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Ordinance No. 7,778y _ ORDINANCE NO. 7778 960912 -1 ORDINANCE AUTHORIZING THE ISSUANCE OF $4,680,000 CITY OF BAYTOWN, TEXAS, COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 1996; AND AUTHORIZING AN ESCROW AGREEMENT THE STATE OF TEXAS COUNTIES OF HARRIS AND CHAMBERS CITY OF BAYTOWN WHEREAS, the City Council of the City of Baytown, Texas (the "City "), authorized the publication of a notice of intention to issue certificates of obligation to the effect that the City Council would meet on September 12, 1996, to adopt an ordinance and take such other action as may be deemed necessary to authorize the issuance of certificates of obligation payable from City ad valorem taxes and a pledge of a subordinate lien on the net revenues of the City's waterworks and sanitary sewer system, for the purpose of evidencing the indebtedness of the City for all or any part of the cost of constructing improvements to the City's waterworks and sanitary sewer system, and the cost of professional services incurred in connection therewith; and WHEREAS, such notice was published at the times and in the manner required by the Constitution and laws of the State of Texas and of the United States of America, respectively, particularly Chapter 271, Texas Local Government Code as amended; and WHEREAS, no petition or other request has been filed with or presented to any official of the City requesting that any of the proceedings authorizing such certificates of obligation be submitted to a referendum or other election; therefore BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF BAYTOWN: 1. Recitals. It is hereby found and determined that the matters and facts set out in the preamble to this Ordinance are true and correct. 2. Definitions. Throughout this ordinance the following terms and expressions as used herein shall have the meanings set forth below: "Acts" shall mean Chapter 271, Texas Local Government Code, as amended, and Article 1111,, Vernon's Texas Civil Statutes, as amended. "Business Day" means any day which is not a Saturday, Sunday, or a day on which the Registrar is authorized by law or executive order to close. "Certificate" or "Certificates" means the City of Baytown, Texas, Combination Tax and Revenue Certificates of Obligation, Series 1996 authorized in this Ordinance, unless the context clearly indicates otherwise. "City" means the City of Baytown, Texas. 960912 -1a "Code" means the Internal Revenue Code of 1986, as amended. "Comptroller" means the Comptroller of Public Accounts of the State of Texas. "Construction Fund "shall mean the construction fund established by the City pursuant to Section 27 of this Ordinance. "Interest Payment Date ", when used in connection with any Certificate, means February 1, 1997, and each August 1 and February 1 thereafter until maturity or earlier redemption. "Issuance Date ", with respect to the Certificates initially delivered to TWDB, shall mean the date on which each such Certificate is authenticated by the Registrar and delivered to and paid for by TWDB. Certificates delivered on transfer of or in exchange for other Certificates shall bear the same Issuance Date as the Certificate or Certificates in lieu of or in exchange for which the new Certificate is delivered. "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. "Ordinance" as used herein and in the Certificates means this ordinance authorizing the Certificates. "Owner" means any person who shall be the registered owner of any outstanding Certificate. "Record Date" means, for any Interest Payment Date, the close of business on the fifteenth (15th) day of the month next preceding such 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 registered to each Owner. "Registrar" means Wells Fargo Bank (Texas), National, Association, Houston, Texas, and its successors in that capacity. "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. ® "TWDB" means the Texas Water Development Board. -2- 960912 -1b 3. Authorization. The Certificates shall be issued pursuant to the Acts in fully registered form, without coupons, in the total authorized principal amount of Four Million Six Hundred Eighty Thousand Dollars ($4,680,000) for the purpose of evidencing the indebtedness of the City for all or any part of the cost of constructing improvements to the City's waterworks and sanitary sewer system, and the cost of professional services incurred in connection therewith. 4. Designation. Date_ and Interest Payment Dates. The Certificates shall be designated as the "CITY OF BAYTOWN, TEXAS, COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 1996 ", and shall be dated October 1, 1996. The Certificates shall bear interest at the rates set out in Section 5 of this Ordinance, from the later of the Issuance Date 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. 5. . The Certificates shall be issued bearing the numbers, in the principal amounts, and bearing interest at the rates set forth in the following schedule, and may be transferred and exchanged as set out in this Ordinance. The Certificates shall mature on February l in each of the years and in the amounts set out in such schedule. Certificates delivered on transfer of or in exchange for other Certificates 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 Certificate or Certificates in lieu of which they are delivered. Certificate Principal Interest Number— YM Amount Rate R- 1 1998 $125,000 3.200% R- 2 1999 135,000 3.400% R- 3 2000 145,000 3.550% R- 4 2001 150,000 3.650% R- 5 2002 160,000 3.750% R- 6 2003 170,000 3.850% R- 7 2004 180,000 3.950% R- 8 2005 190,000 4.050% R- 9 2006 205,000 4.150% R -10 2007 215,000 4.250% R -11 2008 230,000 4.350% R -12 2009 240,000 4.450% R -13 2010 255,000 4.550% R -14 2011 270,000 4.650% R -15 2012 285,000 4.700% R -16 2013 305,000 4.750% R -17 2014 325,000 4.800% R -18 2015 345,000 4.850% R -19 2016 365,000 4.850% ® R -20 2017 385,000 4.900% -3- 960912 -1c 6. Execution of Certificates: Seal. The Certificates shall be signed by the Mayor of the City and countersigned by the City Clerk of the City, by their manual, lithographed, or facsimile signatures, and the official seal of the City shall be impressed or placed in facsimile thereon. Such facsimile signatures on the Certificates shall have the same effect as if each of the Certificates had been signed manually and in person . by each of said officers, and such facsimile seal on the Certificates shall have the same effect as if the official seal of the City had been manually impressed upon each of the Certificates. If any officer of the City whose manual or facsimile signature shall appear on the Certificates shall cease to be such officer before the authentication of such Certificates or before the delivery of such Certificates, such manual or facsimile signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in such office. 7. Approval by Attorney General: Registration by Comptroller. The Certificates to be initially issued shall be delivered to the Attorney General of Texas for approval and shall be registered by the Comptroller. The manually executed registration certificate of the Comptroller substantially in the form provided in Section 17 of this Ordinance shall be attached or affixed to the Certificates to be initially issued. 8. Authentication. Except for the Certificates to be initially issued, which need not be authenticated by the Registrar, only Certificates which bear thereon a certificate of authentication, substantially in the form provided in Section 17 of this Ordinance, manually executed by an authorized representative of the Registrar, shall be entitled to the benefits of this Ordinance or shall be valid or obligatory for any purpose._ Such duly executed certificate of authentication shall be conclusive evidence that the Certificates so authenticated were delivered by the Registrar hereunder. The Registrar, when it authenticates a Certificate, shall cause the Issuance Date to be stamped, typed or imprinted on such Certificate. Certificates issued on transfer of or in exchange for other Certificates shall bear the same Issuance Date as the Certificate or Certificates presented for transfer or exchange. 9. Payment of Principal and Interest. The Registrar is hereby appointed as the paying agent for the Certificates. The principal of the Certificates shall be payable, without exchange or collection charges, in any coin or currency of the United States of America which, on the date of payment, is legal tender for the payment of debts'due the United States of America, upon their presentation and surrender as they become due and payable at the corporate trust office of the Registrar in Houston, Texas. The interest on each Certificate 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; provided, however, that for so long as the TWDB is the Owner of the Certificates, all payments of principal and interest will be made in wire transfer form at no cost to the TVJDB. If the date for payment of the principal of or interest on any Certificate is not a Business Day, then the date for such payment shall be the next succeeding Business Day, with the same force and effect as if made on the original date payment was due. -4- 960912 -1d 10. Successor Registrars. The City covenants that at all times while any Certificates are ® outstanding it will provide a commercial bank or trust company, organized under the laws of the United States or any which is duly qualified and legally authorized to serve as and perform the duties and services of Registrar for the Certificates. The, City reserves the right to change the Registrar 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 Certificates. Promptly upon the appointment of any successor Registrar, the previous Registrar `shall deliver the Register or copies 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. 11. Special Record ate. If interest on any Certificate 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 City. Such Special Record Date shall be fifteen (15) days prior to the date fixed for payment of such past due interest, and notice of the date of payment and the Special Record Date shall be sent by United States mail, first class postage prepaid, not later than five (5) days prior to the Special Record Date, to each affected Owner of record as of the close of business on the day prior to the mailing of such notice. 12. Owners 'p: Unclaimed Principal and Interest. The City, the Registrar and any other person may treat the person in whose name any Certificate is registered as the absolute Owner of such Certificate for the purpose of making payment of principal or interest on such Certificate, and for all other purposes, whether or not such Certificate is overdue, and neither the City 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 Certificate in accordance with this Section 12 shall be valid and effectual and shall discharge the liability of the City and the Registrar upon such Certificate to the extent of the sums paid. Amounts held by the Registrar which represent principal of and interest on the Certificates 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. 13. . So long as any Certificates remain outstanding, the Registrar shall keep the Register at its corporate trust office in Houston, Texas, and, subject to such reasonable regulations as it may prescribe, the Registrar shall provide for the registration and transfer of Certificates in accordance with the terms of this Ordinance. The Issuance Date of each Certificate originally delivered to and paid for by TWDB shall be recorded in the Register. ® Each Certificate shall be transferable only upon the presentation and surrender thereof at the corporate trust office of the Registrar in Houstson, Texas, duly endorsed for transfer, or accompanied -5- 960912 -1e by an assignment duly executed by the registered Owner or his authorized representative in form ® satisfactory to the Registrar. Upon due presentation of any Certificate for transfer, the Registrar shall authenticate and deliver in exchange therefor, within three (3) Business Days after such presentation, a new Certificate or Certificates, registered in the name of the transferee or transferees, in authorized denominations and of the same maturity, aggregate principal amount, and Issuance Date, bearing interest at the same rate as the Certificate or Certificates so presented. All Certificates shall be exchangeable upon presentation and surrender thereof at the corporate trust office of the Registrar in Houston, Texas, for a Certificate or Certificates of the same maturity, Issuance Date, and interest rate and in any authorized denomination, in an aggregate principal amount equal to the unpaid principal amount of the Certificate or Certificates presented for exchange. The Registrar shall be and is hereby authorized to authenticate and deliver exchange Certificates in accordance with the provisions of this Section 13. Each Certificate delivered in accordance with this Section 13 shall be entitled to the benefits and security of this Ordinance to the same extent as the Certificate or Certificates in lieu of which such Certificate is delivered. The City or the Registrar may require the Owner of any Certificate 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 Certificate. Any fee or charge of the Registrar for such transfer or exchange shall be paid by the City. 14. Mutilated, Lost} or Stolen Certificates. Upon the presentation and surrender to the Registrar of a mutilated Certificate, the Registrar shall authenticate and deliver in exchange therefor a replacement Certificate of like maturity, Issuance Date, interest rate and principal amount, bearing a number not contemporaneously outstanding. If any Certificate is lost, apparently destroyed, or wrongfully taken, the City, pursuant to the applicable laws of the State of Texas and in the absence of notice or knowledge that such Certificate has been acquired by a bona fide purchaser, shall authorize and the Registrar shall authenticate and deliver a replacement Certificate of like maturity, Issuance Date, interest rate and principal amount, bearing a number not contemporaneously outstanding. The City or the Registrar may require the Owner of a mutilated Certificate 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. The City or the Registrar may require the Owner of a lost, apparently destroyed or wrongfully taken Certificate, before any replacement Certificate is issued, to: (1) furnish to the City and the Registrar satisfactory evidence of the ownership of and the circumstances of the loss, destruction or theft of such Certificate; (2) furnish such security or indemnity as may be required by the Registrar and the City to save them harmless; W 9b091Z -1t (3) pay all expenses and charges in connection therewith, including, but ® not limited to, printing costs, legal fees, fees of the Registrar and any tax or other governmental charge that may be imposed; and (4) meet any other reasonable requirements of the City and the Registrar. If, after the delivery of such replacement Certificate, a bona fide purchaser of the original Certificate in lieu of which such replacement Certificate was issued presents for payment such original Certificate, the City and the Registrar shall be entitled to recover such replacement Certificate from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the City or the Registrar in connection therewith. If any such mutilated, lost, apparently destroyed or wrongfully taken Certificate has become or is about to become due and payable, the City in its discretion may, instead of issuing a replacement Certificate, authorize the Registrar to pay such Certificate. Each replacement Certificate delivered in accordance with this Section 14 shall be entitled to the benefits and security of this Ordinance to the same extent as the Certificate or Certificates in lieu of which such replacement Certificate is delivered. 15. Cancellation of Cglificates. All Certificates paid in accordance with this Ordinance, and all Certificates in lieu of which exchange Certificates or replacement Certificates are authenticated and delivered in accordance herewith, shall be canceled and destroyed upon the making of proper records regarding such payment. The Registrar shall furnish the City with appropriate certificates of destruction of such Certificates. 16. Optional Rede ptio . The City reserves the right to redeem Certificates prior to maturity, in whole or from time to time in part, in inverse order of maturity, on February 1, 2006, or any date thereafter, at a price of par plus accrued interest on the Certificates called for redemption to the date fixed for redemption. If less than all of the Certificates are redeemed, the particular Certificates or portions thereof to be redeemed shall be selected by the City. Principal amounts may be redeemed only in integral multiples of $5,000. If a Certificate subject to redemption is in a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of $5,000. Upon surrender of any Certificate for redemption in part, the Registrar, in accordance with Section 13 hereof, shall authenticate and deliver in exchange therefor a Certificate or Certificates of like maturity, Issuance Date, and interest rate in an aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered. Unless waived by an Owner, notice of any redemption identifying the Certificates 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 Certificate 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 Certificates are to be -7- 960912 -1g surrendered for payment and, if less than all Certificates outstanding of a particular maturity are to be redeemed, the numbers of the Certificates 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 Certificates or portions thereof to be redeemed, plus accrued interest to the date fixed for redemption. When Certificates have been called for redemption in whole or in part and due provision has been made to redeem the same as herein provided, the Certificates 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 Certificate or portion thereof called for redemption shall terminate on the date fixed for redemption. 17. Fes. The form of the Certificates, including the form of the Registrar's Authentication Certificate, the form of Assignment, the form of Insurance Legend, and the form of Registration Certificate of the Comptroller shall be, respectively, substantially as follows, with such additions, deletions and variations as may be necessary or desirable and not prohibited by this Ordinance: NUMBER R- REGISTERED (Face of Certificate) UNITED STATES OF AMERICA STATE OF TEXAS COUNTIES OF HARRIS AND CHAMBERS CITY OF BAYTOWN, TEXAS COMBINATION TAX AND REVENUE DENOMINATION REGISTERED CERTIFICATE OF OBLIGATION SERIES 1996 INTEREST RATE: MATURITY DATE: ISSUANCE DATE: CUSIP: REGISTERED OWNER: PRINCIPAL AMOUNT: DOLLARS THE CITY OF BAYTOWN, TEXAS (the "City") promises to pay to the registered owner identified above, or registered assigns, on the maturity date specified above, upon presentation and -8- • 960912 -1h surrender of this Certificate at the corporate trust office of Wells Fargo Bank (Texas), National Association, Houston, Texas (the "Registrar "), the principal amount identified above, payable in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due the United States of America, and to pay 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 the Issuance Date identified above, or the most recent interest payment date to which interest has been paid or duly provided for. The date of this Certificate is October 1, 1996, but interest shall accrue on the principal amount hereof from the Issuance Date. Interest on this Certificate is payable by check on February 1, 1997, and semiannually thereafter on each February 1 and October 1, mailed to the registered owner as shown on the books of registration kept by the Registrar as of the close of business on the fifteenth (15th) day of the month next preceding each interest payment date; provided, however, that for so long as the Texas Water Development Board is the Owner of the Certificates, all payments of principal and interest will be made in wire transfer form at no cost to the Texas Water Development Board. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS CERTIFICATE SET FORTH ON THE REVERSE HEREOF, WHICH PROVISIONS SHALL HAVE THE SAME FORCE AND EFFECT AS IF SET FORTH AT THIS PLACE. IN WITNESS WHEREOF, this Certificate has been signed with the manual or facsimile signature of the Mayor of the City and countersigned with the manual or facsimile signature of the City Clerk of the City, and the official seal of the City has been duly impressed, or placed in facsimile, on this Certificate. (AUTHENTICATION CERTIFICATE) (SEAL) CITY OF BAYTOWN, TEXAS 10 Mayor City Clerk 960912 -1i (Back Panel of Certificate) THIS CERTIFICATE is one of a duly authorized issue of certificates of obligation, aggregating $4,680,000 (the "Certificates "), issued in accordance with the Constitution and laws of the State of Texas, particularly Chapter 271, Texas Local Government Code, as amended, for the purpose of evidencing the indebtedness of the City for all or any part of the cost of constructing improvements to the City's waterworks and sanitary sewer system, and the cost of professional services incurred in connection therewith, pursuant to an ordinance duly adopted by the City Council of the City (the "Ordinance "), which Ordinance is of record in the official minutes of the City Council. THIS CERTIFICATE is transferable only upon presentation and surrender at the corporate trust office of the Registrar in Houston, 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 Ordinance. THE CERTIFICATES are exchangeable at the corporate trust office of the Registrar in Houston, Texas, for Certificates in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Ordinance. THIS CERTIFICATE shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Certificate is either (i) registered by the Comptroller of Public Accounts of the State of Texas by registration certificate attached or affixed hereto or (ii) authenticated by the Registrar by due execution of the authentication certificate endorsed hereon. THE REGISTERED OWNER of this Certificate, by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Ordinance. THE CITY has covenanted in the Ordinance that it will at all times provide a legally qualified registrar for the Certificates and will cause notice of any change of registrar to be mailed to each registered owner. IT IS HEREBY certified, recited and covenanted that this Certificate has been duly and validly issued and delivered; that all acts, conditions and things required or proper to be performed, to exist and to be done precedent to or in the issuance and delivery of this Certificate have been performed, exist and have been done in accordance with law; and that annual ad valorem taxes, within the limits prescribed by law, sufficient to provide for the payment of the interest on and principal of this Certificate, as such interest comes due and such principal matures, have been levied and ordered to be levied against all taxable property in the City. IT IS FURTHER certified, recited and represented that the revenues to be derived from the operation of the City's waterworks and sanitary sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues "), are pledged to the payment of the principal of and interest on the Certificates to the extent that taxes may ever be insufficient or unavailable for said purpose; provided, however, that such pledge is junior and subordinate in all respects to the -10- 960912 -1j pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of Net Revenues to the payment of the Certificates. The City also reserves the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind payable in whole or in part from the Net Revenues of its waterworks and sanitary sewer system, secured by a pledge of the Net Revenues that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. COMPTROLLER'S REGISTRATION CERTIFICATE: REGISTER NO. I hereby certify that this Certificate has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Certificate has been registered by the Comptroller of Public Accounts of the State of Texas. WITNESS MY SIGNATURE AND SEAL this (SEAL) • xxxxxxxxxxxx Comptroller of Public Accounts of the State of Texas 6T4701 a -• WRIM, m1 i AUTHENTICATION CERTIFICATE It is hereby certified that this Certificate has been delivered pursuant to the Ordinance described in the text of this Certificate. Wells Fargo Bank (Texas), National Association By Authorized Signature Date of Authentication -11- 960912 -1k Form of Assigamen 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 Certificate and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer said Certificate on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature Guaranteed: Registered Owner NOTICE: The signature above must correspond to the name of the registered owner as shown on the face of this NOTICE: Signature must be Certificate in every particular, without guaranteed by a member firm of the any alteration, enlargement or change New York Stock Exchange or a whatsoever. commercial bank or trust company. Form of Insurance Legend Financial Security Assurance Inc. ( "Financial Security "), New York, New York, has delivered its insurance policy with respect to the scheduled payments due of principal of.and interest on this Certificate to Wells Fargo (Texas), National Association, Houston, Texas, or its successor, as paying agent for the Certificates (the "Paying Agent "). Said Policy is on file and available for inspection at the principal office of the Paying Agent and a copy thereof may be obtained from Financial Security or the Paying Agent. 18. . The approving opinion of Vinson & Elkins L.L.P., Houston, Texas, and CUSIP Numbers may be printed on the Certificates, but errors or omissions in the printing of such opinion or such numbers shall have no effect on the validity of the Certificates. The purchase of and payment of the premium for municipal bond insurance by the City, in accordance with the terms of a commitment for such insurance presented to and hereby approved by the City Council is hereby authorized. All officials and representatives of the City are authorized and directed to execute such documents and to do any and all things necessary or desirable to obtain such insurance, and the printing on the Certificates of an appropriate legend regarding such insurance is hereby approved. -12- 960912 -11 19. Interest and Sinking Fund, Tax Levy. The proceeds from all taxes levied, assessed and ® collected for and on account of the Certificates authorized by this Ordinance shall be deposited, as collected, in a special fund to be designated "City of Baytown, Texas, Combination Tax and Revenue Certificates of Obligation, Series 1996 Interest and Sinking Fund ": While the Certificates or any part of the principal thereof or interest thereon remain outstanding and unpaid, there is hereby levied and there shall be annually levied, assessed and collected in due time, form and manner, and at the same time other City taxes are levied, assessed and collected, in each year, beginning with the current year, a continuing direct annual ad valorem tax, within the limits prescribed by law, upon all taxable property in the City sufficient to pay the current interest on the Certificates as the same becomes due, and to provide and maintain a sinking fund adequate to pay the principal of the Certifi- cates as such principal matures, but never less than two percent (2 %) of the original principal amount of the Certificates each year, full allowance being made for delinquencies and costs of collection, and such taxes when collected shall be applied to the payment of the interest on and principal of the Certificates and to no other purpose. 20. Pledge of Revenues. The revenues to be derived from the operation of the City's waterworks and sanitary sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues "), are hereby pledged to the payment of the principal of and interest on the Certificates as the same come due, to the extent that the taxes mentioned in Section 19 of this Ordinance may ever be insufficient or unavailable for said purpose; provided, however, that such pledge is and shall be j unior and subordinate in all respects to the pledge of the Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. The City also reserves the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind payable in whole or in part from the Net Revenues, secured by a pledge of the Net Revenues that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing this series of Certificates. 21. Further Proceedings. After the Certificates to be initially issued have been executed, it shall be the duty of the Mayor of the City to deliver the Certificates to be initially issued and all pertinent records and proceedings to the Attorney General of Texas, for examination and approval. After the Certificates to be initially issued have been approved by the Attorney General, they shall be delivered to the Comptroller for registration. Upon registration of the Certificates to be initially issued, the Comptroller (or a deputy lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's Registration Certificate prescribed herein to be affixed or attached to the Certificates to be initially issued, and the seal of said Comptroller shall be impressed, or placed in facsimile, thereon. 22. &g. The Certificates are hereby sold and shall be delivered to TWDB at a price of par, subject to the approval of the Attorney General of Texas and Vinson & Elkins L.L.P., bond counsel. The Mayor and other appropriate officers, agents and representatives of the City are hereby authorized to do any and all things necessary or desirable to provide for the issuance and delivery 0 of the Certificates. -13- 960912 -1m 23. Books and Records. So long as any of the Certificates are outstanding the City covenants • and agrees that it will keep proper books of record and account in which full, true and correct entries will be made of all transactions relating to the Certificates and the funds created pursuant to this Ordinance, and all books, documents and vouchers relating thereto shall at all reasonable times be made available for inspection upon request of any Owner. 24. Tax Exemption. (a) General Tax Covenant. The City intends that the interest on the Certificates shall be excludable from gross income for purposes of federal income taxation pursuant to sections 103 and 141 through 150 of the Code, and applicable regulations. The City 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 Certificates to be includable in gross income, as defined in section 61 of the Code, of the holders thereof for purposes of federal income taxation. In particular, the City covenants and agrees to comply with each requirement of this Section; provided, however, that the City shall not be required to comply with any particular requirement of this Section if the City 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 Certificates or if the City 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, 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) Use of Proceeds. The City covenants and agrees that its use of the Net Proceeds of the Certificates will at all times satisfy the following requirements: (i) The City will limit the amount of original or investment proceeds of the Certificates to be used (other than use as a member of the general public) in the trade or business of any person other than a governmental unit to an amount aggregating no more than ten percent of the Net Proceeds of the Certificates ( "private -use proceeds "). For purposes of this Section, the term "person" includes any individual, corporation, partnership, unincorporated association, or any other entity capable of carrying on a trade or business; and the term "trade or business" means, with respect to any natural person, any activity regularly carried on for profit and, with respect to persons other than natural persons, any activity other than an activity carried on by a governmental unit. Any use of proceeds of the Certificates in any manner contrary to the guidelines set forth in Revenue Procedure 93 -19, including any revisions or amendments thereto, shall constitute the use of such proceeds in the trade or business of one who is not a governmental unit; (ii) The City will not permit more than five percent of the Net Proceeds of the Certificates to be used in the trade or business of any person other than a governmental unit if such use is unrelated to the governmental purpose of the Certificates. Further, the amount of private -use proceeds of the Certificates in excess ® of five percent of the Net Proceeds of the Certificates ( "excess private -use proceeds ") -14- 960912 -1n will not exceed the proceeds of the Certificates expended for the governmental ® purpose of the Certificates to which such excess private -use proceeds relate; (iii) The City will not permit an amount of proceeds of the Certificates exceeding the lesser of (a) $5,000,000 or (b) five percent of the Net Proceeds of the Certificates to be used, directly or indirectly, to finance loans to persons other than governmental units. When used in this Section, the term Net Proceeds of the Certificates shall mean the proceeds from the sale of the Certificates, including investment earnings on such proceeds, less accrued interest. (c) No Federal Quarmty. The City 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 Certificates to be "federally guaranteed" within the meaning of section 149(b) of the Code and applicable regulations thereunder, except as permitted by section 149(b)(3) of the Code and such regulations. (d) Certificates are Not Hedge Bonds. The City covenants and agrees that not more than 50 percent of the proceeds of the Certificates will be invested in nonpurpose investments (as defined in section 148(f)(6)(A) of the Code) having a substantially guaranteed yield for four years or more within the meaning of section 149(g)(3)(A)(ii) of the Code, and the City reasonably expects that at least 85 percent of the spendable proceeds of the Certificates will be used to carry out the governmental purpose of the Certificates within the three -year period beginning on the date the Certificates are issued. (e) No- Arbitrage Covenant. The City 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 Certificates are delivered, the City will reasonably expect that the proceeds of the Certificates will not be used in a manner that would cause the Certificates to be "arbitrage bonds" within the meaning of section 148(a) of the Code and applicable regulations thereunder. Moreover, the City covenants and agrees that it will make such use of the proceeds of the Certificates including interest or other investment income derived from Certificate proceeds, regulate investments of proceeds of the Certificates, and take such other and further action as may be required so that the Certificates will not be "arbitrage bonds" within the meaning of section 148(a) of the Code and applicable regulations thereunder. (f) Arbitrage Rebate. The City expects to qualify for an exception to the requirements of the Code relating to rebate to the United States, because the City will use at least 95% of the Net Proceeds of the Certificates for local governmental activities of the City and expects that the total of all tax- exempt obligations (excluding "private activity" bonds) issued by or attributable to the City during calendar year 1996 will not exceed $5,000,000. If the City does not qualify for such exception, the City will take all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the "gross proceeds" of the Certificates (within the meaning ® of section 148(f)(6)(B) of the Code), be rebated to the federal government. Specifically, the City will (i) maintain records regarding the investment of the gross proceeds of the Certificates as may -15- 960912 -10 be required to calculate the amount earned on the investment of the gross proceeds of the Certificates ® separately from records of amounts on deposit in the funds and accounts of the City allocable to other obligations of the City or moneys which do not represent gross proceeds of any obligations of the City, (ii) calculate at such times as are required by applicable regulations, the amount earned from the investment of the gross proceeds of the Certificates which is required to be rebated to the federal government, and (iii) pay, not less often than every fifth anniversary date of the Issuance Date of the first Certificate delivered to TWDB and within sixty days following retirement of the Certificates, all amounts required to be rebated to the federal government. Further, the City will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Certificates 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 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 City 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 Issuance Date of the first Certificate delivered to the Purchaser occurs, an information statement concerning the Certificates, all under and in accordance with section 149(e) of the Code and applicable regulations thereunder. (h) Continuing Obligatio . Notwithstanding any other provision of this Ordinance, the City's obligations under the covenants and provisions of this Section shall survive the defeasance and discharge of the Certificates. 25. Qualified Tax - Exempt Obligations. The City hereby designates the Certificates as "qualified tax- exempt obligations" for purposes of section 265(b) of the Code. In connection therewith, the City represents (a) that the aggregate amount of tax- exempt obligations issued by the City during calendar year 1996, including the Certificates, which have been designated as "qualified tax- exempt obligations" under section 265(b)(3) of the Code does not exceed $10,000,000, and (b) that the reasonably anticipated amount of tax- exempt obligations which will be issued by the City during calendar year 1996, including the Certificates, will not exceed $10,000,000. For purposes of this Section, the term "tax- exempt obligation" does not include "private activity bonds" within the meaning of section 141 of the Code, other than "qualified 501(0)(3) bonds" within the meaning of section 145 of the Code. In addition, for purposes of this Section, the City includes all entities which are aggregated with the City under the Code. 26. Escrow Agreement. To facilitate the delivery of and payment for the Certificates pending completion of review of plans and specifications, the City Council hereby authorizes an Escrow Agreement to be entered into by and between the City and Wells Fargo Bank (Texas), National Association, Houston, Texas, as Escrow Agent, which shall be substantially in the form attached hereto as Exhibit A, the terms and conditions of which are hereby approved, subject to such insertions, additions, and modifications as shall be necessary to comply with all applicable laws, ® regulations, and procedures and to carry out the intent and purposes of this Ordinance. The Mayor -16- 960912 -1p or Mayor Pro Tern and the City Clerk or Assistant City Clerk are authorized to execute and deliver 40 such Escrow Agreement in multiple counterparts on behalf of the City. • 27. Construction Fund. There is hereby created and established a special fund of the City, to be known as the "City of Baytown, Texas, Combination Tax and Revenue Certificates of Obligation, Series 1996 Construction Fund ", which shall be established at an official depository of the City and kept separate and apart from other funds of the City. The proceeds of the Certificates, as received, shall be deposited in the Construction Fund. Money on deposit in the Construction Fund shall be used only for the purposes set forth in Section 3 of this Ordinance and to pay costs of issuance. Money on deposit in the Construction Fund, may, at the option of the City, be invested as permitted by Texas law; provided that all such deposits and investments shall be made in such manner that the money required to be expended from the Construction Fund will be available at the proper time or times. All interest and income derived from such deposits and investments shall be used for the purposes set forth in Section 3 of this Ordinance and to pay the costs of issuing the Certificates. 28. TWDB Rules. In compliance with the published rules and regulations of TWDB, the City covenants and agrees that upon final completion of the project to be financed with the proceeds of the Certificates, and if all or any portion of the Certificates shall be held by or on account of TWDB or the State of Texas, the proper officials of the City shall render due and final accounting to TWDB of the total cost of the project. If, following completion of the project, funds remain on hand in the Construction Fund, or if the Development Fund Manager disapproves construction of any portion of the project as not being in accordance with the plans and specifications, the City shall, immediately after filing the final accounting, return to TWDB the amount of such excess and/or the cost as determined by the Development Fund Manager relating to the parts of the project not constructed in accordance with the plans and specifications, to the nearest multiple of $5,000, and TWDB shall thereupon cancel and deliver to the City, in inverse maturity order, a like amount of Certificates held by TWDB. Any further amounts remaining in the City's Construction Fund thereafter shall be promptly deposited by the City into the Interest and Sinking Fund and applied to the payment of the principal of and interest on the Certificates. Unless otherwise stated in the loan commitment of TWDB with respect to the purchase of the Certificates, in determining the amount of available funds for constructing the project to be financed, the City shall account for all monies in the Construction Fund, including all loan funds extended by TWDB, all other funds available from the project as described in the project engineer's sufficiency of funds statement required for closing TWDB's loan and all interest earned by the City on money in the Construction Fund. This requirement shall not be interpreted as prohibiting TWDB from enforcing such other rights as it may have under law. 29. A gW. So long as any of the Certificates are held by TWDB, the City shall provide to TWDB's Development Fund Manager a copy of an annual audit of the City's finances. 30. Fl =. The City covenants that "as built" plans shall be provided to TWDB, and that so long as any Certificates are held by TWDB it will abide by TWDB's rules and the relevant statutes of the State of Texas, including Chapters 15, 16 and 17, Texas Water Code. -17- 960912 -1q 31. Conservation Program. The City covenants that to the extent required by TWDB, the City ® will implement any water conservation program adopted by the City and approved by TWDB in connection with the sale of the Certificates to TWDB, together with any amendments to such program which are so adopted and approved, for so long as any outstanding Certificate or Certificates are owned by TWDB. 32. Environmental Determinations. The City covenants that to the extent required by TWDB, the City will comply with any special conditions specified by TWDB's environmental determination in connection with the sale of the Certificates to TWDB, for so long as any outstanding Certificate or Certificates are owned by the TWDB. 33. Compliance with Rules and Statutes. The City covenants that it will comply with TWDB's rules and relevant state statutes in connection with the sale of the Certificates to TWDB and the use of the proceeds in connection with the construction of improvements and extensions to the City's waterworks and sanitary sewer system project approved by TWDB. 34. Continuing Disclosure 11ndertaking. (a) Annual Reports. The City shall provide annually to each NRMSIR and the SID, within six months after the end of each fiscal year ending in or after 1996, financial information and operating data with respect to the City of the general type included in the City's Audit Report. The information to be provided shall include the complete financial statements of the City prepared in accordance with the accounting principles the City may be required to employ from time to time pursuant to State law or regulation and shall be audited, if the audit is completed within the period, during which they must be provided. If the audit of such financial statements is not complete within such period, then the City shall provide unaudited financial statements for the applicable fiscal year to each NRMSIR and the SID within such six month period, and audited financial statements when the audit report on such statements becomes available. If the City 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 City otherwise would be required to provide financial information and operating data pursuant to this Section. The financial information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to each NRMSIR and the SID or filed with the SEC. (b) Material Event Notices. The City 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 Certificates, 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; -18- 960912 -1r D. Unscheduled draws on credit enhancements reflecting financial difficulties; E. Substitution of credit or liquidity providers, or their failure to perform; F. Adverse tax opinions or events affecting the tax- exempt status of the Certificates; G. Modifications to rights of holders of the Certificates; H. Certificate calls; I. Defeasances; J. Release, substitution, or sale of property securing repayment of the Certificates; and K. Rating changes. The City shall notify the SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with Section 9.1(a) of this Ordinance by the time required by such Section. (c) Limitations, Disclaimers. and Amendments. The City shall be obligated to observe and perform the covenants specified in this Section for so long as, but only for so long as, the City remains an "obligated person" with respect to the Certificates within the meaning of the Rule, except that the City in any event will give notice of any deposit made in accordance with Texas law that causes Certificates no longer to be outstanding. The provisions of this Section are for the sole benefit of the holders and beneficial owners of the Certificates and the beneficial owners of the TWDB's bonds if the City is an obligated person with respect to the TWDB's bonds under the Rule, 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 City 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 City'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 Certificates at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY CERTIFICATE OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS 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. -19- 960912 -1s No default by the City in observing or performing its obligations under this Section shall comprise a breach of or default under this Ordinance for purposes of any other provision of this Ordinance. Nothing in this Section is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. The provisions of this Section may be amended by the City from time to time to adapt 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 City, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Certificates in the original primary offering in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Certificates consent to such amendment, or (b) any person unaffiliated with the City (such as nationally recognized bond counsel), determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Certificates. If any such amendment is made, the City will include in its next annual update an explanation in narrative form of the reasons for the amendment and its impact on the type of operating data or financial information being provided. 35. Benefit of Section: Authorization and P=ose. In order to reduce the debt service requirements on the Certificates, the City is authorized to purchase the Bond Insurance Policy from the Bond Insurer in accordance with the provisions of its commitment to the City and as more fully provided in Section 36 below. The Mayor and City Manager are authorized and directed to take all action necessary to purchase such Bond Insurance Policy for the Certificates. In consideration for the Bond Insurer's issuance of the Bond Insurance Policy, the City hereby makes the agreements, covenants, provisions and representations set forth in this Section. 36. Special Provisions Relating to Bond Insurance Policy. (a) In the event of conflict with any other provisions of this Ordinance, the following provisions of this Section shall govern and control. (b) In this Section, the following terms shall have the following meanings: (i) "Bond Insurance Policy" shall mean the municipal bond insurance policy issued by the Bond Insurer guaranteeing the scheduled payment of principal of and interest on the Certificates. (ii) "Bond Insurer" shall mean Financial Security Assurance Inc., a New York stock insurance company, or any successor thereto. (iii) "Bondholder" shall mean Owner. (iv) "Event of Default" shall mean the failure to pay principal of and ® interest on the Certificates, insolvency proceedings regarding the Issuer, or the continued breach of any covenant by the Issuer -20- 960912 -1t hereunder following written notice thereof by the Bond Insurer to the Issuer and the Issuer's failure to cure the same within 60 days or such longer period as shall be reasonably necessary and agreed upon by the Bond Insurer. (v) "Issuer" shall mean the City, as issuer of the Certificates. (v) "Paying Agent" shall mean the Registrar. (c) The Bond Insurer shall be deemed to be the a& holder of the Certificates insured by it for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the holders of the Certificates insured by it are entitled to take pertaining to defaults and remedies. (d) Copies of any modification or amendment to the Ordinance shall be sent to Standard & Poor's Ratings Services, a division of The McGraw -Hill Companies, Inc. and Moody's Investors Service, Inc. at least 10 days prior to the effective date thereof. (e) The rights of the Bond Insurer to direct or consent to Issuer or Bondholder actions under the Ordinance shall be suspended during any period in which the Bond Insurer is in default in its payment obligations under the Bond Insurance Policy (except to the extent of amounts previously paid by the Bond Insurer and due and owing to the Bond Insurer) and shall be of no force or effect in the event the Bond Insurance Policy is no longer in effect or the Bond Insurer asserts that the Bond Insurance Policy is not in effect or the Bond Insurer shall have provided written notice that it waives such rights. (f) The rights granted to the Bond Insurer under the Ordinance to request, consent to or direct any action are rights granted to the Bond Insurer in consideration of its issuance of the Bond Insurance Policy. Any exercise by the Bond Insurer of such rights is merely an exercise of the Bond Insurer's contractual rights and shall not be construed or deemed to be taken for the benefit of or on behalf of the Bondholders nor does such action evidence any position of the Bond Insurer, positive or negative, as to whether Bondholder consent is required in addition to consent of the Bond Insurer. (g) Only (i) cash, (ii) non - callable direct obligations' of the United States of America ( "Treasuries'), (iii) evidences of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to whom the custodian may be obligated or (iv) pre - refunded municipal obligations rated "AAA" and "Aaa" by S &P and Moody's, respectively, or any combination thereof, shall be authorized to be used to effect defeasance of the Certificates unless the Bond Insurer otherwise approves. ® None of the Certificates shall be deemed defeased until the Issuer shall cause to be delivered (i) a report of an independent firm of nationally recognized certified public accountants or such other -21- 960912 -1u accountant as shall be acceptable to the Bond Insurer ( "Accountant ") verifying the sufficiently of ® the escrow established to pay the Certificates in full on the maturity or redemption date ( "Verification "), (ii) an Escrow Agreement (which shall be acceptable in form and substance to the Bond Insurer), and (iii) an opinion of nationally recognized bond counsel to the effect that the Certificates are no longer "Outstanding" under the Ordinance; each Verification and defeasance opinion shall be acceptable in form and substance, and addressed, to the Issuer and the Bond Insurer. In the event a forward purchase agreement will be employed in the refunding, such agreement shall be subject to the approval of the Bond Insurer and shall be accompanied by such opinions of counsel as may be required by the Bond Insurer. The Bond Insurer shall be provided with final drafts of the above - referenced documentation not less than five business days prior to the funding of the escrow. Certificates shall be deemed "Outstanding" under the Ordinance unless and until they are in fact paid and retired or the above criteria are met. (h) Certificate principal and interest paid by the Bond Insurer under the Bond Insurance Policy shall not be deemed paid for purposes of the Ordinance and shall remain Outstanding and continue to be due and owing until paid by the Issuer in accordance with the Ordinance. The Ordinance shall not be discharged unless all amounts due or to become due to the Bond Insurer have been paid in full or duly provided for. (i) If, on the third business day prior to the related scheduled interest payment date or principal payment date ( "Payment Date ") there is not on deposit with the Paying Agent, after making all transfers and deposits required under the Ordinance, moneys sufficient to pay the principal of and interest on the Certificates due on such payment date, the Paying Agent shall give notice to the Bond Insurer and to its designated agent (if any) (the "Insurer's Fiscal Agent ") by telephone or telecopy of the amount of such deficiency by 12:00 noon, New York City time, on such business date. If, on the second Business Day prior to the related payment date, there continues to be a deficiency in the amount available to pay the principal of and interest on the Certificates due on such payment date, the Paying Agent shall make a claim under the Bond Insurance Policy and give notice to the Bond Insurer and the Insurer's Fiscal Agent (if any) by telephone of the amount of such deficiency, and the allocation of such deficiency between the amount required to pay interest on the Certificates and the amount required to pay principal of the Certificates, confirmed in writing to the Bond Insurer and the Insurer's Fiscal Agent by 12:00 noon, New York City time; on such second Business Day by filling in the form of Notice of Claim and Certificate delivered with the Bond Insurance Policy.. In the event the claim to be made is for a mandatory sinking fund redemption installment, upon receipt of the moneys due, the Paying Agent shall authenticate and deliver to affected Bondholders who surrender their Certificates a new Certificate or Certificates in an aggregate principal amount equal to the unredeemed portion of the Certificate surrendered. The Paying Agent shall designate any portion of payment of principal on Certificates paid by the Bond Insurer, whether by virtue of mandatory sinking fund redemption, maturity or other advancement of maturity, on its books as a reduction in the principal amount of Certificates registered to the then current Bondholder, whether DTC or its nominee or otherwise, and shall issue a replacement Certificate to the Bond Insurer, registered in the name of Financial Security Assurance Inc., in a principal amount -22- 960912 -1v equal to the amount of principal so paid (without regard to authorized denominations); provided that the Paying Agent's failure to so designate any payment or issue any replacement certificate shall have no effect on the amount of principal or interest payable by the Issuer on any Certificate or the subrogation rights of the Bond Insurer. The Paying Agent shall keep a complete and accurate record of all funds deposited by the Bond Insurer into the Policy Payment Account and the allocation of such funds to payment of interest on and principal paid in respect to any Certificate. The Bond Insurer shall have the right to inspect such records at reasonable times upon reasonable notice to the Paying Agent. Upon payment of a claim under the Bond Insurance Policy the Paying Agent shall establish a separate special purpose trust account for the benefit of Bondholders referred to herein as the "Policy Payments Account" and over which the Paying Agent shall have exclusive control and sole right of withdrawal. The Paying Agent shall receive any amount paid under the Bond Insurance Policy in trust on behalf of Bondholders and shall deposit any such amount in the Policy Payments Account and distribute such amount only for purposes of making the payments for which a claim was made. Such amounts shall be disbursed by the Paying Agent to Bondholders in the same manner as principal and interest payments are to be made with respect to the Certificates under the sections hereof regarding payment of Certificates. It shall not be necessary for such payments to be made by checks or wire transfers separate from the check or wire transfer used to pay debt service with other funds available to make such payments. Funds held in the Policy Payments Account shall not be invested by the Paying Agent and may not be applied to satisfy any costs, expenses or liabilities of the Paying Agent. Any funds remaining in the Policy Payments Account following a Certificate payment date shall promptly be remitted to the Bond Insurer. 0) The Bond Insurer shall, to the extent it makes any payment of principal or interest on the Certificates, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Bond Insurance Policy. (k) The Issuer shall pay or reimburse the Bond Insurer any and all charges, fees, costs and expenses which the Bond Insurer may reasonably pay or incur in connection with (i) the administration, enforcement, defense or preservation of any rights or security in respect of the Ordinance or any other transaction document (each a "Related Document"), (ii) the pursuit of any remedies under the Ordinance or any other Related Document or otherwise afforded by law or equity, (iii) any amendment, waiver or other action with respect to, or related to, the Ordinance or any other Related Document whether or not executed or completed, (iv) the violation by the Issuer or the Obligor of any law, rule or regulation, or any judgment, order or decree applicable to it or (v) any litigation or other dispute in connection with the Ordinance or any other Related Document or the transactions contemplated thereby, other than amounts resulting from the failure of the Bond Insurer to honor its obligations under the Bond Insurance Policy. The Bond Insurer reserves the ® right to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect of the Ordinance or any other Related Document. -23- 960912 -1w (1) The Bond Insurer shall be entitled to pay principal or interest on the Certificates that shall ® become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer (as such terms are defined in the Bond Insurance Policy) and any amounts due on the Certificates as a result of acceleration of the maturity thereof in accordance with the Ordinance, whether or not the Bond Insurer has received a Notice (as defined in the Bond Insurance Policy) of Nonpayment or a claim upon the Bond Insurance Policy. n (m) The notice address of the Bond Insurer is: Financial Security Assurance Inc., 350 Park Avenue, New York, New York 10022 -6022, Attention: Managing Director -- Surveillance. - -Re: Policy No. Telephone: (212)826 -0100; Telecopier: (212)339 -3529. In each case in which notice or other communication refers to an Event of Default or with respect to which failure on the part of the Bond Insurer to respond shall be deemed to constitute consent or acceptance, then a copy of such notice or other communication shall also be sent to the attention of General Counsel and shall be marked to indicate "URGENT MATERIAL ENCLOSED." (n) The Bond Insurer shall be provided with the following information: (i) Annual audited financial statements within 120 days after the end of the Issuer's fiscal year and the Issuer's annual budget within 30 days after the approval thereof; (ii) Notice of any default known to the Paying Agent within five Business Days after knowledge thereof; (iii) Prior notice of the advance refunding or redemption of any of the Certificates, including the principal amount, maturities and CUSIP numbers thereof; (iv) Notice of the resignation or removal of the Paying Agent and the appointment of, and acceptance of duties by,. any successor thereto; (v) The commencement of any proceeding by or against the Issuer commenced under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an "Insolvency Proceeding "); (vi) The making of any claim in connection with any Insolvency Proceeding seeking the avoidance as a preferential transfer of any payment of principal of, or interest on, the Certificates; (vii) A full original transcript of all proceedings relating to the execution of any amendment or supplement to the Related Documents; and -24- . , 960912 -ix (viii) All reports, notices and correspondence to be delivered under ® the terms of the Related Documents. 37. Regis s. - The form of agreement setting forth the duties of the Registrar is hereby approved, and the appropriate officials of the City are hereby authorized to execute such agreement for and on behalf of the City. 38, No Personal Liability. No recourse shall be had for payment of the principal of or interest on any Certificates or for any claim based thereon, or on this Ordinance, against any official or employee of the City or any person executing any Certificates. 39. Onen Meeting. The meeting at which this Ordinance is adopted was open to the public, and public notice of the time, place and purpose of said meeting was given, all as required by the Texas Open Meetings Act; and such notice as given is hereby authorized, approved, adopted and ratified. PASSED AND APPROVED this 12th day of September, 1996. ATTEST: City Clerk CITY OF BAYTOWN, TEXAS (SEAL) • -25- _ r Mayor CITY OF BAYTOWN, TEXAS EXHIBIT A SPECIAL ESCROW DEPOSIT AGREEMENT THIS SPECIAL ESCROW DEPOSIT AGREEMENT, dated as of September 12, 1996, is made by and between the City of Baytown, Texas, a municipal corporation and home -rule city in Harris and Chambers Counties, Texas (the "City") acting by and through the Mayor and City Clerk of the City and Wells Fargo Bank (Texas), National Association, Houston, Texas, (the `Bank "), a banking association organized and existing under the laws of the United States of America. WITNESSETH: WHEREAS, pursuant to an ordinance finally adopted on September 12, 1996, the City Council of the City authorized the issuance of $4,680,000 Combination Tax and Revenue Certificates of Obligation, Series 1996 ", dated October 1, 1996 (the "Certificates ") for the purpose of constructing improvements to the City's waterworks and sanitary sewer system; and WHEREAS, such ordinance also confirmed the sale of the Certificates to the Texas Water Development Board (the "Board "); and WHEREAS, a condition to the purchase of the Certificates by the Board is the deposit of the proceeds of sale in escrow subject to being withdrawn only with the approval of the Development Fund Manager of the Board or an authorized representative; provided, however, the funds can be transferred to different investments so long as all parties hereto consent to such transfer; NOW, THEREFORE, the City and the Bank hereby mutually agree as follows: Section 1: Upon the delivery of the Certificates described above, the proceeds of sale shall be deposited to the credit of the Construction Fund referenced in the ordinance authorizing the issuance of the certificates to be maintained by the Bank on behalf of the City and the Board, and such amount deposited to the credit of such fund shall be held in escrow by the Bank in accordance with the terms of this Agreement. Section 2: The Bank shall not honor any disbursement from said fund unless and until it has been supplied with written approval and consent by the Development Fund Manager of the Board or an authorized represented to the release from escrow such funds, or portion thereof, .as the Board shall indicate in such release. No written approval and consent by the Development Fund Manager shall be required if the disbursement involves transferring funds from one investment to another. Notice reflecting the type of investments purchased for the Construction Fund shall be sent to the Development Fund Manager of the Board. Section 3: Any sums remaining unexpended after completion of the construction and after full and final payment of the facilities and improvements to be financed with the proceeds of the Certificates and after such facilities have been accepted by the City and the Board, shall be returned to the Board to the nearest multiple of $5,000, for the purpose of cancellation of a like amount of Certificates in inverse order of maturity, at par plus accrued interest to the date of redemption. Any remaining surplus thereafter shall be transferred to the credit of the Debt Service Fund referenced in the ordinance authorizing the issuance of the Certificates. Section 4: The Bank shall be authorized to accept and rely upon the certifications and documents furnished to the Bank by the City and shall not be liable for the payment of any funds in reliance in good faith upon such certificates or other evidence of approval as herein recited. Section: The Bank shall have no liability except as expressly set forth herein, and should a controversy arise either party hereto may introduce the dispute into a court of proper jurisdiction for adjudication thereof and the Bank shall not be liable for any costs and expenses in connection therewith, including reasonable attorney's fees. Section b: All cash deposited to the credit of such Construction Fund in excess of the amounts insured by the Federal Deposit Insurance Corporation and remaining uninvested under the terms of this Agreement shall be continuously secured by a valid pledge of securities authorized to secure such deposits under the Public Funds Collateral Act having an aggregate market value, exclusive of accrued interest, at all times, at least equal to the sums on deposit in said Bank. Section 7: While funds are held in such Construction Fund, the Bank, at the direction of the City, is authorized to invest such funds in direct obligations of the United States of America or other authorized investments for political subdivisions of the State of Texas. Section g: An account statement of the escrow account will be provided by the City to the Development Fund Manager's office upon request by the Development Fund Manager. Section 9: This Agreement may be amended from time to time as necessary with the consent of the City Council and the Board, but no such amendments shall increase the liabilities or responsibilities or diminish the rights of the Bank without its consent. Section 10: No provision hereof shall be construed to prevent the investment, in any manner prescribed by law, of any of the City's funds held in escrow under the terms of this Agreement. IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be executed by their duly authorized officers and their corporate seals to be hereunto affixed and attested as of the date first above written. -2- " I EXECUTED as of the date first written above. 0 CITY OF BAYTOWN, TEXAS ATTEST: City Clerk (SEAL) ATTEST: Title: (SEAL) u -3- I:A Mayor WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION Title