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1997 11 06 BAWA Minutes, Special MeetingMINUTES OF THE SPECIAL MEETING OF THE BOARD OF DIRECTORS OF THE BAYTOWN AREA WATER AUTHORITY November 6, 1997 The Board of Directors of the Baytown Area Water Authority, Harris County, Texas, met in special session on Thursday, November 6, 1997, at City Hall, 2123 Market Street, at 4:30 p.m., with the following in attendance: Robert L. Gillette, President Knox Beavers, Board Member Roy L. Fuller, Board Member Absent: Dan M. Mundinger, Board Member Peter R. Buenz, Board Member The meeting opened with a quorum present, and the following business was conducted. Consider Resolution Approving Amended and Restated Water Supply Contract for Treated Water between Baytown Area Water Authority and the City of Baytown In November, 1996, a new contract between the City of Baytown and BAWA was drafted following the guidelines of the Raw Water Supply contract between the City of Houston and BAWA. The City of Baytown has guaranteed BAWA's bonded indebtedness since 1977. This clause was inadvertently omitted when the new contract was drafted. Board Member Beavers moved to adopt the resolution. Board Member Fuller seconded the motion. The vote follows: Ayes: Nays: Board Members Gillette, Beavers, and Fuller None For resolution. see Attachment "A." 971106-2 Minutes of Regular Meeting — November 6, 1997 Consider Resolution Authorizing the Issuance of $1,350,000 Baytown Area Water Authority Water Supply Contract Revenue Bonds, Series 1997 (City of Baytown Project) Appropriating the Proceeds of the Sale Thereof and Containing Other Provisions Related Thereto The resolution authorizes the issuance of $1,350,000 BAWA Supply Contract Revenue Bonds, Series 1997 (City of Baytown Project) and the appropriation of the proceeds of the sale. Drew Masterson, with First Southwest, Financial Advisor, opened the six bids received for the sale of $1,350,000 of Revenue Bonds. Mr. Masterson stated that he would read the true interest cost that is essentially an average. Bids are awarded on the lowest rate. After reading the six bids, Mr. Masterson announced that Smith Barney was the low bidder at 4.8520 percent. Board Member Fuller moved to adopt the resolution awarding the bid to Smith Barney at 4.8520 percent. Board Member Beavers seconded the motion. The vote follows: Ayes: Nays: Board Members Gillett, Fuller, and Beavers None For resolution, see Attachment "B." Adjourn There being no further business to be transacted, the meeting was adjourned. Robert L. Gillette, President BAWA\10-15-97min ATTACHMENT "A" RESOLUTION APPROVING AMENDED AND REINSTATED WATER SUPPLY CONTRACT -TREATED WATER THE STATE OF TEXAS COUNTIES OF HARRIS AND CHAMBERS § § § WHEREAS, the City of Baytown, Texas (the "City") and the Baytown Area Water Authority ("BAWA") have previously entered into that certain Water Supply Contract -Treated Water (the "Contract"), dated as of January 31, 1977; and WHEREAS, the City and BAWA wish to amend and restate the Contract to extend the term thereof and to incorporate all amendments and supplements to date, including, but not limited to, that certain Water Supply Contract for Treated Water dated November 26, 1996; therefore, BE IT RESOLVED, BY THE BOARD OF DIRECTORS OF THE BAYTOWN AREA WATER AUTHORITY that the Amended and Restated Water Supply Contract -Treated Water attached to and made a part of this Resolution is hereby approved, and the officers of the Board are hereby authorized to execute, seal and deliver such agreement in multiple counterparts. PASSED AND APPROVED this 6th day of November, 1997. President, Board of Directors Baytown Area Water Authority ATTEST: ztv Secretary, Board of Directors Baytown Area Water Authority (SEAL) • Amended and Restated Water Supply Contract -- Treated Water STATE OF TEXAS COUNTY OF HARRIS This Amended and Restated Water Supply Contract -- Treated Water, hereinafter referred to as "Contract," is made and entered into on the date herein after last specified by and between the Baytown Area Water Authority, a governmental agency and a body politic and corporate of the State of Texas, created pursuant to Chapter 600, Acts of the 63rd Legislature, Regular Session, 1973, hereinafter referred to as "BAWA," and the City of Baytown, a municipal corporation and home -rule city which is located within Harris and Chambers Counties, Texas, hereinafter referred to as "CITY." WHEREAS, BAWA and CITY, by executing this Contract, adopt this Amended and Restated Water Supply Contract -- Treated Water, which accurately incorporates the Water Supply Contract -- Treated Water dated the 31' day of January 1977 and all amendments and supplements thereto in effect to date, including, but not limited to, that certain Water Supply Contract -- Treated Water dated the 26th day of November, 1996; and WHEREAS, BAWA has the right under a contract with the City of Houston to buy untreated water from the City of Houston; and WHEREAS, BAWA has constructed and will continue to repair, construct and modify certain facilities to treat and deliver the aforementioned untreated water to CITY as treated water; and WHEREAS, CITY has constructed or contracted with BAWA to construct certain facilities to enable CITY to receive the aforementioned treated water; and WHEREAS, BAWA desires to sell large quantities of treated water from such source or sources to CITY; and WHEREAS, CITY, subject to the terms and conditions contained herein, desires to purchase from BAWA its treated water; and WHEREAS, BAWA has issued four series of contract revenue bonds payable from payments made by the City pursuant to the provisions of this Contract and expects to issue one or more additional series of said bonds; and Amended and Restated Water Supply Contract for Treated Water, Page I EXHIBIT A • WHEREAS, BAWA and CITY have found, and do hereby find, that BAWA and CITY are authorized by the laws of the State of Texas to enter into a contract for the sale of water upon such terms and for the period of time hereinafter set forth; and WHEREAS, CITY is authorized to enter into a contract for the purchase of treated water from BAWA pursuant to Chapter 402 of the Texas Local Government Code; NOW THEREFORE, for and in consideration of the premises and the mutual covenants and agreements herein contained, the parties hereto do hereby mutually agree as follows: ARTICLE I DEFINITIONS Unless a different meaning or intent clearly appears from the context, the following words and terms shall have the meanings specified in this Article, respectively: 1.01 "Act" means Chapter 600, Acts of the 63`d Legislature, Regular Session, 1973. 1.02 "BAWA Contract" means the Water Supply Contract between the City of Houston and Baytown Area Water Authority, dated October 24, 1994, between BAWA, as buyer, and the City of Houston, Texas, as seller, a copy of which is attached hereto and incorporated herein for all intents and purposes. 1.03 "BAWA's Cost" means the costs to be incurred by BAWA in the performance of its obligations under this Contract, including the following: (a) the Pledged Revenues as described herein with respect to all outstanding Bonds, (b) maintenance, operational and administrative costs, and (c) the cost of untreated water pursuant to BAWA Contract, including any penalty or interest incurred by BAWA by reason of CITY's acts. 1.04 "Bonds" shall mean bonds or other evidences of indebtedness, including notes, issued by BAWA pursuant to the Act and the terms of this Contract, (a) which, together with the interest thereon, are to be paid from the payments of Pledged Revenues (hereinafter defined) to be made by CITY pursuant to this Contract and Amended and Restated Water Supply Contract for Treated Water, Page 2 • • (b) which have been issued and sold to acquire funds to: (1) make, purchase, construct, lease, or otherwise acquire the Project (hereinafter defined) (2) complete such making purchasing, constructing, leasing, or acquiring, (3) enlarge, expand or modify the Project (4) reconstruct the Project or (5) refund any Bonds. 1.05 "Bond Resolution" shall mean any resolution or resolutions adopted by the governing body of BAWA which authorize the issuance of Bonds pursuant to this Contract and providing for other security and payment as such resolution or resolutions may be amended from time to time as therein permitted. 1.06 "City's Facilities" shall mean facilities constructed by CITY to enable CITY to receive treated water. 1.07 "Contract Quantity" shall mean the maximum quantity of treated water that BAWA agrees to reserve and sell to CITY pursuant to Section 2.01 herein. 1.08 "Contract Term" is defined in Article X. 1.09 "Cost of Protect" shall mean the costs incurred to or to be incurred by BAWA or CITY with respect to the acquisition of the Project, whether incurred prior to or after the date of this Contract and including, but not limited to, the following items: (a) obligations for labor, materials, services, and equipment; (b) costs of any bonds and insurance, the cost of which is not otherwise provided for; (c) costs of engineering services, including costs of preliminary design and development work, test borings, surveys, estimates, plans and specifications, supervising construction, and performing all other duties required by or consequent upon proper construction; (d) expenses incurred in connection with the issuance and sale of the Bonds, including without limitation: (1) fees and expenses of accountants, auditors, attorneys, underwriters, engineers, and financial advisors, (2) materials, supplies, printing and engraving, (3) recording and filing fees, Amended and Restated Water Supply Contract for Treated Water, Page 3 (4) rating agency fees, and (5) initial fees and expenses of a trustee, if any; (e) costs required to be paid under the terms of any contract or contracts in connection with the Project; (f) sums required to reimburse BAWA or CITY for advances made by either of them for any of the above items, including fees of any kind for any other cost incurred, including expenses for organization or BAWA, overhead expenses and expenses for any work done by either BAWA or CITY which are properly chargeable to the Project; and (g) costs of all other items related to the acquisition of the Project. 1.10 "Director" shall mean the Director of Utilities of the City of Baytown or any successor department and all persons designated by the Director to administer the sale and delivery of water to customers within the City of Baytown. 1.11 "General Manager" shall mean the General Manager of the Baytown Area Water Authority or any successor agency and all persons designated by the General Manager to administer the sale and delivery of water to CITY. 1.12 "MGD" is an abbreviation for million gallons of water per day. As used in this contract, "MGD" refers to a quantity of water during a period of time expressed for convenience in terms oran average daily quantity during a calendar month (unless a different period of time is specified). The volume of two MGD for a calendar month, for example, is calculated as follows: Two million gallons multiplied by the number of days in such calendar month. 1.13 "Pledzed Revenues" means the payments to be made by CITY to BAWA for treated water and pledged in a Bond Resolution for payment of the principal of, premium, if any, and interest on the bonds issued pursuant to the terms of this Contract. 1.14 "Point of Delivery" shall mean those delivery points as indicated on Exhibit "A," which is attached hereto and incorporated herein for all intents and purposes, to which BAWA agrees to deliver treated water to CITY. 1.15 "Point of Measurement" shall mean the location of the meter at which CITY's consumption of water is measured, more particularly described in Exhibit "A." Amended and Restated Water Supply Contract for Treated Water, Page 4 • 1.16 "Project" means the property, works, facilities and improvements, whether previously existing or to be made, constructed or acquired, within or without the boundaries of BAWA, necessary (a) to acquire surface water supplies from sources both within and without the boundaries of BAWA, including particularly the sources provided by BAWA's Contract (hereinafter defined), (b) to conserve, store, transport, treat and purify untreated water purchased by BAWA pursuant to BAWA's Contract, and (c) to distribute, sell and deliver treated water to CITY pursuant to the terms of the Contract. 1.17 "Service Area" shall mean the area within the boundaries more particularly described in Exhibit "B," which is attached hereto and incorporated herein for all intents and purposes. 1.18 "TNRCC" shall mean the Texas Natural Resource Conservation Commission or its successor. 1.19 "Water" shall mean potable water meeting the minimum drinking water standards prescribed by Texas Department of Health Resources and Texas Natural Resource Conservation Commission, and their successor agencies. ARTICLE II SALE AND DELIVERY OF WATER 2.01 Subject to the terms and conditions of this contract, during the Contract Term, BAWA agrees to sell and deliver (or cause to be delivered) to CITY, all of CITY's water requirements of treated water for municipal purposes at the Points of Delivery at daily rates of delivery; and CITY agrees to purchase from BAWA, all of CITY's treated water requirements for municipal purposes (as such term is defined by the TNRCC in its rules) at such Points of Delivery during the term of this Contract. It is expressly agreed to and understood that BAWA shall not be obligated to deliver to CITY treated water in excess of the Contract Quantity which shall be the monthly average per day of 10.71 MGD. 2.02 The Points of Delivery for treated water sold under this contract shall be designated in writing by CITY; provided, however, BAWA reserves the right to reject any point of delivery designated by CITY which would affect, interfere with or increase the cost of any other facilities or operations which BAWA might wish to construct or implement, or plan to construct or implement, or which would adversely affect BAWA's ability to provide treated water to any of its customers. Amended and Restated Water Supply Contract for Treated Water, Page 5 • Both BAWA and CITY agree that the points of delivery shall be those indicated on Exhibit "A," which is attached hereto and incorporated herein for all intents and purposes. Additionally, CITY may give BAWA notice in writing of any additional or change in point(s) of delivery designated by CITY, and BAWA agrees to accept or reject such point(s) of delivery by a response in writing within thirty (30) days after BAWA's receipt of the notice. 2.03 Treated water may be delivered to CITY from any source or combination of sources available to BAWA. 2.04 The treated water to be delivered shall meet minimum standards prescribed by the State of Texas for municipal purposes (as such term is defined by the TNRCC in its rules) and shall be only used by CITY within the Service Area. 2.05 If CITY wishes to reserve for itself additional monthly quantities of treated water, CITY must notify BAWA in writing of CITY's desire to do so. The General Manager may, at his discretion after considering the treated water requirements of CITY and its obligations and commitments, increase the quantity of treated water supplied to CITY; provided, however, that BAWA shall be under no obligation to deliver treated water in excess of Contract Quantity. CITY may, at its discretion, discontinue delivery of such additional monthly requirements of treated water by giving BAWA thirty (30) days' written notice. 2.06 CITY shall own and be responsible for all lines connected to BAWA's transmission line, beginning at the point where the metering device is installed to meter sales to CITY. ARTICLE III CONSTRUCTION OF THE PROJECT 3.01 BAWA agrees to proceed promptly with the acquisition and construction of the Project with the proceeds of the Bonds or, at the option of BAWA, other money lawfully available for such purpose. BAWA does not anticipate any delays in commencing or completing the Project, but BAWA shall not be liable to CITY for any damages occasioned by the acquisition, construction or completion of the Project or any delays in completion of the Project. 3.02 If BAWA desires to materially revise the scope of or the plans and specifications for the Project, such proposed revisions shall be submitted to CITY for approval. If CITY approves such revisions, the Project shall be modified. No such modification shall, however, revise the Project in such a manner as to change the purpose of the Project from receiving, treating and supplying surface water for the benefit of CITY. Amended and Restated Water Supply Contract for Treated Water, Page 6 • • ARTICLE IV RATES AND PRICES 4.01 The City agrees to pay BAWA's costs through the establishment of rates for the purchase of treated water and by payments to BAWA based on such established rates. BAWA and the City shall periodically establish rates for the purchase of treated water. Billing at the rate for water as specified hereinbelow shall commence as of November 26, 1996. 4.02 Whenever CITY's consumption shall exceed Contract Quantity by ten percent (10%), a five percent (5%) surcharge shall be charged against that portion of the consumption that exceeds the Contract Quantity. Provided, however, this surcharge shall not apply to any increase in the quantity of treated water granted by the General Manager pursuant to Section 2.05 hereof. 4.03 All water sold and delivered by BAWA to CITY for which CITY is obligated to pay hereunder shall be sold to CITY at the rate of $1.18 per one thousand gallons. 4.04 The amount of water delivered to CITY shall be measured by the metering equipment located at the treatment plant which measures the total quantity of treated water delivered into the transmission lines, with the amount delivered to CITY being the total delivered into the transmission line at the plant, less such amounts sold/metered to other customers of the Authority. 4.05 Additionally, CITY understands and agrees that BAWA may at any time, by order duly enacted, increase or change the price or prices for treated water as set forth in this article; provided, however that except where an independent rate analysis conducted by a qualified concern indicates that certain rate increase is required, the price or prices for treated water shall not be increased percentagewise to CITY during any twelve (12) month period of this contract in excess of the percentage rate increase in BAWA's water rates to other purchasers of treated water during the same period. ARTICLE V ISSUANCE AND SALE OF BONDS; CITY'S PAYMENT OF PLEDGED REVENUE AND OTHER AMOUNTS 5.01 Pursuant to the authority granted by the Act, BAWA agrees, upon the request of CITY, to issue and sell, from time to time, Bonds in the amounts sufficient to provide the Project and pay the Costs of the Project. The Bonds shall have the form and the characteristics; bear the designation; bear the date or dates; mature at such time or times, serially, terns, or otherwise, in not more than forty (40) years from their dates; bear interest at the rate or rates, payable annually, semiannually, quarterly, or otherwise; be in the denominations; be in the form, either coupon or Amended and Restated Water Supply Contract for Treated Water, Page 7 • registered; carry the registration privileges as to principal only or as to both principal and interest and as to successive exchange of coupon for registered bonds or notes or vice versa, and successive exchanges of bonds or notes of one denomination for bonds or notes of other denominations; be executed in the manner; be payable at the place or places within or without the state; and be sold for the price or prices, all as provided in the Bond Resolution. 5.02 In consideration of BAWA's agreement to issue the Bonds and as a part of BAWA's costs, CITY agrees to pay (i) Pledged Revenues to BAWA pursuant to and in accordance with the terms of any Bond resolution and (ii) the periodic fees, charges, and expenses of any trustee and paying agent in connection with the Bond. The amount of the Pledged Revenues to be paid by CITY may be increased from time to time by the issuance and sale of additional Bonds. 5.03 CITY shall pay the Pledged Revenues in the amounts and at the times designated in the Bond Resolutions. City shall pay the Pledged Revenues in addition to the amounts payable pursuant to Section 4.03 hereof. 5.04 In the event CITY should fail to make any payment required by this article, such payment shall continue as an obligation of CITY until such overdue amount shall have been fully paid. 5.05 The parties to this Contract recognize that Bonds may be secured by a trust indenture with respect thereto and the payments of the Pledged Revenues may be pledged therein. CITY expressly consents to such procedures and will comply with any such trust indenture securing the Bonds. The parties to this Contract recognize the necessity of complying with all requirements of any such trust indenture, including the right of the trustee under any such indenture to require increases or to permit decreases in the amount of the Pledged Revenues and other payments and to enforce any remedies described herein. 5.06 The parties to this Contract further recognize that from the proceeds of the sale of the Bonds, BAWA may establish a reserve fund or funds in the amount or amounts and for the purpose or purposes set out in any Bond resolution. Such reserve fund or funds shall be used for the payment of any maturing principal of and interest on the Bonds when the amount in the applicable interest and sinking fund is insufficient, or for the payment of the last maturing principal of the interest on the Bonds. BAWA shall invest and reinvest or cause to be invested or reinvested, the reserve fund or fund in accordance with law, and the income therefrom may be periodically transferred to the interest and sinking fund applicable to the Bonds; or, in the event that the parties hereto so determine, a reserve fund or funds in an amount or amounts different from the aforementioned amount may be established and the income from investment of such additional amount may be deposited in such reserve funds. 5.07 The source of funds for CITY to make the payments of the Pledged Revenues shall include any and all available sources that CITY may pledge toward such payments, including gross Amended and Restated Water Supply Contract for Treated Water, Page 8 • revenues of appropriate utility systems and those sources provided by Chapters 49 and 54, Texas Water Code and Section 402.014 of the Texas Local Government Code, as amended. 5.08 A copy of any Bond Resolution, showing the principal amount of and interest rate on the Bonds, the maturities of the Bonds, the name of the purchaser thereof, and other pertinent features, must be delivered to and approved by City prior to issuance and delivery of the Bonds. 5.09 The parties to this Contract agree and understand that the holders of the Bonds shall rely upon such approval of CITY and upon CITY's promise to pay the Pledged Revenues specified herein. Therefore, CITY covenants and agrees that such payments of the pledged Revenues shall be made regardless of the status of the acquisition of the Project and without setoff or counterclaim and, notwithstanding any other provisions of this Contract, the holders of the Bonds shall be entitled to rely upon the foregoing covenants and agreements regardless of any other agreements between CITY and BAWA. ARTICLE VI REPORTS 6.01 Within fifteen (15) days after the end of each quarterly period during the term of this Contract, CITY shall furnish BAWA with a statement under oath showing the quantities and sources of all water for use or resale by CITY. ARTICLE VII MEASURING EQUIPMENT 7.01 All measuring equipment shall be owned by BAWA, even when purchased by CITY, and all measuring equipment shall be located at the Point of Measurement as shown on Exhibit "A." 7.02 During all reasonable hours as determined by the General Manager in his sole discretion, CITY, BAWA, the City of Houston, and the Coastal Water Authority of Texas shall have access to the measuring equipment. CITY may have access to all records pertinent to determining the measurement and quantity of treated water actually delivered hereunder, but the reading of the measuring equipment for purposes of billing shall be done by BAWA. 7.03 BAWA shall maintain the measuring equipment within the accuracy tolerance specified in Section 7.04 by periodic tests. BAWA shall conduct such tests at least once every twelve (12) months and shall notify CITY at least forty-eight (48) hours in advance of the time and location at which tests are to be made. BAWA agrees to properly test said measuring equipment at BAWA's cost when requested to do so by CITY once every twelve (12) months. If CITY requests an additional test within twelve (12) months, BAWA shall charge CITY an amount equal to Amended and Restated Water Supply Contract for Treated Water, Page 9 • • BAWA's costs to perform such test unless the test reveals that the equipment registers one hundred two percent (102%) or more for a given flow rate. In addition, CITY shall have the right to independently check, at its own cost, said measuring equipment at any time upon forty-eight (48) hours' notification to the General Manager and opportunity for the General Manager to witness such tests. 7.04 Should any test of the measuring equipment in question show that the equipment registers either more than one hundred two percent (102%) or less than ninety-five percent (95%) of the water delivered for a given flow rate, the total quantity of water delivered to CITY will be deemed to be the average daily consumption as measured by the measuring equipment when in working order, and the meter shall be calibrated to the manufacturer's specifications (in the case of Venturi meters) or the AWWA specifications (for all other types of meters) for the given rate of flow, or replaced by BAWA with accurate measuring equipment that is tested before it is placed in service. The adjustment shall be for a period extending back to the time when the inaccuracy began, if such time is ascertainable; and if such time is not ascertainable, for a period extending back to the last test of the measuring equipment or one hundred twenty (120) days, whichever is shorter. If, for any reason, the measuring equipment is out of service or out of repair and the amount of treated water delivered cannot be ascertained or computed from the reading thereof, water delivered during the period shall be estimated and agreed upon by the parties hereto on the basis of the best data available. As used in this section, the expression "given rate of flow" means one of the following selected by the General Manager: (a) the total quantity of water delivered during the preceding period (usually a calendar month) as reflected by the totalizer, converted to gallons per minute; (b) high, low and intermediate rates of flow in the flow rate, as reflected by the flow recording devices; (c) the applicable Contract Quantity for the current period, usually a calendar month, converted to gallons per minute; or (d) AWWA-specified test flow rates for that size and type of meter. 7.05 In the event of a dispute between BAWA and CITY as to the accuracy of the testing equipment used by BAWA to conduct the accuracy test, an independent check may be mutually agreed upon between CITY and BAWA and shall be conducted by an independent measuring equipment company suitable to both CITY and BAWA. The cost of such test shall be at CITY's sole expense. Amended and Restated Water Supply Contract for Treated Water, Page 10 7.06 CITY may install, at its own cost and expense, such check meters in CITY's pipeline or canal as may be deemed appropriate, but BAWA shall have the right of ingress and egress to such check meters during all reasonable hours; provided, however, that billing computations shall be on the basis of the results of the measuring equipment set forth above. ARTICLE VIII BILLING AND PAYMENT 8.01 As used in this Article VIII, the term "day" shall mean a period of twenty-four (24) consecutive hours beginning at a mutually agreed -upon time on one calendar day and ending at the same time on the next succeeding calendar day, and the term "month" shall mean a period beginning at a mutually agreed -upon time on the first day of a calendar month and ending at the same time on the first day on the next succeeding calendar month. 8.02 The measuring equipment shall be read on the day at the end of each month (or at such period of frequency arranged between the parties) and at a mutually agreed upon time, or as near thereto as practicable. 8.03 The quantities of treated water for which payment is due by CITY hereunder in any month shall be the total quantity of treated water delivered to CITY in such month determined by the measuring equipment described in Article V hereof. 8.04 BAWA shall bill CITY at CITY's address within ten (10) days after the read date by a statement showing the quantity of water used during the preceding month. Payment shall be due and payable to BAWA at its offices in Baytown, Harris County, Texas, on or before the twentieth day after receipt of such statement. City shall pay Pledged Revenues as provided in Section 5.03. 8.05 Should CITY fail to tender payment of any amount when due, interest thereon shall accrue at the rate of ten percent per annum from the date when due until paid and CITY shall be deemed to be in default. ARTICLE IX TITLE TO AND RESPONSIBILITY FOR WATER 9.01 As between BAWA and CITY, BAWA shall be in exclusive control and possession of, and solely responsible for, all treated water deliverable hereunder and solely responsible for any damage or injury caused thereby until the same shall pass through the Point of Delivery and thereafter, CITY shall be in exclusive control and possession thereof and solely responsible for any injury or damage caused thereby. Amended and Restated Water Supply Contract for Treated Water, Page I I 9.02 BAWA MAKES NO WARRANTY, EXPRESS OR IMPLIED, REGARDING THE QUALITY OR DELIVERY PRESSURE OF TREATED WATER, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 9.03 With respect to all water handling facilities located between the Point of Delivery and the Point of Measurement, BAWA and CITY specifically agree: (a) that all such facilities, other than the measurement equipment itself, shall be and remain the property of CITY subject to the terms of this Contract; (b) that CITY shall take all reasonable steps to maintain such facilities and to prevent leaks or discharges from such facilities; (c) that CITY shall repair any such leak or discharge at once upon receiving notice thereof and pay BAWA the price of any water lost by reason of such a leak or discharge; (d) that CITY shall correct or repair any damage caused by any such leak or discharge and shall hold BAWA harmless from and against any such damage and claims therefore; (e) that CITY shall alter or relocate, at its sole cost, any such facilities whenever BAWA shall reasonably request in writing that the same be done; and (f) that CITY shall promptly remove such facilities and restore their locations to their pre-existing conditions whenever this Contract is no longer in effect and BAWA so requests in writing. ARTICLE X TERM This Contract as amended and restated shall remain in force and effect until December 31, 2020, at 8:00 a.m.; provided that this Contract shall continue in effect until all of the Bonds are paid. ARTICLE XI PERFORMANCE BY BAWA AND CITY 1 I.01 BAWA covenants and agrees that it will not contract for the sale of water to other users to such an extent or for such quantities as to impair BAWA's ability to perform fully and punctually its obligations to CITY under this Contract. In case of temporary shortage of water, Amended and Restated Water Supply Contract for Treated Water, Page 12 notwithstanding BAWA's compliance with the portions of this Article XI, BAWA shall distribute the available supply as provided by the laws of the State of Texas, particularly Section 1 1.039(a) of the Texas Water Code, as amended. 11.02 Pursuant to the Amendatory Contract entered into by the City of Houston and the San Jacinto River Authority, which is incorporated herein by this reference, CITY covenants and agrees that it shall take treated water for the purpose of distribution through its municipal water system, and such water shall be used for municipal purposes (as such term is defined by TNRCC Rules, currently in effect or as hereinafter amended) and for no other purposes. CITY covenants and agrees that such treated water shall be sold, distributed or used and ultimately consumed only for residential household or other strictly municipal purposes exclusively within the Service Area. No extension of these boundaries may be made by CITY without written consent of BAWA as well as the written consent of the San Jacinto River Authority and City of Houston, when required pursuant to the Water Supply Contract between the City of Houston and BAWA, dated October 24, 1994. CITY agrees to include covenants similar to those contained in this Section 11.02 in any sales or contracts for sale of water by CITY to any other entity. CITY agrees to submit the wording of such covenants to BAWA for the written approval of BAWA and all other required entities prior to entering into such contracts. CITY understands and agrees that BAWA, the City of Houston and/or the San Jacinto River Authority may enforce the covenants contained in Section 11.02 herein by an action brought directly against CITY. In the event that BAWA and/or the City of Houston maintains any legal proceeding to enforce such covenants, CITY agrees to indemnify BAWA and/or the City of Houston in the amount of all expenses relating to the legal proceeding, including, but not limited to, costs of court and reasonable attorneys' fees. 11.03 CITY acknowledges that according to the terms of the contract between BAWA and the City of Houston, BAWA may be liable to the City of Houston and/or the San Jacinto River Authority for monetary damages in the event that CITY (or any purchaser of water from or through CITY) fails to comply with the restrictions and limitations on the sale of water set out in Section 1 1.02 herein. CITY acknowledges that such monetary damages would amount to seventy-five percent (75%) of the consideration or revenue received by BAWA for the estimated amount of water distributed, sold or used in violation of such restrictions or limitations, plus all litigation expenses, reasonable attorneys' fees, and all other remedies available to the City of Houston and/or the San Jacinto River Authority. CITY hereby agrees to totally indemnify, defend, and save BAWA harmless from and against any such expenses and liability which BAWA might incur or any loss BAWA might suffer, as a result of any failure by CITY, or any purchaser of water from or through CITY, to comply with such restriction and limitation. CITY agrees that in the event that CITY furnishes or sells water or water services to a third party that in turn will furnish water to the ultimate consumer, CITY shall include covenants in any such sales or contracts for sale of water to such third party(ies) to ensure that said other entity(ies) will likewise indemnify, hold harmless, and defend Amended and Restated Water Supply Contract for Treated Water, Page 13 • • BAWA. CITY agrees to submit the wording of such covenants for the approval of BAWA prior to entering into such contracts. CITY acknowledges that according to the terms of the contract between the City of Houston and the San Jacinto River Authority, the City of Houston may be liable to the San Jacinto River Authority for monetary damages in the event that CITY (or any purchaser of water from or through CITY) fails to comply with the restrictions and limitations on the sale of water set out in Section 11.02 herein. CITY acknowledges that such monetary damages would amount to seventy-five percent (75%) of the consideration or revenue received by the City of Houston for the estimated amount of water distributed, sold or used in violation of such restrictions or limitations, plus all litigation expenses, reasonable attorneys' fees, and all other remedies available to the San Jacinto River Authority. CITY hereby agrees to fully indemnify, defend, and save the City of Houston harmless from and against any such expenses and liability which the City of Houston might incur or any loss the City of Houston might suffer, as a result of any failure by CITY, or any purchaser of water from or through CITY, to comply with such restrictions and limitations. CITY agrees that in the event that CITY furnishes or sells water or water services to a third party that in turn will furnish water to the ultimate consumer, CITY shall include covenants in any such sales or contracts for sale of water to such third party(ies) to ensure that said other entity(ies) will likewise indemnify, hold harmless, and defend the City of Houston. CITY agrees to submit the wording of such covenants for the approval of BAWA and the City of Houston prior to entering into such contracts. 11.04 CITY agrees to maintain, at its sole expense, its water wells, if any, in good repair and working order to facilitate the use of such water wells as an emergency source of supply, if required, should BAWA be unable to deliver the Contract Quantity of water for any reason. CITY shall bear all costs of maintaining and supplying such emergency sources of supply. ARTICLE XII ENVIRONMENTAL CONSIDERATIONS 12.01 On or before the first anniversary of the effective date of this contract, CITY shall approve, implement and throughout the term hereof remain in full compliance with a water conservation program in accordance with the requirements of the TNRCC. Such plan (and any amendments thereto) shall be submitted to the appropriate authority as required by state law for review and approval. In the event that the TNRCC adopts new requirements, CITY shall adopt an amended plan and submit the same to the appropriate authority for review and approval. 12.02 CITY agrees that in the event that CITY furnishes or sells water or water services to a third party that in turn will furnish water to the ultimate consumer, the requirements of this Contract relative to water conservation shall be met through contractual agreements between CITY and the third party, providing for the implementation and continued compliance with a water conservation program consistent with the requirements of the TNRCC. Amended and Restated Water Supply Contract for Treated Water, Page 14 • • ARTICLE XIII REMEDIES UPON DEFAULT 13.01 In the event of any default by CITY in the performance of any of CITY's obligations hereunder which shall continue for a period of thirty (30) days or more, BAWA shall give written notice to CITY specifying the matter with respect to which CITY is in default and requesting that the same be remedied with promptness and dispatch. In the event CITY, within forty-five (45) days after the mailing of such notice by BAWA, has failed to remedy the matter in default, BAWA may suspend further delivery of treated water to CITY hereunder; and in the event such default on the part of CITY continues for an additional thirty (30) days, BAWA may, by an additional written notice to CITY, cancel and terminate this contract, whereupon all rights of CITY and all obligations of BAWA hereunder shall terminate and be at an end. The exercise of such rights shall be in addition to any other remedies available to BAWA under the laws of the State of Texas. 13.02 During any monthly period in which BAWA is unable to deliver to CITY, CITY's daily requirements of water, whether as a result of temporary curtailments resulting from temporary shortages as provided in Section 11.01 hereof or of force majeure as provided in article XII hereof, CITY shall be obligated to pay BAWA only for the quantities of treated water actually delivered to CITY under this contract during such month. During any such period, CITY shall be free to obtain treated water from other sources. The provisions of this section shall not relieve the City of its obligation to pay Pledged Revenues. 13.03 The failure of either party to insist in any one or more instance upon performance of any of the terms, covenants or conditions of this Contract, shall not be construed as a waiver or relinquishment of the future performance of any such term, covenant, or condition by the other party hereto, but the obligation of such other party with respect to future performance shall continue in full force and effect. ARTICLE XIV FORCE MAJEURE 14.01 In the event either party is rendered unable, wholly or in part, by force majeure to carry out any of its obligations under this Contract other than the payment of money, or in the event CITY is rendered unable, wholly or in part, by force majeure to operate CITY's facilities, it is agreed that on such party's giving notice and full particulars of such force majeure in writing or by telefax or telegraph to the other party as soon as possible after the occurrence of the cause relied upon, then the obligations of the party given such notice, to the extent it is affected by force majeure and to the extent that due diligence is being used to resume performance at the earliest practicable time, shall Amended and Restated Water Supply Contract for Treated Water, Page 15 • • be suspended during the continuance of any inability so caused as to the extent provided but for no longer period. Such cause shall as far as possible be remedied with all reasonable dispatch. 14.02 The term "force majeure" as used herein, shall include, but not be limited to, acts of God, strikes, lockouts, or other industrial disturbances, acts of the public enemy, war, blockades, insurrections, riots, epidemics, landslides, lighting, earthquakes, fires, storms, floods, washouts, droughts, tornadoes, hurricanes, arrests and restraints of government and people, explosions, breakage or damage to machinery, equipment, pipelines or canals, and any other inabilities of either party whether similar to those enumerated or otherwise and not within the control of the party claiming such inability which by the exercise of due diligence and care such party could not have avoided. 14.03 It is understood and agreed that the settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty and the above requirement that any force majeure be remedied with all reasonable dispatch shall not require the settlement of strikes or lockouts by acceding to demands of the opposing party when such course is inadvisable in the discretion of the party having the difficulty. 14.04 CITY shall not be guaranteed any specific quantity or pressure of water whenever BAWA's treated water supply is limited or when BAWA's equipment may become inoperative due to unforeseen breakdown or scheduled maintenance and repairs, and BAWA is in no case to be held to any liability for failure to furnish any specific amount or pressure of water. BAWA agrees that it will attempt to make any necessary repairs or adjustments to its equipment within reasonable times mutually agreeable to both parties. It is further agreed that BAWA may, without liability of default, interrupt its services hereunder to make necessary alterations to or repairs in its facilities, but only if such interruption cannot otherwise reasonably be avoided. BAWA shall schedule interruptions in advance after consultation with CITY. ARTICLE XV ADDRESS AND NOTICES 15.01 Until CITY is otherwise notified in writing by BAWA, the address of BAWA is and shall remain as follows: Baytown Area Water Authority Attn: General Manager 2401 Market Street Baytown, Texas 77520 Until BAWA is otherwise notified in writing by CITY, the address of CITY is and shall remain as follows: Amended and Restated Water Supply Contract for Treated Water, Page 16 • City of Baytown Attn: City Manager 2401 Market Street Baytown, Texas 77520 15.02 All written notices, statements, and payments required or permitted to be given under this Contract from one party to the other shall be deemed given by telefax or the deposit in a United States Postal Service mailbox or receptacle of certified or registered mail, with proper postage affixed thereto, addressed to the respective other party at the address set forth above or at such other address as the parties respectively shall designate by written notice. ARTICLE XVI MISCELLANEOUS PROVISIONS 16.01 This contract shall bind and benefit the respective parties and their legal successors, but shall not otherwise be assignable, in whole or in part, by either party without first obtaining the written consent of the other; provided, however, that CITY shall have the right, without any consent of BAWA to pledge or otherwise assign CITY's rights hereunder to the extent required by any mortgage, deed of trust or other similar agreement to which CITY may be, or hereafter become a party ; and provided, further, however, that no successor or assignee of CITY shall be entitled to receive water or sell water to a third party under this Contract unless and until the City of Houston and the San Jacinto River Authority give their written consent to such assignment. 16.02 This Contract shall be for the sole and exclusive benefit of BAWA and CITY and shall not be construed to confer any rights upon any third party, except as expressly provided in Article V. BAWA shall never be subject to any liability in damages to any customer of CITY for any failure to perform under this Contract. 16.03 This Contract shall be subject to all present and future valid laws, orders, rules and regulations of the United States of America and the State of Texas and of any regulatory body having jurisdiction. 16.04 This instrument contains all the agreements made between the parties concerning the sale and delivery of water by BAWA to CITY at the Point of Delivery set out in this Contract. 16.05 The construction, interpretation and performance of this Contract shall be governed by the laws of the State of Texas. Amended and Restated Water Supply Contract for Treated Water, Page 17 • 16.06 All parties agree that should any provision of this Contract be determined to be invalid or unenforceable, such determination shall not affect any other term of this Contract, which shall continue in full force and effect. 16.07 Each party has the full power and authority to enter into and perform this Contract, and the person signing this Contract on behalf of each party has been properly authorized and empowered to enter into this Contract. The persons executing this Contract hereby represent that they have authorization to sign on behalf of their respective entities. 16.08 The parties acknowledge that they have read, understand and intend to be bound by the terms and conditions of this Contract. IN WITNESS WHEREOF, the parties hereto have executed this contract as of the 23' day of October, 1997, in multiple copies each of which shall be deemed to be an original, but all of which shall constitute but one and the same contract. CITY OF BAYTOWN PETE C. ALFARO, Mayor ATTEST: EILEEN P. HALL, City Clerk BAYTOWN AREA WATER AUTHORITY ROBERT L. GILLETTE, President ATTEST: PETER R. BUENZ, Secretary ck1h63\13A WA\Cityoll3aytownl3A WA.AmcndcdRcstatcdContract Amended and Restated Water Supply Contract for Treated Water, Page 18 ATTACHMENT "B" • • RESOLUTION AUTHORIZING THE ISSUANCE OF BAYTOWN AREA WATER AUTHORITY WATER SUPPLY CONTRACT REVENUE BONDS, SERIES 1997 (CITY OF BAYTOWN PROJECT) BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE BAYTOWN AREA WATER AUTHORITY: ARTICLE I FINDINGS AND DETERMINATIONS Section 1. Findings and Determinations. It is hereby officially found and determined that the Baytown Area Water Authority (the "Authority") was organized, created, and established pursuant to Chapter 600, Acts of the 63rd Legislature of the State of Texas, Regular Session, 1973, as amended. ARTICLE II DEFINITIONS AND INTERPRETATIONS Section 2.1. Definitions. In this Resolution, the following terms shall have the following meanings, unless the context clearly indicates otherwise: "Act" means Chapter 600, Acts of the 63rd Legislature of the State of Texas, Regular Session, 1973, as amended. "Additional Bonds" mean the additional parity revenue bonds which the Authority has reserved the right to issue in Article VI of this Resolution. "Authority" means the Baytown Area Water Authority, and where appropriate, the Board of Directors thereof. "Baytown Contract" means that certain Amended and Restated Water Supply Contract for Treated Water, originally entered into on January 31, 1977, and amended and restated as of October 23, 1997, between the Authority and the City, under which the Authority sells water to the City. "Blanket Issuer Letter of Representations" means the Blanket Issuer Letter of Representations between the Authority, the Registrar and DTC. "Bonds" mean the Baytown Area Water Authority Water Supply Contract Revenue Bonds, Series 1997, authorized by this Resolution. "Business Day" means any day which is not a Saturday, Sunday, a day on which banking institutions in Dallas, Texas, are authorized by law or executive order to close, or a legal holiday. • "City" means the City of Baytown, Texas, and where appropriate, the City Council thereof. "Closing Date" means the date of the initial delivery of and payment for the Bonds. "Code" means the Internal Revenue Code of 1986, as amended. "Comptroller" means the Comptroller of Public Accounts of the State of Texas. "DTC" means The Depository Trust Company of New York, New York, or any successor securities depository. "DTC Participant" means brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities transactions among DTC Participants. "Houston Contract" means that certain Water Supply Contract dated October 24, 1994, between the Authority and the City of Houston, Texas, under which the Authority buys water from Houston for resale to the City and others, or any similar contract between the same parties for the purchase and sale of untreated water, entered into by the Authority with the consent of the City. "Initial Bond" means the Initial Bond authorized by Section 3.4(d). "Interest Payment Date", when used in connection with any Bond, means May 1, 1998, and each November 1 and May 1 thereafter until maturity or prior redemption. "MSRB" means the Municipal Securities Rulemaking Board. "NRMSIR" means each person whom the SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to time. "Outstanding Bonds" mean the Authority's Water Supply Contract Revenue Bonds (City of Baytown, Texas Project), Series 1978, Water Supply Contract Revenue Bonds (City of Baytown, Texas Project), Series 1979, and Water Supply Contract Revenue Bonds (City of Baytown Project), Series 1994. "Owner" or "Registered Owner", when used with respect to any Bond means the person or entity in whose name such Bond is registered in the Register. Any reference to a particular percentage or proportion of the Owners shall mean the Owners at a particular time of the specified percentage or proportion in aggregate principal amount of all Bonds then outstanding under this Resolution, exclusive of Bonds held by the Authority. "Parity Bonds" mean the Bonds, the Outstanding Bonds, and any Additional Bonds. -2- • • "Paying Agent" means the Registrar. "Pledged Revenues" mean the payments to be made by the City to the Authority for treated water, consisting of the amounts required to pay, and pledged herein for payment of, the principal of, premium, if any, and interest on the Bonds and the Outstanding Bonds. "Project" means the property, works, facilities, and improvements (whether previously existing or to be made, constructed, or acquired) within or without the boundaries of the Authority, necessary (1) to acquire surface water supplies from sources both within and without the boundaries of the Authority, including particularly the sources provided by the Houston Contract, (2) to conserve, store, transport, treat, and purify untreated water purchased by the Authority pursuant to the Houston Contract, and (3) to distribute, sell, and deliver treated water to the City pursuant to the terms of the Baytown Contract. "Project Costs" mean the costs incurred by the Authority or the City with respect to the acquisition of the Project, including, but not limited to, the following items: (1) Obligations for labor, materials, services, and equipment; (2) Costs of any bonds and insurance, the costs of which are not otherwise provided for; (3) Costs of engineering services, including costs for preliminary design and development work, test borings, surveys, estimates, plans and specifications, supervising construction, and performing all other duties required by or consequent upon proper construction; (4) Expenses incurred in connection with the issuance and sale of the Bonds, including without limitation (a) fees and expenses of accountants, auditors, attorneys, underwriters, engineers, and financial advisors, (b) materials, supplies, printing and engraving, (c) recording and filing fees, (d) rating agency fees, and (e) initial fees and expenses of a trustee, if any; (5) costs required to be paid under the terms of any contract or contracts in connection with the Project; (6) sums required to reimburse the Authority or the City for advances made by either of them for any of the above items, including fees of any kind for any other cost incurred, including expenses for organization of the Authority, overhead expenses and expenses for any work done by either the Authority or the City which are properly chargeable to the Project; and (7) costs of all other items related to the acquisition of the Project. -3- • "Record Date" means, for any Interest Payment Date, the fifteenth (15th) calendar day of the month next preceding each Interest Payment Date. "Register" means the books of registration kept by the Registrar in which are maintained the names and addresses of, and the principal amounts of the Bonds registered to, each Owner. "Registrar" means Texas Commerce Bank National Association, and its successors in that capacity. "Resolution" means this bond resolution and all amendments hereof and supplements hereto. "Rule" means SEC Rule 15c2-12, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. "SID" means the Municipal Advisory Council of Texas, which has been designated by the State of Texas as, and determined by the SEC staff to be, a state information depository within the meaning of the Rule. Section 2.2. Interpretations. All terms defined herein and all pronouns used in this Resolution shall be deemed to apply equally to singular and plural and to all genders. The titles and headings of the articles and sections of this Resolution have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof. This Resolution and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to sustain the validity of the Bonds and the validity of the lien on and pledge of the Pledged Revenues to secure the payment of the Bonds. ARTICLE III TERMS OF THE BONDS Section 3.1. Authorization and Authorized Amount. The Bonds shall be issued pursuant to the Act in fully registered form, without coupons, in the amount of $1,350,000 for the purpose of acquiring funds to complete making, purchasing, constructing, leasing or otherwise acquiring, enlarging, expanding, and modifying the Project. Section 3.2. Designation. Date, and Interest Payment Dates. The Bonds shall be designated as "Baytown Area Water Authority Water Supply Contract Revenue Bonds, Series 1997 (City of Baytown Project)," and shall be dated November 1, 1997. The Bonds shall bear interest payable on each Interest Payment Date at the rates set out in Section 3.3 of this Resolution from the later of November 1, 1997, or the most recent Interest Payment Date to which interest has been paid or duly provided for, calculated on the basis of a 360 day year of twelve 30 day months. -4- • Section 3.3. Initial Bonds: Numbers and Denominations. The Bonds shall be initially issued bearing the numbers, in the principal amounts, and bearing interest at the rates set forth in the following schedule, and may be transferred and exchanged as set out in this Resolution. The Bonds shall mature on May 1 in each of the years and in the amounts set out in such schedule. The Initial Bond shall be numbered I-1 and all other Bonds shall be numbered in sequence beginning with R-1. Bonds delivered on transfer of or in exchange for other Bonds shall be numbered in order of their authentication by the Registrar, shall be in the denomination of $5,000 or integral multiples thereof, and shall mature on the same date and bear interest at the same rate as the Bond or Bonds in lieu of which they are delivered. Year Principal Interest Amount Rate 2003 $200,000 7.375% 2004 205,000 4.375% 2005 215,000 4.45% 2006 230,000 4.55% 2007 245,000 4.60% 2008 255,000 4.70% Section 3.4. Execution of Bonds; Seal. (a) The Bonds shall be signed on behalf of the Authority by the President of the Board of Directors and countersigned by the Secretary of the Board of Directors, by their manual, lithographed, or facsimile signatures, and the official seal of the Authority shall be impressed or placed in facsimile thereon. Such facsimile signatures on the Bonds shall have the same effect as if each of the Bonds had been signed manually and in person by each of said officers, and such facsimile seal on the Bonds shall have the same effect as if the official seal of the Authority had been manually impressed upon each of the Bonds. (b) If any officer of the Authority whose manual or facsimile signature shall appear on the Bonds shall cease to be such officer before the authentication of such Bonds or before the delivery of such Bonds, such manual or facsimile signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in such office. (c) Except as provided below, no Bond shall be valid or obligatory for any purpose or be entitled to any security or benefit of this Resolution unless and until there appears thereon the Registrar's Authentication Certificate substantially in the form provided herein, duly authenticated by manual execution by an officer or duly authorized signatory of the Registrar. In lieu of the executed Registrar's Authentication Certificate described above, the Initial Bond delivered at the Closing Date shall have attached hereto the Comptroller's Registration Certificate substantially in the form provided herein, manually executed by the Comptroller of Public Accounts of the State of Texas, or by his duly authorized agent, which certificate shall be evidence that the Initial Bond has been duly approved by the Attorney General of the State of Texas and that it is a valid and binding obligation of the City, and has been registered by the Comptroller of Public Accounts of the State of Texas. -5- • • (d) On the Closing Date, the Initial Bond, being a single bond representing the entire principal amount of the Bonds, payable in stated installments to the Underwriter or its designee, executed by manual or facsimile signature of the Mayor and City Clerk of the City, approved by the Attorney General, and registered and manually signed by the Comptroller of Public Accounts, shall be delivered to the Underwriter or its designee. Upon payment for the Initial Bond, the Registrar shall cancel the Initial Bond and deliver Bonds to DTC in accordance with Section 13. Section 3.5. Payment of Principal and Interest. The Registrar is hereby appointed as the registrar and paying agent for the Bonds. The principal of the Bonds shall be payable, without exchange or collection changes, in any coin or currency of the United States of America which, on the date of payment, is legal tender for the payment of debts due the United States of America, upon their presentation and surrender as they respectively become due and payable at the principal payment office of the Registrar in Dallas, Texas. The interest on each Bond shall be payable by check payable on the Interest Payment Date, mailed by the Registrar on or before each Interest Payment Date to the Owner of record as of the Record Date, to the address of such Owner as shown on the Register, or by such other method, acceptable to the Registrar, requested by and at the risk and expense of the Owner. If the date for the payment of principal or interest on any Bond is not a Business Day, then the date for such payment shall be the next succeeding Business Day, and payment on such date shall have the same force and effect as if made on the original date such payment was due. Section 3.6. Successor Registrars. The Authority covenants that at all times while any Bonds are outstanding it will provide a commercial bank or trust company, organized under the laws of the United States or any state, authorized under such laws to exercise trust powers, and subject to supervision or examination by federal or state authority, to serve as and perform the duties and services of Registrar for the Bonds. The Authority reserves the right to change the Registrar for the Bonds on not less than 60 days written notice to the Registrar, so long as any such notice is effective not less than 60 days prior to the next succeeding principal or interest payment date on the Bonds. Promptly upon the appointment of any successor Registrar, the previous Registrar shall deliver the Register or a copy thereof to the new Registrar, and the new Registrar shall notify each Owner, by United States mail, first class postage prepaid, of such change and of the address of the new Registrar. Each Registrar hereunder, by acting in that capacity, shall be deemed to have agreed to the provisions of this Section. Section 3.7. Special Record Date. If interest on any Bond is not paid on any Interest Payment Date and continues unpaid for thirty (30) days thereafter, the Registrar shall establish a new record date for the payment of such interest, to be known as a Special Record Date. The Registrar shall establish a Special Record Date when funds to make such interest payment are received from or on behalf of the Authority. Such Special Record Date shall be fifteen (15) days prior to the date fixed for payment of such past due interest, and notice of the date of payment and the Special Record Date shall be sent by United States mail, first class, postage prepaid, not later than five (5) days prior to the Special Record Date, to each Owner of record of an affected Bond as of the close of business on the day prior to the mailing of such notice. -6- • Section 3.8. Ownership: Unclaimed Principal and Interest. Subject to the further provisions of this Section, the Authority, the Registrar and any other person may treat the person in whose name any Bond is registered as the absolute Owner of such Bond for the purpose of making and receiving payment of the principal of or interest on such Bond, and for all other purposes, whether or not such Bond is overdue, and neither the Authority nor the Registrar shall be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the Owner of any Bond in accordance with this Section shall be valid and effectual and shall discharge the liability of the Authority and the Registrar upon such Bond to the extent of the sums paid. Amounts held by the Registrar which represent principal of and interest on the Bonds remaining unclaimed by the Owner after the expiration of three years from the date such amounts have become due and payable shall be reported and disposed of by the Registrar in accordance with the applicable provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. Section 3.9. Registration. Transfer. and Exchange. So long as any Bonds remain outstanding, the Registrar shall keep the Register at its principal payment office in Dallas, Texas, and, subject to such reasonable regulations as it may prescribe, the Registrar shall provide for the registration and transfer of Bonds in accordance with the terms of this Resolution. Each Bond shall be transferable only upon the presentation and surrender thereof at the principal payment office of the Registrar in Dallas, Texas, duly endorsed for transfer, or accompanied by an assignment duly executed by the registered Owner or his authorized representative in form satisfactory to the Registrar. Upon due presentation of any Bond in proper form for transfer, the Registrar shall authenticate and deliver in exchange therefor, within three (3) Business Days after such presentation, a new Bond or Bonds, registered in the name of the transferee or transferees, in authorized denominations and of the same maturity and aggregate principal amount and bearing interest at the same rate as the Bond or Bonds so presented. All Bonds shall be exchangeable upon presentation and surrender thereof at the principal payment office of the Registrar in Dallas, Texas, for a Bond or Bonds of the same maturity and interest rate and in any authorized denomination, in an aggregate amount equal to the unpaid principal amount of the Bond or Bonds presented for exchange. The Registrar shall be and is hereby authorized to authenticate and deliver exchange Bonds in accordance with the provisions of this Section. Each Bond delivered in accordance with this Section shall be entitled to the benefits and security of this Resolution to the same extent as the Bond or Bonds in lieu of which such Bond is delivered. The Authority or the Registrar may require the Owner of any Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of such Bond. Any fee or charge of the Registrar for such transfer or exchange shall be paid by the Authority. Section 3.10. Cancellation of Bonds. All Bonds paid or redeemed in accordance with this Resolution, and all Bonds in lieu of which exchange Bonds or replacement Bonds are authenticated -7- • • and delivered in accordance herewith, shall be cancelled and destroyed upon the making of proper records regarding such payment or redemption. The Registrar shall furnish the Authority with appropriate certificates of destruction of such Bonds. Section 3.11. Mutilated. Lost. or Stolen Bonds. Upon the presentation and surrender to the Registrar of a mutilated Bond, the Registrar shall authenticate and deliver in exchange therefor a replacement Bond of like maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding. The Authority or the Registrar may require the Owner of such Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith and any other expenses connected therewith, including the fees and expenses of the Registrar. If any Bond is lost, apparently destroyed, or wrongfully taken, the Authority, pursuant to the applicable laws of the State of Texas and in the absence of notice or knowledge that such Bond has been acquired by a bona fide purchaser, shall authorize and the Registrar shall authenticate and deliver a replacement Bond of like maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding, provided that the Owner thereof shall have: (1) furnished to the Authority and the Registrar satisfactory evidence of the ownership of and the circumstances of the loss, destruction or theft of such Bond; (2) furnished such security or indemnity as may be required by the Registrar and the Authority to save them harmless; (3) paid all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Registrar and any tax or other governmental charge that may be imposed; and (4) met any other reasonable requirements of the Authority and the Registrar. If, after the delivery of such replacement Bond, a bona fide purchaser of the original Bond in lieu of which such replacement Bond was issued presents for payment such original Bond, the Authority and the Registrar shall be entitled to recover such replacement Bond from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Authority or the Registrar in connection therewith. If any such mutilated, lost, apparently destroyed or wrongfully taken Bond has become or is about to become due and payable, the Authority in its discretion may, instead of issuing a replacement Bond, authorize the Registrar to pay such Bond. Each replacement Bond delivered in accordance with this Section shall be entitled to the benefits and security of this Resolution to the same extent as the Bond or Bonds in lieu of which such replacement Bond is delivered. -8- • • Section 3.12. Book -Entry System. (a) The Initial Bond shall be registered in the name of SMITH BARNEY INC. Except as provided in Section 3.13 hereof, all other Bonds shall be registered in the name of Cede & Co., as nominee of DTC. (b) With respect to Bonds registered in the name of Cede & Co., as nominee of DTC, the Authority and the Registrar shall have no responsibility or obligation to any DTC Participant or to any person on behalf of whom such DTC Participant holds an interest in the Bonds, except as provided in this Resolution. Without limiting the immediately preceding sentence, the Authority and the Registrar shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any DTC Participant or any other person, other than an Owner, as shown on the Register, of any notice with respect to the Bonds, including any notice of redemption, or (iii) the payment to any DTC Participant or any other person, other than an Owner, as shown on the Register, of any amount with respect to principal of, premium, if any, or interest on the Bonds. Notwithstanding any other provision of this Resolution to the contrary, the Authority and the Registrar shall be entitled to treat and consider the person in whose name each Bond is registered in the Register as the absolute Owner of such Bond for the purpose of payment of principal of and interest on the Bonds, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfer with respect to such Bond, and for all other purposes whatsoever. The Registrar shall pay all principal of, premium, if any, and interest on the Bonds only to or upon the order of the respective Owners, as shown in the Register as provided in this Resolution, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the Authority's obligations with respect to payments of principal, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the Register, shall receive a certificate evidencing the obligation of the Authority to make payments of amounts due pursuant to this Resolution. Upon delivery by DTC to the Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions of this Resolution with respect to interest checks being mailed to the Owner of record as of the Record Date, the phrase "Cede & Co." in this Resolution shall refer to such new nominee of DTC. (c) The execution and delivery of the Blanket Issuer Letter of Representations is hereby approved with such changes as may be approved by the President of the Board of Directors of the Authority and the President is hereby authorized and directed to execute such Blanket Issuer Letter of Representations. Section 3.13. Successor Securities Depository: Transfer Outside Book -Entry Only System. In the event that the Authority in its sole discretion, determines that the beneficial owners of the Bonds be able to obtain certificated Bonds, or in the event DTC discontinues the services described herein, the Authority shall (i) appoint a successor securities depository, qualified to act as such under Section 17(a) of the Securities and Exchange Act of 1934, as amended, notify DTC and DTC Participants, as identified by DTC, of the appointment of such successor securities depository and transfer one or more separate Bonds to such successor securities depository or (ii) notify DTC and DTC Participants, as identified by DTC, of the availability through DTC of Bonds and transfer one or more separate Bonds to DTC Participants having Bonds credited to their DTC accounts, as -9- • • identified by DTC. In such event, the Bonds shall not longer be restricted to being registered in the Register in the name of Cede & Co., as nominee of DTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names Owners transferring or exchanging Bonds shall designate, in accordance with the provisions of this Resolution. Section 3.14. Payments to Cede & Co. Notwithstanding any other provision of this Resolution to the contrary, so long as any Bonds are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on such Bonds, and all notices with respect to such Bonds, shall be made and given, respectively, in the manner provided in the Blanket Letter of Representations. Section 3.15. Optional Redemption. The Authority reserves the right to redeem Bonds prior to maturity, in whole or from time to time in part, on November 1, 2007, or any date thereafter, at a price of par plus accrued interest on the Bonds called for redemption to the date fixed for redemption. If less than all of the Bonds are redeemed, the particular Bonds or portions thereof to be redeemed shall be selected by the Authority. Principal amounts may be redeemed only in integral multiples of $5,000. If a Bond subject to redemption is in a denomination larger than $5,000, a portion of such Bond may be redeemed, but only in integral multiples of $5,000. Upon surrender of any Bond for redemption in part, the Registrar, in accordance with Section 3.9 hereof, shall authenticate and deliver in exchange therefor a Bond or Bonds of like maturity, and interest rate in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered. Notice of any redemption identifying the Bonds to be redeemed in whole or in part shall be given by the Registrar at least thirty days prior to the date fixed for redemption by sending written notice by first class mail, postage prepaid, to the Owner of each Bond to be redeemed in whole or in part at the address shown on the Register. Such notices shall state the redemption date, the redemption price, the place at which Bonds are to be surrendered for payment and, if less than all Bonds outstanding of a particular maturity are to be redeemed, the numbers of the Bonds or portions thereof of such maturity to be redeemed. Any notice given as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives such notice. By the date fixed for redemption, due provision shall be made with the Registrar for payment of the redemption price of the Bonds or portions thereof to be redeemed, plus accrued interest to the date fixed for redemption. When Bonds have been called for redemption in whole or in part and due provision has been made to redeem the same as herein provided, the Bonds or portions thereof so redeemed shall no longer be regarded as outstanding except for the purpose of receiving payment solely from the funds so provided for redemption, and the rights of the Owners to collect interest which would otherwise accrue after the redemption date on any Bond or portion thereof called for redemption shall terminate on the date fixed for redemption. -10- • • ARTICLE IV FORM OF BONDS AND CERTIFICATES Section 4.1. Forms. The form of the Bonds, including the form of the Registrar's authentication certificate, the form of assignment, and the form of the Comptroller's Registration Certificate for the bond to be initially issued, shall be substantially as follows, with such additions, deletions and variations, as may be necessary or desirable and not prohibited by this Resolution: (a) Form of Bond. NUMBER REGISTERED UNITED STATES OF AMERICA STATE OF TEXAS COUNTIES OF HARRIS AND CHAMBERS AMOUNT REGISTERED BAYTOWN AREA WATER AUTHORITY WATER SUPPLY CONTRACT REVENUE BOND SERIES 1997 (CITY OF BAYTOWN PROJECT) INTEREST RATE: MATURITY DATE: ISSUE DATE: CUSIP: November 1, 1997 REGISTERED OWNER: PRINCIPAL AMOUNT: DOLLARS The Baytown Area Water Authority, a political subdivision of the State of Texas (herein the "Authority") for value received, promises to pay, but solely from certain Pledged Revenues as hereinafter provided, to the Registered Owner identified above or registered assigns, on the Maturity Date specified above, upon presentation and surrender of this Bond to Texas Commerce Bank National Association (the "Registrar") at its principal payment office in Dallas, Texas, the principal amount identified above, in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due the United States of America, and to pay, solely from such Pledged Revenues, interest thereon at the rate shown above, calculated on the basis of a 360 day year of twelve 30 day months, from the later of November 1, 1997, or the most recent interest payment date to which interest has been paid or duly provided for. Interest on this Bond is payable by check payable on May 1 and November 1, beginning on May 1, 1998, mailed to the registered owner as shown on the books of registration kept by the Registrar as -11- • • of the fifteenth (15th) calendar day of the month next preceding each interest payment date, or by such other method, acceptable to the Registrar, requested by and at the risk and expense of the registered owner. THIS BOND IS ONE OF A DULY AUTHORIZED SERIES OF BONDS aggregating $1,350,000, issued for the purpose of acquiring funds to complete making, purchasing, constructing, leasing or otherwise acquiring, enlarging, expanding, and modifying certain water supply, treatment, and distribution facilities, as authorized by Chapter 600, Acts of the 63rd Legislature of the State of Texas, Regular Session, 1973, as amended, and pursuant to a resolution adopted by the Board of Directors of the Authority (the "Resolution"), which Resolution is of record in the official minutes of the Board of Directors. THIS BOND AND THE SERIES OF WHICH IT IS A PART are special obligations of the Authority that are payable, together with the Authority's outstanding Water Supply Contract Revenue Bonds (City of Baytown, Texas Project), Series 1978, Series 1979 and Series 1994 (the "Outstanding Bonds"), from, and secured by an irrevocable first lien on and pledge of payments equal to the principal of, premium, if any, and interest on the Bonds and the Outstanding Bonds (the "Pledged Revenues") to be made to the Authority by the City of Baytown, Texas (the "City"), under a contract which unconditionally obligates the City to make such payments. No owner of the Bonds shall ever have the right to demand payment of the Bonds from funds derived or to be derived from taxation or from any revenues of the Authority other than those pledged above. THE AUTHORITY RESERVES THE RIGHT to redeem Bonds prior to maturity, in whole or from time to time in part, in integral multiples of $5,000, on November 1, 2007, or any date thereafter at par plus accrued interest on the principal amounts called for redemption to the date fixed for redemption. Reference is made to the Resolution for complete details concerning the manner of redeeming the Bonds. NOTICE OF ANY REDEMPTION shall be given at least thirty (30) days prior to the date fixed for redemption by first class mail, addressed to the registered owner of each Bond to be redeemed in whole or in part at the address shown on the books of registration kept by the Registrar. When Bonds or portions thereof have been called for redemption, and due provision has been made to redeem the same, the principal amounts so redeemed shall be payable solely from the funds provided for redemption, and interest which would otherwise accrue on the amounts called for redemption shall terminate on the date fixed for redemption. THIS BOND IS TRANSFERABLE only upon presentation and surrender at the principal payment office of the Registrar in Dallas, Texas, duly endorsed for transfer or accompanied by an assignment duly executed by the registered owner or his authorized representative, subject to the terms and conditions of the Resolution. THE BONDS ARE EXCHANGEABLE at the principal payment office of the Registrar in Dallas, Texas, for bonds in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Resolution. -12- • • THE AUTHORITY HAS RESERVED THE RIGHT to issue additional parity revenue bonds, subject to the restrictions contained in the Resolution, which may be equally and ratably payable from, and secured by a first lien on and pledge of, the Pledged Revenues in the same manner and to the same extent as this Bond and the series of which it is a part. IT IS HEREBY DECLARED AND REPRESENTED that this Bond has been duly and validly issued and delivered; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the issuance and delivery of this Bond have been performed, existed, and been done in accordance with law; that the Bonds do not exceed any statutory limitation; and that provision has been made for the payment of the principal of and interest on this Bond and all of the Bonds by the creation of the aforesaid lien on and pledge of the Pledged Revenues. IN WITNESS WHEREOF, the Authority has caused its corporate seal to be impressed, printed, or lithographed hereon and has caused this Bond to be executed by the manual or facsimile signatures of the President and Secretary of the Board of Directors. (AUTHENTICATION CERTIFICATE) (SEAL) BAYTOWN AREA WATER AUTHORITY xxxxxxxxx President, Board of Directors COUNTERSIGNED: xxxxxxxxx Secretary, Board of Directors (b) Form of Registration Certificate. 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 of Public Accounts of the State of Texas. WITNESS MY SIGNATURE AND SEAL this (SEAL) xxxxxxxxxx Comptroller of Public Accounts of the State of Texas -13- • (c) Form of Authentication Certificate. AUTHENTICATION CERTIFICATE It is hereby certified that this Bond has been delivered pursuant to the Bond Resolution described in the text of this Bond. By Authorized Signature Date of Authentication (d) Form of Assignment. ASSIGNMENT For value received, the undersigned hereby sells, assigns, • and transfers unto (Please print or type name, address, and zip code of Transferee) (Please insert Social Security or Taxpayer Identification Number of Transferee) the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer said Bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature Guaranteed: NOTICE: Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. Registered Owner NOTICE: The signature above must correspond to the name of the registered owner as shown on the face of this Bond in every particular, without any alteration, enlargement or change whatsoever. (e) The Initial Bond shall be in the form set forth in paragraphs (a), (b) and (d) of this Section, except for the following alterations: -14- • • (i) immediately under the name of the Bond, the headings "INTEREST RATE" and "MATURITY DATE" shall both be completed with the words "As Shown Below" and the word "CUSIP" deleted; (ii) in the first paragraph of the Bond, the words "on the maturity date specified above" and "at the rate shown above" shall be deleted and the following shall be inserted at the end of the first sentence "..., with such principal to be paid in installments on May 1 in each of the years and in the principal amounts identified in the following schedule and with such installments bearing interest at the per annum rates set forth in the following schedule: [Information to be inserted from schedule in Section 4] (iii) the Initial Bond shall be numbered I-1. Section 4.2. Legal Opinion: Cusip Numbers: Bond Insurance. The approving opinion of Vinson & Elkins L.L.P., Houston, Texas, and CUSIP Numbers may be printed on the Bonds, but errors or omissions in the printing of such opinion or such numbers shall have no effect on the validity of the Bonds. If bond insurance is obtained by the Underwriter, the Bonds may bear an appropriate legend as provided by the insurer. ARTICLE V SECURITY AND SOURCE OF PAYMENT FOR ALL PARITY BONDS Section 5.1. Pledge: Special Obligations. All Parity Bonds shall be payable from, and secured by an irrevocable first lien on and pledge of, the Pledged Revenues. The Bonds and the Outstanding Bonds are special obligations of the Authority payable solely from the sources described above, and no Owner shall ever have the right to demand payment of the Bonds from funds derived or to be derived from taxation or from any revenues of the Authority other than those pledged above. Section 5.2. Project Fund. Immediately after the delivery of the Bonds, the Authority shall deposit into a separate and special fund called the "Baytown Area Water Authority Water Supply Contract Revenue Bonds, Series 1997 (City of Baytown Project), Project Fund" (the "Project Fund"), an amount equal to the principal amount of the Bonds. The Project Fund shall be established, drawn on, and used by the Authority to pay Project Costs. Any moneys held as part of the Project Fund shall be invested and reinvested in accordance with the laws of the State of Texas. All interest and realized profit from such investment shall be used to pay Project Costs or may be transferred to and deposited in the Debt Service Fund if so directed by the Authority. -15- • After the completion of the Project, any proceeds of the Bonds remaining in the Project Fund shall be deposited into the Debt Service Fund. Section 5.3. Debt Service Fund. Immediately after the sale and delivery of the Bonds, the Authority shall deposit into a separate and special fund called the "Baytown Area Water Supply Contract Revenue Bonds, Series 1997 (City of Baytown Project) Debt Service Fund" (the "Debt Service Fund"), the accrued interest, if any, on the Bonds to the date of delivery. All payments by the City of Pledged Revenues shall be deposited directly into the appropriate debt service fund for the Bonds and the Outstanding Bonds. The establishment of separate debt service funds for each issue of Parity Bonds is for administrative convenience only. The Parity Bonds are on a parity with and of equal dignity with one another and are equally and ratably payable from the Pledged Revenues. All money from time to time deposited and held in the Debt Service Fund shall be held in trust by the Registrar for the benefit of the Bondowners and used to pay, or cause to be paid, the principal of and interest on the Bonds. Section 5.4. Payment of Pledged Revenues. Under the terms of the Contract, by approving the issuance of the Bonds and the terms and conditions of the Bond Resolution, the City has absolutely and unconditionally obligated itself and agreed to make the following payments to the Authority in immediately available funds: (1) On or before December 1, 1997, and on or before the first day of each month thereafter, such amounts, in approximately equal monthly installments, as will be sufficient, together with any other amounts available therefor in the Debt Service Fund, to pay the interest which shall become due on the Bonds on the next succeeding interest payment date; and (2) On or before May 1, 2002, and on or before the first day of each month thereafter, such amounts, in approximately equal monthly installments, as will be sufficient, together with any other amounts available therefor in the Debt Service Fund, to pay the principal which shall become due on the Bonds on the next succeeding principal payment date. Section 5.5. Investment of Funds. Money in the Project Fund and the Debt Service Fund may, at the option of the Authority, be invested in time deposits or certificates of deposit of commercial banks secured in the manner required by law for public funds and insured by the Federal Deposit Insurance Corporation to the maximum extent permitted by law, or be invested in direct obligations of, or obligations fully guaranteed by, the United States of America; provided that all such deposits and investments shall be made in such manner that the money required to be expended from any Fund will be available at the proper time or times. Any obligation in which money is so invested shall be kept and held in the official depository bank of the Authority at which the Fund is maintained from which the investment was made. -16- • Section 5.6. Security for Uninvested Funds. So long as any Bonds remain outstanding, all uninvested money on deposit in, or credited to, the Project Fund and the Debt Service Fund shall be secured by the pledge of security, as provided by Texas law. ARTICLE VI ADDITIONAL BONDS In addition to the right to issue inferior lien obligations, the Authority reserves the right, upon the request of the City, to issue Additional Bonds in such amounts as are required for the purpose of acquiring funds to (i) complete making, purchasing constructing, leasing, or acquiring the Project, (ii) enlarge, expand, or modify the Project, (iii) reconstruct the Project, or (iv) refund any Bonds, Outstanding Bonds, or Additional Bonds. The Additional Bonds when issued and delivered, shall be payable from and secured by a first lien on and pledge of the Pledged Revenues (which shall include additional payments sufficient to enable the Authority to comply with all terms and conditions of the Resolution with respect to the issuance of such Additional Bonds), in the same manner and to the same extent as the Outstanding Bonds and the Bonds; and the Bonds, the Outstanding Bonds, and any Additional Bonds shall be in all respects be on a parity and of equal dignity. No such installment or series of Additional Bonds shall be issued unless: (i) A certificate is executed by the President and Secretary of the Board to the effect that no default exists in connection with any covenants or requirements of the Bonds, Outstanding Bonds, or Additional Bonds, if any, and that the Debt Service Fund contains the amount then required to be on deposit therein; (ii) The City is not in default with respect to any series of bonds or other debt issued by it; and (iii) The principal of any such installment or series of Additional Bonds is payable on May 1 and interest is payable on May 1 and November 1. ARTICLE VII PROVISIONS CONCERNING SALE AND APPLICATION OF PROCEEDS OF BONDS Section 7.1. Sale. The sale and delivery of the Bonds to Smith Barney, Inc. (the "Underwriter") at a price of par, plus accrued interest thereon to date of delivery, plus a cash premium of $716.25, is hereby authorized, approved, ratified and confirmed, subject to the approving opinion as to the legality of the Bonds of the Attorney General of the State of Texas, and of Vinson -17- • • Texas, bond counsel. It is hereby found and declared that the Bonds were sold at public sale and that the bid of the Underwriter was the best bid received by the Authority. Section 7.2. Federal Income Tax Inclusion. (a) General Tax Covenant. The Authority intends that the interest on the Bonds shall be excludable from gross income for purposes of federal income taxation pursuant to sections 103 and 141 through 150 of the Internal Revenue Code of 1986, as amended (the "Code), and applicable Income Tax Regulations (the "Regulations"). The Authority covenants and agrees not to take any action, or knowingly omit to take any action within its control that, if taken or omitted, respectively, would cause the interest on the Bonds to be includable in gross income, as defined in section 61 of the Code, for federal income tax purposes. In particular, the Authority covenants and agrees to comply with each requirement of this Section; provided, however, that the Authority shall not be required to comply with any particular requirement of this Section if the Authority has received an opinion of nationally recognized bond counsel ("Counsel's Opinion") that such noncompliance will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds or if the Authority has received a Counsel's Opinion to the effect that compliance with some other requirement set forth in this Section will satisfy the applicable requirements of the Code and Regulations, in which case compliance with such other requirement specified in such Counsel's Opinion shall constitute compliance with the corresponding requirement specified in this Section. (b) No Private Use or Payment and No Private Loan Financing. The Authority shall certify, through an authorized officer, employee or agent that based upon all facts and estimates known or reasonably expected to be in existence on the date the Bonds are delivered, that the proceeds of the Bonds will not be used in a manner that would cause the Bonds to be "private activity bonds" within the meaning of section 141 of the Code and the Regulations promulgated thereunder. Moreover, the Authority covenants and agrees that it will make such use of the proceeds of the Bonds including interest or other investment income derived from Bond proceeds, regulate the use of property financed, directly or indirectly, with such proceeds, and take such other and further action as may be required so that the Bonds will not be "private activity bonds" within the meaning of section 141 of the Code and the Regulations promulgated thereunder. (c) No Federal Guarantee. The Authority covenants and agrees not to take any action, or knowingly omit to take any action within its control, that, if taken or omitted, respectively, would cause the Bonds to be "federally guaranteed" within the meaning of section 149(b) of the Code and the applicable Regulations thereunder, except as permitted by section 149(b)(3) of the Code and such Regulations. (d) No Hedge Bonds. The Authority covenants and agrees that it has not and will not to take any action, and has not knowingly omitted and will not knowingly omit to take any action, within its control, that, if taken or omitted, respectively, would cause the Bonds to be "hedge bonds" within the meaning of section 149(g) of the Code and the applicable Regulations thereunder. (e) No Arbitrage. The Authority shall certify, through an authorized officer, employee or agent that based upon all facts and estimates known or reasonably expected to be in existence on the -18- • • date the Bonds are delivered, the Authority will reasonably expect that the proceeds of the Bonds will not be used in a manner that would cause the Bonds to be "arbitrage bonds" within the meaning of section 148(a) of the Code and the applicable Regulations promulgated thereunder. Moreover, the Authority covenants and agrees that it will make such use of the proceeds of the Bonds including interest or other investment income derived from Bond proceeds, regulate investments of proceeds of the Bonds, and take such other and further action as may be required so that the Bonds will not be "arbitrage bonds" within the meaning of section 148(a) of the Code and the applicable Regulations promulgated thereunder. (f) Arbitrage Rebate. If the Authority does not qualify for an exception to the requirements of Section 148(f) of the Code relating to the required rebate to the United States, the Authority will take all necessary steps to comply with the requirement that certain amounts earned by the Authority on the investment of the "gross proceeds" of the Bonds (within the meaning of section 148(f)(6)(B) of the Code), be rebated to the federal government. Specifically, the Authority will (i) maintain records regarding the investment of the gross proceeds of the Bonds as may be required to calculate the amount earned on the investment of the gross proceeds of the Bonds separately from records of amounts on deposit in the funds and accounts of the Authority allocable to other bond issues of the Authority or moneys which do not represent gross proceeds of any bonds of the Authority, (ii) calculate at such times as are required by applicable Regulations, the amount earned from the investment of the gross proceeds of the Bonds which is required to be rebated to the federal government, and (iii) pay, not less often than every fifth anniversary date of the delivery of the Bonds or on such other dates as may be permitted under applicable Regulations, all amounts required to be rebated to the federal government. Further, the Authority will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or a larger loss than would have resulted if the arrangement had been at arm's length and had the yield on the issue not been relevant to either party. (g) Information Reporting. The Authority covenants and agrees to file or cause to be filed with the Secretary of the Treasury, not later than the 15th day of the second calendar month after the close of the calendar quarter in which the Bonds are issued, an information statement concerning the Bonds, all under and in accordance with section 149(e) of the Code and the applicable Regulations promulgated thereunder. (h) Continuing Obligation. Notwithstanding any other provision of this Resolution, the Authority's obligations under the covenants and provisions of this Section shall survive the defeasance and discharge of the Bonds. Section 7.4. Use of Proceeds. Proceeds from the sale of the Bonds shall, promptly upon receipt by the Authority, be applied as follows: (a) Accrued interest and any premium shall be deposited into the Debt Service Fund. -19- • • (b) The remaining proceeds from the sale of the Bonds shall be deposited into the Project Fund. Section 7.5. Official Statement. The Authority ratifies and confirms its prior approval of the form and content of the Preliminary Official Statement prepared in the initial offering and sale of the Bonds and hereby authorizes the preparation of a final Official Statement reflecting the terms of the Underwriter's bid and other relevant information. The use of such Official Statement in the reoffering of the Bonds by the Underwriter is hereby approved and authorized. The proper officials of the Authority are hereby authorized to execute and deliver a certificate pertaining to such Official Statement as prescribed therein, dated as of the date of payment for and delivery of the Bonds. Section 7.6. Continuing Disclosure Undertaking. (a) Annual Reports. The Authority shall provide annually to each NRMSIR and the SID, within six months after the end of each fiscal year, financial information and operating data with respect to the Authority of the general type included in the Official Statement for the Bonds under Tables 1 and 2 and in Appendix A. The information to be provided will include audited financial statements, if the Authority commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the Authority will provide unaudited financial statements at the required time and audited financial statements when and if they become available. Any financial statements so to be provided shall be prepared in accordance with the accounting principles described in Appendix A to the Official Statement, or such other accounting principles as the Authority may be required to employ from time to time pursuant to State law or regulation. If the Authority changes its fiscal year, it will notify each NRMSIR and the SID of the change (and of the date of the new fiscal year end) prior to the next date by which the Authority otherwise would be required to provide financial information and operating data pursuant to this Section. The financial information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to each NRMSIR and the SID or filed with the SEC. (b) Material Event Notices. The Authority shall notify the SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Bonds, if such event is material within the meaning of the federal securities laws: A. Principal and interest payment delinquencies; B. Non-payment related defaults; C. Unscheduled draws on debt service reserves reflecting financial difficulties; D. Unscheduled draws on credit enhancements reflecting financial difficulties; E. Substitution of credit or liquidity providers, or their failure to perform; -20- • F. Adverse tax opinions or events affecting the tax-exempt status of the Bonds; G. Modifications to rights of holders of the Bonds; H. Bond calls; I. Defeasances; J. Release, substitution, or sale of property securing repayment of the Bonds; and K. Rating changes. The Authority shall notify the SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the Authority to provide financial information or operating data in accordance with Section 7.6(a) of this Resolution by the time required by such Section. (c) Limitations. Disclaimers. and Amendments. The Authority shall be obligated to observe and perform the covenants specified in this Section for so long as, but only for so long as, the Authority remains an "obligated person" with respect to the Bonds within the meaning of the Rule, except that the Authority in any event will give notice of any deposit made in accordance with Texas law that causes Bonds no longer to be outstanding. The provisions of this Section are for the sole benefit of the holders and beneficial owners of the Bonds, and nothing in this Section, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The Authority undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Section and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the Authority's financial results, condition, or prospects or hereby undertake to update any information provided in accordance with this Section or otherwise, except as expressly provided herein. The City does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Bonds at any future date. UNDER NO CIRCUMSTANCES SHALL THE AUTHORITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE AUTHORITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS SECTION, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. No default by the Authority in observing or performing its obligations under this Section shall comprise a breach of or default under this Resolution for purposes of any other provision of this Resolution. Nothing in this Section is intended or shall act to disclaim, waive, or otherwise limit the duties of the Authority under federal and state securities laws. -21- The provisions of this Section may be amended by the Authority from time to time to adopt to changed circumstances that arise from a change in legal requirements, change in law, or change in the identity, nature, status or type of operations of the Authority, but only if (1) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the primary offering of the Bonds in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (2) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds consent to such amendment, or (b) a person unaffiliated with the Authority (such as nationally recognized bond counsel), determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. If any such amendment is made, the Authority will include in its next annual update an explanation in narrative form of the reasons for the change and its impact on the type of operating data or financial information being provided. ARTICLE VIII MISCELLANEOUS Section 8.1. Further Proceedings. The President, the Secretary, the General Manager, and other appropriate officials and agents of the Authority are hereby authorized and directed to do any and all things necessary and/or convenient to carry out the terms of this Resolution. Section 8.2. Severability. If any Section, paragraph, clause or provision of this Resolution shall for any reason be held to be invalid or unenforceable, the invalidity or unenforceability of such Section, paragraph, clause or provision shall not affect any of the remaining provisions of this Resolution. Section 8.3. Open Meeting. It is hereby officially found and determined that the meeting at which this Resolution was adopted was open to the public, and that public notice of the time, place and purpose of said meeting was given, all as required by the Texas Open Meetings Act. Section 8.4. Paying Agent/Registrar Agreement. The form of agreement setting forth the duties of the Registrar is hereby approved, and an appropriate official of the Authority is hereby authorized to execute such agreement for and on behalf of the Authority. Section 8.5. No Personal Liability. No recourse shall be had for payment of the principal of or interest on any Bonds or for any claim based thereon, or on this Resolution, against any official or employee of the Authority or any person executing any Bonds. Section 8.6. Effective Date. This Resolution shall become effective immediately upon passage by the Board of Directors and approval by the City. -22- • PASSED AND APPROVED this 6th day of November, 1997. Ali EST: P,,,tk Secretary, Board of Directtprs Baytown Area Water Authority (SEAL) • President, Board of Directors Baytown Area Water Authority -23-