.6)(the Act), with 'the approval of the governing body of the City of Pearland, Texas, as evidenced_ by the attached Resolution, adopt the following Articles of Incorporation for the Corporation: ARTICLE NAME The name of the Corporation is the PEARLAND ECONOMIC DEVELOPMENT CORPORATION. ARTICLE II NON-PROFIT CORPORATION The Corporation is a non-profit corporation governed by Section 4B of di the Development Corporation Act of 1979, as amended. EXHIBIT A 111 Revised May 15. 1995 Page 1 of 8 I ARTICLE III DURATION The period of duration of the Corporation is perpetual. i ARTICLE IV PURPOSE The.Corporation is organized exclusively for the purposes of benefitting and accomplishing public purposes on behalf of the City of.Pearland, Texas, by promoting, assisting, and enhancing economic development activities, as provided by the Act. The Corporation shall have and exercise all of the rights, powers, privileges, authority, and functions provided for in the Act, including the issuance of bonds onbehalf of the City of Pearland. The. Corporation shall have and exercise all of the rights, powers, • privileges, authority and functions given by the general laws of Texas to non- • profit corporations incorporated under the Act including, without limitation, Article 1396-1.01, et seq., Tex. Rev. Civ. Stat. Ann., as amended. The Corporation shall have all other powers of a like or different nature not prohibited by law which are available to non-profit corporations in Texas and corporations created under the Act and which are necessary or useful to enable the Corporation to perform the purposes for which it is created, Revised May 15,1995 Page 2 of 8 I PI Iincluding, but not limited to, the power to issue bonds, notes, or other obligations, and otherwise exercise its borrowing power to accomplish the purposes for which it was created. The Corporation is created as a kcal government corporation pursuant to the Act and shall be a governmental tal unit within the meaning of Subdivision ' (2), Section 101.001, Civil Practice and Remedies Code, as amended. The operations of the Corporation are governmental and not proprietary functions for the purposes of the Texas Tort Claims Act, Section 101 .001 et seq., Civil Practices and Remedies Code, as amended. ARTICLE V INITIAL REGISTERED OFFICE AND AGENT The initial registered office of the corporation is located at 3519 Liberty Drive, Pearland, Texas, 77581, and the name of the initial registered agent at I • that address is Paul Grohman, City Manager. ARTICLE VI DIREC TORS The affairs of the Corporation shall be managed by a Board of Directors of seven persons appointed by the City Council of the City of Pearland. The names of the seven initial Directors, their addresses and the expiration dates Revised May 15. 1995 Page 3.of 8 I of their initial terms are as follows: DIRECTOR ADDRESS TERM EXPIRES Connie Beaumont 3210 Westminister April , 1997 Pearland, Tx 77581 Dennis Frauenberger 2602 Taylor Lane April , 1997 Pearland, Tx 77581 Tricia Holland 2319 Frances . April , 1997 Pearland, Tx 77581 Susan Lenamon 2909. Saxton Court April , 1997 Pearland, Tx 77581 Bob Lewis 2404 Country Club Drive April , 1997 Pearland, Tx 77581 Stella Roberts 2918 Green Tee Drive April , 1997 Pearland, Tx 77581 Charles Sones 3013 Country Club Drive April , 1997 Pearland, Tx 77581 Directors shall serve for two (2) year terms of office. Directors shall be 1 eligible for re-appointment without limit to the number of terms served. Directors serve at the pleasure of the City Council and,.are removable by majority vote of the City Council at any time, with or without cause. The Directors shall serve without compensation, but shall be reimbursed I for actual and reasonable exp enses incurred in the performance of their duties as Directors. . Revised May 15. 1995 Page 4 of 8 ARTICLE VII MEMBERSHIP AND STOCK The Corporation has no members and is a non-stock corporation. ARTICLE VIII AMENDMENTS These Articles of Incorporation maybe amended asprovided for in the Act. Amendments may be made by the Board of Directors if first approved by the City Council of the City of Pearland. The City Council of the City of Pearland may, at its sole discretion, amend these Articles of Incorporation and change the structure, organization, programs, or activities of the Corporation, For dissolve the Corporation. ARTICLE IX INCORPORATORS The name and address of each Incorporator is: INCORPORATOR ADDRESS Richard Tetens 2105 W. Mary's Creek Pearland, Tx 77581 Randy K. Weber 2810 Westminister Pearland, Tx 77581 Jerry Richardson 5309 Groveton Pearland, Tx 77581 Revised May 15.1995 Page 5 of 8 Helen Beckman 2705 Churchill Pearland, Tx 77581 Kevin Cole 2017 Isla Pearland, Tx 77581 ARTICLE X AUTHORIZATION The City Council of the City of Pearland has specifically authorized the. Corporation by Resolution to,act on its behalf to further the public purposes stated in the Resolution and these Articles of Incorporation and has approved these Articles of Incorporation. A copy of the Resolution is attached. ARTICLE XI S o NET EARNINGS The City of Pearland shall, at all times, have an unrestricted right to receive any income earned by the Corporation, exclusive of amounts needed to cover reasonable expenditures and reasonable reserves for future activities. Unless otherwise directed by the City of Pearland, any income of the Corporation received by the City of Pearland shall be deposited into the Economic Development Fund, its successor, or other such funds as shall be designated by the City Council from time to time. No part of the Corporation's income shall inure to the benefit of any private interests. Revised May 15, 1995 Page 6 of 8 0 ARTICLE XII DISSOLUTION If the Corporation ever should be dissolved when it has any interest in any funds or property, the funds or property shall be transferred and delivered to the City of Pearland after satisfaction of debts and claims. ARTICLE XIII DIRECTOR LIABILITY No director shall be liable to the Corporation for monetary damages for an act or omission, in the Director's capacity as a Director, except that the provisions of Article XIII shall not eliminate or limit the liability of a director for. Ir L (i) a breach of the Director's duty of loyalty to the Corporation; (ii) an act or omission not in good faith that constitutes a breach of a duty of the director to the Corporation or that involves intentional misconduct or a knowing violation of the law; (iii) a transaction from which the Director received an improper benefit, whether or not the benefit resulted from an act taken within the scope of the Director's office; (iv) an act or omission for which the liability of a Director is expressly provided by applicable statute; or Revised May 15.1995 Page 7 of 8 1 . (v) an act related to an unlawful distribution of the assets of the Corporation. If the Act or the Texas Miscellaneous Corporation Laws Act (collectively, the "Acts") are hereafter amended to authorize the further limitation of the liability of directors or trustees, then the limitation on personal liability provided in this Article shall, without the necessity of further action by the Corporation or the Board of Directors, be modified to provide such limitation to the fullest extent permitted by the amended Acts. No amendment to or repeal of this Article shall apply to or have anyeffect ect on the liability or alleged liability of any , director of the Corporation for or with respect to anyacts or omissionsof such director occurring prior to such amendment or repeal. IN WITNESS WHEREOF, we have signed these Articles of Incorporation as incorporators of the Peariand Economic Development • Corporation. • . A ,,../M lateL_____. 1 ' Mayor Council Member 07/1 _ , ,,e,j,_...4 g....,,,_\ i„,),fi,, Mayor Pro Tend- Council Member I. .\\) et_a_ -1r, ,.----...b - C uncil Member Council Member Revised May 15. 1595 Page 8 of 8 1 EXHIBIT B. Amended Bylaws 11 0376230.0I HOU:2405790.1 • • • EXHIBIT B Amended Bylaws • • • • • • • • • • • • HOU:2578722.1 reb 1s 05 04: 04p PEDC 2816521704 p.4 • EXHIBIT 'A' CORPORATE BYLAWS OF THE • PEARLAND ECONOMIC DEVELOPMENT CORPORATION These Bylaws govern the affairs of the Pearland Economic Development Corporation (the Corporation) 'a public instrumentality and a non-profit corporation created under Section 4B of the Development Corporation Act of • 1979 (Tex. Rev. Civ. Stat. Ann. art. 5190.6), as amended (the Act), by the City Council of the City of Pearland (the City Council) to act on behalf of the City of Pearland (City). ARTICLE I. PURPOSE 1.01. The Purpose of the Corporation is to promote, assist, and enhance economic development activities and quality of life opportunities within the City and its extraterritorial jurisdiction that promote economic development as authorized by the Act. The Corporation has no members and is a non-stock I - • corporation. L 1.02. The Corporation shall have and exercise all of the rights, powers, privileges, authority and functions given by the general laws ' of Texas to non-profit corporations incorporated under the Act including, without limitation, Article 1396-1.01, et seq., Tex. Rev. Civ. Stat. Ann., as amended. 1.03. The Corporation shall have all other powers of a like or different nature not prohibited by law which are available to non-profit corporations in Texas and L corporations created under the Act and which are necessary or useful to enable the Corporation to perform the purposes for which it is created, including, but not limited to, the power to issue bonds, notes, or other obligations, and otherwise exercise its borrowing power to accomplish the purposes for which it was created. 111 1.04. The Corporation is created as a local government corporation pursuant to the •Act and shall be a governmental unit within the meaning of Subdivision (2), • Section 101.001, Civil Practice and Remedies Code, as amended. The operations of the Corporation are governmental and not proprietary functions for L. the purposes of the Texas Tort Claims Act, Section 101.001 et seq., Civil .Practices and Remedies Code, as amended. Page 1 of 14 Feb 16 05 04: 05p .PEDC 2816521704 p-5 ARTICLE II. REGISTERED OFFICE AND AGENT . 2.01. The registered agent for the Corporation shall be an individual resident of the state. The registered office for the Corporation shall be within the boundaries of the City of Pearland. The Board of Directors (the Board) shall initially maintain 1 1, and use the Pearland City Hall as its administrative office, but may move its administrative office or establish additional offices with the prior approval of the City Council. i ARTICLE III. BOARD OF DIRECTORS Powers 3.01. The Corporation shall be managed by a Board of Directors which is authorized to exercise the powers authorized by the Act, subject to any limitations of these bylaws, including the following: a. To purchase or acquire for the Corporation any property,• rights, or I' privileges and to. pay therefore either wholly or partly in money, bonds, debentures, or other securities of the Corporation as may be lawful. b. To create, make and issue notes, mortgages, bonds, deeds of trust, 1 trust agreements and negotiable or transferrable instruments and securities, secured by a mortgage or deed of trust on any real property of the Corporation or otherwise, and to do every other act 1. or thing necessary to effect the same. c. To sell or lease the real or personal property of the Corporation on . j the terms the Board sees fit and to execute deeds, leases, and other • conveyances or contracts as necessary for carrying out the purpose of this Corporation. L Duties 3.02. Directors shall exercise ordinary business judgment in managing the affairs capacity, of the Corporation. In acting in their official directors shall act in good • faith and take actions they reasonably believe to be in the best interests of the ■ Corporation and which are lawful. The Board is further required to perform the following duties: IPage2of14 L • L _ eb 16 05 04:05p . PEDC • 2616521704 p•6 a. Program. The Board shall cause to be prepared an Economic Development Plan (the Plan) in accordance with policies and directives established by the City Council. The Board shall review the Plan at least once a year and submit it to the City Council for its approval. The Plan shall include: 1. The short- and long-term objectives of the Corporation and • how they might be achieved, including specific details of proposed efforts or programs to achieve those objectives; 2.. Guidelines for how the Corporation proposes to use the sales and use tax funds received by the Corporation. to achieve its objectives, including any limitations on the use of funds; and, 3. Any other information the City Council requests in writing be included in the Plan. . b. Capital Improvements Program (CIP). The Board shall be allowed to work in conjunction with the Planning and Zoning Commission to develop a five (5) year CIP in accordance with City Charter, as amended. - c. Reports to City Council. With each annual submission of the Plan to the City Council, and at any other times requested . by the City Council, the Corporation. shall submit a written Performance Report, detailing the activities and accomplishments of the Corporation since the prior Report. d. Briefings. The president and executive director shall appear before the City Council to •brief the City Council on activities of the Corporation . • e. Budget. At least ninety (90) days prior to commencement of the 1996-97 fiscal year and each fiscal year thereafter, the. Board shall adopt a proposed budget of expected revenues and proposed expenditures of the next ensuing fiscal year. The budget shall contain such classifications and shall be in such form as. may be prescribed from time to time by the Finance Department of the City. . of Pearland. The Corporation budget shall not be effective until the same has been approved by the City Council. I Page 3of 14 • r-b 16 05 04: 05p PEDC 2816521704 P•7 • • • Number and Qualifications 3.03. The Board shall consist of seven (7) persons, who shall be appointed by the City Council. No Director shall be a person who is a City employee, City Councilmember, or any other publicly elected official, Chamber of Commerce director, or member of any City boards. 3.04. Each director shall be a resident of the City of Pearland. • Term 3.05. Directors shall be appointed to serve two (2) year terms of office: Directors shall be eligible for reappointment without limit to the number of terms served. Effective May 1, 1999, directors shall serve staggered terms as set out in this section. To assist in the transition toward staggered terms, the seven (7) directors appointed to serve on the Board, effective May 1 , 1999 will serve as follows: (a)' Three randomly chosen directors' terms will commence on May 1, 1999 and continue through April 30, 2000; (b) Four randomly chosen directors' terms will commence on May 1, 1999 and continue through April' 30, 2001. • Attendance • 3.06. Directorship in the Corporation shall be accompanied by active participation in the activities of the Board, and any director who is absent from three (3) consecutive meetings of the Board without valid excuse as determined by the Board, shall automatically be dismissed from directorship. The Board shall at once notify the City Council that a vacancy on the Board exists. Vacancies I3.07. Vacancies on the Board shall be filled by appointment by the City Council. Non-Voting Directors I - Corporation, 3.08. The mayor, city manager, executive director of the the chairman of the board and the president of the. Pearland/Hobby Area Chamber I' of Commerce and executive director of the Tri-Tech' Regional Council, or their I! -I Page4of14 16 05 04: 05p PEDC 2816521704 P•8 designees, shall serve as ex-officio non-voting directors of the Board. The Board may appoint additional non-voting directors subject to approval of the City Council. Such additional non-voting directors shall serve a term of one year or until their successors are appointed. Non-voting directors shall be given notice of all meetings of the Board and may participate in discussions at Board meetings, but shall not be entitled to vote. Non-voting directors may participate in executive sessions at the request of the Board. Non-voting directors need not reside in the City. Compensation • 3.09. The directors shall, not receive any salary or compensation for their services. However, directors may be reimbursed for their actual and reasonable expenses incurred in the performance of their duties, including but not limited to • the cost of travel, lodging and incidental expenses reasonably related to the corporate duties of the Board. Travel expenses incurred by directors to attend regular and special meetings are not eligible for reimbursement. ARTICLE IV. OFFICERS • • Officer Positions 4.01. The officers of the Corporation shall be a president, a vice president and a secretary, whom shall be members of the Board. The Board may elect other officers as the City Council deems necessary. Any two or more offices may be held by the same person except the offices of the president and secretary. • • Election and Terms of Office 4.02. The president, vice president, secretary and any other officers the City Council deems necessary shall be elected annually by the Board and vacancies in these officer positions may be filled by the Board for the unexpired terms. Each h F officer shall hold office until a successor is duly.elected and qualified. AU officers shall be subject to removal, with or without cause, at any time by a vote of a majority of the whole Board. President • 4.03. The president shall be the chief executive officer of the Corporation, and shall preside at all Board meetings. The president shall supervise and control the business and affairs of the Corporation and perform any other duties prescribed from time to time by the Board. The president shall have the right to vote on all Page5of14 • • 'eb 16 05 04: 05p PEDC 2816521704 p• 9 matters coming before the Board, and may execute deeds, mortgages, bonds, contracts or other instruments, as authorized by the Board. The president shall appoint the members of all committees and all committee chairs. Vice President 4.04. The vice president shall perform the duties assigned by the Board. In the absence of the president, or if the president is unable or refuses to act, the vice president shall perform the duties of president. Secretary 4.05. The secretary shall be the custodian of the Corporate records, and shall record and keep all votes and minutes of the meetings of the Board. The secretary shall give notice of all meetings of the Board and its committees, and shall perform such other duties as may be prescribed by the president or the Board. An assistant secretary shall assist the secretary in performance of his or her duties. Executive Director II 4.06. The city manager, in consultation with the Board, may employ an executive director to serve as the general manager and chief administrative officer of the Corporation. The executive director shall be subject to the supervision of the city manager and shall perform the duties specifically delegated to him or her by the Board, and such other economic development duties as assigned by the city manager. The executive director shall serve at the pleasure of the city manager and receive compensation from the funds of the Corporation approved by him or her in consultation with the Board. All incentive or merit provisions must be approved by the city manager and a majority of the Board. The executive director shall be responsible for policy and program implementation and the day to day operations of the Corporation, including the hiring of employees, and the supervision and dismissal of those employees. The executive director shall compile and submit to the Board regular reports and recommendations regarding the programs, policies, and business affairs of the Corporation. The executive director shall be a non-voting, ex-officio member of the Board and of any committees created by the Board. The executive director shall be employee of the City of Pearland. a • Page 6 of 14 'eb 16 05 04: 06p PEDC 2816521704 p. 10 , • Assistant Secretary and Legal Counsel . , 4.07. An assistant secretary position is created to assist the secretary and the Board in the conduct of the affairs of the Corporation. The city attorney, or such other attorneys selected by the city attorney with the approval of the City Council, shall represent the Corporation in all litigation. The city attorney shall be the legal advisor of, attorney and counsel for, the Corporation and all officers thereof, in conformance with the City Charter, as amended. The assistant secretary and city attorney shall be employees of the City. ARTICLE V. BOARD COMMITTEES __. ___._ 5.01. The president may appoint persons to serve on standing or ad hoc comm n ittees. A committee may include persons who are not directors of the 1' Corporation and who may not reside in the City. Committees will operate under 1 general rules adopted by the Board. Committees may be charged with specific duties or authority, but shall not have the authority to: il t a. Amend the articles of incorporation, amend, alter, or repeal the bylaws, or adopt a plan of merger or consolidation with another I, corporation. • b. Authorize the sale, lease, exchange or mortgage of any of the I property or assets of the Corporation or commit Corporation funds without the prior approval of the Board. c. Authorize or revoke proceedings for the voluntary dissolution of the Corporation or adopt a plan for the distribution of the assets of the Corporation. d. Approve any transaction to which the Corporation is a party, take any action outside the scope of authority delegated to it by. the • ,._ Board, take final action on a matter that requires the approval of the Board, or take any action that involves a potential conflict of interest • as defined in these bylaws. Committee Terms 111 5.02. The members of each standing or ad hoc committee shall serve until successors are appointed, unless the Committee is terminated or a member is removed, resigns, or ceases to qualify as a member. Vacancies on committees may be filled in the same manner as the original appointment. Page 7 of 14 . • . eb 16 05 04: 07p PEDC 2816521704 p. 11 • ARTICLE VI. MEETINGS • • Regular Meetings 6.01. The Board shall hold at least four (4) regular meetings each year. Special Meetings 6.02. Special meetings of the,Board may be called at the written request of the president or at least two (2) directors. Notice 6.03. Written or printed notice of each regular meeting of the Board shall be delivered to each director not less than seventy two (72) hours before the time of the meeting. The notice shall state the place, date, and time .of the meeting. In the case of special meetings, notice may be issued to directors by mail, telephone,fax, or in person at least seventy two (72) hours before the time of the meeting and shall include who called the meeting and the purpose of the meeting. • Quorum 6.04. Four (4) directors shall constitute a quorum for the transaction of business at any meeting of the Board. Action of Board 6.05. The vote of a majority of the directors present and voting at a meeting at which a quorum is present shall be sufficient to constitute the act of the Board. Proxies . 6.06. A director may not vote by proxy. Open Meetings 6.07. All meetings and deliberations of the Board shall. be called, posted,. convened and conducted in accordance with the Texas Open Meetings Act, as amended. • ARTICLE VII. FINANCIAL ADMINISTRATION Fiscal Year Page 8of 14 - • 111 . • r-eb 16 05 04: 07p PEDC 2816521704 p. 12 7.01. The fiscal year of the Corporation shall run concurrently with the fiscal year, of the City.. • Accounts to be Kept with City 7.02. The Corporation shall contract with the City for the administration of its accounts, expenditures, deposits, investment of funds and accounts, and other financial services for the Corporation. The City finance director shall designate the accounts and depositories to be created and designated for such.purposes, and the methods of withdrawal of funds therefrom for use by and for the purposes • of the Corporation shall be approved by the executive director and presented for the signature of the city manager and finance director or other person as the Board shall designate. Audits 7.03. The City shall cause the Corporation's books, records, accounts, and financial statements, and all other financial activities for the previous fiscal year to be audited at. least once each fiscal year by an outside, independent, certified to bythe CityCouncil. An y such audit shall include selected firm public accounting a written management letter which details suggested management controls and i - operating efficiencies. The audit and management letter shall include recommendations for improving cost reductions and safeguarding assets. A II copy of any such audit and management letter shall be provided to each director, and discussed in an open meeting prior to its submission to the City Council. Each audit and management letter shall be submitted annually to the City Council for approval. Such audit shall be at the expense of the Corporation. ' I Limitations on Expenditures a project, the Corporation shall hold Before expending funds to undertakep 7.04. p 9 at least one public hearing on the proposed project, in accordance with the Act. Contracts - General 7.05. The Corporation shall follow and be bound by the same purchasing and contracting provisions of State law, including. the provisions on competitive bidding, that are applicable to the City. The Board may by official action authorize any officer or agent of the Corporation to enter into a contract or execute and deliver any instrument in the name of and on behalf of the Corporation. This authority may be limited to a specific contract or instrument or it may extend to any number and type of possible contracts and instruments. Any . • • Page 9 of 14 • • r-'eb 16 05 04: O8p PEDC 2816521704 p. 13 • • • contract of the Corporation which will require an expenditure of funds in excess of $100,000 that the City Council has not previously approved as part of the Corporation's annual budget or in a city tax abatement agreement, must be. approved by the City Council before any payment on the contract is made. Contracts - Administrative Services • 7.06. Subject to the paramount authority of the city manager under the City Charter, the Corporation shall have the right to utilize the services and the staff and employees of the City, provided (i) that the Corporation shall pay reasonable compensation to the City for such services, and (ii) the performance of such services does not materially interfere 'with the other duties of such personnel of the City. An administrative services contract shall be executed between the Board and the City Council for 'the services provided by the city attorney, assistant secretary, finance department and other City departments, staff and employees. Gifts • 7.07. 'The Board may accept on behalf of the Corporation any gift or bequest. Special funds shall include all funds from government contracts, grants, and gifts designated by a donor for special purposes. All other funds shall be general funds. Potential Conflicts of Interest 7.08. The members of the Board are local public officials within the meaning.of Chapter 171 of the Local Government Code, as amended, and shall adhere to the City Council code of ethics. If a director has a substantial interest in a business entity or real property which is the subject of deliberation by the.Board, the director shall file an affidavit with the secretary of the corporation stating the nature and extent of the interest. Such affidavit shall be filed prior to any deliberation, vote or decision upon the matter by the Board, and the interested director shall abstain from any deliberation, vote or decision upon the matter. • Bonds 7.09. Any bonds issued by the Corporation shall be in accordance with the Act and shall not be issued until approved by the City Council and by the bond counsel and financial advisers of the City. • • Page 10 of 14 • . gib 16 05 04: 08p PEDC 2816521704 p. 14 • ARTICLE VIII. BOOKS, RECORDS, AUDITS • Maintenance of Records 8.01 . The Corporation shall keep and property maintain, or contract with the City to keep and properly maintain, in accordance with GAAP, complete books, records, accounts, and financial statements pertaining to its corporate funds, activities, and affairs. In addition to proper financial records, the Corporation shall keep correct and complete minutes of all board and committee meetings and all records required by the City of Pearland, by contracting agents, or by funding sources. Compliance with State Law 8.02. All records shall.be kept and administered in accordance with the Texas Open.Records Act, as amended. • Inspection 8.03. Any member of the City Council or director or officer of the Corporation may inspect and receive copies of all books and records of the Corporation required to be kept by the Bylaws. ARTICLE IX. INDEMNIFICATION AND INSURANCE . ' Corporation to Indemnify . 9.01. The Corporation shall indemnify any director or officer or former director or officer of the Corporation for expenses and costs, including attorney's fees, actually and necessarily incurred by the officer or director in connection with any claim asserted against the officer or director by action in court or otherwise by reason of the person being or having been a director or officer and acting in his or her official capacity, except in relation to matters as to which the person shall have been guilty of gross negligence or misconduct in respect of the matter in which indemnity is sought. I- - Corporation Shall Provide Insurance l 9.02. The Corporation or City shall contract for and maintain insurance on behalf of any person who is, or was .a director, officer, employee, or agent of the Corporation to insure such person against any liability asserted against the person by reason of the person being or having been a director, officer, Page 11of14 • Feb 16 05 04: 08p PEDC 2916521704 p. 15 employee, or agent of the Corporation. The premiums for the insurance shall be. paid by the Corporation. ARTICLE X. AMENDMENTS TO BYLAWS 10.01. The Board may alter, amend, or repeal the bylaws or adopt new bylaws,. but the change shall be effective only upon approval by the City Council. ARTICLE Xl. PARLIAMENTARY AUTHORITY 11.01. Robert's Rules of Order, Newly Revised, shall be the parliamentary .authority for all matters of procedure not specifically covered by the bylaws or any specific rules of procedure adopted by the Board. ARTICLE X11. DISSOLUTION OF THE CORPORATION 12.01. The Corporation is a non-profit corporation. Upon dissolution, all of the Corporation's assets shall be conveyed to the City of Pearland. ARTICLE X111. MISCELLANEOUS PROVISIONS Legal Authorities Governing Construction Of Bylaws 13.01. The bylaws shall be construed in accordance with the laws of the State of Texas. All references in the bylaws to statutes, regulations, or other sources of legal authority shall refer to the authorities cited, or their successors, as they may be amended from time to time. It is expressly provided that the provisions of the Development Corporation Act of 1979 applicable to corporations governed under Section 4B of that Act are incorporated within these bylaws by reference. In the event of any conflict between the applicable provisions of such Act and these bylaws, then the applicable provisions of such Act shall control. Legal Construction 13.02. If any Bylaw provision is held to be invalid, illegal or unenforceable in any respect, the invalidity, illegality or unenforceability shall not affect any other. provision and the bylaws shall be construed as if the invalid, illegal or unenforceable provision had not been included in the bylaws. . Seal Page 12of14 0 1 • .'eb 16 05 .04: 09p • PEDC 2816521704 p. 16 13.03. The board of directors may provide for a corporate seal. Such seal would . consist ,of concentric circles containing the words, "Pearland Economic Development Corporation", and, "Texas", in one circle and the word, "Incorporated" together with the date of incorporation of the Corporation in the other circle. .Headings 13.04. The headings used in the bylaws are used for convenience and shall not be considered in construing the terms of the bylaws. Parties Bound 13.05. The bylaws shall be binding upon and inure to the benefit of the directors, officers and agents of the Corporation and their respective heirs, executors, administrators, legal representatives, successors, and assigns except as otherwise provided in the bylaws. • Effective Date 13.06. These bylaws, and any subsequent amendments thereto, shall be and from the date upon which approval on P has been given both by the II " board of directors and the City Council. • • p p . • Page 13 of 14 • • eb 16 05 04: 09P PEDC 2816521704 p. 17 CERTIFICATE OF SECRETARY I certify that I am the duly elected and acting secretary of the PEARLAND ECONOMIC DEVELOPMENT CORPORATION. and the foregoing bylaws constitute the bylaws of the Corporation. These bylaws were approved by the city Council of the City of Pearland, Texas, at a meeting held on the day of A PRI c. 19 99 , and adopted at a meeting of the Bo rd of Directors held on the a D day of N o v�M fSf�L 19gB . Signed this o7 NC day of f i DVEhbbc . 19 C'l ETARY F THE CORPORATION • • Page 14 of 14 EXHIBIT C Certificate of Continued Existence HOU:2578722.1 Corporations Section Roger p�, Roger Williams P.O.Box 13697 co' - e Secretary of State Austin,Texas 78711-3697 /`. Office of the Secretary of State The undersigned, as Secretaryof State of Texas, does herebycertify that the document, Articles Of b Incorporation for PEARLAND ECONOMIC DEVELOPMENT CORPORATION(filing number: 136116401), a Domestic Nonprofit Corporation, was filed in this office on June 26, 1995. It is further certified that the entity status in Texas is in existence. In testimony whereof, I have hereunto signed my name officially and caused to be impressed hereon the Seal of State at my office in Austin, Texas on June 02, 2006. -14117 if.?4,4441141114411: I 7. Al Al Roger Williams tt. �-'� Secretary of State IB . Come visit us on the internet at http://www.sos.state.tx.us/ Phone:(512)463-5555 Fax:(512)463-5709 TTY:7-1-1 Prepared by:SOS-WEB Document: 131785390002 • EXHIBIT D Certificate of Good Standing • • • HOU:2578722.1 Certificate of Account Status -Exempt Letter • • • Page 1 of 1 • TEXAS COMPTROLLER OF PUBLIC ACCOUNTS • CAROLE KEETON STRAYNORN • COMPTROLLER • AUSTITI, TEXAS 78774 June 2, 2006 • • • CERTIFICATE OF ACCOUNT STATUS • THE STATE OF TEXAS COUNTY OF TRAVIS I, Carole Keeton Strayhorn, Comptroller of Public Accounts of the State of Texas, DO HEREBY CERTIFY that according to the records of this office PEARLAND ECONOMIC DEVELOPMENT CORPORATION is exempt from payment of franchise tax and consequently is in good standing with this office. GIVEN'UNDER MY HAND AND SEAL OF OFFICE in the City of • Austin, this 2nd day of June 2006 A.D. Carole Keeton Strayhorn Texas Comptroller Taxpayer number: 30117882123 File number: 0136116401 • Form 05-303(Rev.1-03/6) • http://ecpa.cpa.state.tx.us/coa/servlet/cpa.app.coa.CoaLetter - 6/2/2006 EXHIBIT E Debt Service Schedule HOU:2578722.1 City of Pearland -Economic Development Corporation Current Debt plus New Debt FINAL NUMBERS-May 23,2006 Dated Date 0 6/1 512 0 0 6 Series 2006 EDC Bonds Delivery Date 06/20/2006 New Interest Interest Year Current Principal Various Various Total " Total New Total Debt Ending Debt Due Due Due New .Principal Service 09/30 Requirement 09/01 03101 09/01 Interest &Interest Requirement5 2005 650,935 650,93765,900 1 2006 765,900 2007 762,275 50,000 347,178 244,109 591,287 641,287. ,403,562 2008 762,650 165,000 242,859 242,859 485,719 650,719 1,413,369 n 2009 766,850 ___.__ -- _ 170,000 239,147 239,147 478,294_ 648,294 1,415,144 2010 765,600 180,000 235,534 235,534 471,069 651,069 1,416,669 2011 768,088 185,000 231,709 231,709. 463,419 648,419 1,416,506 2012. 765,088 200,000 227,084 227,084 454,169 654,169 1,419,256 2013 765,738 210,000 222,084 222,084 444,169 654,169 1,419,906 • 2014 768,738 215,000 216,834 216,834 433,669 648,669 1,417,406 2015 765,938 230,000 211,459 211,459 422,919 652,919 1,418,856 2016 767,538 240,000 205,709 205,709 411,419 651,419 1,418,956 • 2017 768,538 255,000 200,609 200,609 401,219 656,219 1,424,756 2018 768,288 265,000 195,191 195,191 390,381 655,381 1,423,669 2019 766,788 280,000 189,394 189,394 378,788_ 658,788 1,425,575 - 2020 764,588 300,000 183,269 183,269 366,538 666,538 1,431,125 2021 766,588 310,000 176,519 176,519 353,038 663,038 1,429,625 2022 766,988 325,000 169,544 169,544 339,088 664,088 1,431,075 2023 766,363 345,000 161,419 161,419 322,838 667,838 1,434,200 2024 764,550 365,000 152,794 152,794 305,588_._ 670,588 1,435,138 2025 766,200 385,000 143,669 143,669 287,338 672,338 1,438,538 2026 766,238 405,000 134,044 134,044 268,088 673,088 1,439,325 2027 1,190,000 123,919 123,919 247,838 1,437,838 1,437,838 2028 1,255,000 94,169 94,169 188,338 1,443,338 1,443,338 2029 1,320,000 64,363 64,363 128,725 _ 1,448,725 1,448,725 2030 1,390,000 33,013 33,013 66,025 1,456,025 1,456,025 Totals $16,740,467 $10,235,000 $4,401,513 $4,298,444 $8,699,963 $18,934,963 $35,675,417 NEW2006: Dated Date:06/15/2006 Principal Due Dates:09/01/2007-09/01/2030 Maturing Amount:10,235,000.00 • i yy PEARLAND_EDC:NEW2006 AGGPRIOR Prepared by:RBC Capital Markets-Houston,Texas 05/23/2006 @ 10:11 v7.53 t Page-1 , - -- �- - r � I _ EXHIBIT F Affidavit of Publication of Notice See Tab No.2 • • • HOU:2578722.1 GENERAL CERTIFICATE OF THE CITY OF PEARLAND,TEXAS THE 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 all persons interested in the $10,235,000 Pearland Economic Development Corporation Sales Tax Revenue Bonds, Series 2006 (the"Bonds") dated June 15, 2006,now in the process of issuance, as follows: 1. 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: Torn Reid Mayor Richard Tetens Mayor Pro-Tem Helen Beckman Councilmember Charles Viktorin Councilmember Felicia Kyle Councilmember Kevin Cole Councilmember 2. 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 11, 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. 3. On May 22, 1995, the City Council of the City by Ordinance No. 95-36, duly authorized the creation of the Pearland Economic Development Corporation (the "Corporation") and approved the initial Bylaws and Articles of Incorporation of the Corporation. A true, correct and.full copy of the Ordinance creating the Corporation, including as exhibits the Articles of Incorporation and Bylaws of the Corporation is attached hereto as Exhibit"B." 4. Attached hereto as Exhibit "C" are true, correct, and full copies of the proceedings of the City pertaining to the levy of the one-half of one percent (1/2%) sales and use tax securing the Bonds (the "Sales Tax") and the election held on January 21, 1995 (the "Election") at which the Sales Tax was approved by the voters of the City. • 5: Attached hereto as Exhibit "D" is a true, correct and full copy of the resolution of the City, adopted April 26, 1999, approving the amended Bylaws of the Corporation, which were adopted by the Corporation on November 2, 1998. _ HOU:2579303.1 6. The City Council of the City has approved all programs and expenditures of the Corporation. 7. No litigation is pending or, to the best of our knowledge, threatened, against the City or the Corporation with respect to the issuance or approval of the Bonds, the creation of the Corporation, or the title or authority of the governing body or directors of the Corporation. 8. The total Sales Tax Revenues received by the City on behalf of the Corporation for the past three fiscal.years were as follows: Fiscal Year Ended September 30 Sales Tax Revenues 2005 r $3,891,870 2004 3,369,173 2003 2,924,067 9. The City Council of the City has not taken any action to change the structure, organization, programs, or activities of the Corporation which would limit the effectiveness of the Resolution and other documents relating to the issuance, sale, or delivery of the Bonds or which would otherwise affect the issuance of the Bonds, nor has the existence of the Corporation been terminated. 10. During the one year period preceding the Election, there were no other elections held in the City pursuant to Chapter 321, Tax Code. The Election was held in conformity with the Texas Election Code, including specifically, the bilingual requirements contained therein. 11. As of May 22, 2006,the City Council had not received a petition from more than 10 percent of the registered voters of the City requesting that an election be.held before the proceeds from the levy of the Sales Tax be used to undertake the Project (as defined in the Notice of Public Hearing and Right to Petition published by the Corporation in The Pearland Reporter News on March 8, 2006)or pay the maintenance and operating costs of the Project. 12. The City has not created any other corporations, other than the Corporation, under section 4B of Article 5190.6,Texas Revised Civil Statutes (the"Act"). 13. The City was and is eligible to create the Corporation under the Act as a city that has a population of fewer than 50,000 according to the most recent federal decennial census that is located in two or more counties, one of which has a population of 500,000 or greater according to the most recent federal decennial census. 14. The combined rate of all sales and use taxes, including the Sales Tax,imposed by the City and other political subdivisions of the State of Texas having territory in the City did not exceed two percent (2%) at the time the Sales Tax was adopted by the City and such combined sales and use taxes do not currently exceed two percent(2%). 15. The City was and is eligible under section 321.101(b) of the Tax Code to adopt the additional sales and use tax approved by the voters at an election held on January 21, 1995,to be used to reduce the property tax rate. 2 HOU:2579303.1 16. The election to adopt the Sales Tax, held within the City on January 21, 1995 was not held earlier than.one year after the date of any previous election held in the City under Chapter 321 of the Tax Code. 17. On May 22, 2006, the Board of Directors of the Corporation consisted of the following individuals: Randall Ferguson Chairman Helen Beckman Secretary Felicia Kyle Director Lucy Stevener Director George Sandars Director Ed Thompson Director Gary Idoux Director Directors Beckman and Kyle resigned on May 22, 2006, and new directors have not yet been appointed to the Board of Directors to fill these vacancies. The remaining members of the Board of Directors have remained the same since May 22, 2006. 18. The Attorney General of the State of Texas is hereby authorized to date this certificate on and as of the date of his approval of the Bonds, and this Certificate and the matters certified herein shall be deemed for all purposes to be true, accurate, and correct on and as of that date, and on and as of the date of delivery of the Bonds unless the City, through one of the undersigned officers, has notified the Attorney General, the Corporation, and the purchaser of the Bonds in writing to the contrary prior to either of such dates. [Remainder of page Intentionally Left Blank] 3 HOU:2579303.1 `_I - ` WITNESS OUR HANDS AND THE OFFICIAL SEAL OF THE CITY, this2Z day of May, 2006. • CITY OF PEARLAND, TE Mayor - • °°°°111111Itoo QD• s�ev City ::cretary j SEA •� —� 0 ' coo i �a ♦ ♦ • • S-1 runt r1 G7Q4n1 1 EXHIBIT A Charter Amendment Canvassing Ordinance • HOU:2579303.1 Pt oee PEARLAND TEXAS 89:: • 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 myhand and seal of the Cityof Pearland, Texas, this 25th day of May 2006, at. Pearland, Texas. ung • , ity S etary 6.4 Ea A 4 ••0 E. 11. P• N` ••••••.w••• •`� 1111 3519 LIBERTY DRIVE • PEARLAND,TEXAS 77581-5416 • 281-652-1600 • wwww.ci.pearland.tx.us ta Printed on Recycled 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. "el. 6ilae 4 rf. 4i.VS, I om id 1• Pk �` Mayor Af sr•••••••• .00 ng .'t`, y 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 Brazon4 and Harris and r§:#11:014 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 and Hams and -6:03114 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 and5. .(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 Jaw._ The mayor shall be allowed to vote only in case of a tie , vote The mayor shall not be mcludecin>any calculatiop=ohe�inber of Motes Y:'1 � I. C y 'Q .a»3" e' sF ti a ^, ty+M +f .l.ef £.{ cf F` G- 'it •a Sy R 3."'�^'f` nil needed.for Elie city cbuncily to talceYany aciionaulhonzed by�thi� charker exeet when_ the`mayprf2 ailnwed to voten.,t ie case4of a I0ot 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 .3 t.. - 4S yam ' each member of the city council at leastiseven #wo,(72);�hours,bg fgre the sfartzo£the �. v4 r c ..rN r a } ... ,M.O u..n.v..kcf.�5.4.+.+�r'1M4-�aC�N>:�r. 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 andFort,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 fat'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 ni 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 maybe 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 upon the filing of such petition, the city secretary shall present said petition to the city council Lif`t1 e gu ar: meeting f41ie.cztx;_council. Thereupon the city council shall immediately t itmin i eeling 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. Resolution No. c O6-u 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 `L Early Election Total 1 COUNCILMEMBER,POSITION TWO(2),Vote For 1 Helen Beckman 287 100.00% 541 100,00% 808 100.00% Cast Votes: 287 74.58% 541 69.01% 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 44.61% 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 6.83% PROPOSED AMENDMENT NO.1,Vote For 1 . For 249. 76.38% 496 69.98% 745 71.98% Against 77 23.62% 213 30.04% 290 28.02% Cast Votes: 328 91.06% 709 90.43% 1,035 90.63% 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 256 79.50% 510 72.88% 786 74.95% Against 66 20.50% 190 27.14% 256 25.05% Cast Votes: 322 89.94% 700 89.29% 1,022 89.49% e 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 86.81% 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% • 0 0.00% 0 0.00% ' Over Votes: 0 O,00% 8.16%64 ° Under Votes: 23 6.42% 87 7.62/e 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% Precincts Reporting 2 of 2= 100.00° Party Candidate `_ Early 1 Election ` Total l 1 1 PROPOSED AMENDMENT NO.4,Vote For 1 Far 272 85.80% 595 84.76% 887 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 10.48% 123 10.77% PROPOSED AMENDMENT NO.5,Vote For 1 For 289 89.20% 609 87.00% 898 87.70% Against 35 10.80% 91 13.00% 128 12.30% Cast Votes: 324 90.50% 700 89.29% 1,024 89.67% Over Votes: 0 0.00% 0 0.00% 0 0.00% Under Votes: 34 9.50% 84 10.71% 118 10.33% ui 6 Canvass Report — Total Voters — Unofficial City of Pearland — Municipal Officers and Special Election May 13, 2006 . Page 1 of T 05/19/2006 01:05 PM Total Number of Voters: 1,142 of 0=0.00% Precincts Reporting 2 of 2=100.00% COUNCILMEMBER, POSITION TWO (2) Precinct Early Election Total Registered Percent Voting Day Ballots Cast Voters Turnout c Ballots Ballots ' 1e E Cast Cast m c c F- I, a, x 512 136 ' 241 377 0 0.00% 258 258 548 222 543 785 0 0.00% 550 550 ... _ :...,. ...,� ...5..,- _: .. } r. . 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Y m • T *13 i li A LL r` 512 138 241 377 0 0.00% 148 210 358 548 222 543 785 0 0.00% 337 371 708 . ..: ..... ,...� -..0 v., . . �zrF kt?..y st- ��. �tii rc.� }}�.i•k�xx r'�6t'^ `1+Yt{v7.��! Sts}{i.+ 7 t-t�.^�.�."�5,�sjlti§-�,'�r'd1 NEH 'tJ. r., .... ._� is y n i.. .... � y + )) i A�:•x. qq'��.�.. tJ. e.. t .1� @ ,.-» � F t t r{ ,. ,... x,.. .u..,,. , t n.n .,w•` c..s, -t4. d y .. 1.0 } I T?. C l .{ iAf $$ �• 'J A.�l 'vi.,-{ lis .:', }. . sr ,, i r 9t�� yyr. ..t. ..:.c.0 $i rx. p ..t.P.< Q�F • .a :ry- .�C:^ s+-ar . �. x.�k ..i+ ,.n,N�xro �,(N Cy i5 ^�l,g x Y YS �. n7�i.f.4.•. 5 t x,4..r • � S .C, F k^£i�,. +iYxvs+ b • � .. ^lti�;•:`S`�`2`�7,.4 n�'�»"�u,..m..A.F.a-,-..z� t2 �,ppt,p� �;' �' ,e ��1� r 'h s. � rt i��P� F s,��;„x�,t S � §- e.,�. � �?�?� � �... ,.��.� ��., ,�.. .. ,��-+� a—S 1.t � t 3� hl ?�'.a� �, �� a�.�xs7 '}h."2b .-^.P� F 3. r." ..w;� . rug-t nor..: .LPL �3 t.w:. � - •.Suppressed due to low voter turnout 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 II Precinct Early Election Total Registered Percent Voting Day Ballots Cast Voters Turnout , Ballots Ballots Cast Cast a c m LL cn F Q 512 136 241 377 0 0.00% 243 106 349 546 222 543 765 0 0.00% 502 184 686 . . ... :; , . ; if, :�:, f 11 4ye„,1ii«“7VT'K-`Okt,''' tom.°..{.. ," ? ' Y° lez i}+rs''' f.'+R„ :�x`:',NA'i .- ..... .. ............ ..( 1 a. .1 " t" ! (: h l ... ,.11 t, e. 1 r 3" ( S >i< . 4. ,,. 3 ;i. v} .4 I «... .�. .•„.t x. : wT.y re �......� •i. t.....ea .23R t S';:�. YY ( .: x� _L .1...::3 e1'1 '...l>.. :U�.6.{1fu. (y1 l { n.Sn lA � ...y x.hr t L,4•.-.r .x{Y: Jx 4t"'*U �.R .S4 #. a1;3, g r.S..•..�.J: i:f.l�.. . .3. i,Y �` IS�' r� ^ i}�i.: ...Y'�?l.�n+Y... i4 n%:1�....�x.ii:..��i.l: Fri>�, �.. ..,n .. .".i'a,.v.. t' <.!L'..i�^.'��r��iC �> �s�;4� y.;.��Y.e� �?.7.�a :�.::�•�r'i.:... ':3.£7,t!` ,«.a 1 .nv.c�+.,...c� ,�<,,n.} ytitli4:��,5,1. mkur..V.zls;au .0�'" L :... •-Suppressed due to low voter turnout Canvass Report — Total Voters — Unofficial City of Pearland — Municipal Officers and Special Election — May 13, 2006 •. Page 4 of 7 0511912006 01:05 PM Total Number of Voters: 1,142 of 0=0.00% Precincts Reporting 2 of 2= 100.00% PROPOSED AMENDMENT NO. 2 Il Precinct Early Election Total Registered Percent Voting Day Ballots Cast Voters Turnout Ballots Ballots Cast Cast ,- S o o LL 15 OI F Q . 512 136 241 377 0 0.00% 243 102 . 345 548 222 543 785 0 0.00% 523 154 677 � �r z� _ <i k3 .k sip '^¢u,� It t'.- ..5.( - r`1 + 5 "r �6d k" } i�F {t^�'1��: r t P:.sr..:Fr .t v^ i apt , .4 t }t.. § x - :- .y.�..�:. (�� +< r ct �. �s '.� t. S „ah to i"Y,. ws ..F. k 1 1 (l.. r S f 3 Sir ♦ .P. ,Jl .".it • � f a- r( y S a cc'w i n . s.p.�,y#T: �*._i k.,. �..('..'�r 1�.:x�� z � iE1.dfi 5 t '`,+ 'is t -: &�7 & �-.-�::'.�u 3: t i ... �t�'�F�5�4C z3�`,'.zS�a JYU�..�<'trv,'�!�� .,si'u -."r.�":.x�ro�ii^��. �n-`-S.G-�.s�4`�Ere�t,a,�>c.d.. .. w.�T- ttv.,... mw�--J.*r.'�..tt.'sue �w..i ..,. �,.r<.> .u.�....c :t z.. �•1:k ...3Yst "�;:'- tW�t.a �t,�:g - � ' 3i •-Suppressed due to low voter turnout Canvass Report — Total Voters — Unofficial City of Pearland — Municipal Officers and Special Election — May 13, 2006 • Page 5 of 7 05119/2006 01:05 PM Total Number of Voters: 1,142 of 0=0.00% Precincts Reporting 2 of 2= 100.00% I PROPOSED AMENDMENT NO.3 „.. .m.m.m.m.m.m.ji L, Precinct Early Election Total Registered Percent Voting Day Ballots Cast Voters Turnout Ballots Ballots Cast Cast `o c 2. U. 01 F Q 512 138 241 377 0 0.00% 318 42 358 548 222 543 765 0 0.00% 808 91 697 ` . ..._ ... . . ..:.....:.._ .::...F ::.... . t t ,�'S'£"^... ..�, T. .. �� i�fil,E:y',a ter. 'y4azi�� P P¢73�a.,, E Fj9• #Z,"', ' ,.,..,.,.. ,4 .-,. .r, el .,: i A # . .,. •^-un .s.� :F;• t.e 1, =Ac S,r,,e.�� k, :1'; 3� } A; tti2• Ell T y`3S tsS� y, ; :r• .3. '�: .r..�.M �,.i'&. � wl •� .S,� .tF,, r,M �� e^J:�?:4. �.� �`. � �i: 1. .,,�'i u.�'r,..�� :)d c W .'�i��'>-�t`Y. .. ��..��;�.�+�5'�� s��n�� i��k��z1� � �.��,�'.�?...s9�;� ��'�� ;a"'�,£� ��. �w��t��LT:"�w'nf ��`� ��1� ,sx� .+' ...i..*,"�"�� .. • •-Suppressed due to low voter turnout 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 Precincts Reporting 2 of 2= 100.00% Total Number of Voters: 1.142 of 0=0.00% ` PROPOSED AMENDMENT NO._4 1 Precinct Early Election Total Registered Percent Voting Day Ballots Cast Voters Turnout.. Ballots Ballots Cast Cast N 0 O C To u. O CD H Q 512 136 241 377 0 0.00% 295 54 349 546 , • 222 543 765 r,. 0 0 00% ". 5 72 98 670 y � 7:Ke � A, :v=q , . thitp � � .,r• � 7 ?� s :�« . ] � {!^ '3^�, :fC �� i� � AI� vq..3,` • trr ,k r 1 1p,�.., iaY?a��,h i it,._��4�•G:+ri Zl,.3.x "Yti yt`rt xr,�3aix3' V `sSi .t Pw ,iN, 3 ;�sx4nrt. ..f,..agv :➢`t + rx'+. ::'N1,, .+,3� .�z. ',"?. .$'-., _a r , t" i a, ; .��, x :r �.a::�-� si„4. i .� �) as.t - �> a,CFT;A355 .iy�may.^a ;. •••Suppressed due to low voter turnout 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 Precincts Reporting 2 of 2= 100.00% Total Number of Voters: 1,142 of 0=0.00% ` PROPOSED AMENDMENT NO. 5 1 Precinct Early Election Total Registered Percent Voting Day Ballots Cast Voters Turnout Ballots Ballots. Cast Cast ` N N o c m U. A O co F a 512 138 241 377 0 0.00% 308 45 351 548 222 543 765 0 0.00% 592 81 673 ,..,. ..... c : S + SN S 15, E e .it t •' .� TT'{{ { :l ';,, ,, 4 S a h, pt,NN �.riLd is eO ,�;i.. 3 Yti :b': ., y ,per"*1S1,ili)yr ... 'it,v. .... .... .....,, 4:> 4 .<a t a:..„ k € ., .ii 5 .�,., `,•' .,. 1_.,, .7 t �. ,ha. t:G; ,4.1�: .,s.� s.ac:K.,jl n,ttr ,to .Y,s,`•:.•F.{aw(:'K',��' ir:� r #.", : , L>$ ��.n., iFr .5. t y � 1.r i � fY � �r 7 { y. a;'..,:Y...,n aa.a4k,.a�:;t�:� c�.ar«r,>5 x. , �iti 4..0" r,,f'L .: t�'' 1 ,`t4' ..4,!` P'rt, l . ,,`),t t,,.3k .,,<`_,,,, tsh•tr :,?..a9 ...si:'..k as ;..:-+� r - i:<d,La7.:.u,x�k" "... :,:a..",�v yv 2:,i 4m S�' •.Suppressed due to low voter turnout • EXHIBIT B Ordinance No. 95-36 Authorizing Creation of the Corporation • • J HOU:2579303.1 evEA,9� Cfl ) of pe... (Grillsond III * * 3519 liberty Drive • Peorland,Texas 77581-5416 1 TE X PS (281)485-2411 • fax(281) 485-8764. I_ CERTIFICATION STATE OF TEXAS § COUNTIES OF BRAZORIA & HARRIS § CITY OF PEARLAND § • I, Wendy Standorf, Interim City Secretary of the City of Pearland, Texas, hereby certify that the attached constitutes a true and correct copy of Resolution No. R95-36 duly passed and approved by the City Council at a regular meeting held on the 22nd day of May, 1995. Witness my hand and seal of the City of Pearland, Texas, this 18th day of March, 1997, at Pearland, Texas. Wendy Sta Interim Ci Secretary (SEAL) • 1 RESOLUTION NO. R95-36 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS, AUTHORIZING THE CREATION OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION AS AN INSTRUMENTALITY OF THE CITY I__' OF PEARLAND, TEXAS, FOR THE PURPOSE OF PROMOTING AND DEVELOPING NEW AND EXPANDED BUSINESS ENTERPRISES UTILIZING A ONE-HALF CENT (1/20 LOCAL SALES AND USE TAX; li__ APPOINTING THE INITIAL BOARD OF DIRECTORS OF SAID CORPORATION; AND CONTAINING OTHER PROVISIONS RELATING TO THE SUBJECT. LI WHEREAS, the Development Corporation Act of 1979, . Article 5190.6, Section 4B, Texas Revised Civil Statutes, as amended (the "Act") authorizes the City of Pearland, Texas (the "City") to create and administer an economic development corpora- tion to act on behalf of the City in the promotion and development of new and expanded business enterprises, including certain •projects, as defined in the Act; WHEREAS, the Act authorizes the City to adopt a sales and use IItax throughout the City to finance projects of the economic development corporation; WHEREAS, the electorate of the City authorized a one-half cent (1/20 local sales and use tax on January. 21, 1995 for the benefit of the Corporation to promote and develop new and expanded business enterprises; WHEREAS, seven (7) natural persons, each of whom is at least eighteen (18) years of age and a qualified elector of the City • (Connie Beaumont, Dennis Frauenberger, Tricia Holland, Susan Lenamon, Bob Lewis, Stella Roberts, Charles Sones) , have filed with , the City Council of the City a written application (the "Petition") IIrequesting that the City authorize and approve the creation of the Pearland Economic Development Corporation (the '"Corporation") _ to IIact on behalf of the City and approve the Articles of Incorporation and Bylaws to be used in creating the Corporation in the form attached to this Ordinance as Exhibit A; WHEREAS, the Corporation has been or will be created and organized as a Texas non-profit corporation pursuant to the provi- ~ sions of Section 4B of the Act for such limited purposes; S . -1- I 11, . RESOLUTION NO. R95-3b I1 WHEREAS, the City is eligible .to create a Corporation governed II, by Section 4B of the Act because it is a city to which Section 4A of the Act applies as a City located in a county with a population of 500,000 or fewer according to, the most recent federal decennial __ census; WHEREAS, the City has not created another corporation to be governed by Section 4B of the Act; and 1 WHEREAS, the City Council has reviewed and approved the Petition and Articles of Incorporation and Bylaws and has deter 1 I mined to authorize and approve the creation of the Corporation; a not-for-profit entity, as its constituted authority and instrumentality to accomplish the . specific public purposes as . authorized by Section 4B of the Act. BE IT RESOLVED EY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS: Section 1. Findings and Determinations. It is hereby offi • - ; cially found and determined that: (a) All of the facts recited in the preamble hereto are found • and declared to be true and correct and the preamble is 1 ,J incorporated into and made a part of this Resolution. (b) The City is a'lawfully incorporated city of the State of Texas, authorized to create the Corporation under the provisions of Section 4B of the Act. 1 Section 2. Creation. of the Corporation. (a) The Corporation is hereby authorized and approved for creation as an economic development corporation to act on behalf of the City to accomplish the specific public purposes authorized by Section 4B of the Act. (b) The Corporation is hereby designated as a duly con stituted authority and instrumentality ' of the City (within the meaning of those terms and the regulations of II the United States Department of Treasury and rulings of the Internal Revenue Service prescribed and promulgated li . . . pursuant to Section 103 of the Internal Revenue Code of -2- I • RESOLUTION NO. R95-36 1954, as amended (the "Code") ) and shall be authorized to act on behalf of the City for the specific public pur- poses specified in Section 4B of the Act; the Corporation. II' is not intended to be and shall not be a political sub- division or a political corporation within the meaning of the Constitution and laws of the State of Texas, includ- ing, without limitation, Article 'III, Section 52 of the Texas Constitution, and the City does not delegate to the Corporation any of its attributes of sovereignty, includ- ing the power to tax, the power of eminent domain and the police power. • (c) The Corporation may, under the conditions set forth• in this Ordinance, issue obligations on behalf of the City, acquire, lease,' sell or convey certain properties and. ' ` make loans for the promotion and development of commer= cial, industrial and manufacturing enterprises and to contract with entities, public and private, to accomplish the projects authorized by Section 4B of the Act. The City shall not lend its credit or grant any.public money or thing of value in aid of the Corporation. Further- more, obligations issued by the Corporation with the approval of the City shall be deemed not to constitute a debt of the State of Texas, the City or of. any other political corporation, subdivision or agency of the State of Texas or a pledge of the faith and credit of any of them, but such obligations, shall be payable solely from the funds herein provided. The Corporation shall, not be • authorized to incur financial obligations which cannot be paid from proceeds of the obligations or from revenues realized from the lease or sale of a project or realized from a loan made by the Corporation to finance or • refinance in whole or in ] ro a part project, or from the P sales tax revenues approved by the voters of the City -3- i • RESOLUTION NO. R95-36 pursuant to the Act. "Project" shall have the meaning set forth in Section 4B of the Act. Section 3. Articles of Incorporation and Bylaws. : The Articles of .Incorporation of the Corporation and Bylaws of the Corporation, in the forms attached to this Resolution as Exhibits B and C, are hereby approved for use and adoption by the • Corporation; provided, however, that any amendments to the Articles of Incorporation or Bylaws shall be subject to further approval by. the City Council of the City. Section 4. Issuance of .Bonds. The City Council of the City shall approve, by written ordinance or resolution, any agreement to. issue, or resolution agreeing to issue; bonds, .including refunding bonds, adopted by the Corporation, which agreement or resolution shall set out the amount and purposes of the bonds. Furthermore, no issue of bonds, including refunding bonds shall be sold and delivered by the Corporation without a written ordinance of the City Council of the City adopted not more than sixty (60) days prior to the date of the sale of the bonds specifically approving the resolution of the Corporation providing for the issuance of the bonds. Section 5. Initial Directors. The initial directors of the Corporation are the following: BABE MEM a. Connie Beaumont 2 Years b. Dennis Frauenberger 2 Years c. Tricia Holland 2 Years d. Susan Lenamon 2 Years e. Bob Lewis 2 Years • f. Stella Roberts . 2 Years g. Charles Sones • 2 Years Section 6. Initial Officers. Until designated otherwise by the Corporation's directors, the initial .officerss. of the Corporation are the following: • President flPnnis FrauPnhPrgo r Vice-President Tricia Holland Secretary mean T.Pnamnn I -4- RESOLUTION NO. R95-36 THE STATE OF TEXAS § KNOW ALL MEN BY THESE PRESENTS: COUNTY OF BRAZORIA § I, the undersigned, a notary public, do hereby certify that on the r . day of rn , 1995, personally appeared before me, Connie Beaumont, Dennis Frauenberger, Tricia Holland, Susan Lenamon, Bob Lewis, Stella Roberts, and Charles Sones, who each being by me first duly sworn, severally declared that they are the persons who signed the foregoing Petition, and that ' the. statements therein contained are true. IN• WITNESS WHEREOF, we have hereunto set our hands this ooa-, 'rif• day of ttr , 1995. lit44a) AP S NOTARY PUBLIC in and for the A D..1001E9 State of Texas %AJyip "�iLI L�IgY� w S°� Der21. 1995 My Commission Expires: 9/,L,/9S ♦ J +ir J p w • • I EXHIBIT B ARTICLES OF INCORPORATION OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION A NON-PROFIT CORPORATION WE,THE UNDERSIGNED natural persons, being at least 18 years of age and qualified electors of the City of Pearland, Texas, a home rule municipal corporation, acting as incorporators of a public instrumentality and non-profit economic development corporation (the Corporation) under the Development Corporation Alct of 1979 (Tex. Rev. Civ. Stat. Ann. art. 5190.6)(the Act), with •the approva of the governing body of the City of Pearland, Texas, as evidenced by the attached Resolution, adopt the following Articles of Incorporation for the Corporation: ARTICLE NAME The name of the Corporation is the PEARLAND ECONOMIC DEVELOPMENT CORPORATION. ARTICLE II NON-PROFIT CORPORATION The Corporation is a non-profit corporation governed by Section 4B of the Development Corporation Act of 1979, as amended. Revl5ed May 15. 1995 Page 1 of 8 of their initial terms are as follows: DIRECTOR ADDRESS TERM EXPIRES Connie Beaumont 3210 Westminister April , 1997 Pearland, Tx 77581 Dennis Frauenberger 2602 Taylor Lane April , 1997 Pearland, Tx 77581 Tricia Holland 2319 Frances April , 1997 Pearland, Tx 77581 Susan Lenamon 2909 Saxton Court April , 1997 Pearland, Tx 77581 Bob Lewis 2404 Country Club Drive April , 1997 Pearland, Tx 77581 Stella Roberts 2918 Green Tee Drive April 1997 Pearland, Tx 77581 Charles Sones 3013 Country Club Drive April , 1997 Pearland, Tx 77581 Directors shall serve for two (2) year terms of office. Directors shall be eligible for. re-appointment without limit to the number of terms served. Directors serve at the pleasure of the City Council and are removable by majority vote of the City Council at any time, with or without cause. The Directors shall serve without compensation, but shall be reimbursed for actual and reasonable expenses incurred in the performance of their duties as Directors. Revised May 15. 1995 Page 4 of 8 I`I , • ARTICLE VII MEMBERSHIP AND STOCK The Corporation has no members and is a non-stock corporation. ARTICLE VIII AMENDMENTS These Articles of Incorporation may be amended as provided for in the Act. Amendments may be made by the Board of Directors if first approved by the City Council of the City of Pearland. The City Council of the City of Pearland may, at its sole discretion, amend these Articles of Incorporation and change the structure, organization, programs, or activities of the Corporation, or dissolve the Corporation. ARTICLE IX INCORPORATORS • The name and address of each Incorporator is: INCORPORATOR ADDRESS Richard Tetens 2105 W. Mary's Creek Pearland, Tx 77581 Randy K. Weber 2810 Westminister Pearland, Tx 77581 Jerry Richardson 5309 Groveton Pearland, Tx 77581 Revised May 15, 1995 Page 5 of 8 , _S Helen Beckman 2705 Churchill Pearland, Tx 77581 Kevin Cole 2017 Isla Pearland, Tx 77581 ARTICLE X AUTHORIZATION The City Council of the City of Pearland has specifically authorized the Corporation by Resolution to act on its behalf to further the public purposes stated in the Resolution and these Articles of Incorporation and has approved these Articles of Incorporation. A cop y py of the Resolution is attached. ARTICLE XI NET EARNINGS The City of Pearland shall, at all times, have an unrestricted right to receive any income earned by the Corporation, exclusive of amounts needed to cover reasonable expenditures and reasonable reserves for future activities. Unless otherwise directed by the City of Pearland, any income of the Corporation received by the City of Pearland shall be deposited into the Economic Development Fund, its successor, or other such funds as shall be designated by the City Council from time to time. No part of the Corporation's income shall inure to the benefit of any private interests. 111 p Revised May 15, 1995 Page 6 of 8 ARTICLE XII DISSOLUTION If the Corporation ever should be dissolved when it has any interest in anyfunds orproperty, the funds or property shall be transferred and delivered to the City of Pearland after satisfaction of debts and claims. rr ARTICLE XIII I ` DIRECTOR LIABILITY No director shall be liable to the Corporation for monetary damages for an act or omission in the Director's capacity as a Director, except that the provisions of Article XIII shall not eliminate or limit the liability of a director for. (i) a breach of the Director's duty of loyalty to the Corporation; (ii) an act or omission not in good faith that constitutes a breach of a duty of the director to the Corporation or that involves intentional misconduct or a knowing violation of the law; (iii) a transaction from which the Director received an improper benefit, whether or not the benefit resulted from an act taken within the scope of the Director's office; (iv). an act or omission for which the liability of a Director is expressly provided by applicable statute; or Revised May 15. 1995 Page 7 of 8 (v) an act related to an unlawful distribution of the assets of the Corporation. �aF If the Act or the Texas Miscellaneous Corporation Laws Act (collectively, the "Acts") are hereafter amended to authorize the further limitation of the liability of directors or trustees, then the limitation on personal liability provided in this Article shall, without the necessity of further action by the Corporation or the Board of Directors, be modified to provide such limitation to the fullest extent permitted by the amended Acts. No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such . • director occurring prior to such amendment or repeal. IN WITNESS WHEREOF, we have signed these Articles of Incorporation as incorporators of the Pearland Economic Development Corporation. • . "M Mayor Council Member Mayor Pro Te Council Member /1—(sL C uncil Member Council Member Revised May 15, 1995 Page g 8 of 8 t • • EXHIBIT C II; CORPORATE BYLAWS I� OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION These Bylaws govern the affairs of the Pearland Economic Development Corporation (the Corporation), a public instrumentality and a non-profit - corporation created under Section 4B of the Development Corporation Act of - 1979. (Tex. Rev. Civ. Stat. Ann. art. 5190.6), as amended (the Act), by the City Council of the City of Pearland (the City Council) to act on behalf of the City of Pearland (City). ARTICLE I. PURPOSE 1.01. The Purpose of the Corporation is to promote, assist, and enhance economic development activities and quality of life opportunities within the City and: its extraterritorial jurisdiction that promote economic development as authorized by the Act. The Corporation has no members and is a non-stock - corporation. 1.02. The Corporation shall have and exercise all of the rights, powers, privileges, authority and functions given by the general laws of Texas to non- profit corporations incorporated under the Act including, without limitation, Article 1396-1.01, et seq., Tex. Rev. Civ. Stat. Ann., as amended. 1.03. The Corporation shall have all other powers of a like or different nature not prohibited by law which are available to non-profit corporations in Texas and corporations created under the Act and which are necessary or useful to enable the Corporation to perform the purposes for which it .is created, • including, but not limited to, the power to issue bonds, notes, or other I obligations, and otherwise exercise its borrowing power to accomplish the purposes for which it was created. • 1.04. The Corporation is created as a local government corporation pursuant to the Act and shall be a governmental unit within the meaning of Subdivision (2), Section 101.001 , Civil Practice and Remedies Code, as amended. The Revised May 15, 1995 • operations of the Corporation are governmental and not proprietary functions for the purposes of the Texas Tort Claims Act, Section 101.001 et seq., Civil • Practices and Remedies Code, as amended. ARTICLE II. REGISTERED OFFICE AND AGENT 2.01. The registered agent for the. Corporation shall be an individual resident of the state. The registered office for the Corporation shall be within the boundaries of the City of Pearland. The Board of Directors (the Board) shall initially maintain and use the Pearland City Hall as its administrative office, but may move its administrative office or establish additional offices with the prior approval of the City Council. ARTICLE III. BOARD OF DIRECTORS Powers 3.01. The Corporation shall be managed by a Board of Directors which is authorized to exercise the powers authorized by the Act, subject to any limitations of these bylaws, including the following: a. To purchase or acquire for the Corporation any property, rights, or privileges and to pay therefore either wholly or partly in money, bonds, debentures, or other securities of the Corporation as may be lawful. b. To create, make and issue notes, mortgages, bonds, deeds of trust, trust agreements and negotiable or transferrable instruments and securities, secured by a mortgage or deed of trust on any real property of the Corporation or otherwise, and to do every other act or thing necessary to effect the same. c. To sell or lease the real or personal property of the Corporation on the terms the Board sees fit and to execute deeds, leases, and other conveyances or contracts as necessary for carrying out the purpose of this.Corporation. Revised May 15, 1995 Page 2 of 15 I • Duties 3.02: Directors shall exercise ordinary business judgment in managing the affairs of the.Corporation. In acting in their official capacity, directors shall act. in good faith and take actions they reasonably believe to be in the best interests of the Corporation and which are lawful. The Board is further required to perform the following duties: a. Program. The Board shall cause to be prepared an Economic Development Plan (the Plan) in accordance with policies and directives established by the City Council. The Board shall review I; the Plan at least once a year and submit it to the City Council for its approval. The Plan shall include: 1. The short and long-term objectives of the Corporation and how they might be achieved, including specific details of proposed efforts or programs to achieve those objectives; 2. Guidelines for how the Corporation proposes to use the sales and use tax funds received by the Corporation to achieve its objectives, including .any limitations on the use of funds; and, . . 3. . Any other information the City Council requests in writing be included in the Plan. b. Capital Improvements Program (CIP). The Board shall be allowed to work in conjunction with the Planning and Zoning Commission to develop a five (5) year CIP in accordance with City Charter, as amended. c. Reports to City Council. With each annual submission of the Plan to the City Council, and at any other times requested by the City Council, the Corporation shall submit a written Performance Report, detailing the activities and accomplishments , of the Corporation since the prior Report. d. Briefings. The president or executive director shall appear Revised May 15, 1995 Page 3 of 15 before the City Council to brief the City Council on activities of the Corporation at least quarterly andat tim es q y such other as requested by the mayor or two or more members of the City Council. e. Budget. At least one hundred and twenty (120) days prior'to commencement of the e 199 6 97 fiscal year and each fiscal year thereafter, the Board shall adopt a proposed budget of expected revenues and proposed expenditures of the next ensuing fiscal year. The budget shall contain such classifications and shall be in such form as may be prescribed from time to time by the Finance Department of the City of Pearland. The Corporation budget shall not be effective until the same has been approved by the City Council. rNumber and Qualifications 3.03. The Board shall consist of seven (7) persons, who shall be appointed by the City Council. Three (3) directors shall be persons who are not employees, officers or members of the governing body of the City. A director may be removed by the City Council at any time without cause. • 3.04. Each director shall be a resident of the City of Pearland. Term • 3.05. Directors shall be appointed to serve two (2) year terms of office. Directors shall be eligible for re-appointment without limit to the number of terms served. Attendance . 3.06. Directorship in the Corporation shall be accompanied by active participation in the activities of the Board, and any director who is absent from three (3) consecutive meetings of the Board without valid excuse as determined by the Board, shall automatically be dismissed from directorship. The. Board shall at once notify the City Council that a vacancy on the Board exists. Revised May 15. 199s Page 4 of 15 . Vacancies 3.07. Vacancies on the Board shall be filled by appointment by the City Council. Ex-Officio Directors • 3.08. The mayor, city manager, executive director of the Corporation, the chairman of the board and the 'president of the Pearland/Hobby Area Chamber of Commerce and executive director of the Tri-Tech Regional Council, or their designees, shall serve as ex-officio directors of the Board. The Board may appoint additional ex-officio directors subject to approval of the City Council. Such additional ex-officio directors shall serve a term of one year or until their successors are appointed. Ex-officio directors shall be given notice of all meetings of the Board and may participate in discussions at Board meetings, but shall not be entitled to vote. Ex-officio directors may participate in executive sessions at the request of the Board. Ex-officio directors need not reside in the City. Compensation 3.09 The directors shall not receive anysalary ry or compensation for their. services. However, directors may be reimbursed for their actual and reasonable expenses incurred in the performance of their duties, including but not limited to the cost of travel, lodging and incidental expenses reasonably related to the corporate duties of the Board. Travel expenses incurred by directors to attend regular and special meetings are not eligible for reimbursement. ARTICLE IV. OFFICERS _ Officer Positions II4.01. The officers of the Corporation shall be a president, a vice president and a secretary, whom shall be members of the Board. The Board may elect other officers as the City Council deems necessary. Any two or more offices .R may be held by the same person except the offices of the president and secretary. • Revised May 15, 1995 Page 5 of 15 fi• • Election and Terms of Office 4.02. The president, vice president, secretary and any other officers the City Council deems necessary shall be elected annually by the Board and . vacancies in these officer positions may be filled by the Board for the unexpired terms. Each officer shall hold office until a successor is duly elected and qualified. All officers shall be subject to removal, with or without . cause, at any time by a vote of a majority of the whole Board. President • 4.03. The president shall be the chief executive officer of the Corporation. He or she shall preside at all Board meetings and generally supervise and control • the business and affairs of the Corporation and perform any other duties prescribed from time to time by the Board. The president shall have the right to vote on all matters coming before the Board. He may execute deeds, mortgages, bonds, contracts or other instruments, as authorized by the Board. The president shall appoint the members of all committees and all committee chairs. • Vice President 4.04. The vice president shall perform the duties assigned to him by the Board. In the absence of the president, or if the president is unable or refuses to act, the vice president shall perform the duties of president. cr Se etary 4.05. The secretary shall be the custodian of the Corporate records. The secretary shall record and keep all votes and minutes of the meetings of the Board. The secretary shall give notice of all meetings of the Board and its committees, and shall perform such other duties as may be prescribed by the president or the Board. An assistant secretary shall assist the secretary in performance of her duties. Executive Director 4.06. The city manager, in consultation with the Board, may employ an Revised May 15. 1995 Page 6 of 15 . I • executive director to serve as the general manager and chief administrative officer of the Corporation. The executive director shall be subject to the supervision of the city manager and shall perform the duties specifically delegated to him or her by the Board, and such other economic development duties as assigned by the city manager. The executive director shall serve at the pleasure of the city manager and receive compensation from the funds of the Corporation approved by him or her in consultation with the Board. All incentive or merit provisions must be approved by the city manager and a majority of the Board. The executive director shall be responsible for policy and program implementation and the day to day operations of the Corporation, including the hiring of employees, and the supervision and ' dismissal of those employees. The executive director shall compile and' submit to the Board regular reports and recommendations regarding .the programs, policies, and business affairs of the Corporation. The executive director shall be a non-voting, ex-officio member of the Board and of any committees created by the Board. The executive director shall be an employee of the City of Pearland. Assistant Secretary and Legal Counsel 4.07. An assistant secretary position is created to assist the secretary and the Board in the conduct of the affairs of the Corporation. The city attorney, or such other attorneys selected by the city attorney with the approval of the City Council, shall represent the Corporation in all litigation. The city attorney shall be the legal advisor of, attorney and counsel for, the Corporation and all officers thereof, in conformance with the City Charter, as amended. The. assistant secretary and city attorney shall be employees of the City. ARTICLE V. BOARD COMMITTEES 5.01. The president may appoint persons to serve on standing or ad hoc committees. A committee may include persons who are not directors of the Corporation and who may not reside in the City. Committees will operate under general rules adopted by the Board. Committees may be charged with specific duties or authority, but shall not have the authority to: a. Amend the articles of incorporation, amend, alter, or repeal the bylaws, or adopt a plan of merger or consolidation with another Revised May 15, 1995 Page 7 of 15 I • corporation. • b. Authorize the sale; lease, exchange or mortgage of any of the property or assets of the Corporation or commit Corporation funds without the prior approval of the Board. c. Authorize or revoke proceedings for the voluntary dissolution of the Corporation or adopt a plan for the distribution of the assets of the Corporation. d. Approve any transaction to which the Corporation is a party, take any action outside the scope of authority delegated to it by the Board, take final action on a matter that requires the approval of the Board, or take any action that:involves a potential conflict of interest as defined in these bylaws. Committee Terms 5.02. The members of each standing or ad hoc committee shall serve until successors are appointed , unless the Committee is terminated or a member is removed, resigns, or ceases to qualify as a member. Vacancies on committees may be filled in the same manner as the original appointment. ARTICLE VI. MEETINGS • Regular Meetings 6.01. The Board shall hold at least four (4) regular meetings each year. Special Meetings 6.02. Special meetings of the Board may be called at the written request of the mayor, the president or at least two (2) directors. Notice t notice of each regular meetingof the Board shall be 6.03. Written or printed o ce g delivered to each director not less than seventy two (72) hours before the time Revised May 15, 1995 Page 8 of 15 • of the meeting. The notice shall state the place, date, and time of the meeting. In the case of special meetings, notice maybe issued to directors. 9 9 by mail, telephone, fax, or in person at least seventy two (72) hours before the Itime of the meeting and shall include who called the meeting and the purpose of the meeting. Quorum 6.04. Four (4) directors shall constitute a quorum for the transaction of business at any meeting of the Board. Action of Board 6.05. The vote of a majority of the directors present and voting at a meeting at which a quorum is present shall be sufficient to constitute the act of the Board. Proxies • 6.06. A director may not vote by proxy. • Open Meetings 6.07. All meetings and deliberations of the Board shall be called, posted, convened and conducted in accordance with the Texas Open Meetings Act, .as amended. • ARTICLE VII. FINANCIAL ADMINISTRATION • Fiscal Year • 7.01. The fiscal year of the Corporation shall run concurrently with the fiscal year of the City. . Accounts to be Kept with City 7.02. The Corporation shall contract with the City for the administration of its accounts, expenditures, deposits, investment of funds and accounts, and Revised May 15. 1995 Page 9 of 15 • other financial services for the Corporation. The City finance director shall designate the accounts and depositories to be created and designated for such purposes, and the methods of withdrawal of funds therefrom for use by and for the purposes of the Corporation upon the signature of its president and secretary or other director as the Board shall designate. Audits I 7.03. The City shall cause the Corporation's books, records, accounts, and financial statements, and all other financial activities for the previous fiscal year to be audited at least once each fiscal year by an outside, independent, certified public accounting firm selected by the City Council. Any such audit shall include a written management letter which details suggested management controls and operating efficiencies. The management letter shall include recommendations for improving cost reductions and safeguarding assets. Each audit shall be prepared and submitted annually to the City Council for approval. Such audit shall be at the expense of the Corporation. Limitations on Expenditures 7.04. Before expending funds to undertake a project, the Corporation shall hold at least one public hearing on the proposed project, in accordance with the Act. • Checks and Drafts 7.05. All checks, drafts, or orders for the. payment of money, notes, or other evidences of indebtedness issued in the name of the Corporation shall be signed or bear the facsimile of the signature of its president and secretary, or other director as the Board shall designate. . Contracts - General 7.06. The Corporation shall follow and be bound by the same purchasing and contracting' provisions of State law, including the provisions on competitive bidding, that are applicable to the City. The Board may by official action authorize any officer or agent of the Corporation to enter into a contract or Revised May 15. 1995 Page 10 of 15 1 execute and deliver any instrument in the name of and on behalf of the Corporation. This authority may be limited to a specific contract or instrument or it may extend to any number and type of possible contracts and instruments. Any contract of the Corporation which will require an expenditure of funds in excess of $100,000 that the City Council has not previously approved as part of the Corporation's annual budget or in a city tax abatement agreement, must be approved by the City Council before any payment on the contract is made. Contracts - Administrative Services 7.07. Subject to the paramount authority of the city manager under the City Charter, the Corporation shall have the right to utilize the services and the = staff and employees of the City, provided (i) that the Corporation shall pay reasonable compensation to the City for such services, and (ii) the performance of such services does not materially interfere with the other duties of such personnel of the City. An administrative services contract shall be executed between the Board and the City Council for the services provided by the executive director, city attorney, assistant secretary, finance department and other City departments, staff and employees. Gifts 7.08. The Board may accept on behalf of the Corporation any gift or bequest. Special funds shall include all funds from government contracts, grants, and . gifts designated by a donor for special purposes. All other funds shall be general funds. Potential Conflicts of Interest 7.09. The members of the Board are local public officials within the meaning of Chapter 171 of the Local Government Code, as amended, and shall adhere to the City Council code of ethics. If a director has a substantial interest in a business entity or real property which is the subject of deliberation by. the Board, the director shall file an affidavit with the secretary of the corporation stating the nature and extent of the interest. Such affidavit shall be filed prior to any deliberation, vote or decision upon the matter by the Board, and the interested director shall abstain from any deliberation, vote or decision upon 111 Revised May 15. 1995 Page 11 of 15 the matter. Bonds 7.10. Any bonds issued by the Corporation shall be in accordance with the Act and shall not be issued until approved by the City Council and by the bond counsel and financial advisers of the City. ARTICLE VIII. BOOKS, RECORDS, AUDITS Maintenance of Records 8.01. The Corporation shall keep and properly maintain, in accordance with GAAP, complete books, records, accounts, and financial statements pertaining to its corporate funds, activities, and affairs. In addition to proper financial records, the Corporation shall keep correct and complete minutes of all board and committee meetings and all records required by the City of Pearland, by contracting agents, or by funding sources. Compliance with State Law 8.02. All records shall be kept and administered in accordance with the Texas Open Records Act, as amended. Inspection 8.03. Any member of the City Council or director or officer of the Corporation may inspect and receive copies of all books and records of the Corporation required to be kept by the Bylaws. ARTICLE IX. INDEMNIFICATION AND INSURANCE Corporation to Indemnify 9.01 . The Corporation shall indemnify any director or officer or former director or officer of the Corporation for expenses and costs, including attorney's fees, actually and necessarily incurred by the officer or director in connection with any claim asserted against the officer or director by action in court or 111 .Revised May 15. 1995 Page 12 of 15 S otherwise by reason of the person being or having been a director or officer and acting in his or her official capacity, except in relation to matters as to which the person shall have been guilty of gross negligence or misconduct in respect of the matter in which indemnity is sought. Corporation May Provide Insurance 9.02. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation to insure such person against any liability asserted against the person by reason of the person being or having been a director, officer, employee, or agent of the Corporation. The premiums for the insurance shall be paid by the Corporation. ARTICLE X. AMENDMENTS TO BYLAWS 10.01. The Board may alter, amend, or repeal the bylaws or adopt new bylaws, but the change shall be effective only upon approval by the City Council. ARTICLE Xl. PARLIAMENTARY AUTHORITY 11.01. Robert's Rules of Order, Newly Revised, shall be the parliamentary authority for all matters of procedure not specifically covered by the bylaws or any specific rules of procedure adopted by the Board. ARTICLE XII. DISSOLUTION OF THE CORPORATION 12.01. The Corporation is a non-profit corporation. Upon dissolution, all of the Corporation's assets shall be conveyed to the City of Pearland. ARTICLE XIII. MISCELLANEOUS PROVISIONS Legal Authorities Governing Construction of Bylaws • 13.01. The bylaws shall be construed in accordance with the laws of the State of Texas. All references in the bylaws to statutes, regulations, or other sources of legal authority shall refer to the authorities cited, or their Revised May 15, 1995 Page 13 of 15 1 • successors, as they may be amended from time to time. It is expressly provided that theprovisions of theDevelopment r 7 p o ded Corporation Act of 19 9 applicable to corporations governed under Section 4B of that Act are incorporated within these bylaws by reference. : 'In the event of any conflict between the applicable provisions of such Act and these bylaws, then the I , applicable provisions of such Act shall control. • Legal Construction 13.02. If any Bylaw provision is held to be invalid, illegal or unenforceable in any respect, the invalidity, illegality or unenforceability shall not affect any other provision and the bylaws shall be construed as if the invalid, illegal or unenforceable provision had not been included in the bylaws. Seal 13.03. The board of directors may provide for a corporate seal. Such seal would consist of concentric circles containing the words, "Pearland Economic Development Corporation", and, "Texas", in one circle and the word, "Incorporated" together with the date of incorporation of the Corporation • in the other circle. Headings 13.04. The headings used in the bylaws are used for convenience and shall not be considered in construing the terms of the bylaws. Parties Bound 13.05. The bylaws shall be binding upon and inure to the benefit,of the directors, officers and agents of the Corporation and their respective heirs, executors, administrators, legal representatives, successors, and assigns except as otherwise provided in the bylaws. Effective Date . 13.06. These bylaws, and any subsequent amendments thereto, shall be effective of and from the date upon which approval has been given both by the Revised May 15. 1995 Page 14 of 15 board of directors and the City Council. CERTIFICATE OF SECRETARY certify that I am the duly elected and acting secretary of the PEARLAND ECONOMIC DEVELOPMENT CORPORATION, and the foregoing bylaws constitute the bylaws of the Corporation. These bylaws were approved by the City Council of the City of Pearland, Texas, at a meeting held on the , 2A day of 112dwy , 1995, and adopted at a meeting of the Board of Directors held idn the f day of _ J'2 1995. Signed this I day of C�Vizt../ 1995: SECRETARY OF THE CORPORATION IRevised May 15, 1995 Page 15 of 15 EXHIBIT C Proceedings Authorizing Levy of 1/2°A Sales Tax HOU:2579303.1 Cn tj op © k� of * 3519 liberty Drive • Peorland,Texas 77581-5416 TF X A5 (281)485-2411 • Fax(281)485-8764 CERTIFICATION i STATE OF TEXAS § COUNTIES OF BRAZORIA & HARRIS § CITY OF PEARLAND § I, Wendy Standorf, Interim City Secretary of the City of Pearland, Texas, hereby certify that the attached constitutes a true and correct copy of Ordinance No. 682, passed and approved by City Council on November 28, 1994. Witness my hand and seal of the City of Pearland, Texas, this 22nd day of April, 1997, at Pearland, Texas. . . endy Stand Interim City retary I (SEAL) 111 0 PnnNO on Recycled POW l fORDINANCE NO. 682 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS, ORDERING A SPECIAL ELECTION ON ADOPTION OF AN ADDITIONAL ONE-HALF OF ONE PERCENT (ONE-HALF [1/2] CENT) SALES AND USE TAX WITHIN THE CITY OF PEARLAND TO BE USED BY A CITY INDUSTRIAL DEVELOPMENT CORPORATION FOR THE PROMOTION AND DEVELOPMENT OF NEW AND EXPANDED BUSINESS ENTERPRISES AND ANY OTHER PURPOSE AUTHORIZED BY SECTION 4B, ARTICLE 5190 . 6, V.T.C.S . , AS AMENDED, (THE DEVELOPMENT CORPORATION ACT OF 1979) ; PROVIDING FOR THE LOCATION OF POLLING PLACES, PROVIDING FOR NOTICE OF ELECTION AND ORDAINING OTHER RELATED MATTERS. WHEREAS, pursuant to Section 4B(d) , Development Corporation Act of 1979 (Article 5190.6, V.T.C. S. ) , the City Council is authorized to call a Special Election on the adoption of an additional one-half of one percent (one-half [1/2] cent) Sales and Use Tax within the City to be used by a city industrial development corporation for the promotion and development of new and expanded business enterprises and all other purposes authorized by Section 4B, Development Corporation Act of 1979 (Article 5190 .6, V.T.C.S. ) ; and WHEREAS, the City Charter .of the City• of Pearland and the laws of the State of Texas provide that the Election Code of the State of Texas is applicable to said Special Election; and WHEREAS, the City Council desires to call a Special. Election • upon the adoption of such additional Sales and Use Tax; therefore, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS : Section 1 ._ A Special Election is hereby ordered in accordance with the Texas Election Code to be held within the City of 1 Pearland, Texas, on Saturday, January 21, 1995 , from 7 :00 A.M. to 7 :00 P.M. in Brazoria County Election Precincts 12, 26, 28 , 29, 31, 36, 40 , 46 , 47, 51, 58 , and 61 and Harris County Election. Precinct 537 , at the Melvin Knapp Activity Building, 2425 S . Grand Blvd. , Pearland, Texas. Section 2 . In accordance with the Texas Election Code, the following proposition shall be submitted by official ballot to the resident qualified voters of the City of Pearland, Texas, who are eligible to vote: Proposition The adoption of an additional one-half cent ( 1/2 ) Sales and Use Tax within the city to be used by a city indus- trial development corporation for the promotion and develo ment of new and expanded business ente rises and any other purpose authorize y Section 4B, Article 5190.6, V.T.C.S. , as amended, (The Development Corpora- tion Act of 1979) , including but not limited to land, buildings, equipment, facilities and improvements found. by the board of directors of the city's industrial development corporation to: (a) be required or suitable for use for professional and amateur (including children's) sports, athletic, entertainment, tourist, convention, and public park purposes and events, includ- ing stadiums, ball parks, auditoriums, amphitheaters, concert halls, learning centers, parks and park facili- ties, open space, improvements, municipal buildings, museums, exhibition facilities, - and related store, . restaurant, concession, and automobile parking facili- ties, related area transportation facilities, and related- , roads, streets, and water and sewer facilities, and other' related improvements that enhance any of those items; or (b) promote or develop new or expanded business enterprises, including a project to provide public safety facilities, streets and roads, drainage and related improvements, demolition of existing structures, general municipally owned improvements, as well as any improve ments or facilities that are related to any of these projects and any other project that the board in its discretion determines promotes or develops new or I/ expanded business enterprises; or (c) pay the principal . of, interest on, and other costs relating to bonds or other obligations issued by the industrial development 11 2 I corporation to pay the costs of the projects, including maintenance and operation costs, or to refund bonds or other obligations issued to pay the costs of projects. Section 3 . Immediately below the proposition there shall. be printed the words, one above the other, as follows, so as to permit the electors to vote "FOR" or "AGAINST" the proposition, with the ballots to contain such provisions,, markings arid language as required by law: "FOR" "AGAINST" Section 4 . Inez Farmer is hereby appointed as Presiding Judge fof said Special Election and Oleta Hawkins as Alternate Presiding l ' Judge. The Presiding Judge shall appoint the necessary clerks to assist her which shall be not less than two (2) nor more than seven (7) . Notice of appointment of Presiding Judge shall be in accordance with Section 32 . 009 of the Texas Election Code. Section 5 . In accordance with the Texas Election Code, early voting by personal appearance shall be conducted each weekday between the hours of 8:00 A.M. and 5 : 00 P.M. at Pe-arland City Hall. - 3519 Liberty Drive, Pearland, Texas. The period for early voting by personal appearance shall begin on the 20th day before election day and continue through the fourth day before election day. If the 20th day for beginning the period of early. voting is a ISaturday, Sunday, official city holiday, or legal state holiday, 11 the period will begin on the next regular business day. The above designated lace for earlyvotingis also the earlyvoting clerk's 9n P g IImailing address to which ballot applications and ballots voted by 3 mail may be sent. Late voting by sick or disabled voters after close of regular early voting period shall be in accordance with Chapter 102 of the Texas Election Code. Section 6. The City. Secretary is hereby appointed Clerk for. early voting and Sharon Parks and Tommie Jean Vial are hereby appointed Deputy Clerks for early voting. Section 7. In accordance with the Texas Election Code , it is hereby determined that electronic voting systems shall be used in said Special Election for all voting, including early voting by - personal appearance and by mail. Inez Farmer is hereby appointed as the Presiding Judge of the Early Voting Ballot Board and shall appoint the necessary clerks to assist her which shall be not less than two (2) . Section 8 . Notice of this Special Election shall be given in accordance with the terms and .provisions of Chapter 4 of the Election Code and the City Secretary is hereby instructed to have said notice posted and/or published in accordance with Chapter 4. Section 9. Immediately after the Special Election is held, the officer holding the same shall make known results of the returns thereof to the Mayor in accordance with the Texas Election Code. Section 10 . The City Secretary is hereby authorized and instructed to provide and furnish all necessary election supplies to conduct said Special Election. 4 : NO. 682 ;SED and APPROVED on first reading this /1 day of t , A. D. , 1994 . C. V. Cop n r, May2 ,, s ies, ' y Secretary, TRMC SED and APPROVED on second and final reading this o2j1 day , A. D. , 1994. ' "e2/474-,:ifc.---7 C. V. Coppinger, Mayor es, C' y Secretary, TRMC D AS TO ORM: / /// (: ':e Mc lloug , ity A orney 5 PEAR � :r,. Cn ) o O � o Cl((llo f 3 111 c *�, 5* 3519 liberty Drive • Peorlond,Texos 77581-5416- F X N (281)485-2411 • Fox.(281)485-8764 CERTIFICATION STATE OF TEXAS § COUNTIES OF BRAZORIA & HARRIS § CITY OF PEARLAND § . I, Wendy Standorf, Interim City Secretary of the City of Pearland, Texas, hereby certify that the attached constitutes a true and correct copy of Resolution No. R95-1, passed and approved by.City Council on January 23, 1995. Witness my hand and seal of the City of Pearland, Texas, this 22nd day of April, 1997, at Pearland, Texas. Wendy Sta orf Interim City Secretary I (SEAL) i. 0 Owned on Recycled Pepsi 1 i RESOLUTION NO. R95-1 A RESOLUTION AND ORDER OF THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS, CANVASSING THE RETURNS AND DECLARING THE RESULTS OF THE SALES AND USE TAX SPECIAL ELECTION HELD IN THE CITY OF PEARLAND, TEXAS, ON JANUARY 21, 1995. On this the 23rd day of January, 1995, the City Council of the City of Pearland, Texas, convened in Regular Session open to the IIpublic at the regular meeting place thereof with the following members present, to-wit: .C. V. Coppinger PP 9 Mayor D. A. Miller Council, Position One Richard Tetens Council, Position Two Randy Weber Council, Position Three Jerry Richardson Council, Position Four David Smith Council, Position Five Pat Jones . City. Secretary and the following absent: NONE constituting a quorum, and among other proceedings had were the following: Councilmember WEBER introduced a Resolution and 11 Order and moved its adoption. The motion was seconded by Councilmember SMITH , and the motion carried with the adoption of the Resolution and Order prevailed by the following vote: AYES COUNCILMEMBERS RICHARDSON, WEBER, SMITH, TETENS, AND MILLER ABSTENTIONS NONE NAYS NONE • • 1 The Resolution is as follows: WHEREAS, there was held in the City of Pearland, Texas, on the 21st day of January, 1995 , a Sales and Use Tax Special Election for the purpose of submitting by official ballot to the resident qualified voters a proposition on the adoption of an additional 1 one-half of one percent (one-half [1/20] cent) sales and use tax within the City of Pearland to be used by a city industrial development corporation for the promotion and development of new and expanded business enterprises and any other purpose authorized by Section 4B, Article 5190. 6, V.T.C.S. , as amended, (The Development Corporation Act) . WHEREAS, at this Regular meeting of the City Council of the City of Pearland, on January 23 , 1995 , after date of said election, being the first meeting of the City Council to be held since said election at which returns of said election could be considered and final results declared. 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 978 valid and legal votes; and that said election resulted in the ■' following vote totals: 2 EXHIBIT "B" (` . -EARLY VOTING-PRLND CITY-KNAPP Page 1 :42 :05 21-Jan-1995 . SPECIAL ELECTION BRAZORIA COUNTY,TEXAS-JANUARY 21, 1995 • Posn Count Pct ots Cast - TOTAL . . . . 204 . D "CITY PROPOSITION • ' PTION OF ADDITIONAL ONE-HALF CENT (1/2) SALES & USE ,.' WITHIN THE CITY USED. .FOR PROMOTION & DEVELOPMENT. . . ;TE FOR 1 IOR . . . . . • . . 17 122 60 . 40 MIAGAINST . . 18 80 39 . 60 Total . 202 100 . 00 ' the undersigned,. certify that the above results r' true and correct. • . Signed: • • • • 144:41rid • • i EXHIBIT "C" l 4,..' PEARLAND CITY-KNAPP ACT.CENTER Page 1 :47 :44 21-Jan-1995 SPECIAL ELECTION BRAZORIA COUNTY,TEXAS-JANUARY 21,1995 ' Posn Count Pot .otsCast - TOTAL . 778 ARLAND 'CITY PROPOSITION �ITION OF ADDITIONAL ONELF CENT PROMOTION/&, SALES 11 USE DEVELOPMENT. . . X WITHIN THE CITY USED—FOR FOR 1 17 427 55.03 FOR . . , • . , . . . AGAINST . . 18 349 44 .97 Total . • •• •• •• . • 776 100. 00 the ,undersigned, certify that the above results true and correct. Signed: . . EXHIBIT D Resolution of the.City Approving Amended Bylaws of the Corporation HOU:2579303.1 Feb 16 05 04: 04p PEDC • 2816521704 p.2 RESOLUTION NO. R99-36 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS,APPROVING AMENDMENTS TO THE CORPORATE BYLAWS OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION. WHEREAS, the intent and purpose of the Corporate Bylaws of the Pearland Economic Development Corporation ("PEDC") may vary from time to time; and WHEREAS, the PEDC Board of Directors may recommend changes to the PEDC's existing Corporate Bylaws; and • WHEREAS, the PEDC Board of Directors held a meeting on November 2, 1998, and voted unanimously to recommend certain amendments to the PEDC Bylaws; and WHEREAS, any proposed changes to the Corporate Bylaws shall not become effective,until the same has been approved by the City Council of the City of Pearland; • (. _I now, therefore, BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION: • Section 1. That the Corporate Bylaws of the Pearland Economic Development Corporation, a copy of which is attached hereto as Exhibit "A" and incorporated herein for all purposes, is hereby adopted and implemented. ■ . Section 2. Effective Date. This Resolution shall take effect immediately upon passage. Section 3. Public Meeting. It is officially found, determined and declared that the meeting at which this Resolution is adopted was open to the public and public notice 1111 of the time, place and subject matter of the public business to be considered at such meeting, including this Resolution, was given all as required by the Texas Government Code, Chapter 551, as amended. 1 _ Feb 16 05 04: 04p PEDC 2816521704 p.3 { RESOLUTION NO. R99-36 PASSED, APPROVED AND ADOPTED this n' f� day of Nix- I , A.D., 1999. TOM REID MAYOR ATTEST: • UNG I C I S ETAR APPROVED AS TO FORM: DARRIN M. COKER CITY ATTORNEY • 2 i O4: 04pPEDC 26165217'04 p•4 Feb 16 05 i I 1 • EXHIBIT 'A' • -' CORPORATE BYLAWS OF THE • PEARLAND ECONOMIC DEVELOPMENT CORPORATION These Bylaws govern the affairs of the Pearland Economic Development Corporation (the Corporation), 'a public instrumentality and a non-profit corporation created under Section 4B of the Development Corporation Act of 1979 (Tex. Rev. Civ. Stat. Ann. art. 5190.6), as amended (the Act), by the City Council of the City of Pearland (the City Council) to act on behalf of the City of r Pearland (City). ARTICLE I. PURPOSE • 1.01. The Purpose of the Corporation is to promote, assist, and enhance economic development activities and quality of life opportunities within the City and its extraterritorial jurisdiction that promote economic development as authorized by the Act. The Corporation has no members and is a non-stock • corporation. 1.02. The Corporation shall have and exercise all of the rights, powers, privileges, authority and functions given by the general laws ' of Texas to non-profit corporations incorporated under the Act including, without limitation, Article 1396-1.01, et seq., Tex'. Rev. Civ. Stat. Ann., as amended. 1.03. The Corporation ion shall have all other powers of a like or different nature not � prohibited by law which are available to non-profit corporations in Texas and . corporations created under the Act and which are necessary or useful to enable the Corporation to perform the purposes for which it is created, including, but not limited to, the power to issue bonds, notes, or other obligations, and otherwise I exercise its borrowing power to accomplish the purposes for which it was created. • 1.04. The Corporation is created as a local government corporation pursuant to the Act and shall be a governmental unit within the meaning of Subdivision (2), • Section 101.001, Civil Practice and Remedies Code,. as amended. The operations of the Corporation are governmental and not proprietary. functions for the purposes of the Texas Tort Claims Act, Section 101.001 et seq., Civil Practices and Remedies Code, as amended. IPage of14 • Feb 16 05 04: 05p PEDC 2816521704 p•5 • • ARTICLE 11. REGISTERED OFFICE AND AGENT 2.01. The registered agent for the Corporation shall be an individual resident of the state. The registered office for the Corporation shall be within the boundaries of the City it of Pearland. The Board of Directors (the Board) shall initially maintain and use the Pearland City Hall as its administrative office, but may move its Iadministrative office or establish additional offices with the prior approval of the City Council. ARTICLE III. BOARD OF DIRECTORS Powers 3.01. The Corporation shall be managed by a Board of Directors which is- , authorized to exercise the powers authorized by the Act, subject to any limitations of these bylaws, including the following: I - a. To purchase or acquire for the Corporation any property, rights, or l_ • privileges and to pay therefore either wholly or partly in money, bonds, debentures, or other securities of the Corporation as may be lawful. b. To create, make and issue notes, mortgages, bonds, deeds of trust, trust agreements and negotiable or transferrable instruments and securities, secured by a mortgage or deed of trust on any real property of the Corporation or otherwise, and to do every other act or thing necessary to effect the same. 0 c. To sell or lease the real or personal property of the Corporation on the terms the Board sees fit and to execute deeds, leases, and other conveyances or contracts as necessary for carrying out the purpose of this Corporation. Duties 3.02. Directors shall exercise ordinary business judgment in managing the affairs of the Corporation. In acting in their official capacity, directors shall act in good faith and take actions they reasonably believe to be in the best interests of the Corporation and which are lawful. The Board is further required to perform the following duties: Page2of14 Feb 16 05 04: 05p PEDC 2816521704 p.6 - • a Program. The Board shall cause to be prepared an Economic • Development Plan (the Plan) in .accordance with policies and I directives established by the City Council. The Board shall review the Plan at least once a year and submit it to the City Council for its approval. The Plan shall include: • 1. The short- and long-term objectives of the Corporation and • how they might be achieved, including specific details of proposed efforts or programs to achieve those objectives; • 2.. Guidelines for how the Corporation proposes to use the sales and use tax funds received by the Corporation to achieve its objectives, including any limitations on the use of funds; and, • 3. Any other information the City Council requests in writing, be included in the Plan. • . b. Capital Improvements Program (CIP). The Board shall be allowed to work in conjunction with the. Planning and Zoning Commission to develop a five (5) year CIP in accordance with City Charter, as - amended. c. Reports to City Council. With each annual submission of the Plan • • to the City Council, and at any other times requested by the City Council, the Corporation shall submit a written Performance • Report, detailing the activities and accomplishments of the Corporation since the prior Report. • • d. Briefings. The president and executive director shall appear before the City Council to •brief the City Council on activities of the Corporation . e. Budget. At least ninety (90) days prior to commencement of the 1996-97 fiscal year and each fiscal year thereafter, the Board shall adopt a proposed budget of expected revenues and proposed expenditures of the next ensuing fiscal year. The budget shall contain such classifications and shall be in such form as. may be prescribed from time to time by the Finance Department of the City • of Pearland. The Corporation budget shall .not be effective until the same has been approved by the City Council. • Page 3of 14 . • Feb 16 05 04: 05p PEDC • 2816521704 P•7 Number and Qualifications . 3.03. The Board shall consist of seven (7) persons, who shall be appointed by i! the City Council. No Director shall be a person who is a 'City employee, City Councilmember, or any other publicly elected official, Chamber of Commerce director, or member of any City boards. [ ' • •• 3.04. Each director shall be a resident of the City of Pearland.• . • Term . 3.05. Directors shall be appointed to serve two (2) year terms of office. Directors shall be eligible for reappointment without limit to the number of terms served. Effective May 1, 1999, directors shall serve staggered terms as set out in this section. To assist in the transition toward staggered terms, the seven (7) l directors appointed to serve on the Board, effective May 1 , 1999 will serve as follows: . I (a) Three randomly chosen directors' terms will commence on May 1, 1999 and continue through April 30, 2000; I. b Four randomly chosen directors' terms will commence on May 1, ._ 1999 and continue through April 30, 2001. L • Attendance I. inthe Corporation shall be accompanied by active 3.06. Directorship participation in the activities of the Board, and any director who is absent from L three (3) consecutive meetings of the Board without valid excuse as determined by the Board, shall automatically be dismissed from directorship. The.Board shall at once notify the City Council that a vacancy on the Board exists. l • Vacancies L 3.07. Vacancies on the Board shall be filled by appointment by the City Council. P Non-Voting Directors • Corporation, The mayor, city manager, executive director of the. Corpor , the II chairman of the board and the president of the Pearland/Hobby Area Chamber of Commerce and executive director of the Tri-Tech Regional Council, or their IPage4of14 • • l- gib 16 05 04: 05p PEDC 2816521704 P•8 I ' designees, shall serve as ex-officio non-voting directors of the Board. The Board . may: appoint additional. non-voting directors subject to approval of the City Council. Such additional non-voting directors shall serve a term of one year or until their successors are appointed. Non-voting directors shall be given notice of all meetings of the Board and may participate in discussions at Board meetings, but shall not be entitled to vote. Non-voting directors may participate • in executive sessions at the request of the Board. Non-voting directors need not reside in the City. Compensation • 3.09. The directors shall ;not-receive any salary-or"compensation for their • services. However, directors may be reimbursed for their actual and'reasonable expenses incurred in the performance of their duties, including but not limited to the cost of travel, lodging and incidental expenses reasonably related to the corporate duties of the Board. Travel expenses incurred by directors to attend regular and special meetings are not eligible for reimbursement. ARTICLE IV. OFFICERS Officer Positions 4.01. The officers of the Corporation shall be a president, a vice president and a secretary, whom shall be members of the Board. The or more e Board may y elect other. • ces may be officers as the City Council deems necessary. Any tw held by the same person except the offices of the president and secretary. • Election and Terms of Office 4.02. The president, vice president, secretary and any other officers the. City Council deems necessary shall be elected annually by the Board and vacancies in these officer positions may be filled by the Board for the unexpired terms. Each • officer shall hold office until a successor is duly elected and qualified. All officers • shall be subject to removal, with or without cause, .at any time by a vote of a majority of the whole Board. President • 4.03. The president shall be the chief executive officer of the Corporation, and y,; ,e at all Board meetings. The president shall supervise and control the business and affairs of the Corporation and perform any other duties prescribed from time to time by the Board. The president shall have the right to vote on all Page 5 of 14 I • • Feb 16 05 04: 05p PEDC 2816521704 p•9 1 matters coming before the Board, and may execute deeds, mortgages, bonds, contracts or other instruments, as authorized by the Board. The president shall. appoint the members of all committees and all committee chairs. �' Vice President L4.04. The vice president shall perform the duties assigned by the Board. In the absence of the president, or if the president is unable or refuses to act, the vice president shall perform the duties of president. Secretary 4.05. The secretary shall be the custodian of the Corporate records, and shall record and keep all votes and minutes of the meetings of the Board. The secretary shall give notice of all meetings of the Board and its committees, and shall perform such other duties as may be prescribed by the 'president or the Board. An assistant secretary shall assist the secretary in performance of his or ' her duties. Executive.Director • 4.06. The city manager, in consultation with the Board, may employ an executive director to serve as the general manager and chief administrative officer of the Corporation. The executive director shall be subject to the supervision of the city manager and shall perform the duties specifically delegated to him or her by the Board, and such other economic development duties as assigned by the city manager. The executive director shall. serve at the pleasure of the city manager and receive compensation from the funds of the Corporation approved by him or her in consultation with the Board. All incentive or merit provird. sions he must executive approved by the city manager and a majority of the Bodirector shall be responsible for policy and program implementation and.the day to day operations of the Corporation, including the hiring of employees, and the supervision and dismissal of those employees. The executive director shall compile and submit to the Board regular reports and recommendations regarding the programs, policies, and business affairs of the Corporation. . The executive Idirector shall be a non-voting, ex-officio member of the Board and of any committees created by the Board. The executive director shall be an employee of the City of Pearland. • IP . • • Page6of14 • .'eb 16 05 04: 06p PEDC 2816521704 p. 10 Assistant Secretary and Legal Counsel 4.07. An assistant secretary position is created to assist the secretary and the Board in the conduct of the affairs of the Corporation. The city attorney, or such other attorneys selected by the city attorney with the approval of the City Council, shall represent the Corporation in all litigation. The city attorney shall be the legal advisor of, attorney and counsel for, the Corporation and all officers thereof, in conformance with the City Charter, as amended. The assistant secretary and city attorney shall be employees of the City. ARTICLE V. BOARD..COMMITTEES 5.01. The president may appoint persons to serve on standing or ad hoc committees. A committee may include persons who are not directors of the Corporation and who may not reside in the City. Committees will operate under general rules adopted by the Board. Committees may be charged with specific • duties or authority, but shall not have the authority to: • .--. a. Amend the articles of incorporation, amend, alter, .or repeal the bylaws, or adopt a plan of merger or consolidation with another corporation. • • b. Authorize the sale, lease, exchange or mortgage of any of the property or assets of the Corporation or commit Corporation funds without the prior approval of the Board. c. Authorize or revoke proceedings for the voluntary dissolution of the Corporation or adopt a plan for the distribution of the assets of the Corporation. ` d. Approve any transaction to which the Corporation Is a party, take any action outside the scope of authority delegated to it by the Board, take final action on a matter that requires the approval of the Board, or take any action that involves a potential conflict of interest as defined in these bylaws. Committee Terms IP . 5.02. The members of each standing or ad hoc committee shall serve until successors are appointed, unless the Committee is terminated or a member is removed, resigns, or ceases to qualify as a member. Vacancies on committees may be filled in the same manner as the original appointment. Page7of14 • • r'eb 16 05 04: 07p PEDC 2816521704 p. 11 • • ARTICLE VI. MEETINGS Regular Meetings • • 6.01. The Board shall hold at least four (4) regular meetings each year. • Special Meetings 6.02. Special meetings of the Board may be called at the written request of the president or at least two (2) directors. Notice 6.03. Written or printed notice of each regular meeting of the Board shall be delivered to each director not less than seventy two (72) hours before the time of the meeting. The notice shall state the place, date, and time of the meeting. In the case of special meetings, notice may be issued to directors by mail, telephone, fax, or in person at least seventy two (72) hours before the time of the meeting and shall include who called the meeting and the purpose of.the meeting. Quorum • • 6.04. Four (4) directors shall constitute a quorum for the transaction of business at any meeting of the Board. { Action of Board 6.05. The vote of a majority of the directors present and voting at a meeting at which a quorum is present shall be sufficient to constitute the act of the Board. Proxies • 6.06. A director may not vote by proxy. • Open Meetings . • . 6.07. All meetings and deliberations of the Board shall be called, posted, convened and conducted in accordance with the Texas Open Meetings Act, as amended. • ARTICLE VII. FINANCIAL ADMINISTRATION Fiscal Year . . Page 8of14 • "eb 16 05 04: 07p. PEDC 2616521704 p. 12 • I7.01. The fiscal year of the Corporation shall run concurrently with the fiscal year of the City. • Accounts to be Kept with City 7.02. The Corporation shall contract with the City for the administration of its accounts, expenditures, deposits, investment of funds and accounts, and other financial services for the Corporation. The City finance director shall designate the accounts and depositories to be created and designated for such purposes, and the methods of withdrawal of funds therefrom for use by and for the purposes of the Corporation shall be approved by the executive director and presented for the signature of the city manager and finance director or other person as the Board shall designate. Audits 7.03. The City shall cause the Corporation's books, records, accounts, and financial statements, and all other financial activities for the previous fiscal year to be audited at least once each fiscal year by an outside, independent, certified. public accounting firm selected by the City. Council.. Any such audit shall include a written management letter which details suggested management controls and operating efficiencies. The audit and management letter . shall include recommendations for improving cost reductions and safeguarding assets. A 'copy of any such audit and management letter shall be provided to each director, and discussed in an open meeting prior to its submission to the City Council. Each audit and management letter shall be submitted annually to the City Council for approval. Such audit shall be at the expense of the Corporation. • Limitations on Expenditures . 7.04. Before expending funds to undertake a project, the Corporation shall hold at least one public hearing on the proposed project, in accordance with the Act. • Contracts - General 7.05. The Corporation shall follow and be bound by the same purchasing and contracting provisions of State law, including• the provisions on competitive bidding, that are applicable to the City. The Board may by official action authorize any "officer or agent of the Corporation to enter into a contract or execute and deliver any instrument in the name of and on behalf of the Corporation. This authority may be limited to a specific contract or instrument or it may extend to any number and type of possible contracts and instruments. Any . • Page 9 of 14 • • 'eb 16 05 04: 08p PEDC 2816521704 p. 13 • contract of the Corporation which will require an expenditure of funds in excess of $100,000 that the City Council has not previously approved as part of the • Corporation's annual budget or in a city tax abatement agreement, must be approved by the City Council before any payment on the contract is made. Contracts - Administrative Services 7.06. Subject to the paramount authority of the city manager under the City Charter, the Corporation shall have the right to utilize the services and the • staff and employees of the City, provided . (I) that the Corporation shall pay • reasonable compensation to the City for such services, and (ii) the performance of such services does not materially interfere with the other duties of such personnel of the City. An administrative services contract shall be executed between the Board and the City Council for the services provided by the city attorney, assistant secretary, finance department and other City departments, staff and employees: • Gifts 7.07. The Board may accept on behalf of. the Corporation any gift or bequest. Special funds shall include all funds from government contracts, grants, and gifts designated by a donor for special purposes. All other funds shall be general funds. • Potential Conflicts of Interest 7.08. The members of the Board are local public officials within the meaning of Chapter 171 of the Local Government Code, as amended, and shall adhere to the City Council code of ethics. If a director has a substantial interest in a business entity or real property which is the subject of deliberation by the Board, the director shall file an affidavit with the secretary of the corporation stating the nature and extent of the interest. Such affidavit shall be filed prior to any deliberation, vote or decision upon the matter by the Board, and the interested director shall abstain from any deliberation, vote or decision upon the matter. • Bonds 7.09. Any bonds issued by the Corporation shall be in accordance with the Act and shall not be issued until approved by the City Council and by the bond counsel and financial advisers of the.City. • Page10of14 Feb 16 05 04: 08p PEDC 2816521704 p. 14 ARTICLE VIII. BOOKS, RECORDS, AUDITS • Maintenance of Records 8.01. The Corporation shall keep and properly maintain, or contract with the City to keep and properly maintain, in accordance with GAAP, complete books, _ records, accounts, and financial statements pertaining ,to its corporate funds, activities, and affairs. In addition to proper financial records, the Corporation shall keep correct and complete minutes of all board and committee meetings . and all records required by the City of Pearland, by contracting agents, or by funding sources. Compliance with State Law 8.02. All records shall be kept and administered in accordance with the Texas Open Records Act, as amended. . Inspection 8.03. Any member of the City Council or director or officer of the Corporation may inspect and receive copies of all books and records of the Corporation required to be kept by the Bylaws. ' ARTICLE IX. INDEMNIFICATION AND INSURANCE • Corporation to Indemnify anydirector or officer or former director 9.01. The Corporation shall indemnify or officer of the Corporation for expenses and costs, including attorney's fees, actually and necessarily incurred by the officer or director in connection with any claim asserted against the officer or director by action in court or otherwise by reason of the person being or having been a director or officer and acting in his or her official capacity, except in relation to matters as to which the person shall have been guilty of gross negligence or misconduct in respect of the matter in which indemnity is sought. Corporation Shall Provide Insurance • I. 9.02. The Corporation or City shall contract for and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of. the Corporation to insure such person against any liability asserted against the ■- person by reason of the person being or having been a director, officer, Page 11 of 14 • !I'-- Feb 16 05 04: 08p PEDC 2816521704 p. 15 • • employee, or agent of the Corporation. The premiums for the insurance shall be paid by the Corporation. ARTICLE X. AMENDMENTS TO BYLAWS • 10.01. The Board may alter, amend, or repeal the bylaws or adopt new bylaws, but the change shall be effective only upon approval by the City Council. ARTICLE.X1. PARLIAMENTARY AUTHORITY • 11.01. Robert's Rules of Order, Newly Revised, shall be, the parliamentary authority for all matters of procedure not specifically covered bythe bylaws or any - specific rules of procedure adopted by the Board. ARTICLE XII. DISSOLUTION OF THE CORPORATION 12.01. The Corporation is a non-profit corporation. Upon dissolution, all of the Corporation's assets shall be conveyed to the City of Pearland. ARTICLE XIII. MISCELLANEOUS PROVISIONS Legal Authorities Governing Construction Of Bylaws 13.01. The bylaws shall be construed in accordance with the laws of the State • of Texas. All references in the bylaws to statutes, regulations, or other sources of legal authority shall refer to the authorities cited, or their successors, as they may be amended from time to time. It is expressly provided that the provisions of the Development Corporation Act of 1979 applicable to corporations governed under Section 4B of that Act are incorporated within these bylaws by reference. In the event of any conflict between the applicable provisions of such Act and these bylaws, then the applicable provisions of such Act shall control. Legal Construction 13.02. If any Bylaw provision is.held to be invalid, illegal or unenforceable in any I . respect, the invalidity, illegality or unenforceability shall not affect any other. provision and the bylaws shall be construed as if the invalid, illegal or unenforceable provision had not been included in the bylaws. Seal • • Page 12 of 14 . Feb 16 05 04: 09p PEDC 2816521704 p. 16 • • • 13.03. The board of directors may provide for a corporate seal. Such seal would . consist ,of concentric circles containing the words, "Pearland Economic Development Corporation", and, 'Texas", in one circle and the word, "Incorporated" together with the date of incorporation of the Corporation in the other circle. •Headings 13.04. The headings used.in the bylaws are used for convenience and shall not be considered in construing the terms of the bylaws. Parties Bound 13.05. The bylaws shall be binding upon and inure to the benefit of the directors, officers and agents of the Corporation and their respective heirs, executors, • administrators, legal representatives, successors, and assigns except as otherwise provided in the bylaws. • • Effective Date 13.06. These bylaws, and any subsequent amendments thereto, shall be • effective on and from the date upon which approval has been given both by the . board of directors and the City Council. • • • • • • Page 13 of 14 • Feb 16 05 04: 09p PEDC • 2916521704 p. 17•. I • CERTIFICATE OF SECRETARY • • acting etary of the i certify that I am the duly elected and rthe foregoing PEARLAND ECONOMIC DEVELOPMENT CORPORATION, and bylaws constitute the bylaws of the Corporation. These bylaws. tin are held approved the Y - • by the7�ity Council of the City of Pearl19d Texas, and adopted at a meeting of . �� day of P L - the 8o rd of Directors held on the day of NovEMP5f�2 • 2.63 I' = day of N OVEMb.- • 19 Signed this -- Y ETARY F THE CORPORATION I .LF l—-- • i 1 , si P . • ....... 1 1, ' Page 14of14 • 6 • OFFICIAL STATEMENT CERTIFICATE STATE OF TEXAS § COUNTIES OF BRAZORIA, FORT BEND AND HARRIS § PEARLAND ECONOMIC DEVELOPMENT CORPORATION § I, the undersigned, President of the Board of Directors of the Pearland Economic Development Corporation (the "Corporation"), acting solely in my official capacity, do hereby certify on behalf of the Corporation that: 1. I have reviewed the Official Statement of the Corporation dated April 22, 2006 (the "Official Statement"), relating to the $10,235,000 PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE 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 Corporation contained in the Official Statement, and any addenda, supplement or amendment thereto, 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 Corporation 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 Corporation 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 Corporation since September 30, 2005, the date of the last audited financial statements of the Corporation appearing in the Official Statement. 6. To the best of my knowledge and belief, except as disclosed in the Official Statement, no litigation of any nature has been filed or is 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. [Execution Page Follows] HOU:2579371.1 IN WITNESS WHEREOF, I have hereunto set my hand on behalf of the Corporation, as of '5uti.L.2C) , 2006. r de , oard of 'rectors Pearland Economic Development Corporation [EXECUTION PAGE] HOU:2579371.1 FEDERAL TAX CERTIFICATE Pearland Economic Development Corporation Sales Tax Revenue Bonds, Series 2006 I, the undersigned officer of the Pearland Economic Development Corporation of Brazoria and Harris Counties, Texas, a political subdivision of the State of Texas (together with any successor to its duties and functions, the "Corporation") 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 Corporation's Sales Tax Revenue Bonds, Series 2006 (the "Bonds") in the aggregate principal amount of $10,235,000, 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 Corporation for the 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 resolution adopted on May 22, 2006, authorizing the issuance of the Bonds (the Resolution), 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, 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 Resolution. 2. Reasonable Expectations. As an officer of the Corporation responsible for issuing the Bonds, the undersigned hereby certifies, in good faith, that the Corporation'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 and 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 Morgan Keegan & Co., Inc., the initial purchaser that purchased. the Bonds from the Corporation (the"Initial Purchaser") in the Certificate Regarding,Issue Price, attached hereto as Exhibit A and certain representations of RBC Capital Markets, the financial advisor to the Corporation (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 Corporation is issuing the Bonds pursuant to the Resolution to provide funds, which will be used: HOU:2584596.2 (a) to finance the construction of two lanes of Bailey Oiler Road running west from SH 35 and existing Oiler Drive to Veterans Drive, including the acquisition of all necessary rights of way, the construction of drainage and sewage lines along the proposed construction and associated improvements, the construction of a two lane.rail overpass across the Burlington Northern Lines alongthe construction route, the construction of � four lane transition turn-in lanes at SH 35 and Veterans Drive and median cuts for future development along the construction route(collectively,the"Project"); and (b) to pay the costs issuing the Bonds. 4. Proceeds of the Bonds. The sales proceeds from the sale of the. Bonds is $10,407,566.05, which represents the aggregate principal amount of the Bonds of $10,235,000.00,plus net original issue premium of$172,566.05. 5. Use of Proceeds of the Bonds. The sales proceeds from the sale of the Bonds will be expended and applied by the Corporation as follows: (a) Proceeds of the Bonds in the amount of$10,110,000.00 will be used by the Corporation to pay costs of the Project. (b) Proceeds of the Bonds in the amount of $90,066.05 represents the underwriters' fee and will be retained by the Initial Purchaser from the sales proceeds as a cost to the Corporation of issuing the Bonds. (c) Proceeds of the Bonds in the amount of approximately $107,000.00. will be used by the Corporation to pay costs of issuance of the Bonds. (d) Proceeds of the Bonds in the amount of$82,500.00 will be disbursed on the date hereof to pay the cost of insuring the Bonds. (e) Proceeds of the Bonds in the amount of$18,000.00 will be disbursed on the date hereof to pay the premium for the surety policy to be held in the Reserve Fund for the Bonds. 6. Pre-Issuance Accrued Interest. In addition to the sale proceeds described in paragraph 4, the Corporation will receive, upon the issuance of the Bonds, the amount of $6,780.82. representing interest on the Bonds accruing during the period from June 15, 2006, to the date hereof. Such amount will be deposited in the Corporation's Debt Service Fund created pursuant to the Resolution (the "Debt Service Fund") and, along with all investment earnings therefrom, will be disbursed to payinterest on the Bonds on March 1, 2007, the first interest payment date on the Bonds. Because the amount of$6,780.82 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. 7. 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 2 HOU:2584596.2 (as discussed in paragraphs 6 and 14) which have or will have at any time a sufficiently direct nexus 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-- (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 and will not be at any time while the Bonds are outstanding-- (i) any debt service fund, reserve fund, replacement fund, any similar fund, or any amount or investment reasonably expected to be used, directly or indirectly (such as, by the generation of income to be used), to pay principal or interest on the 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 Corporation encounters financial difficulty. A pledge to a guarantor or an agreement to maintain an amount at a particular level or balance for the direct or indirect benefit of bondholder or a guarantor would constitute a pledge for this purpose. (b) No Other Replacement Proceeds. There will be no other replacement proceeds allocable to the Bonds. Based on the reasonable expectations of the Corporation as of the date hereof, the term of the Bonds is not longer than, and the Corporation 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. 8. No Other Issue. There are no other tax-exempt obligations issued by the Corporation or any related party of the Corporation 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. 9. Temporary Period Requirements for the Bonds. (a) Pre-Issuance Accrued Interest. The amount described in paragraph 6 represents pre-issuance accrued interest on the Bonds for a period not in excess of one year and will be expended within one year; therefore, such amount may be invested at an unrestricted yield. (b) Expenditure Test. The District expects at least 85 percent of the net sale proceeds of the Bonds will have been expended prior to June 20, 2009, for costs of the 3 HOU:2584596.2 Project. All net sale proceeds of the Bonds not expended prior to June 20, 2009, will be invested on and after such date until final expenditure at a yield (as defined in paragraph 13) which is not materially higher than the yield on the Bonds,except as set forth in paragraph 17 below. (c) Time Test. The District has incurred or will incur within six months of the date hereof a substantial binding obligation to a third party pursuant to which the District is obligated to expend at least five percent of the net sale proceeds of the Bonds on the Project. (d) Due Diligence. The District expects that the Project will proceed with due diligence to completion and that the net sale proceeds of the Bonds will be expended on the Project with reasonable dispatch. (e) Investment Proceeds. The District expects that all amounts derived from the investment of monies received from the sale of the Bonds and from the reinvestment of such investment proceeds will be expended within three years from the date hereof or within one year after receipt of such investment income, whichever is later. All investment proceeds of the Bonds not expended prior to such date will be invested on and after such date until final expenditure at a yield which is not materially higher than the yield on the Bonds, except as provided in paragraph 17 below. The term "net sale proceeds" shall mean any amount actually or constructively received from the sale of the Bonds, including amounts constituting the underwriter's discount or compensation and accrued interest, other than pre-issuance accrued interest, less amounts invested as part of a reasonably required reserve or replacement fund or as part of a minor portion for the Bonds. 10. 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. 11. Flow of Funds. Under the Resolution, the Corporation is obligated to collect and receive certain revenues of the Corporation in an amount sufficient to pay. debt service on the Bonds. All revenues collected and received by the Corporation for and on account of the Bonds will be deposited into the Debt Service Fund. 12. 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 4 HOU:2584596.2 herein by reference, the Issue Price of the Bonds, without taking into account any costs of issuance or pre-issuance accrued interest, is $10,407,566.05. 13. 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 principal 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 Bonds. For purposes hereof, yield is and shall be calculated on the basis of a 360-day year with interest compounded semi-annually. The yield on the Bonds subject to optional redemption and maturing in the years 2022 through 2027 (the "Yield-to-Call Bonds") is computed by treating each of the Yield-to-Call Bonds as retired at par plus accrued interest on February 15, 2016, because such Bonds 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 Yield-to-Call Bonds. The treatment of the Yield-to-Call Bonds as retired on February 15, 2016,produces the lowest yield on the 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 Corporation 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 in the amount of $82,500.00 paid to insure the Bonds and the premium in the amount of $18,000.00 paid to purchase the Reserve Fund Surety Policy (as defined in the Resolution) for the.Bonds (collectively, the "Insurance Premium"), constitutes a fee for a qualified guarantee; thus the Insurance Premium in the amount of$100,500.00 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 set 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. 5 HOU:2584596.2 (b) Guarantee In Substance. The guarantee imposes secondary liability on Ambac Assurance Corporation ("AMBAC") that unconditionally shifts substantially all of the credit risk for all or part of the payments on the Bonds. AMBAC is not a co- obligor and does not expect to make any payments other than payments for which it will be reimbursed immediately. AMBAC and related parties thereto will not use more than ten percent of the gross proceeds of the Bonds that are guaranteed by AMBAC. (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 Corporation to AMBAC for any other, direct or indirect services other than transfer of the credit risk. The Insurance Premium 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 maturity. The yield on the Bonds, calculated in this manner and as stated in the Certificate of Financial Advisor, attached hereto as Exhibit B, is 4.691930 percent. - 14. Debt Service Fund. The Corporation created pursuant to the Resolution 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 Corporation 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 Corporation 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 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 Corporation reasonably expects that the sum of any amounts in the Debt Service Fund which. (i) are allocable to such Reserve Portion and the Reserve Fund 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 12), (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'17 below. 6 HOU:2584596.2 15. Reserve Fund. The Corporation continued pursuant to the Resolution the Reserve Fund will be used to secure payment of debt service on the Bonds in the event the balance in the Debt Service Fund is insufficient. The reserve requirement represented by the Surety Bond Policy purchased to fund the Reserve Fund allocable to the Bonds will not exceed the least of (i) 10 percent of the Issue Price (as defined in paragraph 12, (ii) the maximum, annual principal and interest requirement on the Bonds, or(iii) 125 percent of the average annual principal and interest requirements on the Bonds, 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 17 below. 16. No Other Sinking Funds. Other than the Debt Service Fund and the Reserve Fund, there are no o other funds or accounts comprised of investment property established by and on behalf of the Corporation (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 pay debt service on the Bonds if the Corporation encounters financial difficulties. Use of amounts in the Debt Service Fund and the Reserve 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. 17. Minor Portion. The Corporation expects that the gross proceeds of the Bonds, including all proceeds received with respect to the Bonds and all investment proceeds received on such amounts, and all other amounts pledged or anticipated to be used to pay principal of and interest on the Bonds, other than amounts representing a portion of the Bona Fide Portion of the Debt Service Fund, will be expended in accordance with paragraphs 5 and 9 above. To the extent that such amounts remain unexpended or are otherwise on hand following the periods set forth in paragraph 9 above exceeds the amount specified in this paragraph, the Corporation 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. 18. Identification of Replacement Proceeds. Notwithstanding the expectations of the Corporation as stated above in paragraph 7 the Corporation 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 Corporation reasonably expected by the Corporation to be used to pay the principal of or interest on the Bonds. If the Corporation 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 Corporation 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 Corporation 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. 19. Compliance with Rebate Requirements. The Corporation has covenanted in the Resolution that, unless the Bonds meet an exception to the rebate requirement, it will take all 7 HOU:2584596.2 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 Corporation will (i) maintain separate records 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 Corporation allocable to other bond issues of the Corporation or moneys which do not represent gross proceeds of any Bond of the Corporation (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 Corporation, (iv) calculate at such times as required by applicable Regulations, the rebatable amount earned from the investment of the gross proceeds of the Bonds which are part of a reasonably required reserve 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 Corporation 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 Corporation will employ accountants or other persons with expertise in performing the rebate calculations as is necessary to insure compliance with the Code. The Corporation will employ legal counsel as is necessary to resolve the interpretive issues involved in complying with the rebate requirements of the Code. Further, the Corporation 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. In the event that the Corporation fails to comply with the rebate requirements of the Code, the Corporation 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 Corporation to return to compliance with the rebate requirements of the Code. If the Corporation 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 Corporation will timely make such payments from available funds of the Corporation, and the Corporation reasonably expects that it will have the ability to make such payments from available funds of the Corporation in the event such payments become necessary. The undersigned reasonably expects that the Corporation will fulfill its covenants and representations in this regard. . The Corporation 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 8 HOU:2584596.2 Regulations. ❑ ® ❑ 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. ❑ ® ❑ 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 1.148-7(j)(1)of the Regulations. ❑ ® ❑ 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. 20. Not a Refunding. 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.. 21. Not a Reimbursement.' Except for those expenditures described in the resolution of the Corporation adopted on March 6, 2006 (attached hereto as Exhibit C) regarding certain expenditures already paid by the City with respect to the Project prior to the date hereof, and certain preliminary expenditures, if any (as defined in Section 1.150-2(f)(2) of the Regulations) not exceeding 20 percent of the Issue Price of the Bonds, none of the proceeds of the Bonds will be allocated to, or otherwise used, to reimburse any expenditure paid, either actually or constructively,by the Corporation prior to the Issue Date. 22. No Change in Use. The Corporation does not expect to dispose of any portion of any project related to the Bonds, or to change the use of the proceeds of the Bonds while any of the Bonds are outstanding. 23. Not a Hedge Bond. The Bonds are not "hedge bonds" within the meaning of Section 1.149(g)-1 of the Regulations. 24. 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 Corporation to exploit the difference between tax-exempt and taxable interest rates to gain a material financial advantage, and (ii)increasing 9 HOU:2584596.2 the burden on the market for tax-exempt obligations. In this regard, the Corporation 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 Corporation has not issued the Bonds in an amount higher than is reasonably necessary to accomplish the governmental purposes of the Bonds, the Corporation has not issued the Bonds earlier than is reasonably necessary to accomplish the governmental purposes of the Bonds and the Corporation is not allowing the Bonds to remain outstanding longer than is reasonably necessary to accomplish the governmental purposes of the Bonds. The Corporation would have issued the Bonds regardless of any arbitrage benefit, which it may realize in connection with the Bonds. In fact, the Corporation 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 Corporation 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 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 Corporation will only expend proceeds of the Bonds for (i) costs that would be chargeable to the capital accounts of the Project if the Corporation'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 from 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 Sale of a Conduit Loan. No portion of the gross proceeds of the Bonds has been or will be used to acquire, finance or refinance a conduit loan. 25. 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 of proceeds will be made by employing the direct-tracing method of accounting, unless the Corporation elects otherwise. 10 HOU:2584596.2 26. Weighted Average Maturity. As calculated by the Financial 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 is 17.655 years, which is the sum of the products of o 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. 27. No Private Use, Payments or Loan Financing. (a) General. The Corporation 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 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 Corporation 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 Corporation 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 control of the Corporation is treated as a deliberate action. A deliberate action occurs on the date the Corporation 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) No portion 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 governmental unit. 11 HOU:2584596.2 (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; (iii) Such personal property will no longer be suitable for its governmental purposes on the date of disposition; and (iv) The Corporation is required to deposit amounts received from such disposition in a commingled fund with substantial tax or other governmental revenues and the Corporation reasonably expects to spend such amounts on governmental programs within 6 months from the date of commingling. 28. 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] tl 12 HOU:2584596.2 WITNESS MY HAND, this 20th day of June, 2006. PEARLAND ECONOMIC DEVELOPMENT CORPORATION By; red elch Executive Director EXHIBIT A—Certificate Regarding Issue Price EXHIBIT B—Certificate of Financial Advisor EXHIBIT C —Reimbursement Resolution 13 HOU:2584596.2 EXHIBIT A CERTIFICATE REGARDING ISSUE PRICE A-1 HOU:2584596.2 EXHIBIT B CERTIFICATE OF FINANCIAL ADVISOR The undersigned hereby certifies with respect to the sale of Pearland Economic Development Corporation Sales Tax Revenue 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 Pearland Economic Development Corporation (the "Corporation") 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 the Reserve Fund Requirement (as defined in the Ordinance) maintained in the Reserve 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 Corporation and unanticipated financial problems of the Corporation. 3. 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 principal 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 Bonds. For purposes hereof, yield is and shall be calculated on the basis of a 360=day year with interest compounded semi-annually. The yield on the Bonds subject to optional redemption and maturing in the years 2022 through 2027 (the "Yield-to-Call Bonds") is computed by treating each of the Yield-to-Call Bonds as retired at par plus accrued interest on February 15, 2016, because such Bonds 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 Yield-to-Call Bonds. The treatment of the Yield-to-Call Bonds as retired on February 15, 2016,produces the lowest yield on the 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 Corporation 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 B-1 HOU:2584596.2 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 in the amount of $82,500.00 paid to insure the Bonds and the premium in the amount of $18,000.00 paid to purchase the Reserve Fund Surety Policy (as defined in the Resolution) for the Bonds (collectively, the "Insurance Premium"), constitutes a fee for a qualified guarantee; thus the Insurance Premium in the amount of$100,500.00 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 set 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. (d) Guarantee In Substance. The guarantee imposes secondary liability on AMBAC Assurance Corporation("AMBAC")that unconditionally shifts substantially all of the credit risk for all or part of the payments on the Bonds. AMBAC is not a co- obligor and does not expect to make any payments other than payments for which it will be reimbursed immediately. AMBAC and related parties thereto will not use more than ten percent of the gross proceeds of the Bonds that are guaranteed by AMBAC. (e). 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 .Corporation to AMBAC for any other direct or indirect services other than transfer of the credit risk. The Insurance Premium 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 maturity. The yield on the Bonds as calculated in this manner is 4.691930 percent. 3. The Financial Advisor calculated the weighted average maturity.of the Bonds to be 17.655 years. 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 24 of the Federal Tax Certificate are, to the best of our knowledge, true, correct and complete. [SIGNATURE PAGE FOLLOWS] B-2 HOU:2584596.2 The Financial Advisor hereby authorizes the Corporation 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 Corporation 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 Corporation,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 June 20,2006. RBC CAPITAL MARKETS 7 By: / 06z., Rya 'Hara Vic President B-3 HOU:2584596.2 i _' Form 8038-G Information Return for Tax-Exempt Governmental Obligations ► Under Internal Revenue Code section 149(e) OMB No.1545-0720 (Rev. November 2000) ► See separate Instructions. Department of the Treasury Caution:If the issue price is under$100,000, use Form 8038-GC. Internal Revenue Service Part I Reporting Authority If Amended Return, check here ► ❑ 1 Issuer's name 2 Issuer's employer identification number Pearland Economic Development Corporation 74; 6028909 3 Number and street(or P.O. box if mail is not delivered to street address) Room/suite 4 Report number 3519 Liberty Drive 3 2006-1 5 City,town, or post office, state,and ZIP code 6 Date of issue Pearland,Texas 77581 06/20/2006 7 Name of issue 8 CUSIP number Sales Tax Revenue Bonds,Series 2006 704871 CL4 9 Name and title of officer or legal representative whom the IRS may call for more information 10 Telephone number of officer or legal representative Kathryn V.Garner, Bond Counsel ( 713 ) 220-3948 Part II Type of Issue (check applicable box(es) and enter the issue price) See instructions and attach schedule — 11 ❑ Education 11 12 ❑ Health and hospital 12 13 11 Transportation 13 10,407,566.05 14 ❑ Public safety 14 15 ❑ Environment(including sewage bonds) 15 16 ❑ Housing 16 17 ❑ Utilities 17 18 ❑ Other. Describe ► 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 ► ❑ �� Part III Description of Obligations. Complete for the entire issue for which this form is being filed. (a)Final maturity date (b)Issue price (c)Stated redemption (d)Weighted (e)Yield price at maturity average maturity 21 09/01/2030 $ 10,407,566.05 $ 10,235,000.00 17.655 years 4.691930 Part IV Uses of Proceeds of Bond Issue (including underwriters' discount) 22 Proceeds used for accrued interest 22 6,780.82 23 Issue price of entire issue (enter amount from line 21, column (b)) 23 10,407,566.05 24 Proceeds used for bond issuance costs(including underwriters' discount) . 24 197,066.05 r 25 Proceeds used for credit enhancement 25 100,500.00 26 Proceeds allocated to reasonably required reserve or replacement fund . 26 0.00 27 Proceeds used to currently refund prior issues 27 0.00 j _, 28 Proceeds used to advance refund prior issues 28 0.00 29 Total (add lines 24 through 28) 29 297,566.05 30 Nonrefunding proceeds of the issue (subtract line 29 from line 23 and enter amount here). . 30 10,110,000.00 Part V Description of Refunded Bonds (Complete this part only for refunding bonds.) 31 Enter the remaining weighted average maturity of the bonds to be currently refunded . . . ► years 32 Enter the remaining weighted average maturity of the bonds to be advance refunded . . ► years 33 Enter the last date on which the refunded bonds will be called ► 34 Enter the date(s)the refunded bonds were issued ► Part VI Miscellaneous 35 Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) . , , 35 36a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract(see instructions) 36a b Enter the final maturity date of the guaranteed investment contract ► rA 37 Pooled financings: a Proceeds of this issue that are to be used to make loans to other governmental units 37a b If this issue is a loan made from the proceeds of another tax-exempt issue, check box ► ❑ and enter the name of the issuer ► 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 . . ► ❑ 39 If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box ► ❑ 40 If the issuer has identified a hedge, check box ► ❑ Under penalties of perjury,I declare that I have examined this return and accompanying schedules and statements,and to the best of my knowledge and belief,they are true,correct,and complete. - Sign / J , Here /_...."A Ai�1"� ��` £( l Fred Welch,Executive Director signature of issuer's authorized representative Date rType or print name and title For Paperwork Reduction Act Notice, see page 2 of the Instructions. Cat.No.63773S Form 8038-G (Rev. 11-2000) CERTIFICATE OF BOND INSURER In connection with the issuance of$10,235,000 in aggregate principal amount of the Pearland Economic Development Corporation, Texas (the "Obligor"), Sales Tax Revenue Bonds,Series 2006,dated June 15,2006(the"Obligations"),Ambac Assurance Corporation ("Ambac") is issuing a Surety Bond (the "Surety") and a Financial Guaranty Insurance Policy (the "Policy"). The Surety guarantees payment of an amount not to exceed $788,957.00 to fund the Reserve Requirement(as defined in the Surety), all as more fully set out in the Surety, and the Policy guarantees the payment of principal of and interest when due on the Obligations,all as more fully set out in the Policy. Ambac On behalf of Ambac,the undersigned hereby certifies that: (i) the Surety is an unconditional and recourse obligation of Ambac to pay the scheduled payments of interest and principal on the Obligations in the event a draw on the Debt Service Reserve Fund is required under the Resolution and the amount credited to such Debt Service Reserve Fund is insufficient to make such payment(up to but not in excess of the Surety Bond Coverage as defined in the Surety); (ii) the Policy is an unconditional and recourse obligation of Ambac (enforceable by or on behalf of the holders of the Obligations) to pay the scheduled payments of interest and principal on the Obligations in the event of a Nonpayment as defined in the Policy; (iii) the premiums of$18,000.00 for the Surety and$82,500.00 for the Policy were determined in arm's length negotiations in accordance with our standard procedures, are required to be paid as a condition to the issuance of the Surety and the Policy, and represent reasonable charges for the transfer of credit risk; (iv) no portion of such premiums represents a payment for any direct or indirect services other than the transfer of credit risk,including costs of underwriting or remarketing the Obligations or the cost of insurance for casualty of Obligation financed property; (v) we are not co-obligors on the Obligations and we do not reasonably expect that we will be called upon to make any payment under the Surety or the Policy;and (vi) the Obligor is not entitled to a refund of any portion of the premiums for the Surety or the Policy in the event that the Obligations are retired prior to their stated maturity. IN WITNESS WHEREOF, Ambac Assurance Corporation has caused this certificate to be executed in its name on this 20th day of June, 2006, by one of its officers duly authorized as of such date. AMBAC ASSURANCE CORPORATION By: kaa„,viAok' Nicholas A.Concilio Vice President and Assistant General Counsel INCUMBENCY CERTIFICATE OF AMBAC ASSURANCE CORPORATION I, Yolanda Ortiz, Assistant Secretary of Ambac Assurance Corporation, do hereby certify that: Ambac 1. The below-named persons are the Vice President and Assistant General Counsel, the Vice President, and the Assistant Secretary of Ambac Assurance Corporation and the signatures set opposite their names are genuine and true signatures. 2. Nicholas A. Concilio, Danielle Packer and Mike Filomio are authorized to execute guaranty agreements and surety bonds guaranteeing obligations on behalf of Ambac Assurance Corporation. Name Title Signature Nicholas A. Concilio Vice President and aA, Gt Assistant General Counsel Danielle Packer Vice President Mike Filomio Assistant Secretary IN WITNESS WHEREOF, I hereunto set my hand and deliver this Certificate on this 16th day of June,2006. AMBAC ASSURANCE CORPORATION By: olanda Ortiz ssistant Secret A N D R E W S 600 Travis,Suite 4200 Houston,Texas 77002 ATTORNEYS K U R T H LLP 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com June 20, 2006 WE HAVE ACTED as Bond Counsel for the Pearland Economic Development Corporation (the "Corporation") in connection with an issue of bonds (the "Bonds") described as follows: PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS, SERIES 2006, dated June 15, 2006, in the aggregate principal amount of $10,235,000, maturing on September 1 in each year from 2007 through 2021, inclusive, and on September 1 in the years 2024, 2027, and 2030. The Bonds are issuable in fully registered form only, in denominations of $5,000 or integral multiples thereof, bear interest, are subject to redemption prior to maturity and may be transferred and exchanged as set out in the Bonds and in the resolution (the "Resolution") adopted by the Board of Directors of the Corporation 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 suchcapacity c acit 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, as described in the Resolution. The transcript contains certified copies of certain proceedings of the Corporation and the City of Pearland, Texas (the "City"); certain certifications and representations and other material facts within the knowledge and control of the Corporation and the City, upon which we rely; and certain other customary documents and instruments authorizing and relating to the issuance of the Bonds. 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 Corporation or the City or the disclosure thereof in connection with the sale of the Bonds. Our role in connection with the Corporation'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: (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 special obligations of the Corporation enforceable in accordance HOU:2574675.1 Austin Dallas Houston London Los Angeles New York The Woodlands Washington,DC 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 (2) The Bonds are secured by and payable solely, both as to principal and interest, from the receipts of a sales and use tax levied by the City for the benefit of the Corporation, which taxes have been pledged irrevocably to pay the principal of and interest on the Bonds; and (3) The Bonds are special obligations solely of the Corporation and are not obligations of the State of Texas, the City nor any political corporation, subdivision or agency of the State. 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 Corporation 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 purposes. The Corporation has covenanted in the Resolution 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 HOU:2574675.I 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. YAILIL L(.4\ 7867/7866 HOU:2574675.1 /� w i D p C \A t S 600 Travis,Suite 4200 /'1�v R C �/1/ Houston, Texas 77002 ATTORNEYS KU R T H LLP 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com June 20, 2006 Ambac Assurance Corporation One State Street Plaza New York,New York 10004 Re: Pearland Economic Development Corporation Sales Tax Revenue Bonds, Series 2006 Ladies and Gentlemen: We have acted as Bond Counsel to the Pearland Economic Development Corporation (the "Corporation"), in connection with the issuance by the Corporation of the above-referenced bonds (the"Bonds") and the execution and delivery by the Corporation of a Guaranty Agreement, dated as of June 20, 2006 (the "Agreement"), between the Corporation and Ambac Assurance Corporation ("Ambac"). The Agreement is being executed and delivered by the Corporation pursuant to the provisions of a resolution adopted by the Board of Directors of the Corporation on May 22, 2006 authorizing the issuance of the Bonds (the"Resolution"). The Resolution authorizes the purchase of a surety policy (the "Surety Policy") for the Reserve Fund established for the Bonds and further provides for the execution of such documents necessary to obtain the Surety Policy. The Agreement provides the terms under which the Corporation is required to reimburse Ambac for payments made by Ambac under the Surety Policy. Capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Agreement and the Resolution. We have examined the Agreement, the Surety Policy, the Resolution, and such other official proceedings, documents, opinions, certificates and materials as we have deemed necessary for the purpose of rendering the opinions expressed below. In our examinations, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original copies of all documents submitted to us as certified or photostatic copies,the authenticity of the originals of such latter documents, and the accuracy of the statements contained in such certificates. Based upon the foregoing and subject to the qualifications and exceptions hereinafter noted, we are of the opinion that, under applicable laws of the United States of America and the State of Texas in force and effect on the date hereof, the Agreement has been duly authorized, executed and delivered by the Corporation and constitutes a valid and legally binding agreement of the Corporation enforceable in accordance with its terms. Our opinion expressed in the preceding paragraph is qualified to the extent that (a) the enforceability of the obligations of the Corporation under the Agreement, including the payment of fees and amounts due thereunder may be limited by (i) bankruptcy, insolvency, reorganization, moratorium, or similar laws of general application from time to time affecting the HOU:2588406.1 Austin Beijing Dallas Houston London Los Angeles New York The Woodlands Washington, DC June 20, 2006 Page 2 rights of creditors and secured parties generally and(ii) general principles of equity which permit the exercise of judicial discretion; and (b) a particular court may refuse to grant certain equitable remedies, including, without limitation, specific performance with respect to the enforceability of any of the provisions of the Agreement. Our opinion is limited solely to the laws of the United States of America and the State of Texas, and we express no opinion with respect to laws or court decisions of any other jurisdiction. The opinion expressed herein may be relied upon only by the addressees hereof and by other persons to whom specific permission to rely on such opinion is given in writing. • Respectfully submitted, ap,41)/uidjA HOU:2588406.1 ATTORNEY GENERAL OF TEXAS GREG ABBOTT 'June 19, 2006 THIS IS TO CERTIFY that Pearland Economic Development Corporation(the "Issuer") has submitted to me Pearland Economic Development Corporation Sales Tax Revenue Bond,Series 2006(the"Bond"),in the principal amount of$10,23 5,000, for approval. The Bond is dated June 15, 2006, numbered T-1, and was authorized • by a Resolution of the Issuer passed on May 22, 2006 (the "Resolution"). I have examined the law and such certified proceedings and other papers as I deem necessary to render this opinion. • As to questions of fact material to my opinion,I have relied upon representations of the Issuer contained in the certified proceedings and other certifications of public officials furnished to me without undertaking to verify the same by independent investigation. I express no opinion relating to any official statement or other offering material relating to the Bond. Based on my examination,I am of the opinion,as of the date hereof and under existing law, as follows (capitalized terms, except as herein defined, have the meanings given to them in the Resolution): (1) The Bond has been issued in accordance with law and is a valid and binding special obligation of the Issuer. (2) The Bond is secured by and payable solely from a first lien on and pledge of the Pledged Revenues,which includes the proceeds received by the City and transferred to the Issuer from a Sales Tax levied pursuant to Section 4B of the Act. • (3) The owner of the Bond shall never have the right to demand payment of the Bond from any tax proceeds,other than the Pledged Revenues collected by the City for the benefit of the Issuer pursuant to Section 4B of the Act, or from any other source. POST OFFICE Box 12548, AUSTIN, TEXAS 78711-2548 TEL:(512)463-2100 WWW.OAG.STATE.TX.US An Equal Employment Opportunity Employer • Printed on Regaled Paper Pearland Economic Development Corporation Sales Tax Revenue Bond,Series 2006-$10,235,000 -Page 2 - (4) Neither the State of Texas, the City of Pearland, Texas, nor any other political corporation, subdivision, or agency of the State of Texas, shall be obligated to pay the Bond or the interest thereon and neither the faith and credit nor the taxingpower of the State of Texas,the City of Pearland,Texas,or any other political corporation, subdivision,or agency thereof is pledged to the payment of the principal of or interest on such Bond. Therefore, the Bond is approved. abLts.fsle_ Attorney eneral of the State of Texas No.44929 Book No.2006B AAA 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 19th day of June. 2006, I signed the name of the Comptroller to the certificate of registration endorsed upon the: Pearland Economic Development Corporation Sales Tax Revenue Bond,Series 2006, numbered T-1, d e June 15. 2006, nd that in signing the certificate of registration I used the following signatu : IN WITNES EREOF I have execute is a tificate this e 19th 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 71528. GIVEN under my hand and seal of office at Austin, Texas, this the 19th day of June. 2006. CAROLE KEETON STRAYHORN Comptroller of Public.Accounts of the State of Texas 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: Pearland Economic Development Corporation Sales Tax Revenue Bond, Series 2006 numbered T-1, of the denomination of $ 10,235,000, dated June 15, 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 Comptroller, on the 19th day of June, 2006, under Registration Number 71528. Given under myhand and seal of office, at Austin, Texas, the 19th dayof June, 2006. CAROLE KEETON STRAYHORN Comptroller of Public Accounts of the State of Texas 1 Ambac Assurance Corporation One State Street Plaza NewYork,NY 10004 212.668.0340 Fax:212.509.9190 A member of the Ambac Financial Gu%Inc. June 20,2006 Pearland Economic Development Corporation RBC Dail Rauscher Inc. 3519 Liberty Drive 1001 Fannin Street Pearland,TX 77581 Houston,TX 77002 Morgan Keegan&Company,Inc. Andrews Kurth LLP 50 North Front Street 600 Travis Memphis,TN 38103 Houston,TX 77002 Ambac Wells Fargo Bank,N.A. 1000 Louisiana Street Houston,TX 77002 Ladies and Gentlemen: This opinion has been requested of the undersigned, a Vice President and an Assistant General Counsel of Ambac Assurance Corporation,a Wisconsin stock insurance corporation ("Ambac Assurance"), in connection with the issuance by Ambac Assurance of a certain Financial Guaranty Insurance Policy(the"Policy")and a certain Surety Bond(the"Surety"), each effective as of the date hereof. The Policy insures $10,235,000 in aggregate principal amount of the Pearland Economic Development corporation, Texas (the "Obligor"), Sales Tax Revenue Bonds, Series 2006, dated June 15, 2006 (the "Obligations"), and the Surety guarantees payment of an amount not to exceed $788,957.00 to fund the Reserve Requirement(as defined in the Surety)established in connection with the Obligations. In connection with my opinion herein, I have examined the Policy, the Surety and such statutes,documents and proceedings as I have considered necessary or appropriate under the circumstances to render the following opinion, including, without limiting the generality of the foregoing, certain statements contained in the Official Statement of the Obligor dated May 22, 2006 relating to the Obligations (the "Official Statement") under the headings "FINANCIAL GUARANTY INSURANCE", "RESERVE FUND SURETY POLICY SECURITY FOR THE OBLIGATIONS" and "APPENDIX E — SPECIMEN OF FINANCIAL GUARANTY INSURANCE POLICY". Based upon the foregoing and having regard to legal considerations I deem relevant,I am of the opinion that: 1. Ambac Assurance is a stock insurance corporation duly organized and validly existing under the laws of the State of Wisconsin and duly qualified to conduct an insurance business in the State of Texas. 2. Ambac Assurance has full corporate power and authority to execute and deliver the Policy and the Surety, and the Policy and the Surety have been duly authorized, executed and delivered by Ambac Assurance and constitute legal,valid and binding obligations of Ambac Assurance enforceable in accordance with their terms, except to the extent that the enforceability(but not the validity)of such obligations may be limited by any applicable bankruptcy,insolvency,liquidation,rehabilitation or other similar law or enactment now or hereafter enacted affecting the enforcement of creditors'rights. 3. The execution and delivery by Ambac Assurance of the Policy and the Surety will not, and the consummation of the transactions contemplated thereby and the satisfaction of the terms thereof will not, conflict with or result in a breach of any of the terms, conditions or provisions of the Certificate of Authority, Articles of Incorporation or By-Laws of Ambac Assurance, or any restriction contained in any contract,agreement or instrument to which Ambac Assurance is a party or by which it is bound or constitute a default under any of the foregoing. Ambac 4. Proceedings legally required for the issuance of the Policy and the Surety have been taken by Ambac Assurance and licenses, orders, consents or other authorizations or approvals of any governmental boards or bodies legally required for the enforceability of the Policy and the Surety have been obtained; any proceedings not taken and any licenses, authorizations or approvals not obtained are not material to the enforceability of the Policy or the Surety. 5. The statements contained in the Official Statement under the headings "FINANCIAL GUARANTY INSURANCE" and "RESERVE FUND SURETY POLICY SECURITY FOR THE OBLIGATIONS", insofar as such statements constitute summaries of the matters referred to therein, accurately reflect and fairly present the information purported to be shown and, insofar as such statements describe Ambac Financial Group, Inc. (the "Company") and Ambac Assurance, fairly and accurately describe the Company and Ambac Assurance, except that all references therein to the "Obligations" should be considered references to the "Bonds"(as such term is defined in the Official Statement). 6. The form of the Policy contained in the Official Statement under the heading "APPENDIX E — SPECIMEN OF FINANCIAL GUARANTY INSURANCE POLICY"is a true and complete copy of the form of the Policy. The opinions expressed herein are solely for your benefit, and may not be relied upon by any other person. Very truly yours, Nicholas A. Concilio Vice President and Assistant General Counsel $10,235,000 PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS SERIES 2006 RECEIPT AND CROSS RECEIPT June 20, 2006 I, the undersigned, a duly authorized representative of Wells Fargo Bank, National Association, paying agent/registrar for the Pearland Economic Development Corporation Sales Tax Revenue Bonds, Series 2006 (the "Bonds"), hereby acknowledge receipt on behalf of the Pearland Economic Development Corporation (the "Corporation") of the full purchase price for the Bonds in the total amount of$10,241,780.82 (representing the par amount of the Bonds of $10,235,000.00,plus accrued interest of$6,780.82) on the date hereof. WELLS FARGO BANK,NATIONAL ASSOCIATION By: w¢� Name: Christina Faith Title: Vice President I, the undersigned, a duly authorized representative of Morgan Keegan & Company, Inc., hereby acknowledge receipt from the Corporation of the initial bonds of its $10,235,000 Sales Tax Revenue Bonds, Series 2006, dated June 15, 2006, which have been delivered to the undersigned in proper form on the date hereof. MORGAN KEEGAN& COMPANY, INC. By: Name: Title: HOU:2588850.1 JUN-23-2006 10:44 MORGAN KEEGAN-DTI4FIF504 9015794465 P.02/02 $10,235,000 PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS SERIES 2006 RECEIPT AND CROSS RECEIPT June 20,2006 I, the undersigned, a duly authorized representative of Wells Fargo Bank, National Association, paying agent/registrar for the Pearland Economic Development Corporation Sales Tax Revenue Bonds, Series 2006 (the "Bonds"), hereby acknowledge receipt on behalf of the Pearland Economic Development Corporation (the "Corporation") of the full purchase price for the Bonds in the total amount of$10,241,780.82 (representing the par amount of the Bonds of $10,235,000.00,plus accrued interest of$6,780.82)on the date hereof. WELLS FARGO BANK,NATIONAL ASSOCIATION • By: Name: Title: I, the undersigned,a duly authorized representative of Morgan Keegan&Company, Inc., hereby acknowledge receipt from the Corporation of the initial bonds of its $10,235,000 Sales Tax Revenue Bonds, Series 2006, dated June 15, 2006, which have been delivered to the undersigned in proper form on the date hereof. MORGAN KEEGAN&COMPANY,INC. By: Wa 3. 1 y 0 Name: 1-4S6- C.\rNe_Jc1t Title: f S'f'VP t1nT T.',C000Cl1 1 TOTAL P.02 REGISTRAR'S RECEIPT The undersigned duly authorized representative of Wells Fargo Bank, National Association, the Registrar of the following described bonds: PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE BONDS, SERIES 2006, in the total authorized aggregate amount of $10,235,000 certifies that it has duly registered the above-mentioned bonds in accordance with the Resolution, dated May 22, 2006, and that such bonds have been delivered to the purchaser thereof. EXECUTED AND DELIVERED this June 20, 2006. WELLS FARGO BANK,NATIONAL ASSOCIATION Name: C ns Title: vice President HOU:2588855.1 ilmbacAmbac Assurance Corporation One State Street Plaza, 15th Floor New York,New York 10004 Financial Guaranty Insurance Policy Telephone: (212) 668-0340 Obligor: PEARLAND ECONOMIC DEVELOPMENT CORPORATION Policy Number: 25383BE Obligations: AS DESCRIBED ON THE REVERSE HEREOF Premium: $82,500.00 Ambac Assurance Corporation (Ambac), a Wisconsin stock insurance corporation, in consideration of the payment of the premium and subject to the terms of this Policy,hereby agrees to pay to The Bank of New York,as trustee,or its successor(the "Insurance Trustee"),for the benefit of the Holders,that portion of the principal of and interest on the above-described obligations (the"Obligations")which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Obligor. Ambac will make such payments to the Insurance Trustee within onebusiness dayfollowingwritten notification to Ambac of PY (1) Nonpayment.Upon a Holder's presentation and surrender to the Insurance Trustee of such unpaid Obligations or related coupons, uncanceled and in bearer form and free of any adverse claim, the Insurance Trustee will disburse to the Holder the amount of principal and interest which is then Due for Payment but is unpaid.Upon such disbursement,Ambac shall become the owner of the surrendered Obligations and/or coupons and shall be fully subrogated to all of the Holder's rights to payment thereon. In cases where the Obligations are issued in registered form,the Insurance Trustee shall disburse principal to a Holder only upon presentation and surrender to the Insurance Trustee of the unpaid Obligation,uncanceled and free of any adverse claim,together with an instrument of assignment,in form satisfactory to Ambac and the Insurance Trustee duly executed by the Holder or such Holder's duly authorized representative, so as to permit ownership of such Obligation to be registered in the name of Ambac or its nominee. The Insurance Trustee shall disburse interest to a Holder of a registered Obligation only upon presentation to the Insurance Trustee of proof that the claimant is the person entitled to the payment of interest on the Obligation and delivery to the Insurance Trustee of an instrument of assignment,in form satisfactory to Ambac and the Insurance Trustee,duly executed by the Holder or such Holder's duly authorized representative,transferring to Ambac all rights under such Obligation to receive the interest in respect of which the insurance disbursement was made.Ambac shall be subrogated to all of the Holders'rights _' to payment on registered Obligations to the extent of any insurance disbursements so made. In the event that a trustee or paying agent for the Obligations has notice that any payment of principal of or interest on an Obligation which has become Due for Payment and which is made to a Holder by or on behalf of theObligor has been deemed • a preferential transfer and theretofore recovered from the Holder pursuant to the United States Bankruptcy Code in accordance with a final,nonappealable order of a court of competent jurisdiction,such Holder will be entitled to payment from Ambac to the extent of such recovery if sufficient funds are not otherwise available. As used herein,the term"Holder"means any person other than (i)the Obligor or(ii)any person whose obligations constitute the underlying security or source of payment for the Obligations who, at the time of Nonpayment, is the owner of an Obligation or of a coupon relating to an Obligation. As used herein, "Due for Payment",when referring to the principal of Obligations,is when the scheduled maturity date or mandatory redemption date for the application of a required sinking fund installment has been reached and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by application of required sinking fund installments), acceleration or other advancement of maturity; and, when referring to interest on the Obligations, is when the scheduled date for payment of interest has been reached. As used herein, "Nonpayment"means the failure of the Obligor to have provided sufficient funds to the trustee or paying agent for payment in full of all principal of and interest on the Obligations which are Due for Payment. ' f This Policy is noncancelable. The premium on this Policy is not refundable for any reason,including payment of the Obligations prior to maturity. This Policy does not insure against loss of any prepayment or other acceleration payment which at any time may become due in respect of any Obligation,other than at the sole option of Ambac,nor against any risk other than Nonpayment. In witness whereof,Ambac has caused this Policy to be affixed with a facsimile of its corporate seal and to be signed by its duly authorized officers in facsimile to become effective as its original seal and signatures and binding upon Ambac by virtue of the countersignature of its duly authorized representative. el '•ol President ° ` SEAL `1 ecretaryg-A-A--14— r,4:\ June 20 2006 �% '".`;:.0 0.6.. Effective Date: ��`_��• Authoriz epresentative THE BANK OF NEW YORK acknowledges that it has agreed encuict4aito to perform the duties of Insurance Trustee under this Policy. I Form No.: 2B-0012 (1/01) Authorized Officer of Insurance Trustee A- 09783 � I ArnbaCAmbac Assurance Corporation • c/o CT Corporation Systems 44 East Mifflin Street Madison,Wisconsin 53703 Administrative Office: One State Street Plaza New York,New York 10004 • Telephone: (212)668-0340 • IMPORTANT NOTICE To obtain information or make a complaint you may contact the Texas Department of Insurance to obtain information on companies,coverages,rights or complaints at: • 1-800-252-3439 • You may write the Texas Department of Insurance at: P.O.Box 149104,Austin,Texas 78714-9104. FAX: (512)475-1771 • PREMIUM OR CLAIM DISPUTES • Should you have a dispute concerning your premium or about a claim you should contact Ambac Assurance Corporation first. If the dispute is not resolved,you may contact the Texas Department of Insurance. ` • ATTACH THIS NOTICE TO YOUR POLICY: This notice is for information only and does not become a part or condition of the attached document. Form No.: 25-5080(7/97) SURETY BOND Ambac Assurance Corporation Statutory Office: Administrative Office: do CT Corporation One State Street Plaza. 44 East Mifflin Street New York,New York 10004 Madison,Wisconsin 53703 Telephone:(212)668-0340 Policy No. SB2297BE Ambac Assurance Corporation ("Ambac"), in consideration of the payment of the premium and subject to the terms of this Surety Bond, hereby unconditionally and irrevocably guarantees the full and complete payments which are to be applied to payment of principal of and interest on the Obligations (as hereinafter defined) and which are required to be made by or on behalf of the Pearland Economic Development Corporation (the "Obligor") to Wells Fargo Bank, N.A., Minneapolis, Minnesota(the "Paying Agent"), as such payments are due by the Obligor but shall not be so paid, pursuant to a Resolution of the Obligor, adopted on. May 22, 2006 (the "Resolution"), authorizing the issuance of the Obligor's $10,235,000 in aggregate principal amount of Sales Tax Revenue Bonds, Series 2006 (the "Obligations") and providing the terms and conditions for the issuance of said Obligations; provided that the amount available at any particular time to be paid to the Paying Agent under the terms hereof shall not exceed the Surety Bond Coverage, defined herein as the lesser of$788,957 or the Reserve Fund Requirement for the Obligations, as that term is defined in the Resolution (the "Reserve Requirement"). The Surety Bond Coverage.shall be reduced and may be reinstated from .time to time as set forth herein.. . 1. As used herein, the term "Owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the applicable Paying Agent, the Obligor or any designee of the Obligor for such purpose. The term "Owner" shall not include the Obligor or any person or entity whose obligation or obligations by agreement constitute the underlying security or source of payment of the Obligations. ' 2. Upon the later of: (i) one (1) day after receipt by the General Counsel of Ambac of a demand for payment in the form attached hereto as Attachment 1 (the"Demand for Payment"), duly executed by the Paying Agent certifying that payment due as required by the Resolution has not been made to the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the General Counsel of Ambac,Ambac will make a deposit of funds in an account with the Paying Agent or its successor, sufficient for the payment to the Paying Agent, of amounts which are then due to the Paying Agent (as specified in the Demand for Payment)up to but not in excess of the Surety Bond Coverage. 3. Demand for Payment hereunder may be made by prepaid telecopy, telex, or telegram of the executed Demand for Payment do the General Counsel of Ambac. If a Demand.for Payment made hereunder does not, in any instance, conform to the terms and conditions of this Surety Bond, Ambac shall give notice to the Paying Agent, as promptly as reasonably practicable that such Demand for Payment was not effected in accordance with the terms and conditions of this Surety Bond and briefly state the reason(s) therefor. Upon being notified that such Demand for Payment was not effected in accordance with this Surety Bond,the Paying Agent may attempt to correct any such nonconforming Demand for Payment if, and to the extent that,the Paying Agent is entitled and able to do so. 4. The amount payable by Ambac under this Surety Bond pursuant to a Demand for Payment shall be limited to the Surety Bond Coverage. The Surety Bond Coverage shall be reduced automatically to the extent of each payment made by Ambac hereunder and will be reinstated to the extent of each reimbursement of Ambac by the Obligor pursuant to Article II of the Guaranty Agreement, dated as of June 20, 2006 (the"Guaranty Agreement"), by and between Ambac and the Obligor; provided, that in no event shall such reinstatement exceed the Surety Bond Coverage. Ambac will notify the Paying Agent, in writing within five (5) days of such reimbursement,that the Surety Bond Coverage has been reinstated to the extent of such reimbursement pursuant to the Guaranty Agreement and such reinstatement shall be effective as of the date Ambac gives such notice. The notice to the Paying Agent will be substantially, in the form attached hereto as Attachment 2. The Surety Bond Coverage shall be automatically reduced to the extent that the Reserve Requirement for the Obligations is lowered or reduced pursuant to the terms of the Resolution. 5. Any service of process on Ambac may be made to Ambac or the office of the General Counsel of Ambac and such service of process shall be valid and binding as to Ambac. During the term of its appointment, General Counsel will act as agent for the acceptance of service of process. and its offices are located at One State Street Plaza,New York,New York 10004, Telephone: (212) 668-0340. 6. This Surety Bond is noncancelable for any reason. The term of this Surety Bond shall expire on the earlier of(i) September 1, 2030 or (ii) the date on which the Obligor, to the satisfaction of Ambac, has made all payments required to be made on the Obligations pursuant to the Resolution. The premium on this Surety Bond is not refundable-for any reason, including the payment prior to maturity of the Obligations. 7. This Surety Bond shall be governed by and interpreted under the laws of the State of Wisconsin, and any suit hereunder in connection with any payment may be brought only by the Paying Agent within one year after (i) a Demand for Payment, with respect to such payment, is made pursuant to the terms of this Surety Bond and Ambac has failed to make such payment or(ii) payment would otherwise have been due hereunder but for the failure on the part of the Paying Agent to deliver to Ambac a Demand for Payment pursuant to the terms of this Surety Bond, whichever is earlier. . Form No.:2B-0009-C(7/97) 2 i d IN WITNESS WHEREOF,Ambac has caused this.Surety Bond to be executed and attested on its r-, behalf this 20th day of June, 2006. Ambac Assurance Corporation fri2S , Attest: By: \ Assistant Secretary Vice President ) Form No.[2B-0009-C(7/97) 3 Attachment 1 Surety Bond No. SB2297BE DEMAND FOR PAYMENT ,20_ Ambac Assurance Corporation One State Street Plaza New York,New York 10004 Attention: General Counsel Reference is made to the Surety Bond No. SB2297BE (the "Surety Bond") issued by Ambac Assurance Corporation ("Ambac"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Paying Agent hereby certifies that: (a) Payment by the Obligor to the Paying Agent was due on [a date not less than one (1) day prior to the applicable payment date for the Obligations] under the Resolution attached hereto as Exhibit A, in an amount equal to $ (the "Amount Due"). The Amount Due is payable to the Owners of the Obligations on (b) $ has been deposited in the [fund/account] from moneys paid by the Obligor or from other funds legally available to the Paying Agent for payment to the Owners of the Obligations,which amount is$ less than the Amount Due(the"Deficiency"). (c) The Paying Agent has not heretofore made demand under the Surety Bond for the Amount Due or any portion thereof The Paying Agent hereby requests that payment of the Deficiency(up to but not in excess of the Surety Bond Coverage) be made by Ambac under the Surety Bond and directs that payment under the Surety Bond be made to the following account by bank wire transfer of federal or other immediately available funds in accordance with the terms of the Surety Bond: [Paying Agent's Account] [Paying Agent] By: . Its: __ Form No.:2B-0009-C(7/97) 4 Attachment 2 Surety Bond No. SB2297BE NOTICE OF REINSTATEMENT 20_ [Paying Agent] [Address] Reference is made to the Surety Bond No. SB2297BE (the "Surety Bond") issued by Ambac Assurance. Corporation ("Ambac"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. Ambac hereby delivers notice that it is in receipt of payment from the Obligor pursuant to Article II of the Guaranty Agreement and as of the date hereof the Surety Bond Coverage is $ , subject to a reduction as the Reserve Requirement for the Obligations is lowered or reduced pursuant to the terms of the Resolution. AMBAC ASSURANCE CORPORATION Attest: By: Title: Title: Form No.:2B-0009-C(7/97) 5 SURETY BOND . Ambac Assurance Corporation Statutory Office: Administrative Office: do CT Corporation One State Street Plaza 44 East Mifflin Street New York,New York 10004 Madison,Wisconsin 53703 Telephone:(212)668-0340 Policy No. SB2297BE Ambac Assurance Corporation ("Ambac"), in consideration of the payment of the premium and subject to the terms of this Surety Bond, hereby unconditionally and irrevocably guarantees the - full and complete payments which are to be applied to payment of principal of and interest on the Obligations (as hereinafter defined) and which are required,to be made by or on behalf of the Pearland Economic Development Corporation (the "Obligor") to Wells Fargo Bank, N.A., Minneapolis, Minnesota(the "Paying Agent"), as such payments are due by the Obligor but shall not be so paid pursuant to a Resolution of the Obligor, adopted on May. 22, 2006 (the "Resolution"), authorizing the issuance of the Obligor's $10,235,000 in aggregate principal amount of Sales Tax Revenue Bonds, Series 2006 (the "Obligations") and providing the terms and conditions for the issuance of said Obligations; provided that the amount available at any particular time to be paid to the Paying Agent under the terms hereof shall not exceed the Surety Bond Coverage, defined herein as the lesser of$788,957 or the Reserve Fund Requirement for the Obligations, as that term is defined in the Resolution (the "Reserve Requirement"). The Surety Bond Coverage shall be reduced and may be reinstated from time to time as set forth herein. 1. . As used herein, the term "Owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the applicable Paying Agent, the Obligor or any designee of the Obligor for such purpose. The term "Owner" shall not include the Obligor or any person or entity whose obligation or obligations by agreement constitute the underlying security or source of payment of the Obligations. 2. Upon the later of: (i) one (1) day after receipt by the General Counsel of Ambac of a demand for payment in the form•attached hereto as Attachment 1 (the"Demand for Payment"), duly executed by the Paying Agent certifying that payment due as required by the Resolution has not been made to the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the General Counsel of Ambac,Ambac will make a deposit of funds in an account with the Paying Agent or,its successor, sufficient,for the payment to the Paying Agent, of amounts which are then due to the Paying Agent (as specified in the Demand for Payment)up to but not in excess of the Surety Bond Coverage. 3. Demand for Payment hereunder may be made by prepaid telecopy, telex, or telegram of the executed Demand for Payment do the General Counsel of Ambac. If a Demand for Payment made hereunder does not, in any instance, conform to the terms and conditions of this Surety Bond, Ambac shall give notice to the Paying Agent, as promptly as reasonably practicable that such Demand for Payment was not effected in accordance with the terms and conditions of this Surety Bond and briefly state the reason(s) therefor. Upon being notified that such Demand for Payment was not effected in accordance with this Surety Bond,the Paying Agent may attempt to correct any such nonconforming Demand for Payment if, and to the extent that,the Paying Agent is entitled and able to do so. 4. The amount payable by Ambac under this Surety Bond pursuant to a Demand for Payment shall be limited to the Surety Bond Coverage. The Surety Bond Coverage shall be reduced automatically to the extent of each payment made by Ambac hereunder and will be reinstated to the extent of each reimbursement of Ambac by the Obligor pursuant to Article II of the Guaranty Agreement, dated as of June 20, 2006 (the"Guaranty Agreement"), by and between Ambac and the Obligor; provided, that in no event, shall such reinstatement exceed the Surety Bond Coverage. Ambac will notify the Paying Agent, in writing within five (5) days of such reimbursement,that the Surety Bond Coverage has been reinstated to the extent of such reimbursement pursuant to the Guaranty Agreement and such reinstatement shall be effective as of the date Ambac gives such notice. The notice to the Paying Agent will be substantially in the form attached hereto as Attachment 2. The Surety Bond Coverage shall be automatically reduced to the extent that the Reserve Requirement for.the Obligations is lowered or reduced pursuant to the terms of the Resolution. 5. Any service of process on Ambac may be made to Ambac or the office of the General Counsel of Ambac and such service of process shall be valid and binding as to Ambac. During the term of its appointment, General Counsel will act as agent for the acceptance of service of process and its offices are located at One State Street Plaza,New York,New York 10004, Telephone: (212) 668-0340. 6. This Surety Bond is noncancelable for any reason. The term of this Surety Bond shall expire on the earlier of(i) September 1, 2030 or (ii) the date on which the Obligor, to the satisfaction of Ambac, has made all payments required to be made on the Obligations pursuant to the Resolution. The premium on this Surety Bond is not refundable for any reason, including the payment prior to maturity of the Obligations. 7. This Surety Bond shall be governed.by and interpreted under the laws of the State of Wisconsin, and any suit hereunder in connection with any payment may be brought only by the Paying Agent within one year after (i) a Demand for Payment, with respect to such payment, is made pursuant to the terms of this Surety Bond and Ambac has failed to make such payment or(ii) payment would otherwise have been due hereunder but for the failure on the part of the Paying Agent to deliver to Ambac a Demand for Payment pursuant to the terms of this Surety Bond, whichever is earlier. Form No.:2B-0009-C(7/97) 2 f IN WITNESS WHEREOF, Ambac has caused this Surety Bond to be executed and attested on its behalf this 20th day of June,2006. Ambac Assurance Corporation. Attest: M25— By: \ Assistant Secretary Vice President Form No.:2B-0009-C(7/97) 3 Attachment 1 Surety Bond No. SB2297BE DEMAND FOR PAYMENT 20_. Ambac Assurance Corporation One State Street Plaza New York,New York 10004 Attention: General Counsel Reference is made to the Surety Bond No. SB2297BE (the "Surety Bond") issued by Ambac Assurance Corporation ("Ambac"). The terms which.are capitalized herein and not otherwise defined have the meanings specified in.the Surety Bond unless the context otherwise requires. The Paying Agent hereby certifies that: (a) Payment by the Obligor to the Paying Agent was due on [a date not less than one (1) day prior to the applicable payment date for the Obligations] under the Resolution attached hereto as Exhibit A, in an amount equal to $ (the "Amount Due"). The Amount Due is payable to the Owners of the Obligations on (b) $ has been deposited in the [fund/account] from moneys paid by the Obligor or from other funds legally available to the Paying Agent for payment to the Owners of the Obligations,which amount is $ less than the Amount Due (the"Deficiency"). (c) The Paying Agent has not heretofore made demand under the Surety Bond for the Amount Due or any portion thereof. The Paying Agent hereby requests that payment of the Deficiency(up to but not in excess of the Surety Bond Coverage) be made by Ambac under the Surety Bond and directs that payment under the Surety Bond be made to the following account by bank wire transfer of federal or other immediately available funds in accordance with the terms of the Surety Bond: [Paying Agent's Account] [Paying Agent] By: Its: r_I { Form No.:2B-0009-C(7/97) 4 Attachment 2 Surety Bond No. SB2297BE NOTICE OF REINSTATEMENT ,20_ [Paying Agent] [Address] Reference is made to the Surety Bond No. SB2297BE (the "Surety Bond") issued by Ambac Assurance Corporation ("Ambac"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. Ambac hereby delivers notice that it is in receipt of payment from the Obligor pursuant to Article II of the Guaranty Agreement and as of the date hereof the Surety. Bond Coverage is $ , subject to a reduction as the Reserve Requirement for the Obligations is lowered or reduced pursuant to the terms of the Resolution. AMBAC ASSURANCE CORPORATION Attest: By: Title: Title: • Form No.:2B-0009-C(7/97) 5 SURETY BOND Ambac Assurance Corporation Statutory Office: Administrative Office: do CT Corporation One State Street Plaza 44 East Mifflin Street New York,New York 10004 Madison,Wisconsin 53703 Telephone:(212)668-0340 Policy No. SB2297BE • Ambac Assurance Corporation ("Ambac"), in consideration of the payment of the premium and subject to the terms of this Surety Bond, hereby unconditionally and irrevocably guarantees the full and complete payments which are to be applied to payment of principal of and interest on the Obligations (as hereinafter defined) and which are required to be made by or on behalf of the Pearland Economic Development Corporation (the "Obligor"). to Wells Fargo Bank, N.A., Minneapolis, Minnesota (the "Paying Agent"), as such payments are due by the Obligor but shall not be so paid pursuant to a Resolution of the Obligor, adopted on May 22, 2006 (the "Resolution"), authorizing the issuance of the Obligor's $10,235,000 in aggregate principal amount of Sales Tax Revenue Bonds, Series 2006 (the "Obligations") and providing the terms and conditions for the issuance of said Obligations; provided that the amount available at any particular time to be paid to the Paying Agent under the terms hereof shall not exceed the Surety Bond Coverage, defined herein as the lesser of$788,957 or the Reserve Fund Requirement for the Obligations, as that term is defined in the Resolution (the "Reserve Requirement"). The Surety Bond Coverage shall be reduced and may be reinstated from time to time as set forth herein.. 1.. As used herein, the term "Owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the applicable Paying Agent, the Obligor or any designee of the Obligor for such purpose. The. term "Owner" shall not include the Obligor or any person or entity whose obligation or obligations by agreement constitute the underlying security or source of payment of the Obligations. 2. Upon the later of: (i) one (1) day after receipt by the General Counsel of Ambac of a demand for payment in the form attached hereto as Attachment 1 (the"Demand for Payment"),duly executed by the Paying Agent certifying that payment due as required by the Resolution has not been made to the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the General Counsel of Ambac, Ambac will make a deposit of funds in an account with the Paying Agent or its successor, sufficient for the payment to the Paying Agent, of amounts which are then due to the Paying Agent (as specified in the Demand for Payment)up to but not in excess of the Surety Bond Coverage. 3. Demand for Payment hereunder may be made by prepaid telecopy, telex, or telegram of the executed Demand for Payment do the General Counsel of Ambac. If a Demand for Payment made hereunder does not, in any instance, conform to the terms and conditions of this Surety. Bond, Ambac shall give notice to the Paying Agent, as promptly as reasonably practicable that such Demand for Payment was not effected in accordance with the terms and conditions of this Surety Bond and briefly state the reason(s) therefor. Upon being notified that such Demand for Payment was not effected in accordance with this Surety Bond,the Paying Agent may attempt to correct any such nonconforming Demand for Payment if,and to the extent that,the Paying Agent is entitled and able to do so. 4. The amount payable by Ambac under this Surety Bond pursuant to a Demand for Payment shall be limited to the Surety Bond Coverage. The Surety Bond Coverage shall be reduced automatically to the extent of each payment made by Ambac hereunder and will be reinstated to the extent of each reimbursement of Ambac by the Obligor pursuant to Article II of the Guaranty. Agreement, dated as of June 20, 2006 (the"Guaranty Agreement"), by and between Ambac and the Obligor; provided, that in no event shall such reinstatement exceed the Surety Bond Coverage. Ambac will notify the Paying Agent, in writing within five (5) days of such reimbursement,that the Surety Bond Coverage has been reinstated to the extent of such reimbursement pursuant to the Guaranty Agreement and such reinstatement shall be effective as of the date Ambac gives such notice. The notice to the Paying Agent_ will be substantially in the form attached hereto as Attachment 2. The Surety Bond Coverage shall be automatically reduced to the extent that the Reserve Requirement for the Obligations is lowered or reduced pursuant to the terms of the Resolution. 5.. Any service of process on Ambac may be made to Ambac or the office of the General Counsel of Ambac and such service of process shall be valid and binding as to Ambac. During the term of its appointment, General Counsel will act as agent for the acceptance of service of process and its offices are located at One State Street Plaza,New York,New York 10004, Telephone: (212) 668-0340. 6. This Surety Bond is noncancelable for any reason. The term of this Surety Bond shall expire on the earlier of(i) September 1, 2030 or (ii) the date on which the Obligor, to the satisfaction of Ambac, has made all paymentsrequired re uired to be made on the Obligations pursuant to the Resolution. The premium on this Surety Bond is not refundable for any reason, including the payment prior to maturity of the Obligations. 7. This Surety Bond shall be governed by and interpreted under the laws of the State of Wisconsin, and any suit hereunder in connection with any payment may be brought only by the Paying Agent within one year after (i) a Demand for Payment, with respect to such payment, is made pursuant to the terms of this Surety Bond and Ambac has failed to make such payment or(ii) payment would otherwise have been due hereunder but for the failure on the part of the Paying Agent to deliver to Ambac a Demand for Payment pursuant to the terms of this Surety Bond, whichever is earlier. • Form No.:2B-0009-C(7/97) 2 • IN WITNESS WHEREOF, Ambac has caused this Surety Bond to be executed and attested on its behalf this 20th day of June, 2006. Ambac Assurance Corporation Attest: By: Assistant Secretary Vice President Form No.:2B-0009-C(7/97) 3 • Attachment 1 Surety Bond No. SB2297BE DEMAND FOR PAYMENT ,20_ Ambac Assurance Corporation One State Street Plaza New York,New York 10004 Attention: General Counsel Reference is made to the Surety Bond No. SB2297BE (the "Surety Bond") issued by Ambac Assurance Corporation ("Ambac"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Paying Agent hereby certifies that: (a) Payment by the Obligor to the Paying Agent was due on [a date not less than one (1) day prior to the applicable payment date for the Obligations] under the Resolution attached hereto as Exhibit A, in an amount equal to $ (the "Amount Due"). The Amount Due is payable to the Owners of the Obligations on (b) $ has been deposited in the [fund/account] from moneys paid by the Obligor or from other funds legally available to the Paying Agent for payment to the Owners of the • Obligations,which amount is $ less than the Amount Due(the"Deficiency"). (c) The Paying Agent has not heretofore made demand under the Surety Bond for the Amount Due or any portion thereof. The Paying Agent hereby requests that payment of the Deficiency(up to but not in excess of the Surety Bond Coverage) be made by Ambac under the Surety Bond and directs that payment under the Surety Bond be made to the following account by bank wire transfer of federal or other immediately available funds in accordance with the terms of the Surety Bond: [Paying Agent's Account] [Paying Agent] By: Its: Form No.:2B-0009-C(7/97) 4 Attachment 2 . Surety Bond No. SB2297BE NOTICE OF REINSTATEMENT ,20_ [Paying Agent] [Address] Reference is made to the Surety Bond No. SB2297BE (the "Surety Bond"). issued by Ambac Assurance Corporation ("Ambac"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. Ambac hereby delivers notice that it is in receipt of payment from the Obligor pursuant to Article II of the Guaranty Agreement and as of the date hereof the Surety Bond Coverage is $ , subject to a reduction as the Reserve, Requirement for the Obligations is lowered or reduced pursuant to the terms of the Resolution. • AMBAC ASSURANCE CORPORATION Attest: -_ By: Title: Title: Form No.:2B-0009-C(7/97) 5 GUARANTY AGREEMENT GUARANTY AGREEMENT dated as of June 20, 2006 by and between the Pearland Economic Development Corporation, a public body corporate organized and existing under the laws of the State of - Texas (the "Obligor"); and AMBAC ASSURANCE CORPORATION ("Ambac"), a Wisconsin • domiciled stock insurance corporation. WITNESSETH : WHEREAS, the Obligor has or will issue $10,235,000 in aggregate principal amount of Sales Tax Revenue Bonds, Series 2006 and has previously issued its Sales Tax Revenue and Refunding Bonds, Series 2005 (the"Obligations"); and WHEREAS, Ambac will issue its Surety Bond(the"Surety Bond"), substantially in the form set forth in Annex A to this Agreement, guaranteeing certain payments by the Obligor subject to the terms and limitations of the Surety Bond; and WHEREAS, to induce Ambac to issue the Surety Bond, the Obligor has agreed to pay the premium for such Surety Bond and to reimburse Ambac for all payments made by Ambac under the Surety Bond from Legally Available Funds,all as more fully set forth in this Agreement; and WHEREAS, the Obligor understands that Ambac expressly requires the delivery of this Agreement as part of the consideration for the execution by Ambac of the Surety Bond; and NOW, THEREFORE, in consideration of the premises and of the agreements herein contained and of the execution of the Surety Bond,the Obligor and Ambac agree as follows: ARTICLE I DEFINITIONS; SURETY BOND Section 1.01. Definitions. Except as otherwise expressly provided herein or unless the context otherwise requires,the terms which are capitalized herein shall have the meanings specified in Annex B hereto. . Section 1.02. Surety Bond. (a) Ambac will issue the Surety Bond in accordance with and subject to the terms and conditions of the Commitment. (b) The maximum liability of Ambac under the Surety Bond and the coverage and term thereof shall be subject to and limited by the Surety Bond Coverage and the terms and conditions of the Surety Bond.. (c) Payments made under the Surety Bond will reduce the Surety Bond Coverage to the extent of that payment, provided that the Surety Bond Coverage shall be automatically reinstated to the extent of the reimbursement of principal by the Obligor of any payment made by Ambac. Ambac shall notify the Paying Agent in writing no later than the fifth(5th) day following the reimbursement by the Obligor that the Surety Bond has been reinstated to the extent of such reimbursement. Section 1.03. Premium. In consideration of Ambac agreeing to issue the Surety Bond hereunder, the Obligor hereby agrees to pay or cause to be paid from Legally Available Funds the premium set forth in the Commitment. Section 1.04. Certain Other Expenses. The Obligor will pay all reasonable fees and disbursements of Ambac's counsel related to any modification of this Agreement or the Surety Bond. ARTICLE H REIMBURSEMENT OBLIGATIONS OF OBLIGOR AND SECURITY THEREFOR Section 2.01. Reimbursement for Payments Under the Surety Bond and Expenses. (a) The Obligor will reimburse Ambac, from Legally Available Funds within the Reimbursement Period, without demand or notice by Ambac to the Obligor or any other person,to the extent of each Surety Bond Payment with interest on each Surety Bond Payment from and including the date made to the date of the reimbursement by the Obligor at the Effective Interest Rate. The Obligor agrees that it shall make monthly level principal repayments for each Surety Bond Payment during the Reimbursement Period. Interest on each Surety Bond Payment shall be paid monthly during the Reimbursement Period. To the extent that interest payments due hereunder are not paid on a monthly basis, or are not paid as each principal repayment is made, interest shall accrue on such unpaid amounts at a rate equal to the Effective Interest Rate. (b) The Obligor also agrees to reimburse Ambac, from Legally Available Funds, immediately and unconditionally upon demand for all reasonable expenses incurred by Ambac in connection with the Surety Bond and the enforcement by Ambac of the Obligor's obligations under this Agreement together with,interest on all such expenses from and including the date which is 30 days from the date a statement for such expenses is received by the Obligor incurred to the date of payment at the rate set forth in subsection(a)of this Section 2.01. (c) The Obligor's obligation to make payments in excess of the Surety Bond Payment under this Section is applicable only to the extent permitted by law and is subject in all respects to annual appropriation therefor by the Obligor. Section 2.02. Allocation of Payments. Ambac and the Obligor hereby agree that each repayment of principal received by Ambac from or on behalf of the Obligor as a reimbursement to Ambac as required by Section 2.01(a)hereof shall be applied to reinstate all or a portion of the Surety Bond Coverage to the extent of such repayment. Any interest payable pursuant to Section 2.01(a) hereof shall not be applied to. the reinstatement of any portion of the Surety Bond Coverage. Section 2.03. Security for Payments: Instruments of Further Assurance. To the extent, but only to the extent, that the Resolution pledges to the Owners or any paying agent therefor, or grants a security interest or lien in or on the Collateral and Revenues in order to secure the Obligations or provide a source of payment for the Obligations,the Obligor hereby grants to Ambac a security interest in or lien on,as the case may be, and pledges to Ambac all such Collateral and Revenues as security for payment of all amounts due hereunder, which security interest, lien and/or pledge created or granted under this Section 2.03 shall be subordinate only to the interests of the Owners and any paying agent therefor in such Collateral and Revenues. The Obligor agrees that it will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any and all financing statements, if applicable,and all other further instruments as may be required by law or as shall reasonably be requested 2 by Ambac for the perfection of the security interest, if any, granted under this Section 2.03 and for the preservation and protection of all rights of Ambac under this Section 2.03. Section 2.04. Unconditional Obligation. The obligations of the Obligor hereunder are absolute and unconditional and will be paid or performed strictly in accordance with this Agreement,irrespective of: (a) any lack of validity or enforceability of, or any amendment or other modification of, or waiver with respect to the Resolution or the Obligations; (b) any exchange,release or nonperfection of any security interest in property securing the Obligations or this Agreement or any obligations hereunder; (c) any circumstances which might otherwise constitute a defense available to, or discharge of, the Obligor with respect to the Obligations; (d) whether or not such obligations are contingent or matured, disputed or undisputed, liquidated or unliquidated. ARTICLE III EVENTS OF DEFAULT; REMEDIES Section 3.01. Events of Default. The following events shall constitute Events of Default hereunder: (a) The Obligor shall fail to pay to Ambac any amount payable under Sections 1.04 and 2.01 hereof and such failure shall have continued for a period in excess of the Reimbursement Period; • (b) Any material representation or warranty made by the Obligor hereunder or under the Resolution or any statement in the application for the Surety Bond or any report, certificate, financial statement or other instrument provided in connection with the Commitment, the Surety Bond or herewith shall have been materially false at the time when made; (c) Except as otherwise provided in this Section 3.01, the Obligor shall fail to perform any of its other obligations under this Agreement,provided that such failure continues for more than thirty(30)days after receipt by the Obligor of notice of such failure to perform; (d) The Obligor shall (i) voluntarily commence any proceeding or file any petition seeking relief under the United.States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or. similar law, (ii) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a • receiver, trustee, custodian, sequestrator or similar official for the Obligor or for a substantial part of its property, (iv) file,an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take action for the purpose of effecting any of the foregoing; or (e) An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Obligor, or of a substantial part of its property, under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or 3 I similar law or(ii)the appointment of a receiver,trustee, custodian, sequestrator or similar official for the Obligor or for a substantial part of its property; and such proceeding or petition shall continue undismissed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for thirty(30)days. Section 3.02. Remedies. If an Event of Default shall occur and be continuing, then Ambac may take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due under this Agreement or any related instrument and enforce any obligation, agreement or covenant of the Obligor under this Agreement; provided,however,that Ambac may not take any action to direct or require acceleration or other early redemption of the Obligations or adversely affect the rights of the Owners.All rights and remedies of Ambac under this Section 3.02 are cumulative and the exercise of any one remedy does not preclude the exercise of one or more of the other available remedies. ARTICLE IV SETTLEMENT Ambac shall have the exclusive right to decide and determine whether any claim, liability, suit or judgment made or brought against Ambac, the Obligor or any other party on the Surety Bond shall or shall not be paid, compromised, resisted, defended, tried or appealed, and Ambac's decision thereon, if made in good faith, shall be final and binding upon the Obligor.An itemized statement of payments made by Ambac, certified by an officer of Ambac,or the voucher or vouchers for such payments, shall be prima facie evidence of the liability of the Obligor, and if the Obligor fails to reimburse AYnbac, pursuant to subsection (b) of Section 2.01 hereof, upon the receipt of such statement of payments, interest shall be computed on such amount from the date of any payment made by Ambac at the rate set forth in subsection(a)of Section 2.01 hereof. ARTICLE V MISCELLANEOUS Section 5.01. Computations. All computations of premium, interest and fees hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days. Section 5.02. Exercise of Rights. No failure or delay on the part of Ambac to exercise any right,power or privilege under this Agreement and no course of dealing between Ambac and the Obligor or any other party shall operate as a waiver of any such right, power or privilege,.nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which Ambac would otherwise have pursuant to law or equity. No notice to or demand on any party in any case shall entitle such party to any other or further notice or demand in similar or other circumstances, or constitute a waiver of the right of the other party to any other or further action in any circumstances without notice or demand. Section 5.03. Amendment and Waiver. Any provision of this Agreement may be amended, waived, supplemented, discharged or terminated only with the prior written consent of the Obligor and Ambac. The Obligor hereby agrees that upon the written request of the Paying Agent, Ambac may make or consent to issue any substitute for the Surety Bond to cure any ambiguity or formal defect or omission in 4 the Surety Bond which does not materially change the terms of the Surety Bond nor adversely affect the rights of the Owners, and this Agreement shall apply to such substituted Surety Bond. Ambac agrees to deliver to the Obligor and to the company or companies, if any, rating the Obligations, a copy of such substituted Surety Bond. Section 5.04. Successors and Assigns;Descriptive Headings. (a) This Agreement shall bind, and the benefits thereof shall inure to, the Obligor and Ambac and their respective successors and assigns; provided, that the Obligor may not transfer or assign any or all of its rights and obligations hereunder without the prior written consent of Ambac. (b) The descriptive headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 5.05. Other Sureties. If Ambac shall procure any other surety to reinsure the Surety Bond, this Agreement shall inure to the benefit of such other surety, its successors and assigns, so as to give to it a direct right of action against the Obligor to enforce this Agreement, and"Ambac,"wherever used herein, shall be deemed to include such reinsuring surety, as its respective interests may appear. Section 5.06. Signature on Bond. The Obligor's liability shall not be affected by its failure to sign the Surety Bond nor by any claim that other indemnity or security was to have been obtained nor by the release of any indemnity,nor the return or exchange of any collateral that may have been obtained. Section 5.07. Waiver. The Obligor waives any defense that this Agreement was executed subsequent to the date of the Surety Bond, admitting and covenanting that such Surety Bond was executed pursuant to the Obligor's request and in reliance on the Obligor's promise to execute this Agreement. Section 5.08. Notices, Requests, Demands. Except as otherwise expressly provided herein, all written notices,.requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made when actually received, or in the case of telex or telecopier notice sent over a telex or a telecopier machine owned or operated by a party hereto, when sent, addressed as specified below or at such other address as either of the parties hereto or the Paying Agent may hereafter specify in writing to the others: If to the Obligor: Pearland Economic Development Corporation 3519 Liberty Drive Pearland,TX 77581 Attention:Executive Director If to the Paying Agent: Wells Fargo Bank,N.A. 1000 Louisiana Street Suite 640 — Houston,TX 77002 Attention: Corporate Trust Services If to Ambac: Ambac Assurance Corporation One State Street Plaza, 19th Floor New York,New York 10004 Attention: General Counsel 5 Section 5.09. Survival of Representations and Warranties. All representations, warranties and obligations contained herein shall survive the execution and delivery of this Agreement and the Surety Bond. Section 5.10. Governing Law. This Agreement and the rights and obligations of the parties under this Agreement shall be governed by and construed and interpreted in accordance with the laws of the State. Section 5.11. Counterparts. This Agreement may be executed in any number of copies and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument. Complete counterparts of this Agreement shall be lodged with the Obligor and Ambac. Section 5.12. Severability. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. . 6 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. PEARLAND ECONOMIC DEVELOPMENT CORPORATION Attest:Q / /,cc i'1✓ . , _ By: Title: Treasurer Title: xecutive Director AMBAC ASSURANCE CORPORATION Attest: By: Title: Assistant Secretary Title: Vice President and Assistant General Counsel 7 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. PEARLAND ECONOMIC DEVELOPMENT CORPORATION Attest: By: Treasurer Executive Director AMBAC ASSURANCE CORPORATION Attest: By: � � "" ^1 I� Assistant cretary Vice President and Assistant General Counsel 7 ANNEX A SURETY BOND 8 ANNEX B DEFINITIONS For all purposes of this Agreement, except as otherwise expressly provided herein or unless the context otherwise requires, all capitalized terms shall have the meaning as set out below. "Agreement"means this Guaranty Agreement. "Ambac"has the same meaning as set forth in the first paragraph of this Agreement. "Collateral and Revenues"means the Pledged Revenues as defined in the Resolution. "Commitment"means the Ambac Commitment for Surety Bond in the form attached hereto as Annex C. "Debt Service Payments" means those payments required to be made by the Obligor which will be applied to payment of principal of and interest on the Obligations. "Effective Interest Rate" means the lesser of the Reimbursement Rate or the maximum rate of interest permitted by then applicable law of the State; provided, however, that the Effective Interest Rate shall in no event be less than the interest rate on the Obligations. "Event of Default"shall mean those events of default set forth in Section 3.01 of this Agreement. "Legally Available Funds"means the Pledged Revenues as defined in the Resolution. "Obligations"has the same meaning as set forth in the second paragraph of this Agreement. "Obligor"has the same meaning as set forth in the first paragraph of this Agreement. "Owners" means the registered owner of any Obligation as indicated in the books maintained by the applicable paying agent,the Obligor or any designee of the Obligor for such purpose. The term"Owner" shall not include the Obligor or any person or entity whose obligation or obligations by agreement constitute the underlying security or source of payment for the Obligations. "Paying Agent" means Wells Fargo Bank,N.A.,Houston,Texas. "Reimbursement Period" means, with respect to a particular Surety Bond Payment, the period commencing on the date of such Surety Bond Payment and ending 12 months following such Surety Bond Payment. "Reimbursement Rate" means Citibank's prime rate plus two (2) percent per annum, as of the date of such Surety Bond Payment, said "prime rate" being the rate of interest announced from time to time by Citibank,New York,New York, as its prime rate. The rate of interest shall be calculated on the basis of a 360 day year. 9 • "Resolution"means the Obligor's Resolution, adopted on May 22, 2006, authorizing the issuance of the Obligations. "State"means the State of Texas. "Surety Bond" means the surety bond issued by Ambac substantially in the form attached to this Agreement as Annex A. "Surety Bond Coverage" means the amount available at any particular time to be paid to the Paying Agent under the terms of the Surety Bond,which amount shall never exceed$788,957.00. "SuretyBond Payment" means an amount equal to the Debt Service Payment less (i) that portion of the Ym q Ym Debt Service Payment paid by the Obligor, and (ii) other funds legally available to the Paying.Agent for payment to the Owners, all as certified by the Paying Agent in a demand for payment rendered pursuant to the terms of the Surety Bond. • 10 ANNEX C COMMITMENT 11 AN D R E VY S 600 Travis, Suite 4200 ATTORNEYS K U p t1T H Houston,Texas 77002 1 Lip 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com June 20, 2006 Ambac Assurance Corporation One State Street Plaza New York,New York 10004 Re: $10,235,000 Pearland Economic Development Authority Sales Tax Revenue 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, jjksiu ju f-tk) 7867/7868 HOU:2585297.1 M'.ev Moody's Investors Service 99 Church Street New York, NY June 16, 2006 Ambac One State Street Plaza New York, NY 10004 To Whom It May Concern: Moody's Investors Service has assigned the rating of Aaa (Ambac Insured - Policy No. 25383BE) to the $10,235,000.00, Pearland Economic Development Corporation, Texas - Sales Tax Revenue Bonds, Series 2006, dated June 15, 2006 which sold on May 22, 2006. The rating is based upon an insurance policy provided by Ambac. Should you have any questions regarding the above, please do not hesitate to contact Karen Malkowski at (201) 395-6370. Sincerely yours, AQ,am, Cut irl Sean Cullen Senior Vice President SC / PS TheMcGraw•Hlll Companies �` ,''. . » « ' ' ?: A t, 431 STANDARD N water Street, Floor New York,NY 10041-041.0003 tel 212 438.2074 &POOR'S reference no.:777107 1' 1 June 16,2006 Ambac Assurance Corporation One State Street Plaza 15th FL New York,NY 10004 Attention: Ms. Yolanda Ortiz,Insurance Coordinator Re: $10,235,000 Pearland Economic Development Corporation, Texas,Sales Tax Revenue Bonds,Series 2006, dated:June 15, 2006, consisting of 3,255,000 Serial Bonds due: September 1, 2007-2021; $1,035,000 Term Bonds due:September 1,2024; $1,980,000 Term Bonds due:September 1, 2027; $3,965,000 Term Bonds due:September 1,2030, (POLICY#25383BE) Dear Ms. Ortiz: 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. Ms. Yolanda Ortiz Page 2 June 16, 2006 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. Sincerely yours, Standard&Poor's Ratings Services a division of The McGraw-Hill Companies,Inc. t ak 'i.1. "),A.i .!) OFFICIAL BID FORM May 22,2006 Board of Directors Pearland Economic Development Corporation 3519 Liberty Drive Pearland,Texas 77581 Gentlemen: i Subject to the terms of your Official Notice of Sale and Official Statement, dated May 11, 2006, which are incorporated herein by reference, we hereby submit the following-bid for the $10,235,000 PEARLAND ECONOMIC DEVELOPMENT CORPORATION, SALES TAX REVENUE BONDS, SERIES 2006, dated June 15,2006. This offer is being made for all said Bonds and for not less than all. For said legally issued Sales Tax Revenue Bonds,we will pay you the par value thereof,plus accrued interest from their date to the date of delivery to us,plus a cash premium of$ 'b- for the Bonds maturing and bearing interest per annum as follows: Maturity Principal Interest Maturity Principal Interest Date Amount Rate Date Amount Rate September 1,2007(a) $ 50,000 5.00 V q September 1,2019(a)(b) $ 280,000 LI.31 S September 1,2008(a) 165,000 y•SO° September 1,2020(a)(b) 300,000 i4.S Od September 1,2009(a) 170,000 il•2S0 September 1,2021(a)(b) 310,000 44.760 September 1,2010(a) 180,000 c{.zs O September 1,2022(a)(b) 325,000 II 5.OA) September 1,2011(a) 185,000 S•000 September 1,2023(a)(b) 345,000 11 S• 0147 September 1,2012(a) 200,000 S.Oto September 1,2024(a)(b) 365,000 Tl S• 000 September 1,2013(a) 210,000 5.600 September 1,2025(a)(b) 385,000 TL S.Ot.0 September 1,2014(a) 215,000 S•60 O September 1,2026(a)(b) 405,000 IL 5•uw September 1,2015(a) 230,000 S. )O0 September 1,2027(a)(b) 1,190,000 1-2 s•00v September 1,2016(a) 240,000 y•LSO September 1,2028(a)(b) 1,255,000 T3 '•-Co September 1,2017(a)(b) 255,000 Li.Zsit, September 1,2029(a)(b) 1,320,000 1-3 y•iso September 1,2018(a)(b) 265,000 4.31 S. September 1,2030(a)(b) 1,390,000 T3 4•.750 (a) At the option of the 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 (September 1) Redemption of Term Bonds Rate T I 20zy so LL $ 1,035,coo 5.vex, % 11 202l 20ZS I,i90a0 co. vv % T3 20 30 202,8 3,96S,uw 14. 1SO% { (b) Subject to optional redemption and payment, at the option of the Corporation, in whole or, from time to time, in part, on September 1, 2016, or on any date thereafter at a price equal to the principal amount thereof,plus accrued interest to the date fixed for redemption. Interest cost,in accordance with the above bid,is: Total Interest Cost from June 15,2006 $ B, 699,q SS. t4 Less: Premium $ — C- NET INTEREST COST $g,69a1 9 s r. 40 NET EFFECTIVE INTEREST RATE 4 (,.I[r 4.79 5 q 0 1 % The Initial Bonds shall be registered in the name of IVi0Q 6A11 11"664 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 Feb rT Bank, Qv'Tt.1 ,Texas,in the amount of$204,700 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 20, 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 Corporation,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 Corporation and its Bond Counsel. Respectfully submitted, N uthorized Repres tative {� /Lr l X ACCEPTED 22"d Q��-5-`��"I this day of May,2006,the Board of Directors,Pearland Economic Development Corporation. airman ATTEST: et--,11// Secretary (For your information you will find attached a list of the group of purchasers associated with us in this proposal) , UNITED STATES OF AMERICA STATE OF TEXAS • NUMBER A,^,:. DENOMINATION .;,y T-1 , t ,.. $10,235,000 REGISTERED x� x i, , REGISTERED PEARLAND ECONOMIC )EVELOiMENT CORPORATION SALES T A jVE',,,I�iIJE BOND X�RE� SERIES 206. DATED DATE: June 15,2006 '- REGISTERED OWNER: MORGAN KEEGAN*CQ C. PRINCIPAL AMOUNT: TEN MILLION T,WOJ-IUNDRED THIRTY FIVE THOUSAND AND NO/100 DOLLARS: 4J . THE PEARLAND ECONOMIC( VEE MENT CORPORATION (the "Corporation"), a corporation created to act on behalf of the City of Pearlaz Texi (the"City"), in the County of Brazoria, in the State of Texas, . for value received hereby promises to pay,but..Viel from certain Pledged Revenues as hereinafter provided,to the Registered Owner identified above or regxstered assigns, on September 1 of each of the years and in the principal amounts set forth in the following scheg ,e:Ni € Yier of Principal Interest Bond No. :<+f' Maturity Amount Rate Vni R-1 .-.4 F3 2007 $50,000 5.000% R-2 z, 2008 165,000 4.500 R-3 2009 170,000 4.250 R-4 R-5 2010 180,000 4.250 2011 185,000 5.000 R-6 w . f 2012 200,000 5.000 R-7 2013 210,000 5.000 R-8 2014 215,000 5.000 R-9 2015 230,000 5.000 R-10 2016 240,000 4.250 R-11 2017 255,000 4.250 R-12 2018 265,000 4.375 R-13 2019 280,000 4.375 R-14 2020 300,000 4.500 R-15 2021 310,000 4.500 *** *** *** *** R-16 2024 1,035,000 5.000 *** *** *** *** R-17 2027 1,980,000 5.000. *** *** *** *** R-18 2030 3,965,000 4.750 upon presentation and surrender of this Bond at the principal payment office of Wells Fargo Bank, N.A., Minneapolis, Minnesota, or its successor (the "Paying Agent/Registrar"), the principal amounts identified above, 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 the United States of America, and to pay, solely from such Pledged Revenues, interest thereon at the rate shown above, calculated on the basis of a 360-day year, composed of twelve 30-day months, from the later of the Dated Date specified above, or the most recent interest payment date to which interest has been paid or duly provided for. Page 1 of 7 HOU:2587425.2 THIS BOND IS ONE OF A DULY AUTHORIZED SERIES OF BONDS (the "Bonds") aggregating $10,235,000, issued for the purposes permitted by Article 5190.6, Texas Revised Civil Statutes (the "Act"), including particularly(1)acquiring and constructing streets and roads,drainage and,related improvements within the City, and (2) paying the costs of issuing the Bonds, all under and pursuant to the authority of the Act and all other applicable law, and a resolution adopted by the Corporation on May 22,2006(the"Resolution"). Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Resolution. THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Resolution unless this Bond is registered by the Comptroller of Public Accounts of the State of Texas by due execution of the registration certificate endorsed hereon. THE CORPORATION RESERVES THE RIGHT to redeem Bonds maturing on or after September 1, 2017, in whole or from time to time in part, in integral multiples of$5,000;0nASeptember 1, 2016, or on any date thereafter at par plus accrued interest on the principal amounts called:'for redemption to the date fixed for redemption. Reference is made to the Resolution for complete details"co1ceining the manner of redeeming the Bonds. THE BONDS maturing on September 1 in the years 2024, 202FT,and 2030 (the"Term Bonds") are subject to mandatory sinking fund redemption in the following amounts'(subjectXto reduction as hereinafter provided),on the following dates,in each case at a redemption price equal.to the;principal amount of the Bonds the portions thereof so called for redemption plus accrued interest to the date flied>for`rc eniption: Mandatory Redemption Dates Principal Amounts Term Bonds Maturing September 1,2024 `e.. September 1,2022 $325,000 September 1,2023 345,000 `` September 1,2024 365,000 Term Bonds Maturing September 1,.2027 cyp September 1,2025 $385,000. September 1,2026 405,000 .: September 1,2027 1,190,000 Term Bonds Maturing Septemlte1,2030 September 1,2028 $1,255,000 September 1,2029 1,320,000 fii` l September 1,2030 1,390,000 THE PARTICUL`,'431i-1`Term Bonds to be redeemed shall 'be selected by.the Registrar by lot or other customary random selection method, on or before September 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 September 1 of such year and which have not been made the basis for a previous reduction. NOTICE OF ANY REDEMPTION shall be given at least thirty. (30) days prior to the date fixed for redemption by first class mail, postage prepaid, addressed to the registered owner of each Bond to be redeemed in whole or in part at the address shown on the books of registration kept by the Paying Agent/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. THIS BOND AND THE SERIES OF WHICH IT IS A PART are special obligations of the.Corporation that are payable from and are equally and ratably secured by a first lien on the Pledged Revenues, as defined and provided in the Resolution, which Pledged Revenues are required to be set aside and pledged,to the payment of the Bonds,and all additional bonds issued on a parity therewith,in the Debt Service Fund and Reserve Fund maintained for the payment of all such Bonds, and any excess Sales Tax Revenues are to be set aside in.the Surplus Fund and used for any purpose authorized under the Act. Page 2 of 7 HOU:2582967.1 THIS BOND AND THE SERIES OF WHICH IT IS A PART ARE PAYABLE SOLELY FROM SUCH PLEDGED REVENUES AND NEITHER THE STATE OF TEXAS (THE "STATE"), THE CITY OF PEARLAND, TEXAS (THE "CITY"), NOR ANY POLITICAL CORPORATION, SUBDIVISION OR AGENCY OF THE STATE SHALL BE OBLIGATED TO PAY THE SAME OR THE INTEREST THEREON AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE, THE CITY, OR ANY OTHER POLITICAL CORPORATION, SUBDIVISION OR AGENCY THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR THE INTEREST ON THE BONDS. NEITHER THE BONDS NOR' ANY INSTRUMENT RELATED TO THE BONDS MAY GIVE A BONDHOLDER A RIGHT TO DEMAND PAYMENT FROM TAX.PROCEEDS IN EXCESS OF THOSE COLLECTED FROM THE SALES AND USE TAX IMPOSED BY THE CITY PURSUANT TO THE ACT. THE OWNER HEREOF SHALL NEVER HAVE THE RIGHT TO DEMAND PAYMENT OF THIS BOND OUT OF ANY FUNDS RAISED OR TO BE RAISED BY AD VALOREM TAXATION. ra, THIS BOND IS TRANSFERABLE only upon presentation and su.' i -r at the principal payment office of the Paying Agent/Registrar, duly endorsed for transfer or accornpa nic,A4ssignment duly executed by the registered owner or his authorized representative,subject to the termannj itions of the Resolution. tv THE BONDS ARE EXCHANGEABLE at the princip4: 'ay nti face of the Paying Agent/Registrar for Bonds in the principal amount of$5,000 or any integral multiple-itl: xe.of,4 bject to the terms and conditions of the Resolution. 444 $ THE REGISTERED OWNER of this Bond, by.ftwi e`hereof;acknowledges and agrees to be bound byall the terms and conditions of the Resolution. '` "'" , THE CORPORATION has covenanted in the Rem•.:fa•Qn that it will at all times provide a legally qualified paying agent and registrar for the Bonds and w•.Muse noI�e of any change of registrar to be mailed to.each registered owner. $t'•. THE CORPORATION HAS RESET VED-fI RIGHT to issue additional parity bonds, subject to the restrictions contained in the Resolution, w +b¢,..equally and ratably payable from, and secured by a first lien on and pledge of, the Pledged Revenues ii 'eg,an anner and to the same extent as this Bond and the series of which it is a part. -';t a; IT IS HEREBY DECLA' ■40- REPRESENTED that this Bond has been duly and validly issued and delivered; that all acts, conditions,and flequired or proper to be performed, exist, and be done precedent to or in the issuance and delivery oft itkit o haW been performed, existed, and been done in accordance with law; that the Bonds do not exceed any st.l.tq,yrrr:ation; and that provision has been made for the payment of the principal of and interest on this Bond an. .40 'L.," •onds by the creation of the aforesaid lien on and pledge of the Pledged Revenues. Page 3 of 7 HOU:2582967.1 ' y - IN WITNESS WHEREOF, the Corporation has caused this Bond to be executed by the Chairman of the Corporation and countersigned by the Secretary of the Corporation by the manual, lithographed or printed facsimile signatures. PEARLAND ECONOMIC DEVELOPMENT CORPORATION Chairman COUNTERSIGNED: .,S cretaxy /,iy A), iEe >h:7? (4t w . .S• $ `.3 " Page4of7 HOU:2582967.I 1 . REGISTRATION CERTIFICATE r. THE STATE OF TEXAS OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS REGISTER NO. I hereby certify that this Bond has been examined, certified as to validity and approved by the Attorney General of the State of Texas, and that this Bond has been registered by the Comptroller of Public Accounts of the State of Texas. • WITNESS MY SIGNATURE AND SEAL OF OF CE this ' 1 2UO Comptroller of Public Accounts of the State of Texas • (SEAL) • • r (L Page 5 of 7 HOU:2582967.1 STATEMENT OF INSURANCE Financial Guaranty Insurance Policy No. 30357 (the "Policy") with respect to payments due for principal of and interest on this Bond has been issued by Ambac Assurance Corporation ("Ambac Assurance"). The Policy has been delivered to The Bank of New York, New York,New York, as the Insurance Trustee under said Policy and will be held by such Insurance Trustee or any successor insurance trustee. The Policy is on file and available for inspection at the principal office of the Insurance Trustee and a copy thereof may be secured from Ambac Assurance or the Insurance Trustee.All payments required to be made under the Policy shall be made in accordance with the provisions thereof.The owner of this Bond acknowledges and consents to the subrogation rights of Ambac Assurance as more fully set forth in the Policy. .44 fi ? ' eyifiy lt' :7' . - Page6of7 HOU:2582967.1 • 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: Signature Guaranteed: stered Owner NOTICE: The si -atgze,"a ve must correspond to the name of the reg ste% owner as shown on the face of this Bond in every particular,without any alteration, NOTICE: Signature must be guaranteed by a member enlargement or.,c-langg whatsoever. firm of the New York Stock exchange or a commercial bank or trust company. Page7of7 HOU:2582967.I $10,235,000 Pearland Economic Development Corporation Sales Tax Revenue 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 bonds, as required by H.B. 1564, 74th Legislature, Regular Session(Tex. Laws 1995, ch. 383, at 2930). A. An additional copy of the Official Statement and the following information, if not included in the Official Statement or such statement has not been prepared. 1. Name of bond issue: Pearland Economic Development Corporation Sales Tax Revenue Bonds, Series 2006 2. a) par amount of issue: $10,235,000 b) dollar amount of bond premium, if any: $185,434.80 c) dollar amount of bond original issue discount, if any: $12,868.75 3. Dated.date: April 15,2005, with interest to accrue from the date of delivery 4. Closing date(expected delivery date, on or about): June 20, 2006 5. By year,maturity amounts, coupon rates,prices or yields: See Exhibit A (If no reoffering yield (NRO)indicated,please provide yield separately.) 6. Call provisions, including premiums, if any: N/A 7. Mandatory redemption provisions: See Official Statement. 8. Debt-service schedule,principal and interest, and annual totals, with fiscal year identified: See Official Statement. 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 Official Statement 11. Pledge: tax(ad valorem, sales, other), revenue, combination: sales tax revenue 12. Type of credit enhancement(including PSF guarantee): N/A 13. Rating service(s) and rating(s) assigned to issue: Moody's: "Aaa" S&P: "AAA" B. Additional Information 1. Type of sale: Competitive ' 2. Pricing: May 22, 2006, 7:00 p.m. 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): N/A 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 HOU:2586495.1 . ' 6. Costs of Issuance—please provide best estimate of costs. If final costs are significantly different,please submit changes directly to the Texas Bond Review Board. Call (512)463-1741 or(512)475-4802 (FAX). SERVICE FIRM ONE-TIME FEE ANNUAL FEE(a) (in dollars) Bond Rating Moody's $12,500.00 Standard&Poor's $12,500.00 Fitch N/A Other General Costs of Issuance(b) $81,500.00 $500.00 Any Specialized Costs of Issuance(c) F N/A Credit Facility N/A - Bond Insurance $18,000.00 Total Underwriting Spread(d) $90,066.05 � ry Did underwriter pay rating fee(s) No Which one(s)? Did underwriter pay bond insurance fee? Yes PARTICIPANTS FIRM_ Financial Advisor RBC Capital Markets Bond Counsel Andrews Kurth LLP Paying Agent/Registrar;Escrow Agent;Authenticating Agent Wells Fargo Bank,N.A. Underwriters Morgan Keegan&Co.,Inc. Trustee None Purchaser's Counsel None (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 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. (d) defined as the differential between the price paid to the issuer for the issue and the. prices at which the securities are initially offered to the investing public Person Completing Form: Telephone No. (713) 220-4876 Name: Marcus Deitz Fax No. (713) 238-7125 HOU:2586495.1 • • EXHIBIT A • • • • • HOU:2586495.1 • City of Pearland -Economic Development Corporation REVISED FINAL NUMBERS-June 12,2006 Dated Date=06/15/2006 Series 2006 EDC Bonds Delivery Date=06/20/2006 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 - - - - 347,177.78 347,177.78 - 347,177.78 09/01/2007 - 50,000.00 50,775.00 5.000 3.660000 101.550000 244,109.38 294,109.38 641,287.16 294,109.38 03/01/2008 - - - - 242,859.38 242,859.38 242,859.38 09/01/2008 - 165,000.00 167,752.20 4.500 3.700000 101.668000 242,859.38 407,859.38 650,718.76 407,859.38 03/01/2009 - - - 239,146.88 239,146.88 239,146.88 09/01/2009 - 170,000.00 172,684.30 4.250 3.720000 101.579000 239,146.88 409,146.88 648,293.76 409,146.88 03/01/2010 - - - - 235,534.38 235,534.38 235,534.38 09/01/2010 180,000.00 183,526.20 4.250 3.740000 101.959000 235,534.38 415,534.38 651,068.76 415,534.38 03/01/2011 - - - - 231,709.38 231,709.38 - 231,709 38 09/01/2011 185,000.00 195,191.65 5.000 3.820000 105.509000 231,709.38 416,709.38 648,418.76 416,709.38 03/01/2012 - - - - - 227,084.38 227,084.38 227,084.38 09/01/2012 200,000.00 212,222.00 5.000 3.880000 106.111000 227,084.38 427,084.38 654,168.76 427,084.38 03/01/2013 - - - 222,084.38 222,084.38 - 222,084.38 09/01/2013 - 210,000.00 223,412.70 5.000 3.970000 106.387000 222,084.38 432,084.38 654,168.76 432,084.38 03/01/2014 - - - - 216,834.38 216,834.38 - 216,834.38 09/01/2014 215,000.00 228,957.80 5.000 4.060000 106.492000 216,834.38 431,834.38 648,668.76 431,834.38 03/01/2015 - - - - 211,459.38 211,459.38 - 211,459.38 09/01/2015 230,000.00 244,625.70 5.000 4.160000 106.359000 211,459.38 441,459.38 652,918.76 441,459.38 03/01/2016 - - - - 205,709.38 205,709.38 - 205,709.38 09/01/2016 - 240,000.00 240,000.00 4.250 4.250000 100.000000 205,709.38 445,709.38 651,418.76 8,835,709.38 03/01/2017 - - - - 200,609.38 200,609.38 09/01/2017 - 255,000.00 * 252,743.25 4.250 4.350000 99.115000 200,609.38 455,609.38 656,218.76 -- 03/01/2018 - - - - 195,190.63 195,190.63 09/01/2018 - 265,000.00 * 263,129.10 4.375 4.450000 99.294000 195,190.63 460,190.63 655,381.26 - 03/01/2019 - - - - 189,393.75 189,393.75 09/01/2019 - 280,000.00 * 276,528.00 4.375 4.500000 98.760000 189,393.75 469,393.75 658,787.50 - 03/01/2020 - - - - 183,268.75 183,268.75 - _ 09/01/2020 - 300,000.00 * 298,113.00 4.500 4.560000 99.371000 183,268.75 483,268.75 666,537.50 -03/01/2021 - - - - - 176,518.75 176,518.75 09/01/2021 - 310,000.00 * 306,617.90 4.500 4.600000 98.909000 176,518.75 486,518.75 663,037.50 - 03/01/2022 - - - - 169,543.75 169,543.75 - 09/01/2022 - (1) 325,000.00 * 337,879.75 5.000 4.510059 103.963000 169,543.75 494,543.75 664,087.50 - 03/01/2023 - - - - 161,418.75 161,418.75 - 09/01/2023 - (1) 345,000.00 * 358,672.35 5.000 4.510059 103.963000 161,418.75 506,418.75 667,837.50 03/01/2024 - - - - - 152,793.75 152,793.75 - 09/01/2024 1,035,000.00 (1) 365,000.00 * 379,464.95 5.000 4.510000 103.963000 152,793.75 517,793.75 670,587.50 - 03/01/2025 - - - - 143,668.75 143,668.75 - 09/01/2025 - (2) 385,000.00 * 398,663.65 5.000 4.560080 103.549000 143,668.75 528,668.75 672,337.50 03/01/2026 - - - 134,043.75 134,043.75 - 09/01/2026 - (2) 405,000.00 " 419,373.45 5.000 4.560080 103.549000 134,043.75 539,043.75 673,087.50 03/01/2027 - - - 123,918.75 123,918.75 - - 09/01/2027 1,980,000.00 (2) 1,190,000.00 * 1,232,233.10 5.000 4.560000 103.549000 123,918.75 1,313,918.75 1,437,837.50 - 03/01/2028 - - - 94,168.75 94,168.75 - _ 09/01/2028 - (3) 1,255,000.00 " 1,255,000.00 4.750 4.750000 100.000000 94,168.75 1,349,168.75 1,443,337.50 03/01/2029 - - - 64,362.50 64,362.50 - - 09/01/2029 - (3) 1,320,000.00 * 1,320,000.00 4.750 4.750000 100.000000 64,362.50 1,384,362.50 1,448,725.00 - 03/01/2030 - - - - - - 33,012.50 33,012.50 - - Page-3 i p Term Bond Bond Coupon Interest Total Fiscal Year Debt Service - Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call 09/01/2030 3,965,000.00 (3) 1,390,000.00 * 1,390,000.00 4.750 4.750000 100.000000 33,012.50 1,423,012.50 1,456,025.00 - Total 6,980,000.00 10,235,000.00 10,407,566.05 8,699,956.02 18,934,956.02 18,934,956.02 14,891,131.00 Acc Int -6,780.82 -6,780.82 - - Grand Totals 6,980,000.00 10,235,000.00 10,407,566.05 8,693,175.20 18,928,175.20 18,934,956.02 14,891,131.00 1 *-Bonds callable... 09/01/2016 @ 100.000 TIC(Incl.all expenses)....4.89766641% Average Coupon 4.79598753% Net Eff.Int.Rate(Texas Vernon's)= 4.700858%(with Adjstmnt of$0.00). TIC(Arbitrage TIC) 4.69193007% Average Life(yrs)... 17.72 IRS Form 8038-G NIC =4.637172%(with Adjstmnt of$0.00). Bond Years 181,400.72 WAM(yrs) 17.655021 NIC= 4.700858%(with Adjstmnt of$0.00). Term bonds and their respective sinking payments are marked by "(n)" where each"n"identifies each respective term bond. 1 t j i z R 1 ( t t PEARLAND EDC:NEW2006 Prepared by:RBC Capital Markets-Houston,Texas 06/12/2006 @ 11:38 v7.53 g Page-4