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02/26/1996-CC-Agenda Packet-RegularCITY CUNCIL February 26, 1996 CITY OF SANGER P. O. BOX 578 SANGER, TEXAS 76266 MEMORANDUM #2936 TO: Hoiloi`°able Mayor and Members of City Council FROM: Rose Chavez, City Secretary DATE: February 23, 1996 SUBJ: Band Issue/Debt Schedule Late this afternoon we received the attached "loose material" referring to our debt requirement on the $1,060,000 for the Utility Revenue Bonds. There will be a representative from Dan Alman's office here Monday night to address any concerns regarding the issuance of the revenue bonds. RC:ck FEB-23-1996 15�19 S�7UTH�JEST SECURITIES, I NC P.©1/03 RECIFIEN'P'S FAX TC1: cdMPAr��: ��OtNW�St S�C�aItIFS ►��-� �IS'c� FRdM: don A_ AlTnnn DATE: �-- � ' ~ � � FAX NUMFi~�: (214) f 58-94�5 NUMBER dF PAGES (Including cover page): �pr your in%rmation ()per your request ()Please review and advise COMMENTS: If you do not receive all pages, please contact: NAME; ()For your approval () Ptease phone me to discuss {)per our phone conversation MEMBER: NEW YORK STOCK EXCHANGE T. SUITE 3600. DALLAS. TEXAS 75270 (2141 551-1800 _-_- �- FEB-23-1996 15�21 MATiJ#ittY Yi#AR � �a� ���� � o�� 2000 2Qd1 • 20E1� 2Q03 2t?04 2t�p8 2dt3� � 2t�07 2t�p$ 2009 2A1G �ti11 �012 ; �Q13 241 � 20� � ' 2t?16 .� ,�a, SOUTH�.IEST $ECUR I T I ES � I NC P•. 03_ CITY i�F S�►N�i�R ' tJfi�ity Sy�i`�m ��vanue eand� ���ries 18�� f a�GP�lS �ti Sube'rdy Lending R�t� ��� �1�� 4.�OQ�9io- 1.009b 3.3dQ96 4.�6096 l.0046 3,�6096 +�.6509� 1.001� 3.fi�t�96 �.7t�'�+ 't.d3b� 3.70t�� 4.80b 1.dtig6 3.80a�6 �.�00 1.0095 3.ptlp9� 5.Ob4 i.�fU96 4.00i0� 6.1 d0 • 1.pp% 4.'1 QQ96 �.2p� 1.0046 �.t�Ob96 6,36 96 1.0�94, �3.9t3496 5.�1��96 1.009b �.�6Cy9� �.000� 1.Q�t96 �.�Ot�46 s. �ao� � . ac7►� �. �ao� 5y�'4�96 1,009b 4.'idQ9b �.7�09� 1.4ta96 4.�'SQ96 6.76d96 1.p096 �.Y'ia�19b l�a«Ntr Fix Nate i87t � .,..., • . �. ;- �4 • � ,� ------------------- EB-23-1996 15020 SOUTHWEST SECURITIESs INC P.02iO3 $1,060,000 (STATE REVOLVING FUND) CITY OF SANOER, TEXAS 41ATERUDRKS AND SEWER SYSTEM REVENUE BONDS, SERIES 1996 Combined Debt Service Principal Period Fiscet prior Date -pe Coupon interest Total Total Debt service S/15/96 228,400.00 5/15/97 20,000.00 2.850000 501525025 70,525925 70,525.25 223,810.00 5/15/98 35,000900 3.100000 44,452,50 79,452.5D - 79,452.50 224,050.ao 5/15/99 351000.00 3.300000 43,367.50 78,367.50 7$,367.50 228,830.00 5/15/ 0 35,000.00 3.450000 42,212.50 77,212950 77,212.50 227,830.00 5/15/ 1 40,000.o0 30550000 41,0a5.DD 81,005.00 81,005.00 226,373.00 5/15/ 2 400000.00 3.700000 390585,00 79,585.00 79,585.0o 224,498.00 5/15/ 3 45,000.00 3.800000 380105.00 83,105.00 83*105000 227,138.00 5/15/ 4 45,000.00 3.900000 36,395.0o $1,395.00 81,395.00 223,950.00 5/15/ 5 45,0a0.04 49000000 34,640.00 79,640.00 79,640.00 225,240.00 5/15/ 6 50,000.00 4.100000 32,$40.00 82,840.00 82,840.00 225,720.00 5/15/ 7 50,000.00 4.200000 30,790.00 80,740.00 801790.00 225,370.00 5/15/ 8 55,OOMO 4.350000 28,690.00 $3,690.00 83,690.00 224,170.00 5/15/ 9 60,000.00 4.450000 26,Z97.50 86,297.50 86,297.50 227,185.o0 5/15/10 60,000.00 4.550000 23,627.50 83,627.50 $3,62T.50 22.3,958.oa 5/15/11 65,000900 4.600000 20j897.50 85,897.50 851897.50 225,O15.a0 5/15/12 70,OW = 4.650000 17,907.50 87,907.50 87,907.50 5/15/13 70,000.00 4.700000 14,652.50 84,652050 84,652.50 5/15/14 75,000.00 4.700000 11,362.50 86,362.50 $6,362.50 5/15/15 80*000.00 4.750000 71837.50 870837.50 $7,837950 5/15/16 ,----85=OOO.aO 4.750000 4,037.50 89,037.50 89,037.50 1,060,000.00 584 227.75 1 649,227.75 . 3.611,537.00 ACCRUEDIN 1,060,000.00 Dated 4/ 1/96 with Delivery Bond Years 13,164.55b Average Coupon 4.474166 Average life 129424109 N t C % 4.47416b 9 Prepared by Southwest Securities, inc. 584,227.75 1,649,227.75 1/96 Using 100.0000000 Combined pis Total 228r 40MO Z94,335.25 303,502.50 307,197.50 305,042.50 307.378.04 304,083600 310,243.00 aa5,345.0o 304, 40400 308,56D.00 3a6,160900 347,860,00 313,482.50 307,585050 310,9}2.50 87,9a7.50 84,652.50 86,362.50 87,837.50 89,037.50 5,260,764.75 3,611,53T.00 5,260,7b4.75 Micro -Muni Debt bate; 02.23-1996 is 13:15;59 Filename: SANGER Key: 96REY ORDINANCE No. 02-96 AUTHORIZING THE ISSUANCE OF UTILITY SYSTEM REVENUE BONDS, SERIES 1996, AND OTHER MATTERS RELATED THERETO THE STATE OF TEXAS § COUNTY OF DENTON § CITY OF SANGER § WHEREAS, the following Utility System Revenue Bonds of the City of Sanger, Texas (the "Issuer") are presently outstanding: City of Sanger, Texas Utility System Refunding and Improvement Revenue Bonds, Series 1991, dated December 1, 1991, outstanding in the aggregate principal amount of $2,155,000 ("Series 1991 Bonds"); and WHEREAS, the City Council has heretofore, on the Sth day of February, 1996, adopted a resolution authorizing and directing the City Secretary to give notice of intention to issue revenue bonds; and WHEREAS, said notice has been duly published in the Sanger Courier, which is a newspaper of general circulation in said City, in its issues of February 8, 1996 and February 15, 1996;and WHEREAS, the City received no petition from the qualified electors of the City protesting the issuance of such bonds; and WHEREAS, the bonds hereinafter authorized and designated are to be issued and delivered pursuant to Article 2368a, V.A.T.C.S. and Articles 1111 through 1118; and WHEREAS, it is hereby officially found and determined that public notice of the time, place and purpose of said meeting was given, all as required by Chapter 551, Texas Government Code. BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF SANGER, THAT: Section 1. AMOUNT AND PURPOSE OF THE BONDS. The bond or bonds of the City of Sanger, Texas (the "Issuer") are hereby authorized to be issued and delivered in the aggregate principal amount of $1,060,000 for the purpose of improving and extending the Sewer System. Section 2. DESIGNATION OF THE BONDS. Each bond issued pursuant to this Ordinance shall be designated: "CITY OF SANGER, TEXAS UTILITY SYSTEM REVENUE BOND, SERIES 1996", and initially there shall be issued, sold, and delivered hereunder a single 1 fully registered bond, without interest coupons, payable in installments of principal (the "Initial Bond"), but the Initial Bond may be assigned and transferred and/or converted into and exchanged for a like aggregate principal amount of fully registered bonds, without interest coupons, having serial maturities, and in the denomination or denominations of $5,000 or any integral multiple of $5,000, all in the manner hereinafter provided. The term "Bonds" as used in this Ordinance shall mean and include collectively the Initial Bond and all substitute bonds exchanged therefor, as well as all other substitute bonds and replacement bonds issued pursuant hereto, and the term "Bond" shall mean any of the Bonds. Section 3. INITIAL DATE, DENOMINATION, NUMBER, MATURITIES, INITIAL REGISTERED OWNER, AND CHARACTERISTICS OF THE INITIAL BOND. (a) The Initial Bond is hereby authorized to be issued, sold, and delivered hereunder as a single fully registered Bond, without interest coupons, dated March 15, 1996, in the denomination and aggregate principal amount of $1,060,000, numbered R4, payable in annual installments of principal to the initial registered owner thereof, to -wit: TEXAS WATER DEVELOPMENT BOARD, or to the registered assignee or assignees of said Bond or any portion or portions thereof (in each case, the "registered owner"), with the annual installments of principal of the Initial Bond to be payable on the dates, respectively, and in the principal amounts, respectively, stated in the FORM OF INITIAL BOND set forth in this Ordinance. (b) The Initial Bond (i) may be prepaid or redeemed prior to the respective scheduled due dates of installments of principal thereof, (ii) may be assigned and transferred, (iii) may be converted and exchanged for other Bonds, (iv) shall have the characteristics, and (v) shall be signed and sealed, and the principal of and interest on the Initial Bond shall be payable, all as provided, and in the manner required or indicated, in the FORM OF INITIAL BOND set forth 0 in this Ordinance. Section 4. INTEREST. The unpaid principal balance of the Initial Bond shall bear interest from the date of delivery of the Initial Bond, and will be calculated on the basis of a 360-day year of twelve 30-day months to the respective scheduled due dates, or to the respective dates of prepayment or redemption, of the installments of principal of the Initial Bond, and said interest shall be payable, all in the manner provided and at the rates and on the dates stated in the FORM OF INITIAL BOND set forth in this Ordinance. Section 5. FORM OF INITIAL BOND. The form of the Initial Bond, including the form of Registration Certificate of the Comptroller of Public Accounts of the State of Texas to be endorsed on the Initial Bond, shall be substantially as follows: 2 NO. R-1 FORM OF INITIAL BOND UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER, TEXAS UTILITY SYSTEM REVENUE BOND SERIES 1996 $1,060,000 CITY OF SANGER, in DENTON COUNTY (the "Issuer"), being a political subdivision of the State of Texas, hereby promises to pay to TEXAS WATER DEVELOPMENT BOARD or to the registered assignee or assignees of this Bond or any portion or portions hereof (in each case, the "registered owner") the aggregate principal amount of ONE MILLION SIXTY THOUSAND DOLLARS in annual installments of principal due and payable on May 15 in each of the years, and in the respective principal amounts, as set forth in the following schedule: YEAR AMOUNT YEAR AMOUNT 1997 $20,000 2007 $50,000 1998 35,000 2008 55,000 1999 35,000 2009 609000 2000 359000 2010 609000 2001 409000 2011 659000 2002 409000 2012 70,000 2003 45,000 2013 70,000 2004 459000 2014 75,000 2005 45,000 2015 805000 2006 50,000 2016 85,000 and to pay interest, from the date of delivery of this Bond (which date appears on the back hereof), on the balance of each such installment of principal, respectively, from time to time remaining unpaid, at the rates as follows: 3 maturity 1997, % maturity 2007,70 maturity 1998, % maturity 2008, % maturity 1999, % maturity 2009, % maturity 2000, % maturity 2010, % maturity 2001, % maturity 2011, % maturity 2002, % maturity 2012, % maturity 2003, % maturity 2013, maturity 2004, % maturity 2014, maturity 2005, % maturity 2015, maturity 2006, % maturity 2016, with said interest being payable on November 15, 1996 and semiannually on each May 15 and November 15 thereafter while this Bond or any portion hereof is outstanding and unpaid. THE INSTALLMENTS OF PRINCIPAL OF AND THE INTEREST ON this bond are payable in lawful money of the United States of America, without exchange or collection charges. The installments of principal and the interest on this Bond are payable to the registered owner hereof through the services of Texas Commerce Bank National Association, Dallas, Texas, which is the "Paying Agent/Registrar" for this Bond. Payment of all principal of and interest on this Bond shall be made by the Paying Agent/Registrar to the registered owner hereof on each principal and/or interest payment date by check or draft, dated as of such date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the Issuer required by the ordinance authorizing the issuance of this Bond (the "Bond Ordinance") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided; and such check or draft shall be sent by the Paying Agent/Registrar by United States mail, first class postage prepaid, on each such principal and/or interest payment date, to the registered owner hereof, at the address of the regis- tered owner, as it appeared on the last business day of the month next preceding each such date (the "Record Date") on the Registration Books kept by the Paying Agent/Registrar, as hereinafter described, or by such other method acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner; however, if the Bond is owned by the Texas Water Development Board, there will be no charge to the Texas Water Development Board. The Issuer covenants with the registered owner of this Bond that on or before each principal and/or interest payment date for this Bond it will make available to the Paying Agent/Registrar, from the "Bond Fund" created by the Bond Ordinance, the amounts required to provide for the payment, in immediately available funds, of all principal of and interest on this Bond, when due. IF THE DATE for the payment of the principal of or interest on this Bond shall be a Saturday, Sunday, a legal holiday, or a day on which banking institutions in the city where the Paying Agent/Registrar is located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or day on which banking institutions are authorized to close; and payment on such date shall have the same force and effect as if made on the original date payment was due. THIS BOND has been authorized in accordance with the Constitution and laws of the State of Texas, in the principal amount of $1,060,000 for the purpose of improving and extending the Sewer System. ON MAY 15, 20061 or any date thereafter, the unpaid installments of principal of this Bond may be prepaid or redeemed prior to their scheduled due dates, at the option of the Issuer, with funds derived from any available source, as a whole, or in part, and, if in part, the Issuer shall, in inverse order of annual maturity, select and designate the maturity, or maturities, and the amount that is to be redeemed, and if less than a whole maturity is to be redeemed, the Issuer shall direct the Paying Agent/Registrar to call by lot (provided that a portion of this Bond may be redeemed only in an integral multiple of $5,000), at a price equal to the principal amount to be so prepaid or redeemed, plus accrued interest to the date fixed for prepayment or redemption. AT LEAST 30 days prior to the date fixed for any such prepayment or redemption a written notice of such prepayment or redemption shall be mailed by the Paying Agent/Registrar to the registered owner hereof. By the date fixed for any such prepayment or redemption due provision shall be made by the Issuer with the Paying Agent/Registrar for the payment of the required prepayment or redemption price for this Bond or the portion hereof which is to be so prepaid or redeemed, plus accrued interest thereon to the date fixed for prepayment or redemption. If 'such written notice of prepayment or redemption is given, and if due provision for such payment is made, all as provided above, this Bond, or the portion thereof which is to be so prepaid or redeemed, thereby automatically shall be treated as prepaid or redeemed prior to its scheduled due date, and shall not bear interest after the date fixed for its prepayment or redemption, and shall not be regarded as being outstanding except for the right of the registered owner to receive the prepayment or redemption price plus accrued interest to the date fixed for prepayment or redemption from the Paying Agent/Registrar out of the funds provided for such payment. The Paying Agent/Registrar shall record in the Registration Books all such prepayments or redemptions of principal of this Bond or any portion hereof. THIS BOND, to the extent of the unpaid or unredeemed principal balance hereof, or any unpaid and unredeemed portion hereof in any integral multiple of $5,000, may be assigned by the initial registered owner hereof and shall be transferred only in the Registration Books of the Issuer kept by the Paying Agent/Registrar acting in the capacity of registrar for the Bonds, upon the terms and conditions set forth in the Bond Ordinance. Among other requirements for such transfer, this Bond must be presented and surrendered to the Paying Agent/Registrar for cancellation, together with proper instruments of assignment, in form and with guarantee of signa- tures satisfactory to the Paying Agent/Registrar, evidencing assignment by the initial registered owner of this Bond, or any portion or portions hereof in any integral multiple of $5,000, to the assignee or assignees in whose name or names this Bond or any such portion or portions hereof is or are to be transferred and registered. Any instrument or instruments of assignment satisfac- tory to the Paying Agent/Registrar may be used to evidence the assignment of this Bond or any such portion or portions hereof by the initial registered owner hereof. A new bond or bonds payable to such assignee or assignees (which then will be the new registered owner or owners of 5 such new Bond or Bonds) or to the initial registered owner as to any portion of this Bond which is not being assigned and transferred by the initial registered owner, shall be delivered by the Paying Agent/Registrar in conversion of and exchange for this Bond or any portion or portions hereof, but solely in the form and manner as provided in the next paragraph hereof for the conver- sion and exchange of this Bond or any portion hereof. The registered owner of this Bond shall be deemed and treated by the Issuer and the Paying Agent/Registrar as the absolute owner hereof for all purposes, including payment and discharge of liability upon this Bond to the extent of such payment, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary. AS PROVIDED above and in the Bond Ordinance, this Bond, to the extent of the unpaid or unredeemed principal balance hereof, may be converted into and exchanged for a like aggregate principal amount of fully registered bonds, without interest coupons, payable to the assignee or assignees duly designated in writing by the initial registered owner hereof, or to the initial registered owner as to any portion of this Bond which is not being assigned and transferred by the initial registered owner, in any denomination or denominations in any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute bond issued in exchange for any portion of this Bond shall have a single stated principal maturity date), upon surrender of this Bond to the Paying Agent/Registrar for cancellation, all in accordance with the form and pro- cedures set forth in the Bond Ordinance. If this Bond or any portion hereof is assigned and transferred or converted each bond issued in exchange for any portion hereof shall have a single stated principal maturity date corresponding to the due date of the installment of principal of this Bond or portion hereof for which the substitute bond is being exchanged, and shall bear interest at the rate applicable to and borne by such installment of principal or portion thereof. Such bonds, respectively, shall be subject to redemption prior to maturity on the same dates and for the same prices as the corresponding installment of principal of this Bond or portion hereof for which they are being exchanged. No such bond shall be payable in installments, but shall have only one stated principal maturity date. AS PROVIDED IN THE BOND ORDINANCE, THIS BOND IN ITS PRESENT FORM MAY BE ASSIGNED AND TRANSFERRED OR CONVERTED ONCE ONLY, and to one or more assignees, but the bonds issued and delivered in exchange for this Bond or any portion hereof may be assigned and transferred, and converted, subsequently, as provided in the Bond Ordinance. The Issuer shall pay the Paying Agent/ Registrar's standard or customary fees and charges for transferring, converting, and exchanging this Bond or any portion thereof, but the one requesting such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto. The Paying Agent/Registrar shall not be required to make any such assignment, conversion, or exchange (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or, (ii) with respect to any Bond or portion thereof called for prepayment or redemption prior to maturity, within 30 days prior to its prepayment or redemption date. IN THE EVENT any Paying Agent/Registrar for this Bond is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the Bond Ordinance that 0 it promptly will appoint a competent and legally qualified substitute therefor, and promptly will cause written notice thereof to be mailed to the registered owner of this Bond. IT IS HEREBY certified, recited, and covenanted that this Bond has been duly and validly authorized, issued, and delivered pursuant to the laws of the State of Texas; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Bond and the Series of which it is a part have been performed, existed, and been done in accordance with laws that this Bond is a special obligation of said Issuer, and that the principal of and interest on this Bond, together with other outstanding revenue bonds of the Issuer, are payable and secured by a first lien on and pledge of the Net Revenues of the Issuer's Utility System, being the Waterworks, Sewer and Electric System, THE ISSUER has reserved the right, subject to the restrictions stated, and adopted by reference, in the Ordinance authorizing this Series of Bonds, to issue additional parity revenue bonds which also may be made payable from, and secured by a first lien on and pledge of, the aforesaid Net Revenues. THE OWNER HEREOF shall never have the right to demand payment of this obligation out of any funds raised or to be raised by taxation, or from any source other than the Net Revenues. BY BECOMING the registered owner of this Bond, the registered owner thereby acknowledges all of the terms and provisions of the Bond Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Bond Ordinance is duly recorded and available for inspection in the official minutes and records of the governing body of the Issuer, and agrees that the terms and provisions of this Bond and the Bond Ordinance constitute a contract between the registered owner hereof and the Issuer. IN WITNESS WHEREOF, the Issuer has caused this Bond to be signed with the manual signature of the Mayor of the Issuer and countersigned with the manual signature of the City Secretary of the Issuer, has caused the official seal of the Issuer to be duly impressed on this Bond, and has caused this Bond to be dated March 15, 1996. City Secretary (CITY SEAL) Mayor The following shall be printed on the back of said Initial Bond: This Initial Bond was delivered to and paid for by the Purchaser thereof 7 FORM OF REGISTRATION CERTIFICATE OF THE COMPTROLLER OF PUBLIC ACCOUNTS. COMPTROLLER'S REGISTRATION CERTIFICATE: REGISTER NO. I hereby certify that this Bond has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Bond has been registered by the Comptroller A Public Accounts of the State of Texas. Witness my signature and seal this Comptroller of Public Accounts of the State of Texas (COMPTROLLER' S SEAL) Section 6. ADDITIONAL CHARACTERISTICS OF THE BONDS. Registration and Transfer. (a) The Issuer shall keep or cause to be kept at the principal corporate trust office of Texas Commerce Bank National Association, Dallas, Texas (the "Paying Agent/Registrar") books or records of the registration and transfer of the Bonds (the "Registration Books"), and the Issuer hereby appoints the Paying Agent/Registrar as its registrar and transfer agent to keep such books or records and make such transfers and registrations under such reasonable regulations as the Issuer and Paying Agent/Registrar may prescribe; and the Paying Agent/Registrar shall make such transfers and registrations as herein provided. The Paying Agent/Registrar shall obtain and record in the Registration Books the address of the registered owner of each Bond to which payments with respect to the Bonds shall be mailed, as herein provided; but it shall be the duty of each registered owner to notify the Paying Agent/Registrar in writing of the address to which payments shall be mailed, and such interest payments shall not be mailed unless such notice has been given. The Issuer shall have the right to inspect the Registration Books during regular business hours of the Paying Agent/Registrar, but otherwise the Paying Agent/Registrar shall keep the Registration Books confidential and, unless otherwise required by law, shall not permit their inspection by any other entity. Registration of each Bond may be transferred in the Registration Books only upon presentation and surrender of such Bond to the Paying Agent/Registrar for transfer of registration and cancellation, together with proper written instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, (1) evidencing the assignment of the Bond, or any portion thereof in any integral multiple of $5,000, to the assignee or assignees thereof, and (n) the right of such assignee or assignees to have the Bond or any such portion thereof registered in the name of such assignee or assignees. Upon the assignment and transfer of any Bond or any portion thereof, a new substitute Bond or Bonds shall be issued in conversion and exchange therefor in the manner herein provided. The Initial Bond, to the extent of the unpaid or unredeemed principal balance thereof, may be assigned and transferred by the initial registered owner thereof once only, and to one or more assignees designated in writing by the initial registered owner thereof. All Bonds issued and delivered in conversion of and exchange for the Initial Bond shall be in any denomination or denominations of any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute Bond shall have a single stated principal maturity date), shall be in the form prescribed in the FORM OF SUBSTITUTE BOND set forth in this Ordinance, and shall have the characteristics, and may be assigned, trans- ferred, and converted as hereinafter provided. If the Initial Bond or any portion thereof is assigned and transferred or converted the Initial Bond must be surrendered to the Paying Agent/Registrar for cancellation, and each Bond issued in exchange for any portion of the Initial Bond shall have a single stated principal maturity date, and shall not be payable in installments; and each such Bond shall have a principal maturity date corresponding to the due date of the installment of principal or portion thereof for which the substitute Bond is being exchanged; and each such Bond shall bear interest at the single rate applicable to and borne by such installment of principal or portion thereof for which it is being exchanged. If only a portion of the Initial Bond is assigned and transferred, there shall be delivered to and registered in the name of the initial registered owner substitute Bonds in exchange for the unassigned balance of the Initial Bond in the same manner as if the initial registered owner were the assignee thereof. If any Bond or portion thereof other than the Initial Bond is assigned and transferred or converted each Bond issued in exchange therefor shall have the same principal maturity date and bear interest at the same rate as the Bond for which it is exchanged. A form of assignment shall be printed or en. dorsed on each Bond, excepting the Initial Bond, which shall be executed by the registered owner or its duly authorized attorney or representative to evidence an assignment thereof. Upon surrender of any Bonds or any portion or portions thereof for transfer of registration, an authorized representative of the Paying Agent/Registrar shall make such transfer in the Registration Books, and shall deliver a new fully registered substitute Bond or Bonds, having the characteristics herein described, payable to such assignee or assignees (which then will be the registered owner or owners of such new Bond or Bonds), or to the previous registered owner in case only a portion of a Bond is being assigned and transferred, all in conversion of and exchange for said assigned Bond or Bonds or any portion or portions thereof, in the same form and manner, and with the same effect, as provided in Section 6(d), below, for the conversion and exchange of Bonds by any registered owner of a Bond. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for making such transfer and delivery of a substitute Bond or Bonds, but the one requesting such transfer shall pay any taxes or other governmental charges required to be paid with respect thereto. The Paying Agent/Registrar shall not be required to make transfers of registration of any Bond or any portion thereof (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or, (n) with respect to any Bond or any portion thereof called for redemption prior to maturity, within 45 days prior to its redemp- tion date. (b) Ownership of Bonds. The entity in whose name any Bond shall be registered in the Registration Books at any time shall be deemed and treated as the absolute owner thereof for all purposes of this Ordinance, whether or not such Bond shall be overdue, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary; and payment of, or on 0 account of, the principal of, premium, if any, and interest on any such Bond shall be made only to such registered owner. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid. (c) Payment of Bonds and Interest. The Issuer hereby further appoints the Paying Agent/Registrar to act as the paying agent for paying the principal of and interest on the Bonds, and to act as its agent to convert and exchange or replace Bonds, all as provided in this Ordinance. The Paying Agent/Registrar shall keep proper records of all payments made by the Issuer and the Paying Agent/Registrar with respect to the Bonds, and of all conversions and exchanges of Bonds, and all replacements of Bonds, as provided in this Ordinance. However, in the event of a nonpayment of interest on a scheduled payment date, and for thirty (30) days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the District. Notice of the Special Record Date and of the scheduled payment date of the past due interest (which shall be 15 days after the Special Record Date) shall be sent at least five (5) business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each Bondholder appearing on the Security Register at the close of business on the last business day next preceding the date of mailing of such notice. (d) Conversion and Exchange or Replacement: Authentication. Each Bond issued and delivered pursuant to this Ordinance, to the extent of the unpaid or unredeemed principal balance or principal amount thereof, may, upon surrender of such Bond at the principal corporate trust office of the Paying Agent/Registrar, together with a written request therefor duly executed by the registered owner or the assignee or assignees thereof, or its or their duly authorized attorneys or representatives, with guarantee of signatures satisfactory to the Paying Agent/Registrar, may, at the option of the registered owner or such assignee or assignees, as appropriate, be converted into and exchanged for fully registered bonds, without interest coupons, in the form prescribed in the FORM OF SUBSTITUTE BOND set forth in this Ordinance, in the denomination of $5,000, or any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute Bond shall have a single stated maturity date), as requested in writing by such registered owner or such assignee or assignees, in an aggregate principal amount equal to the unpaid or unre- deemed principal balance or principal amount of any Bond or Bonds so surrendered, and payable to the appropriate registered owner, assignee, or assignees, as the case may be. If the Initial Bond is assigned and transferred or converted each substitute Bond issued in exchange for any portion of the Initial Bond shall have a single stated principal maturity date, and shall not be payable in installments; and each such Bond shall have a principal maturity date corresponding to the due date of the installment of principal or portion thereof for which the substitute Bond is being exchanged; and each such Bond shall bear interest at the single rate applicable to and borne by such installment of principal or portion thereof for which it is being exchanged. If a portion of any Bond (other than the Initial Bond) shall be redeemed prior to its scheduled maturity as provided herein, a substitute Bond or Bonds having the same maturity date, bearing interest at the same rate, in the denomination or denominations of any integral multiple of $5,000 at the request of the registered owner, and in aggregate principal amount equal to the unredeemed portion 10 thereof, will be issued to the registered owner upon surrender thereof for cancellation. If any Bond or portion thereof (other than the Initial Bond) is assigned and transferred or converted, each Bond issued in exchange therefor shall have the same principal maturity date and bear interest at the same rate as the Bond for which it is being exchanged. Each substitute Bond shall bear a letter and/or number to distinguish it from each other Bond. The Paying Agent/Registrar shall convert and exchange or replace Bonds as provided herein, and each fully registered bond delivered in conversion of and exchange for or replacement of any Bond or portion thereof as permitted or required by any provision of this Ordinance shall constitute one of the Bonds for all purposes of this Ordinance, and may again be converted and exchanged or replaced. It is specifically provided that any Bond authenticated in conversion of and exchange for or replacement of another Bond on or prior to the first scheduled Record Date for the Initial Bond shall bear interest from the date of the Initial Bond, but each substitute Bond so authenticated after such first scheduled Record Date shall bear interest from the interest payment date next preceding the date on which such substitute Bond was so authenticated, unless such Bond is authenticated after any Record Date but on or before the next following interest payment date, in which case it shall bear interest from such next following interest payment date; provided, however, that if at the time of delivery of any substitute Bond the interest on the Bond for which it is being exchanged is due but has not been paid, then such Bond shall bear interest from the date to which such interest has been paid in full. THE INITIAL BOND issued and delivered pursuant to this Ordinance is not required to be, and shall not be, authenticated by the Paying Agent/Registrar, but on each substitute Bond issued in conversion of and exchange for or replacement of any Bond or Bonds issued under this - - Ordinance there shall be printed a certificate, in the form substantially as follows: "PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE It is hereby certified that this Bond has been issued under the provisions of the Bond Ordinance described on the face of this Bond; and that this Bond has been issued in conversion A and exchange for or replacement of a bond, bonds, or a portion of a bond or bonds of an issue which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. Dated Paying Agent/Registrar Authorized Representative An authorized representative of the Paying Agent/Registrar shall, before the delivery of any such Bond, date and manually sign the above Certificate, and no such Bond shall be deemed to be issued or outstanding unless such Certificate is so executed. The Paying Agent/Registrar promptly shall cancel all Bonds surrendered for conversion and exchange or replacement. No additional ordinances, orders, or resolutions need be passed or adopted by the governing body of the Issuer or any other body or person so as to accomplish the foregoing conversion and exchange or replacement of any Bond or portion thereof, and the Paying Agent/ Registrar shall provide for the printing, execution, and delivery of the substitute Bonds in the manner prescribed herein, and said Bonds shall be of type composition printed on paper with lithographed or steel engraved borders of customary weight and strength. Pursuant to Vernon's Ann, Tex. Civ. St. Art. 717k-6, and particularly Section 6 thereof, the duty of conversion and exchange or replacement of Bonds as aforesaid is hereby imposed upon the Paying Agent/Registrar, and, upon the execution of the above Paying Agent/Registrar's Authentication Certificate, the converted and exchanged or re- placed Bond shall be valid, incontestable, and enforceable in the same manner and with the same effect as the Initial Bond which originally was issued pursuant to this Ordinance, approved by the Attorney General, and registered by the Comptroller of Public Accounts. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for transferring, converting, and exchanging any Bond or any portion thereof, but the one requesting any such transfer, conver- sion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto as a condition precedent to the exercise of such privilege of conversion and exchange. The Paying Agent/Registrar shall not be required to make any such conversion and exchange or replacement of Bonds or any portion thereof (1) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or, (ii) with respect to any Bond or portion thereof called for redemption prior to maturity, within 30 days prior to its redemption date. (e) In General. All Bonds issued in conversion and exchange or replacement of any other Bond or portion thereof, (1) shall be issued in fully registered form, without interest coupons, with the principal of and interest on such Bonds to be payable only to the registered owners thereof, (ii) may be redeemed prior to their scheduled maturities, (iii) may be transferred and assigned, (iv) may be converted and exchanged for other Bonds, (v) shall have the characteristics, (vi) shall be signed and sealed, and (vii) the principal of and interest on the Bonds shall be payable, all as provided, and in the manner required or indicated, in the FORM OF SUBSTITUTE BOND set forth in this Ordinance. (f) Payment of Fees and Charges. The Issuer hereby covenants with the registered owners of the Bonds that it will (i) pay the standard or customary fees and charges of the Paying Agent/Registrar for its services with respect to the payment of the principal of and interest on the Bonds, when due, and (ii) pay the fees and charges of the Paying Agent/Registrar for services with respect to the transfer of registration of Bonds, and with respect to the conversion and exchange of Bonds solely to the extent above provided in this Ordinance. (g) Substitute Pa,Lng Agent/Re i� strar. The Issuer covenants with the registered owners of the Bonds that at all times while the Bonds are outstanding the Issuer will provide a competent and legally qualified bank, trust company, financial institution, or other agency to act as and perform the services of Paying Agent/Registrar for the Bonds under this Ordinance, and that the Paying Agent/Registrar will be one entity. The Issuer reserves the right to, and may, at its option, change the Paying Agent/Registrar upon not less than 120 days written notice to the Paying Agent/Registrar, to be effective not later than 60 days prior to the next principal or interest 12 payment date after such notice. In the event that the entity at any time acting as Paying Agent/Registrar (or its successor by merger, acquisition, or other method) should resign or other- wise cease to act as such, the Issuer covenants that promptly it will appoint a competent and legally qualified bank, trust company, financial institution, or other agency to act as Paying Agent/Registrar under this Ordinance. Upon any change in the Paying Agent/Registrar, the previous Paying Agent/Registrar promptly shall transfer and deliver the Registration Books (or a copy thereof), along with all other pertinent books and records relating to the Bonds, to the new Paying Agent/Registrar designated and appointed by the Issuer. Upon any change in the Paying Agent/Registrar, the Issuer promptly will cause a written notice thereof to be sent by the new Paying Agent/Registrar to each registered owner of the Bonds, by United States mail, first-class postage prepaid, which notice also shall give the address of the new Paying Agent/Registrar. By accepting the position and performing as such, each Paying Agent/Registrar shall be deemed to have agreed to the provisions of this Ordinance, and a certified copy of this Ordinance shall be delivered to each Paying Agent/Registrar, Section 7. FORM OF SUBSTITUTE BONDS. The form of all Bonds issued in conversion and exchange or replacement of any other Bond or portion thereof, including the form A Paying Agent/Registrar's Certificate to be printed on each of such Bonds, and the Form of Assignment to be printed on each of the Bonds, shall be, respectively, substantially as follows, with such appropriate variations, omissions; or insertions as are permitted or required by this Ordinance. NO. FORM OF SUBSTITUTE BOND UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER, TEXAS UTILITY SYSTEM REVENUE BOND SERIES 1996 ORIGINAL ISSUE March 15, 1996 PRINCIPAL AMOUNT ON THE MATURITY DATE specified above, CITY OF SANGER (the "Issuer"), in DENTON COUNTY, being a political subdivision of the State of Texas, hereby promises to pay to 13 or to the registered assignee hereof (either being hereinafter called the "registered owner") the principal amount of and to pay interest thereon from the date of delivery of this Bond (which date appears on the back hereof) to the date of its scheduled maturity, or the date of redemption prior to maturity, at the interest rate per annum specified above, with interest being payable on November 15, 1996, and semiannually on each May 15 and November 15; except that if the date of authentication of this Bond is later than October 31, 1996, such principal amount shall bear interest from the interest payment date next preceding the date of authentication, unless such date of authentication is after any Record Date (hereinafter defined) but on or before the next following interest payment date, in which case such principal amount shall bear interest from such next following interest payment date. THE PRINCIPAL OF AND INTEREST ON this Bond are payable in lawful money of the United States of America, without exchange or collection charges. The principal of this Bond shall be paid to the registered owner hereof upon presentation and surrender of this Bond at maturity or upon the date fixed for its redemption prior to maturity, at the principal corporate trust office of Texas Commerce Bank National Association, Dallas, Texas, which is the "Paying Agent/Registrar" for this Bond. The payment of interest on this Bond shall be made by the Paying Agent/Registrar to the registered owner hereof on each interest payment date by check or draft, dated as of such interest payment date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the Issuer required by the ordinance authorizing the issuance of the Bonds (the "Bond Ordinance") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided; and such check or draft shall be sent by the Paying Agent/Registrar by United States mail, first class postage prepaid, on each such interest payment date, to the registered owner hereof, at the address of the registered owner, as it appeared on the last business day of the month next preceding each such date (the "Record Date") on the Registration Books kept by the Paying Agent/Registrar, as hereinafter described, or by such other method acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner, however, if the Bond is owned by the Texas Water Development Board, there will be no charge to the Texas Water Development Board. Any accrued interest due upon the redemption of this Bond prior to maturity as provided herein shall be paid to the registered owner at the principal corporate trust office of the Paying Agent/Registrar upon presentation and surrender of this Bond for redemption and payment at the principal corporate trust office of the Paying Agent/Registrar. The Issuer covenants with the registered owner of this Bond that on or before each principal payment date, interest payment date, and accrued interest payment date for this Bond it will make available to the Paying Agent/Registrar, from the "Bond Fund" created by the Bond Ordinance, the amounts required to provide for the payment, in immediately available funds, of all principal of and interest on the Bonds, when due. 14 IF THE DATE for the payment of the principal of or interest on this Bond shall be a Saturday, Sunday, a legal holiday, or a day on which banking institutions in the city where the Paying Agent/Registrar is located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or day on which banking institutions are authorized to close; and payment on such date shall have the same force and effect as if made on the original date payment was due. THIS BOND is one of an issue of Bonds initially dated March 15, 1996, authorized in accordance with the Constitution and laws of the State of Texas in the principal amount of $1,060,000 for the purpose of improving and extending the Sewer System. ON MAY 15, 2006, or on any date thereafter, the Bonds of this Series may be redeemed prior to their scheduled maturities, at the option of the Issuer, with funds derived from any available and lawful source, as a whole, or in part, and, if in part, the maturity or maturities of Bonds and the amounts thereof, to be redeemed shall, in inverse order of annual maturity, be selected and designated by the Issuer, and the Issuer shall direct the Paying Agent/Registrar to call by lot Bonds, or portions thereof within such maturities and in such principal amounts, for redemption (provided that a portion of a Bond may be redeemed only in an integral multiple of $5,000), at the redemption price of the principal amount thereof, plus accrued interest to the date fixed for prepayment or redemption. AT LEAST 30 days prior to the date fixed for any redemption of Bonds or portions thereof prior to maturity a written notice of such redemption shall be published once in a financial publication, journal, or reporter of general circulation among securities dealers in the City of New York, New York (including, but not limited to, The Bond Buyer and The Wall Street Journal), or in the State of Texas (including, but not limited to, The Texas Bond Reporter). Such notice also shall be sent by the Paying Agent/Registrar by United States mail, first class postage prepaid, not less than 20 days prior to the date fixed for any such redemption, to the registered owner of each Bond to be redeemed at its address as it appeared on the 30th day prior to such redemption date; provided, however, that the failure to send, mail, or receive such notice, or any defect therein or in the sending or mailing thereof, shall not affect the validity or effectiveness of the proceedings for the redemption of any Bond, and it is hereby specifically provided that the publication of such notice as required above shall be the only notice actually required in connection with or as a prerequisite to the redemption of any Bonds or portions thereof. By the date fixed for any such redemption due provision shall be made with the Paying Agent/Registrar for the payment of the required redemption price for the Bonds or portions thereof which are to be so redeemed, plus accrued interest thereon to the date fixed for redemption. If such written notice of redemption is published and if due provision for such payment is made, all as provided above, the Bonds or portions thereof which are to be so redeemed thereby automatically shall be treated as redeemed prior to their scheduled maturities, and they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the right of the registered owner to receive the redemption price plus accrued interest from the Paying Agent/Registrar out of the funds provided for such payment. If a portion of any Bond shall be 15 redeemed a substitute Bond or Bonds having the same maturity date, bearing interest at the same rate, in any denomination or denominations in any integral multiple of $5,000, at the written request of the registered owner, and in aggregate principal amount equal to the unredeemed portion thereof, will be issued to the registered owner upon the surrender thereof for cancellation, at the expense of the Issuer, all as provided in the Bond Ordinance. THIS BOND OR ANY PORTION OR PORTIONS HEREOF IN ANY INTEGRAL MULTIPLE OF $5,000 may be assigned and shall be transferred only in the Registration Books of the Issuer kept by the Paying Agent/Registrar acting in the capacity of registrar for the Bonds, upon the terms and conditions set forth in the Bond Ordinance. Among other requirements for such assignment and transfer, this Bond must be presented and surrendered to the Paying Agent/Registrar, together with proper instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment of this Bond or any portion or portions hereof in any integral multiple of $5,000 to the assignee or assignees in whose name or names this Bond or any such portion or portions hereof is or are to be transferred and registered. The form of Assignment printed or endorsed on this Bond shall be executed by the registered owner or its duly authorized attorney or representative, to evidence the assignment hereof. A new Bond or Bonds payable to such assignee or assignees (which then will be the new registered owner or owners of such new Bond or Bonds), or to the previous registered owner in the case of the assignment and transfer of only a portion of this Bond, may be delivered by the Paying Agent/Registrar in conversion of and exchange for this Bond, all in the form and manner as provided in the next paragraph hereof for the conversion and exchange of other Bonds. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for making such transfer, but the one requesting such transfer shall pay any taxes or other governmental charges required to be paid with respect thereto. The Paying Agent/Registrar shall not be required to make transfers of registration of this Bond or any portion hereof (1) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or, (ii) with respect to any Bond or any portion thereof called for redemption prior to maturity, within 30 days prior to its redemption date. The registered owner of this Bond shall be deemed and treated by the Issuer and the Paying Agent/Registrar as the absolute owner hereof for all purposes, including payment and discharge of liability upon this Bond to the extent of such payment, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary. ALL BONDS OF THIS SERIES are issuable solely as fully registered bonds, without interest coupons, in the denomination of any integral multiple of $5,000. As provided in the Bond Ordinance, this Bond, or any unredeemed portion hereof, may, at the request of the registered owner or the assignee or assignees hereof, be converted into and exchanged for a like aggregate principal amount of fully registered bonds, without interest coupons, payable to the appropriate registered owner, assignee, or assignees, as the case may be, having the same maturity date, and bearing interest at the same rate, in any denomination or denominations in any integral multiple of $5,000 as requested in writing by the appropriate registered owner, assignee, or assignees, as the case may be, upon surrender of this Bond to the Paying Agent/Registrar for cancellation, ali in accordance with the form and procedures set forth m the Bond Ordinance. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for trans- ferring, converting, and exchanging any Bond or any portion thereof, but the one requesting such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto as a condition precedent to the exercise of such privilege of conversion and exchange. The Paying Agent/Registrar shall not be required to make any such conversion and exchange (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or, (n) with respect to any Bond or portion thereof called for redemption prior to maturity, within 30 days prior to its redemption date. IN THE EVENT any Paying Agent/Registrar for the Bonds is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the Bond Ordinance that it promptly will appoint a competent and legally qualified substitute therefor, and promptly will cause written notice thereof to be mailed to the registered owners of the Bonds. IT IS HEREBY certified, recited, and covenanted that this Bond has been duly and validly authorized, issued, and delivered pursuant to the laws of the State of Texas; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Bond and the Series of which it is a part have been performed, existed, and been done in accordance with law; that this Bond is a special obligation of said Issuer, and that the principal of and interest on this Bond, together with other outstanding revenue bonds of the Issuer, are payable and secured by a first lien on and pledge of the Net Revenues of the Issuer's Utility System, being the Waterworks, Sewer and Electric System. THE ISSUER has reserved the right, subject to the restrictions stated, and adopted by reference, in the Ordinance authorizing this Series of Bonds, to issue additional parity revenue bonds which also may be made payable from, and secured by a first lien on and pledge of, the aforesaid Net Revenues. THE OWNER HEREOF shall never have the right to demand payment of this obligation out of any funds raised or to be raised by taxation, or from any source other than the Net Revenues. BY BECOMING the registered owner of this Bond, the registered owner thereby acknowledges all of the terms and provisions of the Bond Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Bond Ordinance is duly recorded and available for inspection in the official minutes and records of the governing body of the Issuer, and agrees that the terms and provisions of this Bond and the Bond Ordinance constitute a contract between each registered owner hereof and the Issuer. 17 IN WITNESS WHEREOF, the Issuer has caused this Bond to be signed with the facsimile signature of the Mayor of the Issuer and countersigned with the facsimile signature of the City Secretary of the Issuer, and has caused the official seal of the Issuer to be duly impressed, or placed in facsimile, on this Bond. City Secretary Mayor (CITY SEAL) The following shall be printed on the back of said Bonds: "This Bond was originally delivered to and paid for by the Purchaser thereof on It FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE (To be executed if this Bond is not accompanied by an executed Registration Certificate of the Comptroller of Public Accounts of the State of Texas) It is hereby certified that this Bond has been issued under the provisions of the Bond Ordinance described in the text of this Bond; and that this Bond has been issued in conversion or replacement of, or in exchange for, a bond, bonds, or a portion of a bond or bonds of a Series 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. Dated Texas Commerce Bank National Association Dallas, Texas Authorized Representative FORM OF ASSIGNMENT: ASSIGNMENT FOR VALUE RECEIVED, the undersigned registered owner of this Bond, or duly authorized representative or attorney thereof, hereby assigns this Bond to (Assignee's Social Security or Taxpayer Identification Number and hereby irrevocably constitutes and appoints (print or type Assignee's name and address, including zip code) attorney to transfer the registration of this Bond on tine Faying Agent/Registrar's Registratiori Books with full power of substitution in the premises. Dated Signature Guaranteed: NOTICE: This signature must be guaranteed by a member of the New York Stock Exchange or a commercial bank or trust company. Registered Owner NOTICE: This signature must correspond with the name of the Registered Owner appearing on the face of this Bond in every particular without alteration or enlargement or any change whatsoever. Section 8. DEFINITIONS. For all purposes of this ordinance and in particular for clarity with respect to the issuance of the Bonds herein authorized and the pledge and appropriation of revenues for the payment of the Bonds, the following definitions are provided: (a) The term "Utility System" as used in this Ordinance, shall mean and include the Issuer's entire Waterworks, Sewer and Electric System, together with all future improvements, extensions, enlargements, and additions thereto, and replacements thereof. (b) The term "Net Revenues," as used in this Ordinance, shall mean gross revenues of the Utility System, after deducting the expenses of operation and maintenance of the Utility System, including all salaries, labor, materials, repairs and extensions necessary to render efficient service, provided, however, that only such repairs and extensions, as in the judgment of the City Council of said Issuer, reasonably and fairly exercised by the passage of appropriate ordinances, are necessary to keep the Utility System in operation and render adequate service to said Issuer and the inhabitants thereof, or such as might be necessary to meet some physical accident or condition which would otherwise impair the Bonds and any Additional Bonds shall be deducted in determining "Net Revenues." Depreciation, and payments into and out of the Interest and Sinking Fund, Reserve Fund, and Emergency Fund hereinafter created, shall never be considered as expenses of operation and maintenance. 19 (c) The term "Bonds" shall mean the Bonds authorized to be issued and delivered by this Ordinance and the outstanding Series 1991 Bonds. (e) The term "Additional Bonds" shall mean the additional parity revenue bonds which the Issuer reserves the right to issue and deliver in the future, as provided by this Ordinance. Section 9. PLEDGE. The Bonds and all Additional Bonds, and the interest thereon, are and shall be payable from and secured by an irrevocable first lien on and pledge of the Net Revenues of the Utility System. The Bonds authorized by this Ordinance are parity Additional Bonds as defined and permitted in the ordinance that authorized the City of Sanger, Texas Utility System Revenue Bonds, Series 1969, and Sections 9 through 27 of the ordinance that authorized - he City of Sanger, Texas Utility System Revenue Bonds, Series 1969 are hereby adopted by reference and shall be restated and be applicable to the Bonds authorized by this Ordinance in Sections 8 through 25 hereof for all purposes except to the extent hereinafter specifically modified and supplemented. Section 10. RATES. The Issuer covenants and agrees with the holders of the Bonds and all Additional Bonds, as follows: (a) That it will at all times fix, maintain, charge and collect for services rendered by the Utility System, rates and charges which will produce gross revenues at least sufficient to pay all operating, maintenance, depreciation, replacement and betterment expenses, and other costs deductible in determining "Net Revenues" as herein defined and to produce each month Net Revenues which together with other pledged revenues will be adequate to pay promptly all of the principal of and interest on the Bonds and all Additional Bonds, and to accumulate and maintain the Funds created and established by this Ordinance, and (b) That if the Utility System should become legally liable for any other indebtedness, the Issuer shall fix, maintain, charge and collect additional rates for services rendered by the Utility System sufficient to establish and maintain funds for the payment thereof. Section 11. FUNDS, All gross revenues of the Utility System shall be kept separate and apart from all other funds of the Issuer and the following Special Funds have been created and shall be established and maintained in an official depository bank of the Issuer, so long as any of the Bonds or Additional Bonds, or interest thereon, are outstanding and unpaid: (a) City of Sanger Utility System Revenue Bonds Revenue Fund, hereinafter called the "Revenue Fund. " (b) City of Sanger Utility System Revenue Bonds Interest and Sinking Fund, hereinafter called the "Interest and Sinking Fund. " (c) City of Sanger Utility System Revenue Bonds Reserve Fund, 20 hereinafter called the "Reserve Fund." (d) City of Sanger Utility System Revenue Bonds Emergency Fund, hereinafter called the "Emergency Fund." Section 12. REVENUE FUND. All gross revenues of every nature received from the operation and ownership of the Utility System shall be deposited from day to day as collected into the Revenue Fund. The reasonable, necessary, and proper expenses of operation and maintenance of the Utility System shall be paid from the gross revenues of the Utility System. The revenues remaining in the Revenue Fund shall be deposited into the other Funds, in the manner and amounts hereinafter provided, and each of such Funds shall have priority as to such deposits in the order in which they are treated in the following sections. Section 13. INTEREST AND SINKING FUND, There shall be deposited into the Interest and Sinking Fund the following. (a) such amounts, in equal monthly installments commencing on or before the tenth day of each month hereafter, as will be sufficient to pay the interest scheduled to come due on the Bonds on the next interest payment date; and (b) such amounts, in equal monthly installments, made on or before the tenth day of each month, commencing as will be sufficient to pay the next maturing principal of the bonds. Section 14. RESERVE FUND. The Reserve Fund, in accordance with the requirements of the ordinances that authorized the outstanding Bonds, contains $ . Whenever said Reserve Fund is reduced below said aggregate amount, there shall be deposited into the Reserve Fund an amount of at least equal to 1/60th of the average annual principal and interest requirements of the outstanding Bonds, until such time as the Fund has been restored to said aggregate amount. The Reserve Fund shall be used to pay the principal of or interest on the Bonds and any Additional Bonds falling due at any time when there is not sufficient money available in the Interest and Sinking Fund created for their payment. Money in the Reserve Fund may, upon authorization by the City Council of said Issuer, be invested in direct obligations of, or obligations, the principal of and interest on which are guaranteed by, the United States of America, or invested in direct obligations of the Federal Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage Association, Federal Home Loan Banks or Banks for Cooperatives, provided that each of the aforesaid obligations must mature, or be subject to redemption at the option of the holder thereof. Any obligation in which money in said Reserve Fund is so invested shall be kept and held by the Bank holding said Fund in escrow and in trust for the benefit of the holders of the Bonds and all Additional Bonds, and shall be promptly sold and the proceeds of sale applied to the making of all payments required to be made from the Reserve Fund. Section 15. EMERGENCY FUND. There is presently on deposit in the Emergency Fund $ No deposits shall be required to be made into the Emergency Fund as long as the Emergency Fund contains said aggregate amount, but if and whenever said Emergency Fund is reduced below said aggregate amount, the aforesaid monthly deposits into the Emergency Fund shall be resumed and continued until such time as the Emergency Fund has been restored to said aggregate amount. The Emergency Fund shall be used to pay the cost of any repairs or extensions to the System authorized by Vernon's Article 1113, for the payment of which no other funds are available. Also, the Emergency Fund shall be used to pay the principal of or interest on the Bonds and all Additional Bonds, at any time when there are not sufficient amounts in the Interest and Sinking Fund and the Reserve Fund for such purpose. Money in the Emergency Fund may, upon authorization by the City Council, be invested in the same manner and to the same extent as provided for money in the Reserve Fund. Any obligation in which money in the Emergency Fund is so invested shall be kept and held in an official depository bank of the Issuer in escrow and in trust for the benefit of the holders of the Bonds and all Additional Bonds, and shall be promptly sold and the proceeds of sale applied to the making of payments permitted or required to be made from the Emergency Fund, Section 16. DEFICIENCIES IN FUNDS. If in any month the Issuer shall fail to deposit into any Fund created by this Ordinance the full amounts required, amounts equivalent to such deficiencies shall be set apart and paid into said Funds from the first available and unallocated pledged revenues for the following month or months, and such payments shall be in addition to the amounts otherwise required to be paid into said Funds during such month or months. To the extent necessary, the Issuer shall increase the rates and charges for services of the Utility System to make up for any such deficiencies. Section 17. EXCESS REVENUES. The revenues pledged hereunder, in excess of those necessary to establish and maintain the Funds as required in this Ordinance, or as hereafter may be required in connection with the issuance of Additional Bonds, may be used for any lawful purpose. Section 18. SECURITY FOR FUNDS, All Funds created by this Ordinance shall be secured in the manner and to the fullest extent permitted or required by law for the security of public funds, and such Funds shall be used only for the purposes and in the manner permitted or required by this Ordinance. Section 19. ADDITIONAL BONDS. The Issuer reserves the right to issue additional parity revenue bonds, to be known as Additional Bonds, which when issued and delivered, shall be payable from and secured by a lien on and pledge of the same revenues as those securing the Bonds, and be on a parity with the Bonds and all outstanding Additional Bonds, or any bonds issued to refund same, and the Bonds and all Additional Bonds shall in all respects be on a parity and of equal dignity. The Additional Bonds may be issued in one or more installments or series, provided, however, that no installment or series of Additional Bonds shall be issued unless: 22 (a) A certificate is executed by the Mayor and City Secretary of said Issuer to the effect that no (default exists in connection with any of the covenants or requirements of the ordinance or ordinances authorizing the issuance of all then outstanding Bonds and Additional Bonds; (b) A certificate is executed by the Mayor and City Secretary of said Issuer to the effect that the Interest and Sinking Fund and the Reserve Fund each maintain the amount then required to be on deposit therein; (c) A certificate is executed by a Certified Public Accountant to the effect that, in his )pinion, the Net Earnings of the Utility System, either for the last complete fiscal year of the Issuer, or for any twelve consecutive calendar month period ending not more than ninety days prior to the passage of the ordinance authorizing the issuance of such Additional Bonds, were at least 1.10 times the average annual principal and interest requirements for all then outstanding Bonds and Additional Bonds, and for the installment or series of Additional Bonds then proposed to be issued. The term "Net Earnings" as used in this subsection (c) shall mean the gross revenues of the Utility System after deducting the expenses of operation and maintenance but not deducting depreciation, bond interest or expenditures which under standard accounting practice should be charged to capital expenditures. (d) The Additional Bonds are scheduled to mature only on May' 15, and the interest thereon is scheduled to be paid only on November 15 and May 15. (e) The ordinance authorizing the issuance of such installment or series of Additional Bonds provides that the aggregate amount to be accumulated and maintained in the Reserve Fund shall be increased by an additional amount not less than the average annual principal and interest requirements for said Additional Bonds, and that such additional amount shall be so accumulated within sixty-one months from the date of the Additional Bonds by the deposit in the Reserve Fund of the necessary amount in equal monthly installments; provided, however, that the aggregate amount to be accumulated in the Reserve Fund shall never be required to exceed the average annual principal and interest requirements for all then outstanding Bonds and Additional Bonds, (f) All calculations of average annual principal and interest requirements made pursuant to this Section are made as of and from the date of the Additional Bonds then proposed to be issued. Section 20. MAINTENANCE AND OPERATION; INSURANCE. While any of the Bonds or Additional Bonds are outstanding the Issuer covenants and agrees to maintain the Utility System in good condition and operate the same in an efficient manner and at reasonable expense, and to maintain insurance on the Utility System, for the benefit of the holder or holders of the Bonds and Additional Bonds, of a kind and in an amount which usually would be carried by private companies engaged in a similar type of business. Nothing in this Ordinance shall be construed as requiring the Issuer to expend any funds which are derived from sources other than the Utility System, but nothing herein shall be construed as preventing the Issuer from doing so. 23 Section 21. ACCOUNTS AND FISCAL YEAR. The Issuer shall keep proper books of records and accounts, separate from all other records and accounts of the Issuer, in which complete and correct entries shall be made of all transactions relating to the Utility System, and shall have said books audited once each fiscal year by a certified public accountant. The Issuer agrees to operate the Utility System and keep its books of records and accounts pertaining thereto on the basis of its current fiscal year; provided, however, that the City Council may change such fiscal year by ordinance duly passed, and if such change is deemed necessary by the City Council. Section 22. ACCOUNTING REPORTS, Within ninety days after the close of each fiscal year hereafter., the Issuer will furnish, without cost, to any holder of any outstanding Bonds or Additional Bonds who may so request, a signed or certified copy of a report by a Certified Public Accountant, covering the next preceding fiscal year, showing the following information. (a) A detailed statement of all gross revenues of the Utility System and all expenses of operation and maintenance thereof for said fiscal year; (b) Balance sheet as of the end of said fiscal year; (c) Accountant's comment regarding the manner in which the Issuer has complied with the requirements of this Ordinance and his recommendations, if any, for any changes or improvements in the operation of the Utility System; (d) List of insurance policies in force at the end of said fiscal year, showing, as to each policy, the name of the insurer, and the expiration date; (e) The number of properties connected with the water system, sewer system and electric system, and the gross revenues from the Utility System for said fiscal year. Section 23. INSPECTION. Any holder or holders of any Bonds or Additional Bonds shall have the right at all reasonable times to inspect the Utility System and all records, accounts, and data of the Issuer relating thereto. Section 24. SPECIAL COVENANTS. The Issuer further covenants as follows: (a) That other than for the payment of the Bonds herein authorized, the revenues pledged hereunder have not in any manner been pledged to the payment of any debt or obligation of the Issuer or the Utility System. (b) That while any of the Bonds or Additional Bonds are outstanding, the Issuer will not sell or encumber the Utility System or any substantial part thereof, and that, with the exception of the Additional Bonds expressly permitted by this Ordinance to be issued, it will not encumber the revenues pledged hereunder unless such encumbrance is made junior and subordinate in all respects to the Bonds and Additional Bonds and all liens and pledges in connection therewith. 24 (c) That no free service of the Utility System shall be allowed, and should the Issuer or any of its agencies or instrumentalities make use of the services and facilities of the Utility System, payment of the reasonable value thereof shall be made by the Issuer out of funds from sources other than the revenues and income of the Utility System. (d) That to the extent it legally may, the Issuer further covenants and agrees that while any of the Bonds or Additional Bonds are outstanding, no franchise shall be granted for the installation or operation of any competing water system, sewer system or electric system; that the Issuer will prohibit the operation of any such competing system; and the operation of any such competing system is hereby prohibited. Section 25. BONDS ARE SPECIAL OBLIGATIONS, The Bonds and Additional Bonds shall be special obligations of the Issuer payable solely from the pledged Net Revenues, and the. holder or holders thereof shall never have the right to demand payment thereof out of funds raised or to be raised by taxation. Section 26. DEFEASANCE OF BONDS. (a) Any Bond and the interest thereon shall be deemed to be paid, retired, and no longer outstanding (a "Defeased Bond") within the meaning of this Ordinance, except to the extent provided in subsection (d) of this Section 32, when payment of the principal of such Bond, plus interest thereon to the due date (whether such due date be by reason of maturity, upon redemption, or otherwise) either (1) shall have been made or caused to be made in accordance with the terms thereof (including the giving of any required notice of redemption), or (ii) shall have been provided for on or before such due date by irrev- ocably depositing with or making available to the Paying Agent/Registrar for such payment (1) lawful money of the United States of America sufficient to make such payment or (2) Government Obligations which mature as to principal and interest in such amounts and at such times as will insure the availability, without reinvestment, of sufficient money to provide for such payment, and when proper arrangements have been made by the Issuer with the Paying Agent/Registrar for the payment of its services until all Defeased Bonds shall have become due and payable. At such time as a Bond shall be deemed to be a Defeased Bond hereunder, as aforesaid, such Bond and the interest thereon shall no longer be secured by, payable from, or entitled to the benefits of, revenue pledged as provided in this Ordinance, and such principal and interest shall be payable solely from such money or Government Obligations. (b) Any moneys so deposited with the Paying Agent/Registrar may at the written direction of the Issuer also be invested in Government Obligations, maturing in the amounts and times as hereinbefore set forth, and all income from such Government Obligations received by the Paying Agent/Registrar which is not required for the payment of the Bonds and interest thereon, with respect to which such money has been so deposited, shall be turned over to the Issuer, or deposited as directed in writing by the Issuer. (c) The term "Government Obligations" as used in this Section shall mean direct obligations of the United States of America, including obligations the principal of and interest on 041 which are unconditionally guaranteed by the United States of America, which may be United States Treasury obligations such as its State and Local Government Series, which may be in book~ entry form. (d) Until all Defeased Bonds shall have become due and payable, the Paying Agent/Registrar shall perform the services of Paying Agent/Registrar for such Defeased Bonds the same as if they had not been defeased, and the Issuer shall make proper arrangements to provide and pay for such services as required by this Ordinance. Section 27. DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED BONDS. (a) Replacement Bonds. In the event any outstanding Bond is damaged, mutilated, lost, stolen, or destroyed, the Paying Agent/Registrar shall cause to be printed, executed, and delivered, a new bond of the same principal amount, maturity, and interest rate, as the damaged, mutilated, lost, stolen, or destroyed Bond, in replacement for such Bond in the manner hereinafter provided. (b) Application for Replacement Bonds. Application for replacement of damaged, mutilated, lost, stolen, or destroyed Bonds shall be made by the registered owner thereof to the Paying Agent/Registrar. In every case of loss, theft, or destruction of a Bond, the registered owner applying for a replacement bond shall furnish to the Issuer and to the Paying Agent/Registrar such security or indemnity as may be required by them to save each of them harmless from any loss or damage with respect thereto. Also, in every case of loss, theft, or destruction of a Bond, the registered owner shall furnish to the Issuer and to the Paying Agent/Registrar evidence to their satisfaction of the loss, theft, or destruction of such Bond, as the case may be. In every case of damage or mutilation of a Bond, the registered owner shall surrender to the Paying Agent/Registrar for cancellation the Bond so damaged or mutilated. (c) No Default Occurred. Notwithstanding the foregoing provisions of this Section, in the event any such Bond shall have matured, and no default has occurred which is then continuing in the payment of the principal of, redemption premium, if any, or interest on the Bond, the Issuer may authorize the payment of the same (without surrender thereof except in the case of a damaged or mutilated Bond) instead of issuing a replacement Bond, provided security or indemnity is furnished as above provided in this Section. (d) harge for Issuing Replacement Bonds. Prior to the issuance of any replacement bond, the Paying AgentlRegistrar shall charge the registered owner of such Bond with all legal, printing, and other expenses in connection therewith. Every replacement bond issued pursuant to the provisions of this Section by virtue of the fact that any Bond is lost, stolen, or destroyed shall constitute a contractual obligation of the Issuer whether or not the lost, stolen, or destroyed Bond shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Ordinance equally and proportionately with any and all other Bonds duly issued under this Ordinance. 26 (e) Authority for Issuing Replacement Bonds. In accordance with Section 6 of Vernon's Ann. Tex. Civ. St. Art. 717k-6, this Section of this Ordinance shall constitute authority for the issuance of any such replacement bond without necessity of further action by the governing body of the Issuer or any other body or person, and the duty of the replacement of such bonds is hereby authorized and imposed upon the Paying Agent/Registrar, and the Paying Agent/Registrar shall authenticate and deliver such bonds in the form and manner and with the effect, as provided in Section 4(d) of this Ordinance for Bonds issued in conversion and exchange for other Bonds. Section 28. CUSTODY, APPROVAL, AND REGISTRATION OF BONDS; BOND COUNSEL'S OPINION; and CUSIP NUMBERS. The Mayor of the Issuer is hereby authorized to have control of the Initial Bond issued hereunder and all necessary records and proceedings per- taining to the Initial Bond pending delivery and investigation, examination, and approval by the Attorney General of the State of Texas, and its registration by the Comptroller of Public Accounts of the State of Texas. Upon registration of the Initial Bond said Comptroller of Public Accounts (or a deputy designated in writing to act for said Comptroller) shall manually sign the Comptroller's Registration Certificate on the Initial Bond, and the seal of said Comptroller shall be impressed, or placed in facsimile, on the Initial Bond. The approving legal opinion of the Issuer's Bond Counsel and the assigned CUSIP numbers may, at the option of the Issuer, be printed on the Initial Bond or on any Bonds issued and delivered in conversion of and exchange or replacement of any Bond, but neither shall have any legal effect, and shall be solely for the convenience and information of the registered owners of the Bonds. Section 29. COVENANTS REGARDING TAX EXEMPTION. The Issuer covenants to refrain from taking any action which would adversely affect, and to take any required action to ensure, the treatment of the Bonds as obligations described in Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), the interest on which is not includable in the "gross income" of the holder for purposes of federal income taxation. In furtherance thereof, the Issuer covenants as follows. (a) to take any action to assure that no more than 10 percent of the proceeds of the Bonds or the projects financed therewith (less amounts deposited to a reserve fund, if any) are used for any "private business use, as defined in Section 141(b)(6) of the Code or, if more than 10 percent A the proceeds or the projects financed therewith are so used, such amounts, whether or not received by the Issuer, with respect to such private business use, do not, under the terms of this Ordinance, or any underlying arrangement, directly or indirectly, secure or provide for the payment of more than 10 percent of the debt service on the Bonds, in contravention of Section 141(b)(2) of the Code, (b) to take any action to assure that in the event that the "private business use" described in subsection (a) hereof exceeds 5 percent of the proceeds of the Bonds or the projects financed therewith (less amounts deposited into a reserve fund, if any) then the amount in excess of 5 percent is used for a "private business use" which is "related" and not "disproportionate," within the meaning of Section 141(b)(3) of the Code, to the governmental use; 27 (c) to take any action to assure that no amount which is greater than the lesser of $5,000,000, or 5 percent of the proceeds of the Bonds (less amounts deposited into a reserve fund, if any) is directly or indirectly used to finance loans to persons, other than state or local governmental units, in contravention of Section 141(c) of the Code, (d) to refrain from taking any action which would otherwise result in the Bonds being treated as "private activity bonds" within the meaning of Section 141(b) of the Code; (e) to refrain from taking any action that would result in the Bonds being "federally guaranteed" within the meaning of Section 149(b) of the Code; (f) to refrain from using any portion of the proceeds of the Bonds, directly or indirectly, to acquire or to replace funds which were used, directly or indirectly, to acquire investment property (as defined in Section 148(b)(2) of the Code) which produces a materially higher yield over the term of the Bonds, other than investment property acquired with -- (1) proceeds of the Bonds invested for a reasonable temporary period of 3 years or less or, in the case of a refunding bond, for a period of 30 days or less until such proceeds are needed for the purpose for which the bonds are issued, (2) amounts invested in a bona fide debt service fund, within the meaning of Section 1.148.1(b) of the Treasury Regulations, and (3) amounts deposited in any reasonably required reserve or replacement fund to the extent such amounts do not exceed 10 percent of the proceeds of the Bonds, (g) to otherwise restrict the use of the proceeds of the Bonds or amounts treated as proceeds of the Bonds, as may be necessary, so that the Bonds do not otherwise contravene the requirements of Section 148 of the Code (relating to arbitrage) and, to the extent applicable, Section 149(d) of the Code (relating to advance refundings), and (h) to pay to the United States of America at least once during each five-year period (beginning on the date %J delivery of the Bonds) an amount that is at least equal to 90 percent of the "Excess Earnings," within the meaning of Section 148(f) of the Code and to pay to the United States of America, not later than 60 days after the Bonds have been paid in full, 100 percent of the amount then required to be paid as a result of Excess Earnings under Section 148(f) of the Code. For the purposes of the foregoing (a) and (b), the Issuer understands that the term "proceeds" includes "disposition proceeds" as defined in the Treasury Regulations and, in the case of refunding bonds, transferred proceeds (if any) and proceeds of the refunded bonds expended prior to the date of issuance of the Bonds. It is the understanding of the Issuer that the covenants contained herein are intended to assure compliance with the Code and any regulations or rulings promulgated by the U.S. Department of the Treasury pursuant thereto. In the event that regulations or rulings are hereafter promulgated which modify or expand provisions of the Code, as applicable to the Bonds, the Issuer will not be required to comply with any covenant contained herein to the extent that such failure to comply, in the opinion of nationally -recognized bond counsel, will not adversely affect the exemption from federal income taxation of interest on the Bonds under Section 103 of the Code. In the event that regulations or rulings are hereafter promulgated which impose additional requirements which are applicable to the Bonds, the Issuer agrees to comply with the additional requirements to the extent necessary, in the opinion of nationally -recognized bond counsel, to preserve the exemption from federal income taxation of interest on the Bonds under Section 103 of the Code. In furtherance of such intention, the Issuer hereby authorizes and directs the Mayor of the Issuer to execute any documents, certificates or reports required by the Code and to make such elections, on behalf of the Issuer, which may be permitted by the Code as are consistent with the purpose for the issuance of the Bonds. In order to facilitate compliance with the above covenant (h), a "Rebate Fund" is hereby established by the Issuer for the sole benefit of the United States of America, and such fund shall not be subject to the claim of any other person, including without limitation the bondholders. The Rebate Fund is established for the additional purpose of compliance with Section 148 of the Code. Section 30. DESIGNATION AS QUALIFIED TAX-EXEMPT OBLIGATIONS. The Issuer hereby designates the Bonds as "qualified tax-exempt obligations" as defined in Section 265(b)(3) of the Code. In furtherance of such designation, the Issuer represents, covenants and warrants the following: (a) that during the calendar year in which the Bonds are issued, the Issuer (including any subordinate entities) has not designated nor will designate obligations, which when aggregated with the Bonds, will result in more than $10,000,000 of "qualified tax-exempt obligations" being issued; and (b) that the Issuer reasonably anticipates that the amount of tax-ex- empt obligations issued, during the calendar year in which the Bonds are issued, by the Issuer (or any subordinate entities) will not exceed $10,000,000. Section 31. SALE OF BONDS. The Bonds is hereby sold and shall be delivered to the TEXAS WATER DEVELOPMENT BOARD for cash for the principal amount thereof. Section 32. APPROVAL OF ESCROW AGREEMENT AND TRANSFER OF FUNDS. The Mayor of the Issuer is hereby authorized and directed to execute and deliver and the City Secretary of the Issuer is hereby authorized and directed to attest an Escrow Agreement in substantially the form attached hereto as Exhibit A. The Issuer shall cause $ to be deposited into an Escrow Account created by the Escrow Agreement pending authorization from the Development Fund Manager on behalf of the Texas Water Development Board. Section 33. CONSTRUCTION FUND. There shall be established a Constrution Fund with the Issuer's depository bank and upon the delivery of the purchase price for such Bonds, $ initially shall be deposited into this Construction Fund. The cost of issuance of the Bonds, being legal, fiscal and engineering fees, may be paid from this Fund. There shall 29 be deposited into the Construction Fund all amounts released from the Escrow Account created by the Escrow Agreement as provided in Section 32 hereof and in Section 2 of the Escrow Agreement. The cost of the construction of the sewer system improvements will be paid from this Fund upon directionof the City Council of the Issuer. All interest and profits from investments made with moneys in the Construction Fund shall remain on deposit in the Construction Fund as a part thereof. After compeetion of the payment of all costs of the construction of the sewer system improvements, any residue remaining in the Construction Fund shall be applied in accordance with Section 35 hereof. Section 34. FINAL ACCOUNTING. That the Issuer shall render a final accounting to the Texas Water Development Board in reference to the total cost incurred by the Issuer for Sewer System improvements together with a copy of "as built" plans of the project upon completion. Section 35. SURPLUS BOND PROCEEDS. That the Issuer shall use any surplus proceeds from the Bonds remaining after completion of the Utility System improvements, to redeem in inverse annual order of maturity, the Bonds owned by the Texas Water Development Board. Section 36. ANNUAL AND MONTHLY REPORTS. That monthly operating statements and annual audits of the Issuer shall be delivered to the Texas Water Development Board as long as the State of Texas owns any of the Bonds, and that the monthly operating statement shall be in such detail as requested by the Development Fund Manager of the Texas Water Development Board until this requirement is waived by the Development Fund Manager. Section 37. COMPLIANCE WITH THE TEXAS WATER DEVELOPMENT BOARD'S RULES AND REGULATIONS. That the Issuer covenants to comply with the rules and regulations of the Texas Water Development Board, and to maintain insurance on the Issuer's Utility System in that amount required by the Texas Water Development Board. Section 38. FINDING. It is hereby officially found and determined that said meeting was open to the public, and public notice of the time, place and purpose of said meeting was given, all as required by Chapter 551, Texas Government Code. 30