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BAWA Resolution No. 2012-05 RESOLUTION NO. 2012-05 RESOLUTION AUTHORIZING THE ISSUANCE OF THE BAYTOWN AREA WATER AUTHORITY WATER SUPPLY CONTRACT REVENUE AND REFUNDING BONDS, SERIES 2012 (CITY OF BAYTOWN PROJECT); AUTHORIZING THE REDEMPTION PRIOR TO MATURITY OF CERTAIN OUTSTANDING BONDS; APPROVING OTHER MATTERS RELATED THERETO; AND PROVIDING FOR THE EFFECTIVE DATE THEREOF WHEREAS, it is 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, and as codified in Chapter 8104,Texas Special District Local Laws Code; and WHEREAS, the Authority has heretofore issued the obligations described in Schedule I attached hereto; and WHEREAS, the Authority desires to refund all or part of said obligations (the"Refunded Bonds") in advance of their maturities; and WHEREAS, Chapter 1207, Texas Government Code, as amended and Chapter 8104, Texas Special District Local Laws Code (together, the "Act"), authorize the Authority to issue refunding bonds for the purpose of refunding the Refunded Bonds in advance of their maturities, and to accomplish such refunding by depositing directly with a paying agent for the Refunded Bonds (or other qualified escrow agent), the proceeds of such refunding bonds, together with other available funds, in an amount sufficient to provide for the payment or redemption of the Refunded Bonds, and provides that such deposit shall constitute the making of firm banking and financial arrangements for the discharge and final payment or redemption of the Refunded Bonds; and WHEREAS, upon the issuance of the refunding bonds herein authorized and the deposit of funds referred to above, the Refunded Bonds shall no longer be regarded as being outstanding, except for the purpose of being paid pursuant to such deposit, and the pledges, liens, trusts and all other covenants, provisions, terms and conditions of the resolution authorizing the issuance of the Refunded Bonds shall be, with respect to the Refunded Bonds; discharged, terminated and defeased; and WHEREAS, the Authority hereby finds and determines that the issuance and delivery of the refunding bonds hereinafter authorized is necessary and in the public interest and the use of the proceeds in the manner herein specified constitutes a valid public purpose; and WHEREAS, the Authority finds and determines that the refunding contemplated in this Resolution will benefit the Authority by providing a present value saving in the debt service payable by the Authority of approximately 15.21% of the principal amount of the Refunded Bonds, and that such benefit is sufficient consideration for the refunding of the Refunding Bonds and is in the best interests of the Authority; and #3968627.8 WHEREAS, Section 1207.004, Texas Government Code, as amended, provides for the issuance of refunding bonds in combination with new money bonds and with provision for the issuance of additional bonds; and WHEREAS, the Authority desires to issue, in combination with such refunding bonds, as authorized by the Act, bonds for the purpose of making, purchasing, constructing, leasing or otherwise acquiring, enlarging, expanding and modifying the Project (as hereinafter defined); and WHEREAS, pursuant to Section 49.18 1(h)(1)(D),Texas Water Code, the issuance of the bonds by the Authority is exempt from the requirements of Section 49.181, Texas Water Code; and WHEREAS, pursuant to Section 49.183(d), Texas Water Code, the Authority's issuance of the bonds is exempt from the requirements of Section 49.183(a)-(c),Texas Water Code; and WHEREAS, the meeting at which this Resolution is being considered is open to the public as required by law, and the public notice of time, place and purpose of said meeting was given as required by Chapter 551, Texas Government Code;NOW THEREFORE: BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE BAYTOWN AREA WATER AUTHORITY: ARTICLE I FINDINGS AND DETERMINATIONS Section 1. Findings. The declarations, determinations and findings declared, made and found in the preamble to this Resolution are hereby adopted, restated and made a part of the operative provisions hereof. 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 1207, Texas Government Code, as amended, and Chapter 8104, Texas Special District Local Laws Code. "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. #3968627.8 -2- "Baytown Contract" means that certain Amended and Restated Water Supply Contract for Treated Water, originally entered into on January 31, 1977, amended and restated as of October 23, 1997, as further amended pursuant to an ordinance of the City adopted on October 26, 2004, and as further amended as set forth in Article XI herein, 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. "Board"means the Board of Directors of the Authority. "Bond" means any of the Bonds. "Bonds" mean the Baytown Area Water Authority Water Supply Contract Revenue and Refunding Bonds, Series 2012 (City of Baytown Project), authorized by this Resolution. "Bond Counsel"means Bracewell &Giuliani LLP. "Business Day" means any day which is not a Saturday, Sunday, a legal holiday or a day on which banking institutions in the city where the office of the Registrar is located, are authorized by law or executive order to close. "Bond Purchase Agreement" means the agreement between the Authority and the Underwriters described in Section 7.1 of this Resolution. "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. "Debt Service Fund" means the interest and sinking fund for payment of the Bonds established by the Authority in Section 5.3 of this Resolution. "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. "Fiscal Year" means the fiscal year of the Authority as shall be set from time-to-time by the Board. "Houston Contract" means that certain Water Supply Contract dated October 24, 1994, as amended on January 3, 2005 and on or about October 18, 2006, between the Authority and the #3968627.8 -3- City of Houston, Texas ("Houston"), 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 3.5(d). "Interest Payment Date", when used in connection with any Bond, means November 1, 2012, and each November 1 and May 1 thereafter until maturity or prior redemption. "Outstanding Bonds" mean the Authority's Water Supply Contract Revenue Bonds, Series 2006 (City of Baytown Project) and Water Supply Contract Revenue Refunding Bonds, Series 2007 (City of Baytown Project). "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. "Pledged Revenues" mean the payments to be made by the City to the Authority pursuant to the Baytown Contract 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. The City is authorized to pay the Pledged Revenues pursuant to Section 402.020, Texas Local Government Code (recodified as Section 552.020, Texas Local Government Code). "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; #3968627.8 -4- (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, (e) origination fees, and (f) 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 costs 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 items related to the acquisition of the Project. "Project Fund" means the fund established by Section 5.2 of this Resolution to pay Project Costs. "Record Date"means, for any Interest Payment Date, the fifteenth(15th) calendar day of the month next preceding each Interest Payment Date. "Refunded Bonds" mean the bonds of the Authority described in Schedule I attached hereto. "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 The Bank of New York Mellon Trust Company, N.A., Dallas, Texas, 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. "Underwriters" means Coastal Securities, Inc. and Morgan Keegan& Company, Inc. 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 #3968627.8 -5- 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 in fully registered form, without coupons in the principal amount of$8,315,000 for the purposes of(i) refunding the Refunding Bonds, (ii) making, purchasing, constructing, leasing or otherwise acquiring, enlarging, expanding, and modifying the Project, and (iii) paying the costs of issuance in connection therewith, under and in strict conformity with the Constitution and laws of the State and the Act. Section 3.2. Designation, Date, and Interest Payment Dates. The Bonds shall be designated as "Baytown Area Water Authority Water Supply Contract Revenue and Refunding Bonds, Series 2012 (City of Baytown Project)," and shall be dated March 15, 2012. The Bonds shall bear interest payable on each Interest Payment Date at the rates set forth Section 3.3 of this Resolution from the latter 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 30-day months. 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 forth 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. Principal Interest Principal Interest Year Amount Rate Year Amount Rate 2013 $485,000 2.000% 2023 $300,000 2.500% 2014 510,000 2.000 2024 310,000 2.750 2015 520,000 2.000 2025 315,000 3.000 2016 535,000 2.000 2026 325,000 3.000 2017 540,000 2.000 2027 3355000 3.125 2018 550,000 2.000 2028 345,000 3.250 2019 570,000 2.000 2029 360,000 3.250 2020 580,000 2.000 2030 370,000 3.375 2021 290,000 2.000 2031 385,000 3.500 2022 295,000 2.375 2032 395,000 3.500 Section 3.4. Execution and Registration 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 #3968627.8 -6- Assistant 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, 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. (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 Underwriters or their designee, executed by manual or facsimile signature of the President of the Board of Directors and the Assistant Secretary of the Board of Directors, approved by the Attorney General, and registered and manually signed by the Comptroller, shall be delivered to the Underwriters or their designee. Upon payment for the Initial Bond,the Registrar shall cancel the Initial Bond and deliver definitive Bonds to DTC. To the extent the Registrar is eligible to participate in DTC's FAST system, as evidenced by an agreement between the Registrar and DTC, the Registrar shall hold the definitive bonds in safe keeping for the DTC. 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. 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. #3968627.8 -7- 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. 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. ReQistration, Transfer, and Exchange. So long as any Bonds remain outstanding, the Registrar shall keep the Register at its principal payment office 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 (or such other location as designated by the Registrar), duly endorsed for transfer, or accompanied by an assignment duly executed by #3968627.8 -8- 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 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 at the principal payment office of the Registrar in Dallas, Texas (or such other located designated by the Registrar), for a Bond or Bonds of like 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 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; #3968627.8 -9- (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. Section 3.12. Book-Entry System. (a) The Initial Bond shall be registered in the name of Coastal Securities, Inc. Except as provided in Section 3.14 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 any person on whose behalf a DTC participant holds an interest in the Bonds. 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 a registered owner of the Bonds, as shown on the Register, of any notice with respect to the Bonds, including any notice of redemption, and (iii)the payment of any DTC participant or any other person, other than a registered owner of the Bonds, as shown on the Register, of any amount with respect to principal of or 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 #3968627.8 -1 0- attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the District'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 Bond 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. 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 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. Redemption. The Bonds shall be subject to redemption prior to stated maturity as provided in this Section. (a) Optional Redemption. The Authority reserves the right to redeem Bonds maturing on and after May 1, 2023, in whole or from time to time in part in principal amounts of $5,000 or any integral multiples thereof, before their respective scheduled maturity dates, on May 1, 2022, or on any date thereafter, at a redemption price equal to the principal amount thereof plus accrued interest to the date of redemption. (b) Partial Redemption. (i) If less than all of the Bonds are to be redeemed pursuant to Section 3.15(a), the Authority shall determine the maturities and the principal amount thereof to be redeemed and shall direct the Registrar to call by lot or any other customary random selection method such Bonds for redemption. 43968627.8 -1 1- (ii) A portion of a single Bond of a denomination greater than $5,000 may be redeemed, but only in a principal amount equal to $5,000 or any integral multiple thereof. The Registrar shall treat each $5,000 portion of such Bond as though it were a single Bond for purposes of selection for redemption. (iii) Upon surrender of any Bond for redemption in part, the Registrar, in accordance with Section 3.9 of this Resolution, shall authenticate and deliver exchange Bonds in an aggregate principal amount equal to the unredeemed principal amount of the Bond so surrendered, such exchange being without charge. (c) Notice of Redemption to Owners. (i) The Registrar shall give notice of any redemption of Bonds by sending notice by United States mail, first class, postage prepaid, not less than thirty (30) days before the date fixed for redemption, to the Owner of each Bond (or part thereof) to be redeemed, at the address shown on the Register at the close of business on the Business Day next preceding the date of mailing such notice. (ii) The notice shall state the redemption date, the redemption price, the place at which the Bonds are to be surrendered for payment, and, if less than all the Bonds outstanding are to be redeemed, an identification of the Bonds or portions thereof to be redeemed. (iii) The Authority reserves the right to give notice of its election or direction to redeem Bonds under Section 3.15(a) conditioned upon the occurrence of subsequent events. Such notice may state (A) that the redemption is conditioned upon the deposit of moneys and/or authorized securities, in an amount equal to the amount necessary to effect the redemption, with the Registrar, or such other entity as may be authorized by law, no later than the redemption date or (B) that the Authority retains the right to rescind such notice at any time prior to the scheduled redemption date if the Authority delivers a certificate of the Authority to the Registrar instructing the Registrar to rescind the redemption notice, and such notice and redemption shall be of no effect if such moneys and/or authorized securities are not so deposited or if the notice is rescinded. The Registrar shall give prompt notice of any such rescission of a conditional notice of redemption to the affected Owners. Any Bonds subject to conditional redemption where redemption has been rescinded shall remain outstanding. (iv) 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. Section 3.16. Redemption and Defeasance of Refunded Obligations. Following the deposit with the paying agent/registrar for the Refunded Bonds, the Refunded Bonds shall be payable solely from and secured by the cash and securities on deposit with the paying agent/registrar for the Refunded Bonds for the purpose of refunding the Refunded Bonds and shall cease to be payable from Pledged Revenues. The Refunded Bonds are hereby called for redemption prior to maturity on the dates and at the redemption prices set forth in Schedule I attached hereto. The Assistant Secretary of the Board is hereby authorized and directed to cause #3968627.8 -12- to be delivered to the paying agent/registrar for the Refunded Bonds a certified copy of this Resolution calling the Refunded Bonds for redemption. The delivery of this Resolution and to the paying agent/registrar for the Refunded Bonds shall constitute the giving of notice of redemption to the paying agent/registrar for the Refunded Bonds, and such paying agent/registrar is hereby authorized and directed to give notice of redemption to the owners of the Refunded Bonds in accordance with the requirements of the respective resolutions authorizing the issuance thereof. ARTICLE IV FORM OF BOND AND CERTIFICATES Section 4.1. Forms. The form of the Bond, including the form of the Registrar's Authentication Certificate, the form of Assignment, 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 Resolution: (a) Form of Bond. UNITED STATES OF AMERICA STATE OF TEXAS COUNTIES OF HARRIS AND CHAMBERS NUMBER AMOUNT REGISTERED REGISTERED BAYTOWN AREA WATER AUTHORITY WATER SUPPLY CONTRACT REVENUE AND REFUNDING BOND SERIES 2012 (CITY OF BAYTOWN PROJECT) INTEREST RATE: MATURITY DATE: ISSUE DATE: CUSIP NO: % May 1, 20_ March 27, 2012 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 The Bank of New York Mellon Trust Company, N.A. (the "Registrar") at its principal payment office in Dallas, Texas (or such other location designated by the Registrar), 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 #3968627.8 -13- 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 the Issue Date identified above, or the most recent interest payment date to which interest has been paid or duly provided for. The date of this Bond March 15, 2012, but interest shall accrue on the principal amount hereof from the Issue Date. Interest on this Bond is payable by check on May 1 and November 1 beginning on November 1, 2012, mailed to the registered owner as shown on the books of registration kept by the Registrar as of the fifteenth day of the month next preceding each interest payment date. THIS BOND IS ONE OF A SERIES of fully registered bonds specified in the title hereof and dated as March 15, 2012, issued in the aggregate principal amount of$8,315,000, pursuant to a resolution adopted by the Board of Directors of the Authority (the "Resolution"), for the purposes of(i)refunding a portion of the Authority's outstanding bonds, (ii) making, purchasing, constructing, leasing or otherwise acquiring, enlarging, expanding, and modifying the Project (as defined in the Resolution), and (iii) to pay the costs of issuing the Bonds, under and in strict conformity with the Constitution and laws of the State of Texas, particularly Chapter 1207, Texas Government Code, as amended, and Chapter 8104, Texas Special District Local Laws Code. 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, Series 2006 (City of Baytown Project) and Water Supply Contract Revenue Refunding Bonds, Series 2007 (City of Baytown Project) (the "Outstanding Bonds"), from and secured by an irrevocable first lien on and pledge of payment 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 the Pledged Revenues. 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. THE AUTHORITY RESERVES THE RIGHT to redeem Bonds maturing on and after May 1, 2023, prior to their scheduled maturities, in whole or from time to time in part, in inverse order of maturity, in integral multiples of$5,000, on May 1, 2022, or any date thereafter at par plus accrued interest on the principal amounts called for redemption to the date fixed for redemption. If less than all of the Bonds are to be redeemed, the Authority Shall select the Bonds to be redeemed. Reference is made to the Resolution for complete details concerning the manner of redeeming the Bonds. NOT LESS THAN THIRTY (30) DAYS prior to a redemption date for the Bonds, the Authority shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid,to the Owners of the Bonds to be redeemed at the address of the Owner appearing on the #3968627.8 -14- registration books of the Registrar at the close of business on the business day next preceding the date of mailing such notice. IN THE RESOLUTION, THE AUTHORITY RESERVES THE RIGHT, in the case of an optional redemption, to give notice of its election or direction to redeem Bonds conditioned upon the occurrence of subsequent events. Such notice may state (i) that the redemption is conditioned upon the deposit of moneys and/or authorized securities, in an amount equal to the amount necessary to effect the redemption, with the Registrar, or such other entity as may be authorized by law, no later than the redemption date, or (ii) that the Authority retains the right to rescind such notice at any time on or prior to the scheduled redemption date if the Authority delivers a certificate of the Authority to the Registrar instructing the Registrar to rescind the redemption notice, and such notice and redemption shall be of no effect if such moneys and/or authorized securities are not so deposited or if the notice is rescinded. The Registrar shall give prompt notice of any such rescission of a conditional notice of redemption to the affected Owners. Any Bond subject to conditional redemption for which such redemption has been rescinded shall remain outstanding. ANY NOTICE SO MAILED shall be conclusively presumed to have been duly given, whether or not the registered owner receives such notice. Notice having been so given and subject, in the case of an optional redemption, to any rights or conditions reserved by the Authority in the notice, the Bonds called for redemption shall become due and payable on the specified redemption date, and notwithstanding that any Bond or portion thereof has not been surrendered for payment, interest on such Bonds or portions thereof shall cease to accrue. THIS BOND IS TRANSFERABLE only upon presentation and surrender at the principal payment office of the Registrar in Dallas, Texas, (or such other location designated by the Registrar) duly endorsed for transfer or accompanied by an assignment duly executed by the registered owner or his authorized representative, subject to the terms and conditions of the Resolution. THIS BONDS IS EXCHANGEABLE at the principal payment office of the Registrar in Dallas, Texas, for Bonds in the principal denomination of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Resolution. THE BOND SHALL NOT BE VALID OR OBLIGATORY for any purpose or be entitled to any benefit under the Resolution unless this Bond 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 BOND, by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Resolution. THE AUTHORITY HAS COVENANTED in the Resolution that it will at all times provide a legally qualified registrar for the Bonds and will cause notice of any changes of registrar to be mailed to each registered owner. 93968627.8 -15- IT IS HEREBY CERTIFIED, RECITED AND COVENANTED that this Bond has been duly and validly issued and delivered; that all acts, conditions, and things required or proper to be performed, 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 this Bond and the series of which it is a part 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 this Bond to be duly executed under its official seal in accordance with law. Assistant Secretary, Board of Directors President, Board of Directors Baytown Area Water Authority Baytown Area Water Authority [SEAL] (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 Comptroller of Public Accounts of the State of Texas (SEAL) (c) Form of Authentication Certificate. AUTHENTICATION CERTIFICATE It is hereby certified that this Bond has been delivered pursuant to the Resolution described in the text of this Bond. The Bank of New York Mellon Trust Company,N.A. As Paying Agent/Registrar #3968627.8 -16- 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: 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, NOTICE: Signature must be guaranteed without any alteration,enlargement or change by a member firm of the New York Stock whatsoever. Exchange or a commercial bank or trust company. (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: (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: #3968627.8 -17- [Information to be inserted from schedule in Section 3.3] (iii) the Initial Bond shall be numbered I-1. Section 4.2. CUSIP Numbers. CUSIP Numbers may be printed on the Bonds, but errors or omissions in the printing of such numbers shall have no effect on the validity of the Bonds. Section 4.3. Further Proceedings. After the Initial Bond has been executed, it shall be the duty of the President of the Board of Directors and other appropriate officials and agents of the Authority to deliver the Initial Bond and all pertinent records and proceedings to the Attorney General of the State of Texas, for examination and approval. After the Initial Bond has approved by the Attorney General, they shall be delivered to the Comptroller for registration. Upon registration of the Initial Bond, the Comptroller (or the Comptroller's bond clerk or an assistant bond clerk lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's Registration Certificate prescribed herein and the seal of said Comptroller shall be impressed, or placed in facsimile, thereon. 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 Authority hereby covenants to maintain rates and charges to the City pursuant to the Baytown Contract in amounts sufficient to provide Pledged Revenues to meet the debt service requirements on the Bonds and the Outstanding Bonds. 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 the Pledged Revenues. Section 5.2. Project Fund. (a) Immediately after the sale and delivery of the Bonds, the Authority shall deposit into a separate and special fund called the "Baytown Area Water Authority Water Supply Contract Revenue and Refunding Bonds, Series 2012 (City of Baytown Project) Project Fund" (the "Project Fund"), the amount specified in Section 7.2 of this Resolution. The Project Fund shall be established, drawn on, and used by the Authority to pay Project Costs. (b) Any moneys held as part of the Project Fund shall be invested and reinvested in accordance with the laws of the State and the Authority's investment policy. All interest and realized profit from such investment shall be used to pay Project Costs or may be transferred and deposited in the Debt Service Fund if so directed by the Authority. (c) After completion of the Project, any proceeds of the Bonds remaining in the Project Fund shall be deposited into the Debt Service Fund. #3968627.8 -18- 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 Refunding Bonds, Series 2012 (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 Baytown 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 April 1, 2012, 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 April 1, 2012, 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 any investments authorized by Texas law, including specifically the Public Funds Investment Act, and the Authority's investment policy. 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 Section 6.1. 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, #3968627.8 -19- 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 authorizing 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 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; Bond Purchase Agreement. (a) The Bonds are hereby sold and awarded and shall be delivered to the Underwriters at the price of$8,321,587.29 (representing$8,315,000.00 par amount of the Bonds, plus net premium in the amount of$47,748.65, less an underwriting discount of$41,161.36) and on the terms specified in the Purchase Agreement. The form, terms and provisions of the Bond Purchase Agreement are hereby approved and the President of the Board is hereby authorized and directed to execute and deliver such Bond Purchase Agreement. It is hereby found, determined and declared that the terms of this sale are the most advantageous reasonably available. The Bonds shall be initially registered in the name of the representative of the Underwriters or their designee. (b) The obligation of the Underwriters to accept delivery of the Bonds is subject to the Underwriters being furnished with the final, approving opinion of Bond Counsel to the Authority, which opinion shall be dated and delivered the Closing Date. Section 7.2. Deposit of Proceeds; Transfer of Funds. Proceeds from the sale of the Bonds, together with other funds of the Authority, if any, shall, promptly upon receipt by the Authority, be applied as follows: #3968627.8 -20- (a) The amount of $2,219,903.85, consisting of $2,195,000.00 principal amount of Bond proceeds, plus $24,903.85 net premium received from the sale of the Bonds, shall be used for the to pay the redemption price of the Refunded Bonds. (b) The amount of $6,000,000.00 principal amount of Bond proceeds shall be deposited into the Project Fund to be used for the payment of Project Costs. (c) The amount of$101,683.44, consisting of$76,978.40 principal amount of Bond proceeds, plus $24,705.04 net premium received from the sale of the Bonds shall be used to pay the costs of issuance. (d) The amount of $41,161.36, consisting of $31,100.55 principal amount of Bond proceeds, plus $10,060.81 net premium received from the sale of the Bonds shall be used to pay the underwriters' discount. (e) Any amounts remaining after accomplishing the above described purposes shall be deposited into the Debt Service Fund. ARTICLE VIII PROVISIONS CONCERNING FEDERAL INCOME TAX EXCLUSION Section 8.1. General Tax Covenants. The Authority intends that the interest on the Bonds will be excludable from gross income for purposes of federal income taxation pursuant to sections 103 and 141 through 150 of the Code and the applicable Treasury Regulations promulgated thereunder (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 the gross income, as defined in section 61 of the Code, for purposes of federal income taxation. In particular, the Authority covenants and agrees to comply with each requirement of this Article, provided, however, that the Authority will not be required to comply with any particular requirement of this Article if the Authority has received an opinion of nationally recognized bond counsel ("Counsel's Opinion") that (i) such noncompliance will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds or (ii) compliance with some other requirement set forth in this Article will satisfy the applicable requirements of the Code ore Regulations, in which case compliance with such other requirement specified in such Counsel's Opinion will constitute compliance with the corresponding requirement specified in this Article. Section 8.2. No Private Use or Payment and No Private Loan Financing. The Authority will 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, the proceeds of the Refunded Obligations have not been and 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. 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 refinance or financed, directly or indirectly, with such proceeds, and take such other and further action as may be required so #3968627.8 -21- that the Bonds will not be "private activity bonds" within the meaning of section 141 of the Code and the Regulations. Section 8.3. 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 Regulations, except as permitted by section 149(b)(3) of the Code and the Regulations. Section 8.4. Bonds are not Hedge Bonds. The Authority covenants and agrees not to take any action, or knowingly omit 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 Regulations. Section 8.5. No-Arbitrage. 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 Regulations. The Authority will 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, 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 Regulations. Section 8.6. Arbitrage Rebate. If the Authority does not qualify for an exception to the requirements of section 148(f) of the Code, 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 issue 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 the 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 the 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. #3968627.8 -22- Section 8.7. 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 Regulations. Section 8.8. Record Retention. The Authority will retain all pertinent and material records relating to the use and expenditure of the proceeds of the Bonds until six years after the last Bond is redeemed, or such shorter period as authorized by subsequent guidance issued by the Department of Treasury, if applicable. All records will be kept in a manner that ensures their complete access throughout the retention period. For this purpose, it is acceptable that such records are kept either as hardcopy books and records or in an electronic storage and retrieval system, provided that such electronic system includes reasonable controls and quality assurance programs that assure the ability of the Authority to retrieve and reproduce such books and records in the event of an examination of the Bonds by the Internal Revenue Service. Section 8.9. Registration. The Bonds will be issued in registered form. Section 8.10. Continuing_Obligation. Notwithstanding any other provision of this Resolution, the Authority's obligations under the covenants and provisions of Article shall survive the defeasance and discharge of the Bonds. ARTICLE IX DISCHARGE Section 9.1. Discharge. The Bonds may be refunded, discharged or defeased in any manner now or hereafter permitted by applicable law. ARTICLE X CONTINUING DISCLOSURE UNDERTAKING Section 10.1. Annual Reports. (a) The Authority will provide certain updated financial information and operating data to the MSRB annually in an electronic format as prescribed by the MSRB. The information to be updated by the Authority includes certain updated financial information and operating data with respect to the Authority of the general type included in the final Official Statement in Tables 1 and 2 in Appendix A thereto. The Authority will update and provide this information within six (6) months of the end of its fiscal years ending in or after 2012. Financial statements so to be provided shall be prepared in accordance with the accounting principles described in the notes to the financial statements for the most recently concluded Fiscal Year, and, audited, if the Authority commissions an audit of such statements and 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, the Authority shall provide notice that audited financial statements are not available and shall provide unaudited financial statements for such Fiscal Year to the MSRB. #3968627.8 -23- Thereafter, when and if audited financial statements become available, the Authority shall provide such audited financial statements as required to the MSRB. (b) If the Authority changes its Fiscal Year, it will notify the MSRB 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. (c) 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 the MSRB or filed with the SEC. Section 10.2. Material Event Notices. (a) The Authority shall provide the following to the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of ten (10) business days after the occurrence of the event, notice of any of the following events with respect to the Bonds: (1) Principal and interest payment delinquencies; (2) Non-payment related defaults, if material; (3) Unscheduled draws on debt service reserves reflecting financial difficulties; (4) Unscheduled draws on credit enhancements reflecting financial difficulties; (5) Substitution of credit or liquidity providers, or their failure to perform; (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701 JEB) or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds; (7) Modifications to rights of the holders of the Bonds, if material; (8) Bond calls, if material, and tender offers; (9) Defeasances; (10) Release, substitution, or sale of property securing repayment of the Bonds, if material; (11) Rating changes; (12) Bankruptcy, insolvency, receivership or similar event of the Authority; #3968627.8 -24- Note to paragraph 12: For the purposes of the event identified in paragraph 12 of this section, the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for the Authority in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Authority, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Authority. (13) The consummation of a merger, consolidation, or acquisition involving the Authority or the sale of all or substantially all of the assets of the Authority, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) Appointment of successor or additional trustee or the change of name of a trustee, if material. (b) The Authority shall provide to the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner, notice of a failure by the Authority to provide required annual financial information and notices of material events in accordance with Section 12.01 and section (a) above. All documents provided to the MSRB pursuant to this section shall be accompanied by identifying information as prescribed by the MSRB. Section 10.3. Limitations, Disclaimers and Amendments. (a) The Authority shall be obligated to observe and perform the covenants specified in this Article 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 bond calls and any defeasances that cause the Authority to be no longer an"obligated person". (b) The provisions of this Article are for the sole benefit of the Owners and beneficial owners of the Bonds, and nothing in this Article, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The Authority undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Article and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the Authority's financial results, condition, or prospects or hereby undertake to update any information provided in accordance with this Article or otherwise, except as expressly provided herein. The Authority does not make any representation or warranty #3968627.8 -25- 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 OWNER 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 ARTICLE, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. (c) No default by the Authority in observing or performing its obligations under this Article shall constitute a breach of or default under the Resolution for purposes of any other provisions of this Resolution. (d) Nothing in this Article is intended or shall act to disclaim, waive, or otherwise limit the duties of the Authority under federal and state securities laws. (e) The provisions of this Article may be amended by the Authority from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the Authority, but only if (i) the provisions of this Article, as so 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 (ii) either (A) the Owners of a majority in aggregate principal amount (or any greater amount required by any other provisions of this Resolution that authorizes such an amendment) of the Outstanding Bonds consent to such amendment or (B) an entity or individual person that is unaffiliated with the Authority (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the Owners and beneficial owners of the Bonds. The provisions of this Article may also be amended from time to time or repealed by the Authority if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction determines that such provisions are invalid, but only if and to the extent that reservation of the Authority's right to do so would not prevent underwriters of the initial public offering of the Bonds from lawfully purchasing or selling Bonds in such offering. If the Authority so amends the provisions of this Article, it shall include with any amended financial information or operating data next provided in accordance with Section 10.1 an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information or operating data so provided. #3968627.8 -26- ARTICLE XI MISCELLANEOUS Section 11.1. Related Matters. To satisfy in a timely manner all of the Authority's obligations under this Resolution, President of the Board, the Secretary of the Board, the Assistant Secretary of the Board and all other appropriate officers 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 and purposes of this Resolution. Section 11.2. Changes to Resolution. The General Manager or his designee, in consultation with Bond Counsel, is hereby authorized to make changes to the terms of this Resolution if necessary or desirable to carry out the purposes hereof or in connection with the approval of the Bonds by the Attorney General of Texas. Section 11.3. Amendment to Baytown Contract. In order to clarify provisions of the Baytown Contract relating to termination, the Authority hereby approves an amendment to the Baytown Contract in the form attached hereto as Exhibit A. Section 11.4. 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 11.5. Pang 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 11.6. Individuals Not Liable. No covenant, stipulation, obligation or agreement herein contained shall be deemed to be a covenant, stipulation, obligation or agreement of any member of Board or agent or employee of Board or of the Authority in his or her individual capacity and neither the members of Board nor any officer thereof, nor any agent or employee of Board or of the Authority, shall be liable personally on the Bonds, or be subject to any personal liability or accountability by reason of the issuance thereof. Section 11.7. 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 11.8. Effective Date. This Resolution shall become effective immediately upon passage by the Board of Directors and approval by the Authority. #3968627.8 -27- INTRODUCED, READ and PASSED, by the affirmative vote of the Board of Directors of the Baytown Area Water Authority this the 23rd day of February, 2012. P B ENDA BRADLEY SMITH, I' es dent ATTEST-'t, a ],ET Cltl'$RY CI n1s isiant Secretary APPROVED AS TO FORM: eAj ACIO RAMIREZ,:SR., G n ral Counsel R3968027.$ -28- RESOLUTION NO. 2012-05 SCHEDULE I SCHEDULE OF REFUNDED BONDS Baytown Area Water Authority Water Supply Contract Revenue Bonds, Series 2002 (City of Baytown Project) Maturity Ma 1 Interest Rate Par Amount Call Date Call Price 2013 4.800% $2305000 03/29/2012 100.00% 2014 4.900 240,000 03/29/2012 100.00 2015 5.000 2505000 03/29/2012 100.00 2016 5.000 265,000 03/29/2012 100.00 2017 5.000 275,000 03/29/2012 100.00 2018 5.100 290,000 03/29/2012 100.00 2019 5.125 305,000 03/29/2012 100.00 2020 5.150 320,000 03/29/2012 100.00 #3968627.8 S-1 RESOLUTION NO. 2012-05 EXHIBIT A CONTRACT AMENDMENT STATE OF TEXAS § COUNTIES OF HARRIS AND CHAMBERS § This Contract Amendment (the "Amendment") is made and entered into by and between the Baytown Area Water Authority, a governmental entity and body politic and corporate, which is situated and has its principal in the City of Baytown, Texas, Harris County ("BAWA") and the City of Baytown, Texas, a municipal corporation home-rule city, which is principally situated and has its City Hall in Harris County, Texas(the"City"). WITNESSETH: WHEREAS, the City and BAWA entered into a Water Supply Contract— Treated Water dated January 31, 1977, which was amended and restated on November 6, 1997 and further amended by action dated October 26, 2004 (the "2004 Amendment," and collectively the "Contract"); and WHEREAS, the City and BAWA wish to clarify the provision of the 2004 Amendment that extended the termination date of the Contract by correcting the Article of the Contract referenced in the 2004 Amendment; NOW, THEREFORE, for and in consideration of the premises and mutual covenants and agreements herein contained, the parties hereby agree as follows: I. Article X of the Contract shall be amended and restated as set forth below: ARTICLE X TERM This Contract as amended and restated shall remain in force and effect until December 31, 2040; provided that this Contract shall continue in effect until all of the Bonds are paid. II. The amendment to Article VIII of the Contract set forth in the 2004 Amendment is hereby repealed. III. 93968627.8 A-1 This Amendment is effective as of February 23, 2012. IV. The Contract between the parties hereto and this Amendment are the entire agreement of the parties. In the event of any conflict between a provision of the Contract and this Amendment, the provision of this Amendment shall control. IN WITNESS WHEREOF, the parties hereto have signed this Amendment 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, as of the date hereof. BAYTOWN AREA WATER AUTHORITY CITY OF BAYTOWN,TEXAS BRENDA BRADLEY SMITH, President STEPHEN H. DONCARLOS, Mayor ATTEST: ATTEST: LETICIA BRYSCH, Assistant Secretary LETICIA BRYSCH, City Clerk APPROVED AS TO FORM: APPROVED AS TO FORM: IGNACIO RAMIREZ, SR., General Counsel IGNACIO RAMIREZ, SR., City Attorney #3968627.8 A-2