Loading...
HomeMy WebLinkAbout028087 ORD - 02/24/2009CERTIFICATE OF CITY SECRETARY THE STATE OF TEXAS COUNTY OF NUECES CITY OF CORPUS CHRISTI THE UNDERSIGNED HEREBY CERTIFIES that: 1. On the 24th day of February, 2009, the City Council (the Council) of the City of Corpus Christi, Texas (the City) convened in regular session at its regular meeting place at the City Hall (the Meeting), the duly constituted members of the Council being as follows: Henry Garrett Mayor Bill Kelly Councilmember John Marez Councilmember Priscilla Leal Councihnember Michael McCutchon Councihnember Larry Elizondo, Sr. Councilmember Melody Cooper Councilmember Mike Hummell Councilmember Nelda Martinez Councilmember and all of such persons were present at the Meeting, except the following: Oh thus constituting a quorum. Among other business considered at the Meeting, the attached Ordinance (the Ordinance) entitled: 80476181.1 AN ORDINANCE BY THE CITY COUNCIL OF THE CITY OF CORPUS CHRISTI, TEXAS AUTHORIZING THE ISSUANCE OF "CITY OF CORPUS CHRISTI, TEXAS UTILITY SYSTEM REVENUE IMPROVEMENT BONDS, SERIES 2009" IN A PRINCIPAL AMOUNT NOT TO EXCEED $98,000,000 PURSUANT TO THE DELEGATION PROVISIONS HEREOF; PROVIDING THE TERMS, CONDITIONS, AND SPECIFICATIONS FOR SUCH BONDS, INCLUDING THE APPROVAL AND DISTRIBUTION OF AN OFFICIAL STATEMENT PERTAINING THERETO; MAKING PROVISIONS FOR THE PAYMENT AND SECURITY THEREOF ON A PARITY WITH CERTAIN CURRENTLY OUTSTANDING OBLIGATIONS; STIPULATING THE TERMS AND CONDITIONS FOR THE ISSUANCE OF ADDITIONAL REVENUE BONDS ON A PARITY THEREWITH; AUTHORIZING THE EXECUTION OF A PAYING AGENT/REGISTRAR AGREEMENT AND A BOND PURCHASE AGREEMENT; COMPLYING WITH THE REQUIREMENTS OF THE DEPOSITORY TRUST COMPANY; DELEGATING THE 028087 AUTHORITY TO THE MAYOR AND CERTAIN MEMBERS OF THE CITY STAFF TO EXECUTE CERTAIN DOCUMENTS RELATING TO THE SALE OF THE BONDS; ENACTING OTHER PROVISIONS INCIDENT AND RELATED TO THE SUBJECT AND PURPOSE OF THIS ORDINANCE; AND PROVIDING AN EFFECTIVE DATE was introduced and submitted to the Council for passage and adoption. After presentation and due consideration of the Ordinance, a motion was made by Councilmember that the Ordinance be finally passed and adopted in accordance with the City's Home Rule Charter. The motion was seconded by Councilmember and carried by the following vote: voted "For" 'F/ voted "Against" abstained all as shown in the official Minutes of the Council for the Meeting. 2. The attached Ordinance is a true and correct copy of the original on file in the official records of the City; the duly qualified and acting members of the Council of the City on the date of the Meeting are those persons shown above, and, according to the records of my office, each member of the Council was given actual notice of the time, place, and purpose of the Meeting and had actual notice that the Ordinance would be considered; and the Meeting and deliberation of the aforesaid public business, including the subject of the Ordinance, was posted and given in advance thereof in compliance with the provisions of Chapter 551, as amended, Texas Government Code. IN WITNESS WHEREOF, I have signed my name officially and affixed the seal of the City, this 24`h day of February, 2009. (SEAL) 80476181.1 City Secretary, City of Corpus Christi, Texas 028087 2 FINAL ORDINANCE NO. 028087 AN ORDINANCE BY THE CITY COUNCIL OF THE CITY OF CORPUS CHRISTI, TEXAS AUTHORIZING THE ISSUANCE OF "CITY OF CORPUS CHRISTI, TEXAS UTILITY SYSTEM REVENUE IMPROVEMENT BONDS, SERIES 2009" IN A PRINCIPAL AMOUNT NOT TO EXCEED $98,000,000 PURSUANT TO THE DELEGATION PROVISIONS HEREOF; PROVIDING THE TERMS, CONDITIONS, AND SPECIFICATIONS FOR SUCH BONDS, INCLUDING THE APPROVAL AND DISTRIBUTION OF AN OFFICIAL STATEMENT PERTAINING THERETO; MAKING PROVISIONS FOR THE PAYMENT AND SECURITY THEREOF ON A PARITY WITH CERTAIN CURRENTLY OUTSTANDING OBLIGATIONS; STIPULATING THE TERMS AND CONDITIONS FOR THE ISSUANCE OF ADDITIONAL REVENUE BONDS ON A PARITY THEREWITH; AUTHORIZING THE EXECUTION OF A PAYING AGENT/REGISTRAR AGREEMENT AND A BOND PURCHASE AGREEMENT; COMPLYING WITH THE REQUIREMENTS OF THE DEPOSITORY TRUST COMPANY; DELEGATING THE AUTHORITY TO THE MAYOR AND CERTAIN MEMBERS OF THE CITY STAFF TO EXECUTE CERTAIN DOCUMENTS RELATING TO THE SALE OF THE BONDS; ENACTING OTHER PROVISIONS INCIDENT AND RELATED TO THE SUBJECT AND PURPOSE OF THIS ORDINANCE; AND PROVIDING AN EFFECTIVE DATE WHEREAS, the City of Corpus Christi, Texas (the "City" or the "Issuer"), a "home -rule" city operating under a home -rule charter adopted pursuant to Section 5 of Article XI of the Texas Constitution, with a population according to the latest federal decennial census of in excess of 50,000, has heretofore issued its City of Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 1990 (the "Series 1990 Bonds"), its City of Corpus Christi, Texas Utility System Revenue Bonds, Series 1994 (the "Series 1994 Bonds"), its City of' Corpus Christi, Texas Utility System Revenue Bonds, Series 1994-A (the "Series 1994-A Bonds"), its City of Corpus Christi, Texas Utility System Revenue Bonds, Series 1995 (the "Series 1995 Bonds"), its City of Corpus Christi, Texas Utility System Revenue Bonds, Series 1995-A (the "Series 1995-A Bonds"), its City of Corpus Christi, Texas Utility System Revenue Refunding and Improvement Bonds, Series 1999 (the "Series 1999 Bonds"), its City of Corpus Christi, Texas Utility System Revenue Refunding and Improvement Bonds, Series 1999-A (the "Series 1999-A Bonds"), its City of Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 2000 (the "Series 2000 Bonds"), its City of Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 2000-A (the "Series 2000-A Bonds"), its City of Corpus Christi, Texas Utility System Revenue Refunding and Improvement Bonds, Series 2002 (the "Series 2002 Bonds"), its City of Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 2003 (the "Series 2003 Bonds"), its City of Corpus Christi, Texas Utility System Revenue 80470964.4 028087 Refunding and Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), its City of Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 2005 (the "Series 2005 Bonds"), its City of Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 2005A (the "Series 2005A Bonds"), and its City of Corpus Christi, Texas Utility System Revenue Refunding and Improvement Bonds, Series 2006 (the "Series 2006 Bonds"); and WHEREAS, the Series 1990 Bonds, the Series 1994 Bonds, the Series 1994-A Bonds, the Series 1995 Bonds and the Series 1995-A Bonds are no longer Outstanding (as hereinafter defined); and WHEREAS, the Series 1999 Bonds, the Series 1999-A Bonds, the Series 2000 Bonds, the Series 2000-A Bonds, the Series 2002 Bonds, the Series 2003 Bonds, the Series 2004 Bonds, the Series 2005 Bonds, the Series 2005A Bonds and the Series 2006 Bonds are sometimes collectively referred to herein as the "Previously Issued Priority Bonds"; and WHEREAS, the City has established an interim financing program pursuant to which the City has authorized the issuance of commercial paper notes designated "City of Corpus Christi, Texas Utility System Commercial Paper Notes, Series B", to be issued from time to time in an aggregate principal amount not to exceed $75,000,000 at any one time Outstanding (the "Series B Commercial Paper Notes"), under which there currently exists no Outstanding obligations; and WHEREAS, the City deems it appropriate and in its best interest to issue the hereinafter authorized revenue bonds for the primary purpose of acquiring, purchasing, constructing, improving, repairing, extending, equipping, and renovating the City's combined waterworks system (including storm sewer and drainage), wastewater disposal system, and gas system (as hereinafter described and defined more thoroughly as the "System"); and WHEREAS, in the ordinance authorizing the issuance of the Series 1990 Bonds (the "Base Ordinance"), the City reserved the right to issue revenue bonds on a parity with the Series 1990 Bonds; and WHEREAS, because of fluctuating conditions in the municipal bond market, the City Council has determined to delegate to the Authorized Representatives (as hereinafter defined) the authority to effect the sale of the revenue bonds hereinafter authorized for the purposes set forth in this Ordinance, subject to the parameters hereinafter described; and WHEREAS, the revenue bonds hereinafter authorized are to be issued and delivered pursuant to the laws of the State of Texas, including specifically Chapters 1371 and 1502, Texas Government Code, as amended ("Chapter 1371" and "Chapter 1502", respectively, and collectively, the "Act"), and the terms of the Base Ordinance and this Ordinance (as hereinafter defined), for the purposes set forth in this Ordinance; now, therefore, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF CORPUS CHRISTI, TEXAS: SECTION 1: Bonds Authorized. In order to provide funds for the purposes of (i) acquiring, purchasing, constructing, improving, repairing, extending, equipping, and renovating the System and (ii) paying the costs of issuance relating thereto, the City Council (the 80470964.4 -2- "Governing Body") of the City, acting pursuant to the laws of the State of Texas, particularly the Act, has determined that there shall be issued and there is hereby ordered to be issued a series of revenue bonds to be designated "City of Corpus Christi, Texas Utility System Revenue Improvement Bonds, Series 2009", in the principal sum of NINETY SIX MILLION FOUR HUNDRED NINETY THOUSAND AND NO/100 DOLLARS ($96,490,000) (the "Bonds"). SECTION 2: Sale of Bonds. A. Negotiated Sale; Authorization of Purchase Contract; and Approval of Official Statement. The Bonds authorized by this Ordinance are hereby sold by the City to The Frost National Bank, as the authorized representative of a group of underwriters (the "Purchasers"), in accordance with the provisions of a Bond Purchase Agreement, dated March 13, 2009 (the "Purchase Contract"), attached hereto as Exhibit A and incorporated herein by reference as a part of this Ordinance for all purposes. The Initial Bonds (as hereinafter defined) shall be registered in the name of The Frost National Bank. An Authorized Representative is hereby authorized and directed to execute the Purchase Contract for and on behalf of the City and as the act and deed of the Governing Body, and in regard to the approval and execution of the Purchase Contract, the Governing Body hereby finds, determines, and declares that the representations, warranties, and agreements of the City contained in the Purchase Contract are true and correct in all material respects and shall be honored by the City. Delivery of the Bonds to the Purchasers shall occur as soon as practicable after the adoption of this Ordinance, upon payment therefor in accordance with the terms of the Purchase Contract. Furthermore, the City hereby ratifies, confirms, and approves in all respects (i) the City's prior determination that the Preliminary Official Statement was, as of its date, "deemed final" in accordance with the Rule (as hereinafter defined) and (ii) the use and distribution of the Preliminary Official Statement by the Purchasers in connection with the public offering and sale of the Bonds. The final Official Statement, being a modification and amendment of the Preliminary Official Statement to reflect the terms of sale, attached as Exhibit B hereto (together with such changes approved by an Authorized Representative), shall be and is hereby in all respects approved and the Purchasers are hereby authorized to use and distribute the final Official Statement, dated March 13, 2009, in the reoffering, sale and delivery of the Bonds to the public. The Mayor and/or City Secretary are further authorized and directed to manually execute and deliver for and on behalf of the City copies of the Official Statement in final form as may be required by the Purchasers, and such final Official Statement in the form and content manually executed by said officials shall be deemed to be approved by the Governing Body and constitute the Official Statement authorized for distribution and use by the Purchasers. B. Delegation of Authority to Authorized Representatives. As authorized by Chapter 1371, the Mayor of the City, the City Manager of the City, and the Interim Assistant City Manager for Administrative Services (each of the foregoing, individually, an "Authorized Representative") are hereby authorized, appointed, and designated as the officers of the City authorized to individually act on behalf of the City in selling and delivering the Bonds authorized herein and carrying out the procedures specified in this Ordinance, including approval of the aggregate principal amount of each maturity of the Bonds, the redemption provisions therefor, and the rate of interest to be borne on the principal amount of each such maturity. Each Authorized Representative, acting for and on behalf of the City, is authorized to execute the 80470964.4 -3- Approval Certificate attached hereto as Schedule I. The Bonds shall be issued in the principal amount not to exceed $98,000,000; the maximum maturity of the Bonds will be July 15, 2039; and the net effective per annum interest rate shall not exceed a rate greater than 7% per annum calculated in a manner consistent with the provisions of Chapter 1204, as amended, Texas Government Code. Lastly, each Authorized Representative is authorized to select the bond insurer and surety bond provider, if any, with respect to the Bonds. The execution of the Approval Certificate shall evidence the sale date of the Bonds by the City to the Purchasers in accordance with the provisions of Chapter 1371. It is further provided, however, that notwithstanding the foregoing provisions, the Bonds shall not be delivered unless prior to their initial delivery, the Bonds have been rated by a nationally recognized rating agency for municipal securities in one of the four highest rating categories for long term obligations, as required by Chapter 1371. Upon execution of the Approval Certificate, Bond Counsel is authorized to complete this Ordinance to reflect such final terms. SECTION 3: Dated Date Denomination, and Stated Maturities; Redemption Option. The Bonds shall be issued as fully registered obligations, without coupons, totaling $96,490,000 in aggregate principal amount and be dated March 1, 2009. A. Denominations, and Stated Maturities. The Bonds shall be issued in denominations of Five Thousand Dollars ($5,000) or any integral multiple (within a stated maturity) thereof (each, an "Authorized Denomination"), shall be lettered "R" and numbered consecutively from One (1) upward. The Bonds herein authorized to be issued shall bear interest on the unpaid principal amounts from the Bond Date or from the most recent interest payment date to which interest has been duly paid or provided and principal shall become due and payable on July 15 in each of the years and in amounts in accordance with the following schedule. Said interest shall be payable to the registered owner of any such Bond in the manner provided and on the dates stated in the FORM OF BOND attached to this Ordinance as Exhibit C. Stated Maturities Principal Amounts ($) Interest Rates (%) 2011 1,730,000 2.500 2012 1,775,000 3.000 2013 1,825,000 3.000 2014 1,880,000 3.500 2015 1,945,000 4.000 2016 2,025,000 4.000 2017 2,105,000 4.000 2018 2,190,000 4.000 2019 2,280,000 4.750 2020 2,385,000 4.750 2021 2,500,000 4.375 2022 2,610,000 4.500 2023 2,725,000 4.625 2024 2,850,000 5.000 2025 2,995,000 5.250 2026 3,150,000 5.000 2027 3,310,000 5.000 80470964.4 -4- Stated Maturities Principal Amounts ($) Interest Rates (%) **** **** **** 2029 7,130,000 5.250 **** **** **** 2033 16,650,000 5.250 **** **** **** 2039 32,430,000 5.375 B. Redemption Provisions. (1) Mandatory Redemption of Bonds. The Bonds stated to mature on July 15, 2029, July 15, 2033, and July 15, 2039 are referred to herein as the "Term Bonds". The Term Bonds are subject to mandatory sinking fund redemption prior to their stated maturities from money required to be deposited in the Debt Service Fund for such purpose and shall be redeemed in part, by lot or other customary method, at the principal amount thereof plus accrued interest to the date of redemption in the following principal amounts on July 15 in each of the years as set forth below: Term Bonds Stated to Term Bonds Stated to Mature on July 15 2029 Mature on July 15, 2033 Principal Principal Year Amount ($) Year Amount ($) 2028 3,475,000 2030 3,850,000 2029 3,655,000* 2031 4,050,000 2032 4,265,000 2033 4,485,000* Term Bonds Stated to Mature on July 15, 2039 Principal Year Amount ($) 2034 4,725,000 2035 4,975,000 2036 5,245,000 2037 5,525,000 2038 5,825,000 2039 6,135,000* * stated maturity The principal amount of a Term Bond required to be redeemed pursuant to the operation of such mandatory redemption provisions shall be reduced, at the option of the City, by the principal amount of any Term Bonds of such stated maturity which, at least 50 days prior to the mandatory redemption date (1) shall have been defeased or acquired 80470964.4 -5- by the City and delivered to the Paying Agent/Registrar for cancellation, (2) shall have been purchased and canceled by the Paying Agent/Registrar at the request of the City with money in the Debt Service Fund (but not the Reserve Fund), or (3) shall have been redeemed pursuant to the optional redemption provisions set forth below and not theretofore credited against a mandatory redemption requirement. (2) Optional Redemption. The City reserves the right to redeem the Bonds stated to mature on and after July 15, 2019, in whole or in part, on July 15, 2018, or on any date thereafter, in such order of stated maturity as the City shall determine and by lot or other customary method within a stated maturity at the redemption price of par plus accrued interest to the date of redemption. (3) Notice of Redemption. At least thirty (30) days prior to the date any such Bonds are to be redeemed, a notice of redemption, authorized by appropriate resolution passed by the Governing Body, shall be given in the manner set forth below. A written notice of such redemption shall be given to the registered owner of each Bond or a portion thereof being called for redemption by depositing such notice in the United States mail, first class postage prepaid, addressed to each such registered owner at his address shown on the Registration Books (as hereinafter defined) kept by the Paying Agent/Registrar. By the date fixed for any such redemption, due provision shall be made by the City with the Paying Agent/Registrar for the payment of the required redemption price for the Bonds or the portions thereof which are to be so redeemed, plus accrued interest thereon to the date fixed for redemption. If such written notice of redemption is given, and if due provision for such payment is made, all as provided above, the Bonds, or the portions thereof which are to be so redeemed, thereby automatically shall be redeemed prior to their scheduled maturities, shall not bear interest after the date fixed for their redemption, and shall not be regarded as being Outstanding except for the right of the registered owner to receive the redemption price plus accrued interest to the date fixed for redemption from the Paying Agent/Registrar out of the funds provided for such payment. The Paying Agent/Registrar shall record in the Registration Books all such redemptions of principal of the Bonds or any portion thereof. If a portion of any Bonds shall be redeemed, a substitute Bond or Bonds having the same stated maturity date, bearing interest at the same interest rate, in any denomination or denominations in any integral multiple of $5,000, at the written request of the registered owner, and in an aggregate principal amount equal to the unredeemed portion thereof, will be issued to the registered owner upon the surrender thereof for cancellation, at the expense of the City, all as provided in this Ordinance. SECTION 4: Interest. The Bonds shall bear interest calculated on the basis of a 360 -day year composed of twelve 30 -day months from the dates specified in the FORM OF BOND to their respective dates of maturity or prior redemption at the rates set forth in the Purchase Contract. Interest on the Bonds shall be payable on the dates as set forth in the Table appearing in Section 3, until the maturity or prior redemption of the Bonds. 80470964.4 -6- SECTION 5: Characteristics of the Bonds. A. Registration, Transfer, Conversion and Exchange. Authentication; Initial Bond. The City shall keep or cause to be kept at the designated trust office in Dallas, Texas (the "Designated Trust Office") of The Bank of New York Mellon Trust Company, N.A. (the "Paying Agent/Registrar") books or records for the registration of the transfer, conversion and exchange of the Bonds (the "Registration Books"), and the City hereby appoints the Paying Agent/Registrar as its registrar and transfer agent to keep such books or records and make such registrations of transfers, conversions and exchanges under such reasonable regulations as the City and the Paying Agent/Registrar may prescribe; and the Paying Agent/Registrar shall make such registrations, transfers, conversions and exchanges as herein provided. The execution of a "Paying Agent/Registrar Agreement", in substantially the form attached to this Ordinance as Exhibit D, is hereby authorized. The Paying Agent/Registrar shall obtain and record in the Registration Books the address of the registered owner of each Bond to which payments with respect to the Bonds shall be mailed, as herein provided; but it shall be the duty of each registered owner to notify the Paying Agent/Registrar in writing of the address to which payments shall be mailed, and such interest payments shall not be mailed unless such notice has been given. The City shall have the right to inspect the Registration Books during regular business hours of the Paying Agent/Registrar, but otherwise the Paying Agent/Registrar shall keep the Registration Books confidential and, unless otherwise required by law, shall not permit their inspection by any other entity. The City shall pay the Paying Agent/Registrar's standard or customary fees and charges for making such registration, transfer, conversion, exchange and delivery of a substitute Bond or Bonds. Registration of assignments, transfers, conversions and exchanges of Bonds shall be made in the manner provided and with the effect stated in the FORM OF BOND. Each substitute Bond shall bear a letter and/or number to distinguish it from each other Bond. Each Bond may be exchanged for fully registered bonds in the manner set forth herein. Each Bond issued and delivered pursuant to this Ordinance, to the extent of the unredeemed principal amount thereof, may, upon surrender thereof at the Designated Trust Office of the Paying Agent/Registrar, together with a written request therefor duly executed by the registered owner or the assignee or assignees thereof, or its or their duly authorized attorneys or representatives, with guarantee of signatures satisfactory to the Paying Agent/Registrar, at the option of the registered owner or such assignee or assignees, as appropriate, be exchanged for fully registered bonds, without interest coupons, in the form prescribed in the FORM OF BOND, in any Authorized Denomination (subject to the requirement hereinafter stated that each substitute bond shall have a single stated maturity date), as requested in writing by such registered owner or such assignee or assignees, in an aggregate principal amount equal to the unredeemed principal amount of any Bond or Bonds so surrendered, and payable to the appropriate registered owner, assignee, or assignees, as the case may be. If a portion of any Bond shall be redeemed prior to its scheduled maturity as provided herein, a substitute bond or bonds having the same maturity date, bearing interest at the same rate, in any Authorized Denomination at the request of the registered owner, and in an aggregate principal amount equal to the unredeemed portion thereof, will be issued to the registered owner upon surrender of such partially redeemed Bond for cancellation. If any Bond or portion thereof is assigned and transferred, each Bond issued in exchange therefor shall have the same principal maturity date and bear interest at the same rate as the Bond for which it is being exchanged. Each substitute Bond shall bear a letter and/or number to distinguish it from each other Bond. 80470964.4 -7- The Paying Agent/Registrar shall exchange or replace Bonds as provided herein, and each fully registered substitute Bond or Bonds delivered in exchange for or replacement of any Bond or portion thereof as permitted or required by any provision of this Ordinance shall constitute one of the Bonds for all purposes of this Ordinance, and may again be exchanged or replaced. It is specifically provided, however, that any Bond delivered in exchange for or replacement of another Bond prior to the first scheduled interest payment date on the Bonds (as stated on the face thereof) shall be dated the same date as such Bond, but each substitute Bond so delivered on or after such first scheduled interest payment date shall be dated as of the interest payment date preceding the date on which such substitute Bond is delivered, unless such substitute Bond is delivered on an interest payment date, in which case it shall be dated as of such date of delivery; provided further, however, that if at the time of delivery of any substitute Bond the interest on the Bond for which it is being exchanged has not been paid, then such substitute Bond shall be dated as of the date to which such interest has been paid in full. On each substitute Bond issued in exchange for or replacement of any Bond or Bonds issued under this Ordinance there shall be printed thereon a Paying Agent/Registrar's Authentication Certificate, in the form set forth in the FORM OF BOND (the "Authentication Certificate"). An authorized representative of the Paying Agent/Registrar shall, before the delivery of any such Bond, date and manually sign the Authentication Certificate, and no such Bond shall be deemed to be issued or Outstanding unless the Authentication Certificate is so ex- ecuted. The Paying Agent/Registrar promptly shall cancel all paid Bonds and Bonds surrendered for conversion and exchange. No additional ordinances, orders, or resolutions need be passed or adopted by the Governing Body or any other body or person so as to accomplish the foregoing conversion and exchange of any Bond or portion thereof, and the Paying Agent/Registrar shall provide for the printing, execution, and delivery of the substitute Bonds in the manner prescribed herein. Pursuant to Chapter 1206, as amended, Texas Government Code, the duty of conversion and exchange of Bonds as aforesaid is hereby imposed upon the Paying Agent/Registrar, and, upon the execution of the Authentication Certificate, the converted and exchanged Bond shall be valid, incontestable, and enforceable in the same manner and with the same effect as the Bonds which initially were issued and delivered pursuant to this Ordinance, approved by the Attorney General (as hereinafter defined), and registered by the Comptroller of Public Accounts (as hereinafter defined). The Bonds shall be issued initially either (i) as a fully registered Bond in the total aggregate principal amount of $96,490,000 with principal installments to become due and payable as provided in Subsection 3.A, and numbered T-1, or (ii) as one (1) fully registered Bond for each year of stated maturity in the applicable principal amount, interest rate, and denomination and to be numbered consecutively from T-1 and upward (the "Initial Bonds") and, in either case, the Initial Bonds shall be registered in the name of the Purchasers or their designee. The Initial Bonds shall be the Bonds submitted to the Attorney General for approval and certified and registered by the Comptroller of Public Accounts. At any time after the delivery of the Initial Bonds to the Purchasers, the Paying Agent/Registrar, upon written instructions from the Purchasers, or their designee, shall cancel the Initial Bonds and exchange therefor definitive Bonds of authorized denominations, stated maturities, principal amounts, and bearing applicable interest rates for transfer and delivery to the registered owners named and at the addresses identified therefor, all in accordance with and pursuant to such written instructions 80470964.4 -8- from the Purchasers, or their designee, and such other information and documentation as the Paying Agent/Registrar may reasonably require. B. Payment of Bonds and Interest. The City hereby further appoints the Paying Agent/Registrar to act as the paying agent for paying the principal of, premium, if any, and interest on the Bonds, all as provided in this Ordinance. The Paying Agent/Registrar shall keep proper records of all payments made by the City and the Paying Agent/Registrar with respect to the Bonds. C. In General. The Bonds (i) shall be issued in fully registered form, without interest coupons, with the principal of and interest on such Bonds to be payable only to the registered owners thereof, (ii) may be redeemed prior to their scheduled maturities, (iii) may be transferred and assigned, (iv) may be converted and exchanged for other Bonds, (v) shall have the characteristics, (vi) shall be signed, sealed, executed and authenticated, (vii) the principal of and interest on which shall be payable, and (viii) shall be administered and the Paying Agent/Registrar and the City shall have certain duties and responsibilities with respect to the Bonds, all as provided, and in the manner and to the effect as required or indicated, in the FORM OF BOND. The Initial Bonds are not required to be, and shall not be, authenticated by the Paying Agent/Registrar, but on each substitute Bond issued in conversion of and exchange for any Bond or Bonds issued under this Ordinance the Paying Agent/Registrar shall execute the Authentication Certificate. D. Substitute Paying Agent/Registrar. The City covenants to maintain and provide a Paying Agent/Registrar at all times until the Bonds are paid, and any successor Paying Agent/Registrar shall be a bank, trust company, financial institution, or other entity duly qualified and legally authorized to serve as and perform the duties and services of Paying Agent/Registrar. Upon any change (which shall be at the sole discretion of the City) in the Paying Agent/Registrar for the Bonds, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Bonds by United States mail, first class postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. In addition, the previous Paying Agent/Registrar promptly shall transfer and deliver the Registration Books (or a copy thereof), along with all other pertinent books and records relating to the Bonds, to the new Paying Agent/Registrar designated and appointed by the City. By accepting the position and performing as such, each Paying Agent/Registrar shall be deemed to have agreed to the provisions of this Ordinance, and a certified copy of this Ordinance shall be delivered to each Paying Agent/Registrar. E. Book Entry Only System. The Bonds issued in exchange for the Initial Bonds shall be initially issued in the form of a separate single fully registered Bond for each Stated Maturity of the Bonds. Upon initial issuance, the ownership of each such Bond shall be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"), and except as provided in Subsection F hereof, all of the Outstanding Bonds shall be registered in the name of Cede & Co., as nominee of DTC. With respect to Bonds registered in the name of Cede & Co., as nominee of DTC, the Issuer and the Paying Agent/Registrar shall have no responsibility or obligation to any securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created ("DTC Participant") to hold securities to facilitate the clearance and settlement of securities transactions 80470964.4 -9- among DTC Participants or to any person on behalf of whom such a DTC Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence, the Issuer and the Paying Agent/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 Bonds, as shown on the Registration Books, of any notice with respect to the Bonds, or (iii) the payment to any DTC Participant or any other person, other than a registered owner of Bonds, as shown in the Registration Books of any amount with respect to principal of or interest on the Bonds. Notwithstanding any other provision of this Ordinance to the contrary, the Issuer and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Bond is registered in the Registration Books as the absolute owner of such Bond for the purpose of payment of principal, premium, if any, and interest with respect to such Bond, for the purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of, premium, if any, and interest on the Bonds only to or upon the order of the registered owners, as shown in the Registration Books as provided in this Ordinance, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the Issuer's obligations with respect to payment of principal of, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. No person other than a registered owner, as shown in the Registration Books, shall receive a Bond evidencing the obligation of the Issuer to make payments of principal, premium, if any, and interest pursuant to this Ordinance. Upon delivery by DTC to the Paying Agent/Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions in this Ordinance with respect to interest checks being mailed to the registered owner at the close of business on the Record Date (as defined in the FORM OF BOND), the words "Cede & Co." in this Ordinance shall refer to such new nominee of DTC. F. Successor Securities Depository. In the event that the Issuer determines that DTC is incapable of discharging its responsibilities described herein and in the representation letter of the Issuer to DTC in the form attached hereto as Exhibit E and made a part hereof for all purposes (the "Representation Letter") or that it is in the best interest of the beneficial owners of the Bonds that they be able to obtain certificated Bonds, the Issuer 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 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 of the availability through DTC of Bonds and transfer one or more separate Bonds to DTC Participants having Bonds credited to their DTC accounts. In such event, the Bonds shall no longer be restricted to being registered in the Registration Books 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 registered owners transferring or exchanging Bonds shall designate, in accordance with the provisions of this Ordinance. G. DTC Letter of Representations. Notwithstanding any other provision of this Ordinance to the contrary, so long as any Bond is 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 80470964.4 -10- Bond and all notices with respect to such Bond shall be made and given, respectively, in the manner provided in the Representation Letter. SECTION 6: Form of Bonds. The form of all Bonds, including the form of the Authentication Certificate, the form of Assignment, and the form of the Comptroller's Registration Certificate (to be attached only to the Initial Bonds) shall be, respectively, substantially in the form attached hereto as Exhibit C, with such appropriate variations, omissions, or insertions as are permitted or required by this Ordinance. SECTION 7: Definitions. For all purposes of this Ordinance, except as otherwise expressly provided or unless the context otherwise require, the terms defined in this Section have the meanings assigned to them in this Section, and certain terms used in Sections 23, 32, and 34 of this Ordinance have the meanings assigned to them in such respective Sections. (1) The term "Account" shall mean any account created, established and maintained under the terms of any ordinance authorizing the issuance of Priority Bonds. (2) The term "Accountant" shall mean a nationally recognized independent certified public accountant, or an independent firm of certified public accountants. (3) The term "Additional Priority Bonds" shall mean the additional revenue bonds which the City reserves the right to issue in the future on a parity with the Previously Issued Priority Bonds and the Bonds, as provided in the Base Ordinance and this Ordinance. (4) The term "Amortization Installment" shall mean the amount of money which is required to be deposited into the Mandatory Redemption Account for retirement of Term Bonds (whether at maturity or by mandatory redemption and including redemption premium, if any). (5) The term "Attorney General" shall mean the Office of the Attorney General of the State of Texas. (6) The term "Authorized Denomination" shall have the meaning given such term in Section 3 of this Ordinance. (7) The term "Average Annual Principal and Interest Requirements" shall mean that amount equal to the average annual principal and interest requirements (including Amortization Installments) of all Priority Bonds Outstanding. With respect to Additional Priority Bonds that bear interest at a rate which is not established at the time of issuance at a single numerical rate for each maturity of such series, Average Annual Principal and Interest Requirements shall be calculated by (i) assuming that the interest rate for every 12 -month period on such bonds is equal to 9.20% or (ii) using the highest numerical rate borne over the preceding 24 month period by such bonds, whichever is greater; provided, however, that if such bonds have not borne interest at a variable rate for such 24 month period, such rate shall be assumed to be 9.20% until such time as bonds have been Outstanding for a 24 month period. In making such determinations, it 80470964.4 -11- shall be assumed that the principal of such bonds is amortized such that annual debt service is substantially level over the remaining stated life of such bonds. (8) The term "Base Ordinance" shall mean the ordinance authorizing the issuance of the Series 1990 Bonds. (9) The term "Bonds" shall have the meaning given such term in Section 1 of this Ordinance. (10) The term "Capital Additions" shall mean a reservoir or other water storage facilities, a wastewater treatment plant or an interest therein, a gas distribution system or an interest therein and associated transmission facilities with respect to each and any combination thereof, which shall become a part of the System. (11) The term "Capital Improvements" shall mean any capital extensions, improvements and betterments to the System other than Capital Additions. (12) The term "Capitalized Interest Account" shall mean the Account by that name which may be created within the Debt Service Fund. (13) The terms "City" and "Issuer" shall have the meaning given such terms in the preamble of this Ordinance. (14) The term "Closing Date" shall mean the date of physical delivery of the Initial Bonds in exchange for the payment in full by the Purchasers. (15) The term "Comptroller of Public Accounts" shall mean the Office of the Comptroller of Public Accounts of the State of Texas. (16) The term "Construction Fund" shall mean the fund so designated in Section 13 of this Ordinance. (17) The term "Credit Facility" shall mean a policy of municipal bond insurance, a debt service reserve fund policy or surety bond or a letter or line of credit issued by a Credit Facility Provider in support of any Priority Bonds or Subordinated Obligations. (18) The term "Credit Facility Provider" shall mean (i) with respect to any Credit Facility consisting of a policy of municipal bond insurance or a surety bond, an issuer of policies of insurance insuring the timely payment of debt service on governmental obligations such as the Priority Bonds, provided that a Rating Agency having an outstanding rating on the Priority Bonds would rate the Priority Bonds fully insured by a standard policy issued by the issuer in its highest generic rating category for such obligations; and (ii) with respect to any Credit Facility consisting of a letter or line of credit, any financial institution, provided that a Rating Agency having an outstanding rating on the Priority Bonds would rate the Priority Bonds in its two highest generic rating categories for such obligations if the letter or line of credit proposed to be issued 80470964.4 -12- by such financial institution secured the timely payment of the entire principal amount of the series of Priority Bonds and the interest thereon. (19) The term "Debt Service Fund" shall have the meaning given such term in Section 10 of this Ordinance. (20) The term "DTC" shall have the meaning given such term in Section 5 to this Ordinance. (21) The term "Eligible Investments" shall mean those investments in which the City is authorized by law, including, but not limited to, the Public Funds Investment Act of 1987 (Chapter 2256, as amended, Texas Government Code), to purchase, sell and invest its funds and funds under its control, and with respect to the investment of proceeds of any Priority Bonds, guaranteed investment contracts fully collateralized by Government Obligations. (22) The term "Engineer of Record" shall mean the independent engineer or firm at the time employed by the City to perform and carry out the duties imposed on such engineer or firm by this Ordinance and having a favorable reputation nationally for skill and experience in the engineering of water, sanitary sewer and/or gas systems of comparable size and character as those forming parts of the System. (23) The term "Fund" shall mean any fund created, established and maintained under the terms of any ordinance authorizing the issuance of Priority Bonds. (24) The term "Government Obligations" shall mean (i) with respect to any Previously Issued Priority Bonds, direct obligations of the United States of America, including obligations the principal of and interest on which are unconditionally guaranteed by the United States of America and (ii) with respect to the Bonds and any Additional Priority Bonds hereafter issued by the City, (1) direct noncallable obligations of the United States, including obligations that are unconditionally guaranteed by, the United States of America, or (2) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the issuer adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent, or (3) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the issuer adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent; provided, however, that in the event the term "Government Obligations" shall be used in such a manner other than with respect to the defeasance of Priority Bonds pursuant to Section 18 of this Ordinance, its meaning shall be consistent with that specified in clause (i) above until such time as there are no longer Outstanding any Previously Issued Priority Bonds and, thereafter, it shall have the meaning ascribed thereto in clause (ii). 80470964.4 -13- (25) The term "Gross Revenues" shall mean all revenues, income, and receipts derived or received by the City from the operation and ownership of the System, including the interest income from the investment or deposit of money in any Fund created or confirmed by this Ordinance or maintained by the City in connection with the System, other than those amounts subject to payment to the United States of America as rebate pursuant to section 148 of the Code. (26) The term "Insurer" shall mean Assured Guaranty Corp. (27) The term "Policy" shall mean the financial guaranty insurance policy relating to the Bonds issued by the Insurer. (28) The term "Mandatory Redemption Account" shall mean the Account by that name within the Debt Service Fund and established, if at all, by an ordinance authorizing the issuance of Priority Bonds. (29) The terms "Net Revenues of the System" and "Net Revenues" shall mean all Gross Revenues less Operating Expenses. (30) The term "Operating Expenses" shall mean the expenses of operation and maintenance of the System, including all salaries, labor, materials, repairs, and extensions necessary to render efficient service; provided, however, that only such repairs and extensions, as in the judgment of the City, reasonably and fairly exercised by the passage of appropriate ordinances, are necessary to render adequate service, or such as might be necessary to meet some physical accident or condition which would otherwise impair any Priority Bonds. Operating Expenses shall include the purchase of water, sewer and gas services as received from other entities and the expenses related thereto, and, to the extent permitted by law, Operating Expenses may include payments made on or in respect of obtaining and maintaining any Credit Facility. Depreciation, and payments from the System Fund to other funds established in this Ordinance, shall never be considered as expenses of operation and maintenance. (31) The term "Outstanding" shall mean, as of the date of determination, all Priority Bonds theretofore issued and delivered except: (a) those Priority Bonds theretofore canceled by the respective paying agents for such Priority Bonds or delivered to such paying agents for cancellation; (b) those Priority Bonds for which payment has been duly provided by the City by the irrevocable deposit with the respective paying agents for such Priority Bonds of money in the amount necessary to fully pay principal of, premium, if any, and interest thereon to maturity or redemption, if any, as the case may be, provided that, if such Priority Bonds are to be redeemed, notice of redemption thereof shall have been duly given pursuant to the ordinance authorizing the issuance of such Priority Bonds, irrevocably provided to be given to the satisfaction of such paying agents, or waived; 80470964.4 -14- (c) those Priority Bonds that have been mutilated, destroyed, lost, or stolen and for which replacement bonds have been registered and delivered in lieu thereof; and (d) those Priority Bonds for which the payment of principal thereof, premium, if any, and interest thereon to Stated Maturity re redemption has been duly provided for by the City by the deposit in trust of money or Government Obligations, or both. (32) The term "Paying Agent/Registrar" shall mean the financial institution specified in Section 5(a) of this Ordinance, or its herein -permitted successors and assigns. (33) The term "Pledged Revenues" shall mean (a) the Net Revenues, plus (b) any additional revenues, income, receipts, or other resources, including, without limitation, any grants, donations, or income received or to be received from the United States Government, or any other public or private source, whether pursuant to an agreement or otherwise, which hereafter are pledged to the payment of the Priority Bonds. (34) The term "Previously Issued Priority Bonds" shall have the meaning given said term in the preamble to this Ordinance. (35) The term "Priority Bonds" shall mean the Previously Issued Priority Bonds, the Bonds, and any Additional Priority Bonds. (36) The term "Prudent Utility Practice" shall mean any of the practices, methods and acts, in the exercise of reasonable judgment, in the light of the facts, including but not limited to the practices, methods and acts engaged in or approved by a significant portion of the public utility industry prior thereto, known at the time the decision was made, would have been expected to accomplish the desired result at the lowest reasonable cost consistent with reliability, safety and expedition. It is recognized that Prudent Utility Practice is not intended to be limited to the optimum practice, method or act at the exclusion of all others, but rather is a spectrum of possible practices, methods or acts which could have been expected to accomplish the desired result at the lowest reasonable cost consistent with reliability, safety and expedition. In the case of any facility included in the System which is owned in common with one or more other entities, the term "Prudent Utility Practice", as applied to such facility, shall have the meaning set forth in the agreement governing the operation of such facility. (37) The term "Purchase Contract" shall have the meaning given such term in Section 2 of this Ordinance; (38) The term "Purchasers" shall have the meaning given such term in Section 2 of this Ordinance. 80470964.4 -15- (39) The term "Rating Agency" shall mean any nationally recognized securities rating agency which has assigned a rating to the Priority Bonds. (40) The term "Required Amount" shall have the meaning given such term in Section 11 of this Ordinance. (41) The term "Reserve Fund" shall have the meaning given such term in Section 11 of this Ordinance. (42) The term "Reserve Fund Obligations" shall mean cash, Eligible Investments, any Credit Facility, or any combination of the foregoing. (43) The term "Series 1990 Bonds" shall mean the $64,660,000 City of Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 1990, authorized by the ordinance adopted by the City on November 15, 1990; the term "Series 1999 Bonds" shall mean the $47,740,000 City of Corpus Christi, Texas Utility System Revenue Refunding and Improvement Bonds Series 1999, authorized by the ordinance adopted by the City on May 11, 1999; the term "Series 1999-A Bonds" shall mean the $15,750,000 City of Corpus Christi, Texas Utility System Revenue Refunding and Improvement Bonds, Series 1999-A, authorized by the ordinance adopted by the City on April 20, 1999; the term "Series 2000 Bonds" shall mean the $34,740,000 City of Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 2000, authorized by the ordinance adopted by the City on May 11, 1999 (as amended by ordinance adopted on June 15, 1999); the term "Series 2000-A Bonds" shall mean the $42,520,000 City of Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 2000-A, authorized by the ordinance adopted by the City on September 19, 2000; the term "Series 2002 Bonds" shall mean the $92,330,000 City of Corpus Christi, Texas Utility System Revenue Refunding and Improvement Bonds, Series 2002, authorized by the ordinance adopted by the City on August 20, 2002; the term "Series 2003 Bonds" shall mean the $28,870,000 City of' Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 2003, authorized by the ordinance adopted by the City on March 25, 2003; the term "Series 2004 Bonds" shall mean the $50,000,000 City of Corpus Christi, Texas Utility System Revenue Refunding and Improvement Bonds, Series 2004, authorized by the ordinance adopted by the City on July 13, 2004; the term "Series 2005 Bonds" shall mean the $70,390,000 City of Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 2005, authorized by the ordinance adopted by the City on December 21, 2004; the term "Series 2005A Bonds" shall mean the $68,325,000 City of' Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 2005A, authorized by the ordinance adopted by the City on August 30, 2005; and the term "Series 2006 Bonds" shall mean the $84,415,000 City of Corpus Christi, Texas Utility System Revenue Refunding and Improvement Bonds, Series 2006, authorized by the ordinance adopted by the City on September 26, 2006. (44) The term "Subordinated Obligations" shall mean any bonds, notes, or other obligations issued pursuant to law payable in whole or in part from the Pledged Revenues but subordinate to the Priority Bonds, which includes the Series B Commercial Paper Notes. 80470964.4 -16- (45) The term "System" shall mean and include the City's existing combined waterworks system, wastewater disposal system and gas system, together with all future extensions, improvements, enlargements, and additions thereto, including, to the extent permitted by law, storm sewer and drainage within the waterworks system, and all replacements thereof; provided that, notwithstanding the foregoing, and to the extent now or hereafter authorized or permitted by law, the term System shall not include any waterworks, wastewater or gas facilities which are declared by the City not to be a part of the System and which are hereafter acquired or constructed by the City with the proceeds from the issuance of "Special Facilities Bonds", which are hereby defined as being special revenue obligations of the City which are not secured by or payable from the Pledged Revenues, but which are secured by and payable solely from special contract revenues, or payments received from the City or any other legal entity, or any combination thereof, in connection with such facilities; and such revenues or payments shall not be considered as or constitute Gross Revenues of the System, unless and to the extent otherwise provided in the ordinance or ordinances authorizing the issuance of such "Special Facilities Bonds". (46) The term "System Fund" shall have the meaning given such term in Section 9 of this Ordinance. (47) The term "Term Bonds" shall have the meaning given such term in Section 3 of this Ordinance. (48) The term "Value of Investment Securities" and words of like import shall mean the amortized value thereof; provided, however, that all United States of America, United States Treasury Obligations --State and Local Government Series shall be valued at par and those obligations which are redeemable at the option of the holder shall be valued at the price at which such obligations are then redeemable. The computations made under this paragraph shall include accrued interest on the investment securities paid as a part of the purchase price thereof and not collected. For the purposes of this definition, "amortized value", when used with respect to a security purchased at par, means the purchase price of such security. (49) The term "Year" shall mean the regular fiscal year used by the City in connection with the operation of the System, which may be any twelve consecutive months period established by the City, currently being the period of time beginning on August 1 and ending on July 31. SECTION 8: Pledge. A. Pledged Revenues. The Priority Bonds are and shall be secured by and payable from a first lien on and pledge of the Pledged Revenues including such revenues within the System Fund and the Funds hereinafter created in this Ordinance; and the Pledged Revenues are further pledged to the establishment and maintenance of the Debt Service Fund and the Reserve Fund as hereinafter provided. The Priority Bonds are and will be secured by and payable only from the Pledged Revenues, and are not secured by or payable from a mortgage or deed of trust on any properties, whether real, personal, or mixed, constituting the System. 80470964.4 -17_ B. Security Interest. Chapter 1208, as amended, Texas Government Code, applies to the issuance of the Bonds and the pledge of the Pledged Revenues granted by the City under Subsection A of this Section, and such pledge is therefore valid, effective, and perfected. If Texas law is amended at any time while the Bonds are Outstanding and unpaid such that the pledge of the Pledged Revenues granted by the City is to be subject to the filing requirements of Chapter 9, as amended, Texas Business & Commerce Code, then in order to preserve to the registered owners of the Bonds the perfection of the security interest in said pledge, the City agrees to take such measures as it determines are reasonable and necessary under Texas law to comply with the applicable provisions of Chapter 9, as amended, Texas Business & Commerce Code and enable a filing to perfect the security interest in said pledge to occur. SECTION 9: System Fund. There has heretofore been created and established and there shall be maintained on the books of the City, and accounted for separate and apart from all other funds of the City, a special fund entitled the "City of Corpus Christi Utility System Fund" (the "System Fund"). All Gross Revenues shall be credited to the System Fund immediately upon receipt. All Operating Expenses shall be paid from such Gross Revenues credited to the System Fund as a first charge against same. SECTION 10: Debt Service Fund. A. Debt Service Fund Established. For the sole purpose of paying the principal amount of, premium, if any, Amortization Installments, if any, and interest on all Priority Bonds, there has heretofore been created and established and there shall be maintained on the books of the City a separate fund entitled the "City of Corpus Christi Utility System Revenue Bonds Debt Service Fund" (the "Debt Service Fund"). Money in the Debt Service Fund shall be deposited and maintained in an official depository bank of the City. B. Capitalized Interest Account. Within the Debt Service Fund there may hereafter be established a Capitalized Interest Account. The proceeds of Priority Bonds representing capitalized interest may be deposited into the Capitalized Interest Account. On or before the day next preceding any interest payment date of Priority Bonds or other obligations for which any interest has been capitalized, the City shall use the money in the Capitalized Interest Account to pay such interest on such Priority Bonds or other obligations to the extent of the amounts therein representing such capitalized interest. C. Mandatory Redemption Account. Within the Debt Service Fund there has heretofore been established the Mandatory Redemption Account. Amortization Installments shall be deposited to the credit of the Mandatory Redemption Account and be used to retire the principal amount of Term Bonds in the manner described in any ordinance, including this Ordinance, authorizing the issuance of Term Bonds. D. Surplus Proceeds. Effective at such time as the Previously Issued Priority Bonds are no longer Outstanding, the City may transfer excess amounts held in the Debt Service Fund to any fund or funds established for the payment of or security for the Priority Bonds (including any escrow established for the final payment of any such obligations pursuant to Chapter 1207, as amended, Texas Government Code) or use such excess amount for any lawful purpose now or 80470964.4 -18- hereafter provided by law; provided, however, to the extent that such excess amount represents bond proceeds, then such amount must remain in the Debt Service Fund. SECTION 11: Reserve Fund. A. Reserve Fund Established. There has heretofore been created and established and there shall be maintained on the books of the City a separate fund entitled the "City of Corpus Christi Utility System Revenue Bonds Reserve Fund" (the "Reserve Fund"). There shall be deposited into the Reserve Fund any Reserve Fund Obligations so designated by the City. Reserve Fund Obligations in the Reserve Fund shall be deposited and maintained in an official depository bank of the City. Reserve Fund Obligations in the Reserve Fund shall be used solely for the purpose of retiring the last of any Priority Bonds as they become due or paying principal of and interest on any Priority Bonds when and to the extent the amounts in the Debt Service Fund are insufficient for such purpose. The Reserve Fund shall be maintained in an amount equal to the Average Annual Principal and Interest Requirements of the Outstanding Priority Bonds (the "Required Amount"). The City may, at its option, withdraw and transfer to the System Fund, all surplus in the Reserve Fund over the Required Amount. B. Credit Facility. The City may replace or substitute a Credit Facility for cash or Eligible Investments on deposit in the Reserve Fund or in substitution for or replacement of any existing Credit Facility. Upon such replacement or substitution, cash or Eligible Investments on deposit in the Reserve Fund which, taken together with the face amount of any existing Credit Facilities, are in excess of the Required Amount may be withdrawn by the City, at its option, and transferred to the System Fund; provided, however, that the face amount of any Credit Facility may be reduced at the option of the City in lieu of such transfer. C. Withdrawals. If the City is required to make a withdrawal from the Reserve Fund for any of the purposes described in this Section, the City shall promptly notify any applicable Credit Facility Provider of the necessity for a withdrawal from the Reserve Fund for any such purposes, and shall make such withdrawal FIRST from available money or Eligible Investments then on deposit in the Reserve Fund, and NEXT from a drawing under any Credit Facility to the extent of such deficiency. D. Deficiencies. In the event of a deficiency in the Reserve Fund, or in the event that on the date of termination or expiration of any Credit Facility there is not on deposit in the Reserve Fund sufficient Reserve Fund Obligations, all in an aggregate amount at least equal to the Required Amount, then the City shall satisfy the Required Amount by depositing Reserve Fund Obligations into the Reserve Fund in monthly installments of not less than 1/60 of the Required Amount made on or before the 10th day of each month following such termination or expiration. E. Redemption; Defeasance. In the event of the redemption or defeasance of any Priority Bonds, any Reserve Fund Obligations on deposit in the Reserve Fund in excess of the Required Amount may be withdrawn and transferred, at the option of the City, to the System Fund, as a result of (i) the redemption of any Priority Bonds, or (ii) funds for the payment of any Priority Bonds having been deposited irrevocably with the paying agent or place of payment therefor in the manner described in any ordinance authorizing the issuance of Priority Bonds, the 80470964.4 -19- result of such deposit being that such Priority Bonds no longer are deemed to be Outstanding under the terms of any such ordinance. F. Reimbursement of Credit Facility Provider. In the event there is a draw upon a Credit Facility, the City shall reimburse the Credit Facility Provider for such draw, in accordance with the terms of any agreement pursuant to which the Credit Facility is issued, from Pledged Revenues; provided, however, such reimbursement from Pledged Revenues shall be subordinate and junior in right of payment to the payment of principal of and premium, if any, and interest on the Priority Bonds. G. Additional Priority Bonds. Upon the issuance of Additional Priority Bonds the money in the Reserve Fund shall be increased to the newly -established Required Amount in accordance with the provisions of Section 20B of this Ordinance. SECTION 12: Subordinated Obligations Funds and Accounts. The City hereafter may create, establish and maintain on the books of the City separate funds and accounts from which money can be withdrawn to pay the principal of and interest on Subordinated Obligations which hereafter may be issued. SECTION 13: Construction Fund. The City hereby creates and establishes and shall maintain on the books of the City a separate fund to be entitled the "Series 2009 Utility System Revenue Bonds Construction Fund" (the "Construction Fund") for use by the City for payment of all lawful costs associated with the acquisition, improvement and extension of the System as hereinbefore provided. There shall be deposited to the Construction Fund those proceeds from the sale of the Bonds specified in Section 28 of this Ordinance. Upon payment of all such costs, any money remaining on deposit in said Fund shall be transferred to the Debt Service Fund. Amounts so deposited to the Debt Service Fund shall be used in the manner described in Subsection 22P of this Ordinance. SECTION 14: Investments. Money in any Fund established pursuant to this Ordinance may, at the option of the City, be placed or invested in Eligible Investments. Money in the Reserve Fund shall not be invested in securities with an average aggregate weighted maturity of greater than seven years. If money in a Fund herein established are permitted to be invested, the value of any such Fund shall be established by adding the money therein to the Value of Investment Securities. The value of each such Fund shall be established annually during the last month of each Year, and in addition thereto and with respect to the Reserve Fund, value shall be established within thirty days prior to the issuance of Priority Bonds and at the time or times withdrawals are made therefrom. Such investments shall be sold promptly when necessary to prevent any default in connection with the Priority Bonds. Earnings derived from the investment of money on deposit in the various Funds and Accounts created hereunder shall be credited to the Fund or Account from which money used to acquire such investment shall have come. SECTION 15: Funds Secured. Money in the System Fund and all Funds created by this Ordinance, to the extent not invested, shall be secured in the manner prescribed by law for securing funds of the City. 80470964.4 -20- SECTION 16: Flow Of Funds. All money in the System Fund not required for paying Operating Expenses during each month shall be applied by the City, on or before the 10th day of the following month, commencing during the months and in the order of priority with respect to the Funds and Accounts that such applications are hereinafter set forth in this Section. A. Debt Service Fund. To the credit of the Debt Service Fund, in the following order of priority, to -wit: (1) such amounts, deposited in approximately equal monthly installments, commencing during the month in which the Priority Bonds are delivered, or the month thereafter if delivery is made after the 10th day thereof, as will be sufficient, together with other amounts, if any, in the Debt Service Fund available for such purpose (including specifically money on deposit in the Capitalized Interest Account, if any, dedicated thereto), to pay the interest scheduled to come due on Priority Bonds on the next succeeding interest payment date; (2) such amounts, deposited in approximately equal monthly installments, commencing during the month which shall be the later to occur of (i) the twelfth month before the first maturity date of Priority Bonds or (ii) the month in which Priority Bonds are delivered, or the month thereafter if delivery is made after the 10th day thereof, as will be sufficient, together with other amounts, if any, in the Debt Service Fund available for such purpose, to pay the principal scheduled to mature on Priority Bonds on the next succeeding principal payment date; and (3) Amortization Installments, in such amounts and on such dates as set forth in any ordinance authorizing a series of Priority Bonds which contain Term Bonds within such series, to pay scheduled principal amounts of Priority Bonds which constitute Term Bonds to be redeemed in accordance with the terms of said ordinance. B. Reserve Fund. To the credit of the Reserve Fund, such amounts, deposited in approximately equal monthly installments, commencing during the month in which the Priority Bonds are delivered, or the month thereafter if delivery is made after the 10th day thereof, equal to not less than 1/60 of the Required Amount, until such time as such amounts together with other amounts, if any, in the Reserve Fund, equal the Required Amount. When and so long as the Reserve Fund Obligations in the Reserve Fund are not less than the Required Amount, no deposits need be made to the credit of the Reserve Fund. When and if the Reserve Fund at any time contains less than the Required Amount due to any cause or condition other than the issuance of Additional Priority Bonds then, subject and subordinate to making the required deposits to the credit of the Debt Service Fund, commencing with the month during which such deficiency occurs, such deficiency shall be made up from the next available Pledged Revenues or from any other sources available for such purpose. Reimbursements to a Credit Facility Provider made in accordance with the terms of Subsection 11F of this Ordinance shall constitute the making up of a deficiency to the extent that such reimbursements result in the reinstatement, in whole or in part, as the case may be, of the amount of the Credit Facility. If the Reserve Fund contains less than the Required Amount due to the issuance of Additional Priority Bonds, deposits shall be made to the Reserve Fund commencing during the month and in the amounts required by Subsection 20B of this Ordinance, unless a Credit Facility is deposited in the 80470964.4 -21- Reserve Fund in an amount necessary to cause the sum of money and the value of Investment Securities and any other Credit Facilities in the Reserve Fund to equal the Required Amount. C. Surplus. The balance of any money remaining in the System Fund following such transfers may be used by the City for payment of other obligations of the System, including, but not limited to, Subordinated Obligations, and for any other lawful purpose; provided, however, that transfers made for purposes other than for payment of obligations of the System shall be made only at the end of the Year. SECTION 17: Deficiencies. If on any occasion there shall not be sufficient Pledged Revenues to make the deposits and other applications of money required by Section 16 with respect to the various Funds as provided therein, any such deficiencies shall be made up (in the order that each such Fund is provided for in Section 16) as soon as possible from the next available Pledged Revenues, or from any other sources available for such purpose. The foregoing notwithstanding, however, if any deficiency in the Reserve Fund occurs as a result of withdrawals therefrom or decreases in the market value of Eligible Investments on deposit therein, such deficiency will be made up from the next available Pledged Revenues within twelve months from the date of such deficiency is determined, with such deposits to the Reserve Fund to be made in not more than twelve substantially equal monthly payments. SECTION 18: Payment of Bonds. On or before the first scheduled interest payment date, and on or before each interest payment date and principal payment date thereafter while any of the Priority Bonds are Outstanding and unpaid, the City shall make available to the paying agent therefor, out of the Debt Service Fund (and the other Funds, if necessary, in the order of priority set forth herein) money sufficient to pay such interest on and such principal amount of the Priority Bonds, as shall become due and mature on such dates, respectively, at maturity or by redemption prior to maturity. The bond registrar for each series of Priority Bonds shall destroy all paid Priority Bonds and furnish the City with an appropriate certificate of cancellation or destruction. SECTION 19: Final Deposits; Government Obligations. A. Defeasance. Any Priority Bond shall be deemed to be paid, retired and no longer Outstanding within the meaning of this Ordinance when payment of the principal amount of, redemption premium, if any, on such Priority Bond, plus interest thereon to the due date thereof (whether such due date be by reason of maturity, upon redemption, or otherwise) either (i) shall have been made in accordance with the terms thereof or (ii) shall have been provided for by irrevocably depositing with, or making available to, a paying agent (or escrow agent) therefor, in trust and irrevocably set aside exclusively for such payment, in accordance with the terms and conditions of an agreement between the City and said paying agent (or escrow agent), (1) money sufficient to make such payment or (2) Government Obligations, certified by an independent public accounting firm of national reputation, to mature as to principal and interest in such amounts and at such times as will insure the availability, without reinvestment, of sufficient money to make such payment, and all necessary and proper fees, compensation, and expenses of such paying agent pertaining to the Priority Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for (and irrevocable instructions shall have been given by the City to the paying agent of such bonds to give notice of such redemption in the 80470964.4 -22- manner required by the ordinance or ordinances authorizing the issuance of such bonds) to the satisfaction of such paying agent. Such paying agent shall give notice to each registered owner of any Priority Bond that such deposit as described above has been made, in the same manner as described in Section 3B of this Ordinance. In addition, in connection with a defeasance, such paying agent shall give notice of redemption, if necessary, to the registered owners of any Priority Bonds in the manner described in such Priority Bonds and as directed in the redemption instructions delivered by the City to such paying agent. At such time as a Priority Bond shall be deemed to be paid hereunder, as aforesaid, it shall no longer be secured by or entitled to the benefit of this Ordinance or a lien on and pledge of the Pledged Revenues, and shall be entitled to payment solely from such money or Government Obligations. Notwithstanding any other provision of this Ordinance to the contrary, it is hereby provided that any determination not to redeem defeased Bonds that is made in conjunction with the payment arrangements specified in subsection (i) or (ii) above shall not be irrevocable, provided that: (1) in the proceedings providing for such defeasance, the City expressly reserves the right to call the defeased Bonds for redemption; (2) gives notice of the reservation of that right to the owners of the defeased Bonds immediately following the defeasance; (3) directs that notice of the reservation be included in any redemption notices that it authorizes; and (4) at the time of the redemption, satisfies the conditions of (i) or (ii) above with respect to such defeased debt as though it was being defeased at the time of the exercise of the option to redeem the defeased Bonds, after taking the redemption into account in determining the sufficiency of the provisions made for the payment of the defeased Bonds. B. Government Obligations. Any money so deposited with a paying agent (or escrow agent) may, at the direction of the City, also be invested in Government Obligations, maturing in the amounts and times as hereinbefore set forth, and all income from all Government Obligations in the hands of the paying agent (or escrow agent) pursuant to this Section which is not required for the payment of the principal of such Priority Bonds, the redemption premium, if any, therefor, and interest thereon, with respect to which such money has been so deposited, shall be remitted to the City for deposit into the System Fund. C. Payment of Priority Bonds. Except as provided in Subsection B of this Section, all money or Government Obligations set aside and held in trust pursuant to the provisions of this Section for the payment of the principal of such Priority Bonds, the redemption premium, if any, therefor, and interest thereon, shall be applied solely to and used solely for the payment of such Priority Bonds, such redemption premium, if any, and interest thereon. SECTION 20: Issuance of Additional Priority Bonds. A. Reservation of Right to Issue Additional Priority Bonds. Subject to the provisions hereinafter appearing as conditions precedent which must first be satisfied, the City reserves the right to issue, from time to time as needed, Additional Priority Bonds for any lawful purpose relating to the System. Such Additional Priority Bonds may be issued in such form and manner as now or hereafter authorized by the laws of the State of Texas for the issuance of evidences of indebtedness or other instruments, and should new methods or financing techniques be developed that differ from those now available and in normal use, the City reserves the right to 80470964.4 -23- employ the same in its financing arrangements provided only that the same conditions precedent herein required for the authorization and issuance of Additional Priority Bonds are satisfied. B. Debt Service Fund and Reserve Fund: Funding Reserve Fund. The Debt Service Fund and the Reserve Fund confirmed by this Ordinance shall secure and be used to pay all Additional Priority Bonds hereafter issued. Upon the issuance and delivery of Additional Priority Bonds, the additional amount required to be deposited in the Reserve Fund shall be so accumulated by the deposit in the Reserve Fund of all or any part of said required additional amount in cash immediately after the delivery of such Additional Priority Bonds, or, at the option of the City, (i) by the deposit of said required additional amount (or any balance of said required additional amount not deposited in cash as permitted above) in approximately equal monthly installments, made on or before the 10th day of each month following the delivery of such Additional Priority Bonds, of not less than 1/60th of said required additional amount (or 1/60th of the balance of said required additional amount not deposited in cash as permitted above) or (ii) by the deposit of a Credit Facility which, in whole or in combination with deposits described in clause (i) above, is sufficient to satisfy the required additional amount to be on deposit in the Reserve Fund. C. Calculations. All calculations of Average Annual Principal and Interest Requirements made pursuant to this Section shall be made as of and from the date of the Additional Priority Bonds then proposed to be issued. SECTION 21: Further Requirements for Additional Priority Bonds. A. Conditions Precedent for Issuance of Additional Priority Bonds - General. As a condition precedent to the issuance of any Additional Priority Bonds, the City Manager (or other officer of the City then having the responsibility for the financial affairs of the City) shall have executed a certificate stating (i) that the City is not then in default as to any covenant, obligation or agreement contained in any ordinance or other proceeding relating to any obligations of the City payable from and secured by a lien on and pledge of the Pledged Revenues and (ii) that the amounts on deposit in all Funds or Accounts created and established for the payment and security of all Outstanding obligations payable from and secured by a lien on and pledge of the Pledged Revenues are the amounts then required to be deposited therein. Such certificate shall be dated on or before the date of delivery of such Additional Priority Bonds, but such certificate shall not be dated prior to the date an ordinance is passed authorizing the issuance of such Additional Priority Bonds. B. Conditions Precedent for Issuance of Additional Priority Bonds - Capital Improvements and for any other Lawful Purpose except for Capital Additions or for Refunding. The City covenants and agrees that Additional Priority Bonds will not be issued for the purpose of financing Capital Improvements, or for any other lawful purpose (except for Capital Additions or for refunding, which are to be issued in accordance with the provisions of Subsection C, D or E of this Section) unless and until the conditions precedent in Subsection A above have been satisfied and, in addition thereto, the City has secured a certificate or opinion of the Accountant to the effect that, according to the books and records of the City, the Net Earnings (as hereinafter defined) for the preceding Year or for 12 consecutive months out of the 15 months immediately preceding the month the ordinance authorizing the Additional Priority Bonds is adopted are at 80470964.4 -24- least equal to 1.25 times the Average Annual Principal and Interest Requirements for all Outstanding Priority Bonds after giving effect to the Additional Priority Bonds then proposed. The foregoing notwithstanding, the City covenants and agrees that Additional Priority Bonds may not be issued for the purpose of financing Capital Improvements when other Outstanding Priority Bonds which have been issued for the purpose of financing Capital Additions and for which capitalized interest for such other Priority Bonds has been provided for at least the twelve months subsequent to the date of issuance of the Additional Priority Bonds then proposed to be issued, unless the conditions precedent in Subsection A above have been satisfied and, in addition thereto, the City has either (1) complied with the relevant conditions in this Subsection as set forth above, or (2) if the relevant conditions of this Subsection B as set forth above cannot be satisfied, the City has satisfied the conditions precedent in Subsection C(i) and (ii) of this Section (but, for purposes of such clauses, the term Capital Improvements shall be substituted for the term Capital Additions where the term Capital Additions appears therein to the extent necessary to give recognition to the fact that Capital Improvements, rather than Capital Additions, are then to be financed) and has secured a certificate or opinion of the Accountant to the effect that, according to the books and records of the City, the Net Earnings for the preceding Year or for 12 consecutive months out of the 15 months immediately preceding the month the ordinance authorizing the Additional Priority Bonds is adopted are at least equal to 1.25 times the Average Annual Principal and Interest Requirements for all Outstanding Priority Bonds (other than any Priority Bonds issued for Capital Additions for which capitalized interest has been provided for at least the twelve months subsequent to the date of issuance of the Additional Priority Bonds proposed to be issued) after giving effect to the Priority Bonds then proposed. C. Conditions Precedent for Issuance of Additional Priority Bonds - Capital Additions: Initial Issue. The City covenants and agrees that Additional Priority Bonds will not be issued for the purpose of financing Capital Additions, unless the same conditions precedent specified in Subsection A above have been satisfied and, in addition thereto, either the relevant conditions precedent specified in Subsection B above are satisfied or, in the alternative, the City shall have obtained: (i) from the Engineer of Record a comprehensive Engineering Report for each Capital Addition to be financed, which report shall (A) contain (1) detailed estimates of the cost of acquiring and constructing the Capital Addition, (2) the estimated date the acquisition and construction of the Capital Addition will be completed and commercially operative, and (3) a detailed analysis of the impact of the Capital Addition on the financial operations of the system for which the Capital Addition is to be integrated and to the System as a whole during the construction thereof and for at least five Years after the date the Capital Addition becomes commercially operative, and (B) conclude that (1) the Capital Addition is necessary and will substantially increase the capacity, or is needed to replace existing facilities, to meet current and projected demands for the service or product to be provided thereby, and (2) the estimated cost of providing the service or product from the Capital Addition will be reasonable in comparison with projected costs for furnishing such service or product from other reasonably available sources; and (ii) a certificate of the Engineer of Record to the effect that, based on the Engineering Report prepared for each Capital Addition, the projected Net Earnings for each of the five Years subsequent to the date the Capital Addition becomes commercially operative (as estimated in the Engineering Report) will be equal to at least 1.25 times the Average Annual Principal and Interest Requirements for Priority Bonds then Outstanding or incurred and all Priority Bonds estimated to be issued, if any, for all Capital Improvements and for all Capital Additions then in progress or then being initiated, during the period from the date the first series 80470964.4 -25- of obligations for the Capital Additions is to be delivered through the fifth Year subsequent to the date the Capital Addition is estimated to become commercially operative. D. Completion Issues. Once a Capital Addition has been initiated by meeting the conditions precedent specified in Subsection C(i) and (ii) above and the initial Priority Bonds issued therefor are delivered, the City reserves the right to issue Additional Priority Bonds to finance the remaining costs of such Capital Addition in such amounts as may be necessary to complete the acquisition and construction thereof and make the same commercially operative without satisfaction of any condition precedent under Subsection C(i) and (ii) or Subsection B of this Section but subject to satisfaction of the following conditions precedent: (i) the City makes a forecast (the "Forecast") of the operations of the System demonstrating the System's ability to pay all obligations, payable from the Pledged Revenues of the System to be Outstanding after the issuance of the Additional Priority Bonds then being issued for the period (the "Forecast Period") of each ensuing Year through the fifth Year subsequent to the latest estimated date such Capital Addition is expected to be commercially operative; and (ii) the Engineer of Record reviews such Forecast and executes a certificate to the effect that (A) such Forecast is reasonable, and based thereon (and such other factors deemed to be relevant), the Pledged Revenues of the System will be adequate to pay all the obligations, payable from the Pledged Revenues of the System to be Outstanding after the issuance of the Additional Priority Bonds then being issued for the Forecast Period and (B) the proceeds from the sale of such Additional Priority Bonds are estimated to be sufficient to complete such acquisition and construction. E. Refunding Issues. The City reserves the right to issue refunding bonds to refund all or any part of the Outstanding Priority Bonds (pursuant to any law then available), upon such terms and conditions as the governing body of the City may deem to be in the best interest of the City and its inhabitants, and if less than all such Outstanding Priority Bonds are refunded, the conditions precedent prescribed in Subsection A and B of this Section shall be satisfied and the Accountant's certificate or opinion required by Subsection B shall give effect to the issuance of the proposed refunding bonds (and shall not give effect to the Priority Bonds being refunded following their cancellation or provision being made for their payment). In addition, the City reserves the right to refund all or any part of any other obligations of the System, upon such terms and conditions as the Governing Body of the City may deem to be in the best interest of the City and its inhabitants, provided that the conditions prescribed in Subsection A and B of this Section shall be satisfied. No Accountant's certificate otherwise required by Subsection B will be required for refunding bonds, after giving effect to such proposed refunding, if there is no increase in debt service for any Year in which there will be debt service on Priority Bonds Outstanding both before and after such refunding. F. Computations; Reports. With reference to Priority Bonds anticipated and estimated to be issued or incurred, the Average Annual Principal and Interest Requirements therefor shall be those reasonably estimated and computed by the City's Director of Financial Services (or other officer of the City then having the primary responsibility for the financial affairs of the City). In the preparation of the Engineering Report required in Subsection C(i) above, the Engineer of Record may rely on other experts or professionals, including those in the employment of the City, provided such Engineering Report discloses the extent of such reliance and concludes it is reasonable so to rely. In connection with the issuance of Priority Bonds for Capital Additions, the certificate of the City's Director of Financial Services and Engineer of 80470964.4 -26- Record, together with the Engineering Report for the initial issue and the Forecast for a subsequent issue, shall be conclusive evidence and the only evidence required to show compliance with the provisions and requirements and this clause of this Section. G. Combination Issues. Priority Bonds for Capital Additions may be combined in a single issue with Priority Bonds for Capital Improvements or for any lawfirl purpose provided the conditions precedent set forth in Subsection B through E are complied with as the same relate to the appropriate purpose. H. Subordinated Obligations. The City may, at any time and from time to time, for any lawful purpose, issue Subordinated Obligations, the principal of and redemption premium, if any, and interest on which is payable from and secured by a pledge of and lien on the Pledged Revenues junior and subordinate to the lien and pledge created hereby for the security of the Priority Bonds and the payments required to be made hereunder into the Debt Service Fund and the Reserve Fund; provided, however, that any such pledge and lien securing the Subordinated Obligations shall be, and shall be expressed to be, subordinate in all respects to the pledge of and lien on the Pledged Revenues as security for the Priority Bonds; and provided father that any default with respect to the issuance of Subordinated Obligations will not be deemed a default with respect to the Priority Bonds. I. Definition of Net Earnings. As used in this Section, the term "Net Earnings" shall mean the Gross Revenues of the System after deducting the Operating Expenses of the System, but not expenditures which, under standard accounting practice, should be charged to capital expenditures. J. Determination of Net Earnings. In making a determination of Net Earnings for any of the purposes described in this Section, the Accountant may take into consideration a change in the rates and charges for services and facilities afforded by the System that became effective at least 60 days prior to the last day of the period for which Net Earnings are determined and, for purposes of satisfying any of the Net Earnings test described above, make a pro forma determination of the Net Earnings of the System for the period of time covered by the Accountant's certification or opinion based on such change in rates and charges being in effect for the entire period covered by the Accountant's certificate or opinion. SECTION 22: General Covenants. The City further covenants and agrees that in accordance with and to the extent required or permitted by law: A. Performance. It will faithfully perform at all times any and all covenants, undertakings, stipulations, and provisions contained in this Ordinance, and each ordinance authorizing the issuance of Additional Priority Bonds; it will promptly pay or cause to be paid the principal amount of and interest on every Priority Bond, on the dates and in the places and manner prescribed in such ordinances and such Priority Bonds; and it will, at the time and in the manner prescribed, deposit or cause to be deposited the amounts required to be deposited into the System Fund and the Funds herein created; and any registered owner of any Priority Bond may require the City, its officials and employees to carry out, respect or enforce the covenants and obligations of this Ordinance, or any ordinance authorizing the issuance of Priority Bonds, by all legal and equitable means, including specifically, but without limitation, the use and filing of 80470964.4 _27_ mandamus proceedings, in any court of competent jurisdiction, against the City, its officials and employees. B. City's Legal Authority. It is a duly created and existing home rule city of the State of Texas, and is duly authorized under the laws of the State of Texas to issue the Bonds; that all action on its part for the issuance of the Bonds has been duly and effectively taken, and that the Bonds in the hands of the owners thereof' are and will be valid and enforceable special obligations of the City in accordance with their terms. C. Acquisition and Construction; Operation and Maintenance. (I) It shall use its best efforts in accordance with Prudent Utility Practice to acquire and construct, or cause to be acquired and constructed, any Capital Additions or Capital Improvements, in accordance with the plans and specifications therefor, as modified from time to time, with due diligence and in a sound and economical manner; and (2) it shall at all times use its best efforts to operate or cause to be operated the System properly and in an efficient manner, consistent with Prudent Utility Practice, and shall use its best efforts to maintain, preserve, reconstruct and keep the same or cause the same to be so maintained, preserved, reconstructed and kept, with the appurtenances and every part and parcel thereof, in good repair, working order and condition, and shall from time to time make, or use its best efforts to cause to be made, all necessary and proper repairs, replacement and renewals so that at all times the operation of the System may be properly and advantageously conducted. D. Title. It has or will obtain lawful title, whether such title is in fee or lesser interest, to the lands, buildings, structures and facilities constituting the System, that it warrants that it will defend the title to all the aforesaid lands, buildings, structures and facilities, and every part thereof, for the benefit of the owners of the Priority Bonds, against the claims and demands of all persons whomsoever, that it is lawfully qualified to pledge the Pledged Revenues to the payment of the Priority Bonds in the manner prescribed herein, and has lawfully exercised such rights. E. Liens. It will from time to time and before the same become delinquent pay and discharge all taxes, assessments and governmental charges, if any, which shall be lawfully imposed upon it, or the System; it will pay all lawful claims for rents, royalties, labor, materials and supplies which if unpaid might by law become a lien or charge thereon, the lien of which would be prior to or interfere with the liens hereof, so that the priority of the liens granted hereunder shall be fully preserved in the manner provided herein, and it will not create or suffer to be created any mechanic's, laborer's, materialman's or other lien or charge which might or could be prior to the liens hereof, or do or suffer any matter or thing whereby the liens hereof might or could be impaired; provided however, that no such tax, assessment or charge, and that no such claims which might be used as the basis of a mechanic's, laborer's, materialman's or other lien or charge, shall be required to be paid so long as the validity of the same shall be contested in good faith by the City. F. No Free Service. No free service or service otherwise than in accordance with the established rate schedule shall be furnished, directly or indirectly, by the System to any person, firm, corporation or other entity, other than the City. No part of the salary of any official or employee of the City or his replacement shall be paid from Pledged Revenues unless and only to the extent the duties and performances of such official or employee or his replacement appertain 80470964.4 -28- directly to the System. To the extent the City receives the services of the System, such services shall be accounted for according to the established rate schedule. G. Further Encumbrance. It will not additionally encumber the Pledged Revenues in any manner, except as permitted in this Ordinance in connection with Priority Bonds, unless said encumbrance is made junior and subordinate in all respects to the liens, pledges, covenants and agreements of this Ordinance; but the right of the City to issue Subordinated Obligations payable in whole or in part from a subordinate lien on the Pledged Revenues is specifically recognized and retained. H. Sale, Lease or Disposal of Property. No part of the System shall be sold, leased, mortgaged, demolished, removed or otherwise disposed of, except as follows: (1) To the extent permitted by law, the City may sell or exchange at any time and from time to time any property or facilities constituting part of the System only if (A) it shall determine such property or facilities are not useful in the operation of the System, or (B) the proceeds of such sale are $250,000 or less, or it shall have received a certificate executed by the Engineer of Record and the City Manager stating, in their opinion, that the fair market value of the property or facilities exchanged is $250,000 or less, or (C) if such proceeds or fair market value exceeds $250,000 it shall have received a certificate executed by the Engineer of Record and the City Manager stating (i) that system within the System of which the property or facilities comprises a part thereof and (ii) in their opinion, that the sale or exchange of such property or facilities will not impair the ability of the City to comply during the current or any future Year with the provisions of Subsection K of this Section. The proceeds of any such sale or exchange not used to acquire other property necessary or desirable for the safe or efficient operation of the System shall forthwith, at the option of the City (i) be used to redeem or purchase Priority Bonds, or (ii) otherwise be used to provide for the payment of Priority Bonds. The foregoing notwithstanding, if such property or facilities sold or exchanged constituted property or facilities comprising all or a part of a system within the System, the acquisition, improvement or extension of such system having not been financed by the City in any manner with the proceeds of Priority Bonds, or with the proceeds of obligations which were refunded in whole or in part with the proceeds of Priority Bonds, then the City may utilize the proceeds of such sale or exchange for any lawful purpose; and (2) To the extent permitted by law, the City may lease or make contracts or grant licenses for the operation of, or make arrangements for the use of, or grant easements or other rights with respect to, any part of the System, provided that any such lease, contract, license, arrangement, easement or right (A) does not impede the operation by the City of the System and (B) does not in any manner impair or adversely affect the rights or security of the owners of the Priority Bonds under this Ordinance; and provided, further, that if the depreciated cost of the property to be covered by any such lease, contract, license, arrangement, easement or other right is in excess of $500,000, the City shall have received a certificate executed by the Engineer of Record and the City Manager that the action of the City with respect thereto does not result in a breach of the conditions under this clause (2). Any payments received by the City under or in 80470964.4 -29- connection with any such lease, contract, license, arrangement, easement or right in respect of the System or any part thereof shall constitute Gross Revenues. I. Books, Records and Accounts. It shall keep proper books, records and accounts separate and apart from all other records and accounts, in which complete and correct entries shall be made of all transactions relating to the System and the City shall cause said books and accounts to be audited annually as of the close of each Year by the Accountant. J. Insurance. (1) Except as otherwise permitted in clause (2) below, it shall cause to be insured such parts of the System as would usually be insured by corporations operating like properties, with a responsible insurance company or companies, against risks, accidents or casualties against which and to the extent insurance is usually carried by corporations operating like properties, including, to the extent reasonably obtainable, fire and extended coverage insurance, insurance against damage by floods, and use and occupancy insurance. Public liability and property damage insurance shall also be carried unless the City Attorney gives a written opinion to the effect that the City is not liable for claims which would be protected by such insurance. At any time while any contractor engaged in construction work shall be fully responsible therefor, the City shall not be required to carry insurance on the work being constructed if the contractor is required to carry appropriate insurance. All such policies shall be open to the inspection of the bondholders and their representatives at all reasonable times. (2) In lieu of obtaining policies for insurance as provided above, the City may self -insure against risks, accidents, claims or casualties described in clause (1) above. (3) The annual audit hereinafter required shall contain a section commenting on whether or not the City has complied with the requirements of this Section with respect to the maintenance of insurance, and listing the areas of insurance for which the City is self-insuring, all policies carried, and whether or not all insurance premiums upon the insurance policies to which reference is hereinbefore made have been paid. K. Rate Covenant. It will fix, establish, maintain and collect such rates, charges and fees for the use and availability of the System at all times as are necessary to produce Gross Revenues and other Pledged Revenues equal to the greater of amounts determined in accordance with clauses (1) or (2) below, to -wit, amounts sufficient: (1) (A) to pay all current Operating Expenses of the System, and (B) to produce Net Revenues for each Year at least equal to 1.25 times the Average Annual Principal and Interest Requirements of all then Outstanding Priority Bonds; or (2) to pay the sum of (A) all current Operating Expenses, (B) the Average Annual Principal and Interest Requirements on the then Outstanding Priority Bonds, (C) deposits to the Reserve Fund required for the Priority Bonds, and (D) amounts required to pay all other obligations of the System reasonably anticipated to be paid from Gross Revenues during the current Year. The calculation of Average Annual Principal and Interest Requirements on all Outstanding Priority Bonds shall be net of capitalized interest for such Priority Bonds only if the money in a Capitalized Interest Account received from proceeds of such Priority Bonds held in cash or are invested in Government Obligations. The foregoing notwithstanding, such rates, charges and 80470964.4 -30- fees shall be fixed, established, maintained and collected at a level sufficient to enable the City to pay debt service on Priority Bonds during the current Year. L. Audits. After the close of each Year while any Priority Bonds are Outstanding, an audit will be made of the books and accounts relating to the System and the Pledged Revenues by the Accountant. As soon as practicable after the close of each such Year, and when said audit has been completed and made available to the City, a copy of' such audit for the preceding year shall be mailed to any holder of the then Outstanding Priority Bonds who shall so request in writing. Such annual audit reports shall be open to the inspection of the registered owners of' the Priority Bonds and their agents and representatives at all reasonable times. M. Governmental Agencies. It will comply with all of the terms and conditions of any and all franchises, permits and authorizations applicable to or necessary with respect to the System, and which have been obtained from any governmental agency; and the City has or will obtain and keep in full force and effect all franchises, permits, authorization and other requirements applicable to or necessary with respect to the acquisition, construction, equipment, operation and maintenance of the System. N. No Competition. To the extent it legally may, it will not grant any franchise or permit for the acquisition, construction or operation of any competing facilities which might be used as a substitute for the System's facilities, and, to the extent that it legally may, the City will prohibit any such competing facilities. O. Rights of Inspection. The Engineer of Record or any registered owner of $100,000 in aggregate principal amount of the Priority Bonds then Outstanding shall have the right at all reasonable times to inspect the System and all records, accounts and data of the City relating thereto, and upon request the City shall furnish to the Engineer of Record or such registered owner, as the case may be, such financial statements, reports and other information relating to the City and the System as the Engineer of Record or such registered owner may from time to time reasonably request. P. Surplus Bond Proceeds. It shall deposit any surplus proceeds from the Bonds remaining after the acquisition and completion of the System improvements to the credit of the Debt Service Fund, to the extent any such surplus proceeds are not otherwise required to be rebated to the United States of America in accordance with the provisions of Section 23 hereof, to pay debt service on the Bonds. Q. Variable Rate Obligations. For so long as the Policy (as hereinafter defined) remains in effect, not more than 26.9% of the aggregate principal amount of all Priority Bonds at any one time outstanding shall be comprised of obligations bearing interest at a variable rate (including commercial paper); provided, however, that this limitation specifically excludes any Subordinated Obligations (including the Series B Commercial Paper Notes). SECTION 23: Covenants Regarding Tax -Exemption. A. Definitions. When used in this Section, the following terms have the following meanings: 80470964.4 -31- "Closing Date" shall mean the date of physical delivery of the Initial Bonds in exchange for the payment of the agreed purchase price for the Bonds. "Code" means the Internal Revenue Code of 1986, as amended by all legislation, if any, effective on or before the Closing Date. "Computation Date" has the meaning set forth in section 1.148-1(b) of the Regulations. "Gross Proceeds" means any proceeds as defined in section 1.148-1(b) of the Regulations, and any replacement proceeds as defined in section 1.148-1(c) of the Regulations, of the Bonds. "Investment" has the meaning set forth in section 1.148-1(b) of the Regulations. "Nonpurpose Investment" means any investment property, as defined in section 148(b) of the Code, in which Gross Proceeds of the Bonds are invested and which is not acquired to carry out the governmental purposes of the Bonds. "Rebate Amount" has the meaning set forth in section 1.148-1(b) of the Regulations. "Regulations" means any proposed, temporary, or final Income Tax Regulations issued pursuant to sections 103 and 141 through 150 of the Code, and 103 of the Internal Revenue Code of 1954, which are applicable to the Bonds. Any reference to any specific Regulation shall also mean, as appropriate, any proposed, temporary or final Income Tax Regulation designed to supplement, amend or replace the specific Regulation referenced. "Yield" of 1) any Investment has the meaning set forth in section 1.148-5 of the Regulations; and 2) the Bonds has the meaning set forth in section 1.148-4 of the Regulations. B. Not to Cause Interest to Become Taxable. The City shall not use, permit the use of, or omit to use Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner which if made or omitted, respectively, would cause the interest on any Bond to become includable in the "gross income", as defined in section 61 of the Code, of the owner thereof for federal income tax purposes. Without limiting the generality of the foregoing, unless and until the City receives a written opinion of counsel nationally recognized in the field of municipal bond law to the effect that failure to comply with such covenant will not adversely affect the exemption from federal income tax of the interest on any Bond, the City shall comply with each of the specific covenants in this Section. C. No Private Use or Private Payments. Except to the extent that it will not cause the Bonds to become "private activity bonds" within the meaning of section 141 of the Code and the Regulations and rulings thereunder, the City shall at all times prior to the last stated maturity of Bonds: 80470964.4 -32- (1) exclusively own, operate and possess all property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with Gross Proceeds of the Bonds, and not use or permit the use of such Gross Proceeds (including all contractual arrangements such as take, take or pay, certain requirements and other similar output contracts or arrangements with terms different than those applicable to the general public) or any property acquired, constructed or improved with such Gross Proceeds in any activity carried on by any person or entity (including the United States or any agency, department and instrumentality thereof) other than a state or local government, unless such use is solely as a member of the general public; and (2) not directly or indirectly impose or accept any charge or other payment by any person or entity who is treated as using Gross Proceeds of the Bonds or any property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with such Gross Proceeds, other than taxes of' general application within the City or interest earned on investments acquired with such Gross Proceeds pending application for their intended purposes. (3) not allow any "nonqualified amount" (as defined in section 141(b)(8) of the Code) of the Bonds to exceed the excess of (i) $15,000,000 over (ii) the aggregate nonqualified amounts with respect to all prior tax-exempt bonds, five percent or more of the proceeds of which are or will be used with respect to any facility financed by the Bonds (or any other facility which is part of the same project as a facility financed by the), all within the meaning of section 141(6)(4) of the Code; and (4) not allow more than the lesser of (i) $5,000,000 or (ii) five percent of the proceeds of the Bonds to acquire nongovernmental output property, as defined in section 141(d)(2) of the Code, except if 95 percent or more of the output from such facility will be consumed in a "qualified service area" (as defined in section 141(d)(3 of the Code) of the City or in a "qualified annexed area" (as defined in section 141(d)(3) of the Code) of the City. D. No Private Loan. Except to the extent that it will not cause the Bonds to become "private activity bonds" within the meaning of section 141 of the Code and the Regulations and rulings thereunder, the City shall not use Gross Proceeds of the Bonds to make or finance loans to any person or entity other than a state or local government. E. Not to Invest at Higher Yield. Except to the extent that it will not cause the Bonds to become "arbitrage bonds" within the meaning of section 148 of the Code and the Regulations and rulings thereunder, the City shall not at any time prior to the final stated maturity of the Bonds directly or indirectly invest Gross Proceeds in any Investment, if as a result of such investment the Yield of any Investment acquired with Gross Proceeds, whether then held or previously disposed of, materially exceeds the Yield of the Bonds. F. Not Federally Guaranteed. Except to the extent permitted by section 149(b) of the Code and the Regulations and rulings thereunder, the City shall not take or omit to take any action which would cause the Bonds to be federally guaranteed within the meaning of section 149(b) of the Code and the Regulations and rulings thereunder. 80470964.4 -33- G. Information Report. The City shall timely file the information required by section 149(e) of the Code with the Secretary of the Treasury on Form 8038 G or such other form and in such place as the Secretary may prescribe. H. Rebate of Arbitrage Profits. Except to the extent otherwise provided in section 148(0 of the Code and the Regulations and rulings thereunder: (1) The City shall account for all Gross Proceeds (including all receipts, expenditures and investments thereof) on its books of account separately and apart from all other funds (and receipts, expenditures and investments thereof) and shall retain all records of accounting for at least six years after the day on which the last Outstanding Bond is discharged. However, to the extent permitted by law, the City may commingle Gross Proceeds with other money of the City, provided that the City separately accounts for each receipt and expenditure of Gross Proceeds and the obligations acquired therewith. (2) Not less frequently than each Computation Date, the City shall calculate the Rebate Amount in accordance with rules set forth in section 148(0 of the Code and the Regulations and rulings thereunder. The City shall maintain such calculations with its official transcript of proceedings relating to the issuance of the Bonds until six years after the final Computation Date. (3) As additional consideration for the purchase of the Bonds by the Purchasers and the loan of the money represented thereby and in order to induce such purchase by measures designed to insure the excludability of the interest thereon from the gross income of the owners thereof for federal income tax purposes, the City shall pay to the United States out of the Debt Service Fund or its general fund, as permitted by applicable Texas statute, regulation or opinion of the Attorney General of the State of Texas, any Rebate Amount in the manner and on or before the dates specified in section 148(0 of the Code and the Regulation and rulings thereunder. In all cases, the rebate payments shall be made at the times, in the installments, to the place and in the manner as is or may be required by section 148(f) of the Code and the Regulations and rulings thereunder, and shall be accompanied by Form 8038-T or such other forms and information as is or may be required by section 148(0 of the Code and the Regulations and rulings thereunder. (4) The City shall exercise reasonable diligence to assure that no errors are made in the calculations and payments required by paragraphs (2) and (3), and if an error is made, to discover and promptly correct such error within a reasonable amount of time thereafter (and in all events within one hundred eighty (180) days after discovery of the error), including payment to the United States of any additional Rebate Amount owed to it, interest thereon, and any penalty imposed under section 1.148 3(h) of the Regulations. I. Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of the Code and the Regulations and rulings thereunder, the City shall not, at any time prior to the earlier of the stated maturity or final payment of the Bonds, enter into any transaction that reduces the amount required to be paid to the United States pursuant to Subsection H of this 80470961.4 -34- Section because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm's length and had the Yield of the Bonds not been relevant to either party. J. Bonds Not Hedge Bonds. (1) The City reasonably expects to spend at least 85% of the spendable proceeds of the Bonds within three years after the issue of such Bonds. (2) Not more than 50% of' the proceeds of the Bonds will be invested in Nonpurpose Investments having a substantially guaranteed Yield for a period of 4 years or more. K. Elections. The City hereby directs and authorizes the Mayor, Mayor Pro Tem, City Manager, any Assistant City Manager, and the City's Director of Financial Services, either or any combination of the foregoing, to make such elections in the Certificate as to Tax Exemption or similar or other appropriate certificate, form, or document permitted or required pursuant to the provisions of the Code, or Regulations as they deem necessary or appropriate in connection with the Bonds, and other transactions related to any Priority Bonds. Such elections shall be deemed to be made on the Closing Date. SECTION 24: Taxable Obligations. The provisions of Section 23 of this Ordinance notwithstanding, the City reserves the ability to issue Additional Priority Bonds in a manner such that such obligations are not obligations described in section 103(a) of the Code or are obligations which constitute "private activity bonds" within the meaning of section 141 of the Code. SECTION 25: Amendment of Ordinance. A. Approval by Registered Owners. The registered owners of a majority in aggregate principal amount of the Priority Bonds then Outstanding shall have the right from time to time to approve any amendment to this Ordinance which may be deemed necessary or desirable by the City; provided, however, that without the consent of the registered owners of all of the Priority Bonds at the time Outstanding, nothing herein contained shall permit or be construed to permit the amendment of the terms and conditions in this Ordinance or in the Priority Bonds so as to: (1) (2) (3) Bonds; make any change in the maturity of any of the Outstanding Priority Bonds; reduce the rate of interest borne by any of the Outstanding Priority Bonds; reduce the amount of the principal payable on the Outstanding Priority (4) modify the terms of payment of principal of, premium, if any, or interest on the Outstanding Priority Bonds or impose any conditions with respect to such payment; 80470964.4 -35- (5) affect the rights of the registered owners of less than all of the Priority Bonds then Outstanding; (6) amend this Subsection A of this Section; or (7) change the minimum percentage of the principal amount of Priority Bonds necessary for consent to any amendment; unless such amendment or amendments be approved by the registered owners of all of the Priority Bonds then Outstanding. B. Notice. If at any time the City shall desire to amend the Ordinance under this Section, the City shall cause notice of the proposed amendment to be published in a financial newspaper or journal published in The City of New York, New York, and a newspaper of general circulation in the City, once during each calendar week for at least two successive calendar weeks. Such notice shall briefly set forth the nature of the proposed amendment and shall state that a copy thereof is on file at the principal office of the Paying Agent/Registrar for inspection by all holders of Priority Bonds. Such publication is not required, however, if notice in writing is given to each registered owner of Priority Bonds. C. Consent Obtained. Whenever at any time not less than 30 days, and within one year, from the date of the first publication of said notice or other service of written notice, the City shall receive an instrument or instruments executed by the registered owners of at least a majority in aggregate principal amount of the Priority Bonds then Outstanding, which instrument or instruments shall refer to the proposed amendment described in said notice and which specifically consent to and approve such amendment in substantially the form of the copy thereof on file with the Paying Agent/Registrar, the Governing Body may pass the amendatory ordinance in substantially the same form. D. Amendatory Ordinance. Upon the passage of any amendatory ordinance pursuant to the provisions of this Section, this Ordinance shall be deemed to be amended in accordance with such amendatory ordinance, and the respective rights, duties and obligations under this Ordinance of the City and all the registered owners of then Outstanding Priority Bonds and all future Priority Bonds shall thereafter be determined, exercised and enforced hereunder, subject in all respects to such amendments. E. Consent Irrevocable for Six Months. Any consent given by the registered owner of a Priority Bond pursuant to the provisions of this Section shall be irrevocable for a period of six months from the date of the first publication of the notice provided for in this Section, and shall be conclusive and binding upon all future registered owners of the same Priority Bond during such period. Such consent may be revoked at any time after six months from the date of the first publication of such notice by the registered owner who gave such consent, or by a successor in title, by filing notice thereof with the Paying Agent/Registrar and the City, but such revocation shall not be effective if the registered owners of at least a majority in aggregate principal amount of the then Outstanding Priority Bonds as in this Section defined have, prior to the attempted revocation, consented to and approved the amendment. 80470964.4 -36- F. Amendments without Consent. The foregoing provisions of this Section notwithstanding, the City, by action of the Governing Body may amend this Ordinance for any one or more of the following purposes: (1) to add to the covenants and agreements of the City in this Ordinance contained, other covenants and agreements thereafter to be observed, grant additional rights or remedies to the registered owners of the Priority Bonds or to surrender, restrict or limit any right or power herein reserved to or conferred upon the City; (2) to make such provisions for the purpose of curing any ambiguity, or curing, correcting or supplementing any defective provision contained in this Ordinance, or in regard to clarifying matters or questions arising under this Ordinance, as are necessary or desirable and not contrary to or inconsistent with this Ordinance and which shall not adversely affect the interests of the registered owners of the Priority Bonds then Outstanding; (3) to modify any of the provisions of this Ordinance in any other respect whatever, provided that (i) such modification shall be, and be expressed to be, effective only after all Bonds and each series of Additional Priority Bonds Outstanding at the date of the adoption of such modification shall cease to be Outstanding, and (ii) such modification shall be specifically referred to in the text of all Priority Bonds issued after the date of the adoption of such modification; (4) to make such amendments to this Ordinance as may be required, in the opinion of nationally recognized bond counsel acceptable to the City, to ensure compliance with sections 103 and 141 through 150 of the Code and the regulations promulgated thereunder and applicable thereto; (5) to make such changes, modifications or amendments as may be necessary or desirable in order to allow the owners of the Priority Bonds to thereafter avail themselves of a book -entry system for payments, transfers and other matters relating to the Priority Bonds, which changes, modifications or amendments are not contrary to or inconsistent with other provisions of this Ordinance and which shall not adversely affect the interests of the owners of the Priority Bonds; (6) to make such changes, modifications or amendments as are permitted by Section 32D of this Ordinance; (7) to make such changes, modifications or amendments as may be necessary or desirable in order to obtain or maintain the granting of a rating on the Priority Bonds by a Rating Agency or to obtain or maintain a Credit Facility, or to obtain the approval of the Bonds from the Attorney General of the State of Texas; and (8) to make such changes, modifications or amendments as may be necessary or desirable, which shall not adversely affect the interests of the owners of the Priority Bonds, in order, to the extent permitted by law, to facilitate the economic and practical utilization of interest rate swap agreements, foreign currency exchange agreements, or similar type of agreements with respect to the Priority Bonds. 80470964.4 -37- Notice of any such amendment may be published by the City in the manner described in Subsection B of this Section; provided, however, that the publication of such notice shall not constitute a condition precedent to the adoption of such amendatory ordinance and the failure to publish such notice shall not adversely affect the implementation of such amendment as adopted pursuant to such amendatory ordinance. SECTION 26: Damaged, Mutilated, Lost, Stolen, or Destroyed Bonds. A. Substitute Bonds. In the event any Outstanding Bond is damaged, mutilated, lost, stolen, or destroyed, the Paying Agent/Registrar shall cause to be printed, executed, and delivered, a new bond of the same principal amount, maturity, and interest rate, as the damaged, mutilated, lost, stolen, or destroyed Bond, in replacement for such Bond in the manner hereinafter provided. B. Application for Replacement. Application for replacement of damaged, mutilated, lost, stolen, or destroyed Bonds shall be made to the Paying Agent/Registrar. In every case of loss, theft, or destruction of a Bond, the applicant for a replacement bond shall furnish to the City and to the Paying Agent/Registrar such security or indemnity as may be required by them to save each of them harmless from any loss or damage with respect thereto. Also, in every case of loss, theft, or destruction of a Bond, the applicant shall furnish to the City and to the Paying Agent/Registrar evidence to their satisfaction of the loss, theft, or destruction of such Bond, as the case may be. In every case of damage or mutilation of a Bond, the applicant shall surrender to the Paying Agent/Registrar for cancellation the Bond so damaged or mutilated. C. Payment upon Maturity. Notwithstanding the foregoing provisions of this Section, in the event any such Bond shall have matured, and no default has occurred which is then continuing in the payment of the principal of, redemption premium, if any, or interest on the Bond, the City may authorize the payment of the same (without surrender thereof except in the case of a damaged or mutilated Bond) instead of issuing a replacement Bond, provided security or indemnity is furnished as above provided in this Section. D. Cost of Replacement Bonds. Prior to the issuance of any replacement Bond, the Paying Agent/Registrar shall charge the owner of such Bond with all legal, printing, and other expenses in connection therewith. Every replacement Bond issued pursuant to the provisions of this Section by virtue of the fact that any Bond is lost, stolen, or destroyed shall constitute a contractual obligation of the City whether or not the lost, stolen, or destroyed Bond shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Ordinance equally and proportionately with any and all other Bonds duly issued under this Ordinance. E. Authority for Replacement Bonds. In accordance with Chapter 1206, as amended, Texas Government Code, this Section of this Ordinance shall constitute authority for the issuance of any such replacement Bond without necessity of further action by the Governing Body or any other body or person, and the duty of the replacement of such bonds is hereby authorized and imposed upon the Paying Agent/Registrar, and the Paying Agent/Registrar shall authenticate and deliver such bonds in the form and manner and with the effect, as provided in Subsection 5A of this Ordinance for Bonds issued in exchange for other Bonds. 80470964.4 -38- SECTION 27: Approval and Registration of Bonds. The City Manager of the City is hereby authorized to have control of the Bonds and all necessary records and proceedings pertaining to the Bonds pending their delivery and their investigation, examination and approval by the Attorney General, and their registration by the Comptroller of Public Accounts. Upon registration of the Bonds, the Comptroller of Public Accounts (or a deputy designated in writing to act therefor) shall manually sign the Comptroller's Registration Certificate accompanying the Bonds, and the seal of said Comptroller shall be impressed, or placed in facsimile, on each such certificate. SECTION 28: Use of Proceeds. Proceeds from the sale of the Bonds shall be applied as follows: (1) Accrued interest received from the Purchasers shall be deposited into the Debt Service Fund. (2) Certain proceeds of the Bonds in the amount of $3,196,293.15 shall be deposited into the Reserve Fund on the Closing Date constituting a portion of the Required Amount attributable to the Bonds. (3) Certain of the proceeds derived from the sale of the Bonds shall be (i) deposited into the Construction Fund to pay the costs of issuance on the Bonds or to pay the construction costs, if any, of the projects to be reimbursed or financed with the proceeds of the Bonds. Interest earned on the proceeds of the Bonds deposited into the Construction Fund pending payment of costs of issuance or completion of the projects financed with such proceeds shall be accounted for, maintained, deposited, and expended as required by applicable law. Thereafter, such amount shall be immediately expended in accordance with Subsection 10D hereof. SECTION 29: Default And Remedies. A. Events of Default. Each of the following occurrences or events for the purpose of this Ordinance is hereby declared to be an "Event of Default": (1) the failure to make payment of the principal of, premium, if any, or interest on any of the Bonds when the same becomes due and payable; or (2) default in the performance or observance of any other covenant, agreement or obligation of the City, the failure to perform which materially, adversely affects the rights of the registered owners of the Bonds, including, but not limited to, their prospect or ability to be repaid in accordance with this Ordinance, and the continuation thereof for a period of 60 days after notice of such default is given by any registered owner to the City. B. Remedies for Default. (1) Upon the happening of any Event of Default, then and in every case, any registered owner or an authorized representative thereof, including, but not limited to, a trustee or trustees therefor, may proceed against the City, or any official, officer or 80470964.4 -39- employee of the City in their official capacity, for the purpose of protecting and enforcing the rights of the registered owners under this Ordinance, by mandamus or other suit, action or special proceeding in equity or at law, in any court of competent jurisdiction, for any relief permitted by law, including the specific performance of any covenant or agreement contained herein, or thereby to enjoin any act or thing that may be unlawful or in violation of any right of the registered owners hereunder or any combination of such remedies. (2) It is provided that all such proceedings shall be instituted and maintained for the equal benefit of all registered owners of Bonds then Outstanding. C. Remedies Not Exclusive. (1) No remedy herein conferred or reserved is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or under the Bonds or now or hereafter existing at law or in equity; provided, however, that notwithstanding any other provision of this Ordinance, the right to accelerate the debt evidenced by the Bonds shall not be available as a remedy under this Ordinance. (2) The exercise of any remedy herein conferred or reserved shall not be deemed a waiver of any other available remedy. (3) By accepting the delivery of a Bond authorized under this Ordinance, such registered owner agrees that the certifications required to effectuate any covenants or representations contained in this Ordinance do not and shall never constitute or give rise to a personal or pecuniary liability or charge against the officers, employees or trustees of the City or the Governing Body. (4) None of the members of the Governing Body, nor any other official or officer, agent, or employee of the City, shall be charged personally by the registered owners with any liability, or be held personally liable to the registered owners under any term or provision of this Ordinance, or because of any Event of Default or alleged Event of Default under this Ordinance. SECTION 30: Further Proceedings. The Mayor, the City Manager, any Assistant City Manager, the City Secretary, and the Director of Financial Services, and all other officers, employees and agents of the City, and each of them, shall be and they are hereby expressly authorized, empowered and directed from time to time and at any time to do and perform all such acts and things and to execute, acknowledge and deliver in the name and under the corporate seal and on behalf of the City all such instruments, whether herein mentioned, as may be necessary or desirable in order to carry out the terms and provisions of this Ordinance and the Bonds, including, but not limited to, conforming documents to receive the approval of the Texas Attorney General and to receive a rating from any Rating Agency, the printing of a statement relating to the insuring of the Bonds by a municipal bond insurance company, and the Representation Letter. 80470964.4 -40- SECTION 31: Bond Insurance and Debt Service Reserve Fund Insurance Policies. An Authorized Representative is authorized, in connection with effecting the sale of the Bonds, to obtain from a municipal bond insurance company so designated in the Approval Certificate a municipal bond insurance policy (as hereinafter defined and described as the "Policy") and a debt service reserve fund (or surety) policy (the "Surety Policy") in support of the Bonds. To that end, should an Authorized Representative exercise such authority and commit the City to obtain either a Policy or a Surety Policy, or both, for so long as either or both policies are in effect, the requirements of the provider(s) relating to the issuance of said policies are incorporated by reference into this Ordinance and made a part hereof for all purposes (and this Ordinance may be modified so that such provisions shall be included herein), notwithstanding any other provision of this Ordinance to the contrary. For purposes of this Ordinance, the Required Amount shall include the debt service on the Bonds as well as the Outstanding Previously Issued Priority Bonds. An Authorized Representative shall have the authority to execute any documents to effect the issuance of said policies by the provider(s) thereof, including, without limitation, any agreement to be delivered in connection with either or both of the Policy and/or the Surety Policy in substantially the form previously approved by the City Council in connection with Previously Issued Priority Bonds, or with respect to a Policy relating to the Bonds, an agreement in substantially the form attached hereto as Exhibit F. SECTION 32: Continuing Disclosure Undertaking. A. Definitions. As used in this Section, the following terms have the meanings ascribed to such terms below: (1) "MSRB" means the Municipal Securities Rulemaking Board. (2) "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. (3) (4) "Rule" means SEC Rule 15c2 12, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. (5) "SID" means any person designated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule from time to time. B. Annual Reports. The City shall provide annually to each NRMSIR and any SID, within six months after the end of each fiscal year ending in or after 2009, financial information and operating data with respect to the City of the general type included in the final Official Statement authorized by Section 2 of this Ordinance being the information described in Exhibit G hereto. Prior to July 1, 2009, the information will be available to holders of Bonds only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. Effective July 1, 2009, all such information must be filed with MSRB pursuant to its Electronic Municipal Market Access (EMMA) System, rather than the current NRMSIRs and the SID. The MSRB intends to make the information available to the public without charge and investors will be able 80470964.4 -41- to access continuing disclosure information with the MSRB at wwww.emma.msrb.org. Any financial statements so to be provided shall be (i) prepared in accordance with the accounting principles described in Exhibit G hereto, or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation and (ii) audited, if the City commissions an audit of such statements and the audit is completed within the period during which they must be provided. If the audit of such financial statements is not complete within such period, then the City shall provide unaudited statements within such period and audited financial statements for the applicable Year to each NRMSIR and any SID, when and if the audit report on such statements becomes available. If the City changes the Year's beginning and ending dates, it will notify each NRMSIR and any SID of the change (and of the date of the new fiscal Year end) prior to the next date by which the City otherwise would be required to provide financial information and operating data pursuant to this 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 any SID or filed with the SEC. C. Material Event Notices. The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Bonds, if such event is material within the meaning of the federal securities laws: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds; and 80470964.4 modifications to rights of holders of the Bonds; bond calls; defeasances; release, substitution, or sale of property securing repayment of the Bonds; -42- (11) rating changes. The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with this Section by the time required by this Section. D. 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 Bonds within the meaning of the Rule, except that the City in any event will give notice of any deposit made in accordance with the laws of the State of Texas that causes the Bonds to be no longer Outstanding. The provisions of this Section are for the sole benefit of the holders and beneficial owners of the Bonds, and nothing in this Section, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The 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 conceming such information or its usefulness to a decision to invest in or sell Bonds at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITH OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS SECTION, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. No default by the City in observing or performing its obligations under this Section shall constitute a breach of or default under the 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, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (1) the provisions of this Section, 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 (2) either (a) the holders of a majority in aggregate principal amount (or any greater amount required by any other provision of this Ordinance that authorizes such an 80470964.4 -43- amendment) of the Outstanding Bonds consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. The City may also repeal or amend the provisions of this Section if the SEC amends or repeals the applicable provisions of the Rule or any court of final jurisdiction enters judgment that such provisions of the Rule are invalid, and the City also may amend the provisions of this Section in its discretion in any other manner or circumstance, but in either case only if and to the extent that the provisions of this sentence would not have prevented an underwriter from lawfully purchasing or selling Bonds in the primary offering of the Bonds, giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. If the City so amends the provisions of this Section, the City shall include with any amended financial information or operating data next provided in accordance with this Section 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. SECTION 33: Allocation of, and Limitation on, Expenditures for the Project. The City covenants to account for on its books and records the expenditure of proceeds from the sale of the Bonds and any investment earnings thereon to be used for the improvement and extension of the System (referred to herein as a "Project") by allocating proceeds to expenditures within 18 months of the later of the date that (a) the expenditure on a Project is made or (b) each such Project is completed. The foregoing notwithstanding, the City shall not expend such proceeds or investment earnings more than 60 days after the later of (a) the fifth anniversary of the date of delivery of the Bonds or (b) the date the Bonds are retired, unless the City obtains an opinion of nationally -recognized bond counsel substantially to the effect that such expenditure will not adversely affect the tax-exempt status of the Bonds. For purposes of this Section, the City shall not be obligated to comply with this covenant if it obtains an opinion of nationally -recognized bond counsel to the effect that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. SECTION 34: Insurer Provisions. A. Notices and Other Information. (1) Any notice that is required to be given to the bondholders, any NRMSIR, or any SID pursuant to the Rule or to the Paying Agent/Registrar pursuant to the financing documents of the Issuer to be delivered in connection with the issuance of the Bonds (the "Financing Documents") shall also be provided to the Insurer simultaneously with the sending of such notices. In addition, all information furnished by the Issuer pursuant to Section 32 hereof shall also be provided to the Insurer, simultaneously with the furnishing of such information. (2) All demands, notices and other information required to be given to the Insurer under the Financing Documents shall be in writing and shall be mailed by registered or certified mail or personally delivered or telecopied to the recipient as follows: 80470964.4 -44- (3) Assured Guaranty Corp. 1325 Avenue of the Americas New York, New York 10019 Attention: Risk Management Department (Re: Policy No. D-2009-378) Telecopy No.: (212) 581-6268 Confirmation: (212) 974-0100 Email: riskmanagementdept@assuredguaranty.com (In each case in which notice or other communication refers to an event of default, a claim on the Policy or any event with respect to which a failure on the part of the Insurer to respond shall be deemed to constitute consent or acceptance, then such demand, notice or other communication shall be marked to indicate "URGENT MATERIAL ENCLOSED" and shall also be sent to the attention of the General Counsel at the same address and telecopy above or at generalcounsel@assuredguaranty.com.) The Insurer shall have the right to receive such additional information as it may reasonably request. (4) The Issuer will permit the Insurer to discuss the affairs, finances and accounts of the Issuer or any information the Insurer may reasonably request regarding the security for the Bonds with appropriate officers of the Issuer, and will use commercially reasonable best efforts to enable the Insurer to have access to the facilities, books and records of the Issuer on any business day upon reasonable prior notice. (5) The Paying Agent/Registrar shall notify the Insurer of any failure of the Issuer to provide notices, certificates and other information under the Ordinance. B. Defeasance. In the event that the principal and/or interest due on the Bonds shall be paid by the Insurer pursuant to the Policy, the Bonds shall remain outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the Issuer, and the assignment and pledge of the trust estate and all covenants, agreements and other obligations of the Issuer to the registered owners shall continue to exist and shall run to the benefit of the Insurer, and the Insurer shall be subrogated to the rights of such registered owners, including, without limitation, any rights that such owners may have in respect of securities law violations arising from the offer and sale of the Bonds. In addition, and for so long as the Policy remains in effect, a defeasance of the Bonds pursuant to Section 19 shall not be effective until the Issuer has delivered to the Insurer, in connection with such defeasance, the following items: (1) An opinion of nationally recognized bond counsel to the effect that (i) that the defeasance will not adversely impact the exclusion from gross income for federal income tax purposes of interest on the Bonds and (ii) that the Bonds are no longer Outstanding; 80470964.4 -45- (2) An escrow agreement, along with an opinion of counsel regarding the validity and enforceability of the escrow agreement, which escrow agreement shall provide that: (a) Any substitution of securities shall require a verification by an independent certified public accountant and the prior written consent of the Insurer. (b) The Issuer will not exercise any optional redemption of Bonds secured by the escrow agreement, or any other redemption other than mandatory sinking fund redemptions unless (i) the right to make any such redemption has been expressly reserved in the escrow agreement and such reservation has been disclosed in detail in the official statement for the refunding bonds, and (ii) as a condition of any such redemption there shall be provided to the Insurer a verification of an independent certified public accountant as to the sufficiency of escrow receipts without reinvestment to meet the escrow requirements remaining following such redemption. C. Paying Agent/Registrar. (1) The Insurer shall receive prior written notice of any name change of the Paying Agent/Registrar or the removal or resignation of the Paying Agent/Registrar. (2) No removal or resignation of the Paying Agent/Registrar shall take effect until a successor, acceptable to the Insurer, shall be appointed. (3) The Paying Agent/Registrar may be removed at any time, at the Insurer's request, for any breach of its obligations under the Financing Documents. (4) Notwithstanding any other provision of any Financing Document, in determining whether the rights of bondholders will be adversely affected by any action taken pursuant to the terms and provisions thereof, the Paying Agent/Registrar shall consider the effect on the Bondholders as if there were no Policy. D. Amendments and Supplements. With respect to amendments or supplements to the Ordinance which do not require the consent of the bondholders, the Insurer must be given prior written notice of any such amendments or supplements. With respect to amendments or supplements to the Ordinance which do require the consent of the bondholders, the Insurer's prior written consent is also required. Copies of any amendments or supplements to the Ordinance which are consented to by the Insurer shall be sent to the rating agencies that have assigned a rating to the Bonds. E. The Insurer as Third Party Beneficiary. The Insurer is explicitly recognized as being a third party beneficiary under this Ordinance and may enforce any right, remedy or claim conferred, given or granted hereunder. F. Control Rights. The Insurer shall be deemed to be the holder of all of the Bonds for purposes of (a) exercising all remedies and directing the Paying Agent/Registrar to take actions 80470964.4 -46- or for any other purposes following an Event of Default, and (b) granting any consent, waiver, direction or approval or taking any action permitted by or required under this Ordinance to be granted or taken by the holders of such Bonds. G. Consent Rights of the Insurer. (1) Any provision of this Ordinance expressly recognizing or granting rights in or to the Insurer may not be amended in any manner that affects the rights of the Insurer hereunder without the prior written consent of the Insurer. (2) Wherever this Ordinance requires the consent of Bondholders, the Insurer's consent shall also be required. (3) Any reorganization or liquidation plan with respect to the Issuer must be acceptable to the Insurer. In the event of any reorganization or liquidation, the Insurer shall have the right to vote on behalf of all Bondholders who hold Bonds guaranteed by the Insurer, absent a default by the Insurer under the Policy. (4) Anything in this Ordinance to the contrary notwithstanding, upon the occurrence and continuance of an Event of Default, the Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Bondholders or the Paying Agent/Registrar for the benefit of the Bondholders under this Ordinance. H. Reimbursement Obligations. The Issuer hereby agrees to pay or reimburse the Insurer (i) all amounts paid by the Insurer under the terms of the Policy, and (ii) to the extent permitted by law, any and all charges, fees, costs and expenses of attorneys, accountants, consultants and auditors and reasonable costs of investigations, in connection with (A) any accounts established to facilitate payments under the Policy, (B) the administration, enforcement, defense or preservation of any rights in respect of this Ordinance, including defending, monitoring or participating in any litigation or proceeding (including any bankruptcy proceeding in respect of the Issuer or any affiliate thereof) relating to this Ordinance or any other Financing Document or the transaction described in the Financing Documents, (iii) the foreclosure against, sale or other disposition of any collateral securing any obligations under this Ordinance or any other Financing Document, or the pursuit of any remedies under this Ordinance or any other Financing Document, to the extent such costs and expenses are not recovered from such foreclosure, sale or other disposition, or (iv) any amendment, waiver or other action with respect to, or related to, this Ordinance or any other Financing Document; costs and expenses shall include a reasonable allocation of compensation and overhead attributable to time of employees of the Insurer spent in connection with the actions described in clauses (ii) - (iv) above. In addition, the Insurer reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect of this Ordinance or any other Financing Document. The Issuer will pay interest on the amounts owed in this paragraph from the date of' any payment due or paid, at the per annum rate of interest publicly announced from time to time by JP Morgan Chase Bank, National Association at its principal office in New York, New York as its prime lending rate (any change in such prime rate of interest to be effective on the date such change is announced by JPMorgan Chase Bank, National Association) plus three percent (3%) per annum (the "Reimbursement Rate"), subject to the limitations set forth in Chapter 80470964.4 -47- 1204, as amended, Texas Government Code. The Reimbursement Rate shall be calculated on the basis of the actual number of days elapsed over a 360 -day year. In the event JPMorgan Chase Bank ceases to announce its prime rate publicly, the prime rate shall be the publicly announced prime rate or base lending rate of such national bank, as the Insurer shall specify. I. Payment Procedure Under the Policy. (1) At Least two (2) Business Days prior to each payment date on the Bonds, the Paying Agent/Registrar will determine whether there will be sufficient funds to pay all principal of and interest on the Bonds due on the related payment date and shall immediately notify the Insurer or its designee on the same Business Day by telephone or electronic mail, confirmed in writing by registered or certified mail, of the amount of any deficiency. Such notice shall specify the amount of the anticipated deficiency, the Bonds to which such deficiency is applicable and whether such Bonds will be deficient as to principal or interest or both. If the deficiency is made up in whole or in part prior to or on the payment date, the Paying Agent/Registrar shall so notify the Insurer or its designee. (2) The Paying Agent/Registrar shall, after giving notice to the Insurer as provided above, make available to the Insurer and, at the Insurer's direction, to any Fiscal Agent, the registration books of the Issuer maintained by the Paying Agent/Registrar and all records relating to the funds maintained under this Ordinance. (3) The Paying Agent/Registrar shall provide the Insurer and any Fiscal Agent with a list of registered owners of Bonds entitled to receive principal or interest payments from the Insurer under the terms of the Policy, and shall make arrangements with the Insurer, the Fiscal Agent or another designee of the Insurer to (i) mail checks or drafts to the registered owners of Bonds entitled to receive full or partial interest payments from the Insurer and (ii) pay principal upon Bonds surrendered to the Insurer, the Fiscal Agent or another designee of the Insurer by the registered owners of Bonds entitled to receive full or partial principal payments from the Insurer. (4) The Paying Agent/Registrar shall, at the time it provides notice to the Insurer of any deficiency pursuant to Clause (1) above, notify registered owners of Bonds entitled to receive the payment of principal thereof or interest thereon from the Insurer (i) as to such deficiency and its entitlement to receive principal or interest, as applicable, (ii) that the Insurer will remit to them all or a part of the interest payments due on the related payment date upon proof of its entitlement thereto and delivery to the Insurer or any Fiscal Agent, in form satisfactory to the Insurer, of an appropriate assignment of the registered owner's right to payment, (iii) that, if they are entitled to receive partial payment of principal from the Insurer, they must surrender the related Bonds for payment first to the Paying Agent/Registrar, which will note on such Bonds the portion of the principal paid by the Paying Agent/Registrar and second to the Insurer or its designee, together with an appropriate assignment, in form satisfactory to the Insurer, to permit ownership of such Bonds to be registered in the name of the Insurer, which will then pay the unpaid portion of principal, and (iv) that, if they are entitled to receive full payment of principal from the Insurer, they must surrender the related Bonds for payment to the 80470964.4 -48- Insurer or its designee, rather than the Paying Agent/Registrar, together with an appropriate assignment, in form satisfactory to the Insurer, to permit ownership of such Bonds to be registered in the name of the Insurer. (5) In addition, if the Paying Agent/Registrar has notice that any holder of the Bonds has been required to disgorge payments of principal of or interest on the Bonds previously Due for Payment pursuant to a final non -appealable order by a court of competent jurisdiction that such payment constitutes an avoidable preference to such holder within the meaning of any applicable bankruptcy laws, then the Paying Agent/Registrar shall notify the Insurer or its designee of such fact by telephone or electronic notice, confirmed in writing by registered or certified mail. (6) The Paying Agent/Registrar will be hereby irrevocably designated, appointed, directed and authorized to act as attomey-in-fact for holders of the Bonds as follows (a) If and to the extent there is a deficiency in amounts required to pay interest on the Bonds, the Paying Agent/Registrar shall (i) execute and deliver to the Insurer, in form satisfactory to the Insurer, an instrument appointing the Insurer as agent for such holders in any legal proceeding related to the payment of such interest and an assignment to the Insurer of the claims for interest to which such deficiency relates and which are paid by the Insurer, (ii) receive as designee of the respective holders (and not as Paying Agent/Registrar) in accordance with the tenor of the Policy payment from the Insurer with respect to the claims for interest so assigned, and (iii) disburse the same to such respective holders; and (b) If and to the extent of a deficiency in amounts required to pay principal of the Bonds, the Paying Agent/Registrar shall (i) execute and deliver to the Insurer, in form satisfactory to the Insurer, an instrument appointing the Insurer as agent for such holder in any legal proceeding related to the payment of such principal and an assignment to the Insurer of the Bond surrendered to the Insurer in an amount equal to the principal amount thereof as has not previously been paid or for which money is not held by the Paying Agent/Registrar and available for such payment (but such assignment shall be delivered only if payment from the Insurer is received), (ii) receive as designee of the respective holders (and not as Paying Agent/Registrar) in accordance with the tenor of the Policy payment therefore from the Insurer, and (iii) disburse the same to such holders. (7) Payments with respect to claims for interest on and principal of Bonds disbursed by the Paying Agent/Registrar from proceeds of the Policy shall not be considered to discharge the obligation of the Issuer with respect to such Bonds, and the Insurer shall become the owner of such unpaid Bond and claims for the interest in accordance with the tenor of the assignment made to it under the provisions of this subsection or otherwise. 80470964.4 -49- (8) Irrespective of whether any such assignment is executed and delivered, the Issuer and the Paying Agent/Registrar hereby agree for the benefit of The Insurer that: (a) they recognize that to the extent the Insurer makes payments directly or indirectly (e.g., by paying through the Paying Agent/Registrar), on account of principal of or interest on the Bonds, the Insurer will be subrogated to the rights of such holders to receive the amount of such principal and interest from the Issuer, with interest thereon as provided and solely from the sources stated in this Ordinance and the Bonds; and (b) they will accordingly pay to the Insurer the amount of such principal and interest, with interest thereon as provided in this Ordinance and the Bonds, but only from the sources and in the manner provided herein for the payment of principal of and interest on the Bonds to holders, and will otherwise treat the Insurer as the owner of such rights to the amount of' such principal and interest. (9) The Insurer shall be entitled to pay principal of or interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment and any amounts due on the Bonds in accordance with the Ordinance, whether or not the Insurer has received a Notice of Nonpayment or a claim upon the Policy. (10) In addition, the Insurer shall, to the extent it makes any payment of principal of or interest on the Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Policy, and to evidence such subrogation (i) in the case of claims for interest, the Paying Agent/Registrar shall note the Insurer's rights as subrogee on the Registration Books upon receipt of proof of payment of interest thereon to the registered owners of the Bonds, and (ii) in the case of claims for principal, the Paying Agent/Registrar shall note The Insurer's rights as subrogee on the Registration Books upon surrender of the Bonds, together with receipt of proof of payment of principal thereof. J. Defined Terms. The capitalized terms used in this Section shall be defined and have the respective meanings as hereinafter provided: (1) The term "Business Day" shall mean any day (i) other than a Saturday or Sunday, (ii) a day on which the offices of the Paying Agent/Registrar or the Insurer are closed, or (iii) any day on which banking institutions are authorized or required by law, executive order, or governmental decree to be closed in New York, New York or the states of Maryland or New York. (2) The term "Due for Payment" shall have the meaning given such term in the Policy. (3) The term "Fiscal Agent" shall have the meaning given such term in the Policy. 80470964.4 (4) The term "Insurer" shall mean Assured Guaranty Corp. -50- (5) The term "Nonpayment" shall have the meaning given such term in the Policy. (6) The term "Notice" shall have the meaning given such term in the Policy. (7) The term "Policy" shall mean the financial guaranty insurance policy relating to the Bonds issued by the Insurer. SECTION 35: Miscellaneous Provisions. A. Preamble. The preamble to this Ordinance shall be considered an integral part of this Ordinance, and is herein incorporated as part of the body of this Ordinance for all purposes. B. Immediate Effect. This Ordinance shall be effective immediately from and after its passage in accordance with the provisions of Section 1201.028, as amended, Texas Government Code. C. Open Meeting. It is hereby officially found and determined that the meeting at which this Ordinance was passed was open to the public, and public notice of the time, place and purpose of said meeting was given, all as required by Chapter 551, as amended, Texas Government Code. D. Rules of Construction. The words "herein", "hereof" and "hereunder" and other words of similar import refer to this Ordinance as a whole and not to any particular Section or other subdivision. Except where the context otherwise requires, terms defined in this Ordinance to impart the singular number shall be considered to include the plural number and vice versa. References to any named person means that party and its successors and assigns. References to any constitutional, statutory or regulatory provision means such provision as it exists on the date this Ordinance is adopted by the City and any future amendments thereto or successor provisions thereof. Any reference to the payment of principal in this Ordinance shall be deemed to include the payment of any mandatory sinking fund redemption payments as may be described herein. References to any officer of the City (e.g., City Manager) means the person currently serving in such capacity on a temporary, interim or permanent basis. Any reference to FORM OF BOND shall refer to the form attached to this Ordinance as Exhibit C. E. Inconsistent Provisions. All orders and resolutions, or parts thereof, which are in conflict or inconsistent with any provision of this Ordinance are hereby repealed and declared to be inapplicable, and the provisions of this Ordinance shall be and remain controlling as to the matters prescribed herein. 80470964.4 ******************* -51- SCHEDULE APPROVAL CERTIFICATE 80470964.4 S -I -I APPROVAL CERTIFICATE A. I, the undersigned, City Manager of the City of Corpus Christi, Texas, pursuant to Section 2 of the Ordinance authorizing the issuance of' obligations designated as "City of Corpus Christi, Texas Utility System Revenue Improvement Bonds, Series 2009" (the "Bonds") do hereby approve the following terms of the Bonds: (i) the total principal amount of the Bonds is $96,490,000.00; (ii) the purchase price for the Bonds is $95,147,000.65 (representing the par amount of the Bonds, less a net original issue discount of $795,218.55, less the Underwriters' discount of $547,780.80), plus accrued interest in the amount of $407,856.13; (iii) the interest rates, yields, and maturity schedule for the Bonds are as set forth below: Stated Maturities (July 15) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 **** 2029 **** 2033 **** 2039 85029497.1 Principal Amounts ($) 1,730,000 1,775,000 1,825,000 1,880,000 1,945,000 2,025,000 2,105,000 2,190,000 2,280,000 2,385,000 2,500,000 2,610,000 2,725,000 2,850,000 2,995,000 3,150,000 3,310,000 **** 7,130,000 **** 16,650,000 **** 32,430,000 Interest Rates (%) Yields (%) 2.500 2.000 3.000 2.250 3.000 2.620 3.500 3.020 4.000 3.270 4.000 3.530 4.000 3.720 4.000 3.890 4.750 4.110 4.750 4.320 4.375 4.510 4.500 4.650 4.625 4.800 5.000 4.930 5.250 5.020 5.000 5.125 5.000 5.200 **** **** 5.250 5.330 **** **** 5.250 5.440 **** **** 5.375 5.510 (iv) the Bonds are subject to redemption as set forth below: Mandatory Redemption of Bonds. The Bonds stated to mature on July 15, 2029, July 15, 2033, and July 15, 2039 are referred to herein as the "Term Bonds". The Term Bonds are subject to mandatory sinking fund redemption prior to their stated maturities from money required to be deposited in the Debt Service Fund for such purpose and shall be redeemed in part, by lot or other customary method, at the principal amount thereof plus accrued interest to the date of redemption in the following principal amounts on July 15 in each of the years as set forth below: Term Bonds Stated to Term Bonds Stated to Mature on July 15, 2029 Mature on July 15, 2033 Year 2028 2029 Principal Amount ($) 3,475,000 3,655,000* Term Bonds Stated to Mature on July 15, 2039 Year 2034 2035 2036 2037 2038 2039 * stated maturity Principal Amount ($) 4,725,000 4,975,000 5,245,000 5,525,000 5,825,000 6,135,000* Year 2030 2031 2032 2033 Principal Amount ($) 3,850,000 4,050,000 4,265,000 4,485,000* The principal amount of a Term Bond required to be redeemed pursuant to the operation of such mandatory redemption provisions shall be reduced, at the option of the City, by the principal amount of any Term Bonds of such stated maturity which, at least 50 days prior to the mandatory redemption date (1) shall have been defeased or acquired by the City and delivered to the Paying Agent/Registrar for cancellation, (2) shall have been purchased and canceled by the Paying Agent/Registrar at the request of the City with money in the Debt Service Fund (but not the Reserve Fund), or (3) shall have been redeemed pursuant to the optional redemption provisions set forth below and not theretofore credited against a mandatory redemption requirement. 85029497.1 -2- Optional Redemption. The City reserves the right to redeem the Bonds stated to mature on and after July 15, 2019, in whole or in part, on July 15, 2018, or on any date thereafter, in such order of stated maturity as the City shall determine and by lot or other customary method within a stated maturity at the redemption price of par plus accrued interest to the date of redemption. (v) a municipal bond insurance policy for the Bonds has been obtained from Assured Guaranty Corp.; and (vi) a surety policy satisfying a portion of the increase in the Required Amount attributable to the issuance of the Bonds has been obtained from Assured Guaranty Corp. B. Capitalized terms utilized herein and not defined shall have the meanings ascribed in the ordinance adopted by the City Council of the City on February 24, 2009 authorizing the issuance of the Bonds. 85029497.1 [The remainder of this page intentionally left blank.] -3- EXECUTED AND DELIVERED 85029497.1 MAR 1 R 7009 CITY OF CORPUS CHRISTI, TEXAS S-1 80470964.4 EXHIBIT A PURCHASE CONTRACT A-1 BOND PURCHASE AGREEMENT RELATING TO $96,490,000 CITY OF CORPUS CHRISTI, TEXAS UTILITY SYSTEM REVENUE IMPROVEMENT BONDS, SERIES 2009 March 13, 2009 Mayor and Members of the City Council City of Corpus Christi, Texas 1201 Leopard Corpus Christi, Texas 78401 Ladies and Gentlemen: The undersigned (the "Representative"), acting for and on behalf of ourselves and the other underwriters named on the signature page hereof (the undersigned and such other underwriters are collectively referred to herein as the "Underwriters"), offer to enter into this Bond Purchase Agreement (this "Bond Purchase Agreement") with the City of Corpus Christi, Texas (the "City" or the "Issuer") which, upon your acceptance of this offer, will be binding upon the Issuer and the Underwriters. The Underwriters have designated the Representative to act as their representative, and the Representative hereby represents that it has been duly authorized to execute this Bond Purchase Agreement for and on behalf of the Underwriters. All actions which may be taken hereunder by the Underwriters may be taken by the Representative. Terms not otherwise defined herein shall have the same meanings as set forth in the ordinance (the "Ordinance") approved by the City Council of the Issuer (the "City Council") on February 24 2009, authorizing the issuance of the Series 2009 Bonds defined and described below. Simultaneously with the authorization of the Ordinance, the City Council of the Issuer delegated its authority, pursuant to Chapter 1371, as amended, Texas Government Code, to the Mayor, the City Manager, or the Interim Assistant City Manager for Administrative Services of the Issuer to execute an Approval Certificate with respect to the issuance of the Issuer's proposed Series 2009 Bonds, and to authorize the execution of this Bond Purchase Agreement relating to the Series 2009 Bonds. 1. PURCHASE AND SALE OF THE SERIES 2009 Borms. (a) Upon the terms and conditions, and in reliance upon the representations, warranties, and covenants herein, the Underwriters hereby, jointly and severally, agree to purchase from the Issuer, and the Issuer hereby agrees to sell to the Underwriters, all (but not less than all) of $96,490,000 City of Corpus Christi, Texas Utility System Revenue Improvement Bonds, Series 2009 (the "Series 2009 Bonds"), at the price of $95,147,000.65 (the "Purchase Price of the Series 2009 Bonds", which represents the principal amount of the Series 2009 Bonds, less a net original issue discount of $795,218.55, less an underwriting discount of $547,780.80), plus accrued interest on the Series 2009 Bonds from their date to the date of the Closing (hereinafter defined). (b) The proceeds of the Series 2009 Bonds are being used for (i) improving and extending the System and (ii) paying the costs of issuance. 2. PUBLIC OFFERING. The Underwriters agree to make a bona fide public offering of all of the Series 2009 Bonds at the offering prices set forth on the inside cover page of the Final Official Statement described below. On or before Closing, the Representative shall execute the Issue Price Certificate prepared by Bond Counsel (hereinafter defined) verifying the initial offering prices to the public at which the entire amount of each stated maturity of the Series 2009 Bonds were offered to the public. 3. OFFICIAL STATEMENT. (a) The Issuer agrees to deliver to the Underwriters at such addresses as the Underwriters shall specify, as many copies of the Official Statement relating to the Series 2009 Bonds, dated March 13, 2009 (the "Final Official Statement"), as the Underwriters shall reasonably request in order to comply with paragraph (b)(4) of Rule 15c2-12 of the Securities and Exchange Commission under the Securities Exchange Act of 1934 (the "Rule"), and with Rule G-32, and all other applicable rules, of the Municipal Securities Rulemaking Board. The Issuer agrees to deliver such Final Official Statements within seven business days after the execution of this Bond Purchase Agreement. (b) The Issuer hereby authorizes and approves the Preliminary Official Statement, dated March 5, 2009, and the Final Official Statement (the Final Official Statement, the Preliminary Official Statement, and any amendments or supplements that may be authorized for use with respect to the Series 2009 Bonds are herein referred to collectively as the (the "Official Statement"), consents to their distribution and use by the Underwriters, and authorizes the execution (or a conformed copy thereof) of the Final Official Statement by a duly authorized officer of the Issuer. The Issuer hereby represents and warrants that the Preliminary Official Statement delivered (in an electronic format) to the Underwriters prior to the date of this Bond Purchase Agreement was deemed final by the Issuer as of the date thereof, except for the omission of such information which is dependent upon the final pricing of the Series 2009 Bonds for completion, all as permitted to be excluded by the Rule. (c) The Representative shall give notice to the Issuer on the date after which no participating underwriter, as such term is defined in the Rule, remains obligated to deliver Final Official Statements pursuant to paragraph (b)(4)(iii) of the Rule. Unless written notice to the contrary is provided by the Representative to the Issuer, the Issuer may assume such date to be the Closing. (d) The Issuer has agreed in the Ordinance to provide certain periodic information and notices of material events in accordance with the Rule as described in the Official Statement under "CONTINUING DISCLOSURE OF INFORMATION." The Underwriters' obligation to accept and pay for the Series 2009 Bonds is conditioned upon delivery to the Underwriters or 2 their agent of a certified copy of the Ordinance containing the agreements described under such heading. 4. GOOD FAITH DEPOSIT. In connection with the execution of this Bond Purchase Agreement, the Representative will deliver to the Issuer a corporate check of the Representative payable to the Issuer in an amount equal to $1,929,800 as security for the performance by the Underwriters of their obligations to accept and pay for the Series 2009 Bonds at the Closing in accordance with the provisions of this Bond Purchase Agreement. Such check shall be held by the Issuer uncashed until the Closing. At the Closing, such check shall be returned to the Underwriters upon receipt by or on behalf of the Issuer of the Purchase Price for the Series 2009 Bonds. In the event the Issuer does not accept this offer, or upon its failure to deliver the Series 2009 Bonds at the Closing, or if it shall be unable to satisfy the conditions to the obligations of the Underwriters contained in this Bond Purchase Agreement, or if such obligations shall be terminated for any reason permitted by this Bond Purchase Agreement, such check shall be immediately returned to the Representative. In the event that the Underwriters fail (other than for a reason permitted under this Bond Purchase Agreement) to accept and pay for the Series 2009 Bonds at the Closing, such check shall be retained and may be cashed by the Issuer as and for full liquidated damages for such failure for any and all defaults hereunder on the part of the Underwriters, and the cashing of such check and retention of such proceeds shall constitute a full release and discharge of all claims and rights hereunder against the Underwriters, and the Issuer shall have no further action for damages, specific performance or any other legal or equitable relief against the Underwriters. The Representative hereby agrees not to stop or cause payment on said check to be stopped unless the Issuer has materially breached any of the terms of this Bond Purchase Agreement. 5. REPRESENTATIONS AND WARRANTIES OF THE ISSUER. The Issuer represents and warrants to the Underwriters that: (a) The Issuer is a home rule city operating as such under the Constitution and laws of the State of Texas (the "State"), and the Issuer is authorized by the provisions of Chapters 1502 and 1371, Texas Government Code, as amended (collectively, the "Act"), among other things, (i) to issue the Series 2009 Bonds for the purposes described herein and (ii) to secure the Series 2009 Bonds in the manner described in the Ordinance and as described in the Final Official Statement. (b) The Issuer has the full legal right, power, and authority (i) to adopt the Ordinance authorizing the issuance of and awarding the sale of the Series 2009 Bonds pursuant to the Approval Certificate; (ii) to enter into this Bond Purchase Agreement; (iii) to issue, sell, and deliver the Series 2009 Bonds to the Underwriters as provided herein; and (iv) to carry out and consummate all other transactions described in each of the aforesaid documents, and the Issuer has complied with all provisions of applicable law, including the Act, in all matters relating to such transactions. (c) The Issuer has duly authorized (i) the execution and delivery of the Series 2009 Bonds and the execution, delivery, and due performance of this Bond Purchase Agreement; (ii) the distribution and use of the Preliminary Official Statement, in an electronic format, and execution, delivery, and distribution of the Final Official Statement; and (iii) the taking of any 3 and all such actions as may be required on the part of the Issuer to carry out, give effect to, and consummate the transactions described in such instruments. Subject to the provisions of Section 6(a) hereof, all consents or approvals necessary to be obtained by the Issuer in connection with the foregoing have been received or will be received prior to the Closing, and the consents or approvals so received are still in full force and effect. The Issuer shall timely cause a transcript of proceedings to be filed with the Attorney General of the State of Texas (the "Attorney General") in form and substance consistent with the administrative rules of the Public Finance Division of the Texas Attorney General, which will permit the review of such transcript and the approval of the Series 2009 Bonds by the Texas Attorney General, and the registration of the Series 2009 Bonds by the Comptroller of Public Accounts of the State of Texas (the "Comptroller") as required by Section 8(b)(8) and (9) hereof, but subject to the discretion of the Texas Attomey General with respect to the issuance of his approving opinion. (d) (i) The Ordinance has been duly adopted by the Issuer, is in full force and effect, and constitutes the legal, valid, and binding obligation of the Issuer; (ii) this Bond Purchase Agreement, when executed and delivered, will constitute legal, valid, and binding special obligations of the Issuer; and (iii) the Ordinance and this Bond Purchase Agreement are enforceable against the Issuer in accordance with their respective terms, except as enforceability thereof may be limited by principles of sovereign immunity and by bankruptcy, insolvency, or other laws affecting creditors' rights generally, or by general principles of equity which permit the exercise of judicial discretion. (e) When delivered to the Underwriters, the Series 2009 Bonds will have been duly authorized, executed, authenticated, issued, and delivered and will constitute legal, valid, and binding special obligations of the Issuer in conformity with the laws of the State of Texas, including the Act, and will be entitled to the benefit and security of the Ordinance. (0 The information contained in the Preliminary Official Statement (except for information contained therein under the headings or subheadings "BONDHOLDERS' REMEDIES", "BOOK -ENTRY -ONLY SYSTEM", "BOND INSURANCE", "RATINGS", "TAX MATTERS", "FINANCIAL ADVISOR", "UNDERWRITING", and "APPENDIX D — FORM OF OPINION OF BOND COUNSEL," as to which no view is expressed) is, and, as of the date of Closing such information in the Final Official Statement (except for information contained therein under the headings or subheadings "BONDHOLDERS' REMEDIES", "BOOK -ENTRY -ONLY SYSTEM", "BOND INSURANCE", "RATINGS", "TAX MATTERS", "FINANCIAL ADVISOR", "UNDERWRITING", and "APPENDIX D — FORM OF OPINION OF BOND COUNSEL," as to which no view is expressed) will be, true and correct in all material respects, and the Preliminary Official Statement does not (except for information contained therein under the headings or subheadings "BONDHOLDERS' REMEDIES", "BOOK -ENTRY -ONLY SYSTEM", "BOND INSURANCE", "RATINGS", "TAX MATTERS", "FINANCIAL ADVISOR", "UNDERWRITING", and "APPENDIX D — FORM OF OPINION OF BOND COUNSEL," as to which no view is expressed), and the Final Official Statement will not (except for information contained therein under the headings or subheadings "BONDHOLDERS' REMEDIES", "BOOK -ENTRY -ONLY SYSTEM", "BOND INSURANCE", "RATINGS", "TAX MATTERS", "FINANCIAL ADVISOR", "UNDERWRITING", and "APPENDIX D — FORM OF OPINION OF BOND COUNSEL," as 4 to which no view is expressed), contain any untrue statement of a material fact, or omit to state any material fact, necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (g) If, at any time prior to the earlier of (i) receipt of notice from the Representative pursuant to Section 3(c) hereof that Final Official Statements are no longer required to be delivered under the Rule or (ii) 25 days after the Closing, any event occurs with respect to the Issuer as a result of which the Preliminary Official Statement or the Final Official Statement as then amended or supplemented might include an untrue statement of a material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the Issuer shall promptly notify the Underwriters in writing of such event. Any information supplied by the Issuer for inclusion in any amendments or supplements to the Preliminary Official Statement or the Final Official Statement will not contain any untrue or misleading statement of a material fact relating to the Issuer or omit to state any material fact relating to the Issuer necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (h) Neither the adoption of the Ordinance, the execution and delivery of this Bond Purchase Agreement, and the Series 2009 Bonds, nor the consummation of the transactions described herein or therein or the compliance with the provisions hereof or thereof will conflict with, or constitute on the part of the Issuer a violation of, or a material breach of or default under, (i) any statute, indenture, mortgage, commitment, note, or other agreement or instrument to which the Issuer is a party or by which it is bound; (ii) any provision of the Texas Constitution; or (iii) any existing law, rule, regulation, ordinance, judgment, order, or decree to which the Issuer (or the members of the City Council, , or any of its officers in their respective capacities as such) is subject. (i) Except as may be disclosed in the Official Statement, the Issuer is not, in any material respect that would adversely affect the validity or marketability of the Series 2009 Bonds, in material breach of or default under any applicable law or administrative regulation of the State of Texas or any department, division, agency, or instrumentality thereof, or of the United States or any agency or instrumentality thereof or any applicable judgment or decree or any loan agreement, note, resolution, certificate, agreement, or other instrument to which the Issuer is a party or is otherwise subject; and except as described in the Official Statement, the Issuer has not entered into any contract or arrangement of any kind which might give rise to any lien or encumbrance on the Net Revenues pledged to the payment of the Series 2009 Bonds superior to or on a parity with the pledge securing the payment of the Series 2009 Bonds. (j) Except as is specifically disclosed in the Official Statement, there is no action, suit, proceeding, inquiry, or investigation, at law or in equity, before or by any court, public board, or body, pending, or, to the best knowledge of the Issuer, threatened, which in any way questions the powers of the Issuer referred to in paragraph (b) above, or the validity of any proceeding taken by the Issuer in connection with the issuance of the Series 2009 Bonds, or wherein an unfavorable decision, ruling, or finding could materially adversely affect the transactions described in this Bond Purchase Agreement or of any other document or instrument required or described in this financing, or which, in any way, could adversely affect the validity or 5 enforceability of the Ordinance, the Series 2009 Bonds, or this Bond Purchase Agreement or, to the knowledge of the Issuer, which in any way questions the exclusion from gross income of the recipients thereof of the interest on the Series 2009 Bonds for federal income tax purposes. (k) Any certificate signed by an official of the Issuer and delivered to the Underwriters shall be deemed a representation and warranty by the Issuer, as appropriate, to the Underwriters as to the truth of the statements therein contained. (1) The Issuer has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that it is a bond issuer whose arbitrage certifications may not be relied upon. (m) The Issuer will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Series 2009 Bonds be applied in a manner other than as provided in the Ordinance. (n) Except as may otherwise be disclosed in the Official Statement, the Issuer has complied in all material aspects with all previous continuing disclosure undertakings in written contracts or agreements entered into by the Issuer as specified in paragraph (b)(5)(i) of the Rule within the last five years. (o) To the best of the knowledge of the Issuer, the financial statements of the System included in APPENDIX B to the Final Official Statement present fairly the financial position and the results of operations of the System at the respective dates and for the respective periods indicated therein, in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods presented. (p) As of the date of the Closing, there will not be any material adverse change in the financial position, results of operations, or condition, financial or otherwise, of the City's combined waterworks, storm water, wastewater disposal, and gas systems (the "System") from that described in the Final Official Statement, other than in the ordinary course of the System's business. 6. COVENANTS OF THE ISSUER. The Issuer covenants with the Underwriters as follows: (a) The Issuer will cooperate, at no expense to the Issuer, with the Underwriters in qualifying the Series 2009 Bonds for offer and sale under the securities or Blue Sky laws of such jurisdictions of the United States as the Representative may request; provided, however, that the Issuer shall not be required to consent to suit or to service of process in any jurisdiction. The Issuer consents to the use by the Underwriters in the course of their compliance with the securities or Blue Sky laws of the various jurisdictions of the documents relating to the Series 2009 Bonds, subject to the right of the Issuer to withdraw such consent for cause by written notice to the Representative. (b) Prior to the earlier of (i) receipt of notice from the Representative pursuant to Section 3(c) hereof that Final Official Statements are no longer required under the Rule or (ii) 25 days 6 after the Closing, the Issuer shall provide the Representative with such information regarding its current financial condition and ongoing operations as the Issuer shall deem material and such other information concerning the Issuer as the Representative may reasonably request. 7. CLOSING. At or before 10:00 a.m., Corpus Christi, Texas time on April 2, 2009 or at such other time and/or date as shall have been mutually agreed upon by the Issuer and the Underwriters, the Issuer will deliver, or cause to be delivered, to the Underwriters, the Series 2009 Bonds together with the other documents hereinafter mentioned and, provided the Underwriters have made arrangements with The Depository Trust Company, New York, New York ("DTC"), for the Series 2009 Bonds to be book -entry -only securities, the Issuer shall take appropriate steps to provide DTC, or its designated agent, with one definitive bond for each year of maturity of the Series 2009 Bonds, and the Underwriters will accept such delivery and pay the Purchase Price of the Series 2009 Bonds by making a federal funds wire transfer in immediately available funds to The Bank of New York Mellon Trust Company, National Association, Dallas, Texas (the "Paying Agent/Registrar") for the account of the Issuer. Upon receipt of such payment and at the Closing, the Issuer immediately shall return to the Representative the good faith check described in Section 4 hereof. The activities relating to the final execution and delivery of the Series 2009 Bonds and the payment therefor and the delivery of the certificates, opinions, and other instruments as described in Section 8 of this Bond Purchase Agreement shall occur at such place in Corpus Christi, Texas, or such other place as shall have been mutually agreed upon by the Issuer and the Underwriters. The payment for the Series 2009 Bonds and simultaneous delivery of the Series 2009 Bonds to the Underwriters is herein referred to as the "Closing." 8. CLOSING CONDITIONS. The obligations of the Underwriters to purchase the Series 2009 Bonds shall be subject (a) to the performance by the Issuer of its obligations to be performed hereunder at and prior to the Closing, (b) to the accuracy of the representations and warranties of the Issuer herein as of the date hereof and as of the time of the Closing, and (c) to the following conditions, including the delivery by the Issuer of such documents as are enumerated herein in form and substance satisfactory to Bond Counsel (named below) and Law Offices of William T. Avila, P.C., Corpus Christi, Texas, as counsel to the Underwriters ("Underwriters' Counsel"): (a) At the time of Closing, (i) the Official Statement, this Bond Purchase Agreement, and the Ordinance shall be in full force and effect and shall not have been amended, modified, repealed, or supplemented from the date hereof except as may have been agreed to in writing by the Underwriters; (ii) the proceeds of the sale of the Series 2009 Bonds shall be deposited and applied as described in the Ordinance; (iii) the Issuer shall have duly adopted and there shall be in full force and effect such ordinances or resolutions as, in the opinions of Fulbright & Jaworski L.L.P., San Antonio, Texas, as Bond Counsel ("Bond Counsel"), shall be necessary in connection with the transactions described herein, and (iv) there shall not have occurred any change or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings or operations of the System from that set forth in the Official Statement that, in the reasonable judgment of the Representative, is material and adverse and that makes it, in the reasonable judgment of the Representative, impracticable or inadvisable to market the Series 2009 Bonds on the terms and in the manner described in the Official Statement. (b) At or prior to the Closing, the Representative shall receive one copy of the following documents in such number of counterparts as shall be mutually agreeable to the Underwriters Counsel and Bond Counsel: (1) The Ordinance (containing the agreement to provide continuing disclosure of information as described in the Official Statement), the Approval Certificate, and the Paying Agent/Registrar Agreement, dated as of February 24, 2009, between the Issuer and The Bank of New York Mellon Trust Company, National Association, Dallas, Texas, with such supplements or amendments to any of the foregoing documents as may have been agreed to by the Representative; (2) Final opinion of Bond Counsel dated the date of Closing, in substantially the form set forth as APPENDIX D in the Official Statement; (3) A letter of Bond Counsel addressed to the Underwriters and dated the date of Closing, to the effect that Bond Counsel's final opinions referred to in Section 8(b)(2) hereof may be relied upon by the Underwriters to the same extent as if such opinions were addressed to the Underwriters; (4) A supplemental opinion of Bond Counsel addressed to the Underwriters and dated the date of Closing, in substantially the form set forth in Exhibit B hereto; (5) An opinion of the City Attorney of the Issuer substantially in the form of Exhibit C attached hereto; (6) A certificate signed by an authorized officer of the Issuer as prepared by Bond Counsel setting forth facts, estimates, and circumstances in existence on the date of Closing, which facts, estimates, and circumstances shall be sufficiently set forth therein to support the conclusion that it is not expected that the proceeds of the Series 2009 Bonds will be used in a manner or that the Issuer will take any action or omit to take any action that would cause the Series 2009 Bonds to be "arbitrage bonds," with the meaning of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations, temporary regulations, and proposed regulations promulgated under the Code, and stating that to the best knowledge and belief of such officer there are no other facts, estimates, or circumstances that would materially affect such expectations; hereto; Bonds; (7) An opinion of Underwriters' Counsel in substantially the form set forth in Exhibit D (8) The approving opinion of the Texas Attorney General with respect to the Series 2009 8 (9) The registration certificate of the Texas Comptroller of Public Accounts with respect to the Series 2009 Bonds; (10) A conformed copy of the Final Official Statement, and each supplement or amendment thereto, if any, as may have been agreed to by the Representative; (11) Letters from Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Services, a Division of the McGraw-Hill Companies, Inc. ("S&P"), and Fitch Ratings ("Fitch") to the effect that the Series 2009 Bonds have been assigned ratings of "Aa2," "AAA," and "AAA," respectively, based upon the Bond Insurance Policy (as defined below) of Assured Guaranty Corp., which ratings shall be in effect as of the date of Closing; (12) A certificate, in form and substance satisfactory to the Issuer, Bond Counsel, the Representative, and Underwriters Counsel, of the Issuer or any duly authorized officer or official of the Issuer, dated as of the Closing, to the effect that: (i) each of the Issuer's representations, warranties, and covenants contained herein are true and correct as of the Closing; (ii) the Issuer has authorized, by all action necessary under the Act and the laws and Constitution of the State, the adoption of the Ordinance, and the execution, delivery, and due performance of the Series 2009 Bonds, and this Bond Purchase Agreement; (iii) except as disclosed in the Official Statement, no litigation is pending, or to the knowledge of the officer or official of.the Issuer signing the certificate threatened, to restrain or enjoin the issuance or sale of the Series 2009 Bonds or in any way affecting any authority for or the validity of the Ordinance, the Series 2009 Bonds, or this Bond Purchase Agreement; (iv) the Series 2009 Bonds, and this Bond Purchase Agreement, as executed by the Issuer, are in the form or in substantially the form approved for such execution by appropriate proceedings of the Issuer; (v) since July 31, 2008 there has not been any material adverse change in the properties, financial position, or results of operations of the System, whether or not arising from transactions in the ordinary course of business, other than as set forth in the Official Statement; (vi) the information contained in the Official Statement (except for information contained therein under the headings or subheadings "BONDHOLDERS' REMEDIES", "BOOK -ENTRY -ONLY SYSTEM", "BOND INSURANCE", "RATINGS", 'TAX MATTERS," "FINANCIAL ADVISOR", "UNDERWRITING", and "APPENDIX D — FORM OF OPINION OF BOND COUNSEL," as to which no view is expressed) is true and correct in all material respects and does not contain any untrue or incorrect statement of a material fact and does not omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading; (vii) since the date of the Official Statement and the statistical information contained therein, there has been no material adverse change in the utilization of the System and no material adverse change in the governmental rules or regulations under which the System operate; and (viii) all agreements or conditions to be performed or complied with by the Issuer under this Bond Purchase Agreement on or prior to the Closing Date have been performed or complied with; (13) A certificate, dated the Closing Date, of the Issuer as to the receipt of payment for the Series 2009 Bonds; 9 (14) Evidence acceptable to the Underwriters' Counsel that a policy of bond insurance (the "Insurance Policy") has been issued by Assured Guaranty Corp. (the "Bond Insurer"), which unconditionally and irrevocably guarantees the full, complete, and timely payment of the Series 2009 Bonds, together with standard closing certificates of the Bond Insurer; (15) The opinion of Bond Insurer's Counsel, dated the Closing Date, and addressed to the Issuer and the Underwriters, as to (i) the due incorporation and valid existence of the Bond Insurer, (ii) the validity and enforceability of the Insurance Policy, and (iii) that the information relating to the Bond Insurer appearing under the caption "BOND INSURANCE" in the Official Statement does not contain any untrue statement of a material fact or omit to state a material fact necessary tom make the statements therein in the light of the circumstances under which they were made, not misleading; and (16) Such additional legal opinions, certificates, proceedings, instruments, and other documents as Underwriters' Counsel or Bond Counsel may reasonably request to evidence compliance by the Issuer with legal requirements, the truth and accuracy, as of the time of Closing, of the representations of the Issuer herein contained, and the due performance or satisfaction by the Issuer at or prior to such time of all agreements then to be performed and all conditions then to be satisfied by the Issuer. If the Issuer shall be unable to satisfy the conditions to the obligations of the Underwriters contained in this Bond Purchase Agreement, or if the obligations of the Underwriters to purchase and accept delivery of the Series 2009 Bonds shall be terminated for any reason permitted by this Bond Purchase Agreement, the good faith check described in Section 4 hereof shall be returned to the Representative, this Bond Purchase Agreement shall terminate, and neither the Underwriters nor the Issuer shall be under further obligation hereunder. 9. CANCELLATION RIGHTS. The Underwriters shall have the right to cancel their obligations to purchase the Series 2009 Bonds if between the date hereof and the date of Closing: (a) the House of Representatives or the Senate of the Congress of the United States, or a committee of either, shall have pending before it, or shall have passed or been recommended favorably, legislation introduced after the date hereof, which Legislation, if enacted in its form introduced or as amended, would have the purpose or effect of imposing federal income taxation upon revenues or other income of the general character to be derived by the Issuer, or by any similar body, or upon interest received on obligations of the general character of the Series 2009 Bonds, to be includable in gross income for purposes of federal income taxation, and such legislation, in the Representative's reasonable opinion, materially adversely affects the market price of the Series 2009 Bonds; or (b) a decision with respect to legislation shall be reached by a committee of the House of Representatives or the Senate of the Congress of the United States, or legislation shall be favorably reported by such a committee or be introduced, by amendment or otherwise, in or be passed by the House of Representatives or the Senate, or recommended to the Congress of the United States for passage by the President of the United States, or be enacted, or a decision by a 10 federal court of the United States or the United States Tax Court shall have been rendered, or a ruling, release, order, regulation or official statement by or on behalf of the United States Treasury Department, the Internal Revenue Service, or other governmental agency shall have been made or proposed to be made having the purpose or effect, or any other action or event shall have occurred which has the purpose or effect, directly or indirectly, of adversely affecting the federal income tax consequences of owning the Series 2009 Bonds or of any of the transactions described in connection herewith, including causing interest on the Series 2009 Bonds to be included in gross income for purposes of federal income taxation, or imposing federal income taxation upon revenues or other income of the general character to be derived by the Issuer, or by any similar body, or upon interest received on obligations of the general character of the Series 2009 Bonds, which, in the reasonable opinion of the Representative, materially adversely affects the market price of, or market for, the Series 2009 Bonds; or (c) legislation shall have been enacted, or actively considered for enactment with an effective date prior to the Closing, or a decision by a court of the United States shall have been rendered, the effect of which is that the Series 2009 Bonds, including any underlying obligations, or the Ordinance, as the case may be, is not exempt from the registration, qualification, or other requirements of the Securities Act of 1933, as amended and as then in effect, the Securities Exchange Act of 1934, as amended and as then in effect, or the Trust Indenture Act of 1939, as amended and as then in effect; or (d) a stop order, ruling, regulation, or official statement by the United States Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, shall have been issued or made, or any other event occurs, the effect of which is that the issuance, offering, or sale of the Series 2009 Bonds, including any underlying obligations, or the execution and effectiveness of the Ordinance as described herein or by the Official Statement is, or would be, in violation of any provision of the federal securities laws, including the Securities Act of 1933, as amended and as then in effect, the Securities Exchange Act of 1934, as amended and as then in effect, or the Trust Indenture Act of 1939, as amended and as then in effect; or (e) any event shall have occurred or any information shall have become known to the Underwriters which causes the Representative to reasonably believe that the Official Statement, as then amended or supplemented, includes an untrue statement of a material fact, or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and such omission, in the Representative's reasonable opinion, materially adversely affects the market price of the Series 2009 Bonds; or (f) there shall have occurred a (i) material outbreak of hostilities (including, without limitation, an act of terrorism) or (ii) new material other national or international calamity or crisis, or any material adverse change in the financial, political or economic conditions affecting the United States, including, but not limited to, an escalation of hostilities that existed prior to the date hereof or (iii) a financial crisis, the effect of which on the financial markets of the United States is such as, in the reasonable judgment of the Representative, would materially adversely affect the market for, or market price of, the Series 2009 Bonds; or 11 (g) there shall be in force a general suspension of trading on the New York Stock Exchange, the effect of which on the financial markets of the United States is such, in the reasonable judgment of the Representative, would materially adversely affect the market for, or market price of, the Series 2009 Bonds; or (h) a general banking moratorium shall have been declared by Federal, New York, or State authorities; or (i) any proceeding shall be pending or threatened by the United States Securities and Exchange Commission against the Issuer; or (j) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange; or (k) the New York Stock Exchange or other national securities exchange, or any governmental authority, shall impose, as to the Series 2009 Bonds or obligations of the general character of the Series 2009 Bonds, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of, underwriters; or (1) a material disruption in securities settlement, payment or clearance services in the United States shall have occurred. With respect to the conditions described in subparagraphs (j) and (k) above, the Representative is not aware of any current, pending or proposed law or government inquiry or investigation as of the date of execution of this Bond Purchase Agreement which would permit the Underwriters to invoke their termination rights thereunder. 10. ISSUER OBLIGATIONS SUBJECT TO PERFORMANCE BY UNDERWRITERS. The obligations of the Issuer hereunder are subject to the performance by the Underwriters of their obligations hereunder. 11. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Unless otherwise set forth herein, all representations, warranties, and agreements of the Issuer shall remain operative and in full force and effect, regardless of any investigations made by or on behalf of the Underwriters or the Issuer and shall survive the Closing. 12. EXPENSES. The Issuer will pay or cause to be paid all reasonable expenses incident to the performance of its obligations under this Bond Purchase Agreement, including, but not limited to, mailing or delivery of the Series 2009 Bonds; costs of printing the Series 2009 Bonds, the Preliminary Official Statement and Final Official Statement, any amendment or supplement to the Preliminary Official Statement or the Final Official Statement, and this Bond Purchase Agreement; fees and disbursements of Bond Counsel; any fees charged by investment rating agencies for the rating of the Series 2009 Bonds; any municipal bond insurance or surety bond premiums; any paying agent fees; fees related to the Attorney General's review of the transcript 12 of proceedings related to the Series 2009 Bonds; any fees and expenses of the Issuer's independent certified public accountants; and fees and expenses of the Financial Advisors to the Issuer. The Underwriters shall pay all advertising expenses in connection with the public offering of the Series 2009 Bonds and all other expenses incurred by them, including any "blue sky" and legal investment memorandum preparation, in connection with their public offering and distribution of the Series 2009 Bonds, including the fees and disbursements of Underwriters' Counsel. The Underwriters shall not be responsible for travel, lodging, meal, entertainment or deal memento expenses for officials, officers or employees of the Issuer, unless such expenses have been incurred by the Underwriters at their discretion. 13. OTHER TRANSACTIONS BY UNDERWRITERS AND ISSUER. The Underwriters or their affiliates may from time to time, in their individual capacity and separate and apart from the transactions contemplated hereby and the compensation provided for herein, sell securities to, provide derivative products to, engage in swaps with, and enter into other transactions with the Issuer, or their agents acting in their behalf, and shall be entitled to retain any compensation or profits inuring to the Underwriters or their affiliates in connection therewith as approved by the Issuer. 14. NOTICES. Any notice or other communication to be given to the Issuer under this Bond Purchase Agreement may be given by delivering the same in writing at its address set forth above (with an additional copy to the City Manager) and any notice or other communication to be given to the Underwriters under this Bond Purchase Agreement may be given by delivering the same in writing to. The Frost National Bank, 100 West Houston, San Antonio, Texas 78205, Attention: Rogelio Rodriguez, Vice President. 15. No RECOURSE AGAINST ISSUER INDIVIDUALS. No recourse shall be had for payment of the principal of or interest on any Series 2009 Bonds or for any claim based thereon, against any official or employee of the Issuer or any person executing any Series 2009 Bonds. 16. FIDUCIARY Dun. The Issuer aclmowledges that in connection with the offering of the Series 2009 Bonds (a) the Underwriters have acted at anus length, are not an agent of, and owe no fiduciary duties to, the Issuer and (b) the Underwriters may have interests that differ from those of the Issuer. 17. PARTIES IN INTEREST. This Bond Purchase Agreement is made solely for the benefit of the Issuer and the Underwriters (including the successors or assigns of the Underwriters) and no other person, including any purchaser of the Series 2009 Bonds, shall acquire or have any right hereunder or by virtue hereof. 18. EFFECTIVENESS. This Bond Purchase Agreement shall become effective upon the acceptance hereof by the Issuer and shall be valid and enforceable at the time of such acceptance. 19. CHOICE OF LAW. This Bond Purchase Agreement shall be governed by and construed in accordance with the laws of the State of Texas and the United States of America. 13 20. SEYERABIInTY. If any provision of this Bond Purchase Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provisions of any Constitution, statute, rule of public policy, or any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions of this Bond Purchase Agreement invalid, inoperative or unenforceable to any extent whatever. 21. SECTION HEADINGS. Section headings have been inserted in this Bond Purchase Agreement as a matter of convenience of reference only, and it is agreed that such section headings are not a part of this Bond Purchase Agreement and will not be used in the interpretation of any provisions of this Bond Purchase Agreement. 22. ENTIRE AGREEMENT. This Bond Purchase Agreement, together with any contemporaneous written agreements and any prior written agreements (to the extent not superseded by this Bond Purchase Agreement) that relate to the offering of the Series 2009 Bonds, represents the entire agreement between the Issuer and the Underwriters with respect to the preparation of the Official Statement, and the conduct of the offering, and the purchase and sale of the Series 2009 Bonds. SIGNATURE TO FOLLOW [The remainder of this page intentionally left blank.] 14 23. COUNTERPARTS. This Bond Purchase Agreement may be executed in several counterparts, each of which shall be regarded as an original and all of which shall constitute one and the same document. This Bond Purchase Agreement shall become effective upon the execution of the acceptance hereof by the officially authorized and designated officers of the Issuer shown below and shall be valid and enforceable as of the time of such acceptance. Very truly yours, THE FROST NATIONAL BANK RBC CAPITAL MARKETS CORPORATION ESTRADA HINOJOSA & CO., INC. SIEBERT, BRANDFORD, SHANK & CO., L.L.C. SOUTHWEST SECURITES WELLS FARGO BROKERAGE SERVICES LLC THE FROST NATIONAL BANK As Representative By: Title: 5\1 P Accepted and agreed to as of the date first written above: CITY OF CORPUS CHRISTI, TEXAS By: Angel R. Escobar Title: City Manager APPROVED: By: Mary Kay Fischer Title: City Attorney [SIGNATURE PAGE TO THE BOND PURCHASE AGREEMENT] 23. COUNTERPARTS. This Bond Purchase Agreement may be executed in several counterparts, each of which shall be regarded as an original and all of which shall constitute one and the same document. This Bond Purchase Agreement shall become effective upon the execution of the acceptance hereof by the officially authorized and designated officers of the Issuer shown below and shall be valid and enforceable as of the time of such acceptance. Very truly yours, THE FROST NATIONAL BANK RBC CAPITAL MARKETS CORPORATION ESTRADA HINOJOSA & CO., INC. SIEBERT, BRANDFORD, SHANK & CO., L.L.C. SOUTHWEST SECURITES WELLS FARGO BROKERAGE SERVICES LLC THE FROST NATIONAL BANK As Representative By: Title: Accepted and agreed to as of the date first written above: CITY OF CORPUS CHRISTI, TEXAS raws- By: fi E. gel R. Escobar Title: City Manager APPROVED: By: ary JAAda,.. Fischer Title: City Attorney [SIGNATURE PAGE TO THE BOND PURCHASE AGREEMENT] EXHIBIT A $96,490,000 City of Corpus Christi, Texas Utility System Revenue Improvement Bonds, Series 2009 Dated March 1, 2009 (Interest to accrue from this Dated Date) Maturity Date (July 15) Amount Rate Yield Price 2011 1,730,000 2.500 2.000 101.110 2012 1,775,000 3.000 2.250 102.360 2013 1,825,000 3.000 2.620 101.528 2014 1,880,000 3.500 3.020 102.325 2015 1,945,000 4.000 3.270 104.113 2016 2,025,000 4.000 3.530 102.992 2017 2,105,000 4.000 3.720 101.976 2018 2,190,000 4.000 3.890 100.845 2019 2,280,000 4.750 4.110 104.893 2020 2,385,000 4.750 4.320 103.254 2021 2,500,000 4.375 4.510 98.731 2022 2,610,000 4.500 4.650 98.519 2023 2,725,000 4.625 4.800 98.198 2024 2,850,000 5.000 4.930 100.509 2025 2,995,000 5.250 5.020 101.682 2026 3,150,000 5.000 5.125 98.570 2027 3,310,000 5.000 5.200 97.650 **** **** **** **** **** 2029 7,130,000 5.250 5.330 99.006 **** **** **** **** **** 2033 16,650,000 5.250 5.440 97.447 **** **** **** **** **** 2039 32,430,000 5.375 5.510. 98.013 Optional Redemption. The Series 2009 Bonds maturing on and after July 15, 2019, are subject to optional redemption by the City, in whole or in part, prior to stated maturity, on July 15; 2018 and on any date thereafter, at a redemption price equal to the par value thereof plus accrued interest to the date fixed for redemption. EXHIBIT B [LETTERHEAD OF BOND COUNSEL] April 2, 2009 The Frost National Bank, as Representative of the Underwriters named in the Bond Purchase Agreement described below 100 West Houston Street San Antonio, Texas 78205 City of Corpus Christi, Texas City Hall 1201 Leopard Corpus Christi, Texas 78401 Re: $96,490,000 City of Corpus Christi, Texas Utility System Revenue Improvement Bonds, Series 2009 Ladies and Gentlemen: This opinion is being rendered pursuant to the Bond Purchase Agreement, dated March 13, 2009 (the "Bond Purchase Agreement"), between The Frost National Bank, as Representative of the Underwriters named in the Bond Purchase Agreement (the "Underwriters"), and the City of Corpus Christi, Texas (the "City") relating to the issuance, sale and delivery by the City to the Underwriters of the captioned bonds (the "Series 2009 Bonds"). Except as otherwise defined herein, the terms defined in the Bond Purchase Agreement are used in this opinion with the meanings assigned to them in the Bond Purchase Agreement. We have acted as Bond Counsel to the City in accordance with the issuance, sale and delivery of the Series 2009 Bonds to the Underwriters. In our capacity as Bond Counsel, we have examined a transcript of certain materials and proceedings pertaining to the Series 2009 Bonds, including certain certified and original proceedings of the City and customary certificates, opinions, and other documents executed by officers, agents, and representatives of the City, and others. In our capacity as Bond Counsel, we have also attended meetings of the City and have participated in conferences from time to time with representatives of the City, the Financial Advisors of the City, the Underwriters, and Underwriters' Counsel relative to the Preliminary Official Statement and the Final Official Statement. In our capacity as Bond Counsel, we have reviewed the following: (a) (b) (c) a certified copy of the Ordinance, including the Approval Certificate; an executed counterpart of the Bond Purchase Agreement; an executed counterpart of the Paying Agent/Registrar Agreement dated as of February 24, 2009 between the City and The Bank of New York Mellon Trust Company, National Association, Dallas, Texas, as paying agent/registrar; (d) a copy of the Preliminary Official Statement dated March 5, 2009 and a copy of the Final Official Statement dated March 13, 2009 (the "Official Statement"); such other agreements, documents, certificates, opinions, letters, and other papers as we have deemed necessary or appropriate in rendering the opinions set forth below; and (g) (h) Chapters 1502 and 1371, as amended, Texas Government Code and such other provisions of the Constitution and laws of the State of Texas and the United States of America as we believe necessary to enable us to render the opinions herein contained. In our examination, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies, and the authenticity of the originals of such latter documents. Based upon the foregoing, we are of the opinion that, under applicable laws of the United States of America and the State of Texas in force and effect on the date hereof: 1. The offering and sale of the Series 2009 Bonds need not be registered under the Securities Act of 1933, as amended; 2. No filing is required under the Trust Indenture Act of 1939, as amended, in connection with the Series 2009 Bonds or the Ordinance; 3. The statements in the Official Statement, insofar as they describe the Series 2009 Bonds and the ordinance (except for any financial, technical, or statistical data therein), under the captions "PURPOSE AND PLAN OF FINANCING", "PURPOSE OF THE BONDS", "SECURITY FOR THE BONDS", "THE BONDS" "CONTINUING DISCLOSURE OF INFORMATION" (except matters discussed under the subcaption "Compliance with Prior Undertakings", as to which no opinion is expressed), "LEGAL PROCEEDINGS" (except for the last sentence of the first paragraph thereof as to which no opinion is expressed), "TAX MATTERS," "LEGAL INVESTMENTS IN TEXAS," "REGISTRATION AND QUALIFICATIONS OF BONDS FOR SALE," "APPENDIX A SELECECTED PROVISIONS OF THE ORDINANCE," and "APPENDIX D — FORM OF OPINION OF BOND COUNSEL" are accurate and fair descriptions of the laws and legal issues addressed therein and, with respect to the Series 2009 Bonds, such information conforms to the Ordinance. We express no opinion and make no comment with respect to the sufficiency of the security for or the marketability of the Series 2009 Bonds. We express no opinion concerning any effect on the foregoing opinions which may result from changes in law effected after the date hereof. In our capacity as Bond Counsel we have delivered on this date the opinion in substantially the form set forth in Appendix D of the Official Statement. The Underwriters may rely on such opinion as if it were addressed to the Underwriters. B-2 In rendering this opinion, we have not represented any of the Underwriters nor rendered any advice to the Underwriters in connection with the Bond Purchase Agreement or the transactions contemplated thereby, other than set forth therein. This opinion may not be relied upon by any other person or by you in any other context, without our prior written consent. This opinion is not to be used, circulated, quoted, or otherwise referred to for any other purpose. Very truly yours, B-3 EXHIBIT C [LETTERHEAD OF THE CITY ATTORNEY] April 2, 2009 The Frost National Bank, as Representative of the Underwriters named in the Bond Purchase Agreement described below 100 West Houston Street San Antonio, Texas 78205 City of Corpus Christi, Texas City Hall 1201 Leopard Corpus Christi, Texas 78401 Re: Law Offices of William T. Avila, P.C. 111 Soledad Street, Suite 1875 San Antonio, Texas 78205 Fulbright & Jaworski L.L.P. 300 Convent Street, Suite 2200 San Antonio, Texas 78205 Assured Guaranty Corp. 1325 Avenue of the Americas New York, New York 10019 $96,490,000 City of Corpus Christi, Texas Utility System Revenue Improvement Bonds, Series 2009 Ladies and Gentlemen: I am the City Attorney to the City of Corpus Christi, Texas (the "City") and have acted as such in connection with the issuance of the captioned Series 2009 Bonds (the "Series 2009 Bonds") pursuant to an ordinance duly adopted by the City Council of the City of Corpus Christi, Texas on February 24, 2009 (the "Bond Ordinance"). Capitalized terms not otherwise defined in this letter have the meanings assigned in the Bond Purchase Agreement. In my capacity as City Attorney to the City, I or my designated attomeys have reviewed the following: 1. The Bond Ordinance, including the Approval Certificate, as adopted by the City Council; 2. An executed counterpart of the Bond Purchase Agreement, dated March 13, 2009 (the "Bond Purchase Agreement"), between the City and the Underwriters named in such Bond Purchase Agreement, including the Approval Certificate; 3. Executed counterparts of the Paying Agent/Registrar Agreement (the "Agreement"), as prepared by the City's Bond Counsel; 4. A conformed copy of the Official Statement dated March 13, 2009 (the "Official Statement"); C-1 5. Such other agreements, documents, certificates, opinions, letters and other papers as I have deemed necessary or appropriate in rendering the opinions set forth below; and 6. Chapters 1502 and 1371, Texas Government Code, as amended (the "Act"), and such other provisions of the Constitution and laws of the State of Texas and the United States of America as I believe necessary to enable me to render the opinions herein contained. In making my review, I, or my designated attorneys, have assumed the authenticity of all documents and agreements submitted to me as originals, conformity to the originals of all documents and agreements submitted to me as certified or photostatic copies, the authenticity of the originals of such latter documents and agreements, and the accuracy of the statements contained in such documents. Based upon the foregoing, it is my opinion that: 1. The City has duly adopted and enacted the Bond Ordinance in accordance with the Act; the City has full legal right, power and authority to enter into the Bond Purchase Agreement, and the Agreement, to adopt the Bond Ordinance, and to issue, sell and deliver the Series 2009 Bonds to the Underwriters as provided in such Bond Purchase Agreement; the City has duly authorized and approved the execution and the delivery of, and the performance by the City of the obligations contained in, the Series 2009 Bonds, the Bond Purchase Agreement, the Agreement and the Bond Ordinance, and all other transactions contemplated by the Official Statement; the City has complied with, and is in compliance with Texas law in all respects regarding the sale, issuance and delivery of the Series 2009 Bonds, including the provisions relating to its obligations under the Act, the Bond Ordinance, the Series 2009 Bonds, and the Bond Purchase Agreement, and assuming the due authorization, execution, and delivery by the other contracting parties of the Agreement, the Bond Purchase Agreement, and the Bond Ordinance constitute valid, legal and binding agreements of the City, enforceable in accordance with their respective terms, subject to principles of sovereign immunity and bankruptcy, insolvency, reorganization or other laws relating to or affecting the rights of creditors generally and general equitable principles; 2. The City is a body politic and corporate, duly incorporated and existing under the laws of the State of Texas, is a political subdivision thereof, and has good right and lawful authority to operate, maintain and improve the System and to fix and establish rates and other charges in respect thereof and collect revenues therefrom, as required by the Bond Ordinance, and to perform all of its obligations under the Bond Ordinance; 3. Except for permits and similar authorizations under the securities or blue sky laws of certain jurisdictions, no consent, waiver or any other action of any person, board or body, public or private, is required as of the date hereof for the City to adopt the Bond Ordinance or issue the Series 2009 Bonds, or to enter into the Bond Purchase Agreement, or to perform its obligations under any of the foregoing other than those which have been duly and validly obtained and are in full force and effect; 4. Based on reasonable inquiry made of the responsible City employees and public officials, the City is not, to the best of my knowledge, in material breach of or in default under C-2 any applicable constitutional provision, law or administrative regulation of the State of Texas or the United States relating to the System, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the City is a party or is otherwise subject and, to the best of my knowledge after due inquiry, no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute such a default by the City under any of the foregoing; and the execution and delivery of the Bond Purchase Agreement, the Series 2009 Bonds, the Agreement, and the adoption of the Bond Ordinance and compliance with the provisions of each of such agreements or instruments do not conflict with or constitute a material breach of or default under any applicable constitutional provision, law or administrative regulation of the State of Texas or the United States or any applicable judgment or decree or, to the best of my knowledge, any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the City is a party or is otherwise subject; and 5. Except as disclosed in the Official Statement, no litigation is pending, or, to my knowledge, threatened, in any court (a) in any way challenging the titles of the Mayor or any of the other members of the City Council of the City to their respective offices, or (b) seeking to restrain or enjoin the issuance or delivery of any of the Series 2009 Bonds, or the collection of a material amount of revenues pledged or to be pledged to pay the principal of and interest on the Series 2009 Bonds, or in any way contesting or affecting the validity or enforceability of the Series 2009 Bonds, the Bond Ordinance, the Bond Purchase Agreement, or the Agreement or the collection of a material amount of revenues or the pledge thereof, or contesting the powers of the City or any authority for the issuance of the Series 2009 Bonds, or the adoption of the Bond Ordinance, or contesting or affecting in any way the ability of the City to establish rates and charges for the use of the System, except as disclosed in the Official Statement. In addition, without having undertaken to determine independently the accuracy and completeness of the statements contained in the Official Statement, nothing has come to my attention which would lead me to believe that the Official Statement (excluding therefrom the financial and statistical data and forecasts included therein) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The opinions herein are expressed as of the date hereof. I consent to the reference to this opinion in the Official Statement. Very truly yours, Mary Kay Fischer City Attorney for the City of Corpus Christi, Texas C-3 EXHIBIT D [LETTERHEAD OF UNDERWRITERS' COUNSEL] April 2, 2009 The Frost National Bank, as Representative of the Underwriters named in the Bond Purchase Agreement described below 10 West Houston Street San Antonio, Texas 78205 Re: $96,490,000 City of Corpus Christi, Texas Utility System Revenue Improvement Bonds, Series 2009 Ladies and Gentlemen: We have acted as counsel to you as the Underwriters (the "Underwriters") the captioned Series 2009 Bonds (the "Series 2009 Bonds") issued under and pursuant to an ordinance (the "Ordinance") of the City of Corpus Christi, Texas (the "City") authorizing the issuance of the Series 2009 Bonds, which Series 2009 Bonds you are purchasing pursuant to a Bond Purchase Agreement, dated March 13, 2009 (the "Bond Purchase Agreement") between the Underwriters and the City. In connection with the rendering of this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of documents, opinions, certificates, instruments and records as we have considered necessary or appropriate for purposes of rendering the opinions hereinafter expressed. In addition, we have made such investigations of law and facts as we have deemed appropriate or necessary as a basis for these opinions. We have not been requested to and are not expressing any opinion or views on the authorization, execution, issuance, delivery or validity of, or tax exemption with respect to, the Series 2009 Bonds. We have assumed but have not independently verified that the signatures on all documents and certificates that we have examined are genuine and that the Series 2009 Bonds conform to the specimen copies thereof that we have examined. Based upon the foregoing, we are of the opinion that: (1) the Series 2009 Bonds are not required to be registered under the Securities Act of 1933, as amended; and (2) the Ordinance is not required to be qualified under the Trust Indenture Act of 1939, as amended. In addition, based , upon (i) our understanding of the Securities and Exchange Commission ("SEC") Rule 15c2-12 (the "Rule") and interpretive guidance published by the SEC D-1 relating thereto, (ii) our review of the continuing disclosure undertaking of the Issuer contained in the Ordinance, and (iii) the inclusion in the Official Statement of' a description of the specifics of such undertaking, and in reliance on the opinion of Bond Counsel that the Ordinance has been duly adopted by the Issuer and constitutes a valid and legally binding obligation of the Issuer enforceable in accordance with its terms, we have no reason to believe that such undertaking does not meet the requirement of paragraph (b)(5)(i) of the Rule and, accordingly, we advise you that such undertaking provides a suitable basis for you, as the Underwriters, and any other broker, dealer, or municipal securities dealer acting as a Participating Underwriter (as defined in the Rule) in connection with the offering of the Series 2009 Bonds, to make a reasonable determination that the Issuer has met the qualifications of paragraph (b)(5)(i) of the Rule. Because the primary purpose of our professional engagement as your counsel was not to establish factual matters, and because of the wholly or partially nonlegal character of many of the determinations involved in the preparation of the Official Statement dated March 5, 2009 (the "Official Statement") that describes the Issuer, the System and the Series 2009 Bonds and because the information in the Official Statement under the headings "BOOK -ENTRY -ONLY SYSTEM," 'TAX MATTERS," "CONTINUING DISCLOSURE INFORMATION — Compliance with Prior Undertakings" and the Appendices thereto were prepared by others who have been engaged to review or provide such information, we are not passing on and do not assume any responsibility for the information contained under such headings and in the appendices, and, except as set forth in the last sentence of this paragraph, we are not passing on and do not assume any responsibility for the accuracy, completeness or fairness of other statements contained in the Official Statement (including any appendices, schedules and exhibits thereto) and we make no representation that we have independently verified the accuracy, completeness or fairness of such statements. In the course of our participation in the preparation of the Official Statement as your counsel, we had discussions with representatives of' the Issuer, including its Financial Advisors and Bond Counsel, regarding the contents of the Official Statement. In the course of such activities, no facts came to our attention which would lead us to believe that the Official Statement (except for the financial statements and other financial and statistical data contained therein, the information set forth under the headings "BOOK -ENTRY - ONLY SYSTEM," "TAX MATTERS," "CONTINUING DISCLOSURE INFORMATION — Compliance with Prior Undertakings" and the Appendices thereto, as to which we express no opinion), as of its date contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. This letter is furnished by us for your sole benefit and no other person or entity shall be entitled to rely upon this opinion without our express written consent. Very truly yours, D-2 80470964.4 EXHIBIT B OFFICIAL STATEMENT B-1 OFFICIAL STATEMENT DATED MARCH 13, 2009 NEW ISSUE - Book -Entry -Only Ratings: Moody's: "Aa2" S&P:"AAA" Fitch: "AAA" (See "BOND INSURANCE" and "RATINGS" herein) In the opinion of Bond Counsel, assuming continuing compliance by the City after the date of initial delivery of the Bonds (defined below) with certain covenants contained in the Ordinance (defined below) and subject to the matters set forth under "TAX MATTERS" herein, interest on the Bonds for federal income tax purposes under existing statutes, regulations, published rulings, and court decisions (1) will be excludable from the gross income of the owners thereof pursuant to section 103 of the Internal Revenue Code of 1986, as amended to the date of initial delivery of the Bonds, and (2) will not be included in computing the alternative minimum taxable income of the owners thereof See "TAX MATTERS" herein. $96,490,000 City of Corpus Christi, Texas (A political subdivision of the State of Texas located in Nueces and San Patricio Counties) Utility System Revenue Improvement Bonds, Series 2009 Dated: March 1, 2009 Due: July 15, as shown on following page The City of Corpus Christi, Texas Utility System Revenue Improvement Bonds, Series 2009 (the "Bonds") will be issued by the City of Corpus Christi, Texas (the "City") pursuant to the laws of the State of Texas, including Chapters 1371 and 1502, Texas Government Code, as amended, the City's Home Rule Charter, and an ordinance adopted by the City Council on February 24, 2009 (the "Ordinance"). In the Ordinance the City Council delegated the authority to the Mayor, City Manager, and the Interim Assistant City Manager for Administrative Services to execute a Pricing Certificate relating to the sale of the Bonds, which was executed on March 13, 2009 by the City Manager. The Bonds are special obligations of the City, payable as to principal, interest and redemption premium, if any, solely from and are legally and ratably secured by a first lien on and pledge of the Pledged Revenues, (as herein defined), derived by the City from its ownership and operation of its combined water, wastewater, storm water, and gas utility systems (the "City's Combined System"). The Bonds do not constitute an indebtedness or general obligation of the City and are not payable from funds raised or to be raised by taxation by the City or any other political subdivision of the State of Texas. Interest on the Bonds will accrue from the dated date of the Bonds and will be payable on January 15 and July 15 of each year, commencing July 15, 2009, until maturity or prior redemption, and will be calculated on the basis of a 360 -day year of twelve 30 -day months. The definitive Bonds will be issued as fully registered obligations in book -entry -only form and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), New York, New York. DTC will act as securities depository for the Bonds for so long as the Bonds are maintained in DTC's book -entry only system. Book -entry interests in the Bonds will be made available for purchase in the principal amount of $5,000 or any integral multiple thereof. Purchasers of the Bonds (the 'Beneficial Owners") will not receive physical delivery of certificates representing their interest in the Bonds purchased. So long as DTC or its nominee is the registered owner of the Bonds, the principal of and interest on the Bonds will be payable by The Bank of New York Mellon Trust Company, N.A., Dallas, Texas, as Paying Agent/Registrar, to the securities depository, which will in tum remit such principal and interest to its participants, as, and if issued and received by the initial purchasers thereof named below (the "Underwriters") and which will in turn remit such principal and interest to the Beneficial Owners of the Bonds. See "BOOK -ENTRY -ONLY SYSTEM" herein. Proceeds from the sale of the Bonds will be used for (1) acquiring, purchasing, constructing, improving, repairing, extending, equipping, and renovating the System and (2) paying the costs of issuance relating to the Bonds. See "PURPOSE OF THE BONDS" herein. ASSURED GUARANTY The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by Assured Guaranty Corp. See "BOND INSURANCE" herein. SEE FOLLOWING PAGE FOR STATED MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES, INITIAL YIELDS, CUSIP NUMBERS, AND REDEMPTION PROVISIONS The Bonds are offeredfor delivery, when as, and if issued and received by the initial purchases thereof named below (the "Underwriters"), subject to the approving opinions of the Attorney General of the State of Texas and Fulbright & Jaworski L.L.P., Bond Counsel for the City. See "LEGAL PROCEEDINGS" and "TAX MATTERS" herein. Certain legal matters will be passed upon for the City by the City Attorney and for the Underwriters by their counsel, the Law Offices of William Z Avila, P.C. 11 is anticipated that definitive Bonds will be tendered for delivery through the services of DTC on or about April 2, 2009. FROST BANK ESTRADA HINOJOSA & COMPANY, INC. RBC CAPITAL MARKETS SIEBERT BRANDFORD SOUTHWEST SECURITIES WELLS FARGO BROKERAGE SERVICES, LLC $96,490,000 City of Corpus Christi, Texas (A political subdivision of the State of Texas located in Nueces and San Patricio Counties) Utility System Revenue Improvement Bonds, Series 2009 CUSIP No. Prefix(I): 220245 $40,280,000 Serial Bonds Stated Stated Maturity Principal Interest Initial CUSIP No. Maturity Principal Interest Initial CUSIP No. (July 15) Amount ($) Rate (%) Yield (%) Suffixal (July 15) Amount ($) Rate (%) Yield (%) Suffix()) 2011 1,730,000 2.500 2.000 NY6 2020 2,385,000 4.750 4.320(2) PHI 2012 1,775,000 3.000 2.250 NZ3 2021 2,500,000 4.375 4.510 PJ7 2013 1,825,000 3.000 2.620 PA6 2022 2,610,000 4.500 4.650 PK4 2014 1,880,000 3.500 3.020 PB4 2023 2,725,000 4.625 4.800 PL2 2015 1,945,000 4.000 3.270 PC2 2024 2,850,000 5.000 4.930(2) PMO 2016 2,025,000 4.000 3.530 PDO 2025 2,995,000 5.250 5.020(2) PN8 2017 2,105,000 4.000 3.720 PE8 2026 3,150,000 5.000 5.125 PP3 2018 2,190,000 4.000 3.890 PF5 2027 3,310,000 5.000 5.200 PQl 2019 2,280,000 4.750 4.110(2) PG3 (Accrued interest from March 1, 2009 to be added) $56,210,000 Term Bonds $ 7,130,000 5.250% Term Bonds due July 15, 2029 Priced to Yield 5.330% CUSIP No. Suffix01: PR9 $16,650,000 5.250% Term Bonds due July 15, 2033 Priced to Yield 5.440% CUSIP No. Sufftx1Il: PS7 $32,430,000 5.375% Term Bonds due July 15, 2039 Priced to Yield 5.510% CUSIP No. Sufftxto: PT5 (Accrued interest from March I, 2009 to be added) Redemption. The Bonds stated to mature on and after July 15, 2019, are subject to redemption, at the option of the City, in whole or in part, on July 15, 2018 or any date thereafter, at the price of par plus accrued interest to the date fixed for redemption. See "THE BONDS -Optional Redemption" herein. Those Bonds that are structured as Term Bonds (defined herein) will be subject to mandatory sinking fund redemption. See "THE BONDS -Mandatory Redemption" herein. iu CUSIP numbers have been assigned to the Bonds by Standard & Poor's CUSIP Service Bureau, a Division of The McGraw Hill Companies, Inc., and are included solely for the convenience of owners of the Bonds. This date is not intended to create a database and does not serve in any as a substinae for the CUSIP Services. None of the City, the Financial Advisor, nor the Underwriters shall be responsible for the selection or correctness of the CUSIP numbers set forth herein. Yield calculated based on the presumption that the Bonds denoted and sold at a premium will be redeemed on July 15, 2018, the first optional redemption date for the Bonds. USE OF INFORMATION IN OFFICIAL STATEMENT This Official Statement, which includes the cover page and the Appendices hereto, does not constitute an offer to sell or the solicitation of an offer to buy in any jurisdiction to any person to whom it is unlawful to make such offer, solicitation or sale. No dealer, broker, salesman or other person has been authorized to give any information, or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the City, the Financial Advisor, or the Underwriters. This Official Statement is not to be used in connection with an offer to sell or the solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. Any information and expressions of opinion herein contained are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or other matters described herein since the date hereof. THE UNDERWRITERS HAVE PROVIDED THE FOLLOWING SENTENCE FOR INCLUSION IN THIS OFFICIAL STATEMENT. THE UNDERWRITERS HAVE REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH THEIR RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS TRANSACTION, BUT THE UNDERWRITERS DO NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE BONDS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTIONS IN WHICH THESE BONDS HAVE BEEN REGISTERED, QUALIFIED, OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVER ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The agreements of the City and others related to the Bonds are contained solely in the contracts described herein. Neither this Official Statement nor any other statement made in connection with the offer or sale of the Bonds is to be construed as constituting an agreement with the purchasers of the Bonds. INVESTORS SHOULD READ THE ENTIRE OFFICIAL STATEMENT, INCLUDING ALL APPENDICES ATTACHED HERETO, TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION. None of the City, the Financial Advisor, nor the Underwriters make any representation or warranty with respect to the information contained in this Official Statement regarding the Depository Trust Company or its Book -Entry -Only System or with respect to any description of the affairs of the Insurer or its municipal bond insurance policy included herein under the caption "BOND INSURANCE". Wells Fargo Brokerage Services, LLC ("WFBS") is a registered broker/dealer and Member of FINRA and SIPC. WFBS is a brokerage affiliate of Wells Fargo & Company. WFBS is solely responsible for its contractual obligations and commitments. Nondeposit investment products offered by WFBS are not FDIC insured, are subject to investment risk, including loss of principal, and are not guaranteed by a bank unless otherwise specified. From time to time, Wells Fargo Bank, N.A. and other banks and companies affiliated with WFBS may lend money to an issuer of securities or debt that are underwritten or dealt in by WFBS. Within the prospectus or other documentation provided with each such underwriting or placement there will be a disclosure of any material lending relationship by an affiliate of WFBS with such an issuer and whether the proceeds of such an issuance of such debt securities will be used by the issuer to repay any outstanding indebtedness of any WFBS affiliate. From time to time, WFBS may participate in a primary or secondary distribution of securities bought or sold by a purchaser of Bonds. WFBS and its affiliates may also act as an investment advisor to issuers whose securities may be sold to a purchaser of those Bonds. Assured Guaranty Corp. makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, Assured Guaranty Corp. has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding Assured Guaranty Corp. supplied by Assured Guaranty Corp. and presented under the headings "BOND INSURANCE" and "SECURITY FOR THE BONDS — The Reserve Fund Insurance Policy", and "Appendix E — Specimen Financial Guaranty Insurance Policy". iii TABLE OF CONTENTS $40,280,000 SERIAL BONDS USE OF INFORMATION IN OFFICIAL STATEMENT iii CITY ADMINISTRATION INTRODUCTION PLAN OF FINANCING 1 CITY'S COMBINED SYSTEM CAPITAL IMPROVEMENT PLAN 1 PURPOSE OF THE BONDS 2 SECURITY FOR THE BONDS 2 Creation of City's Combined System 2 Pledge of Pledged Revenues 2 Perfection of Security for the Bonds 3 Flow of Funds 3 Reserve Fund 3 The Reserve Fund Insurance Policy 4 Rate Covenant 4 Additional Bonds 5 Subordinated Obligations and Special Facilities Bonds 6 BONDHOLDERS' REMEDIES 6 THE BONDS 7 Description 7 Optional Redemption 7 Mandatory Redemption 8 Notice of Redemption 8 Defeasance 9 Paying Agent/Registrar 9 Successor Paying Agent/Registrar 10 Record Date for Interest Payment 10 Ownership 10 Transfers and Exchanges 10 Replacement Bonds 11 SOURCES AND USES OF FUNDS 11 BOOK -ENTRY -ONLY SYSTEM 11 Use of Certain Terms in Other Sections of this Official Statement 13 BOND INSURANCE 13 The Insurance Policy 13 The Insurer 14 CITY'S COMBINED SYSTEM 15 Description of City's Water System 15 Description of City's Storm water Drainage System 19 Description of City's Wastewater System 19 Description of City's Gas System 21 City's Combined System Management and Employees 21 CITY'S COMBINED SYSTEM OPERATIONS 23 City Water System Statistics 23 Wastewater System Statistics 27 CITY'S COMBINED SYSTEM RATES 29 Ratemaking 29 City's Charter Amendment Regarding Rates 30 Billings and Collections 31 Recent and Future Changes in Rate Structure 31 Rate Increases 31 Water Rates 31 Wastewater Rates 33 City's Gas Rates 34 CITY'S COMBINED SYSTEM FINANCIAL INFORMATION 35 Payment Record 35 Obligations Payable from City's Combined System Revenues 36 Subordinated Obligations 36 City's Combined System Debt Service Requirements 38 INVESTMENT POLICY 40 City Investments 40 Revenues and Expenses of the City's Combined System; Net Revenues Available for Debt Service; Coverage Ratios 43 Combined Utility System Net Revenue Available for Debt 43 City's Management Discussion and Analysis 43 LITIGATION AND REGULATION 46 City Claims and Litigation 46 Environmental Regulations 47 LEGAL INVESTMENTS IN TEXAS 49 REGISTRATION AND QUALIFICATION OF BONDS FOR SALE 49 RATINGS 49 TAX MATTERS 50 Opinion 50 Ancillary Tax Consequences 50 Tax Accounting Treatment of Discount Bonds 50 Tax Accounting Treatment of Premium Bonds 51 LEGAL PROCEEDINGS 51 INDEPENDENT ACCOUNTANTS 52 FINANCIAL ADVISOR 52 UNDERWRITING 52 NO -LITIGATION CERTIFICATE 52 GENERAL INFORMATION 53 CONTINUING DISCLOSURE OF INFORMATION 53 Annual Reports 53 Material Event Notices 54 Availability of Information from NRMSIRs and SID 54 Limitations and Amendments 54 Compliance with Prior Undertakings 55 FORWARD LOOKING STATEMENTS 55 GASB 34 STATEMENT 55 MISCELLANEOUS 55 AUTHORIZATION OF THE OFFICIAL STATEMENT 56 APPENDIX A SELECTED PROVISIONS OF THE ORDINANCE A-1 APPENDIX B CERTAIN AUDITED FINANCIAL STATEMENT B -I APPENDIX C CERTAIN INFORMATION RELATING TO THE CITY OF CORPUS CHRISTI C-1 APPENDIX D FORM OF OPINION OF BOND COUNSEL D -I APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY E -I iv City of Corpus Christi, Texas 1201 Leopard Corpus Christi, Texas 78401 (361) 880-3105 CITY ADMINISTRATION ELECTED OFFICIALS Mayor Henry Garrett Council Members Bill Kelly, District 1 John Marez, District 2 Priscilla Leal, District 3 Michael McCutchon, District 4 Larry Elizondo, Sr., District 5 Melody Cooper, At Large Mike Hummell, At Large Nelda Martinez, At Large CERTAIN APPOINTED OFFICIALS Name Position Angel R. Escobar Oscar R. Martinez Margie C. Rose Juan "Johnny" Perales Cindy O'Brien Constance P. Sanchez Mary Kay Fischer Armando Chapa City Manager Assistant City Manager for Public Works Assistant City Manager for Community Services Interim Assistant City Manager for Development Services Interim Assistant City Manager for Administrative Services Interim Director of Financial Services City Attorney City Secretary CONSULTANTS AND ADVISORS Bond Counsel Independent Certified Public Accountants Financial Advisors Fulbright & Jaworski L.L.P., San Antonio, Texas Collier, Johnson & Woods, P.C., Corpus Christi, Texas M. E. Allison & Co., Inc., San Antonio, Texas For additional information regarding the City, please contact: Ms. Constance P. Sanchez City of Corpus Christi, Texas 1201 Leopard Corpus Christi, Texas 78401 (361) 826-3227 Fax (361) 880-3601 constancep@cctexas.com Mr. Mark A. Seal M.E. Allison & Co., Inc. 950 East Basse Road, Second Floor or San Antonio, Texas 78209 (210) 930-4000 Fax (210) 930-4001 mseal@meallison.com v [This page intentionally left blank.] OFFICIAL STATEMENT $96,490,000 City of Corpus Christi, Texas Utility System Revenue Improvement Bonds, Series 2009 INTRODUCTION This Official Statement (including the cover page and appendices hereto) of the City of Corpus Christi, Texas (the "City") provides certain information in connection with the issuance by the City of its Utility System Revenue Improvement Bonds, Series 2009 (the "Bonds"). The Bonds are authorized to be issued pursuant to the laws of the State of Texas, including specifically Chapters 1371 and 1502, Texas Government Code, as amended, and an ordinance adopted by the City Council of the City on February 24, 2009 (the "Ordinance"). In the Ordinance, the City Council delegated the authority to the Mayor, the City Manager, and the Interim Assistant City Manager for Administrative Services to execute a Pricing Certificate relating to the sale of the Bonds, which was executed on March 13, 2009 by the City Manager. This Official Statement does not purport to be comprehensive or definitive. All statements made herein with respect to the Ordinance are qualified in their entirety by reference to such document, and statements made herein with respect to the Bonds are qualified in their entirety by reference to the forms thereof and information with respect thereto included in the Ordinance, copies of which are available upon request from the City's Financial Advisor, Mark Seal, M. E. Allison & Co., Inc., 950 East Basse Road, Second Floor, San Antonio, Texas 78209, telephone (210) 930-4000, or from Constance P. Sanchez, Interim Director of Financial Services, City of Corpus Christi, 1201 Leopard, Corpus Christi, Texas 78401, telephone (361) 826-3227, by electronic mail or upon payment of reasonable copying, handling, mailing and delivery charges. Certain capitalized terms used herein and not defined have the meanings set forth in Appendix A to this Official Statement. This Official Statement speaks only as to its date, and the information contained herein is subject to change. Copies of the Final Official Statement pertaining to the Bonds will be deposited with the Municipal Securities Rulemaking Board, 1900 Duke Street, Suite 600, Alexandria, Virginia 22314. See "CONTINUING DISCLOSURE OF INFORMATION" for a description of the City's undertaking to provide certain information on a continuing basis. PLAN OF FINANCING In 1990, the City established by ordinance (the "1990 Ordinance") a unified water, wastewater, and gas utility system (the "City's Combined System"). Pursuant to the terms of the 1990 Ordinance, the City issued its Utility System Revenue Refunding Bonds, Series 1990 (the "Series 1990 Bonds"). Under the terms of the 1990 Ordinance, the City reserved the right to issue additional bonds on a parity with the Series 1990 Bonds, and currently there are outstanding several such issues of parity bonds (the "Priority Bonds"). The Priority Bonds have been issued pursuant to the provisions of certain bond ordinances (collectively, the "Bond Ordinance"). Upon the delivery of the Bonds, the principal amount of the Priority Bonds currently outstanding will be $453,550,000. Prior to the establishment of the City's Combined System, each utility system of the City was operated as a separate enterprise fund, and the City still maintains internal records to account for each of those utility systems as separate enterprise funds. Pursuant to an ordinance adopted by the City Council on April 29, 2008, the City, as permitted by the provisions of the Bond Ordinance, authorized the inclusion of a storm water drainage utility system as a part of the City's Combined System. On March 25, 2003, the City Council adopted an ordinance establishing a tax-exempt commercial paper program (the "Commercial Paper Notes") for the benefit of the City's Combined System authorizing notes to be issued in the maximum principal amount at any one time outstanding not to exceed 575,000,000. As of the date hereof, the City has 5-0- in Commercial Paper Notes outstanding. See "CITY'S COMBINED SYSTEM FINANCIAL INFORMATION - Subordinated Obligations" CITY'S COMBINED SYSTEM CAPITAL IMPROVEMENT PLAN The City recently adopted the Capital Budget and Capital Improvement Planning Guide for its 2008/2009 fiscal year. The following section sets forth the expected projects and funding sources for the next three (3) years. FY 2009 ($) FY 2010 ($) FY 2011 ($) Total ($) Projects: Water Projects 20,295,000 31,194,000 32,239,000 83,728,000 Storm water Projects 22,731,000 24,923,000 15,979,000 63,633,000 Wastewater Projects 33,391,000 40,436,000 40,028,000 113,855,000 Gas Projects 3,562,000 3,024,000 1,351,000 7,937,000 TOTAL 79,979,000 99,577,000 89,597,000 269,153,000 Funding: Revenue Bonds 79,804,000 98,017,000 89,597,000 267,418,000 Choke Canyon Trust Fund 175,000 1,560,000 0 1,735,000 79,979,000 99,577,000 89,597,000 269,153,000 The City's ability to finance the planned capital improvements depends upon its ability to increase rates sufficiently to support the issuance of revenue bonds and generation of surplus City's Combined System revenues necessary to finance such improvements. PURPOSE OF THE BONDS Proceeds from the sale of the Bonds will be used for (1) acquiring, purchasing, constructing, improving, repairing, extending, equipping, and renovating the System, and (2) paying the costs of issuance relating to the Bonds. SECURITY FOR THE BONDS Creation of City's Combined System Pursuant to the 1990 Ordinance, the City has created a single combined utility system comprised of the City's water system, wastewater disposal system and gas system, together with all future extensions, improvements, enlargements and additions thereto, including, to the extent permitted by law, storm water sewer and drainage, and all replacements thereof as the City's combined water, wastewater, storm water, and gas utility systems. To date, the City has not established a rate schedule for this storm water drainage utility system and it has agreed that upon implementation, that these revenues will be separately identified, segregated, and accounted for as a component part of the City's Combined System. The City's Combined System shall not include any water, wastewater, storm water, or gas facilities which are declared by the City not to be part of the City's Combined System and which are financed with Special Facilities Bonds. The City does not have any currently outstanding Special Facilities Bonds. Pledge of Pledged Revenues The Bonds are special obligations of the City issued on parity with the Previously Issued Priority Bonds which, together with any Additional Priority Bonds hereafter issued, are payable solely from and secured by a first lien on the Pledged Revenues including such revenues within the System Fund and the other funds created by the Ordinance; and the Pledged Revenues are further pledged to the establishment and maintenance of the Debt Service Fund and the Reserve Fund as provided in the Ordinance. The Pledged Revenues are comprised of Net Revenues of the City's Combined System and any other additional revenues, income, receipts and other resources that may hereafter be pledged to the Priority Bonds. The term Net Revenues means the Gross Revenues of the City's Combined System less the Operating Expenses of the City's Combined System. Gross Revenues include all revenues, income and receipts derived or received by the City from the operation and ownership of the City's Combined System including certain interest income. Operating Expenses include the expenses of operation and maintenance of the City's Combined System, including all salaries, labor and materials and certain expenses of repairs and extensions, and include the purchase of water, sewer, storm water, and gas services from other entities and the expenses related thereto. Such expenses include contract payments to the Nucces River Authority for its Water Supply Revenue Bonds, Series 1997, its Water Supply Facilities Revenue Refunding Bonds, Series 2003, and its Water Supply Facilities Revenue Refunding Bonds (City of Corpus Christi Lake Texana Project), Series 2005, of which $96,550,000 in aggregate principal amount are outstanding, and include contract payments to the Lavaca- Navidad River Authority for its Water Supply Facilities Revenue Bonds, Series 1997 and its Water Supply Facilities Revenue Refunding Bonds (City of Corpus Christi Lake Texana Project), Series 2005, of which $5,515,000 are outstanding and to cover the City's obligation under a water purchase contract in the amount of $99,944,240 (see "CITY'S COMBINED SYSTEM FINANCIAL INFORMATION - Obligations Payable From City's Combined System Revenues"). However, depreciation and payments to the Debt Service Fund and Reserve Fund shall never be considered Operating Expenses. See Appendix A for a more complete definition of these defined terms. The Bonds are not secured by or payable from a mortgage or deed of trust on any properties, whether real, personal or mixed, constituting the City's Combined System. The Bonds do not constitute an indebtedness or general obligation of the City, are not payable from any funds raised or to be raised by taxation and Owners of the Bonds shall never have the right to demand payment thereof from the levy of ad valorem taxes or from any other source not pledged to the payment of the Bonds. Perfection of Security for the Bonds Chapter 1208, as amended, Texas Government Code, applies to the issuance of the Bonds and the pledge of the Pledged Revenues, and such pledge is therefore valid, effective and perfected. Should Texas law be amended while the Bonds are outstanding and unpaid, the result of such amendment being that the pledge of the Pledged Revenues is to be subject to the filing requirements of Chapter 9, Texas Business and Commerce Code, in order to preserve to the registered owners of the Bonds a security interest in such pledge, the City has agreed in the Ordinance to take such measures as it determines is reasonable and necessary to enable a filing of a security interest in said pledge to occur. Flow of Funds The Ordinance provides that Gross Revenues of the City's Combined System shall be credited to the System Fund upon receipt, and amounts in the System Fund shall be used to pay Operating Expenses as a first charge against Gross Revenues. All amounts remaining in the System Fund thereafter shall be applied, on or before the 10th day of each month, as follows: (a) First, to make required transfers into the Debt Service Fund in such amounts, in approximately equal monthly installments, as will be sufficient to pay interest on Priority Bonds on the next interest payment date, principal on Priority Bonds on the next succeeding principal payment date, and Amortization Installments in such amounts and times as may be required in any ordinance authorizing the issuance of Priority Bonds. (b) Second, to make required transfers into the Reserve Fund to maintain or establish the Required Amount therein or make up any deficiency; and Third, for the payment of other City's Combined System obligations, including Subordinated Obligations, or, at the end of any Fiscal Year, for any other lawful purpose. (c) (See "Selected Provisions of the Ordinance - Flow of Funds - Debt Service Fund" in Appendix A.) Article IV, Section 3 of the City Charter of the City prohibits any transfer of the Net Revenues to any other purpose except for any utility required debt service. Reserve Fund Under the Ordinance, the City is required to maintain a Reserve Fund for the outstanding Previously Issued Priority Bonds, the Bonds, and each series of Additional Priority Bonds. Following the issuance of each series of Additional Priority Bonds, unless the Reserve Fund contains the Required Amount, the City agrees to transfer monthly into the Reserve Fund an amount equal to one -sixtieth (I/60th) of the Average Annual Principal and Interest Requirements on all outstanding Priority Bonds until the aggregate amount accumulated therein is at least equal to such Average Annual Principal and Interest Requirements. Amounts in such Reserve Fund shall be used to pay the principal of and interest on the Priority Bonds at any time when there is not sufficient money available in the Debt Service Fund for such purposes. The City may substitute a Credit Facility in lieu of cash or Eligible Investments for all or any part of the Required Amount to be maintained in the Reserve Fund. Deficiencies in the Reserve Fund resulting from withdrawals or decreases in market value of Eligible Investments are to be made up from the next available Pledged Revenues within twelve months. The City currently has on deposit in the Reserve Fund both cash and Credit Facilities to satisfy funding the Required Amount. To satisfy the portion of the Required Amount attributable to the Bonds, the City will deposit both cash and a Reserve Fund Insurance Policy (defined herein) provided by Assured Guaranty (defined herein) to the Reserve Fund (see "SECURITY FOR THE BONDS — The Reserve Fund Insurance Policy"). The Reserve Fund Insurance Policy Assured Guaranty has made a commitment to issue a financial guaranty insurance policy for deposit to the Reserve Fund with respect to the Bonds (the "Reserve Fund Insurance Policy"), effective as of the date of issuance of such Bonds. Under the terms of the Reserve Fund Insurance Policy, Assured Guaranty will unconditionally and irrevocably guarantee to pay that portion of the scheduled principal and interest on the Bonds that becomes due for payment but shall be unpaid by reason of nonpayment by the City (the "Insured Payments"). Assured Guaranty will pay each portion of an Insured Payment that is due for payment and unpaid by reason of nonpayment by the City to the Paying Agent/Registrar, as beneficiary of the Reserve Fund Insurance Policy on behalf of the holders of the Bonds on the later to occur of (i) the date such scheduled principal or Interest becomes due for payment or (11) the business day next following the day on which Assured Guaranty receives a demand for payment therefor in accordance with the terms of the Reserve Fund insurance Policy. No payment shall be made under the Reserve Fund Insurance Policy in excess of one-half the average annual Debt Service on the Bonds (the "Reserve Fund Insurance Policy Limit"). Pursuant to the terms of the Reserve Fund Insurance Policy, the amount available at any particular time to be paid to the Paying Agent/Registrar shall automatically be reduced to the extent of any payment made by Assured Guaranty under the Reserve Fund Insurance Policy, provided, that, to the extent of the reimbursement of such payment to Assured Guaranty, the amount available under the Reserve Fund Insurance Policy shall be reinstated in full or in part, in an amount not to exceed the Reserve Fund Insurance Policy Limit (as defined in the Reserve Fund Insurance Policy). The Reserve Fund Insurance Policy does not insure against nonpayment caused by the insolvency or negligence of the Paying Agent/Registrar. The Reserve Fund Insurance Policy is not covered by any insurance or guaranty fund established under New York, California, Connecticut or Florida insurance law. Rate Covenant The City has covenanted that it will fix, establish, maintain and collect rates and charges for the use and availability of the City's Combined System at all times as are necessary to produce Gross Revenues and other Pledged Revenues in each Fiscal Year equal to the GREATER of either: A. Amounts sufficient: (1) to pay all current Operating Expenses plus (2) to produce Net Revenues for each Fiscal Year at least equal to 1.25 tunes the Average Annual Principal and Interest Requirements on all Priority Bonds then outstanding; or B. Amounts sufficient to pay the sum of (1) all current Operating Expenses; (2) the Average Annual Principal and Interest Requirements on the then outstanding Priority Bonds; (3) required deposits to the Reserve Fund for the Priority Bonds; and (4) amounts required to pay all other obligations of the City's Combined System reasonably anticipated to be paid from Gross Revenues during the current Fiscal Year. The foregoing notwithstanding, such rates, charges and fees shall be fixed, established, maintained and collected at a level sufficient to enable the City to pay debt service on Priority Bonds during the current Year. (See "Selected Provisions of the Ordinance - General Covenants - Rate Covenant" in Appendix A.) Additional Bonds The City has reserved the right to issue one or more series of Additional Priority Bonds for any lawful purpose. See "CITY'S COMBINED SYSTEM CAPITAL IMPROVEMENT PLAN" for projected issuance of Additional Priority Bonds. No Additional Priority Bonds may be issued unless each of the applicable following requirements are satisfied: A. For All Additional Priority Bonds. (1) Any additional amounts required to be deposited into the Reserve Fund to attain the Required Amount shall either be deposited in cash or by means of a Credit Facility upon the delivery of such Additional Priority Bonds or, at the option of the City, by the deposit of such required additional amount in approximately equal monthly installments of not less than one -sixtieth (1/60th) of the required additional amount; and (2) The City Manager (or other City officer having responsibility for the City's financial affairs) shall certify that the City is not in default as to any covenant, obligation or agreement contained in any ordinance or other proceeding relating to any obligations of the City payable from and secured by a lien on and pledge of the Pledged Revenues and the amounts on deposit in all Funds or accounts for all obligations payable from Pledged Revenues or the amounts then required to be deposited therein. B. For Additional Priority Bonds For Capital Improvements. (1) The City shall secure a certificate or opinion of an Accountant to the effect that, according to the books and records of the City, the Net Eamings for the preceding Year or for 12 consecutive months out of the 15 months immediately preceding the month the ordinance authorizing the Additional Priority Bonds is adopted are at least equal to 1.25 times the Average Annual Principal and Interest Requirements for all Priority Bonds after giving effect to the issuance of the Additional Priority Bonds to be issued; or (2) If the City has outstanding Priority Bonds which were issued for Capital Additions and for which capitalized interest has been provided for at least 12 months subsequent to the date of issuance of the Additional Priority Bonds proposed to be issued, the City may (A) satisfy the requirements of Clause C below, but for such purposes substitute the term Capital Improvements for Capital Additions where the term Capital Additions appears therein to the extent necessary to give recognition that Capital Improvements, rather than Capital Additions, are to be financed, and (B) secure the certificate described in Clause B(l) above with respect to all Priority Bonds other than Priority Bonds issued for Capital Additions for which capitalized interest has been provided for at least 12 months subsequent to the date of issuance of the Additional Priority Bonds proposed to be issued. C. For Additional Priority Bonds For Capital Additions. (I) The Engineer of Record shall provide a comprehensive Engineering Report for each Capital Addition to be financed and that report shall (a) contain detailed estimates of the cost of acquiring and constructing the Capital Addition, the estimated date of its completion and commercial operation, a detailed analysis of the financial operations of the system into which the Capital Addition is to be integrated and the City's Combined System as a whole for the period during the construction and for at least five years after the date the Capital Addition is estimated to become commercially operative and (b) conclude that the Capital Addition is necessary and will substantially increase the capacity, or is needed to replace existing facilities, to meet current and projected demand for the service or product to be provided and the estimated cost of providing the service or product from the Capital Addition will be reasonable in comparison with projected costs for furnishing such service or product from other reasonably available sources; and (2) The Engineer of Record shall provide a certificate to the effect that, based on the Engineering Report prepared for each Capital Addition, the projected Net Earnings for each of the five years subsequent to the estimated date the Capital Addition becomes commercially operative will be equal to at least 1.25 times the Average Annual Principal and Interest Requirements for Priority Bonds then outstanding or incurred and all Priority Bonds estimated to be issued for all Capital improvements and for all Capital Additions then in progress or being initiated during the period through the fifth year subsequent to the date the Capital Addition is estimated to become commercially operative. Once a Capital Addition has been initiated by meeting the conditions set forth in Clauses C(1) and (2) above, and the initial Priority Bonds issued are delivered, the City reserves the right to issue additional Priority Bonds to finance the remaining costs of such Capital Addition in such amounts as necessary to complete the acquisition and construction thereof and make the same commercially operative without satisfaction of any of the requirements contained in Clauses C(1) and (2) above provided that the City prepares a forecast of the operations of the City's Combined System demonstrating the City's Combined System's ability to pay all obligations payable from the Pledged Revenues to be outstanding after the issuance of such Additional Priority Bonds issued during the five years subsequent to the latest estimated date such Capital Addition is expected to be commercially operative and the Engineer of Record reviews such forecast and executes a certificate to the effect that (i) it is reasonable and based thereon (and such other factors deemed to be relevant) the Pledged Revenues of the City's Combined System will be adequate to pay all the obligations payable from Pledged Revenues to be outstanding after the issuance of the Additional Priority Bonds then being issued for the forecast period and (ii) the proceeds from the sale of such Additional Priority Bonds are estimated to be sufficient to complete such acquisition and construction. The City, at its option, may issue Additional Parity Bonds for Capital Additions without satisfying the requirements described in Clause C above if it satisfies the relevant conditions precedent specified in Clause B above. D. Certain Refunding Bonds. The requirements in Clauses B or C above shall not apply to issuance of any series of Additional Priority Bonds for refunding any outstanding Priority Bonds that will not have the result of increasing the debt service in any year in which there will be debt service on outstanding Priority Bonds both before and after such refunding. The Bonds are being issued, to finance Capital Improvements and the City therefore must satisfy the test described in Clause B(I) above as a condition to the issuance of the Bonds. Subordinated Obligations and Special Facilities Bonds The City also reserves the right to issue, for any lawful purpose, obligations secured by liens on all or part of the Pledged Revenues that are junior and subordinate to the lien on Pledged Revenues securing payment of Priority Bonds. In this regard, the City has established the commercial paper program for the benefit of the City's Combined System, and the City has authorized the issuance from time to time of Commercial Paper Notes in an amount at any one time outstanding not to exceed $75,000,000. Currently, the City has $-0- in Commercial Paper Notes outstanding. The City also reserves the right to issue Special Facilities Bonds secured by liens on and pledges of revenues and proceeds derived from Special Facilities, which shall not be considered Gross Revenues of the City's Combined System. BONDHOLDERS' REMEDIES If the City defaults in the payment of principal, interest, or redemption price on the Bonds when due, or if it fails to make payments into any fund or funds created in the Ordinance, or defaults in the observation or performance of any other covenants, conditions, or obligations set for in the Ordinance, the registered owners may seek a writ of mandamus to compel City officials to carry out their legally imposed duties with respect to the Bonds, if there is no other available remedy at law to compel performance of the Bonds or Ordinance and the City's obligations are not uncertain or disputed. The issuance of a writ of mandamus is controlled by equitable principles, so rests with the discretion of the court, but may not be arbitrarily refused. There is no acceleration of maturity of the Bonds in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. The Ordinance does not provide for the appointment of a trustee to represent the interest of the bondholders upon any failure of the City to perform in accordance with the terms of the Ordinance, or upon any other condition and accordingly all legal actions to enforce such remedies would have to be undertaken at the initiative of, and be financed by, the registered owners. On June 30, 2006, the Texas Supreme Court ruled in Tooke v. City of Alexia, 197 S.W.3d 325 (Tex. 2006) that a waiver of sovereign immunity in a contractual dispute must be provided for by statute in "clear and unambiguous" language. Because it is unclear whether the Texas legislature has effectively waived the City's sovereign immunity from a suit for money damages, bondholders may not be able to bring such a suit against the City for breach of the Bonds or the Ordinance. Chapter 1371, as amended, Texas Government Code ("Chapter 1371"), which pertains to the issuance of public securities by issuers such as the City, permits the City to waive sovereign immunity in the proceedings authorizing the issuance of the Bonds. Notwithstanding its reliance upon the provisions of Chapter 1371 in connection with the issuance of the Bonds (as further described under the caption "INTRODUCTION"), the City has not waived the defense of sovereign immunity with respect thereto. Even if a judgment against the City could be obtained, it could not be enforced by direct levy and execution against the City's property. Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code ("Chapter 9"). Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, such as the Pledged Revenues, such provision is subject to judicial construction. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Bonds are qualified with respect to the customary rights of debtors relative to their creditors. THE BONDS Description The Bonds will be dated March 1, 2009 (the "Dated Date") and will be issued in principal denominations of $5,000 or any integral multiple thereof. The Bonds will bear interest from the Dated Date at the rates shown on the inside cover page of this Official Statement. Interest on the Bonds will be calculated on the basis of a 360 -day year of twelve 30 -day months and is payable semiannually on January 15 and July 15 of each year, commencing July 15, 2009, until maturity or prior redemption. The Bonds will mature on July 15 in the years and in the principal amounts set forth on the inside cover page of this Official Statement. Interest on the Bonds is payable to the registered owners appearing on the bond registration books of the Paying Agent/Registrar on the Record Date (identified below) and such interest shall be paid by the Paying Agent/Registrar (i) by check mailed by the Paying Agent/Registrar on or before the interest payment date to the registered owners of record as of the Record Date or (ii) by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the expense and risk of, the registered owner. The principal of and interest on the Bonds shall be payable at the corporate office of the Paying Agent/Registrar in Dallas, Texas (the "Designated Trust Office") upon presentation and surrender of the Bonds. If the date for any payment due on any Bond is a Saturday, Sunday, legal holiday, or day on which banking institutions in the city in which the designated corporate trust office of the Paying Agent/Registrar is located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a day. The payment on such date shall have the same force and effect as if made on the original date payment was due. Initially, the Bonds will be registered and delivered only to Cede & Co., the nominee of DTC pursuant to the Book - Entry -Only System described herein. No physical delivery of the Bonds will be made to the owners thereof. Notwithstanding the foregoing, as long as the Bonds are held in the Book -Entry -Only System, principal of, premium (if any), and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds (see "BOOK -ENTRY -ONLY SYSTEM" herein). Optional Redemption The Bonds maturing on and after July 15, 2019 are subject to redemption, at the option of the City, at the par value thereof plus accrued interest, in whole or in part, in the principal amount of $5,000 or any integral multiple thereof on July 15, 2018, and on any date thereafter. The years of maturity of the Bonds called for redemption shall be selected by the City. If less than all of the Bonds are redeemed within a stated maturity at any time, the Bonds to be redeemed shall be selected by the Paying Agent/Registrar at random and by lot or other customary method in multiples of $5,000 within any stated maturity. - 7 - Mandatory Redemption The Bonds stated to mature on July 15, 2029, July 15, 2033, and July 15, 2039 (such Bonds, collectively, the "Term Bonds") are subject to mandatory sinking fund redemption prior to their stated maturities in part, by lot or other customary method, at the principal amount thereof plus accrued interest to the date of redemption in the following principal amounts on July 15 in each of the years as set forth below: Term Bonds Stated to Mature on July 15, 2029 Term Bonds Stated to Mature on July 15, 2033 Principal Principal Year Amount ($) Year Amount ($) 2028 3,475,000 2030 3,850,000 2029 3,655,000* 2031 4,050,000 2032 4,265,000 2033 4,485,000* Term Bonds Stated to Mature on July 15 2039 Principal Year Amount ($) 2034 4,725,000 2035 4,975,000 2036 5,245,000 2037 5,525,000 2038 5,825,000 2039 6,135,000* * stated maturity The principal amount of a Term Bond required to be redeemed pursuant to the operation of such mandatory redemption provisions shall be reduced, at the option of the City, by the principal amount of any Term Bonds of such stated maturity which, at least 50 days prior to the mandatory redemption date (1) shall have been defeased or acquired by the City and delivered to the Paying Agent/Registrar for cancellation, (2) shall have been purchased and canceled by the Paying Agent/Registrar at the request of the City with money in the Debt Service Fund (but not the Reserve Fund), or (3) shall have been redeemed pursuant to the optional redemption provisions set forth above and not theretofore credited against a mandatory redemption requirement. Notice of Redemption Not less than 30 days prior to a redemption date for the Bonds, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to each registered owner of a Bond to be redeemed, in whole or in part, at the address of the Holder appearing on the registration books relating to the Bonds kept by the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE OF REDEMPTION SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN IRRESPECTIVE OF WHETHER ONE OR MORE BONDHOLDERS FAILED TO RECEIVE SUCH NOTICE. All notices of redemption shall (i) specify the date of redemption for the Bonds, (ii) identify the Bonds to be redeemed and, in the case of a portion of the principal amount to be redeemed, the principal amount thereof to be redeemed, (iii) state the redemption price, (iv) state the Bonds, or the portion of the principal amount thereof to be redeemed, shall become due and payable on the redemption date specified, and the interest thereon, or on the portion of the principal amount thereof to be redeemed, shall cease to accrue from and after the redemption date, and (v) specify that payment of the redemption price for the Bonds, or the principal amount thereof to be redeemed, shall be made at the designated corporate trust office of the Paying Agent/Registrar only upon presentation and surrender thereof by the registered owner. If a Bond is subject by its terms to redemption and has been called for redemption and notice of redemption thereof has been duly given or waived as provided in the Ordinance, such Bond (or the principal amount thereof to be redeemed) so called for redemption shall become due and payable, and on the redemption date designated in such notice, interest on said Bond (or the principal amount thereof to be redeemed) called for redemption shall cease to accrue and such Bond shall not be deemed to be Outstanding. The Paying Agent/Registrar and the City, so long as a Book -Entry -Only System is used for the Bonds, will send any notice of redemption, notice of proposed amendment to the Ordinance or other notices with respect to the Bonds only to DTC (hereinafter defined). Any failure by DTC to advise any DTC participant, or of any DTC participant or indirect participant to notify the beneficial owner, shall not affect the validity of the redemption of the Bonds called for redemption or any other action premised on any such notice. Redemption of portions of the Bonds held by the City will reduce the outstanding principal amount of such Bonds held by DTC. In such event, DTC may implement, through its Book -Entry -Only System, a redemption of such Bonds held for the account of DTC participants in accordance with its rules or other agreements with DTC participants and then DTC participants and indirect participants may implement a redemption of such Bonds from the beneficial owners. Any such selection of Bonds to be redeemed will not be governed by the Ordinance and will not be conducted by the City or the Paying Agent/Registrar. Neither the City nor the Paying Agent/Registrar will have any responsibility to DTC participants, indirect participants or the persons for whom DTC participants act as nominees, with respect to the payments on the Bonds or the providing of notice to DTC participants, indirect participants, or beneficial owners of the selection of portions of the Bonds for redemption. See "BOOK -ENTRY -ONLY SYSTEM" herein. Defeasance The Ordinance provides that any Bond will be deemed paid and shall no longer be considered to be outstanding within the meaning of the Ordinance when payment of principal of and interest on such Bond to its stated maturity or redemption has been made or provided for by depositing with a paying agent, in trust, any combination of (1) money in an amount sufficient to make such payment and/or (2) Government Securities having such maturities and interest payment dates and bearing such interest as will, without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, be sufficient to make such payment. The Ordinance provides that "Government Securities" means (A) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (B) noncallable obligations of any agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that are rated as to investment quality by a nationally recognized investment rating first no less than "AAA" or its equivalent, and (C) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that are rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent. Upon such deposit as described above, such Bonds shall no longer be regarded to be outstanding or unpaid for purposes of applying any limitation or indebtedness. Ager firm banking and financial arrangements for the discharge and final payment of the Bonds have been made as described above, all rights of the City to initiate proceedings to call the Bonds for redemption or take any other action amending the tenns of the Bonds are extinguished; provided, however, the City has reserved the option, to be exercised at the time of the defeasance of the Bonds, to call for redemption at an earlier date those Bonds which have been defeased to their maturity date, if the City (i) in the proceedings providing for the finn banking and financial arrangements, expressly reserves the right to call the Bonds for redemption, (ii) gives notice of the reservation of that right to the owners of the Bonds immediately following the staking of the firm banking and financial arrangements, and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes. Paying Agent/Registrar The principal of the Bonds will be paid to the registered owner at maturity or prior redemption upon presentation to the Paying Agent/Registrar, which initially is The Bank of New York Mellon Trust Company, N.A., at the Designated Trust Office. Interest on the Bonds will be paid to registered owners shown on the records of the Paying Agent/Registrar on the Record Date (see "THE BONDS - Record Date for Interest Payment"), and such interest will be paid by check sent by United States mail, first-class postage prepaid, to the address of such registered owner appearing on the registration books of the Paying Agent/Registrar or by such other customary banking arrangements acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner. -9- Successor Paying Agent/Registrar The City reserves the right to replace the Paying Agent/Registrar. If the Paying Agent/Registrar is replaced by the City, the new Paying Agent/Registrar shall accept the previous Paying Agent/Registrar's records and act in the same capacity as the previous Paying Agent/Registrar. Any successor Paying Agent/Registrar selected by the City shall be a bank, a trust company, financial institution, or other entity duly qualified and legally authorized to serve and perform the duties of Paying Agent/Registrar for the Bonds. Upon a change in the Paying Agent/Registrar for the Bonds, the City shall promptly cause a written notice thereof to be sent to each registered owner of the Bonds by United States mail, first-class postage prepaid, which notice shall give the address of the new Paying Agent/Registrar. Record Date for Interest Payment The record date ("Record Date") for determining the registered owner entitled to the receive payment of interest on a Bond on any interest payment date is the last business day of the month next preceding each interest payment date. In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received. Notice of the Special Record Date and of the scheduled payment date of the past due interest (which shall be 15 days after the Special Record Date) shall be sent at least five (5) business days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of each registered owner of a Bond appearing on the Register at the close of business on the last business day next preceding the date of mailing of such notice. Ownership The City, the Paying Agent/Registrar, and any other person may treat the person in whose name any Bond is registered as the absolute owner of such Bond for the purpose of making and receiving payment of the principal thereof and premium, if any, thereon, and for the further purpose of making and receiving payment of the interest thereon, and for all other purposes, whether or not such Bond is overdue. Neither the City nor the Paying Agent/Registrar shall be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the owner of any Bond in accordance with the Ordinance shall be valid and effective and shall discharge the liability of the City and the Paying Agent/Registrar for such Bond to the extent of the sums paid. Transfers and Exchanges So long as any Bonds remain outstanding, the Paying Agent/Registrar shall keep the registration books at the Designated Trust Office in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of the Bonds in accordance with the terms of the Ordinance. Each Bond shall be transferable only upon the presentation and surrender thereof at the Designated Trust Office of the Paying Agent/Registrar, duly endorsed for transfer, or accompanied by an assignment duly executed by the owner or his authorized representative in a form satisfactory to the Paying Agent/Registrar. Upon due presentation and surrender of a Bond for transfer, the Paying Agent/Registrar is required to authenticate and deliver in exchange therefor, under such reasonable regulations as the Paying Agent/Registrar may prescribe, a new Bond or Bonds, registered in the name of the transferee or transferees, in authorized denominations and of the same maturity, in the principal amount of $5,000 or any integral multiple thereof, and bearing interest at the same rate as the Bond or Bonds so presented and surrendered. All Bonds shall be exchangeable upon the presentation and surrender thereof at the Designated Trust Office of the Paying Agent/Registrar for a Bond or Bonds of the same maturity and interest rate and in any authorized denomination, in such aggregate principal amount as discussed above equal to the unpaid principal amount of the Bond delivered in accordance with the Ordinance and shall be entitled to the benefits and security of the Ordinance to the same extent as the Bond or Bonds in lieu of which such Bond is delivered. The Paying Agent/Registrar may require the owner of any Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of such Bond. Any reasonable standard or customary fee or charge of the Paying Agent/Registrar for a conversion or exchange shall be - 10 - paid by the one requesting such conversion or exchange, except that the City shall pay such fee or charge in the case of the conversion or exchange of an assigned and transferred Bond. Replacement Bonds If any Bond is mutilated, destroyed, stolen or lost, a new Bond of like kind and in the same amount as the Bond so mutilated, destroyed, stolen or lost will be issued. In the case of a mutilated Bond, such new Bond will be delivered only upon surrender and cancellation of such mutilated Bond. In the case of any Bond issued in lieu of and in substitution for a Bond which has been destroyed, stolen, or lost, such new Bond will be delivered only (a) upon filing with the City and the Paying Agent/Registrar evidence satisfactory to establish to the City and the Paying Agent/Registrar that such Bond has been destroyed, stolen or lost and proof of the ownership thereof, and (b) upon furnishing the City and the Paying Agent/Registrar with Bond or indemnity satisfactory to them. The person requesting the authentication and delivery of a new Bond must comply with such other reasonable regulations as the Paying Agent/Registrar may prescribe and pay such expenses as the Paying Agent/Registrar may incur in connection therewith. SOURCES AND USES OF FUNDS The proceeds from the sale of the Bonds will be applied as follows: Sources of Funds Principal Amount of Bonds Net Original Issue Discount Accrued Interest Total Sources of Funds Uses of Funds Deposit to Project Fund Deposit to Debt Service Fund Deposit to Reserve Fund Issuance Expenses, including Bond Insurance and Surety Bond Premiums and Contingency Underwriters' Discount Total Uses of Funds BOOK -ENTRY -ONLY SYSTEM $ 96,490,000.00 (795,218.55) 407,856.13 $ 96,102,637.58 $ 90,000,000.00 407,856.13 3,196,293.15 1,950,707.50 547,780.80 $ 96,102,637.58 This section describes how ownership of the Bonds is to be transferred and how the principal of premium, if any, and interest on the Bonds are to be paid to and credited by The Depository Trust Company, New York, New York ("DTC) while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book Entry Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The City believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3 DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the United States Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Bonds. The Bonds will be issued as fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered certificate will be issued for each maturity of the Bonds, in the aggregate principal amount of each maturity of such issue, and will be deposited with DTC. DTC, the world's largest securities depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non -U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book - entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the United States Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book -entry system for the Bonds is discontinued. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices will be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds arc credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, principal, and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or the Paying Agent/Registrar, on the payment date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Paying Agent/Registrar, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, - 12 - principal, and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC; and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Bonds are required to be printed and delivered. The City may decide to discontinue use of the system of book -entry -only transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered to DTC. The information in this section concerning DTC and DTC's book -entry system has been obtained from DTC, but the City takes no responsibility for the accuracy thereof. Use of Certain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the Bonds are in the Book -Entry -Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Direct or Indirect Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book -Entry -Only System, and (ii) except as described above, payment or notices that are to be given to registered owners under the Ordinance will be given only to DTC. BOND INSURANCE The following information is not complete and reference is made to Appendix E for a specimen of the financial guaranty insurance policy (the "Policy") of Assured Guaranty Corp. ("Assured Guaranty" or the "Insurer"). The Insurance Policy Assured Guaranty has made a commitment to issue the Policy relating to the Bonds, effective as of the date of issuance of such Bonds. Under the terms of the Policy, Assured Guaranty will unconditionally and irrevocably guarantee to pay that portion of principal of and interest on the Bonds that becomes Due for Payment but shall be unpaid by reason of Nonpayment (the "Insured Payments"). Insured Payments shall not include any additional amounts owing by the Issuer solely as a result of the failure by the Paying Agent/Registrar to pay such amount when due and payable, including without limitation any such additional amounts as may be attributable to penalties -or to interest accruing at a default rate, to amounts payable in respect of indemnification, or to any other additional amounts payable by the Trustee or the Paying Agent by reason of such failure. The Policy is non -cancelable for any reason, including without limitation the non-payment of premium. "Due for Payment" means, when referring to the principal of the Bonds, the stated maturity date thereof, or the date on which such Bonds shall have been duly called for mandatory sinking fund redemption, and does not refer to any earlier date on which payment is due by reason of a call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless Assured Guaranty in its sole discretion elects to make any principal payment, in whole or in part, on such earlier date) and, when referring to interest on such Bonds, means the stated dates for payment of interest. "Nonpayment" means the failure of the Issuer to have provided sufficient funds to the Paying Agent/Registrar for payment in full of all principal and interest Due for Payment on the Bonds. It is further understood that the term Nonpayment in respect of a Bond also includes any amount previously distributed to the Holder (as such term is defined in the Policy) of such Bond in respect of any Insured Payment by or on behalf of the Issuer, which amount has been recovered from such Holder pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction that such payment constitutes an avoidable preference with respect to such Holder. Nonpayment does not include nonpayment of principal or interest caused by the failure of the Paying Agent/Registrar to pay such amount when due and payable. Assured Guaranty will pay each portion of an Insured Payment that is Due for Payment and unpaid by reason of Nonpayment, on the later to occur of (i) the date such principal or interest becomes Due for Payment, or (ii) the - 13 - business day next following the day on which Assured Guaranty shall have received a completed notice of Nonpayment therefor in accordance with the terms of the Policy. Assured Guaranty shall be fully subrogated to the rights of the Holders of the Bonds to receive payments in respect of the Insured Payments to the extent of any payment by Assured Guaranty under the Policy. The Policy is not covered by any insurance or guaranty fund established under New York, California, Connecticut or Florida insurance law. The Insurer Assured Guaranty is a Maryland -domiciled insurance company regulated by the Maryland Insurance Administration and licensed to conduct financial guaranty insurance business in all fifty states of the United States, the District of Columbia and Puerto Rico. Assured Guaranty commenced operations in 1988. Assured Guaranty is a wholly owned, indirect subsidiary of Assured Guaranty Ltd. ("AGL"), a Bermuda -based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol "AGO." AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, structured finance and mortgage markets. Neither AGL nor any of its shareholders is obligated to pay any debts of Assured Guaranty or any claims under any insurance policy issued by Assured Guaranty. Assured Guaranty is subject to insurance laws and regulations in Maryland and in New York (and in other jurisdictions in which it is licensed) that, among other things, (i) limit Assured Guaranty's business to financial guaranty insurance and related lines, (ii) prescribe minimum solvency requirements, including capital and surplus requirements, (iii) limit classes and concentrations of investments, (iv) regulate the amount of both the aggregate and individual risks that may be insured, (v) limit the payment of dividends by Assured Guaranty, (vi) require the maintenance of contingency reserves, and (vii) govern changes in control and transactions among affiliates. Certain state laws to which Assured Guaranty is subject also require the approval of policy rates and forms. Assured Guaranty's financial strength is rated "AAA" (stable) by Standard & Poor's, a division of The McGraw- Hill Companies, Inc., "AAA" (stable) by Fitch, Inc. and "Aa2" (stable) by Moody's Investors Service, Inc. Each rating of Assured Guaranty should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of any security guaranteed by Assured Guaranty. Assured Guaranty does not guaranty the market price of the securities it guarantees, nor does it guaranty that the ratings on such securities will not be revised or withdrawn. A. Recent Developments On November 14, 2008, AGL announced that it had entered into a definitive agreement to purchase Financial Security Assurance Holdings Ltd. ("FSA"), the parent of financial guaranty insurance company Financial Security Assurance, Inc. For more information regarding the proposed acquisition by AGL of FSA, see the Annual Report on Form 10-K filed by AGL with the Securities and Exchange Commission (the "SEC") on February 26, 2009. B. Capitalization of Assured Guaranty Corp. As of December 31, 2008, Assured Guaranty had total admitted assets of $1,803,146,295 (unaudited), total liabilities of $1,425,012,944 (unaudited), total surplus of $378,133,351 (unaudited) and total statutory capital (surplus plus contingency reserves) of $1,090,288,113 (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of December 31, 2007, Assured Guaranty had total admitted assets of $1,361,538,502 (audited), total liabilities of $961,967,238 (audited), total surplus of $399,571,264 (audited) and total statutory capital (surplus plus contingency reserves) of $982,045,695 (audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. The Maryland Insurance Administration recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company, for determining its solvency under the Maryland Insurance Code, and for determining whether its financial condition warrants the payment of a dividend to its stockholders. No consideration is given by the Maryland Insurance Administration to financial statements - 14 - prepared in accordance with accounting principles generally accepted in the United States in making such determinations. C. Incorporation of Certain Documents by Reference The portions of the following documents relating to Assured Guaranty are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof: The Annual Report on Form 10-K of AGL for the fiscal year ended December 31, 2008 (which was filed by AGL with the SEC on February 26, 2009); and All consolidated financial statements of Assured Guaranty and all other information relating to Assured Guaranty included in documents filed by AGL with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date of this Official Statement and prior to the termination of the offering of the Bonds shall be deemed to be incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such consolidated financial statements. Any statement contained in a document incorporated herein by reference or contained herein under the heading "BOND INSURANCE -The Insurer" shall be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any subsequently filed document which is incorporated by reference herein also modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. Copies of the consolidated financial statements of Assured Guaranty incorporated by reference herein and of the statutory financial statements filed by Assured Guaranty with the Maryland Insurance Administration are available upon request by contacting Assured Guaranty at 1325 Avenue of the Americas, New York, New York 10019 or by calling Assured Guaranty at (212) 974-0100. In addition, the information regarding Assured Guaranty that is incorporated by reference in this Official Statement that has been filed by AGL with the SEC is available to the public over the Internet at the SEC's web site at http://www.sec.gov and at AGL's web site at http://www.assuredguaranty.com, from the SEC's Public Reference Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the office of the New York Stock Exchange at 20 Broad Street, New York, New York 10005. Assured Guaranty makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, Assured Guaranty has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding Assured Guaranty supplied by Assured Guaranty and presented under the headings "BOND INSURANCE" and "SECURITY FOR THE BONDS — The Reserve Fund Insurance Policy". CITY'S COMBINED SYSTEM The City's Combined System was established by the 1990 Ordinance as a combined utility system which now includes the City's existing water, wastewater, storm water, and gas systems. The following is a description of the three original components, plus the storm water drainage utility system, of the City's Combined System. The City has also included a description of its Storm water Drainage System as the City Council pursuant to an ordinance adopted on April 29, 2008 authorized the inclusion of its storm water drainage utility system to be a component part of the City's Combined System. Description of City's Water System Service Area. The City's water system serves not only the City of Corpus Christi, but also provides water to several municipalities, water districts, and industries within a 70 -mile radius of the City. The service arca is a relatively dry region of South Texas bordering on the Gulf of Mexico, with heaviest rainfall and stream flow in the spring and fall. Water Supply. The City's water supply is drawn from the Nueces River Basin, the Lavaca River Basin and the Colorado River Basin. - 15 - The Nueces River Basin has three principal rivers: the Atascosa River, the Frio River and the Nueces River. The Atascosa and Frio Rivers join the Nueces River above the City of Three Rivers and are impounded by the Wesley E. Seale Dam (Lake Corpus Christi Reservoir). The Frio River, which is above the confluence of the Atascosa and Frio Rivers, is impounded by Choke Canyon Dam (Choke Canyon Reservoir). Lake Corpus Christi Reservoir was completed in 1958 and has a surface area of 18,256 acres with a storage capacity of 257,260 acre-feet at 94 feet MSL (mean sea level). Choke Canyon Reservoir was completed in 1982 and has a surface area of 25,733 acres with a storage capacity of 695,271 acre-feet at 220.5 feet MSL. For planning purposes, the Nueces River Basin is treated as a single hydrologic unit. The Nueces River Basin covers 16,950 square miles. The City is the largest water right holder in the Nueces River Basin and the largest user of water from the Lake Corpus Christi/Choke Canyon Reservoir water supply system. When Choke Canyon Reservoir was being developed in the 1970's, it was estimated that the combined firm annual yield of the Choke Canyon/Lake Corpus Christi Reservoir system would be enough supply to meet the region's needs through the year 2030. However, by 1990, a water supply planning study for the Nueces River Basin determined that the firm annual yield was significantly less than originally estimated and that additional water supplies would be necessary much sooner than had previously been expected. These findings led to a regional water supply planning study in 1991 that investigated potential water transfers from the Lavaca River Basin and the Colorado River Basin. The study recommended that the City acquire additional water supplies from Lake Texana, on the Navidad River in the Lavaca River Basin, and from the Garwood Irrigation Company (Colorado River) in the Colorado River Basin. In 1992, the City entered into purchase options with the Lavaca-Navidad River Authority ("LNRA") for an annual purchase of water from Lake Texana and with the Garwood Irrigation Company for the purchase of senior water rights in the Colorado River. At the same time, the City began a comprehensive, regional water supply planning study designed to determine the long-term water needs of the Corpus Christi service area and to detennine the most feasible water supply options available to meet those needs. This study was part of the Trans -Texas Water Program, which had been conceived by the Texas Water Development Board ("TWDB") as a means of planning for the long-term water supply needs of several major metropolitan areas it had identified as potentially having water shortages within the not too distant future. The cities participating in the Trans -Texas Water Program included Houston, San Antonio, Corpus Christi, and Austin. Phase II of the Trans -Texas Water Program Study for the Corpus Christi Service Area was completed in November, 1995, before the full impact of the drought discussed below was known. It estimated that the then firm annual yield of 181,106 acre feet per year for the Choke Canyon/Lake Corpus Christi Reservoir system would meet the demands in the service area until approximately 2008 and that by the year 2050 the region would need an additional 91,000 acre feet per year of water supply to meet its municipal and industrial water needs. The Trans -Texas study investigated 22 water supply alternatives, eventually recommending an integrated water supply plan that incorporated both developments of additional water supplies and reduction in water demand through water conservation measures. Two of the options recommended for immediate implementation were accelerated water conservation and a modified Fresh Water Inflow Operating Plan for the Nueces Estuary, which was implemented under the Texas Commission on Environmental Quality (formerly known as the Texas Natural Resource Conservation Commission) ("TCEQ") Agreed Order of April 1995. The other two primary water supply options recommended for implementation in the near term were the transfers of water to the City from Lake Texana and the Garwood Irrigation Company water rights in the Colorado River. In December 1993, the City entered into the LNRA Contract to purchase up to 41,840 acre-feet of water from Lake Texana. In addition, the City exercised its option to purchase from the Garwood Irrigation Company 35,000 acre- feet per year of senior water rights from the Colorado River. This purchase was contingent upon Garwood's amendment of its water right to allow the transfer and use of this water in the Corpus Christi service area. Garwood filed an application with the TCEQ for an amendment which was granted on October 7, 1998. The City paid the Garwood Irrigation Company the full purchase price of $15,750,000 less option payments and other expenses paid to Garwood through the date of the amendment. In the FY 1998-99 Capital Budget, City Council authorized payment with a loan of $14 million dollars from the debt reserve of the Choke Canyon Fund to the Public Law Trust - 16 - Fund. This loan was repaid at the actual interest rate earned by the Tnist Fund in three annual payments, of which the final payment was made on July 31, 2001. The Lake Corpus Christi/Choke Canyon Reservoir system with Lake Texana and Colorado River Water has a year 2050 system firm yield of 241,700 -acre feet. The Corpus Christi region experienced a severe drought, which, in fact, may be the new drought of record, starting in 1993 and ending in 2002. Due to the severity of the drought in 1996 the City decided to build the pipeline from Lake Texana to Corpus Christi immediately rather than wait until the years 2005-2007, as originally anticipated. The City entered into agreements with the Nueces River Authority ("NRA") and the Port of Corpus Christi Authority (the "Port") to build a 101 mile water delivery system that would transport water from Lake Texana to the City's O. N. Stevens Water Treatment Plant. Under these agreements, the City guaranteed repayment of bonds sold by NRA to fund the pipeline design, right-of-way acquisition, and pipeline construction. NRA engaged the Port to manage the entire project. Upon completion of this project, the City would operate and maintain the pipeline. Under this regional partnership arrangement, a 101 mile, 64 inch pipeline of concrete/steel pressure pipe with an ultimate capacity of 107,800 acre feet per year was designed, manufactured, and installed within approximately two years. All 15,000 plus joints of pipe were laid within one twelve month period. The route involved nine major stream crossings, two of which were done by directional drilling. One of the crossings currently stands as the longest and largest diameter directional boring successfully completed in the United States. Three pump stations were constructed, a primary pump station at Lake Texana and two booster stations along the route. On September 29, 1998, the Lake Texana to Corpus Christi pipeline was dedicated as the Mary Rhodes Pipeline in honor of the late Mary Rhodes who, as Mayor of the City, championed the project during her tenure in office and died shortly after the first joints of pipe were laid in June of 1997. Work to acquire a route and permit a pipeline to convey the Colorado River water to the Mary Rhodes Pipeline is in its preliminary stages. The City has acquired 12,000 acre-feet of interruptible water from the LNRA. "Interruptible" water is water that is available from that system beyond the system firm yield. It is estimated that 4,500 acre-feet will be available 87% of the time based on historical data, while 7,500 acre-feet has a 70% availability. The interruptible contracts will track the original contract for the firm 41,840 acre-feet of water. The base term ends in 2035 with an option to the City for a 50 year extension. The City is also pursuing the possible acquisition of an additional 10,592 acre-feet of firm yield from the LNRA system and is also investigating the use of groundwater along the Mary Rhodes Pipeline. City's Drought Contingency Plan and Impact. In 2001 the TCEQ Agreed Order that defines the operation of the two reservoir system in regards to Bay & Estuary inflows was further refined to include the ability on the part of the City to go to reduced inflow requirements upon reaching 30% and 40% storage capacities. At the 40% storage capacity the City can reduce required inflows to 1,200 acre-feet target by implementing a prohibition against watering lawns between the hours of 10 a.m. and 6 p.m. At a 30% storage capacity, the City can reduce Bay & Estuary Inflow targets to zero by implementing a rule that keeps the time of day prohibition and also includes a prohibition against lawn watering any more often than five days. These changes were made in exchange for the City implementing a construction project consisting of a Nueces River Overflow Channel and a pipeline to divert water to a specified location within the Rincon Bayou area. The Rincon Bayou is an area that is being brought back into a condition that will allow it to again function as a nursery area for aquatic species. Water Production and Distribution. "Raw" water is processed at the O.N. Stevens Water Treatment Plant located in the northwest end of Corpus Christi. The plant is currently rated at 167 million gallons per day ("MGD") production capacity. To ensure that the Plant can operate during electrical outage periods, the City has on-line at the Plant the ability to generate 6 megawatts of electricity. The City has four ground storage reservoir pump stations and four elevated storage tanks with a total distribution system storage of 63.15 million gallons. The elevated storage tanks are used to provide emergency storage and to absorb peak demand loads. The water distribution system has approximately 1,445 miles of pipe ranging in size from 2 inches to 60 inches. - 17 - Water Customers. The City of Corpus Christi is a regional water supplier in that in addition to the "raw" water used by the City for its own customers, the City sells "raw" water and "treated" water on a wholesale basis. Approximately 125,000 acre-feet of raw water is diverted on an annual basis by all customers (City included). The City sells "raw" water to the Alice Water Authority (City of Alice), the Beeville Water Supply District (City of Beeville), the City of Mathis, Flint Hills Resources Refinery (formerly Koch Refinery), and Hoechst -Celanese. The City sells "treated" water to the South Texas Water Authority (Cities of Kingsville, Bishop, Agua Dulce, Banquete, Driscoll and Ricardo), Nueces County Water Control & Improvement District Number 4 (City of Port Aransas) and the Violet Water Supply Corporation. The City sells "raw" and "treated" water to the San Patricio Municipal Water District (Cities of Odem, Taft, Gregory, Portland, Ingleside, and Rockport). Such "treated" and "raw" wholesale water sales are generally provided pursuant to long term contracts for "treated" water and perpetual contracts for "raw" water. Re -Engineering. Vast changes have recently been undertaken by the Water Department ranging from organizational changes effected through re-engineering to improvements in technology, plant, and infrastructure. Consequently, Water Department managed costs are currently equivalent to costs incurred in 1995-96, prior to adjustment for inflation. In addition sixty-two positions have been eliminated over the past three years. Staffing ranged from a high of 232 in the 1999-2000 fiscal year to 170 in the 2004-2005 fiscal year. Vacancies, in addition to other reductions and a continued investment in infrastructure and technology, reduced controllable operation and maintenance costs. These reductions reflect a new understanding of competitive business practices, and represent an important first step in identifying operations and maintenance cost saving opportunities. Other potential budget reductions are anticipated as the Water Department continues to improve operating efficiency and maintenance performance. In addition, as part of the re-engineering program, the Water Department piloted a new computerized Work Management Program (or computerized maintenance management system). This new work management system is part of a three -pronged strategy to improve productivity: 1) new organizational strategies, including work force cross -training; 2) new business practices, including more systematic work planning and scheduling; and 3) new technology, including a computerized Work Management System. The new Work Management System was installed at the O.N. Stevens Water Treatment Plant, Wesley Seale Dam, and Choke Canyon Reservoir during April 2002. Private sector companies operating public utilities commonly use such systems. During the Fall of 2003, implementation was completed for the Water Distribution activity. The Work Management System portion of the reengineering effort is complete. System Improvements. The Wesley E. Seale Dam, which impounds Lake Corpus Christi Reservoir, has gone through two major rehabilitation projects. In 1995 all of the Spillway Crest Gates were rehabilitated and were strengthened to be able handle the Probable Maximum Flood (PMF) event, and in 2001, a project to ensure that the dam had the proper stability safety factor was completed. Existing emergency generator sets have recently been replaced to give reliable emergency power to the dam. The Bureau of Reclamation, which designed and built the Choke Canyon Dam, conducts periodic inspections. The City is in the process of implementing the recommendations enumerated in the Bureau's latest inspection report. The Bureau has given the Choke Canyon Dam an excellent rating. The City completed several projects in 2001 that enhanced the ability of the O.N. Stevens Water Treatment Plant to produce drinking water that meets not only today's requirements but also upcoming requirements. Some of these projects included the total renovation of the filtration portion of the process and the rehabilitation of half of the basins in which the sedimentation process occurs. Pending projects include a total renovation of the filter backwash system and the revamping of the existing SCADA system, a more efficient control of the production process and the distribution process. - 18 - In the Distribution System, the Water Department has embarked on a Transmission Main project that will go from the O. N. Stevens Water Treatment Plant to Padre/Mustang Island. The initial phase included the installation of 60 inch, 54 inch, and 48 inch diameter pipes to a pump station recently constructed in the Southside of Corpus Christi and a portion of a 42 inch diameter pipe leaving the pump station. The 60 inch portion of the Project, which is 8.5 miles in length, is complete, as well as the 54 inch and 48 inch portions. The entire project was targeted for completion by 2008. The total length will be well over 40 miles. In addition to the Pump Station constructed on the Southside, two existing pump stations (Caldwell and Savage Lane) have been replaced by the North Navigation Pump Station on the Westside. The pump station located on Padre Island is being totally rehabilitated and replaced by a new pump station. Other improvements to the Padre Island area include a new elevated storage tank and a 500,000 gallon Aquifer Storage and Recovery (ASR) project designed to off -set seasonal peak water demand on the Padre Island. Description of City's Storm water Drainage System Service Area. The storm water drainage system service area is located within the City limits. Storm water Collection System. Corpus Christi's storm water collection system consists of approximately 100 miles of major open drainage ditches, 765 miles of minor roadside ditches, 18,300 inlets, 6,000 manholes, 1,800 miles of curb and gutter, 2 storm water pump stations, 5 storm surge protection levee gates, 44 flap gates (primary and secondary), 107 bridges, 1,800 acres of drainage and street right-of-way, and 1,000 miles of underground drain pipes. The drainage pipes range from 12-72 inches and consist mainly of reinforced concrete pipe (RCP), and smaller quantities of corrugated metal pipe (CMP), and PVC. The City's Storm water Department staff has maintenance/repair and operations responsibilities for the drainage system. Maintenance includes mowing of approximately 1,800 acres of drainage and street right-of-way, ditch grading, erosion repair, cleaning of inlets and catch basins, removing debris from ditches, repairing/replacing curb and gutter, headwalls, wing walls and other concrete components, bridge repairs, and maintenance and operation of pump stations' pumps, engines, and auxiliary equipment. Environmental Requirements. In 1995, the City, along with its co -permittees Del Mar College, Texas A&M University -Corpus Christi, the Port, and the Texas Department of Transportation - Corpus Christi, was issued a five-year National Pollutant Discharge Elimination System (NPDES) permit to allow discharge of storm water runoff from the Municipal Separate Storm Sewer System (MS4) into the waters of the United States. The City has submitted an application for the renewal of MS4 permit to the TCEQ. Storm water Department staff administers several storm water quality management programs under the NPDES permit including Wet Weather Monitoring, Improper Disposal Inspection, and Construction Site Inspection. Staff also responds to hazardous material spills within the City by providing back-up to and coordinating efforts with the City's Fire Department's Hazardous Material Response Team to minimize the impact to the environment. System Improvements. Major infrastructure improvements are identified in the City's FY 2006-2016 short -and long-range Storm water Drainage Capital Improvement Plan (CIP) plan. Drainage system improvement projects include earthen and concrete -lined channels enhancements, right-of-way acquisitions, rehabilitation/replacement of drainage system appurtenants, system capacity enhancements, storm water quality management projects, construction of storm water pump stations, curb and gutter replacement, and bridge rehabilitation/replacement. One major CIP project is the Storm water Master Plan. The objective of this project is to create a comprehensive master plan that establishes policies, identifies priorities, and sets standards for drainages and future infrastructure development. Description of City's Wastewater System Service Area. The wastewater system service area is located primarily within the City limits. Wastewater Customers. Currently, the wastewater system has approximately 82,711 customers. Inside City Limits Single Family Residential wastewater customers pay for wastewater service based on their average winter consumption of water. This winter average will be used for one full year with the next year's rates being adjusted to recover the average of the prior three years' revenue from these customers, thus eliminating revenue Fluctuations due to changes in water consumption. - 19 - Wastewater Collection System. Corpus Christi's wastewater collection system consists of over 1,262 miles of gravity mains interwoven with approximately 85 miles of force mains, 17,430 manholes, and 96 lift stations. The collection system provides service to approximately 82,711 customers in a 137 square mile area. The collection system consists of a myriad of clay, fiberglass, cast and/or ductile iron, asbestos cement and reinforced concrete, and PVC lines ranging in size from 2.5 inch diameter (for force mains) to 60 inch diameter (for trunk mains). City wastewater employees assume the responsibility of maintenance, repair and rehabilitation for every aspect of the wastewater collection system except for that portion on private property. On an annual basis, wastewater staff with the assistance of service contractors responds to nearly 12,390 customer calls, install over 400 clean -outs, repair, replace or rehabilitate about 220 manholes, CCTV inspects 50 miles of mains, and clean over 1.2 million feet of wastewater mains. Wastewater Treatment. The City owns and operates six wastewater treatment plants with a combined treatment capacity of 44.7 MGD (million gallons/day). Five of the treatment plants utilize the activated sludge process with the sixth using a two stage trickling filter system. Each of these plants is in compliance with applicable State and Federal law. System Improvements. In FY 2007-2008, the average aggregated daily flow at the City's wastewater treatment plant averaged 30.6 MGD (million gallons per day), which is 68% of the aggregate permitted capacity of all the treatment plants. The City is negotiating the purchase of a site for a new wastewater treatment plant to replace the existing Broadway wastewater treatment plant. The new plant is scheduled to be constructed on the existing site by 2010-2012. Currently, the Wastewater Department has fully implemented a Computerized Maintenance Management System (CMMS), as another method to improve the efficiency of the maintenance and repair effort of the work force. As of January 2003, all data is collected in this Maximo/GIS work management system to assist in addressing Capacity Management, Operations, and Maintenance (CMOM) regulations anticipated to be added to wastewater discharge permits. During the past two years, the Wastewater Department has accepted over 25 miles of new collection infrastructure from accelerated subdivision growth. Other major projects, which the City will commence in the near future, that will benefit the environment and improve service to rate payers include: • Collection system rehabilitation and enhancement projects to reduce Inflow/Infiltration (I/1) flows and, restore capacity as a multi-year program; • Construct facilities required to increase the rated treatment capacity of the Greenwood Wastewater Treatment Plant from 8 MGD to 12 MGD; • Process improvements at the Oso Wastewater Treatment Plant to increase efficiency of treatment, and ensure environmental compliance, including electrical systems upgrades, final clarifier rehabilitation, and emergency power generation; • Multiple lift station/force main upgrades to provide for continuing capacity to accommodate growth of the community [Marina T -heads, Buckingham, Kennedy, McBride, Lens, Cimarron, and North Clarkwood Lift Stations]; • Replacing the lift station and adjacent infrastructure around the Broadway plant, to upgrade for the expansion of the convention center, new baseball stadium and downtown growth; • Developing a number of sub -basin Wastewater Master Plans to update, supplement or replace the 20 year old documents. Re -Engineering. The Wastewater Department initiated organizational changes to make improvements in operational efficiency. Fifty-one positions have been eliminated over the past five years. Staffing ranged from a high of 228 in the 1999- 2000 fiscal year to 177 in the 2005-2006 fiscal year. Various cost control strategies, including continued investment in infrastructure and technology, have kept controllable operation and maintenance costs level for over six years. - 20 - The Wastewater Department has implemented CMMS, as another method to improve the efficiency of the maintenance and repair efforts of the work force. All plants, lift stations and Collection System activities are using this work management system. The Collection System heavily supports land development through review of system design unified development code to facilitate development plan acceptance. Wastewater Department staff also plays a significant role in reviewing proposed development requirements, proposed system extension design, and development of new and/or revised unified development codes, as required to facilitate review and acceptance of private development. Description of City's Gas System Service Area. The gas system serves the City as well as a few areas immediately outside the City limits. The service territory covers about 180 square miles and extends 40 miles from northwest Calallen to Padre Island. Most of the growth in the last five years has been in the northwest and south sections of the City and on Padre Island. Gas Customers. As of July 31, 2008, the gas system is serving 54,537 active customers of which about 95% are residential and the balance are commercial and industrial accounts. Residential sales account for about 50% of total revenue. The City's rate structure for all gas customers allows the City to pass through to its customers all costs of gas purchased by adding the cost of gas to the cost of service. Gas Supply. The gas system currently receives 100% of its supply from one source, National Energy and Trade, L.L.C. About 85% of this supply is delivered to the City through two principal city gate stations into the Corpus Christi System; the remainder flows through three smaller purchase points to serve the Annaville/Calallen System, the Padre Island System and the North Beach System. Total gas load requirements vary from about 5 MMCFD in summer to about 37 MMCFD in the winter with peaks near 80 MMCFD during sustained freezes. The gas supply for the Corpus Christi System is taken from National Energy and Trade's South Shore Pipeline. This line extends along the west and south sides of the City from the Leopard Street/Corn Products area to the Barney Davis C.P. & L. Power Plant in Flour Bluff. The City is obligated to pay only for gas actually delivered at a cost based on a benchmark price, adjusted daily in proportion to a published index. The existing gas purchase contract became effective July 1, 2006, and will continue in force until June 30, 2011. Gas Distribution. The gas system consists of about 1129 miles of coated steel mains of various sizes up to 16 -inch, all under cathodic protection and about 162 miles of polyethylene mains. The Gas Department normally installs 10 to 15 miles of main each year including the replacement of 1 to 3 miles of main. There are 93 pressure regulating stations that maintain proper gas supply and pressure to 31 separate districts. System Improvements. The City anticipates construction over the next three years of approximately 67,500 feet of transmission main which will connect the Corpus Christi System with the Annaville/Calallen System. This will enhance the City's deliverability of natural gas to the Annaville/Calallen System through the existing Corpus Christi System and supply points already in place. City's Combined System Management and Employees Management. The Water, Wastewater, Storni water, and Gas, Departments are all under the supervision of the Assistant City Manager for Public Work and Utilities. Gustavo Gonzalez, P.E. - Water Director Mr. Gonzalez holds a Bachelor of Science degree in Civil Engineering from Texas A & M University and is a licensed Professional Engineer. Mr. Gonzalez has worked for the City of Corpus Christi in the Water Department for one year. Previously, he was employed as a Vice President of operations for the San Antonio Water System, and then went to work in the private sector as a consulting engineer. He retired as a Lieutenant Colonel from the Army Reserve in 2007 with 27 years of service. During that period, he was deployed to Bosnia-Herzgovina and Afghanistan. -21 - Foster Crowell - Director of Wastewater Services Mr. Crowell holds a Bachelor of Arts degree in Political Science from the University of Texas/Pan American at Edinburg. He holds a Class "A" water license and a Class "A" wastewater license from the Texas Commission on Environmental Quality. Mr. Crowell has 39 years of municipal public works experience, including 29 years with the City of Corpus Christi Wastewater Department. Prior to his appointment as Director of Wastewater Services in April 1999, he served as the Assistant Wastewater Superintendent since January 1980. Previously, he worked for the cities of Kingsville and Raymondville, Texas. Throughout his career, he has been active in professional/industry organizations at the local, state, and national level, and served on numerous boards and committees. He currently serves on the State Board, Water Environment Association of Texas, as a director. Valerie H. Gray, P.E. - Director of Storm water Operations Ms. Gray holds a Bachelor of Science degree in Civil Engineering from the University of Notre Dame in Indiana and is a Registered Professional Engineer. After graduation from the University of Notre Dame, she worked for Texaco USA. She has been with the City for 21 years and worked in the Housing and Community Development and the Traffic Engineering Departments before transferring to the Water Department where she fulfilled the responsibilities of Water Construction and Water Distribution Superintendents. Ms. Gray was promoted to Director of Storm water Operations in 1995. Deborah A. Marroquin, P.E. - Gas Superintendent Ms. Marroquin holds a Bachelor of Science degree in Natural Gas Engineering from Texas A&I University and is a Registered Professional Engineer. Ms. Marroquin has worked for the City for 21 years, her prior experience includes working for Exxon Co., USA, as a Reservoir Engineer. After gaining experience in several activities in the Gas Department, she worked in the City Manager's Office, was acting Budget Director and currently assists with projects. Ms. Marroquin was promoted to Director of Gas Operations in January 1995. Employees. As of July 31, 2008, the number of budgeted employees of the Gas, Water, Storm Water and Wastewater Divisions were as follows: Gas Department Water Department Wastewater Department Storm water Department 136 employees 66 employees 162 employees 77 employees No Labor Unions. The employees of the City' Combined System are not organized as a collective bargaining unit and under current State law have no legal authority to so organize. Employee Pension Plan and Benefits. The City's employees participate in the Texas Municipal Retirement System. This plan, the contributions made to this plan, and the City's unfunded pension fund liability are further described in Note 9 in Appendix B hereof. Post -Employment Health Care Benefits. GASB Statement No, 45; Accounting and Financia/ Reporting by Employers for Postemployment Benefits Other than Pensions (OPEB), established new accounting standards for postretirement benefits. The new standard does not require funding of OPEB expense, but any difference between the annual required contribution (ARC) and the amount funded during the year is required to be recorded in the employer's financial statement as an increase (or decrease) in the net OPEB obligation. The effective date for implementation of GASB 45 by the City of Corpus Christi is August 1, 2007, Accordingly, the City did obtain an actuarial valuation in accordance with GASB 45 standards as of August 1, 2007, and discloses the following: Plan Description and Funding Policy Employees who retire from the City of Corpus Christi, and eligible dependents and survivors, arc eligible to continue to participate in the City's health insurance programs at the "blended" employee group rate which is detennined annually by the City of Corpus Christi and approved by the City Council. Retirees have 31 days to elect - 22 - to enroll in the City's self-funded health insurance plan (Citicare, Citicare Public Safety, and Citicare-Fire) in which they were participating at the time of retirement unless otherwise stated in a plan document or collective bargaining agreement. As of July 31, 2008, a total of 562 eligible retirees and dependents were participating in the City's group health program detailed as follows: Citicare 304 Citicare Public Safety 135 Citicare Fire 117 Pending election 6 Total 562 The City provides no funding for any portion of the premiums after retirement. However, the City recognizes that there is an "implicit subsidy" arising as a result of the blended rate premium since retiree health care costs, on average, are higher than active employee healthcare costs. The plan is not accounted for as a trust fund as an irrevocable trust has not been established to fund the plan, The plan does not issue a separate financial report. Annual OPEB Cost and Net OPEB Obligation The City's annual other post -employment benefit (OPEB) cost is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and to amortize any unfunded actuarial liabilities over a period not to exceed 30 years. The City's annual OPEB cost for each plan for the current year is as follows: Citicare Public Citicare ($) Safety ($) Citicare Fire ($) Total ($) Annual required contribution 3,109,043 1,502,603 1,853,004 6,464,650 Interest on net OPEB obligation --- --- --- --- Annual OPEB cost 3,109,043 1,502,603 1,853,004 6,464,650 Contributions made (pay-as-you-go basis) 628,619 455 812 541,837 1,626,268 Increase in net OPEB obligation 2,480,424 1,046,791 1,311,167 4,838,382 Net OPEB obligation - beginning of year --- --- --- --- Net OPEB obligation - end of year 2,480,424 1,046,791 1,311,167 4,838,382 CITY'S COMBINED SYSTEM OPERATIONS City Water System Statistics The following table sets forth the volume of treated and untreated water sold by the City through the City's Combined System to various types of customers in each of the City's most recent five fiscal years: Table 1 Water Sales (in Million Gallons) (Fiscal Years Ended July 31) 2004 2005 2006 2007j4t 2008 TREATED WATER Inside City Residential 0) 5,677 6,445 7,295 6,267 6,926 Commercial(?) 4,429 4,863 5,227 4,461 4,967 Industrial 769 891 856 797 768 Other (3) 1,344 901 1,062 204 895 Subtotal 12,219 13,100 14,440 11,729 13,556 Outside City Retail Residential(1) Commercial(?) 9 10 9 8 7 512 526 553 637 602 - 23 - Water Sales (in Million Gallons) (Fiscal Years Ended July 31) 2004 2005 2006 2007(4) 2008 Industrial 7,637 7,971 8,107 7,229 7,453 Other (3) 1 2 2 0 2 Subtotal 8,159 8,509 8,671 7,874 8,064 Outside City Wholesale Total Treated Water UNTREATED WATER TOTAL () (2) (3) (4) 2,146 2,116 2,329 2,329 2,066 22,524 23,725 25,440 21,932 23,686 10,699 11,933 13,432 10,559 10,996 33,223 35,658 38,872 32,491 34,682 Includes one and two family residences. Includes Multifamily (over two family) residential. Includes hospitals, schools, churches, municipal and other governmental uses. The City received 20 inches of rainfall in July, 2007. That significantly reduced the amount of water sales in 2007. The following table sets forth the total revenues from sales of treated and untreated water made to various types of customers through the City's Combined System in each of the City's most recent five fiscal years: TREATED WATER Inside City Water Sales (In Dollars)(4) (Fiscal Years Ended July 31) 2004 ($) 2005 ($) 2006 ($) 2007 ($) (r) Table 2 2008 ($) Residential(I) 19,578,988 23,184,566 27,319,581 24,663,645 27,110,928 Cotnmercial121 11,192,159 13,466,454 14,972,250 14,682,916 15,773,225 Industrial 1,377,505 1,676,672 1,648,847 1,531,722 1,635,226 Other (3) 2,422,121 1,871,185 2,157,998 1,888,962 2,241,596 Subtotal 34,570,773 40,198,877 46,098,676 42,767,245 46,760,975 Outside City Retail Residential(1) 51,369 61,082 60,800 52,310 52,118 Commercial(2) 1,672,036 1,916,637 2,072,308 2,427,229 2,429,184 Industrial 15,826,479 17,304,567 17,712,195 16,679,866 19,368,983 Other 3) 7,528 9,860 12,093 10,509 14,120 Subtotal 17,557,412 19,292,146 19,857,396 19,169,914 21,864,405 Outside City Wholesale 3,542,226 3,650,949 4,108,677 3,870,334 3,927,324 Total Treated Water 55,670,411 63,141,972 70,064,749 65,807,493 72,552,704 UNTREATED WATER") 9,421,481 11,315,672 12,007,127 9,318,916 10,505,130 TOTAL 65,091,892 74,457,644 82,071,876 75,126,409 83,057,834 ui Includes one and two family residences. Includes multifamily (over two family) residential. Includes hospitals, schools, churches, municipal and other governmental use Prepared from City's Combined System records on a cash basis and therefore will not agree with the financial statements in Appendix B which are prepared on an accrual basis. The City received 20 inches of rainfall in July, 2007. That significantly reduced the amount of water sales in 2007. - 24 - The following table sets forth the number of the City's Combined System water customers of each type for treated and untreated water at the end of each of the City's most recent five fiscal years: Number of Water Customers (Fiscal Years Ended July 31) TREATED WATER 2004 2005 2006 2007 2008 Inside City Residential (I) 75,114 75,353 77,761 76,735 78,124 Commercial() 7,026 6,976 7,135 6,701 7,183 Industrial 4 3 3 4 22 Other(') 538 1,118 1,129 2,262 1,112 Subtotal 82,682 83,450 86,028 85,701 86,441 Outside City Retail Residential () 83 87 83 82 79 Commercial(?) 148 144 146 143 143 Industrial 20 15 16 19 22 Other (3) 2 2 2 2 2 Subtotal 253 248 247 246 246 Outside City Wholesale 3 3 3 3 3 Total Treated Water 82,938 83,701 86,278 85,950 86,690 UNTREATED WATER 6 6 6 6 6 TOTAL 82,944 83,707 86,284 85,956 86,696 Table 3 Includes one and two family residences. Includes multifamily (over two family) residential, and commercial. Includes hospitals, schools, churches, municipal and other governmental use. In some cases, individual governmental entities may have multiple accounts as a result of multiple facilities. [The remainder of this' page intentionally left blank] - 25 - The following table sets forth the largest retail and wholesale purchasers of treated and untreated water from the City's Combined System as of the end of its two most recent fiscal years: Largest Water Customers (Based on Revenues) (Fiscal Year Ended July 31) Table 4 2007 (8) 2008 (8) Retail Treated Water Valero Refining Company (5580 Up River Road) 5,043,145 5,211,258 Lyondell (formerly Equistar; formerly Oxy)° 4,020,355 4,211,798 Citgo Refining (East) 2,935,157 2,908,798 Valero Refining (formerly Coastal States Petroleum) 1,160,740 1,995,118 Flint Hills Resources Refining - East Plant (formerly Koch) 1,322,438 2,235,295 Flint Hills Resources Refining - West Plant (formerly Koch) 1,024,120 1,027,603 Citgo Refining (West) 871,350 878,733 Valero Refining (5445 Up River Road) 715,142 619,470 Public Works (Naval Air Station Corpus Christi) 597,696 544,708 Javalena Refining 568,862 563,991 Total 18,259,005 20,196,772 Wholesale Treated Water San Patricio Municipal Water District 2,035,452 1,075,881 South Texas Water Authority 941,130 10,167,596 Nueces County Water Control District No. 4 977,717 805,677 Total 3,954,299 12,049,154 Wholesale Untreated Water San Patricio Municipal Water District 5,685,946 8,213,203 Beeville Water Supply District 992,344 748,136 Alice Water Authority 659,162 1,344,975 City of Mathis 162,432 3,525,308 Various Industrial Customers(2) 1,946,177 960,760 Total 9,446,061 14,792,382 111 On January 6, 2009, Lyondell Chemical Company ("Lyondell") filed for bankruptcy reorganization under Chapter 11 of the United States Bankruptcy Code. One of the City's largest taxpayers, Equistar Chemicals LP (`Equistar"), an operator of a petroleum refinery, is a subsidiary of Lyondell, and is also included in the Chapter 11 bankruptcy filing. The City is assessing the financial impact of this event. While the City is reviewing its options for fiscal year 2010, it anticipates receiving payment of the Equistar delinquent taxes, as Equistar has recently consolidated operations at other Gulf Coast refineries to the Corpus Christi location, but the City cannot predict when it will receive payment of the 2008 taxes, or the impact of the bankruptcy filing on future tax years, or any adverse consequences from the national rating agencies. Flint Hills Resources, Celanese. [The remainder of this page intentionally left blank] - 26 - The following table sets forth selected statistics relevant to the capacity and operations of the City's Water Supply System in each of its most recent five fiscal years: Table 5 Water System Statistics (Fiscal Years Ended July 31) 2004 2005 2006 2007 2008 Rainfall (inches) (I) 40.89 23.46 34.98 43.42 27.41 Water Supply: System Firm Yield in acre feet 183,160 183,160 216,000 216,000 216,000 System Demand in acre feet 112,254 124,908 127,411 102,614 104,239 Water Production: Rated Capacity in Million Gallons per Day 167 167 167 167 167 Maximum Daily Demand in Million Gallons per Day 99 105 105 98 109 Water Distribution: Unaccounted for Percentage (%) 9.0 9.0 12.0 13.0 9.06 Per Capita Consumption in Gallons Per Day(�) 123 115 121 114 121 111 Rainfall measured at Corpus Christi International Airport as of July 31 of each year. This measurement does not reflect rainfall elsewhere in the Nueces River Basin Watershed. 121 This represents treated water uses minus industrial uses and wholesale treated water sales. Wastewater System Statistics The following table sets forth the largest users of wastewater from the City's Combined System as of the end of its two most recent fiscal years: Table 6 Ten Largest Wastewater Customers (Fiscal Years Ended July 31) 2007 ($) 2008 ($) Sam Kane Meat Packing Co. 646,459 625,845 Texas A & M University - Corpus Christi 106,340 119,704 TRT Development Company - Omni Bayfront Hotel 92,570 111,414 The Shores Apartments 63,642 67,023 The Wharf Apartments 52,496 64,542 Spohn South Hospital 50,764 81,711 Walnut Ridge Apts. 53,806 63,172 TRT Development - Omni Marina Hotel 50,381 71,854 Nueces County Courthouse 47,038 68,133 Driscoll Children's Hospital 44,703 52,466 [The remainder of this page intentionally left blank.) - 27 - The following table sets forth the number of residential and commercial wastewater customers from the City's Combined System as of the end of its five most recent fiscal years: Inside City Outside City TOTAL Table 7 Number of Wastewater Customers (Fiscal Years Ended July 31) 2004 2005 2006 2007 2008 Residential 72,131 72,464 74,482 73,672 75,090 Commercial 6,631 6,615 6,993 7,404 6,702 Residential 4 4 4 2 1 Commercial (I) 22 23 22 15 21 78,788 79,106 81,501 (I) Includes multi -family (over two families) residential, commercial, industrial, and public agencies. 81,903 81,814 The following table sets forth the amount of wastewater that was treated at each of the City's Wastewater Facilities as of the end of its most recent five fiscal years. Table 8 Wastewater Treated (Millions of Gallons) Fiscal Years Ended July 31 2004 2005 2006 2007 2008 Plant Broadway 1,683 1,531 1,508 1,669 1,724 Oso 4,588 4,299 4,201 4,719 4,275 Greenwood 2,026 2,182 2,183 2,380 2,369 Allison 1,230 1,071 1,089 1,165 955 Laguna Madre 775 699 631 777 717 Whitecap 477 468 417 461 476 Total 10,780 10,252 10,029 11,171 10,516 Daily Average (MGD) 29.5 28.1 27.5 31.0 28.8 [The remainder of this page intentionally left blank.] - 28 - System: City Gas System Statistics The following table sets forth the most recent annual gas purchases and sales from the City's Combined Annual Gas Purchases and Sales (Fiscal Years Ended July 31) 2007 2008 Average Day Mcf 9,463 8,779 Maximum Day Mcf 37,887 28,180 Purchases Mcf 3,454,105 3,201,268 Sales Mcf 3,350,085 3,101,913 Lost & Unaccounted-for Gas % 3.01% 3.20% Table 9 The following table sets forth the number of gas customers for the City's Combined System as of the end of its two most recent fiscal years: Gas Customers (Fiscal Years Ended July 31) 2007 2008 Residential 52,042 51,813 Commercial 2,599 2,474 Hospitals, Schools, & Churches 366 238 Industrial Customers 2 2 Active Customers 55,009 54,537 Table 10 The following table sets forth the largest gas customers for the City's Combined System as of the end of its two most recent fiscal years: Table 11 Ten Largest Gas Customers (Fiscal Years Ended July 31) 2007 ($) 2008 (S) Public Works (NAS) 1,755,613 1,551,305 Spohn Hospital Shoreline 677,846 680,370 Driscoll Children's Hospital 538,556 569,587 Bay Area Medical Center 323,117 473,080 H.E. Butt Grocery 406,784 419,552 Spohn Memorial hospital 311,065 328,400 Sam Kane Meat Packing Co. 1,739,239 1,831,131 H. E. Butt Bakery 266,354 339,563 TAMUCC - Central Plant 231,732 194,946 Spohn Hospital South 236,661 227,781 Total 6,486,967 6,615,715 CITY'S COMBINED SYSTEM RATES Ratemaking The City Council of the City has the power to establish and increase rates for service provided by the City's Combined System, subject to some contractual limitations and subject to the limited regulatory jurisdiction discussed below. In setting water, wastewater and gas rates, the City is bound by the legal requirement that such rates must be reasonable, equal, and uniform and that no free service may be allowed, except at the discretion of the - 29 - City Council for certain public buildings and facilities operated by the City. By law, the City must charge and collect rates sufficient to pay all operating, maintenance, depreciation, replacement, betterment, and interest charges of the Combined Utility System and to maintain an interest and sinking fund sufficient to pay any bonds or notes issued to purchase, construct, or improve the Combined Utility System or any outstanding indebtedness of the Combined Utility System. Rates for sales of water to other political subdivisions on a wholesale basis, and certain appeals of rates for outside - City customers, are subject to the jurisdiction of the Texas Commission on Environmental Quality ("TCEQ"). By law, however, the TCEQ may not fix a rate which is less than the amount required to meet the debt service and bond coverage requirements of the City's water facilities. Certain disputes as to sales of surface water may also be subject to the jurisdiction of the TCEQ. Gas rates are subject to appeal to the Texas Railroad Commission. In setting rates, the City Council of the City must consider, among other things, the current federal guidelines regarding user charges and certain charges required of federal construction grant recipients under the Clean Water Act. Usage of the City's wastewater facilities is not metered for rate purposes. Instead, wastewater rates are based upon water usage for all customers except Single Family Residential Inside City Limits customers. Those customers' wastewater rates are based upon winter water usage, and the overall rate is adjusted annually to compensate for increases or decreases in average winter consumption. The magnitude and frequency of rate increases will depend upon factors such as the rate at which Combined Utility System and maintenance and operating expenses increase in the future, the interest rate on Combined Utility System revenue bonds sold to meet the Combined Utility System future capital requirements, the extent to which Combined Utility System revenue bonds are used to meet those capital requirements, the volume of water and gas sold, and future changes in environmental requirements. City's Charter Amendment Regarding Rates On January 19, 1991, the residents of the City voted to approve an amendment to the City Charter of the City, the effect of which would be to limit the amount of rate increase for each utility service operated by the City in any fiscal year to six percent over the rate charged the preceding year. The amendment further provides that a higher rate may be adopted on a temporary basis for the next fiscal year if all members of the City Council declare an emergency. In 1996, the City Council approved the billing of raw water cost increases by the purported 6% per annum charter limit. In 1995, the City contracted with the Nueces River Authority ("NRA") for the financing, acquisition, and construction of the Lake Texana Pipeline. In that contract (the "NRA Contract") the City covenanted "to fix and collect such rates and charges for services to be supplied by the City's Combined Utility System as will produce revenues at all times during the term of the NRA Contract in an amount at least equal to (i) all of the expenses of operation and maintenance of the City's Combined Utility System, including specifically its payments under the NRA Contract an the contracts specified in Table 20 hereof, and (ii) all other amounts as required by law and the provisions of the ordinances or resolutions authorizing the City Priority Bonds or other obligations now or hereafter outstanding payable, in whole or in part, from the revenues of the City's Combined Utility System, including the amounts required to pay all principals of and interest on such Priority Bonds and other obligations". The NRA filed a bond validation suit to validate the NRA Contract and its bonds. Ex Parte Nueces River Authority, No. 96 -11- 20066 -CV, 38°i District Court, Uvalde County, Texas. In its Final Judgment issued December 31, 1996, validating the NRA Bonds and the NRA Contract, the Court held: "7. IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Article IX, Section I0(a) of Corpus Christi's City Charter [the rate cap provision] is invalid and void because it is inconsistent and in conflict with State law in violation of Article XII, Section 5 of the Texas Constitution, including but not limited to Articles 1111-1118, Texas Revised Civil Statutes, and Sections 13.139, 13.182, 13.183, and 13.250(a) of the Texas Water Code; because it constitutes illegal arbitrary ratemaking, because it violates the duty of a public utility to provide adequate service at fair and sufficient rates; and because it unconstitutionally impairs obligations of the City of Corpus Christ[i], said impairment being in violation of Article I, section 10, cl. 1 of the United States Constitution. ***10. IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the NRA Contract requires the City of Corpus Christi to fix and collect such rates and charges for services to be supplied by the City's Combined Utility System as will produce revenues at all times during the term of the NRA Contract sufficient to pay all expenses of operation and maintenance of the City's Combined Utility System and principal and interest of the Priority Bonds, and nothing in the City Charter, including but not limited to - 30 - Article IX, Section 10(a) and Article 1, Section 4, or in State law, limits or restricts the ability of the City Council of the City of Corpus Christi to fix reasonable, equal, and uniform rates for the City's Combined Utility System sufficient to pay all operating and maintenance expenses of the City's Combined Utility System and to pay principal and interest on the Priority Bonds." Billings and Collections Users are billed monthly based on metered water and gas consumption. A bill is payable 21 days after the date on which the statement of account was mailed, and late payments incur a 5% penalty if paid after the next bill date. If a user fails to make payment on or before the 218' day after the bill is mailed, the City sends a second written notice regarding disconnecting for non-payment and restating the amount owed. Approximately 45 days after the initial bill is mailed, a City field representative is dispatched to the user's address to cut off City services. A user may be required to post a cash deposit, or in some cases, a surety bond in lieu of a cash deposit for continued service if the user demonstrates a history of delinquency. The deposit is based on an average of two months consumption. If a user liable for Combined System charges leaves the premises to which such charges are applicable, the user will not be furnished service by the Combined System at a new premises occupied by such user until all charges are paid. Recent and Future Changes in Rate Structure Prior to January 1, 1997, costs of raw water, water treatment, water distribution, and administrative costs were recovered through graduated block rates for each category of customer. Beginning January 1, 1997, retail water customers are charged raw water charges in addition to posted block rates fixed to recover costs of treatment, distribution, and billing. The raw water charges are calculated annually based on projected raw water costs, projected total consumption, and an annual "true up" adjustment. Raw water costs include all expenses associated with developing, acquiring, or delivering raw water. Therefore all costs associated with raw water are "passed through" to water customers with this charge. A Cost of Service based rate model for water was adopted effective August 1, 2008, which bases rates for different classes of customers on the cost of system components serving that customer class. Among other changes, the new rates eliminate declining block rates and remove all storm water support from outside -City water rates. In April, 2008, City Council approved an ordinance establishing a Storm water Utility which is a component of the Combined Utility System. The Storm water Utility is supported by inside -City water rates during FY2008-2009. Impervious cover data by parcel is currently being developed for use in setting up stone water fees to be implemented next fiscal year, subject to adoption by the City Council. Rate Increases When water charges were split between raw water costs and cost of service block rates, the posted cost of service block rates were reduced to provide substantially the same aggregate annual revenue from each class of customer as under prior rates before changes in raw water costs. However, the separate raw water charge is intended to permit increased raw water costs associated with financing and operating the Nueces River Authority Pipeline Project and other future water projects to be allocated among the City water customers in proportion to their water usage. To fund all Combined Utility System projects currently in the 2009 Capital budget and Capital Improvement Planning Guide, future rate increases will be required as noted on the financial Projections table. Water Rates Current Rates. The raw water rate for FY2008-2009 is $0.899 per 1000 gallons for rate paying customers and $1.068 for contract customers. Posted retail cost of service block rates arc composed of a fixed minimum charge based on meter size and an additional charge based on consumption. The posted cost of service block rates (excluding raw water charges) are set forth in the following table: -31 - Table 12 Retail Posted Cost of Service Water Rate Inside Outside Minimum Monthly Charge Meter Size Inches City Limits City Limits 5/8 x 3/4 (Residential) $8,550 $10,260 5/8 x 3/4 (Commercial) 12,330 14,800 1 18,500 22,200 I % 30,840 37,000 2 61,670 74,000 3 98,670 118,410 4 197,340 236,810 6 308,350 370,020 8 and larger 616,700 740,040 Large Volume First 10,000,000 Gallons 16,028,000 16,744,00 Over 10,000,000 Gallons 1,647 1,506 Residential Customers First 2,000 gallons Minimum Minimum Next 4,000 gallons $2.795 $1.501 Next 4,000 gallons 3.493 1.876 Next 5,000 gallons 4.017 2.157 Next 15,000 gallons 4.891 2.626 Next 20,000 gallons 5.939 3.189 Next 50,000 gallons 6.463 3.471 Over 100,000 gallons 6.987 3.752 Cost Per Cost Per Commercial/Industrial 1 000 Gallons 1 000 Gallons First 2,000 gallons Minimum Minimum Over 2,000 gallons $3.493 $1.876 [The remainder of this page intentionally lef blank.] - 32 - Wastewater Rates Current Rates. Wastewater rates, which are based upon water consumption during the winter months for Single Family Residential customers and upon current water consumption for all other customers, are summarized in the following table (for customers with 250 parts per million or less of biochemical oxygen demand, and 250 parts per million or less of suspended solids). (Effective August 1, 2008) Class Inside City Limits One family minimum $18.226/month for first 2,000 gallons One family maximum $102.958/month up to 25,000 gallons Commercial minimum $26.862/month for first 2,000 gallons Outside City Limits $23.599/month for first 2,000 gallons $199.181/month up to 25,000 gallons $33.578/month for first 2,000 gallons Table 13 The charges in addition to the above minimums, as well as the charge for all other wastewater users, will be computed as dollars per one thousand (1,000) gallons of water used as follows: Inside City Limits One Family Residential Commercial Outside City Limits One Family Residential Commercial Cost per 1,000 Gallons 3.684 2.856 7.634 5.718 Table 14 Additional charges for customers with 250 parts per million or more of biochemical oxygen demand or 250 parts per million or more of total suspended solids are $0.2784 per pound and $0.1999 per pound respectively. [The remainder of this page intentionally left blank] - 33 - City's Gas Rates Current Rates. Gas rates are based on consumption in thousand cubic feet (MCF). Gas rates are summarized in the following table. Residential Customer Rates (Effective August 1, 2008) Winter (Mid -November through Mid -April) Meter Charge First 1 Mcf per month or less Next 2 Mcf per month Next 7 Mcf per month Next 5 Mcf per month Next 35 Mcf per month All over 50 Mcf per month Minimum Monthly Bill Summer (Mid -April through Mid -November) Meter Charge First 1 Mcf per month or less Next 2 Mcf per month Next 5 Mcf per month Next 2 Mcf per month Next 28 Mcf per month All over 38 Mcf per month Minimum Monthly Bill Seasonal Meter Charge First Next Next Next All over Minimum Monthly Bill Winter Meter Charge First Next Next Next Next Next Next Next Next Next All over Minimum Monthly Bill Rates Partial Year Customers 1 Mcf per month or less 2 Mcf per month 7 Mcf per month 30 Mcf per month 40 Mcf per month Commercial Customer Rates (Effective August 1, 2008) 1 Mcf per month or less 2 Mcf per month 7 Mcf per month 40 Mcf per month 50 Mcf per month 100 Mcf per month 100 Mcf per month 700 Mcf per month 1000 Mcf per month 13000 Mcf per month 15000 Mcf per month - 34 - Inside Outside City Limits ($) City Limits ($) 1.000 1.250 9.260 11.426 5.195 5.824 3.003 3.319 2.621 3.132 2.833 3.132 2.014 2.184 10.260 12.676 1.000 1.250 9.260 11.426 5.195 5.824 3.003 3.319 1.507 1.656 1.469 1.656 1.339 1.424 10.260 12.676 1.000 15.384 13.912 6.605 2.833 2.014 16.384 1.250 18.479 15.892 7.489 3.132 2.184 19.729 Table 15 Inside Outside City Limits ($) City Limits (S) 12.020 15.020 9.260 11.426 5.195 5.824 4.853 5.469 4.668 5.257 2.014 2.184 1.679 1.803 1.466 1.572 1.403 1.485 1.212 1.212 1.090 1.090 1.044 1.044 21.280 26.446 Incentive Air Conditioning Summer Rate The incentive summer rate is limited to customers using an annual average of less than 15,000 cubic feet per month. These customers have gas operated air cooling and/or air conditioning equipment and their average consumption in the seven summer months exceeds the average use consumption in the five winter months. Table 16 Cost of Service per MCF (Effective August 1, 2008) Inside Outside City Limits ($) City Limits ($) Meter Charge 12.020 15.020 First 1 Mcf per month or less 9.259 11.426 Next 2 Mcf per month 5.194 5.824 Next 7 Mcf per month 4.853 5.469 Next 40 Mcf per month 3.551 3.993 Next 150 Mcf per month 1.507 1.656 Next 300 Mcf per month 1.403 1.485 Next 500 Mcf per month 1.212 1.276 Next 14000 Mcf per month 1.09 1.131 All over 15000 Mcf per month 1.044 1.044 Minimum Monthly Bill 21.279 26.446 Table 17 Purchased Gas Adjustment The City adjusts its gas rates monthly to take into account changes in the cost of gas from the supplier. The pass- through cost of gas is adjusted for pressure base, gas lost, and unaccounted-for factors. Commercial customers who use over 15,000 cubic feet in one month and who receive gas from the City at the same pressure which the City receives it (14.65 psi) shall be billed 2.05% less per Mcf than the normal rates. Interruptions Deliveries of gas to commercial and industrial customers may be interrupted or curtailed in the event of shortage in order to conserve gas for residential and other human need customers. CITY'S COMBINED SYSTEM FINANCIAL INFORMATION Payment Record The City has not defaulted in the payment of the principal of, or interest on, its indebtedness within the last 66 years nor has the City issued any refunding securities for the purpose of preventing a default in the payment of the principal of, or interest on, its indebtedness within this period. [The remainder of this page intentionally left blank.] - 35 - Obligations Payable from City's Combined System Revenues Table 18 The following sets forth the total outstanding revenue obligations as of July 31, 2008 payable from the City's Combined System revenues, adjusted to include the Bonds. Contract Revenue Bonds and Obligations (payable as an operating expense of the City's Combined System): LNRA Contract (I) $99,944,240 Nueces River Authority, Series 1997 3,020,000 Lavaca-Navidad River Authority, Series 1997 470,000 Nueces River Authority, Series 2003 945,000 Nueces River Authority, Series 2005 92,585,000 Lavaca-Navidad River Authority, Series 2005 5,045,000 $202,009,240 The Combined System Revenue Bonds payable from net revenues of the Combined System (the "Priority Bonds"): Series 1999 Bonds $ 8,355,000 Series 1999-A Bonds 10,100,000 Series 2000 Bonds 10,825,000 Series 2000-A Bonds 5,885,000 Series 2002 Bonds 43,500,000 Series 2003 Bonds 23,035,000 Series 2004 Bonds 43,345,000 Series 2005 Bonds 70,185,000 Series 2005A Bonds 61,890,000 Series 2006 Bonds 79,940,000 The Bonds 96 490 000 $453,550,000 Certificates of Obligation payable from surplus revenues of the City's Combined System (Texas Military Value Revolving Loan Program): Series 2007 Bonds $4,569,305 Subordinated Obligations: United States Dept. of the Interior Choke Canyon Agreement t2t $ 66,073,868 Total — All Payable from City's Combined System Revenues $726,202,413 Charges for water under the LNRA Contract are based on a formula contained in the LNRA Contract which includes a percentage of the operating and maintenance expenses of Lake Texana and a percentage of the debt service on the bonds associated with construction of this reservoir. The City has recorded on its books a liability in the amount of $99,944,240 for the present value (computed at 3.5%) of (he debt service payments only. Under an agreement with the United States Department of the Interior (Bureau of Reclamation), the City has agreed to pay such amount out of swplus revenues with interest at 5.115%, subject to certain deferrals, in installments through 2044. (See "Subordinated Obligations below). Subordinated Obligations As of July 31, 2008, the amount owed to the United States Department of the Interior (Bureau of Reclamation) for the City's remaining share of the costs of the Choke Canyon Reservoir Project is $66,073,868 (of which $52,611,653 are allocable to water supply construction costs, $13,431,553 to recreation costs, and $30,662 to fish and wildlife costs). Such amounts for water supply are payable over a term of 50 years to 2044, in each case with interest at 5.116% per annum. See "Debt Service Requirements Payable from Combined System Revenues" and Note 17 in Appendix A for the repayment schedule. As of July 31, 2008 the City had accumulated out of the City's Combined System surplus revenues $25,064,500 as a reserve for this contract obligation. - 36 - On March 1, 2003, the City Council approved a $75,000,000 commercial paper program for a term of seven years to provide interim funding of Utility System capital projects. On September 1, 2005, the City sold $70,000,000 in commercial paper with a maturity of January 17, 2006, interest rate of 2.850%. The City issued Utility System Revenue Improvement Bonds to pay off the commercial paper on October 1, 2005. On July 28, 2006, the City sold $17,000,000 in commercial paper with a maturity November 2, 2006, interest rate of 3.620%. As of July 31, 2006, $17,000,000 remained outstanding. The City issued Utility System Revenue Improvement Bonds to pay off the commercial paper on October 1, 2006. Money was held in escrow until the commercial paper matured. No commercial paper notes are currently outstanding. The Commercial Paper notes are supported by a bank line of credit in the amount of $80,547,945 by Westdeutsche Landesbank Girozentrale (the "Bank"). Pursuant to the agreement under which the bank letter of credit was issued, the payment of obligations of the City to the Bank would constitute an obligation payable from a lien on and pledge of the revenues of the Combined System subordinate to the Priority Bonds and the obligations under the contracts described in the preceding paragraph. [The remainder of this page intentionally left blank.] - 37 - tie A ttl City's Combined System Debt Service Requirements Total Utility $ystem Revenue Bonds UtilittSystem Revenue Debt Prior to New Issue 0 O H C TIL FeLC 6 0 H 0 n C 6 '0 N m m m m m '0 m'0 m N'0'0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 0 m O N N N N N N N co O co O O O N m M - - m m m W 0 co 00 0- 0 O N rl r co O m 0 O en 00 r. or en Lel tn - 0 00'0 n vl 0 n 0 on O_ O vl .N-. N V �Cp (p 00 �y- '0 WWp �r O m vo O 00 o W 00 m00 ^ 00 m co - '0'0'0 '0 '0 d 00 V V V q. Q '0 n o 00 r COr fl - a_ b m m m m m m r V V O N 1 re O V V m'0'0'0'0 4 v v e v v v v n n re ren n N N creN N `C m= m m m m m .c �c �c �o o e m m m m m m m m m m m m m m O 0 0 0 0 0 0 0 0 m 0 m 0 m N N N N r N r N N N N O 0 0 7 7 7 O m O N n m m m O en 0 N N 0 O ^ 1� tin N 1� W co m O N �- vv.,- r P P 0 00 0 n 0 r m m N Hn V n o to r'0 - 00 N O v\ r n 00 O V O N 00 N Le< v1 0'- O O N re 6 b O M b 00 vl N O 00 0- ed. 0 0 '- QC r- vt N r- el P N P P 00 r- n co n O 00 co m 0 CO P- CO P N 0 O'0 or O r C W 01 n'0 N CC 00 r m d' N O. 00- 10 N O P 6 N on 6 O. CO m V N P- -. rc N P m M � O P W Lr m en V n� O P W m vl vl y n M N N N N N 00o00o00OOSSOS9S S S 8 8 O O O O OS S 0 0 0 S . O O O O O O O O O O O O O O O O O O 8 8 8 S S 0 O O O O 0 O 0 o 0 0 0 O O O 0 0 0 O O O o O 0 0 0 O O O O O O O O O O O O O O O L 6 O O 6 O% 6 in co 0 O O 04 en en in in in on m T ^ 0 N T- N y O 0 - r m ^ V CA CA n 6 6 m m V co 1- 0r N O O n V 0 00 0 N J 01 C4 04 V CI N1 V V) en O h 0 N- N 06 P O1 00 n n n nl a a V O V vl vl lg. '0 N N N N N N N N N N N N N N--- - m m m m m m m m m m m m m m 0 0 0 0 0 0 0 0 0 0 0'0 0 m 0 m O r h n r t: t� r tf t` r N Cl N 0 O O O N 0' 0' en P 0 O 4 4 4 C d 4 O on N 0 0'0 0 m N n N to vl N O O in Q n r V V1 .0 v1 �. N C v1 y N m'0 C 4 m ut '0 1: v) '0 ' 0t / d r c c a c c c c c c c c c c of cora c� c c c c c a a `1", a - c '0 '0 '0 '0 '0 '0 6 '0 '0 '0 '0 '0'0'0'0'0 o'0 o o'0 '0 '0 '6 '6 ' '0'0 �0 m m m'0 m m '0 r 0 0 0 0 0 0 0 0 0 0 0 0 m 0 m - m m m '0 r 1 '0 '0 r r r r r r r 1 1 0 0m in in0in in ino N O N 04 P n P Con _ ol O O m 00 - vii vii m r of.O Ven 04 04 0a en Ha Hami n S 0on 0 el O 01 - N - el 01 0I 00 vrl CI n V1 en ▪ an Lo . m n d b b co O 0 0 V- - v1 P 0--- e 6 0 r 4 00 N m d' N r m m vl O n N O- O P W m d' n 00 m O el 01.r V N P m n - y V V V V V R V V 0 0 n n n n n n en N N N N 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 o o 0 0 0 o o o 0 0 o 0 o o 0 o 0 0 O o 0 0 0 0 0 0 0 0 0 0 0 0 0 o 0 0 o g g g O g o 0 0 o 0 o. 0 o o o o o o o o o 0 0 0 o o 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 o r o o o v, 0 0 o .. o 0 0) 0) to 0 el CC 0- eri 01 P O O O O m m ON - N e m O C 4 1 P N 0 00 N N N N N N N N N N n n an n n d V C C C ul v1 Vl m 00 00 LenO o 0 0 0 0 0 0 0 on 0 0 0 0 0 in . 6 re GO 00 en m m- re 6: ri 0" N P Q 0) r N 0 0 0- ✓ r P O- 6 V P O C VI_ P vl '6 - '0 tr. 4 0' CI - '0 '0 O d (- '0 6- co co - V C • 00 P 00 O O m v1 O O 01 O O V1 v1 m m V o 0 0 o m n - m y c n n n n n n n n n N O 0 0 0 0 0 0 0 0 O 0 0 0 0 0 0 0 . . NO O C 0' Ot O v1 00 00 Oen - O N n P m m n P O- 3c 00 4 P o N N l< Lei wt V V' - r.i lej 66 Q - rn N P inO 1 0 0 v1 V x O C N N m 6 S n N O P m r v vi 4 n N 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 co0 0 0 0 0 0 0 0 0 . . O 0 0 0 0 0 O 0 0 0 0 O 0 0 0 0 0 0 0 0 0 0 0 0 0 O 0 0 0 0 0 0 0 0 0 0 o m'0'0 o 0 oro h o o 00 '0 a ve o o Dir 6 P 00 0' 0 Y o 0 n P 00 0 [V 00 ('� V O- N.. n of P n C O 6 N N N N N N N N CI N N O 0- N n p 0 0' O N M N p v1 m n O co O- N n m r 00 P q 0 o 0 0 0 0 0 0 0 0 0 0 O 0 0 0 0 0 0 0 0 0 0 0 0 0 0 en en an an an O 0 0 0 0 N N el N el N 1 N N N N N 01 el el el N 01Nel N N N N H 38- 0 N .0 m F Debt Service Requirements Payable From City's Combined System Revenues `OO e T b 00 0. o a. N- 01i M o b N ON 01 e v 0O m r r N r rn r rn rl v M 0 A r•1 T N 00 vl - N' 00 0 0 (1 b- N O, O O N V-- 01 O V N vl N V b W Or 01 T r T V M T r V'0 00 T O N -- N N M y Or Or Or N N ▪ (0 h4 (04 r1 O (0 V N b r b O- N T O 00 vl 00 N N d N N N T 0 r0 rD r0 r0 V1 V V V V ^ N .� - T o T - o V o ^ oV Tr rn1 r O,0r0TONN-V01M-r(1NNv1 NNNNNNNm .o oN V oooV N V- V r1 V V V V a V V V V V<. . oNT. . m .0o ....000000to.0�0X00mrOrTOen en T rTT N O TT .P00T0000TTTO 0WWWt1 0 V V K V< 4 V V V V V V V V V V V V V V V r1 a_ it �O )7 .0 r0 r00bb0 b Obb toOe o 00000000'00 0.0 `' O r N N N N N N r N N N N N O O O O O r r O N ociN O0 - r 000 O r00'0 ^ 00 /rl-a - Vl pV-r- rr- V •0 V n O V Ovty_"4 V _. N0000r 4 (N1 v0i 001 00 o (0 000 b r 00 - 00 00 b r e 00 .r0 b .O .r0 .o .ro .o '0 .00 .O .o .O .O .0 V V 4 vl 0 N N-- 0 00 00-- (0 00 V V V V V 00 00 00 V V V V V V V V V d a r1 r1 (1 r1 rm1 N N N N-- H .O .O .0 0 0 0 •O G G .G .O .� .O 0000000000000000000-00000000, 01000100000000000000 ' 1 ' ' 0d'0� 0O-0000 O 1(- reL ve^0-N .O00WW W-WyOWO 71 v`ey-iroryO TTOi00dNO V 4<4rn mOOVV `n `G 0 . F • o o 0 0 0 0 0 0.0 00m o � o 0 0 0 z�M Ma4MMaa .. o r r r rn r .. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 • O O O O O 0 O 0 0 O O O 0 0 0 0 0 0 0 0 0 O O 0 0y 0 0 , , T T T1 r O O v, y 00 T 01 N_ m V_ 66 66 00 O N O 00 00 O V 0 0 0 0 0-i O. ▪ O O-- N N m m V N vt O r 0G T O- (.1 0-1 - vt W O- V vt vt vt vt vl vt vl vt vt fl vt V1 vt ut .O d O .O b .O O d .0 T r r «0 .0 O 0 0 0 0 O O O O O o O 0 0 0 0 CP 0 0 0 19- cc - of ry � _ e _ '0 (_ Oo 000 0 0 0 o T T r a i cc rn c rn^rn^rn CC m r r r r ^^ 1999:-'99: Z 0 0 0 Cr. N O r T N r Q rn T $ 699.175.032.43 N 0 N 69 $ 163.740.044.00 $6.656.625.00 $ 971.932.00 $150.710.841.67 y (1 K >. r O 0- N 0-1 V vt O r 00 T O- N N N N 'O (0 00 00 0- (4 (1 V vt .O N 00 T N q ✓ C O O O O O O O O O O O O O O O O O O O O O O O 0 0 0 0 0 0 0 0 O 0 9 N N N N N N N y F' • C ON W - 39 - See notes on the following page. UI (41 Is Payable as a maintenance and operating expense of the Water or Combined Utility System. l'ayable as a maintenance and operation expense of the Combined Utility System and extends until 2035 with annual debt service payments between 2029 and 2035 of approximately $6,500,000 through $7,100,000. These payments are included in the $165,631,594. Contingent LNRA Contract expenses that are not reflected in these amounts include: (a) any bonds issued by LNRA to refinance the LNRA Federal Contract or to acquire the Texas Water Development Board's interest in Lake Texana, and (b) expenses of operating and maintaining Lake Texana and the LNRA Facilities payable by the City under the LNRA Contract. Payable as a maintenance and operating expense of the Water Utility System. Payable from Pledged Net Revenues of the Combined Utility System. Contract with the U.S. Department of Interior -Bureau of Reclamation (the "Federal Contract"). Payment of this obligation is subordinate to the Priority Bonds. The payment schedule extends until 2044 with annual payments of $4,995,163 through 2028, $4,208,976 for the year ending 2029, $827,934 from 2030 through 2043 and one payment of $612,475 for 2044. These payments are included in the $121,310,950 total. See "COMBINED UTILITY SYSTEM FINANCIAL INFORMATION - Subordinated Obligations Debt Service Requirements" herein. This schedule does not include any Commercial Paper Notes. On October 18, 1996, the Federal Emergency Drought Relief Act of 1996 became law. The law, in order to provide emergency drought relief, defers all principal and interest payments for Choke Canyon Reservoir Project, without penalty or accrued interest, for a 5 year period beginning with the date of enactment of the Act. A total of$22,833,870 in principal and interest payments were deferred by the law. The City is also authorized to issue revenue bonds for certain purposes. The authorized purposes include the financing of the water system, wastewater disposal system, gas system, solid waste system, transportation system, civic center, airport and parks. Revenue bond indebtedness is not considered in determining the legal debt margin for ad valorem tax supported bonds. INVESTMENT POLICY City Investments Available City funds, including revenues of the City's Combined System, are invested as authorized by Texas law and in accordance with investment policies approved by the City Council. Both State law and the City's investment policies are subject to change. Legal Investments. Under Texas law, the City is authorized to invest in (1) obligations, including letters of credit, of the United States or Its agencies and instrumentalities, (2) direct obligations of the State of Texas or its agencies and instrumentalities, (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States, (4) other obligations, the principal of and interest on which are unconditionally guaranteed or insured by, or backed by the full faith and credit of the State of Texas or the United States or their respective agencies and instrumentalities, (5) obligations of states, agencies, counties, cities, and other political subdivisions or any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent, (6) certificates of deposit meeting the requirements of Chapter 2256, Texas Government Code (the "Public Funds Investment Act") that are issued by or through an institution that either has its main office or a branch office in the State of Texas and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (5) and clause (13) or in any other manner and amount provided by law for City deposits, (7) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1) and deposited at the time the investment is made with the City or with a third party selected and approved by the City, and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (8) bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P -I or the equivalent by at least one nationally recognized credit rating agency, (9) commercial paper that is rated at (east A -I or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an in -evocable letter of credit issued by a U.S. or state bank, (10) no-load money market mutual funds registered with and regulated by the United States Securities and Exchange Commission that have a dollar weighted average portfolio maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of SI for each share, (11) no-load mutual fund registered with the United States Securities and Exchange Commission that: have an average weighted maturity of less than two years; invest exclusively in obligations described in the preceding clauses and clause (13), and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent, (12) public funds - 40 - investment pools that have an advisory board which includes participants in the pool and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent or no lower than investment grade with a weighted average maturity no greater than 90 days, and (13) bonds issued, assumed or guaranteed by the State of Israel. Texas law also permits the City to invest bond proceeds in a guaranteed investment contract subject to the limitations set forth in the Public Funds Investment Act. Entities such as the City may enter into securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (5) and clause (13) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than A or its equivalent or (c) cash invested in obligations described in clauses (1) through (5) and clause (13) above, clause (9) above and clauses (10) and (11) above, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to such investing entity or a third party designated such investing entity; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pool are rated no lower than AAA or AAA, or an equivalent by at least one nationally recognized rating service. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. Investment Policies. Under Texas law, the City is required to invest its funds in accordance under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar -weighted maturity allowed for pool fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each funds' investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under Texas law, City investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At least quarterly the investment officers of the City must submit to the City Council an investment report detailing (1) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority from the City Council. Additional Provisions. Under Texas law, the City is additionally required to (1) annually review its adopted policies and strategies, (2) require any investment officers' with personal business relationships or relative with fines seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council, (3) require the registered principal of firms seeking to sell securities to the City to (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements, (4) perform an annual audit of the management controls on investments and adherence to the City's investment policy, (5) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers, (6) restrict reverse repurchase agreements to not more than 90 days and restrict the investments of reverse -41- repurchase agreement funds to no greater than the term of the reverse repurchase agreement, (7) restrict the investment in non -money market mutual funds of any portion of bond proceeds, reserves and funds held for debt service and to no more than 15% of the entity's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, and (8) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements. City policies require investments in accordance with applicable state law. All investments which are authorized by State statute, with the exception of bankers' acceptances, commercial paper, collateralized mortgage obligations, reverse repurchase agreements, no-load money market mutual funds, no-load mutual funds, and bonds issued, assumed or guaranteed by the State of Israel, are acceptable for investment purposes under the City's Statement of Investment Policy. The City generally invests in obligations of the United States or its agencies and instrumentalities. Under Texas law, the City may contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to provide for the investment and management of its public funds or other funds under its control for a term up to two years, but the City retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the City must do so by order, ordinance or resolution. The City has not contracted with, and has no present intention of contracting with, any such investment management firm or the State Securities Board to provide such services. Current Investments*. As of December 31, 2008, the following percentages by investment type applied to the City's investable funds, which had an aggregate par value of $270,504,812, a market value of $271,381,058 and a book value of $270,504,812. Table 21 City Portfolio Par Value: Money Market $ 6,823,546 Local Government Investment Pool 128,307,227 Bank Certificate of Deposit 10,374,039 U. S. Agencies 125,000,000 Total 5270.594, 122 Market Value Book Value $271,381,058 270,504,812 Market to Book Ratio 100.32% Weighted Average Maturity 107 days Portfolio by Account Type (Par Value) Money Market 2.52% Local Government investment Pool 47.43% Bank Certificate of Deposit 3.84% U.S. Agencies 46.21% Total 100.00% * Unaudited. As of such date, the market value of such investments (as determined by the City by reference to published quotations, dealer bids, and comparable information) was approximately 100% of book value. No funds of the City are invested in derivative securities, i.e., securities whose rate of return is determined by reference to some other instrument, index, or commodity. - 42 - Revenues and Expenses of the City's Combined System; Net Revenues Available for Debt Service; Coverage Ratios Table 22 The following schedule sets forth the revenues and expenses (excluding interest expense on the Priority Bonds) of the City's Combined System on a cash basis for its fiscal years ended July31, 2004, through 2008, determined without regard to depreciation, certain capital outlays and certain accruals. The City's Financial Statements contained in Appendix B are prepared in accordance with generally accepted accounting principles, on an accrual basis, and therefore do not reconcile with the following data. The table also sets forth the extent to which net revenues of the City's Combined System were available for payment of debt service on the Priority Bonds compared against actual average debt service requirements on the Priority Bonds. Combined Utility System Net Revenue Available for Debt Operating Revenues: Water System Wastewater System Gas System Total Operating Revenues Operating Expenses: Water System Wastewater System Gas System Total Operating Expenses Combined Net Operating Revenues Combined Non -Operating Revenue Net Revenue Available for Debt Service Current Debt Service Current Debt Service Coverage Rate Covenant Test: Average Annual Debt Service Average Debt Service Coverage FISCAL YEAR ENDING JULY 31 2004 2005 2006 2007 2008 $ 68,709,704 $ 78,474,456 33,193,541 36,357,928 30 627 086 33 846 439 $ 84,606,452 39,288,543 40 295 857 $ 77,344,002 40,779,842 41 457 307 $ 87,357,168 43,817,922 43 218 322 '.132530331$148.678.823 $164.190.852 $159.581.151 $174.393.412 $ 52,985,820 $ 52,698,485 $ 59,711,075 $ 57,907,398 $ 65,034,152 20,686,128 28,804,444 27,328,525 26,151,190 28,520,554 29,739,450 33,609,859 37 250 191 36 319 859 37 384 379 $103.411.398 5115112,782 5124.289.791 $120.378.447 $130.929085 $ 29,118,933 $ 33,566,034 $ 39.901.061 $ 39,202,705 $ 43,454,327 861 003 1,427,247 5.880.308 8 412 540 9,438,437 29 9. 79.936 34.993.281 45,231,330 47 615,245 52A92.783 $ 25,539,049 $ 29,220,886 $ 33,349,432 $ 39,243,273 $ 40,848,573 - 1.17 1.20 1.37 1.21 1.29 $ 18,892,850 $ 20,866,480 $ 24,807,294 $ 28,737,325 $ 28,064,478 1.59 1.68 1.85 1.66 1.88 City's Management Discussion and Analysis Based On the historical calculation of Net Revenue Available for Debt shown in the above table, total operating revenues between fiscal year 2004 and 2008 increased by $41.9 million, Annual cost of service rate increases of 2%-6% were largely responsible for the increase. The combined non-operating revenue is net of non-operating expenses and is comprised largely of interest earnings on investments. The City's Comprehensive Annual Financial Report for fiscal year 2008 reports Combined Utilities System operating revenues of $174.0 million, operating income of $27.3 million, and income before transfers of $13.4 million with income after transfers of $6.5 million, Compared to the 2007 fiscal year, the Systems operating revenues were up by $14.8 million, the operating income was up by $4.3 million and the net income after transfers was $6.5 million, a decrease of $2.1 million, The major causes of these results were: • Fluctuations in income are largely attributed to weather conditions 2007 was a very wet and overcast year as compared to 2006 when the City had a dry year, 2008 was a more moderate year, - 43 - • Water operating expenses were increased due to personnel and other expenses incurred in response to a boilwater notice issued in August 2007, • The City sold its Wifi network during FY2007, incurring a one-time loss of $2.4 million. During FY2008, the buyer transferred the system back to the City, and this reacquisition was recorded in the internal service fund (Municipal Infonnation Systems) that will maintain the system. [The remainder of this page intentionally left blank.] - 44 - City's Combined System Financial Projections Fiscal Year Ending July 31 2009 2010 2011 2012 Table 23 2013 Estimated Revenues Base Operating Revenue $157,031 $165,289 $173,682 $184,510 $195,941 Other Operating Revenue 39,110 41,273 43,547 45,955 48,481 Non -Operating Revenue 6 447 7 697 7 734 7 768 7 810 Total Estimated Revenues 202588 214259 224963 $238,233 $252,232 Operating Expenses Department Operating Expenses $127,978 $132,652 $138,043 $143,898 $150,055 Interfund Transfers 5,673 5,787 5,902 6,020 6,141 Contract Debt Service 9,664 8,674 8,682 8,684 8,682 Total Operating Expenses $143,315 $ 14713 $152627 $158,602 $164878 Net Revenues Available for Debt Service $ 59,273 $ 67 146 $ 72 336 $ 79.631 $ 87,354 Other Non -Operating Expenses (1) Increase (Decrease) to Appropriable Fund Balance Combined Appropriable for Operations Construction/Capital Outlay Expense Ending Appropriable Fund Balance 5 764 5 439 5 902 6 020 $ 53,509 $ 61,707 $ 66,434 $ 73,611 $ 43,755 $ 42 805 $ 44,401 $ 44.884 3 676 3 781 3 912 4 047 $ 40 079 $ 39 024 $ 40,489 $ 40 837 6 141 $ 81,213 $ 45,485 4187 $ 41 298 Ending Appropriable Fund Balance as a Percent of Operating Expenses 30.5% 29.1% 29.1% 28.3% 27.6% Days of Operating Expense 112 96 95 91 87 Current Debt Service $ 41,240 $ 41,241 $ 36,229 $ 36,072 $ 36,074 New Priority Bonds $ 6,347 $ 12 778 $ 19 598 $ 27,784 $ 35,276 Total Priority Debt Current Debt Service Coverage $ 47,587 $ 54,019 1.25 1.24 $ 55,827 1.30 - $ 63,856 1.25 $ 71,350 1.22 Rate Covenant Test: Average Debt Service $ 36,484 $ 42,301 $ 47,664 $ 53,035 $ 57,474 Average Debt Service Coverage 1.64% 1.59% 1.52% 1.50% 1.52% Water Bill Increases ICL Residential 7,000 gals -25.0 2.7 6.6 5.8 ICL Commercial 50,000 gals -40.0 1.4 3.1 3.0 OCL Large Volume 100,000,000 gals 1.1 30.0 3.5 4.2 Wastewater Rate Increase 9.0% 7.0% 6.0% 7.0% Gas Rate Increase 2.0% 2.0% 2.0% 2.0% Storm water revenue projections01 $22,155,471 $24,738,782 $27,30,648 $29,164,509 Storm water rate increase 11.7% 10.4% 6.8% 11' Prior to fiscal year 2010, Stonn water is supported by Water revenues. - 45 - The foregoing projections are based on a number of assumptions and estimates, including the assumptions described below, all of which the City's Combined System management considers reasonable: • Rate Increases: Wastewater rates and Gas cost -of -service rates are projected to increase as outlined in the schedule. With implementation of the full cost -of -service rate model in FY2008-2009, across-the-board water rate increases are no longer the rule. As costs shift between areas of the system, especially capital project costs, water rates will shift among customer classes, Sample bill increases are included in the schedule above, which assumes that the Storm water utility becomes self-supporting through implementation of a Storm water Fee beginning in FY2010. • Pass-through Charges: Charges are sufficient to cover the cost of water, operating expenses and debt service for both the Lake Texana and Garwood water rights purchase and pipelines as well as an allocable portion of outstanding City's Combined Utility System debt service. • Operating Expenses: Departmental operating expenses include all salaries escalated at 3% per year, electricity escalated at 5%, natural gas purchases at 3%, and all other operating expenses at 3.7% per year. Interfund transfers are expected to increase at 2% per year, and Contract Debt is based on actual payment schedules. • Combined Utility System CIP: Capital Improvement Program projects are funded from a combination of the City's Combined Utility System Revenue Bonds, commercial paper, and pay-as-you-go financing. The projects include the drainage, wastewater, water and gas CIP projects and construction draw schedules from the Adopted FY 2009 Capital Budget and Capital Improvement Planning Guide, plus utility costs associated with Street projects approved in the Bond 2008 election. • Bond Reserve Fund: Reserve Fund for the Bonds funded with bond insurer surety policy (assumed premium of 1.5% of Bond Reserve Fund requirement). Reserve Fund for LNRA Bonds funded from bond proceeds. • Debt Amortization: 30 years for NRA Bonds and all other 20 years. • Bond Interest Rate: Estimated interest rate for future bonds is 5.5%. Realization of the foregoing projections will be dependent upon a number of factors and is subject to certain risks discussed herein. If expenses increase at a faster pace than assumed or if revenues do not increase as assumed, the City could realize substantially less of the Combined Utility System net revenues than projected. Actual revenues could be less than projected if there is less demand for water or gas than anticipated as a result of conservation or reduced growth, or if the City is unable to obtain, transport and treat sufficient water to meet demand, or if the City Council fails to increase utility rates as assumed, among other conditions. Actual expenses could be more than projected if additional environmental regulations are enacted, or costs of materials or labor increase at a greater pace than projected, or unanticipated liabilities payable from Combined Utility System revenue are incurred. Accordingly, there can be no assurance that projected financial results of operations will be realized, and inclusion of such projections herein should not be interpreted as a representation to the contrary. LITIGATION AND REGULATION City Claims and Litigation The City is a defendant in various tort claims and lawsuits involving general liability, automobile liability, and various contractual matters. The status of such litigation ranges from early discovery stage to various levels of appeal of judgments both for and against the City. The City intends to defend vigorously against the lawsuits; including the pursuit of all appeals; however, no prediction can be made as of the date hereof, with respect to the liability of the City for such claims or the outcome of such suits. In the opinion of the City Attorney, it is improbable that the lawsuits now outstanding against the City could become final in a timely manner so as to have a material adverse financial impact upon the City. The City provides the following information related to certain lawsuits impacting the City's Combined System: 1. Nueces County Water Control and Improvement District No. 4 (located in Port Aransas) has filed a petition challenging the City's wholesale water rate. The challenge is based on alleged flaws in the City's rate methodology in calculating its costs of service. The challenge is also based on - 46 - disputes over the application of provisions in the City's wholesale water contract with the district and how a fund set up to pay for future capital improvements for the benefit of the district are handled. The City, and it rate consultant, HDR Engineering, Inc., believes its rate methodology is proper, and is being properly applied to the district. Mediation of the dispute between the City and the district is scheduled. The Texas Commission on Environmental Quality proceedings have been delayed waiting the results of this mediation. 2. San Patricio Municipal Water District and South Texas Water Authority vs. City of Corpus Christi. The case involves a claim by two of the City's wholesale water customers that the City improperly billed the districts for drainage charges in violation of the Texas Municipal Drainage Utility System Act through its water rates. The City has challenged the court's jurisdiction to consider this matter, since it is a water rate appeal within the exclusive jurisdiction of the Texas Commission on Environmental Quality, and is barred by the statute of limitations since it was not filed within the period authorized for water rate appeals. On the date of delivery of the Bonds to the Underwriters, the City will execute and deliver to the Underwriters a certificate to the effect that, except as disclosed herein, no litigation of any nature has been filed or is pending, as of that date, to restrain or enjoin the issuance or delivery of the Bonds or which would affect the provisions made for their payment or security or in any manner question the validity of the Bonds. Environmental Regulations The City is subject to the environmental regulations of the State and the United States in the operation of its water, wastewater, storm water and gas systems. These regulations are subject to change, and the City is required to expend substantial funds to meet the requirements of such regulatory authorities. Safe Drinking Water Act. In August 1996, amendments to the Federal Safe Drinking Water Act were signed into law. These amendments require the United States Environmental Protection Agency ("EPA") to regulate a wide variety of contaminants that may be present in drinking water, including volatile organic chemicals, other synthetic organic chemicals, inorganic chemicals, microbiological contaminants, and radionucleide contaminants. The list of contaminants to be regulated is so lengthy that the amendments require EPA to establish a schedule for developing regulations regarding the contaminants. There are several phases in EPA's regulatory timetables that are to be undertaken over the next few years. The initial impact of the amendments to the water system has been minimal, as the City has been able to comply with regulations promulgated to date. The hill impact is difficult to project at this time, and would be dependent upon what maximum contaminant levels may be set for some future parameters and enhanced surface water treatment rules. Many of these parameters, such as waterborne pathogens, radionucleides and infection by-products contaminants, may require treatment changes that have not as yet been established by the EPA. Continued changes in rules and regulations will continue to cause process modifications, which will increase the cost of the maintenance and operation of the City's drinking water treatment and distribution facilities. These modifications and upgrades will require increased capital expenditures, which may be financed by the issuance of additional revenue bonds. Nueces Estuary Fresh Water Inflow Requirements. When the State granted the City and the Nueces River Authority a right to store and divert State waters in Choke Canyon Reservoir, it included a special provision in the water rights permit requiring that the Choke Canyon/Lake Corpus Christi Reservoir system be operated so as to provide no less than 151,000 acre-feet per year of fresh water inflow to the Nueces Estuary in order to maintain the ecological health of that estuary. This provision was later incorporated into the Certificate of Adjudication No. 21- 3214 for Choke Canyon Reservoir. In 1990, the State issued the first of a series of orders governing the City's reservoir system operations in order to satisfy these fresh water inflow requirements. The effect of these orders, combined with the drought of 1982-1984, was to significantly diminish the firm annual yield of the reservoir system. Under the 1992 Interim Order, reservoir system yield was estimated to be approximately 168,000 acre-feet per year. The City eventually negotiated a new operating plan governing the fresh water inflow requirements, and in May 1995, TCEQ approved an Agreed Order that now provides for a firm annual yield of 181,000 acre-feet per year while satisfying the fresh water inflow needs of the Nueces Estuary. Any future increase in fresh water inflow requirements could reduce the amount of water available for sale by the City's Combined System. The 1995 TCEQ - 47 - Agreed Order was further refined on April 4, 2001, to allow a more automatic transition from inflow requirements within the 1995 TCEQ Agreed Order. These changes will have a positive impact on the system firm yield. See "CITY'S COMBINED UTILITY SYSTEM - Description of City's Water System". Federal and State Regulation of the Wastewater Facilities. The Federal Clean Water Act and the Texas Water Code regulate the Wastewater System's operations. All discharges of pollutants into the nation's navigable waters must comply with the Clean Water Act, The Clean Water Act allows municipal wastewater treatment plants to discharge treated effluent to the extent allowed in permits issued by the EPA pursuant to the National Pollutant Discharge Elimination System NPDES program, a national program established by the Clean Water Act for issuing, revoking, monitoring, and enforcing wastewater discharge permits. The Clean Water Act authorized the EPA to delegate NPDES permit responsibility to state or interstate agencies after certain prerequisites have been met by the relevant agencies. The EPA has delegated its NPDES authority to the TCEQ. The City no longer obtains duplicative wastewater discharge permits from TCEQ and EPA. The Texas Pollution Discharge Elimination System TPDES permits issued by the TCEQ are the only permits required. The TCEQ wastewater discharge permits are issued under authority granted by the Texas Water Code, TPDES permits set limits on the type and quantity of wastewater discharge, in accordance with State and Federal laws and regulations, The Clean Water Act requires municipal wastewater treatment plants to meet secondary treatment effluent limitations as defined in EPA regulations. The Clean Water Act also requires that municipal plants meet any effluent limitations established by State or Federal laws or regulations, which are more stringent than secondary treatment. Under the Clean Water Act, states must identify any bodies of water for which more stringent effluent standards are needed to achieve water quality pollutant standards identified by the EPA. The Clean Water Act allows municipalities to apply for extensions of applicable deadlines for secondary or additional treatment. Status of Discharge Permits for City's Wastewater Treatment Plants. The Oso, Greenwood, Broadway, Laguna Madre, Allison, and Whitecap wastewater treatment plants have been issued TPDES discharge permits by the TCEQ. An occasional upset may cause permit violations, but generally all six plants are in compliance with their respective discharge permits. Potential Penalties for the City's Wastewater System's Violations. The failure by the City to achieve compliance with the Clean Water Act could result in either a private plaintiff or the EPA instituting a civil action for injunctive relief and civil penalties of up to $27,500 per day. In addition, the EPA has the power to issue administrative orders compelling compliance with its regulations and the applicable permits. The EPA can also bring criminal actions for recovery of penalties of up to $50,000 per day for willful or negligent violations of permit conditions or discharge without a permit. Violations of permits or administrative orders may result in the disqualification of a municipality for eligibility for federal assistance to finance capital improvements pursuant to the Clean Water Act. Even though the City is operating under TPDES permits, we will still be liable for penalties from EPA under the Clean Water Act. Under State law, penalties for violation of State wastewater discharge permits or orders of the TCEQ can be a maximum of $10,000 per day per violation. The Executive Director of the TCEQ also has authority to levy administrative penalties of up to $10,000 per day for violation of rules, orders or pennits. Orders resulting from a civil action could require the imposition of additional user or service charges or the issuance of additional bonds to finance the improvements required to ameliorate a condition that niay have caused the violation of a TCEQ permit. On April 16, 2008, the City of Corpus Christi Wastewater Department received an official TCEQ Agreed Order Assessing Administrative Penalties and Requiring Certain Actions as a result of collection system overflows in the Oso and Greenwood WWTP areas. The TCEQ agreed to the administrative penalty assessed in the Agreed Order with the condition that the City shall perform and comply with the Supplemental Environmental Project (SEP) Agreement. The total amount for the SEP was $42,810 payable to Coastal Bend Bays and Estuaries Program, Inc.'s Colonial Waterbird Rookery Island Enhancement Project. On October 8, 2008, the City of Corpus Christi Wastewater Department received an official TCEQ Agreed Order Assessing Administrative Penalties and Requiring Certain Actions as a result of collection system overflows in the City service area. The TCEQ agreed to the administrative penalty assessed in the Agreed Order with the condition that the City shall perform and comply with the Supplemental Environmental Project (SEP) Agreement, The total - 48 - amount for the SEP was $14,544 payable to Coastal Bend Bays and Estuaries Program, Inc.'s Colonial Waterbird Rookery Island Enhancement Project, The City also agreed to continue to give priority to capital improvement projects to help reduce violations in the collection system. LEGAL INVESTMENTS IN TEXAS Section 1201.041 of the Public Securities Procedures Act (Chapter 1201, Texas Government Code) provides that the Bonds are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of municipalities or other political subdivisions or public agencies of the State of Texas. With respect to investment in the Bonds by municipalities or other political subdivisions or public agencies of the State of Texas, the Public Funds Investment Act requires that the Bonds be assigned a rating of at least "A" or its equivalent as to investment quality by a national rating agency. See "RATINGS" herein. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Bonds are legal investments for state banks, savings banks, trust companies with at least $1 million of capital, and savings and loan associations. The Bonds are eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market value. The City has made no investigation of other laws, rules, regulations or investment criteria which might apply to such institutions or entities or which might limit the suitability of the Bonds for any of the foregoing purposes or limit the authority of such institutions or entities to purchase or invest in the Bonds for such purposes. The City has made no review of laws in other states to determine whether the Bonds are legal investments for various institutions in those states. REGISTRATION AND QUALIFICATION OF BONDS FOR SALE The sale of the Bonds has not been registered under the Securities Act of 1933, as amended, in reliance upon exemptions provided in such Act; the Bonds have not been qualified under the Securities Act of Texas in reliance upon exemptions contained therein; nor have the Bonds been qualified under the securities acts of any other jurisdiction. The City assumes no responsibility for qualification of the Bonds under the securities laws of any jurisdiction in which they may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions. RATINGS The Bonds have been rated by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Rating Services, a Division of The McGraw-Hill Companies, Inc. ("S&P"), and Fitch Ratings ("Fitch") "Aa2", "AAA", and "AAA" respectively, based on Assured Guaranty's Financial Guaranty Insurance Policy, and "A2", "A+", and "A+", respectively, without regard to credit enhancement. See "BOND INSURANCE" herein. The underlying, unenhanced revenue debt ratings from Moody's and S&P were reaffirmed in connection with the issuance of the Bonds. The City's underlying, unenhanced revenue debt rating was lowered on March 2, 2009 from "AA-" to "A+" by Fitch. (See CONTINUING DISCLOSURE OF INFORMATION — Compliance With Prior Undertakings" herein.) An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The City fiirnished the rating agencies certain information which is not included in this Official Statement. The rating reflects only the view of such organization at the time such rating was given, and the City makes no representation as to the appropriateness of the rating. There is no assurance that such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by such rating company, if in the sole judgment of such rating company, circumstances so warrant. Any such downward revision or withdrawal of rating may have an adverse effect on the market price of the Bonds. - 49 - TAX MATTERS Opinion The delivery of the Bonds is subject to the opinion of Fulbright & Jaworski L.L.P., Bond Counsel, to the effect that interest on the Bonds for federal income tax purposes (1) is excludable from the gross income, as defined in section 61 of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), of the owners thereof pursuant to section 103 of the Code and existing regulations, published rulings, and court decisions, and (2) will not be included in computing the alternative minimum taxable income of the owners thereof. The statute, regulations, rulings, and court decisions on which such opinion is based are subject to change. A form of Bond Counsel's opinion appears in Appendix D hereto. In rendering the foregoing opinions, Bond Counsel will rely upon representations and certifications of the City made in certificates pertaining to the use, expenditure, and investment of the proceeds of the Bonds and will assume continuing compliance by the City with the provisions of the Ordinance subsequent to the issuance of the Bonds. The Ordinance contains covenants by the City with respect to, among other matters, the use of the proceeds of the Bonds and the facilities financed therewith by persons other than state or local governmental units, the manner in which the proceeds of the Bonds are to be invested, the periodic calculation and payment to the United States Treasury of arbitrage "profits" from the investment of the proceeds, and the reporting of certain information to the United States Treasury. Failure to comply with any of these covenants may cause interest on the Bonds to be includable in the gross income of the owners thereof from the date of the issuance of the Bonds. Except as described above, Bond Counsel will express no other opinion with respect to any other federal, state or local tax consequences under present law, or proposed legislation, resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the City described above. No ruling has been sought from the Internal Revenue Service (the "IRS") with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the IRS. The IRS has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Bonds is commenced, under current procedures the IRS is likely to treat the City as the "taxpayer," and the owners of the Bonds would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the City may have different or conflicting interests from the owners of the Bonds. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit, regardless of its ultimate outcome. Ancillary Tax Consequences Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, property and casualty insurance companies, life insurance companies, certain foreign corporations doing business in the United States, S corporations with subchapter C earnings and profits, owners of an interest in a FASIT (a "financial asset securitization investment trust"), individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Prospective purchasers should consult their own tax advisors as to the applicability of these consequences to their particular circumstances. Tax Accounting Treatment of Discount Bonds The initial public offering price to be paid for certain Bonds may be less than the amount payable on such Bonds at maturity (the "Discount Bonds"). An amount equal to the difference between the initial public offering price of a Discount Bond (assuming that a substantial amount of the Discount Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes original issue discount to the initial purchaser of such Discount Bonds. A portion of such original issue discount, allocable to the holding period of a Discount Bond by the initial purchaser, will be treated as interest for federal income tax purposes, excludable from gross income on the same terms and conditions as those for other interest on the Bonds. Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of a Discount Bond, taking into account the - 50 - semiannual compounding of accrued interest, at the yield to maturity on such Discount Bond and generally will be allocated to an initial purchaser in a different amount from the amount of the payment denominated as interest actually received by the initial purchaser during his taxable year. However, such accrued interest may be required to be taken into account in determining the alternative minimum taxable income of a corporation, for purposes of calculating a corporation's alternative minimum tax imposed by section 55 of the Code, and the amount of the branch profits tax applicable to certain foreign corporations doing business in the United States, even though there will not be a corresponding cash payment. In addition, the accrual of such interest may result in certain other collateral federal income tax consequences to, among others, financial institutions, property and casualty insurance companies, life insurance companies, S corporations with subchapter C earnings and profits, owners of an interest in a FASIT, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. In the event of the sale or other taxable disposition of a Discount Bond prior to maturity, the amount realized by such owner in excess of the basis of such Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Discount Bond was held) is includable in gross income. Owners of Discount Bonds should consult with their own tax advisors with respect to the determination for federal income tax purposes of accrued interest upon disposition of Discount Bonds and with respect to the state and local tax consequences of owning Discount Bonds. It is possible that, under applicable provisions governing determination of state and local income taxes, accrued interest on the Discount Bonds may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment. Tax Accounting Treatment of Premium Bonds The initial public offering price to be paid for certain Bonds may be greater than the stated redemption price on such Bonds at maturity (the "Premium Bonds"). An amount equal to the difference between the initial public offering price of a Premium Bond (assuming that a substantial amount of the Premium Bonds of that maturity are sold to the public at such price) and its stated redemption price at maturity constitutes premium to the initial purchaser of such Premium Bonds. The basis for federal income tax purposes of a Premium Bond in the hands of such initial purchaser must be reduced each year by the amortizable bond premium, although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium with respect to the Premium Bonds. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of a Premium Bond. The amount of premium which is amortizable each year by an initial purchaser is determined by using such purchaser's yield to maturity. Purchasers of the Premium Bonds should consult with their own tax advisors with respect to the determination of amortizable bond premium on Premium Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Premium Bonds. LEGAL PROCEEDINGS The City will furnish a complete transcript of proceedings incident to the authorization and issuance of the Bonds, including the approving legal opinions of the Attorney General of the State of Texas to the effect that the Initial Bonds are valid and binding special obligations of the City, and based upon examination of such transcript of proceedings, the legal opinions of Bond Counsel to the effect that the Bonds issued in compliance with the provisions of the Ordinance are valid and legally binding special obligations of the City and the interest on such Bonds is exempt from federal income taxation under existing statutes, published rulings, regulations, and court decisions (see "TAX MATTERS"). Though it represents the Financial Advisor and the Underwriters from time to time in matters unrelated to the issuance of the Bonds, Bond Counsel has been engaged by and only represents the City in connection with the issuance of the Bonds. Bond Counsel was not requested to participate, and did not take part, in the preparation of the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information describing the Bonds in the Official Statement under the -51- captions "SECURITY FOR THE BONDS," "THE BONDS," "LEGAL INVESTMENTS IN TEXAS," "REGISTRATION AND QUALIFICATION OF BONDS FOR SALE" "TAX MATTERS," "CONTINUING DISCLOSURE OF INFORMATION" (except the subcaption "Compliance with Prior Undertakings" as to which no opinion is expressed), and Appendix A and is of the opinion that the information relating to the Bonds and the Ordinance is a fair and accurate summary of the information purported to be shown therein and is correct as to matters of law. The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent on the sale and delivery of the Bonds. The legal opinion of Bond Counsel will accompany the Bonds deposited with DTC or will be printed on the definitive Bonds in the event of the discontinuance of the Book - Entry -Only System. In connection with the transactions described in the Official Statement, Bond Counsel represents only the City. Certain legal matters relating to the City will be passed upon by the City Attorney of the City of Corpus Christi. Certain legal matters will be passed upon for the Underwriters by the Law Offices of William T. Avila, P.C., Texas. The various legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of the expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction, nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. INDEPENDENT ACCOUNTANTS This Official Statement includes the combined financial statements of the City for the fiscal year ended July 31, 2008. These combined financial statements have been examined by Collier, Johnson & Woods, P.C., Independent Certified Public Accountants, as stated in their report set forth in Exhibit C to this Official Statement. The City has not requested Collier, Johnson & Woods, P.C., to reissue its audited financial statements and Collier, Johnson & Woods, P.C., has not performed any procedures in connection with this Official Statement. FINANCIAL ADVISOR M. E. Allison & Co. Inc. (the "Financial Advisor") is employed by the City as independent financial advisor in connection with the issuance of the Bonds and, in such capacity, has assisted the City in the preparation of documents. The financial advisor's fee for services rendered with respect to the Bonds is contingent upon the sale and delivery of the Bonds. The Financial Advisor has read and participated in the drafting of this Official Statement, but has not independently verified any of the information set forth herein. The Financial Advisor has reviewed the information in this Official Statement in accordance with its responsibilities to the City and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. UNDERWRITING The Frost National Bank, as representative of the Underwriters, has agreed, subject to certain conditions, to purchase the Bonds from the City at the prices indicated on the inside front cover hereof, less an Underwriters' discount of $547,780.80, plus accrued interest on the Bonds from their Dated Date to their date of initial delivery to the Underwriters. The Underwriters' obligation is subject to certain conditions precedent. The Underwriters will be obligated to purchase all of the Bonds if any Bonds are purchased. The Bonds may be offered and sold to certain dealers and others at prices lower than such public offering prices, and such public prices may be changed, from time to time, by the Underwriters. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. NO -LITIGATION CERTIFICATE At the time of delivery of the Bonds, the City will execute and deliver a certificate dated as of the date of delivery to the effect that no litigation has been filed or is then pending to restrain or enjoin the issuance or delivery of the - 52 - Bonds, or which would affect the provisions made for payment of the principal of and interest on the Bonds or in any manner question the validity of the Bonds. GENERAL INFORMATION The descriptions herein do not purport to be complete and all such descriptions or references are qualified in their entirety by reference to the complete form of the Ordinance or other documents or source they summarize. Statements made herein involving estimates or projections, whether or not expressly identified as such, should not be construed to be statements of fact or as representations that such estimates or projections will ever be attained or will approximate actual results. Any summaries or excerpts of constitutional provisions, statutes, ordinances, or other documents do not purport to be complete statements of same and are made subject to all of the provisions thereof. Reference should be made to such original sources in all respects. For additional information with respect to the financial condition of the City, a copy of the July 31, 2008 Comprehensive Annual Financial Report of the City of Corpus Christi, Texas is available upon written request addressed to the Office of the Director of Financial Services, City of Corpus Christi, Corpus Christi, Texas 78469- 9277 or can also be found on the City's website at www.cctexas.com. The Bonds are payable solely from the Pledged Revenues as described herein. The inclusion in the Appendices hereto of financial and other information with respect to other funds, assets or resources of the City is in no way intended to imply that any other revenues or money of the City are pledged to pay the principal of and interest on the Bonds. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance, the City has made the following agreements for the benefit of the holders and beneficial owners of the Bonds. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. Annual Reports The City will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Official Statement ("Financial Information") in Tables 1 through 25 and in Appendix B. The City will update and provide this information within six months after the end of each fiscal year ending in or after 2009. The City will provide the updated information to each nationally recognized municipal securities information repository ("NRMSIR") and to any state information depository ("SID") that is designated by the State of Texas and approved by the staff of the United States Securities and Exchange Commission (the "SEC"). The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12 (the "Rule"). The updated infonnation will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required bine, the City will provide unaudited financial statements by the required time, and will provide audited financial statements when and if the audit report becomes available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix B, the Ordinance or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is July 31. Accordingly, it must provide updated information by January 31 of the following year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify each NRMSIR and any SID of the change. - 53 - Material Event Notices The City will also provide timely notices of certain events to certain information vendors. The City will provide notice of any of the following events with respect to the Bonds, if such event is material to a decision to purchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7) modifications to rights of holders of the Bonds; (8) Bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds; and (11) rating changes. Neither the Bonds nor the Ordinance make any provision for liquidity enhancement. In addition, the City will provide timely notice of any failure by the City to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports". The City will provide each notice described in this paragraph to any SID and to either each NRMSIR or the Municipal Securities Rulemaking Board ("MSRB"). Availability of Information from NRMSIRs and SID The City has agreed to provide the information only to NRMSIRs and the SID. Prior to July 1, 2009, the information will be available to holders of Bonds only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. Effective July 1, 2009, all such information must be filed with the MSRB pursuant to its Electronic Municipal Market Access (EMMA) System, rather than the current NRMSIRs and the SID. The MSRB intends to make the information available to the public without charge and investors will be able to access continuing disclosure information with the MSRB at www.emma.msrb.org. The Municipal Advisory Council of Texas (the "MAC") has been designated by the State of Texas and approved by the SEC staff as a qualified SID. The address of the MAC is 600 West 8th Street, Post Office Box 2177, Austin, Texas 78768-2177, and its telephone number is 512/476-6947. The MAC has also received SEC approval to operate, and has begun to operate, a "central post office" for information filings made by municipal issuers, such as the City. A municipal issuer may submit its information filings with the central post office, which then transmits such information to the NRMSIRs and the appropriate SID for filing. This central post office can be accessed and utilized at www.DisclosureUSA.org ("DisclosureUSA"). The City may utilize DisclosureUSA for the filing of information relating to the Bonds. Limitations and Amendments The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders or registered owners of Bonds may seek a writ of mandamus to compel the City to comply with its agreement. The City may amend its continuing disclosure agreement to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, if the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering described herein in compliance with the Rule and either the holders of a majority in aggregate principal amount of the outstanding Bonds consent or 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 or beneficial owners of the Bonds. If the City amends its agreement, it must include with the next financial infommation and operating data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of infonnation and data provided. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provision of the Rule or a court of final jurisdiction enters judgment that such - 54 - provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Bonds, respectively, in the primary offering of the Bonds. Compliance with Prior Undertakings During the last five years, the City has complied in all material respects with continuing disclosure agreements made by it in accordance with the Rule. On March 2, 2009, Fitch downgraded the City's unenhanced tax revenue debt rating from "AA-" to "A+". On March 5, 2009, the City filed a material event notice disclosing this rating downgrade with the NRMSIRs and SID through DisclosureUSA.com. FORWARD LOOKING STATEMENTS The statements contained in this Official Statement, and in any other information provided by the City, that are not purely historical, are forward-looking statements, including statements regarding the City's expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the City on the date hereof, and the City assumes no obligation to update any such forward-looking statements. It is important to note that the City's actual results could differ materially from those in such forward-looking statements. The forward-looking statements herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement would prove to be accurate. GASB 34 STATEMENT In June 1999, the Governmental Accounting Standards Board ("GASB") issued Statement No. 34, `Basi. Financial Statements - and Management's Discussion and Analysis - for State and Local Governments" ("GASB 34"). The objective of GASB 34 is to enhance the clarity and usefulness of the general-purpose external financial reports of state and local governments to its citizenry, legislature and oversight bodies, and investors and creditors. The City implemented GASB 34 beginning with its fiscal year ending July 31, 2002. While adoption of GASB 34 altered the presentation of the City's financial information, City management believes that the adoption of GASB 34 did not have any material adverse impact on the City's financial position, results of operation, or cash flows. MISCELLANEOUS All information contained in this Official Statement is subject, in all respects, to the complete body of information contained in the original sources thereof and no guaranty, warranty or other representation is made concerning the accuracy or completeness of the information herein. In particular, no opinion or representation is rendered as to whether any projection will approximate actual results, and all opinions, estimates and assumptions, whether or not expressly identified as such, should not be considered statements of fact. No person has been authorized to give any information or to make any representations other than those contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the City. This Official Statement does not constitute an offer to sell or solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer of solicitation. - 55 - AUTHORIZATION OF THE OFFICIAL STATEMENT The Official Statement will be approved as to form and content and the use thereof in the offering of the Bonds will be authorized, ratified and approved by the City Council on the date of sale, and the Underwriters will be furnished, upon request, at the time of payment for and the delivery of the Bonds, a certified copy of such approval, duly executed by the proper officials of the City. The Ordinance will also approve the form and content of this Official Statement, and any addenda, supplement or amendment thereto issued on behalf of the City, and authorize its further use in the reoffering of the Bonds by the Underwriters. This Official Statement has been approved by the City Council of the City for distribution in accordance with the provisions of the United States Securities and Exchange Commission's rule codified at 17 C.F.R. Section 240.15c2-12.. ATTEST: /s/ Armando Chapa City Secretary By: /s/ Henry Garrett - [The remainder of this page intentionally left blank.] - 56 - Mayor APPENDIX A SELECTED PROVISIONS OF THE ORDINANCE The following are excerpts of certain sections of the Ordinance. Reference is hereby made to the Ordinance, which contains a more complete description of the terms and conditions relating to the Bonds. SECTION 7: Definitions. For all purposes of this Ordinance, except as otherwise expressly provided or unless the context otherwise require, the terms defined in this Section have the meanings assigned to them in this Section, and certain terms used in Sections 23, 32, and 34 of this Ordinance have the meanings assigned to them in such respective Sections. (1) The term "Account" shall mean any account created, established and maintained under the terms of any ordinance authorizing the issuance of Priority Bonds. (2) The term "Accountant" shall mean a nationally recognized independent certified public accountant, or an independent firm of certified public accountants. (3) The term "Additional Priority Bonds" shall mean the additional revenue bonds which the City reserves the right to issue in the future on a parity with the Previously Issued Priority Bonds and the Bonds, as provided in the Base Ordinance and this Ordinance. (4) The term "Amortization Installment" shall mean the amount of money which is required to be deposited into the Mandatory Redemption Account for retirement of Term Bonds (whether at maturity or by mandatory redemption and including redemption premium, if any). (5) The term "Attorney General" shall mean the Office of the Attorney General of the State of Texas. (6) The term "Authorized Denomination" shall have the meaning given such term in Section 3 of this Ordinance. (7) The term "Average Annual Principal and Interest Requirements" shall mean that amount equal to the average annual principal and interest requirements (including Amortization Installments) of all Priority Bonds Outstanding. With respect to Additional Priority Bonds that bear interest at a rate which is not established at the time of issuance at a single numerical rate for each maturity of such series, Average Annual Principal and Interest Requirements shall be calculated by (i) assuming that the interest rate for every 12 -month period on such bonds is equal to 9.20% or (ii) using the highest numerical rate borne over the preceding 24 month period by such bonds, whichever is greater; provided, however, that if such bonds have not borne interest at a variable rate for such 24 month period, such rate shall be assumed to be 9.20% until such time as bonds have been Outstanding for a 24 month period. In making such determinations, it shall be assumed that the principal of such bonds is amortized such that annual debt service is substantially level over the remaining stated life of such bonds. (8) The tern "Base Ordinance" shall mean the ordinance authorizing the issuance of the Series 1990 Bonds. (9) The term "Bonds" shall have the meaning given such term in Section 1 of this Ordinance. (10) The tenn "Capital Additions" shall mean a reservoir or other water storage facilities, a wastewater treatment plant or an interest therein, a gas distribution system or an interest therein and associated transmission facilities with respect to each and any combination thereof, which shall become a part of the System. (11) The term "Capital Improvements" shall mean any capital extensions, improvements and betterments to the System other than Capital Additions. (12) The term "Capitalized Interest Account" shall mean the Account by that name which may be created within the Debt Service Fund. A-1 (13) The terms "City" and "Issuer" shall have the meaning given such terms in the preamble of this Ordinance. (14) The term "Closing Date" shall mean the date of physical delivery of the Initial Bonds in exchange for the payment in full by the Purchasers. (15) The term "Comptroller of Public Accounts" shall mean the Office of the Comptroller of Public Accounts of the State of Texas. (16) The term "Construction Fund" shall mean the fund so designated in Section 13 of this Ordinance. (17) The term "Credit Facility" shall mean a policy of municipal bond insurance, a debt service reserve fund policy or surety bond or a letter or line of credit issued by a Credit Facility Provider in support of any Priority Bonds or Subordinated Obligations. (18) The term "Credit Facility Provider" shall mean (i) with respect to any Credit Facility consisting of a policy of municipal bond insurance or a surety bond, an issuer of policies of insurance insuring the timely payment of debt service on governmental obligations such as the Priority Bonds, provided that a Rating Agency having an outstanding rating on the Priority Bonds would rate the Priority Bonds fully insured by a standard policy issued by the issuer in its highest generic rating category for such obligations; and (ii) with respect to any Credit Facility consisting of a letter or line of credit, any financial institution, provided that a Rating Agency having an outstanding rating on the Priority Bonds would rate the Priority Bonds in its two highest generic rating categories for such obligations if the letter or line of credit proposed to be issued by such financial institution secured the timely payment of the entire principal amount of the series of Priority Bonds and the interest thereon. (19) The term "Debt Service Fund" shall have the meaning given such tern in Section 10 of this Ordinance. (20) The tern "DTC" shall have the meaning given such term in Section 5 to this Ordinance. (21) The tern "Eligible Investments" shall mean those investments in which the City is authorized by law, including, but not limited to, the Public Funds Investment Act of 1987 (Chapter 2256, as amended, Texas Government Code), to purchase, sell and invest its funds and funds under its control, and with respect to the investment of proceeds of any Priority Bonds, guaranteed investment contracts fully collateralized by Government Obligations. (22) The term "Engineer of Record" shall mean the independent engineer or firm at the time employed by the City to perform and carry out the duties imposed on such engineer or firm by this Ordinance and having a favorable reputation nationally for skill and experience in the engineering of water, sanitary sewer and/or gas systems of comparable size and character as those forming parts of the System. (23) The term "Fund" shall mean any fund created, established and maintained under the terms of any ordinance authorizing the issuance of Priority Bonds. (24) The term "Government Obligations" shall mean (i) with respect to any Previously Issued Priority Bonds, direct obligations of the United States of America, including obligations the principal of and interest on which are unconditionally guaranteed by the United States of America and (ii) with respect to the Bonds and any Additional Priority Bonds hereafter issued by the City, (1) direct noncallable obligations of the United States, including obligations that are unconditionally guaranteed by, the United States of America, or (2) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the issuer adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent, or (3) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the issuer adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally rccognized investment rating firm not less than "AAA" or its equivalent; A-2 provided, however, that in the event the term "Government Obligations" shall be used in such a manner other than with respect to the defeasance of Priority Bonds pursuant to Section 18 of this Ordinance, its meaning shall be consistent with that specified in clause (i) above until such time as there are no longer Outstanding any Previously Issued Priority Bonds and, thereafter, it shall have the meaning ascribed thereto in clause (ii). (25) The tern "Gross Revenues" shall mean all revenues, income, and receipts derived or received by the City from the operation and ownership of the System, including the interest income from the investment or deposit of money in any Fund created or confirmed by this Ordinance or maintained by the City in connection with the System, other than those amounts subject to payment to the United States of America as rebate pursuant to section 148 of the Code. (26) The term "Insurer" shall mean Assured Guaranty Corp. (27) The term "Policy" shall mean the financial guaranty insurance policy relating to the Bonds issued by the Insurer. (28) The term "Mandatory Redemption Account" shall mean the Account by that name within the Debt Service Fund and established, if at all, by an ordinance authorizing the issuance of Priority Bonds. (29) The terms "Net Revenues of the System" and "Net Revenues" shall mean all Gross Revenues less Operating Expenses. (30) The term "Operating Expenses" shall mean the expenses of operation and maintenance of the System, including all salaries, labor, materials, repairs, and extensions necessary to render efficient service; provided, however, that only such repairs and extensions, as in the judgment of the City, reasonably and fairly exercised by the passage of appropriate ordinances, are necessary to render adequate service, or such as might be necessary to meet some physical accident or condition which would otherwise impair any Priority Bonds. Operating Expenses shall include the purchase of water, sewer and gas services as received from other entities and the expenses related thereto, and, to the extent permitted by law, Operating Expenses may include payments made on or in respect of obtaining and maintaining any Credit Facility. Depreciation, and payments from the System Fund to other funds established in this Ordinance, shall never be considered as expenses of operation and maintenance. (31) - The term "Outstanding" shall mean, as of the date of determination,' all Priority Bonds theretofore issued and delivered except: (a) those Priority Bonds theretofore canceled by the respective paying agents for such Priority Bonds or delivered to such paying agents for cancellation; (b) those Priority Bonds for which payment has been duly provided by the City by the irrevocable deposit with the respective paying agents for such Priority Bonds of money in the amount necessary to fully pay principal of, premium, if any, and interest thereon to maturity or redemption, if any, as the case may be, provided that, if such Priority Bonds are to be redeemed, notice of redemption thereof shall have been duly given pursuant to the ordinance authorizing the issuance of such Priority Bonds, irrevocably provided to be given to the satisfaction of such paying agents, or waived; (c) those Priority Bonds that have been mutilated, destroyed, lost, or stolen and for which replacement bonds have been registered and delivered in lieu thereof; and (d) those Priority Bonds for which the payment of principal thereof, premium, if any, and interest thereon to Stated Maturity re redemption has been duly provided for by the City by the deposit in trust of money or Government Obligations, or both. (32) The term "Paying Agent/Registrar" shall mean the financial institution specified in Section 5(a) of this Ordinance, or its herein -permitted successors and assigns. (33) The tern "Pledged Revenues" shall mean A-3 (a) the Net Revenues, plus (b) any additional revenues, income, receipts, or other resources, including, without limitation, any grants, donations, or income received or to be received from the United States Government, or any other public or private source, whether pursuant to an agreement or otherwise, which hereafter are pledged to the payment of the Priority Bonds. (34) The term "Previously Issued Priority Bonds" shall have the meaning given said term in the preamble to this Ordinance. (35) The term "Priority Bonds" shall mean the Previously Issued Priority Bonds, the Bonds, and any Additional Priority Bonds. (36) The term "Prudent Utility Practice" shall mean any of the practices, methods and acts, in the exercise of reasonable judgment, in the light of the facts, including but not limited to the practices, methods and acts engaged in or approved by a significant portion of the public utility industry prior thereto, known at the time the decision was made, would have been expected to accomplish the desired result at the lowest reasonable cost consistent with reliability, safety and expedition. It is recognized that Prudent Utility Practice is not intended to be limited to the optimum practice, method or act at the exclusion of all others, but rather is a spectrum of possible practices, methods or acts which could have been expected to accomplish the desired result at the lowest reasonable cost consistent with reliability, safety and expedition. In the case of any facility included in the System which is owned in common with one or more other entities, the term "Prudent Utility Practice", as applied to such facility, shall have the meaning set forth in the agreement governing the operation of such facility. (37) The term "Purchase Contract" shall have the meaning given such term in Section 2 of this Ordinance; (38) The tenn "Purchasers" shall have the meaning given such term in Section 2 of this Ordinance. (39) The term "Rating Agency" shall mean any nationally recognized securities rating agency which has assigned a rating to the Priority Bonds. (40) The tenn "Required Amount" shall have the meaning given such tern in Section 11 of this Ordinance. (41) The term "Reserve Fund" shall have the meaning given such term in Section 11 of this Ordinance. (42) The term "Reserve Fund Obligations" shall mean cash, Eligible Investments, any Credit Facility, or any combination of the foregoing. (43) The term "Series 1990 Bonds" shall mean the $64,660,000 City of Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 1990, authorized by the ordinance adopted by the City on November 15, 1990; the term "Series 1999 Bonds" shall mean the $47,740,000 City of Corpus Christi, Texas Utility System Revenue Refunding and Improvement Bonds Series 1999, authorized by the ordinance adopted by the City on May 11, 1999; the term "Series 1999-A Bonds" shall mean the $15,750,000 City of Corpus Christi, Texas Utility System Revenue Refunding and Improvement Bonds, Series 1999-A, authorized by the ordinance adopted by the City on April 20, 1999; the term "Series 2000 Bonds" shall mean the $34,740,000 City of Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 2000, authorized by the ordinance adopted by the City on May 11, 1999 (as amended by ordinance adopted on June 15, 1999); the tenn "Series 2000-A Bonds" shall mean the $42,520,000 City of Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 2000-A, authorized by the ordinance adopted by the City on September 19, 2000; the term "Series 2002 Bonds" shall mean the $92,330,000 City of Corpus Christi, Texas Utility System Revenue Refunding and hnprovement Bonds, Series 2002, authorized by the ordinance adopted by the City on August 20, 2002; the terns "Series 2003 Bonds" shall mean the $28,870,000 City of Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 2003, authorized by the ordinance adopted by the City on March 25, 2003; the term "Series 2004 Bonds" shall mean the $50,000,000 City of Corpus Christi, Texas Utility System Revenue Refunding A-4 and Improvement Bonds, Series 2004, authorized by the ordinance adopted by the City on July 13, 2004; the term "Series 2005 Bonds" shall mean the $70,390,000 City of Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 2005, authorized by the ordinance adopted by the City on December 21, 2004; the tenni "Series 2005A Bonds" shall mean the $68,325,000 City of Corpus Christi, Texas Utility System Revenue Refunding Bonds, Series 2005A, authorized by the ordinance adopted by the City on August 30, 2005; and the term "Series 2006 Bonds" shall mean the $84,415,000 City of Corpus Christi, Texas Utility System Revenue Refunding and Improvement Bonds, Series 2006, authorized by the ordinance adopted by the City on September 26, 2006. (44) The term "Subordinated Obligations" shall mean any bonds, notes, or other obligations issued pursuant to law payable in whole or in part from the Pledged Revenues but subordinate to the Priority Bonds, which includes the Series B Commercial Paper Notes. (45) The tern "System" shall mean and include the City's existing combined waterworks system, wastewater disposal system and gas system, together with all future extensions, improvements, enlargements, and additions thereto, including, to the extent permitted by law, storm sewer and drainage within the waterworks system, and all replacements thereof; provided that, notwithstanding the foregoing, and to the extent now or hereafter authorized or permitted by law, the term System shall not include any waterworks, wastewater or gas facilities which are declared by the City not to be a part of the System and which are hereafter acquired or constructed by the City with the proceeds from the issuance of "Special Facilities Bonds", which are hereby defined as being special revenue obligations of the City which are not secured by or payable from the Pledged Revenues, but which are secured by and payable solely from special contract revenues, or payments received from the City or any other legal entity, or any combination thereof, in connection with such facilities; and such revenues or payments shall not be considered as or constitute Gross Revenues of the System, unless and to the extent otherwise provided in the ordinance or ordinances authorizing the issuance of such "Special Facilities Bonds". (46) The term "System Fund" shall have the meaning given such term in Section 9 of this Ordinance. (47) The term "Term Bonds" shall have the meaning given such term in Section 3 of this Ordinance. (48) The tern "Value of Investment Securities" and words of like import shall mean the amortized value thereof; provided, however, that all United States of America, United States Treasury Obligations -- State and Local Govemment Series shall be valued at par and those obligations which are redeemable at the option of the holder shall be valued at the price at which such obligations are then redeemable. The computations made under this paragraph shall include accrued interest on the investment securities paid as a part of the purchase price thereof and not collected. For the purposes of this definition, "amortized value", when used with respect to a security purchased at par, means the purchase price of such security. (49) The tem "Year" shall mean the regular fiscal year used by the City in connection with the operation of the System, which may be any twelve consecutive months period established by the City, currently being the period of time beginning on August 1 and ending on July 31. SECTION 8: Pledge. A. Pledged Revenues. The Priority Bonds are and shall be secured by and payable from a first lien on and pledge of the Pledged Revenues including such revenues within the System Fund and the Funds hereinafter created in this Ordinance; and the Pledged Revenues arc further pledged to the establishment and maintenance of the Debt Service Fund and the Reserve Fund as hereinafter provided. The Priority Bonds are and will be secured by and payable only from the Pledged Revenues, and are not secured by or payable from a mortgage or deed of tnist on any properties, whether real, personal, or mixed, constituting the System. B. Security Interest. Chapter 1208, as amended, Texas Government Code, applies to the issuance of the Bonds and the pledge of the Pledged Revenues granted by the City under Subsection A of this Section, and such pledge is therefore valid, effective, and perfected. If Texas law is amended at any time while the Bonds are Outstanding and unpaid such that the pledge of the Pledged Revenues granted by the City is to be subject to the filing requirements of Chapter 9, as amended, Texas Business & Commerce Code, then in order to preserve to the registered owners of the Bonds the perfection of the security interest in said pledge, the City agrees to take such A-5 measures as it determines are reasonable and necessary under Texas law to comply with the applicable provisions of Chapter 9, as amended, Texas Business & Commerce Code and enable a filing to perfect the security interest in said pledge to occur. SECTION 9: System Fund. There has heretofore been created and established and there shall be maintained on the books of the City, and accounted for separate and apart from all other funds of the City, a special fund entitled the "City of Corpus Christi Utility System Fund" (the "System Fund"). All Gross Revenues shall be credited to the System Fund immediately upon receipt. All Operating Expenses shall be paid from such Gross Revenues credited to the System Fund as a first charge against same. SECTION 10: Debt Service Fund. A. Debt Service Fund Established. For the sole purpose of paying the principal amount of, premium, if any, Amortization Installments, if any, and interest on all Priority Bonds, there has heretofore been created and established and there shall be maintained on the books of the City a separate fund entitled the "City of Corpus Christi Utility System Revenue Bonds Debt Service Fund" (the "Debt Service Fund"). Money in the Debt Service Fund shall be deposited and maintained in an official depository bank of the City. B. Capitalized Interest Account. Within the Debt Service Fund there may hereafter be established a Capitalized Interest Account. The proceeds of Priority Bonds representing capitalized interest may be deposited into the Capitalized Interest Account. On or before the day next preceding any interest payment date of Priority Bonds or other obligations for which any interest has been capitalized, the City shall use the money in the Capitalized Interest Account to pay such interest on such Priority Bonds or other obligations to the extent of the amounts therein representing such capitalized interest. C. Mandatory Redemption Account. Within the Debt Service Fund there has heretofore been established the Mandatory Redemption Account. Amortization Installments shall be deposited to the credit of the Mandatory Redemption Account and be used to retire the principal amount of Term Bonds in the manner described in any ordinance, including this Ordinance, authorizing the issuance of Term Bonds. D. Surplus Proceeds. Effective at such time as the Previously Issued Priority Bonds are no longer Outstanding, the City may transfer excess amounts held in the Debt Service Fund to any fund or funds established for the payment of or security for the Priority Bonds (including any escrow established for the final payment of any such obligations pursuant to Chapter 1207, as amended, Texas Government Code) or use such excess amount for any lawful purpose now or hereafter provided by law; provided, however, to the extent that such excess amount represents bond proceeds, then such amount must remain in the Debt Service Fund. SECTION 11: Reserve Fund. A. Reserve Fund Established. There has heretofore been created and established and there shall be maintained on the books of the City a separate fund entitled the "City of Corpus Christi Utility System Revenue Bonds Reserve Fund" (the "Reserve Fund"). There shall be deposited into the Reserve Fund any Reserve Fund Obligations so designated by the City. Reserve Fund Obligations in the Reserve Fund shall be deposited and maintained in an official depository bank of the City. Reserve Fund Obligations in the Reserve Fund shall be used solely for the purpose of retiring the last of any Priority Bonds as they become due or paying principal of and interest on any Priority Bonds when and to the extent the amounts in the Debt Service Fund are insufficient for such purpose. The Reserve Fund shall be maintained in an amount equal to the Average Annual Principal and Interest Requirements of the Outstanding Priority Bonds (the "Required Amount"). The City may, at its option, withdraw and transfer to the System Fund, all surplus in the Reserve Fund over the Required Amount. B. Credit Facility. The City may replace or substitute a Credit Facility for cash or Eligible Investments on deposit in the Reserve Fund or in substitution for or replacement of any existing Credit Facility. Upon such replacement or substitution, cash or Eligible Investments on deposit in the Reserve Fund which, taken together with the face amount of any existing Credit Facilities, are in excess of the Required Amount may be withdrawn by the City, at its option, and transferred to the System Fund; provided, however, that the face amount of any Credit Facility may be reduced at the option of the City in lieu of such transfer. A-6 C. Withdrawals. If the City is required to make a withdrawal from the Reserve Fund for any of the purposes described in this Section, the City shall promptly notify any applicable Credit Facility Provider of the necessity for a withdrawal from the Reserve Fund for any such purposes, and shall make such withdrawal FIRST from available money or Eligible Investments then on deposit in the Reserve Fund, and NEXT from a drawing under any Credit Facility to the extent of such deficiency. D. Deficiencies. In the event of a deficiency in the Reserve Fund, or in the event that on the date of termination or expiration of any Credit Facility there is not on deposit in the Reserve Fund sufficient Reserve Fund Obligations, all in an aggregate amount at least equal to the Required Amount, then the City shall satisfy the Required Amount by depositing Reserve Fund Obligations into the Reserve Fund in monthly installments of not less than 1/60 of the Required Amount made on or before the 10th day of each month following such termination or expiration. E. Redemption; Defeasance. In the event of the redemption or defeasance of any Priority Bonds, any Reserve Fund Obligations on deposit in the Reserve Fund in excess of the Required Amount may be withdrawn and transferred, at the option of the City, to the System Fund, as a result of (i) the redemption of any Priority Bonds, or 01) funds for the payment of any Priority Bonds having been deposited irrevocably with the paying agent or place of payment therefor in the manner described in any ordinance authorizing the issuance of Priority Bonds, the result of such deposit being that such Priority Bonds no longer are deemed to be Outstanding under the terms of any such ordinance. F. Reitnbursement of Credit Facility Provider. In the event there is a draw upon a Credit Facility, the City shall reimburse the Credit Facility Provider for such draw, in accordance with the terms of any agreement pursuant to which the Credit Facility is issued, from Pledged Revenues; provided, however, such reimbursement from Pledged Revenues shall be subordinate and junior in right of payment to the payment of principal of and premium, if any, and interest on the Priority Bonds. G. Additional Priority Bonds. Upon the issuance of Additional Priority Bonds the money in the Reserve Fund shall be increased to the newly -established Required Amount in accordance with the provisions of Section 20B of this Ordinance. SECTION 12: Subordinated Obligations Funds and Accounts. The City hereafter may create, establish and maintain on the books of the City separate funds and accounts from which money can be withdrawn to pay the principal of and interest on Subordinated Obligations which hereafter may be issued. SECTION 13: Construction Fund. The City hereby creates and establishes and shall maintain on the books of the City a separate fund to be entitled the "Series 2009 Utility System Revenue Bonds Construction Fund" (the "Construction Fund") for use by the City for payment of all lawful costs associated with the acquisition, improvement and extension of the System as hereinbefore provided. There shall be deposited to the Construction Fund those proceeds from the sale of the Bonds specified in Section 28 of this Ordinance. Upon payment of all such costs, any money remaining on deposit in said Fund shall be transferred to the Debt Service Fund. Amounts so deposited to the Debt Service Fund shall be used in the manner described in Subsection 22P of this Ordinance. SECTION 14: Investments. Money in any Fund established pursuant to this Ordinance may, at the option of the City, be placed or invested in Eligible Investments. Money in the Reserve Fund shall not be invested in securities with an average aggregate weighted maturity of greater than seven years. If stoney in a Fund herein established are permitted to be invested, the value of any such Fund shall be established by adding the money therein to the Value of Investment Securities. The value of each such Fund shall be established annually during the last month of each Year, and in addition thereto and with respect to the Reserve Fund, value shall be established within thirty days prior to the issuance of Priority Bonds and at the time or tines withdrawals are made therefrom. Such investments shall be sold promptly when necessary to prevent any default in connection with the Priority Bonds. Earnings derived from the investment of money on deposit in the various Funds and Accounts created hereunder shall be credited to the Fund or Account from which money used to acquire such investment shall have come. SECTION 15: Funds Secured. Money in the System Fund and all Funds created by this Ordinance, to the extent not invested, shall be secured in the manner prescribed by law for securing funds of the City. A-7 SECTION 16: Flow Of Funds. All money in the System Fund not required for paying Operating Expenses during each month shall be applied by the City, on or before the 10th day of the following month, commencing during the months and in the order of priority with respect to the Funds and Accounts that such applications are hereinafter set forth in this Section. A. Debt Service Fund. To the credit of the Debt Service Fund, in the following order of priority, to -wit: (1) such amounts, deposited in approximately equal monthly installments, commencing during the month in which the Priority Bonds are delivered, or the month thereafter if delivery is made after the 10th day thereof, as will be sufficient, together with other amounts, if any, in the Debt Service Fund available for such purpose (including specifically money on deposit in the Capitalized Interest Account, if any, dedicated thereto), to pay the interest scheduled to come due on Priority Bonds on the next succeeding interest payment date; (2) such amounts, deposited in approximately equal monthly installments, commencing during the month which shall be the later to occur of (i) the twelfth month before the first maturity date of Priority Bonds or (ii) the month in which Priority Bonds are delivered, or the month thereafter if delivery is made after the 10th day thereof, as will be sufficient, together with other amounts, if any, in the Debt Service Fund available for such purpose, to pay the principal scheduled to mature on Priority Bonds on the next succeeding principal payment date; and (3) Amortization Installments, in such amounts and on such dates as set forth in any ordinance authorizing a series of Priority Bonds which contain Term Bonds within such series, to pay scheduled principal amounts of Priority Bonds which constitute Term Bonds to be redeemed in accordance with the terms of said ordinance. B. Reserve Fund. To the credit of the Reserve Fund, such amounts, deposited in approximately equal monthly installments, commencing during the month in which the Priority Bonds are delivered, or the month thereafter if delivery is made after the 10th day thereof, equal to not less than 1/60 of the Required Amount, until such time as such amounts together with other amounts, if any, in the Reserve Fund, equal the Required Amount. When and so long as the Reserve Fund Obligations in the Reserve Fund are not less than the Required Amount, no deposits need be made to the credit of the Reserve Fund. When and if the Reserve Fund at any time contains less than the Required Amount due to any cause or condition other than the issuance of Additional Priority Bonds then, subject and subordinate to making the required deposits to the credit of the Debt Service Fund, commencing with the month during which such deficiency occurs, such deficiency shall be made up from the next available Pledged Revenues or from any other sources available for such purpose. Reimbursements to a Credit Facility Provider made in accordance with the terms of Subsection 11F of this Ordinance shall constitute the making up of a deficiency to the extent that such reimbursements result in the reinstatement, in whole or in part, as the case may be, of the amount of the Credit Facility. If the Reserve Fund contains less than the Required Amount due to the issuance of Additional Priority Bonds, deposits shall be made to the Reserve Fund commencing during the month and in the amounts required by Subsection 20B of this Ordinance, unless a Credit Facility is deposited in the Reserve Fund in an amount necessary to cause the sum of money and the value of Investment Securities and any other Credit Facilities in the Reserve Fund to equal the Required Amount. C. Surplus. The balance of any money remaining in the System Fund following such transfers may be used by the City for payment of other obligations of the System, including, but not limited to, Subordinated Obligations, and for any other lawful purpose; provided, however, that transfers made for purposes other than for payment of obligations of the System shall be made only at the end of the Year. SECTION 17: Deficiencies. If on any occasion there shall not be sufficient Pledged Revenues to make the deposits and other applications of money required by Section 16 with respect to the various Funds as provided therein, any such deficiencies shall be made up (in the order that each such Fund is provided for in Section 16) as soon as possible from the next available Pledged Revenues, or from any other sources available for such purpose. The foregoing notwithstanding, however, if any deficiency in the Reserve Fund occurs as a result of withdrawals therefrom or decreases in the market value of Eligible Investments on deposit therein, such deficiency will be made up from the next available Pledged Revenues within twelve months from the date of such deficiency is determined, with such deposits to the Reserve Fund to be made in not more than twelve substantially equal monthly payments. A-8 SECTION 18: Payment of Bonds. On or before the first scheduled interest payment date, and on or before each interest payment date and principal payment date thereafter while any of the Priority Bonds are Outstanding and unpaid, the City shall make available to the paying agent therefor, out of the Debt Service Fund (and the other Funds, if necessary, in the order of priority set forth herein) money sufficient to pay such interest on and such principal amount of the Priority Bonds, as shall become due and mature on such dates, respectively, at maturity or by redemption prior to maturity. The bond registrar for each series of Priority Bonds shall destroy all paid Priority Bonds and furnish the City with an appropriate certificate of cancellation or destruction. SECTION 19: Final Deposits; Government Obligations. A. Defeasance. Any Priority Bond shall be deemed to be paid, retired and no longer Outstanding within the meaning of this Ordinance when payment of the principal amount of, redemption premium, if any, on such Priority Bond, plus interest thereon to the due date thereof (whether such due date be by reason of maturity, upon redemption, or otherwise) either (i) shall have been made in accordance with the terms thereof or (ii) shall have been provided for by irrevocably depositing with, or making available to, a paying agent (or escrow agent) therefor, in trust and irrevocably set aside exclusively for such payment, in accordance with the terms and conditions of an agreement between the City and said paying agent (or escrow agent), (1) money sufficient to make such payment or (2) Government Obligations, certified by an independent public accounting firm of national reputation, to mature as to principal and interest in such amounts and at such times as will insure the availability, without reinvestment, of sufficient money to make such payment, and all necessary and proper fees, compensation, and expenses of such paying agent pertaining to the Priority Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for (and irrevocable instructions shall have been given by the City to the paying agent of such bonds to give notice of such redemption in the manner required by the ordinance or ordinances authorizing the issuance of such bonds) to the satisfaction of such paying agent. Such paying agent shall give notice to each registered owner of any Priority Bond that such deposit as described above has been made, in the same manner as described in Section 3B of this Ordinance. In addition, in connection with a defeasance, such paying agent shall give notice of redemption, if necessary, to the registered owners of any Priority Bonds in the manner described in such Priority Bonds and as directed in the redemption instructions delivered by the City to such paying agent. At such time as a Priority Bond shall be deemed to be paid hereunder, as aforesaid, it shall no longer be secured by or entitled to the benefit of this Ordinance or a lien on and pledge of the Pledged Revenues, and shall be entitled to payment solely from such money or Government Obligations. Notwithstanding any other provision of this Ordinance to the contrary, it is hereby provided that any determination not to redeem defeased Bonds that is made in conjunction with the payment arrangements specified in subsection (i) or (ii) above shall not be irrevocable, provided that: (1) in the proceedings providing for such defeasance, the City expressly reserves the right to call the defeased Bonds for redemption; (2) gives notice of the reservation of that right to the owners of the defeased Bonds immediately following the defeasance; (3) directs that notice of the reservation be included in any redemption notices that it authorizes; and (4) at the time of the redemption, satisfies the conditions of (i) or (ii) above with respect to such defeased debt as though it was being defeased at the time of the exercise of the option to redeem the defeased Bonds, after taking the redemption into account in determining the sufficiency of the provisions made for the payment of the defeased Bonds. B. Government Obligations. Any money so deposited with a paying agent (or escrow agent) may, at the direction of the City, also be invested in Government Obligations, maturing in the amounts and times as hereinbefore set forth, and all income from all Government Obligations in the hands of the paying agent (or escrow agent) pursuant to this Section which is not required for the payment of the principal of such Priority Bonds, the redemption premium, if any, therefor, and interest thereon, with respect to which such money has been so deposited, shall be remitted to the City for deposit into the System Fund. C. Payment of Priority Bonds. Except as provided in Subsection B of this Section, all money or Government Obligations set aside and held in trust pursuant to the provisions of this Section for the payment of the principal of such Priority Bonds, the redemption premium, if any, therefor, and interest thereon, shall be applied solely to and used solely for the payment of such Priority Bonds, such redemption premium, if any, and interest thereon. SECTION 20: Issuance of Additional Priority Bonds. A-9 A. Reservation of Right to Issue Additional Priority Bonds. Subject to the provisions hereinafter appearing as conditions precedent which must first be satisfied, the City reserves the right to issue, from time to time as needed, Additional Priority Bonds for any lawful purpose relating to the System. Such Additional Priority Bonds may be issued in such form and manner as now or hereafter authorized by the laws of the State of Texas for the issuance of evidences of indebtedness or other instruments, and should new methods or financing techniques be developed that differ from those now available and in normal use, the City reserves the right to employ the same in its financing arrangements provided only that the same conditions precedent herein required for the authorization and issuance of Additional Priority Bonds are satisfied. B. Debt Service Fund and Reserve Fund; Funding Reserve Fund. The Debt Service Fund and the Reserve Fund confirmed by this Ordinance shall secure and be used to pay all Additional Priority Bonds hereafter issued. Upon the issuance and delivery of Additional Priority Bonds, the additional amount required to be deposited in the Reserve Fund shall be so accumulated by the deposit in the Reserve Fund of all or any part of said required additional amount in cash immediately after the delivery of such Additional Priority Bonds, or, at the option of the City, (i) by the deposit of said required additional amount (or any balance of said required additional amount not deposited in cash as permitted above) in approximately equal monthly installments, made on or before the 10th day of each month following the delivery of such Additional Priority Bonds, of not less than 1/60th of said required additional amount (or 1/60th of the balance of said required additional amount not deposited in cash as permitted above) or (ii) by the deposit of a Credit Facility which, in whole or in combination with deposits described in clause (i) above, is sufficient to satisfy the required additional amount to be on deposit in the Reserve Fund. C. Calculations. All calculations of Average Annual Principal and Interest Requirements made pursuant to this Section shall be made as of and from the date of the Additional Priority Bonds then proposed to be issued. SECTION 21: Further Requirements for Additional Priority Bonds. A. Conditions Precedent for Issuance of Additional Priority Bonds - General. As a condition precedent to the issuance of any Additional Priority Bonds, the City Manager (or other officer of the City then having the responsibility for the financial affairs of the City) shall have executed a certificate stating (i) that the City is not then in default as to any covenant, obligation or agreement contained in any ordinance or other proceeding relating to any obligations of the City payable from and secured by a lien on and pledge of the Pledged Revenues and (ii) that the amounts on deposit in all Funds or Accounts created and established for the payment and security of all Outstanding obligations payable from and secured by a lien on and pledge of the Pledged Revenues are the amounts then required to be deposited therein. Such certificate shall be dated on or before the date of delivery of such Additional Priority Bonds, but such certificate shall not be dated prior to the date an ordinance is passed authorizing the issuance of such Additional Priority Bonds. B. Conditions Precedent for Issuance of Additional Priority Bonds - Capital Improvements and for any other Lawful Purpose except for Capital Additions or for Refunding. The City covenants and agrees that Additional Priority Bonds will not be issued for the purpose of financing Capital Improvements, or for any other lawful purpose (except for Capital Additions or for refunding, which are to be issued in accordance with the provisions of Subsection C, D or E of this Section) unless and until the conditions precedent in Subsection A above have been satisfied and, in addition thereto, the City has secured a certificate or opinion of the Accountant to the effect that, according to the books and records of the City, the Net Earnings (as hereinafter defined) for the preceding Year or for 12 consecutive months out of the 15 months immediately preceding the month the ordinance authorizing the Additional Priority Bonds is adopted are at least equal to 1.25 times the Average Annual Principal and Interest Requirements for all Outstanding Priority Bonds after giving effect to the Additional Priority Bonds then proposed. The foregoing notwithstanding, the City covenants and agrees that Additional Priority Bonds may not be issued for the purpose of financing Capital Improvements when other Outstanding Priority Bonds which have been issued for the purpose of financing Capital Additions and for which capitalized interest for such other Priority Bonds has been provided for at least the twelve months subsequent to the date of issuance of the Additional Priority Bonds then proposed to be issued, unless the conditions precedent in Subsection A above have been satisfied and, in addition thereto, the City has either (1) complied with the relevant conditions in this Subsection as set forth above, or (2) if the relevant conditions of this Subsection B as set forth above cannot be satisfied, the City has satisfied the conditions precedent in Subsection C(i) and (ii) of this Section (but, for purposes of such clauses, the term Capital Improvements shall be substituted for the term Capital Additions where the term Capital Additions appears therein to the extent necessary to give recognition to the fact that Capital Improvements, rather than Capital Additions, are A -I 0 then to be financed) and has secured a certificate or opinion of the Accountant to the effect that, according to the books and records of the City, the Net Earnings for the preceding Year or for 12 consecutive months out of the 15 months immediately preceding the month the ordinance authorizing the Additional Priority Bonds is adopted are at least equal to 1.25 times the Average Annual Principal and Interest Requirements for all Outstanding Priority Bonds (other than any Priority Bonds issued for Capital Additions for which capitalized interest has been provided for at least the twelve months subsequent to the date of issuance of the Additional Priority Bonds proposed to be issued) after giving effect to the Priority Bonds then proposed. C. Conditions Precedent for Issuance of Additional Priority Bonds - Capital Additions: Initial Issue. The City covenants and agrees that Additional Priority Bonds will not be issued for the purpose of financing Capital Additions, unless the same conditions precedent specified in Subsection A above have been satisfied and, in addition thereto, either the relevant conditions precedent specified in Subsection B above are satisfied or, in the alternative, the City shall have obtained: (1) from the Engineer of Record a comprehensive Engineering Report for each Capital Addition to be financed, which report shall (A) contain (1) detailed estimates of the cost of acquiring and constructing the Capital Addition, (2) the estimated date the acquisition and construction of the Capital Addition will be completed and commercially operative, and (3) a detailed analysis of the impact of the Capital Addition on the financial operations of the system for which the Capital Addition is to be integrated and to the System as a whole during the construction thereof and for at least five Years after the date the Capital Addition becomes commercially operative, and (B) conclude that (1) the Capital Addition is necessary and will substantially increase the capacity, or is needed to replace existing facilities, to meet current and projected demands for the service or product to be provided thereby, and (2) the estimated cost of providing the service or product from the Capital Addition will be reasonable in comparison with projected costs for furnishing such service or product from other reasonably available sources; and (ii) a certificate of the Engineer of Record to the effect that, based on the Engineering Report prepared for each Capital Addition, the projected Net Earnings for each of the five Years subsequent to the date the Capital Addition becomes commercially operative (as estimated in the Engineering Report) will be equal to at least 1.25 times the Average Annual Principal and Interest Requirements for Priority Bonds then Outstanding or incurred and all Priority Bonds estimated to be issued, if any, for all Capital Improvements and for all Capital Additions then in progress or then being initiated, during the period from the date the first series of obligations for the Capital Additions is to be delivered through the fifth Year subsequent to the date the Capital Addition is estimated to become commercially operative. D. Completion Issues. Once a Capital Addition has been initiated by meeting the conditions precedent specified in Subsection C(i) and (ii) above and the initial Priority Bonds issued therefor are delivered, the City reserves the right to issue Additional Priority Bonds to finance theremainingcosts of such Capital Addition in such amounts as may be necessary to complete the acquisition and construction thereof and make the same commercially operative without satisfaction of any condition precedent under Subsection C(i) and (ii) or Subsection B of this Section but subject to satisfaction of the following conditions precedent: (i) the City makes a forecast (the "Forecast") of the operations of the System demonstrating the System's ability to pay all obligations, payable from the Pledged Revenues of the System to be Outstanding after the issuance of the Additional Priority Bonds then being issued for the period (the "Forecast Period") of each ensuing Year through the fifth Year subsequent to the latest estimated date such Capital Addition is expected to be commercially operative; and (ii) the Engineer of Record reviews such Forecast and executes a certificate to the effect that (A) such Forecast is reasonable, and based thereon (and such other factors deemed to be relevant), the Pledged Revenues of the System will be adequate to pay all the obligations, payable from the Pledged Revenues of the System to be Outstanding after the issuance of the Additional Priority Bonds then being issued for the Forecast Period and (B) the proceeds from the sale of such Additional Priority Bonds are estimated to be sufficient to complete such acquisition and construction. E. Refunding Issues. The City reserves the right to issue refunding bonds to refund all or any part of the Outstanding Priority Bonds (pursuant to any law then available), upon such terms and conditions as the governing body of the City may deem to be in the best interest of the City and its inhabitants, and if less than all such Outstanding Priority Bonds are refunded, the conditions precedent prescribed in Subsection A and B of this Section shall be satisfied and the Accountant's certificate or opinion required by Subsection B shall give effect to the issuance of the proposed refunding bonds (and shall not give effect to the Priority Bonds being refunded following their cancellation or provision being made for their payment). In addition, the City reserves the right to refund all or any part of any other obligations of the System, upon such terms and conditions as the Governing Body of the City may deem to be in the best interest of the City and its inhabitants, provided that the conditions prescribed in Subsection A and B of this Section shall be satisfied. No Accountant's certificate otherwise required by Subsection A-1 1 B will be required for refunding bonds, after giving effect to such proposed refunding, if there is no increase in debt service for any Year in which there will be debt service on Priority Bonds Outstanding both before and after such refunding. F. Computations; Reports. With reference to Priority Bonds anticipated and estimated to be issued or incurred, the Average Annual Principal and Interest Requirements therefor shall be those reasonably estimated and computed by the City's Director of Financial Services (or other officer of the City then having the primary responsibility for the financial affairs of the City). In the preparation of the Engineering Report required in Subsection C(i) above, the Engineer of Record may rely on other experts or professionals, including those in the employment of the City, provided such Engineering Report discloses the extent of such reliance and concludes it is reasonable so to rely. In connection with the issuance of Priority Bonds for Capital Additions, the certificate of the City's Director of Financial Services and Engineer of Record, together with the Engineering Report for the initial issue and the Forecast for a subsequent issue, shall be conclusive evidence and the only evidence required to show compliance with the provisions and requirements and this clause of this Section. G. Combination Issues. Priority Bonds for Capital Additions may be combined in a single issue with Priority Bonds for Capital Improvements or for any lawful purpose provided the conditions precedent set forth in Subsection B through E are complied with as the same relate to the appropriate purpose. H. Subordinated Obligations. The City may, at any time and from time to time, for any lawful purpose, issue Subordinated Obligations, the principal of and redemption premium, if any, and interest on which is payable from and secured by a pledge of and lien on the Pledged Revenues junior and subordinate to the lien and pledge created hereby for the security of the Priority Bonds and the payments required to be made hereunder into the Debt Service Fund and the Reserve Fund; provided, however, that any such pledge and lien securing the Subordinated Obligations shall be, and shall be expressed to be, subordinate in all respects to the pledge of and lien on the Pledged Revenues as security for the Priority Bonds; and provided further that any default with respect to the issuance of Subordinated Obligations will not be deemed a default with respect to the Priority Bonds. I. Definition of Net Earnings. As used in this Section, the term "Net Earnings" shall mean the Gross Revenues of the System after deducting the Operating Expenses of the System, but not expenditures which, under standard accounting practice, should be charged to capital expenditures. J. Determination of Net Earnings. In making a determination of Net Earnings for any of the purposes described in this Section, the Accountant may take into consideration a change in the rates and charges for services rand facilities afforded by the System that became effective at least 60 days prior to the last day of the period for which Net Earnings are determined and, for purposes of satisfying any of the Net Eamings test described above, make a pro forma determination of the Net Earnings of the System for the period of time covered by the Accountant's certification or opinion based on such change in rates and charges being in effect for the entire period covered by the Accountant's certificate or opinion. SECTION 22: General Covenants. The City further covenants and agrees that in accordance with and to the extent required or permitted by law: A. Performance. It will faithfully perform at all times any and all covenants, undertakings, stipulations, and provisions contained in this Ordinance, and each ordinance authorizing the issuance of Additional Priority Bonds; it will promptly pay or cause to be paid the principal amount of and interest on every Priority Bond, on the dates and in the places and manner prescribed in such ordinances and such Priority Bonds; and it will, at the time and in the manner prescribed, deposit or cause to be deposited the amounts required to be deposited into the System Fund and the Funds herein created; and any registered owner of any Priority Bond may require the City, its officials and employees to carry out, respect or enforce the covenants and obligations of this Ordinance, or any ordinance authorizing the issuance of Priority Bonds, by all legal and equitable means, including specifically, but without limitation, the use and filing of mandamus proceedings, in any court of competent jurisdiction, against the City, its officials and employees. B. City's Legal Authority. It is a duly created and existing home rule city of the State of Texas, and is duly authorized under the laws of the State of Texas to issue the Bonds; that all action on its part for the issuance of the Bonds has been duly and effectively taken, and that the Bonds in the hands of the owners thereof are and will be valid and enforceable special obligations of the City in accordance with their terms. A-12 C. Acquisition and Construction; Operation and Maintenance. (1) It shall use its best efforts in accordance with Prudent Utility Practice to acquire and construct, or cause to be acquired and constructed, any Capital Additions or Capital Improvements, in accordance with the plans and specifications therefor, as modified from time to time, with due diligence and in a sound and economical manner; and (2) it shall at all times use its best efforts to operate or cause to be operated the System properly and in an efficient manner, consistent with Prudent Utility Practice, and shall use its best efforts to maintain, preserve, reconstruct and keep the same or cause the same to be so maintained, preserved, reconstructed and kept, with the appurtenances and every part and parcel thereof, in good repair, working order and condition, and shall from time to time make, or use its best efforts to cause to be made, all necessary and proper repairs, replacement and renewals so that at all times the operation of the System may be properly and advantageously conducted. D. Title. It has or will obtain lawful title, whether such title is in fee or lesser interest, to the lands, buildings, structures and facilities constituting the System, that it warrants that it will defend the title to all the aforesaid lands, buildings, structures and facilities, and every part thereof, for the benefit of the owners of the Priority Bonds, against the claims and demands of all persons whomsoever, that it is lawfully qualified to pledge the Pledged Revenues to the payment of the Priority Bonds in the manner prescribed herein, and has lawfully exercised such rights. E. Liens. It will from time to time and before the same become delinquent pay and discharge all taxes, assessments and governmental charges, if any, which shall be lawfully imposed upon it, or the System; it will pay all lawful claims for rents, royalties, labor, materials and supplies which if unpaid might by law become a lien or charge thereon, the lien of which would be prior to or interfere with the liens hereof, so that the priority of the liens granted hereunder shall be fully preserved in the manner provided herein, and it will not create or suffer to be created any mechanic's, laborer's, materialman's or other lien or charge which might or could be prior to the liens hereof, or do or suffer any matter or thing whereby the liens hereof might or could be impaired; provided however, that no such tax, assessment or charge, and that no such claims which might be used as the basis of a mechanic's, laborer's, materialman's or other lien or charge, shall be required to be paid so long as the validity of the same shall be contested in good faith by the City. F. No Free Service. No free service or service otherwise than in accordance with the established rate schedule shall be furnished, directly or indirectly, by the System to any person, firm, corporation or other entity, other than the City. No part of the salary of any official or employee of the City or his replacement shall be paid from Pledged Revenues unless and only to the extent the duties and performances of such official or employee or his replacement appertain directly to the System. To the extent the City receives the services of the System, such services shall be accounted for according to rhe established rate schedule. G. Further Encumbrance. It will not additionally encumber the Pledged Revenues in any manner, except as permitted in this Ordinance in connection with Priority Bonds, unless said encumbrance is made junior and subordinate in all respects to the liens, pledges, covenants and agreements of this Ordinance; but the right of the City to issue Subordinated Obligations payable in whole or in part from a subordinate lien on the Pledged Revenues is specifically recognized and retained. H. Sale, Lease or Disposal of Property. No part of the System shall be sold, leased, mortgaged, demolished, removed or otherwise disposed of, except as follows: (1) To the extent permitted by law, the City may sell or exchange at any time and from time to time any property or facilities constituting part of the System only if (A) it shall determine such property or facilities are not useful in the operation of the System, or (B) the proceeds of such sale are $250,000 or less, or it shall have received a certificate executed by the Engineer of Record and the City Manager stating, in their opinion, that the fair market value of the property or facilities exchanged is $250,000 or less, or (C) if such proceeds or fair market value exceeds $250,000 it shall have received a certificate executed by the Engineer of Record and the City Manager stating (i) that system within the System of which the property or facilities comprises a part thereof and (ii) in their opinion, that the sale or exchange of such property or facilities will not impair the ability of the City to comply during the current or any future Year with the provisions of Subsection K of this Section. The proceeds of any such sale or exchange not used to acquire other property necessary or desirable for the safe or efficient operation of the System shall forthwith, at the option of the City (i) be used to redeem or purchase Priority Bonds, or (ii) otherwise be used to provide for the payment of Priority Bonds. The foregoing notwithstanding, if such property or facilities sold or A-13 exchanged constituted property or facilities comprising all or a part of a system within the System, the acquisition, improvement or extension of such system having not been financed by the City in any manner with the proceeds of Priority Bonds, or with the proceeds of obligations which were refunded in whole or in part with the proceeds of Priority Bonds, then the City may utilize the proceeds of such sale or exchange for any lawful purpose; and (2) To the extent permitted by law, the City may lease or make contracts or grant licenses for the operation of, or make arrangements for the use of, or grant easements or other rights with respect to, any part of the System, provided that any such lease, contract, license, arrangement, easement or right (A) does not impede the operation by the City of the System and (B) does not in any manner impair or adversely affect the rights or security of the owners of the Priority Bonds under this Ordinance; and provided, further, that if the depreciated cost of the property to be covered by any such lease, contract, license, arrangement, easement or other right is in excess of $500,000, the City shall have received a certificate executed by the Engineer of Record and the City Manager that the action of the City with respect thereto does not result in a breach of the conditions under this clause (2). Any payments received by the City under or in connection with any such lease, contract, license, arrangement, easement or right in respect of the System or any part thereof shall constitute Gross Revenues. I. Books, Records and Accounts. It shall keep proper books, records and accounts separate and apart from all other records and accounts, in which complete and correct entries shall be made of all transactions relating to the System and the City shall cause said books and accounts to be audited annually as of the close of each Year by the Accountant. J. Insurance. (1) Except as otherwise permitted in clause (2) below, it shall cause to be insured such parts of the System as would usually be insured by corporations operating like properties, with a responsible insurance company or companies, against risks, accidents or casualties against which and to the extent insurance is usually carried by corporations operating like properties, including, to the extent reasonably obtainable, fire and extended coverage insurance, insurance against damage by floods, and use and occupancy insurance. Public liability and property damage insurance shall also be carried unless the City Attorney gives a written opinion to the effect that the City is not liable for claims which would be protected by such insurance. At any time while any contractor engaged in construction work shall be fully responsible therefor, the City shall not be required to carry insurance on the work being constructed if the contractor is required to carry appropriate insurance. All such policies shall be open to the inspection of the bondholders and their representatives at all reasonable times. (2) In lieu of obtaining policies for insurance as provided above, the City may self -insure against risks, accidents, claims or casualties described in clause (I) above. (3) The annual audit hereinafter required shall contain a section commenting on whether or not the City has complied with the requirements of this Section with respect to the maintenance of insurance, and listing the areas of insurance for which the City is self-insuring, all policies carried, and whether or not all insurance premiums upon the insurance policies to which reference is hereinbefore made have been paid. K. Rate Covenant. It will fix, establish, maintain and collect such rates, charges and fees for the use and availability of the System at all tunes as are necessary to produce Gross Revenues and other Pledged Revenues equal to the greater of amounts determined in accordance with clauses (1) or (2) below, to -wit, amounts sufficient: (1) (A) to pay all current Operating Expenses of the System, and (B) to produce Net Revenues for each Year at least equal to 1.25 times the Average Annual Principal and Interest Requirements of all then Outstanding Priority Bonds; or (2) to pay the sum of (A) all current Operating Expenses, (B) the Average Annual Principal and Interest Requirements on the then Outstanding Priority Bonds, (C) deposits to the Reserve Fund required for the Priority Bonds, and (D) amounts required to pay all other obligations of the System reasonably anticipated to be paid from Gross Revenues during the current Year. The calculation of Average Annual Principal and Interest Requirements on all Outstanding Priority Bonds shall be net of capitalized interest for such Priority Bonds only if the money in a Capitalized Interest Account received from proceeds of such Priority Bonds held in cash or are invested in Government Obligations. The foregoing notwithstanding, such rates, charges and fees shall be fixed, established, A-14 maintained and collected at a level sufficient to enable the City to pay debt service on Priority Bonds during the current Year. L. Audits. After the close of each Year while any Priority Bonds are Outstanding, an audit will be made of the books and accounts relating to the System and the Pledged Revenues by the Accountant. As soon as practicable after the close of each such Year, and when said audit has been completed and made available to the City, a copy of such audit for the preceding year shall be mailed to any holder of the then Outstanding Priority Bonds who shall so request in writing. Such annual audit reports shall be open to the inspection of the registered owners of the Priority Bonds and their agents and representatives at all reasonable times. M. Governmental Agencies. It will comply with all of the tenns and conditions of any and all franchises, permits and authorizations applicable to or necessary with respect to the System, and which have been obtained from any governmental agency; and the City has or will obtain and keep in full force and effect all franchises, permits, authorization and other requirements applicable to or necessary with respect to the acquisition, construction, equipment, operation and maintenance of the System. N. No Competition. To the extent it legally may, it will not grant any franchise or permit for the acquisition, construction or operation of any competing facilities which might be used as a substitute for the System's facilities, and, to the extent that it legally may, the City will prohibit any such competing facilities. O. Rights of Inspection. The Engineer of Record or any registered owner of $100,000 in aggregate principal amount of the Priority Bonds then Outstanding shall have the right at all reasonable times to inspect the System and all records, accounts and data of the City relating thereto, and upon request the City shall furnish to the Engineer of Record or such registered owner, as the case may be, such financial statements, reports and other information relating to the City and the System as the Engineer of Record or such registered owner may from time to time reasonably request. P. Surplus Bond Proceeds. It shall deposit any surplus proceeds from the Bonds remaining after the acquisition and completion of the System improvements to the credit of the Debt Service Fund, to the extent any such surplus proceeds are not otherwise required to be rebated to the United States of America in accordance with the provisions of Section 23 hereof, to pay debt service on the Bonds. Q. Variable Rate Obligations. For so long as the Policy (as hereinafter defined) remains in effect, not more than 26.9% of the aggregate principal amount of all Priority Bonds at any one time outstanding shall be comprised of obligations bearing interest at a variable rate (including commercial paper); provided, however; that this limitation specifically excludes any Subordinated Obligations (including the Series B Commercial Paper Notes). SECTION 23: Covenants Regarding Tax -Exemption. A. Definitions. When used in this Section, the following terms have the following meanings: "Closing Date" shall mean the date of physical delivery of the Initial Bonds in exchange for the payment of the agreed purchase price for the Bonds. "Code" means the Internal Revenue Code of 1986, as amended by all legislation, if any, effective on or before the Closing Date. "Computation Date" has the meaning set forth in section 1.148-1(b) of the Regulations. "Gross Proceeds" means any proceeds as defined in section 1.148-1(b) of the Regulations, and any replacement proceeds as defined in section 1.148-1(c) of the Regulations, of the Bonds. "Investment" has the meaning set forth in section 1.148-1(b) of the Regulations. "Nonpurpose Investment" means any investment property, as defined in section 148(b) of the Code, in which Gross Proceeds of the Bonds are invested and which is not acquired to carry out the governmental purposes of the Bonds. "Rebate Amount" has the meaning set forth in section 1.148-1(b) of the Regulations. A-15 "Regulations" means any proposed, temporary, or final Income Tax Regulations issued pursuant to sections 103 and 141 through 150 of the Code, and 103 of the Internal Revenue Code of 1954, which are applicable to the Bonds. Any reference to any specific Regulation shall also mean, as appropriate, any proposed, temporary or final Income Tax Regulation designed to supplement, amend or replace the specific Regulation referenced. "Yield" of 1) any Investment has the meaning set forth in section 1.148-5 of the Regulations; and 2) the Bonds has the meaning set forth in section 1.148-4 of the Regulations. B. Not to Cause Interest to Become Taxable. The City shall not use, permit the use of, or omit to use Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner which if made or omitted, respectively, would cause the interest on any Bond to become includable in the "gross income", as defined in section 61 of the Code, of the owner thereof for federal income tax purposes. Without limiting the generality of the foregoing, unless and until the City receives a written opinion of counsel nationally recognized in the field of municipal bond law to the effect that failure to comply with such covenant will not adversely affect the exemption from federal income tax of the interest on any Bond, the City shall comply with each of the specific covenants in this Section. C. No Private Use or Private Payments. Except to the extent that it will not cause the Bonds to become "private activity bonds" within the meaning of section 141 of the Code and the Regulations and rulings thereunder, the City shall at all times prior to the last stated maturity of Bonds: (1) exclusively own, operate and possess all property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with Gross Proceeds of the Bonds, and not use or permit the use of such Gross Proceeds (including all contractual arrangements such as take, take or pay, certain requirements and other similar output contracts or arrangements with terms different than those applicable to the general public) or any property acquired, constructed or improved with such Gross Proceeds in any activity carried on by any person or entity (including the United States or any agency, department and instrumentality thereof) other than a state or local government, unless such use is solely as a member of the general public; and (2) not directly or indirectly impose or accept any charge or other payment by any person or entity who is treated as using Gross Proceeds of the Bonds or any property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with such Gross Proceeds, other than taxes of general application within the City or interest earned on investments acquired with such Gross Proceeds pending application for their intended purposes. (3) not allow any "nonqualified amount" (as defined in section 141(6)(8) of the Code) of the Bonds to exceed the excess of (i) $15,000,000 over (ii) the aggregate nonqualified amounts with respect to all prior tax-exempt bonds, five percent or more of the proceeds of which are or will be used with respect to any facility financed by the Bonds (or any other facility which is part of the same project as a facility financed by the), all within the meaning of section 141(b)(4) of the Code; and (4) not allow more than the lesser of (i) $5,000,000 or (ii) five percent of the proceeds of the Bonds to acquire nongovernmental output property, as defined in section 141(d)(2) of the Code, except if 95 percent or more of the output from such facility will be consumed in a "qualified service arca" (as defined in section 141(d)(3 of the Code) of the City or in a "qualified annexed area" (as defined in section 141(d)(3) of the Code) of the City. D. No Private Loan. Except to the extent that it will not cause the Bonds to become "private activity bonds" within the meaning of section 141 of the Code and the Regulations and rulings thereunder, the City shall not use Gross Proceeds of the Bonds to make or finance loans to any person or entity other than a state or local government. E. Not to Invest at Higher Yield. Except to the extent that it will not cause the Bonds to become "arbitrage bonds" within the meaning of section 148 of the Code and the Regulations and rulings thereunder, the City shall not at any time prior to the final stated maturity of the Bonds directly or indirectly invest Gross Proceeds in any A-16 Investment, if as a result of such investment the Yield of any Investment acquired with Gross Proceeds, whether then held or previously disposed of, materially exceeds the Yield of the Bonds. F. Not Federally Guaranteed. Except to the extent permitted by section 149(b) of the Code and the Regulations and rulings thereunder, the City shall not take or omit to take any action which would cause the Bonds to be federally guaranteed within the meaning of section 149(b) of the Code and the Regulations and rulings thereunder. G. Information Report. The City shall timely file the information required by section 149(e) of the Code with the Secretary of the Treasury on Form 8038 G or such other form and in such place as the Secretary may prescribe. H. Rebate of Arbitrage Profits. Except to the extent otherwise provided in section 148(f) of the Code and the Regulations and rulings thereunder: (1) The City shall account for all Gross Proceeds (including all receipts, expenditures and investments thereof) on its books of account separately and apart from all other funds (and receipts, expenditures and investments thereof) and shall retain all records of accounting for at least six years after the day on which the last Outstanding Bond is discharged. However, to the extent permitted by law, the City may commingle Gross Proceeds with other money of the City, provided that the City separately accounts for each receipt and expenditure of Gross Proceeds and the obligations acquired therewith. (2) Not less frequently than each Computation Date, the City shall calculate the Rebate Amount in accordance with rules set forth in section 148(f) of the Code and the Regulations and rulings thereunder. The City shall maintain such calculations with its official transcript of proceedings relating to the issuance of the Bonds until six years after the final Computation Date. (3) As additional consideration for the purchase of the Bonds by the Purchasers and the loan of the money represented thereby and in order to induce such purchase by measures designed to insure the excludability of the interest thereon from the gross income of the owners thereof for federal income tax purposes, the City shall pay to the United States out of the Debt Service Fund or its general fund, as permitted by applicable Texas statute, regulation or opinion of the Attorney General of the State of Texas, any Rebate Amount in the manner and on or before the dates specified in section 148(f) of the Code and the Regulation and rulings thereunder. In all cases, the rebate payments shall be made at the times, in the installments, to the place and in the manner as is or may be required by section 148(f) of the Code and the Regulations and rulings thereunder, and shall be-aceompanied by Form 8038-T or such other forms and information as is or may be required by section 148(1) of the Code and the Regulations and rulings thereunder. (4) The City shall exercise reasonable diligence to assure that no errors are made in the calculations and payments required by paragraphs (2) and (3), and if an error is made, to discover and promptly correct such error within a reasonable amount of time thereafter (and in all events within one hundred eighty (180) days after discovery of the error), including payment to the United States of any additional Rebate Amount owed to it, interest thereon, and any penalty imposed under section 1.148 3(h) of the Regulations. 1. Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of the Code and the Regulations and rulings thereunder, the City shall not, at any bine prior to the earlier of the stated maturity or final payment of the Bonds, enter into any transaction that reduces the amount required to be paid to the United States pursuant to Subsection H of this Section because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm's length and had the Yield of the Bonds not been relevant to either party. 1. Bonds Not Hedge Bonds. (1) The City reasonably expects to spend at least 85% of the spendable proceeds of the Bonds within three years after the issue of such Bonds. (2) Not more than 50% of the proceeds of the Bonds will be invested in Nonpurpose Investments having a substantially guaranteed Yield for a period of 4 years or more. A-17 K. Elections. The City hereby directs and authorizes the Mayor, Mayor Pro Tem, City Manager, any Assistant City Manager, and the City's Director of Financial Services, either or any combination of the foregoing, to make such elections in the Certificate as to Tax Exemption or similar or other appropriate certificate, form, or document permitted or required pursuant to the provisions of the Code, or Regulations as they deem necessary or appropriate in connection with the Bonds, and other transactions related to any Priority Bonds. Such elections shall be deemed to be made on the Closing Date. SECTION 24: Taxable Obligations. The provisions of Section 23 of this Ordinance notwithstanding, the City reserves the ability to issue Additional Priority Bonds in a manner such that such obligations are not obligations described in section 103(a) of the Code or are obligations which constitute "private activity bonds" within the meaning of section 141 of the Code. SECTION 25: Amendment of Ordinance. A. Approval by Registered Owners. The registered owners of a majority in aggregate principal amount of the Priority Bonds then Outstanding shall have the right from time to time to approve any amendment to this Ordinance which may be deemed necessary or desirable by the City; provided, however, that without the consent of the registered owners of all of the Priority Bonds at the time Outstanding, nothing herein contained shall permit or be construed to permit the amendment of the terms and conditions in this Ordinance or in the Priority Bonds so as to: (I) (2) (3) make any change in the maturity of any of the Outstanding Priority Bonds; reduce the rate of interest borne by any of the Outstanding Priority Bonds; reduce the amount of the principal payable on the Outstanding Priority Bonds; (4) modify the terms of payment of principal of, premium, if any, or interest on the Outstanding Priority Bonds or impose any conditions with respect to such payment; (5) affect the rights of the registered owners of less than all of the Priority Bonds then Outstanding; (6) amend this Subsection A of this Section; or (7) change the minimum percentage of the principal amount of Priority Bonds necessary for consent to any amendment; unless such amendment or amendments be approved by the registered owners of all of the Priority Bonds then Outstanding. B. Notice. If at any time the City shall desire to amend the Ordinance under this Section, the City shall cause notice of the proposed amendment to be published in a financial newspaper or journal published in The City of New York, New York, and a newspaper of general circulation in the City, once during each calendar week for at least two successive calendar weeks. Such notice shall briefly set forth the nature of the proposed amendment and shall state that a copy thereof is on file at the principal office of the Paying Agent/Registrar for inspection by all holders of Priority Bonds. Such publication is not required, however, if notice in writing is given to each registered owner of Priority Bonds. C. Consent Obtained. Whenever at any time not less than 30 days, and within one year, from the date of the first publication of said notice or other service of written notice, the City shall receive an instrument or instruments executed by the registered owners of at least a majority in aggregate principal amount of the Priority Bonds then Outstanding, which instrument or instruments shall refer to the proposed amendment described in said notice and which specifically consent to and approve such amendment in substantially the form of the copy thereof on file with the Paying Agent/Registrar, the Governing Body may pass the amendatory ordinance in substantially the same form. D. Amendatory Ordinance. Upon the passage of any amendatory ordinance pursuant to the provisions of this Section, this Ordinance shall be deemed to be amended in accordance with such amendatory ordinance, and the respective rights, duties and obligations under this Ordinance of the City and all the registered owners of then Outstanding Priority Bonds and all future Priority Bonds shall thereafter be determined, exercised and enforced hereunder, subject in all respects to such amendments. A-18 E. Consent Irrevocable for Six Months. Any consent given by the registered owner of a Priority Bond pursuant to the provisions of this Section shall be irrevocable for a period of six months from the date of the first publication of the notice provided for in this Section, and shall be conclusive and binding upon all future registered owners of the same Priority Bond during such period. Such consent may be revoked at any time after six months from the date of the first publication of such notice by the registered owner who gave such consent, or by a successor in title, by filing notice thereof with the Paying Agent/Registrar and the City, but such revocation shall not be effective if the registered owners of at least a majority in aggregate principal amount of the then Outstanding Priority Bonds as in this Section defined have, prior to the attempted revocation, consented to and approved the amendment. F. Amendments without Consent. The foregoing provisions of this Section notwithstanding, the City, by action of the Governing Body may amend this Ordinance for any one or more of the following purposes: (1) to add to the covenants and agreements of the City in this Ordinance contained, other covenants and agreements thereafter to be observed, grant additional rights or remedies to the registered owners of the Priority Bonds or to surrender, restrict or limit any right or power herein reserved to or conferred upon the City; (2) to make such provisions for the purpose of curing any ambiguity, or curing, correcting or supplementing any defective provision contained in this Ordinance, or in regard to clarifying matters or questions arising under this Ordinance, as are necessary or desirable and not contrary to or inconsistent with this Ordinance and which shall not adversely affect the interests of the registered owners of the Priority Bonds then Outstanding; (3) to modify any of the provisions of this Ordinance in any other respect whatever, provided that (i) such modification shall be, and be expressed to be, effective only after all Bonds and each series of Additional Priority Bonds Outstanding at the date of the adoption of such modification shall cease to be Outstanding, and (ii) such modification shall be specifically referred to in the text of all Priority Bonds issued after the date of the adoption of such modification; (4) to make such amendments to this Ordinance as may be required, in the opinion of nationally recognized bond counsel acceptable to the City, to ensure compliance with sections 103 and 141 through 150 of the Code and the regulations promulgated thereunder and applicable thereto; (5) to make such changes, modifications or amendments as may be necessary or desirable in order to allow the owners of the Priority Bonds to thereafter avail themselves of a book -entry system for payments, transfers and other matters relating to the Priority Bonds, which changes, modifications or amendments are not contrary to or inconsistent with other provisions of this Ordinance and which shall not adversely affect the interests of the owners of the Priority Bonds; (6) to make such changes, modifications or amendments as are permitted by Section 32D of this Ordinance; (7) to make such changes, modifications or amendments as may be necessary or desirable in order to obtain or maintain the granting of a rating on the Priority Bonds by a Rating Agency or to obtain or maintain a Credit Facility, or to obtain the approval of the Bonds from the Attorney General of the State of Texas; and (8) to make such changes, modifications or amendments as may be necessary or desirable, which shall not adversely affect the interests of the owners of the Priority Bonds, in order, to the extent permitted by law, to facilitate the economic and practical utilization of interest rate swap agreements, foreign currency exchange agreements, or similar type of agreements with respect to the Priority Bonds. Notice of any such amendment may be published by the City in the manner described in Subsection B of this Section; provided, however, that the publication of such notice shall not constitute a condition precedent to the adoption of such amendatory ordinance and the failure to publish such notice shall not adversely affect the implementation of such amendment as adopted pursuant to such amendatory ordinance. A-19 [This page intentionally left blank] A-20 APPENDIX B CERTAIN AUDITED FINANCIAL STATEMENT The information contained in this appendix consists of certain audited Financial Statements of the City of Corpus Christi, Texas for the fiscal year ended July 31, 2008 and is not intended to be a complete statement of the City's financial condition. Reference is made to the complete report for further information. B -I [This page intentionally left blank] B-2 City of Corpus Christi, Texas Comprehensive Annual Financial Report For the Fiscal Year Ended July 31, 2008 Prepared by the staff of the Financial Services Department CITY OF CORPUS CHRISTI, TEXAS ._VIII o l AlIII out 88 v a o U CITY COUNCIL 0.m AS a� 0 • T C J O 440 OW C C N W e y 4w £ o 0 TABLE OF CONTENTS TABLE OF CONTENTS c a E V Z 0'1M.A( , o:233'r^oggPr2� H td '22 m !2 cm `o oto od_ o 213 grail2illA2.6'0 V t5P `E�y> o�- A �' N& O O W L l i ❑CICVWWae(535MW8VI m Q0_ fl-�on Dorn ZZZZZZZZZZZZZZZ Ac. L <0 nalysis of Funding P el CV Expenses, and Ch is ao_ ..0� v- 0„00 oW 44 8 N 000 n or n $'elf - 0 C o E '21206 g i e gaftt 1 m ,!go W 8 aA V pp F .2wio 11.41A s a,„•82 8 rg fq.0 �5 `ted _ ogglAZA ti 8geyy o g ..VIII o EA): VIII 05 U 8 0 cd 0. City of Corpus Christi, i ootQ f F E U vE. c0 0 i c�Pa9�GgaJUA4ro'a=Vb 8agEh obUo 9 U° y C.o E -�U•W UiE(S1P'.yUa 00 N E2', 0 c v E�y.ay,o6 E g,i,e. icw ya A m)n .n V S e y 3& E° e'3 twp C 0 w C '-2 q-�° gj5i'a��'o ' 8U em ELp° U at o y� .. a U,Ya Oe 84080 t o�UU U'$A�4i0 a5u 'egtq$0' (At jy ..p*p U J . y "4-ga4 3oQ'Oo% U 4 iS a'S O'er ao .P 4u5ozz a out. m'a Port of Corpus Christi O'Y 'S ,-0°..W141°....2...8. °J V T" ° O A ;'ac a hE4a°�gE b 8 8.1 o 9 U 'fiAOe E�r''�i�uoC� R �p LLL}}} y._�C V N U �' (E '5 1 1 0 .Ly1 gen F E= - 1- 24tos05.10 tl, Go gQ.413qpqp W C �j^C rJ' qp V T ,E $N.pO �YSg ryS VMy�A9 xQEE..m°y3°-ZLNcao {te._a 9'E ARM [L W M p N ^ V' G . '1FGG'- C 1141!, eti V W O a V . O W 8 E M C 'g C !rgatn39lE1yo 411 11°'.0°-0g7'...44'' : gy m-8- aou�ogil ,e 1 Q5 3 QQ� gg SIR 00bgg-.,..0Egig-VT VG =§Fohmr o63a1 ECONOMIC CONDITION Local Economy 7 3 ▪ 0 9" RT°fi$48 0o (0- 2 y mOLV a ( oU9 8 4 3 5 8 6 .F O J 'S .1�+` 1 w p aQi �q E i°'i o0` 6 v' - Vl R O y q^ O 9 o q V O S.008018:4 r.El_fi'c uE .68{10..0060 w o'y E t ._ R $ 0 wo'fi d. U c99 i1431/7 5 13§; '0 V 3 ag' 0.N '.V..s to w 3 C , City of Corpus Chri 0 0 rA0��T 11441 ,11§.'2E gg � E nE 8 IIUII Pitig Uclqt8. 200 yktoss 5jED °w 5 °'ems 9 O qp&b a a C'E q.E " d E e s 4 5 5_9' w D °'.^a0 orEN f j gqE YJ R`iCS:t48 ;127.0" c 1 0 r 111§n d- a_i 3 E a. .. 5 v 1 4 E eeva°evo N b nh C -. n • N'0 n1 tpn O toN 3 � d e la I n a wv;x W 2CTU gt v'a^� b o iE §a ()flint Id§a3b5 o a „8 mo, Y v pg0 a ..-085 o 9 2 k vp ri ri EdrO N O 5 x Y W A ".SOFyy 7 u L A N 5s'.�m.•o.00a' g5 V tow- v cnG '12v ��03 03g>%.,112-01 3 kv 12-01 0 o'S3U3)v°o 5-5';8Ns bo 1m y e 3 1 6 m '.v. to v ' mq .So i., V v u � 'yo lvxi a'' ?o`5 a—gym i-ro� d�aro ° 4!!-;q4!1-11! Q ^ N N N N W Vr 10'0 00N 0 N N r W vl Q N N b N N 0 YJ � N O h W 00'0 N V1 N W >NN' V to vi N On 01=01 M 0\ton 01 Om N V v m - Q W r 01 0g. - vie h N 0 vi vi 'n'e 0'O—N r1Q v1'ON 0' 0 0 0 0 0 0 0 0 0 01000000000 N N N N N N N N N 000000 0' 0' 0 0 0 0 0 0 0 0 N N N N N N N N City of Corpus Christi, T City of Corpus Christ City of Corpus Christi, Te s'6 woa3370 v 8111- .31 o 11 lira 3 �6 as gA a 1 S. .533a$l 10 Ui6g2 oPit; �Q e sg,Aaz o Y 115 4 '3 0 ;os ay V N T h 184:2 7 (J ggo 1a' 7020,2 Na 0, .9). C C 24 5B12 3,4-32 y.c U ln N,o W ti Y V �p N C V b c 3 u 9 1.6 -OU O.0 $e'o6n39' 1.11115 ! ao,'nsi &w Z -••'5S9 og=` . = 8 $ o s o' a mtS$ rs,J w9 p o a, U..O o itl 02 µ' o 5 J 56 C .$ .S .a W;a3MMa.di u8 1,00 a ' d i $ 8'a E d as2o0 m600 a1 F 6$ <5co� U V 1“111g .9 c o$ �.s'1 c'd o i o g 0 5 3= ts$sod .e �'p'84g.92„4� grits 4-0 '9 0 o 3 ou a> 3 c oy gy o V o f 11:4• O 3 5 B 0 0.8•588.!=tE c • n r. g 2 v a m c 3 9 6, 20s0G0„sfv e c o o s« E5 e is '9U 0 o -L.› V'n Q' C yg o 'S °° fl p {S. q g > y Awe City of Corpus Ch ° / ): « / `�jj § ƒ o d ),! !!1M|! \ Q ƒ § k \ / § % // 2 1111111 k// w/ ||i COLLIER, JOHNSON & WOODS, P.C. City Organizational Chart 2 2 January 28, 2009 C�r€5o9v�3m °y�C aSuaKEweud8 te$ 1 TF5•9$ u$1 • i 3' ""• .9go5Eeul9ld; 8•+�RZgilt P�asg -»=s- dE. 8gd53,Sgag°°8'08`•5" 1�3a 'ro yq�O a .5 ° °dam 44�g Y Wyp P 1'3'$]° °p° 9 aw ffi3 2mn n ap33i'ig $e 1 88n .iix E 3 8g u a 0.�$ .Sag TTy O SI° 3 ° 5-y,=';pmoo° inceo • 9� 6 g 8�1 m � A L/L/ .y gllapl 35€19Du w a 41;1. g811§=19 tlgtilt23' e!- $ Ee `2 o C E S l§ u 4 1 fl 9 U 8' City of Corpus Christi, Te MANAGEMENT'S DISCUSSION AND ANALYSIS j tt Tig iga 5 §\)0 mpared to S166.6 million for fi City of Corpus Chri 2- \ \)\ \} \\\\ta. c4oEt Z7. \7E 5 j(ta OVERVIEW OF THE FINANCIAL STATEMENTS The basic financial statements of the City of Corpus Christi are comprised of three element City of Corpus Christi. T City of Corpus Christi. T sets of the City of Corpus Chri five detail of changes in net GC Table I reflects a comparative summary of statement of net assets of the City of Corpus Christi. City of Corpus Christi, Tex 0 FINANCIAL ANALYSIS OF THE CITY'S GOVERNMENTAL FUNDS z O g N L_ G N 8 5 g .G 5 0 O9 o mN $ ~ .EV-0oc Y aL 34 O o5u G.F6 QY _ HO'OE0W'5.S "yOYocO 2,c oEci' .2 hm"tV 01,582.2-545 a E V m o 9Wg o oo0 EoaF °c3e�O F 00.826F .oNv— ory u E.c FE :Og00g=a > 0==yo E o=_N'^+ yEO .'o._0N8U. F:2i w�O gy A C d d F N t n U d °' E o e a o U o o E ErvZo ..11, �" u=� rn °q ' c�e�n-• m -1 `o c s o c i .E L'O OU' yppU 0 E„ `m °Eo0000°u.y o b0o"0>. L G W .Eu Eo F V 9a.. .CNE o 0 p °j O O F� O` O g zaa Uu° ESE 5z 5iz'k2 0 CAPITAL ASSET AND DEBT ADMINISTRATION <9 o 00 O O .Enit:;;1 L N C 0 b o y v o n A A o E E 9a1o5o°t, meE y3 u am F�°= �. U� g o N .• Ec N O N o c a z a c U°�o.Ey �oK E- o. ..r 4 F 8 o E c v w.6 E coo 2' z m t1 02gt a U 5.5°1'6 1111111 V y O 0 o O E 3 y y v c a o'4 o .82,8=11- 0.4-5E N=5 v�0000.02E 0 IlaTtog C 9 rJ- v .. y 20"'O c v E a= 0 c oEo 6 c` m m E. E m E 3 m W O 0'2 .E M 060 >.a E_ EZ ten aW vz0 a Ems' o City of Corpus Christi, Te 3 \\}j\\}g(§ .Z813 0) rints6 §. /!a, q \!\! jjt\\{\\{ 2>t=01721,01,55. o '• . /•;:7: 2! J$,•;a (})grgOt {(j/)»\\ • ta 41 -_ .9.0 • i/;( ®%# 132Et<5.E< >:!\3l,:.�r }\\�\Nt;0-E . ..,c 7)Li..0 - {)/} GENERAL FUND BUDGETARY HIGHLIGHTS City of Corpus Christi, Texas City of Corpus Christ E1 E ?'A s E C P a C o m K'Ft -8-07)=-004 C ' n L006],Z0> V Tb0m c -yUsog'u. V Si A N E p F N 2 3-E Q8 4p G O ▪ Eu‘' ° .n_ 9 9 9 g o O C V 9E WE y0 y'00 s • `r -OD 9n aa W N 0OiEuv s.0 u O F E a 0 0 F O 0 0d a v 0 v o o TN 3 -Sy .-a E °` SL 3a 5 N;'E° D G y C 9 4 E.-0 a 3 0 N C 0 L 0. 9 0 L 0 0 O o. O N o .0 s q U $ P -8 -8t8 - o0 y .c m p v o .°` d 2 l m a 4-00 ECONOMIC FACTORS AND NEXT YEAR'S BUDGET AND RATES a E > 5 O .- O C � O w 9 A O tt .E a 0 a a a o 3 d Q 0- a W E a. a a i cky a>0sfr r= fig�i.2o0 NFs°a:sy ; ..t o.� _ q V i. O G n� 0 r -O O L v C-0 L N t'>-8.-,9 ; t d V m8= -5o u fE LO. : f X n o v E n o _ 'v zs a c v v .E.as.V c .n 7p 8.';-14 0 .. F .. m " c v 4:79:2!!-P; °2Oi V p O F O> '. r O i o -_ 0_ -3 L> o 0 0. O v-- F a o c ..yogi—;006' .- _ 0° = a-- .-......- CO30T`2.04,0. cO c- u v o c c c o a Wc 0 oYa q/ ° ° .:i2 0 E' d 0 6$ u O vv 9 U ,n O $asy �� 82- 0 OU C g C 0 a`> 0 s o- 0.040 '0.5 c OavNO.0 E O W .n >> 0 0 .E a$ c E `oma mv'n Es u c v . U 8,LET I OT . F ThkO Overall, General Fund revenues were $2.6 million higher than the final budget. of Corpus Christi. Te 47111 o p VIII UUU CITY'S FINANCIAL MANAGEMENT ur web site at: www.ectexas.com City of Corpus Christi City of Corpus Ch 1 Fri rri City of Corpus Christi, To City of Corpus Ch City of Corpus Christi, Tex u° 0 0 8 City of Corpus Christi, Tex O V III o c yo: �III UUU City of Corpus Christi City of Corpus C City of Corpus Chr III o � VIII UUU City of Corpus Christi, T U Pr. u V< 0 < V< 0 gcn A City of Corpus Ch City of Corpus Christi. T City of Corpus Christi, 11� c412e) City of Corpus Christi. Texa 0 z0 o.4 wry az'+ 0 City of Corpus Christi, Texa City of Corpus Ch ON City of Corpus Chri ! ra �� || 0 u u et a pt • City of Corpus Chr City of Corpus Chi mF- 0 0. City of corpus Cl u E u City of Corpus Ch City of Corpus Chr taUg 4-73 2da i e 11 \\\42 Mil 3 WV ag 41 gC 211 sr ._;!E!gb§!-8!» «- /)ƒ<) gr 3\,5.®,e d y . . :o2�2g2 0o.2zPe0'gSNR City of Corpus Christi, Tex of Corpus Christi. Te General Fund budget amendments approved during the year included the foil !\ - 1 2 / !{}j / i{\\,\ b .2,�t • _J)a=0 S v0 !|!/ !� a 8-! Q, g!o » 3. �G,#Jze e>wla: t\*)!° ®!DRQ !! 3 f o d , :.e „ ; c!a e;. :l,3 ;D!/ -!2089)/(. .tI; � ;„ §!!//f !\!;;!!!!!:!);!`!!!!!k !O 0 0O !! rtO't'0 !!!-, }\})\) !};}!§!!§E!E!i§|;}§§I! Northside Red ry VI City of Corpus Christi, T City of Corpus Ch A summary of changes in the capita 78.799.919 20.480.495 t ery o 3 co co 3 cr : : In M N CC .71 3 City of Corpus Christi, Te City of Corpus C inn Ed eFt en en a_en o r,yn —"' eV a. ON •- e g: t°:. '°sss:jc; �ss�a‘;" ity has entered or will City of Corpus C Ciry of Corpus Chr Employment Retirement Benefits E E 4 3 F cE cd Change in Actuarial Calculation - TMRS Annual Pension Cost and Net Pension Obl 2a' 0 a E g g g ¢¢¢ g "`a.01 zzz C ,n c+ gF 0 e VId egg ig oo o b b b 471 Ca - VI VI VI in in City of Corpus Chr Post -Employment Health Care Benefits :: g e2 ue The funded status of the plan for the Eg Wi 7011 ))/in /i zlf,0 . /Q a/ : ac,q2 / ! _ -0 __ ! a EJ.. ( .»l �\ - . / \; gra ! tcn uflOgg \uS.-af 1W71\ 0]\ } 1,1 4/1 • (} ocl FAy 00 gg Acl 777 7 CO City of Corpus Chri City of Corpus Chr 11. Risk Management nd Funding Progress Og The funded status of the plan as of July 31, 2 , /) 431,762 S 67,986.606 City of Corpus Christi, Tex Long-term obligations 12. Operating Leases The following is a summary of long -teen o les include the enterprise fund City of Corpus Christi, T City of Corpus Chri ]� • o 4-1 t or El Certificates of Obligation / Total General Improvement Bonds 20 Eel tl UE cerl • zgo=. 111 ))//} • )!!§/ -0'0 EE E▪ LE • 0,o22 E • E un 0 Vs )gn\ 11,2 Certificates of Obliga Total Cenificates of Oblig City of Corpus Chri \ 0. Si \ 21 �� an 2.4 32 .28 ot` /\ at ( §] ! )! d. \ON gM utg on 28 cng 0-2 Certificates of Oblige ! 0 0 ZS 88 ta \) ton 82 00 cri Ng on 0 \\getng0.4yinornno gt ma Total Revenue Bonds - Business Type Act Total Business -type Activities ual requirements to amortize all bonded debt outstanding as of July 31. 2008, ) \ Certificates of Obli 22 \ q • }( ;°;f; \\3: )$P §}(!§}{K «!!!)(!/ §!a:X06 0,5 VI } §IEEE}\\! ) ] | ! }\\\{\\( <f«1!115 ,.� 822 / o s to zt \) to 0. 2.81 D )\ < \ /\ q \ __!!z}i§;l;\}§i / / / \dS \ oo mo oo oo 1 \} } Su So 2co oSoo City of Corpus Christi City of Corpus C ft q ƒ 0 \i E\{ \, §t011 !#!! . §. \\\\/)/2! ,m:!l=,n \} H O: A 011 / §:/\\\\� Other notes payable as of July 31, 2008, are as follows: \ ] $ 25.510.000 nding as of July 31, 2008. are as follow Governmental Ac NowNcoN ! Utility System Notes Payable \\ \)\ ,606.6 425 `1°a Fagn la,; 11 City of Corpus Christi, Te of Corpus Christi. Te Et EF -3 �r f o 8-7 E E -E 51 3 tit al = E °•E H c a witrAFainifir- EHEc VI 0 $ o ry ry A d a d rn e 2 }00000 ("I PI ry is Pipeline Acquisition Contract Payable Payment Amount Fiscal Year Endine lulu 31. 0000 cEl gEt0 n n1 F Closure and Post -closure Care Cos p _ VaFLC=C tAtg D` 88 City of Corpus Christi, Te City of Corpus Chr re SAir clet ns co et 17. Fund Deficits /) 2140 §Q/ Th" !!!! j/1 !!/; -a 004 18. Conduit Debt Obligations City of Corpus Christi ci of Corpus Christi,T U G 471111 1 g AM i UUU 'VIII o ��II dot City of Corpus Christi, Texas 0 "<s 0 0 COMBINING SCHEDULE OF V MIWII W `moi City of Corpus Christi APPENDIX C CERTAIN INFORMATION RELATING TO THE CITY OF CORPUS CHRISTI C -I [This page intentionally left blank.] C-2 The following information has been provided by the City from sources it believes to be reliable. Information contained herein regarding industries and other private institutions in the Corpus Christi area are for general background purposes only. INFORMATION CONCERNING THE CITY OF CORPUS CHRISTI Population and Location Corpus Christi is now the eighth largest city in the State of Texas with a population of 297,447 based on the City's 2008 estimate. The geographic location of the City on the Gulf of Mexico and the Intercoastal Waterway gives it one of the most strategic locations in the Southwest and has been important to its economic development. Additional general information concerning the City's population and economy can be found under the caption "Economic and Demographic Characteristics" in the City's financial information contained in Appendix B. Area The area of the City has increased through annexation as the City's population and industry grew. The City has had numerous annexations and now contains approximately 504 square miles, which is broken down to approximately 150 square miles of land and 354 square miles of water. While the area covered by water contains no population and does not require normal city services, it does produce considerable revenues from oil and gas properties located therein. Form of Government and Administration The City was incorporated in 1852. In 1909, the City was organized under a City Charter and operated as a general law city until 1926 when a Home Rule Charter with a commission form of govemment was adopted: The Charter was amended in 1945 and the present Council -Manager form of government was adopted. The City Council consists of the Mayor and eight Council Members elected for two year terms. The Mayor and three Council Members are elected at large and five Council Members from single member districts. These nine officials are listed elsewhere in this document. The City Manager is appointed by the City Council and is the Chief Administrative and Executive Officer of the City. The Director of Financial Services is appointed by the City Manager and is charged with the administration of fiscal affairs of the City. By an initiative submitted in accordance with provisions of the City Charter, on November 5, 2002, the voters in the City considered a proposition that would have amended the City Charter to make the Mayor of the City the chief administrative and executive officer of the City. The citizens of the City voted to reject this proposed amendment to the City Charter. The City Council fixes the annual tax rate based on a budget prepared under the direction of the City Manager. The names, years of services, experience, and background of certain appointed officials are as follows: C-3 Management Angel R. Escobar, City Manager Angel R. Escobar was appointed City Manager on November 11, 2008 after being appointed Interim City Manager on September 1, 2008. Prior to that time, he served as Interim Assistant City Manager of Public Works for one year until being named City Manager. Mr. Escobar also served as Director of Engineering Services from 1999 — 2007 after holding the position of Assistant Director. Before joining the City of Corpus Christi in 1989, Mr. Escobar was Partner and Senior Project Engineer/Consultant with the engineering firm of Smith & Russo Engineers/Architect. Mr. Escobar is experienced in all phases of civil engineering, public works and public administration, capital improvement programming, capital budget administration, design, construction and field administration. Mr. Escobar is credited for initiating programs to promote minority participation in City public works projects and maintained project records to document minority participation in compliance with City Council policies. Most recently, Mr. Escobar has accomplished the outsourcing of 100 percent of the studies and architectural and engineering design efforts for the City of Corpus Christi. Mr. Escobar is registered as a Professional Engineer and Professional Surveyor. He has his Bachelor of Science in Engineering from Texas A & I University and is a retired Command Sergeant Major from the U. S. Army Reserve. Oscar R. Martinez, Assistant City Manager for Public Works Oscar R. Martinez was appointed Assistant City Manager for Public Works in September 2008. As Assistant City Manager, he is responsible for overseeing Engineering, Environmental Services, Gas, General Services, Storm water, Streets, Solid Waste Services, Wastewater, and Water. Prior to that time, Mr. Martinez was appointed in October 2004 as Assistant City Manager for Administrative Services. Mr. Martinez previously served as Assistant Budget Director for the City of Corpus Christi in the mid - 80's. Prior to his recent employment with the City of Corpus Christi, he served over 14 years in workforce development as President/CEO of Work -Force 1, President/CEO of Workforce Network, Inc., Director at the Greater Corpus Christi Business Alliance, and Vice President of Workforce Development Corporation. Mr. Martinez has also been a teacher for the Corpus Christi ISD as well as the Dallas ISD. Mr. Martinez has a Master of Arts Public Administration from St. Mary's University in San Antonio, Texas and a Bachelor of Arts Political Science/Business Administration from Texas A&I University in Kingsville, Texas. He has served on several Boards including United Way, Committee on Educational Excellence, Corpus Christi Chamber of Commerce Education and Workforce Committee, Coastal Bend American Red Cross, Equality in Education Council, Corpus Christi Technical Education Advisory Council, and the Human Investment System Council, just to name a few. Margie C. Rose, Assistant City Manager for Community Services Margie C. Rose was appointed Assistant City Manager for Community Services in April 2002, having previously worked in local government for more than 20 years. Ms. Rose is responsible for the departments of Development Services, Convention Facilities, Health, Human Relations, Neighborhood Services and Park and Recreation, Libraries and Museum. In her prior positions, Ms. Rose served as Purchasing Director, Director of Administrative Services, Director of Department of Public Services, Assistant City Manager and City Manager for the City of Inkster, Michigan. She also served as Deputy Director of Parks for the County of Wayne, Michigan. Ms. Rose served on various professional committees including the Michigan Municipal League Finance and Taxation Committee, International City/County Management Planning Committee and the Michigan City Management Workplace Diversity Committee. Ms. Rose received her BBA (Accounting) degree in 1984 and her MPA in 1991, both from Eastern Michigan University. C-4 Juan "Johnny" Perales, P.E., Assistant City Manager for Development Services Juan Perales, Jr., P.E., was appointed Interim Assistant City Manager for Development Services on January 23, 2009. In this role, Mr. Perales is responsible for Department of Development Services, and oversees all planning, development, and permitting activities for the City of Corpus Christi. Mr. Perales had served as Deputy Director for the Department since January 29, 2007. In other assignments with the City of Corpus Christi, he served as a Project Engineer and later Major Projects Engineer with the Department of Engineering Services between 1991 and 1996. From 1996 to 2007, he served as Facilities Superintendent and later Assistant Director for the City's Wastewater Department. Mr. Perales is a licensed engineer in the State of Texas, having graduated from the University of Texas with a degree in Civil Engineering. Cindy O'Brien, CPA, Interim Assistant City Manager for Administrative Services Cindy O'Brien was appointed Interim Assistant City Manager for Administrative Services in September 2008. In that role, Ms. O'Brien is responsible for overseeing the Finance, Budget, Municipal Information Systems, Human Resources, Community Development, Municipal Court -Administration, and E - Government Departments. Prior to that time, Ms. O'Brien was appointed Chief Financial Officer for the City in February 2007 after having served as Director of Financial Services for four years and after serving in the Office of Management and Budget for two years. There, she served, first as Assistant Director, then as Acting Director before her current appointment. Prior to her position in Management and Budget, Ms. O'Brien served for over seventeen years in the Finance Department, holding various positions including Chief Accountant. Ms. O'Brien is a Certified Public Accountant and holds a B. B. A. degree from Sam Houston State University where she majored in Accounting. She is a member of the Government Finance Officers Association, national and state organizations, as well as the Government Treasurers Organization of Texas. Constance P. Sanchez, CPA, CPM, Interim Director of Financial Services Constance P. Sanchez was appointed Interim Director of Financial Services in September 2008. In that role, Ms. Sanchez is responsible -for all areas of financial management, including financial reporting, accounting, budgeting, treasury, revenue and collections, purchasing, and the utility business office which includes billing, field services, and customer services for the City of Corpus Christi. Before that time, she was appointed Assistant City Auditor, Auditor, Chief Accountant, Assistant Director of Financial Services, and most recently Deputy Director of Financial Services. Prior to her 17 years with the City, Ms. Sanchez was an auditor with KPMG Peat Marwick for three years. Ms. Sanchez is a member of the American Institute of Certified Public Accountants (AICPA), the Texas Society of Certified Public Accountants (TSCPA), and a member of the Government Finance Officers Association of Texas. Ms. Sanchez, a life-long citizen of Corpus Christi, was valedictorian of her high school class. She received an Associates of Arts degree in Business Administration from Del Mar College and a Bachelor of Business Administration degree — magna cum laude, from Corpus Christi State University. Ms. Sanchez is a Certified Public Accountant and a Certified Public Manager. Certain Governmental Services Provided by the City Public Safety ... The City provides police protection, fire protection, building inspection, street lighting and traffic signals, and civil defense. Law enforcement and civil defense is provided through the Police Department. The City's Fire Department operates 16 fire stations throughout the City and the Emergency Medical Service. C-5 Public Services . In addition to operating its water, wastewater disposal, and gas systems, the City also provides garbage collection and disposal and maintenance of streets and storm drainage areas. Community Enrichment ... The City has a main library and four branches which are equipped with over 413,308 volumes. The City owns and maintains approximately 190 parks containing over 1,581 acres. The City also owns extensive recreational facilities including 139 playgrounds, a marina with 580 yacht basin slips, 4 municipal beaches, 2 public golf courses, 10 swimming pools, 49 tennis courts, a number of baseball and softball diamonds, 5 recreational centers, and 8 senior citizen centers. In addition, the City owns an auditorium, a coliseum, Harbor Playhouse, the Corpus Christi Museum, the Multicultural Center, the Water Garden, and a Community Convention facility. Airport and Transit System ... The City owns the Corpus Christi International Airport situated on 2,428 acres. The Regional Transportation Authority operates the regional transportation system which provides passenger bus and paratransit service within the area and seasonal services including a passenger ferry connecting several tourist attractions. Health ... The City maintains preventive health services through health facilities within the community. The City does not have the responsibility of maintaining hospitals, a school system, or a higher education system, and does not expend any funds in providing welfare. THE CITY'S FINANCIAL PROCEDURES Audit and Financial Reporting The City Charter requires an annual audit to be made of the books of accounts, records, and transactions of the City by a Certified Public Accountant. The fiscal year of the City begins the first day of August of each year and ends with the thirty-first day of July of the following year. The Government Finance Officers Association of the United States (the "GFOA") first awarded the City its Certificate of Conformance, later termed the Certificate of Achievement for Excellence in Financial Reporting, for its annual financial report for 1957. The City was awarded the same recognition for its 1970, 1975, 1978, 1979, 1983, and 1984 through 2007 financial reports. Budget Procedures State laws and the City Charter require the preparation and filing of an annual budget. The City Manager submits a proposed budget to the City Council at least sixty days prior to the beginning of the fiscal year which estimates revenues and expenses for the next year. The proposed expenditures will not exceed estimated revenues. The City Council shall adopt a balanced budget prior to the beginning of the fiscal year. If the City Council fails to adopt a budget by the beginning of the fiscal year, the amounts appropriated for current operations for the current fiscal year are deemed the adopted budget for the ensuing fiscal year on a month-to-month basis until such time as the City Council adopts a budget for the ensuing year. Significant Accounting Policies The City prepares its financial statements in accordance with the generally accepted accounting principles for local governmental units as prescribed by the Governmental Accounting Standards Board and the American Institute of Certified Public Accountants. A summary of significant accounting policies of the City are set out in the Notes to Financial Statements for the fiscal year ended July 31, 2008 located referenced elsewhere in the financial section of the Official Statement. C-6 Population The revised 2000 United States Census population for Corpus Christi is 277,454, which is approximately eight percent greater than the population reported in 1990. The table shows the history of population from 1920 to 2000: Population Percent of Increase Over United States Census Figures for 1920 - 1990 Preceding Census 1920 10,522 27% 1930 27,541 162% 1940 57,301 108% 1950 108,053 89% 1960 167,690 55% 1970 204,525 22% 1980 232,134 13% 1990 257,543 11% 2000 277,454 8% Corpus Christi Standard Metropolitan Statistical Area (SMSA) consists of Nueces and San Patricio Counties, and, according to the 2000 United States Census, had a population of 380,783. It is estimated that the population in the SMSA will exceed 403,000 in the next ten years. Trade Area and Location Corpus Christi's trade area consists of five counties, Nueces, San Patricio, Aransas, Jim Wells, and Kleberg. Each of the counties maintains a solid and diversified economic base which contributes material support to Corpus Christi due to its location as a trade center and shipping point. The land is generally flat with strong mineral deposits, rich soil, excellent climate, and a growing season of approximately 300 days. Grain sorghum and cotton are the principal agricultural crops. The region also has a strong supply of livestock including beef, dairy cattle, hogs, and poultry. The oil and gas industry is a major factor in the growth and economic stability within the trade area. Mineral values vary depending on world market and demand. This industry also provides a secondary market for petro by-products and chemicals. The trade area's principal outlet for agricultural and petroleum products is the Port of Corpus Christi, which has served the area for over seventy ycars. The rebuilt grain elevator, completed in 1983, has added to the Port's capacity to handle various agricultural products. In 2004, the Port handled a volume of 86.4 million tons of cargo, including 74.2 million tons of petroleum products. Corpus Christi has one of the most strategically located waterways in the Southwest, with deep water transportation to the Gulf of Mexico and barge traffic all along the Texas Coast via the Intracoastal waterway. The nearest other port is in Brownsville, 160 miles to the south; nearest retail and wholesale outlet is San Antonio, 145 miles to the northwest; and the nearest heavy industry competition is Houston, 210 miles to the northeast. C-7 Business Corpus Christi continues to grow as a regional center for a 12 -county area. Several new businesses were attracted to the City in the past year, including Graduate Loan Services, a financial call center, Gateway Shipping, a stevedore company, and Combex Westhem LLC, a modular home manufacturer. The Padre Island Drive shopping corridor also added a number of new restaurants and other retail businesses. Retail sales grew by 9.8% as measured by sales subject to sales tax. Recent capital investments underway by the public and not-for-profit sectors is estimated at $488 million, while private investments topped $1 billion. Most recently, Toyota has announced its intention to construct a major international auto manufacturing center in south San Antonio, Texas, a short distance away from Corpus Christi. This facility may have use for the Port of Corpus Christi facilities, thus having the effect, if so used, of contributing to the local economy. Several major construction and transportation projects are in various stages of planning or construction. A $46 million airport renovation project has been completed. The Texas Department of Transportation has two projects under construction. The $45 million elevation of the JFK Causeway, of which the City is funding $4 million, will provide a safe evacuation route from Padre and Mustang Islands and provide environmental benefits. The $36 million current phase of the extension of the Crosstown Expressway will connect Downtown and the Southside of town with a continuous freeway. A $30 million project on Padre Island will re -open Packery Channel, creating a route for pleasure and fishing boats between the Laguna Madre and the Gulf of Mexico. A large tourist development of condos, restaurants, and retail establishments is in the planning phase. The City's portion of the cost of dredging Packery Channel is funded through Tax Increment Financing. The Texas State Aquarium has recently concluded a $14 million expansion which allows exhibition of dolphins that cannot be returned to their natural habitat. A $30 million multipurpose arena to be constructed by the City in the downtown area opened in November 2004. Whataburger Field, a newly opened baseball stadium, that houses a AA major league affiliate baseball team was opened on April 17, 2005. Industry Corpus Christi industry provides a diversified product market including metal fabrication, chemical processing, farm and ranch equipment, oil field equipment, cement, food processing, electronic, petrochemical products, fishing and seafood products and more. The diversification is primarily due to the commitment of City leadership. The Port of Corpus Christi Authority opened the area to world markets in 1926. Today, it is the seventh largest port in the United States. The Port's channel stretches over 30 miles and links the City of Corpus Christi with the Gulf of Mexico. Deeper channels have for decades allowed Corpus Christi to be a competitive port for bulk commodities requiring large, deep draft vessels. It is the terminus of network of oil and gas pipelines throughout Southwest Texas and extending into West Texas. The Authority has two major projects, the Joe Fulton International Trade Corridor and the Channel Improvement Project, that will require significant funding in the future. These projects will be funded from federal and state assistance, revenue bonds and the Authority's unrestricted net assets. Joe Fulton International Trade Corridor This corridor encompasses an 11.5 -mile road and rail project that will significantly improve access to more than 2,000 acres of land along the North side of the channel for existing and future development. C-8 The corridor will connect two major highway components- US Highway 181 and Interstate Highway 37 - thus, establishing efficient intermodal links between highway, marine, and rail transportation systems. Most important, it is anticipated that the corridor will generate future economic development opportunities for South Texas. Construction began in 2004 and was completed in October, 2007. Channel Improvement Project In 2003, the Authority completed the feasibility phase of the Channel Improvement Project and is currently awaiting authorization through the Water Resources Development Act (WRDA) to begin the project. The project will include deepening the Corpus Christi Ship Channel from 45 to 52 foot, adding barge shelves on both sides of the ship channel and extending the La Quinta Channel to serve the proposed La Quinta Trade Gateway project. Although the project is still pending WRDA authorization, the engineering and design phase is underway and costs are shared 25% from the Authority and 75% from federal funds. Upon authorization of the project, the improvements will be constructed in seven contracts beginning in 2007 and ending in 2013. Total improvements will cost approximately $150 million. The Port is constantly upgrading and expanding facilities to better serve south Texas industry and shippers. In 2005, major capital expenditures include Gulf Compress Cotton Warehouses, Joe Fulton International Trade Corridor, security enhancements, vessel traffic information system, waterfront site development, water taxi and southside military Rail Yard for a total of $37,898,615. Tourism and Convention Business Corpus Christi continues to be a favorite vacation spot for visitors, as reflected by the ranking of the sixth most popular tourist destination in Texas. Nearly seven million visitors visited Corpus Christi during the two year period 2007-2008 spending on the average, approximately $1 billion per year. Visitors stayed longer in Corpus Christi than in other areas of the State - an average of 2.3 days in Corpus Christi compared to 2.1 days in all of Texas. The number one reason visitors flock to the area has always been to enjoy miles of blazing white beaches along Mustang and Padre Islands, the longest barrier island in nature fronting on the Gulf of Mexico. The opposite side of the barrier provides a shoreline for Corpus Christi Bay, Laguna Madre, and the various bays and bayous north of the Coastal Bend which is ideal for outdoor recreation. Tourist facilities located within the City include: a multi-purpose arena at the American Bank Center, Whataburger Field which houses a AA major league affiliate baseball team, the Texas State Aquarium, the USS Lexington Museum, the Museum of Science and History, the South Texas Art Museum, the Asian Cultures Museum, the Multicultural Center/Heritage Park complex, and the Concrete Street Amphitheater. The Corpus Christi area is also a renowned location for water sports, including windsurfing and kiteboarding, and serves as a host to the annual U.S. Open Windsurfing Regatta and international power and sail boat races and the Texas International Boat Show. International Flavor The City of Corpus Christi is a member of Sister Cities International. Through Sister Cities International, Corpus Christi has established affiliations with Keelung, Taiwan; Veracruz, Mexico; Yokosuka, Japan; Agen, France; and Toledo, Spain. The City and nearby neighbor, Monterrey, Mexico, have established a Partner in Trade affiliation that emphasizes business and cultural opportunities for cooperative ventures. C-9 Yokosuka, Japan sends up and coming city employees to Corpus Christi for overseas' training in public service and an exchange that teaches the different facets of volunteerism in Japan. In addition to establishing a "Partner in Trade" with Monterrey, the City has established closer ties with cousins in 23 countries including Austria, Belgium France, Spain, Italy, and others. Proximity to San Antonio Corpus Christi continues to benefit from tourist attractions in San Antonio. San Antonio is located 2.5 hours by automobile north of Corpus Christi with easy access by Interstate 37, and Corpus Christi is favorably viewed as an attractive one -day trip by San Antonio visitors. With Corpus Christi's growing list of attractions, which include the Texas State Aquarium, the U.S.S. Lexington Museum on the Bay, and the Las Carabelas Columbus ship exhibit, visitors may be tempted to stay a little longer. Foreign Trade Zone The Port of Corpus Christi Authority operates one of the largest Foreign -Trade Zones (FTZ) in the United States. The Zone includes an Industrial Park near the Airport, two full service public warehouses near the Airport, all Port properties (7,000) acres that are available for storage and/or industrial activity, three bulk fuel terminals, six refinery subzones, two metal fabrication (offshore oil platforms and towers) subzones, and two minerals processing subzones. The Port's FTZ department is a full service Grantee assisting clients with applications, FTZ training, interpretation of Customs regulations, and interface with Customs officials. Corpus Christi Enterprise Zone The City of Corpus Christi has a State of Texas approved Enterprise Zone to assist in economic development activities. The Enterprise Zone contains approximately 14 square miles. In the 8 -year existence of the Enterprise Zone, over $2.5 billion of State of Texas approved Enterprise Zones projects have begun within the Enterprise Zone. While numerous State benefits for companies locating in the Enterprise Zone are available, the City also provides incentives for companies locating within the Enterprise Zone. - Private Utilities Telecommunications and electrical service are available from several providers. [The remainder of this page intentionally left blank.] C-10 Construction The Table below indicates the amount of new construction activity in Corpus Christi and the number of permits issued for all purposes. Year 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 Building Permits Number of Permits 5,984 5,845 4,761 5,207 4,565 4,012 5,781 5,989 5,693 5,118 Value $ 142,154,244 152,987,779 149,264,763 154,763,863 333,016,517" 295,084,882 387,122,147 450,750,242 503,027,247 343,865,608 (11 Based upon the construction of several large commercial projects, including shopping malls. Employment The following table indicates the total civilian employment in the Corpus Christi MSA for the period December 2008 as compared to the prior periods of November 2007 and December 2007: Civilian Labor Force Unemployment Percent Unemployment Total Employment December 2008 November 2007 December 2007 200,600 11,000 5.5% 189,600 201,100 10,700 5.3% 190,400 The following table shows certain nonagricultural wage and salary employment in the MSA for the period December 2009 as compared to the prior periods of November 2008 2007: Natural Resource & Mining Manufacturing Wholesale Trade Retail Trade Transportation, Warehouse & Public Utilities Information Financial Activities Professional & Business Services Education & Health Services Leisure & Hospitality Other Services Government Total December 2008* November 2007 21,000 10,900 5,700 22,200 5,300 2,400 8,300 16,400 27,600 21,000 6,300 32,700 179,800 *Estimates for the current month are preliminary Source: Texas Workforce Commission, Labor Market Review, February 2006. C -I1 21,200 10,900 5,700 21,600 5,300 2,400 8,300 16,400 27,500 21,100 6,300 32,900 179,600 197,300 8,700 4.4% 188.600 Corpus Christi and December December 2007 20,900 11,000 5,700 20,600 5,300 2,400 8,300 16,000 26,900 20,600 6,300 32,500 177,500 [This page intentionally left blank.] C-12 APPENDIX D FORM OPINION OF BOND COUNSEL D -I [This page intentionally left blank.] D-2 FULBRIGHT & JAWORSKI L.L.P. A REGISTERED LIMITED LIABILITY PARTNERSHIP 300 CONVENT STREET. SUITE 2200 SAN ANTONIO. TEXAS 78205-3792 WWW.FULBRIGHT.COM TELEPHONE: (210) 224-8878 FACSIMILE' (210) 270-7208 FINAL IN REGARD to the authorization and issuance of the "City of Corpus Christi, Texas Utility System Revenue Improvement Bonds, Series 2009" (the Bonds), dated March 1, 2009, in the aggregate principal amount of $96,490,000 we have reviewed the legality and validity of the issuance thereof by the City of Corpus Christi, Texas (the City). The Bonds are issuable in fully registered form only, in denominations of 55,000 or any integral multiple thereof, and have Stated Maturities of July 15 in each of the years 2011 through 2027, July 15, 2029, July 15, 2033, and July 15, 2039, unless optionally or mandatorily redeemed prior to Stated Maturity in accordance with the terms stated on the face of the Bonds. Interest on the Bonds accrues from the dates, at the rates, in the manner, and is payable on the dates, all as provided in the ordinance (the Ordinance) authorizing the issuance of the Bonds. WE HAVE SERVED AS BOND COUNSEL for the City solely to pass upon the legality and validity of the issuance of the Bonds under the laws of the State of Texas and with respect to the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes and for no other purpose. We have not been requested to investigate or verify, and have not independently investigated or verified, any records, data, or other material relating to the financial condition or capabilities of the City or the City's combined utlilty system and have not assumed any responsibility with respect to the financial condition or capabilities of the City or the disclosure thereof in connection with the sale of the Bonds. We express no opinion and make no comment with respect to the sufficiency of the security for or the marketability of the Bonds. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. WE HAVE EXAMINED the applicable and pertinent laws of the State of Texas and the United States of America. In rendering the opinions herein we rely upon (1) original or certified copies of the proceedings of the City Council of the City in connection with the issuance of the Bonds, including the Ordinance; (2) customary certifications and opinions of officials of the City; (3) certificates executed by officers of the City relating to the expected use and investment of proceeds of the Bonds and certain other funds of the City, and to certain other facts within the knowledge and control of the City; and (4) such other documentation, including an examination of the Bond executed and delivered initially by the City, which we found to be in due form and properly executed, and such matters of law as we deem relevant to the matters discussed below. In such examination, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original copies of all documents submitted to us as certified copies, and the accuracy of the statements and information contained in such certificates. We express no opinion concerning any effect on the following opinions which may result from changes in law effected after the date hereof. BASED ON OUR EXAMINATION, IT IS OUR OPINION that the Bonds have been duly authorized and issued in conformity with the laws of the State of Texas now in force and that the Bonds are valid and legally binding special obligations of the City enforceable in accordance with the terms and conditions described therein, except to the extent that the enforceability thereof may be affected by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors' rights or the D-3 Legal Opinion of Fulbright & Jaworski L.L.P. in connection with the authorization and issuance of "CITY OF CORPUS CHRISTI, TEXAS UTILITY SYSTEM REVENUE IMPROVEMENT BONDS, SERIES 2009" exercise of judicial discretion in accordance with general principles of equity. The Bonds are payable from and equally and ratably secured solely by a first and prior lien on and pledge of the Pledged Revenues (as defined in the Ordinance), on a parity with the currently outstanding Previously Issued Priority Bonds (as defined in the Ordinance), derived from the operation of the System. In the Ordinance, the City retains the right to issue Additional Priority Bonds (as defined in the Ordinance), and bonds or other evidences of indebtedness whose lien on and pledge of the Pledged Revenues shall be subordinate and inferior to that possessed by the Priority Bonds without limitation as to principal amount but subject to any terms, conditions, or restrictions as may be applicable thereto under law or otherwise. The Bonds do not constitute a legal or equitable pledge, charge, lien, or encumbrance upon any property of the City or the System, except with respect to the Pledged Revenues. The holder of the Bonds shall never have the right to demand payment of the Bonds out of any funds raised or to be raised by taxation. IT IS FURTHER OUR OPINION THAT, assuming continuing compliance after the date hereof by the City with the provisions of the Ordinance and in reliance upon the certificate of the financial advisors and upon the representations and certifications of the City made in a certificate of even date herewith pertaining to the use, expenditure, and investment of the proceeds of the Bonds, under existing statutes, regulations, published rulings, and court decisions (1) interest on the Bonds will be excludable from the gross income, as defined in section 61 of the Internal Revenue Code of 1986, as amended to the date hereof (the Code), of the owners thereof for federal income tax purposes, pursuant to section 103 of the Code, and (2) interest on the Bonds will not be included in computing the alternative minimum taxable income of the owners thereof. WE EXPRESS NO OTHER OPINION with respect to any other federal, state, or local tax consequences under present law or any proposed legislation resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, S corporations with subchapter C earnings and profits, owners of an interest in a financial asset securitization investment trust, individual recipients of Social Security or Railroad Retirement Benefits, individuals otherwise qualifying for the earned income credit, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. OUR OPINIONS ARE BASED on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. D-4 APPENDIX E SPECIMEN OF MUNICIPAL BOND INSURANCE POLICY E-1 [This page intentionally left blank.] E-2 ASSURED GUARANTY '.. ENDURING FINANCIAL STRENGTH Financial Guaranty Insurance Policy Issuer. Obllgadons Assured Guaranty Corp., a Maryland corporation (" and on the teens and subject to the ondkions of this Policy (wh' irrevocably agmes to pay to the trustee. (the 'Trustee") or the pay documentation providing for the issuance of and searing Payments which shall became Due for Payment but sha Policy No.: Premktnc E Assured Guaranty will make such Insure applicable principal or interest becomes Due for Guaranty shall have Received a completed does not in any instance conform to the to shall promptly give notice to the Trustee�r submit an amended Notice of Nonp. nen Th upon receipt by the Trustee or th such payments, and (ii) evide rights te payment of such pd such disbursement Assure receipt of payment of thereunder, indudinabout the Trustee or the ' eying the extent of such nt of the Premium unconditionally and igations (as set fodh in the at portion of the Insured to 'e •1te. . th. (i a sI : s If. •liceo •np o- sha ce•[. SU en cta n the later to occur of (i) the date awing the day on which Assured t by Assured Guaranty is incomplete or med not Received, and Assured Guaranty notice, the Trustee or the Paying Agent may arse the Insured Payments to the Holders only to it of (i) evidence of the Holder's right to receive instruments of assignment, that all of the Holder's n vest in Assured Guaranty. Upon and to the extent of Iden .f r Obligations, any appurtenant coupon thereto and right to eon, , d sha I be fully subrogated to all of the Holder's right, title and interest paymen in respect of the Obligations. Payment by Assured Guaranty to Ba.asba discharge the obligation of Assured Guaranty under this Policy to le by ssured anty for any reason. The Premium on this Policy is not refundable for any against sof prepayment premium or other acceleration payment which at any time may yahoo, nth:. ran at the sole option of Assured Guaranty, nor against any risk other than Excedified by any endorsementhereto, the following [onus shall have the meanings specified for al purposes of thi •ori . " vo • - • Payment" means any amount previously distributed to a Holder in respect of any Insured Payment by or on eh. •f th- Issuer, which amount has been recovered from such Holder pursuant to the United States Bankruptcy Code in : ecordance with a final, nonappealable order of a court having competent jurisdiction that arch paynhent. constitutes an avoidab . ..-nice with respect to such Holder. 'Business Day" means any day other than (1) a Saturday or Sunday, (ii) any day on which the offices of the Trustee, the Paying Agent or Assured Guaranty are closed, or (iii) any day on which banking institutions are authorized or required by law, executive order or governmental decree to be dosed in the City of New York or ire the State of Maryland. 'Due for Payment" means (i) when referring to the principal of an Obligation, the stated maturity date thereof, or the date on which such Obligation shall have been duly called for mandatary sinking fund redemption, and does not refer to any earlier date on which payment is due by reason of a call For redemption (other than by mandatory sinking had redemption), acceleration or other advancement of maturely (unless Assured Guaranty in its sole discretion elects to make any principal payment in whole or in part, on such eadier date) and (i) when referring to interest on an Obligation, the stated date for payment of such interest. 'Holder" means, in respect of any Obligation, the person or entity who, at the time of Nonpayment, is entitled under Me teens of such Obligation to payment of principal or interest thereunder, except that Holder shall not include the Issuer or any person or entity whose direct or indirect obigatcn constitutes the underlying security fur the Obligations. 'insured Payments" means that portion of the principal of and interest on the Obligations that shall become Due for Payment but shall be unpaid by reason of Nonpayment Insured Payments shall not include any additional amounts owing by the Issuer solely as a insult of the fallure by the Trustee or the Paying Agent to pay such amount when due and payable, including without limitation any such additional amounts as may be attributable to penalties or to interest accruing at a default rate. to amounts payable in respect of indemnification, or to any other additional amounts payable by the Trustee or the Paying Agent by reason of such failure. 'Nonpayment" means, in respect of an Obligation, the failure of the Issuer to have provided sufficient lands to the Trustee or the Paying Agent for payment in full of all principal and interest Due for Payment on such Obligation. It is further understood that the term 'Nonpayment" in respect of an Obligation includes any Avoided Payment. Receipt" or 'Received" means actual receipt or notice of or, if notice is given by overnight or other delivery service, or by certified or registered United States mail, by a delivery receipt signed by a person authorized to accept delivery on behalf of the person to whom the notice was given. Notices to Assured Guaranty may be nailed by registered mai or personally delivered or telecopied to it at 1325 Avenue of the Americas, New York, New York 10019, Telephone Number (212) 974-0100, Facsimile Number (212) 5813268, Attention: Risk Management Department - Public Finance Surveillance, with a copy to the General Counsel, er to such other address as shall be specified by Assured Guaranty to the Trustee Page 1 d2 Form IW -FG (05107) E-3 or the Paying Agent in writing. A Notice of Nonpayment will be deemed to be Received by Assured Guaranty on a given Business Day it it is Received prior to 12:00 noon (New York City time) on such Business Day; otherwise it will be deemed Received on the next Business Day- Term' means the period from and including the Effective Date until the earlier of (i) the maturity date for the Obligations. or (ii) the date on which the Issuer has made all payments required to be made on the Obligations. At any time during the Term of this Policy, Assured Guaranty may appoint a fiscal agent (the 'Fiscal Agent) for purposes of this Policy by written notice to the Trustee or the Paying Agent, specifying the name and notice address of such Fiscal Agent. From and after the date of Receipt of such notice by the Trustee or the Paying Agent, copies of all notices . • documents required to be delivered to Assured Guaranty pursuant to this Policy shall be delivered simultaneously to the Fis Guaranty. All payments required to be made by Assured Guaranty under this Policy may be made directly by the Fiscal Agent on behalf of Assured Guaranty. The Fiscal Agent Is the agent of Assured Gu shell in no event be Roble to the Trustee or the Paying Agent for any acts of the Fiscal Agent a deposit, or cause to be deposited, sufficient funds to make payments due under this Policy. al To the fullest extent permitted by applicable law, Assured Guaranty hereby Holders only. all rights and defenses of any kind (including. without limitation, the defens other circumstance that would have the effect of discharging a surety, guarantor or available to Assured Guaranty to deny or avoid payment of its obligations u provisions hereof. Nothing in this paragraph will be construed (i) to waive, limit or reserves, Assured Guaranty's rights and remedies. Including, without limits' (basad on contractual rights. securities law violations, fraud or other tau whether directly or acquired as a subrogee. assignee or otherwise. su Agent, in accordance with the express provisions hereof. and/or (ii have been previously paid or that are not otherwise due in accorden This Policy (which includes each endorsement h to the subject matter hereof, and may not be modified. alta limitedon, any modifioadon thereto or amendment Maeof INSURANCE SECURITY FUND SPECIFIED IN AR by, and shall be construed in accordance with,1 IN WITNESS WHEREOF, Assured its duly authorized office,. and to become effect (SEAL) Page 2 of 2 Form NY -FG (0507) lo) se ed or affect OF ate or 'th l in n. es of a nt a er t erwis ht • a a• 'ns a •a n •, re r•' -le :.flh As n •nly, :ndr failure , urs nt and to Assured red Guaranty or Fiscal Agent Guaranty to vas, in of frau r pe on' la !icy accor ir, and ny • ers•, entit to a Trust anty o re d b CYI. HE NEW YO New any uaran an d th e lo vara se the bane em: in facto eq `t) -- t may Wit ran a of the ny nc: ured G n•T ing • s agr. - nt • i R IN E-4 e •ass xpressly °ovaries each case, or the Paying y amounts that d Guaranty with respect hument, including, without HE PROPERTY/CASUALTY W. This Policy will be governed a - • with its corporate seal, to be signed by ty by virtue of such signature. URED GUARANTY CORP. By: [Insert Authorized Signatory Name( (Insert Authorized Signatory Tide) Signature attested to by: Counsel M. E. Allison & Co., Inc. INVESTMENT BANKERS 950 E. Basse Rd., 2nd Floor San Antonio, TX 78209-1831 Financial Advisor A. FORM OF DEFINITIVE BOND. REGISTERED NO. EXHIBIT C REGISTERED PRINCIPAL AMOUNT United States of America State of Texas Counties of Nueces and San Patricio CITY OF CORPUS CHRISTI, TEXAS UTILITY SYSTEM REVENUE IMPROVEMENT BOND SERIES 2009 Bond Date: March 1, 2009 Interest Rate: Stated Maturity: CUSIP No.: ON THE MATURITY DATE SPECIFIED ABOVE, THE CITY OF CORPUS CHRISTI, IN NUECES AND SAN PATRICIO COUNTIES, TEXAS (the "Issuer"), hereby promises to pay to , or to the registered assignee hereof (either being hereinafter called the "registered owner") the principal amount of DOLLARS and to pay interest thereon from the Bond Date specified above, on July 15, 2009 and semiannually on each January 15 and July 15 thereafter to the maturity date specified above, or the date of redemption prior to maturity, at the interest rate per annum specified above; except that if the Paying Agent/Registrar's Authentication Certificate appearing on the face of this Bond is dated later than July 15, 2009, such interest is payable semiannually on each January 15 and July 15 following such date. THE PRINCIPAL OF AND INTEREST ON this Bond are payable in lawful money of the United States of America, without exchange or collection charges. The principal of this Bond shall be paid to the registered owner hereof upon presentation and surrender of this Bond at maturity or upon the date fixed for its redemption prior to maturity, at the designated trust office in Dallas, Texas (the "Designated Trust Office") of The Bank of New York Mellon Trust Company, N.A., which is the "Paying Agent/Registrar" for this Bond. The payment of interest on this Bond shall be made by the Paying Agent/Registrar to the registered owner hereof on each interest payment date by check or draft, dated as of such interest payment date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the Issuer required by the ordinance authorizing the issuance of this Bond (the "Bond Ordinance") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided; and such check or draft shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, on each such interest payment date, to the registered owner hereof, at its address as it appeared on the last business day of the month next preceding each such date (the "Record Date") on the Registration Books kept by the Paying Agent/Registrar, as hereinafter described. Any accrued interest due at maturity or upon the redemption of this Bond prior to maturity as provided herein shall be paid to the registered owner upon presentation and surrender of this Bond for redemption and payment at the Designated Trust Office of the Paying Agent/Registrar. The Issuer covenants with the registered owner of this Bond that on or before each principal payment 80470964.4 C-1 date, interest payment date, and accrued interest payment date for this Bond it will make available to the Paying Agent/Registrar, from the "Debt Service Fund" created by the Bond Ordinance, the amounts required to provide for the payment, in immediately available funds, of all principal of and interest on the Bonds, when due. IF THE DATE for the payment of the principal of or interest on this Bond shall be a Saturday, Sunday, a legal holiday, or a day on which banking institutions in the City where the Designated Trust Office of the Paying Agent/Registrar is located are authorized by law or executive order to close, or the United States Postal Service is not open for business, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or day on which banking institutions are authorized to close, or the United States Postal Service is not open for business; and payment on such date shall have the same force and effect as if made on the original date payment was due. THIS BOND is one of a series of bonds of like tenor and effect except as to number, principal amount, interest rate, maturity, and right of prior redemption, dated as of the Bond Date specified above, aggregating $96,490,000 (herein sometimes called the "Bonds"), issued for the purposes of acquiring, purchasing, constructing, improving, repairing, extending, equipping, and renovating the City's combined waterwork system, wastewater disposal system and gas system (collectively, the "System"), and to pay the costs of issuing the Bonds. THE OUTSTANDING BONDS maturing on and after July 15, 2019 may be redeemed prior to their scheduled maturities, at the option of the Issuer, in whole, or in part on July 15, 2018, or on any date thereafter, at the redemption price of par plus accrued interest thereon to the date fixed for redemption. The Bonds or portions thereof redeemed within a maturity shall be selected by lot or other customary random method selected by the Paying Agent/Registrar (provided that a portion of a Bond may be redeemed only in an integral multiple of $5,000); provided, further, that during any period in which ownership of the Bonds is determined only by a book entry at a securities depository for the Bonds, if fewer than all of the Bonds of the same maturity and bearing the same interest rate are to be redeemed, the particular Bonds of such maturity and bearing such interest rate shall be selected in accordance with the arrangements between the City and the securities depository. THE BONDS are also subject to mandatory redemption in part by lot pursuant to the terms of the Ordinance, on July 15, 2029, July 15, 2033, and July 15, 2039 in the following years and in the following amounts, at a price equal to the principal amount thereof and accrued and unpaid interest to the date of redemption, without premium: Term Bonds Stated to Term Bonds Stated to Mature on July 15, 2029 Mature on July 15, 2033 80470964.4 Principal Principal Year Amount ($) Year Amount ($) 2028 3,475,000 2030 3,850,000 2029 3,655,000* 2031 4,050,000 2032 4,265,000 2033 4,485,000* C-2 Term Bonds Stated to Mature on July 15. 2039 Principal Year Amount ($) 2034 4,725,000 2035 4,975,000 2036 5,245,000 2037 5,525,000 2038 5,825,000 2039 6,135,000* * stated maturity TO THE EXTENT, however, that Bonds subject to sinking fund redemption have been previously purchased or called for redemption in part and otherwise than from a sinking fund redemption payment, each annual sinking fund payment for such Bond shall be reduced by the amount obtained by multiplying the principal amount of Bonds so purchased or redeemed by the ratio which each remaining annual sinking fund redemption payment for such Bonds bears to the total remaining sinking fund payments, and by rounding each such payment to the nearest $5,000 integral; provided, that during any period in which ownership of the Bonds is determined only by a book entry at a securities depository for the Bonds, the particular Bonds to be called for mandatory redemption shall be selected in accordance with the arrangements between the City and the securities depository. AT LEAST thirty (30) days prior to the date any such Bonds are to be redeemed, a notice of redemption, authorized by appropriate resolution passed by the Governing Body, shall be given in the manner set forth below. A written notice of such redemption shall be given to the registered owner of each Bond or a portion thereof being called for redemption by depositing such notice in the United States mail, first class postage prepaid, addressed to each such registered owner at his address shown on the Registration Books kept by the Paying Agent/Registrar. By the date fixed for any such redemption due provision shall be made by the City with the Paying Agent/Registrar for the payment of the required redemption price for the Bonds or the portions thereof which are to be so redeemed, plus accrued interest thereon to the date fixed for redemption. If such written notice of redemption is given, and if due provision for such payment is made, all as provided above, the Bonds, or the portions thereof which are to be so redeemed, thereby automatically shall be redeemed prior to their scheduled maturities, shall not bear interest after the date fixed for their redemption, and shall not be regarded as being Outstanding except for the right of the registered owner to receive the redemption price plus accrued interest to the date fixed for redemption from the Paying Agent/Registrar out of the funds provided for such payment. The Paying Agent/Registrar shall record in the Registration Books all such redemptions of principal of the Bonds or any portion thereof. If a portion of any Bonds shall be redeemed, a substitute Bond or Bonds having the same stated maturity date, bearing interest at the same interest rate, in any denomination or denominations in any integral 80470964.4 C-3 multiple of $5,000, at the written request of the registered owner, and in an aggregate principal amount equal to the unredeemed portion thereof, will be issued to the registered owner upon the surrender thereof for cancellation, at the expense of the City, all as provided in the Ordinance. ALL BONDS OF THIS SERIES are issuable solely as fully registered bonds, without interest coupons, in an Authorized Denomination. As provided in the Bond Ordinance, this Bond may, at the request of the registered owner or the assignee or assignees hereof, be assigned, transferred, converted into and exchanged for a like aggregate amount of fully registered Bonds, without interest coupons, payable to the appropriate registered owner, assignee or assignees, as the case may be, having any Authorized Denomination or Denominations as requested in writing by the appropriate registered owner, assignee or assignees, as the case may be, upon surrender of this Bond to the Paying Agent/Registrar at its Designated Trust Office for cancellation, all in accordance with the form and procedures set forth in the Bond Ordinance. Among other requirements for such assignment and transfer, this Bond must be presented and surrendered to the Paying Agent/Registrar, together with proper instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment of this Bond or any portion or portions hereof in any authorized denomination to the assignee or assignees in whose name or names this Bond or any such portion or portions hereof is or are to be registered. The form of Assignment printed or endorsed on this Bond may be executed by the registered owner to evidence the assignment hereof, but such method is not exclusive, and other instruments of assignment satisfactory to the Paying Agent/Registrar may be used to evidence the assignment of this Bond or any portion or portions hereof from time to time by the registered owner. The one requesting such conversion and exchange shall pay the Paying Agent/Registrar's reasonable standard or customary fees and charges for converting and exchanging any Bond or portion thereof. In any circumstance, any taxes or governmental charges required to be paid with respect thereto shall be paid by the one requesting such assignment, transfer, conversion or exchange, as a condition precedent to the exercise of such privilege. The foregoing notwithstanding, in the case of the conversion and exchange of an assigned and transferred Bond or Bonds or any portion or portions thereof, such fees and charges of the Paying Agent/Registrar will be paid by the Issuer. The Paying Agent/Registrar shall not be required (i) to make any such transfer, conversion or exchange during the period beginning at the opening of business 30 days before the day of the first mailing of a notice of redemption and ending at the close of business on the day of such mailing, or (ii) to transfer, convert or exchange any Bonds so selected for redemption when such redemption is scheduled to occur within 30 calendar days; provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of an unredeemed balance of a Bond called for redemption in part. WHENEVER the beneficial ownership of this Bond is determined by a book entry at a securities depository for the Bonds, the foregoing requirements of holding, delivering or transferring this Bond shall be modified to require the appropriate person or entity to meet the requirements of the securities depository as to registering or transferring the book entry to produce the same effect. IN THE EVENT any Paying Agent/Registrar for the Bonds is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the Bond Ordinance that it promptly will appoint a competent and legally qualified substitute therefor, whose 80470964.4 C-4 qualifications substantially are similar to the previous Paying Agent/Registrar it is replacing, and promptly will cause written notice thereof to be mailed to the registered owners of the Bonds. BY BECOMING the registered owner of this Bond, the registered owner thereby acknowledges all of the terms and provisions of the Bond Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Bond Ordinance is duly recorded and available for inspection in the official minutes and records of the Issuer, and agrees that the terms and provisions of this Bond and the Bond Ordinance constitute a contract between each registered owner hereof and the Issuer. THE BONDS are special obligations of the Issuer payable solely from and equally secured, together with the currently Outstanding Previously Issued Priority Bonds, by a first lien on and pledge of the Pledged Revenues of the System. The Issuer has reserved the right, subject to the restrictions stated, and adopted by reference, in the Bond Ordinance, to issue Additional Priority Bonds which also may be made payable from, and secured by a first lien on and pledge of, the aforesaid Pledged Revenues, as well as Subordinated Obligations payable from a junior and inferior lien on and pledge of the Pledged Revenues. For a more complete description and identification of the revenues and funds pledged to the payment of the Bonds, and other obligations of the Issuer secured by and payable from the same source or sources as the Bonds, reference is hereby made to the Bond Ordinance. THE ISSUER has reserved the right, subject to the restrictions stated, and adopted by reference, in the Bond Ordinance, to amend the Bond Ordinance; and under some (but not all) circumstances amendments must be approved by the owners of a majority in aggregate principal amount of the Outstanding Priority Bonds. THE REGISTERED OWNER HEREOF shall never have the right to demand payment of this Bond out of any funds raised or to be raised by taxation. IT IS HEREBY certified and covenanted that this Bond has been duly and validly authorized, issued and delivered; and that all acts, conditions and things required or proper to be performed, exist and be done precedent to or in the authorization, issuance and delivery of this Bond have been performed, existed and been done in accordance with law. Capitalized term used in this Bond without definition shall have the respective means ascribed to them in the Bond Ordinance. 80470964.4 C-5 IN WITNESS WHEREOF, this Bond has been signed with the imprinted or lithographed facsimile signature of the Mayor of said Issuer, attested by the imprinted or lithographed facsimile signature of the City Secretary, and the official seal of said Issuer has been duly affixed to, printed, lithographed or impressed on this Bond. ATTEST: City Secretary (SEAL) 80470964.4 CITY OF CORPUS CHRISTI, TEXAS Mayor [The remainder of this page intentionally left blank.] C-6 B. FORM OF COMPTROLLER'S REGISTRATION CERTIFICATE TO APPEAR ON INITIAL BONDS ONLY. REGISTRATION CERTIFICATE OF COMPTROLLER OF PUBLIC ACCOUNTS OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS § REGISTER NO. THE STATE OF TEXAS § 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 duly registered by the Comptroller of Public Accounts of the State of Texas. WITNESS my signature and seal of office this Comptroller of Public Accounts of the State of Texas (SEAL) C. FORM OF REGISTRATION CERTIFICATE OF PAYING AGENT/REGISTRAR. REGIS IRATION CERTIFICATE OF PAYING AGENT/REGISTRAR This Bond has been duly issued and registered under the provisions of the within -mentioned Ordinance; the Bond or Bonds of the above entitled and designated series originally delivered having been approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts, as shown by the records of the Paying Agent/Registrar. Registered this date: 80470964.4 C-7 THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A, as Paying Agent/Registrar By: Authorized Signature D. FORM OF ASSIGNMENT. ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sells, assigns, and transfers unto (Print or typewrite name, address, and zip code of transferee): (Social Security or other identifying number): the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: NOTICE: The signature on this assignment must correspond with the name of the registered owner as it appears on the face of the within Bond in every particular. Signature guaranteed: 80470964.4 [The remainder of this page intentionally left blank] C-8 E. FORM OF INITIAL BOND(S). The Initial Bond(s) shall be in the form set forth in paragraph (a) of this Section, except that the form of the single fully registered Initial Bond shall be modified as follows: (i) immediately under the name of the Bond, the headings "Interest Rate " and "Stated Maturity " shall both be completed "as shown below"; and (ii) the first paragraph shall read as follows: A. ON THE MATURITY DATES SPECIFIED BELOW, THE CITY OF CORPUS CHRISTI, IN NUECES AND SAN PATRICIO COUNTIES, TEXAS (the "Issuer"), hereby promises to pay to , or the registered assignee hereof (either being hereinafter called the "registered owner") on July 15 of the years and in the Principal Amounts specified below and to pay interest thereon, from the Bond Date specified above, or from the most recent interest payment date to which interest has been paid or duly provided, at the rates of interest per annum specified in accordance with the following schedule: Stated Maturities Principal Amounts ($) Interest Rates (%) (Information to be inserted from schedules in Section 2. said interest being payable initially on July 15, 2009, and semiannually thereafter on each January 15 and July 15. F. INSURANCE LEGEND. If bond insurance is obtained by the City for any Bond, the appropriate definitive Bonds and the Initial Bonds shall bear an appropriate legend as provided by the insurer. 80470964.4 (The remainder of this page intentionally left blank.) C-9 80470964.4 EXHIBIT D PAYING AGENT/REGISTRAR AGREEMENT D-1 PAYING AGENT/REGISTRAR AGREEMENT THIS PAYING AGENT/REGISTRAR AGREEMENT entered into as of' February 24, 2009 (this "Agreement") is between the City of Corpus Christi, Texas (the "Issuer") and The Bank of New York Mellon Trust Company, N.A., Dallas, Texas, a national banking association duly organized and existing under the laws of the United States of' America and authorized to transact business in the State of Texas (the "Bank"). RECITALS OF THE ISSUER The Issuer has duly authorized and provided for the issuance of its "CITY OF CORPUS CHRISTI, TEXAS UTILITY SYSTEM REVENUE IMPROVEMENT BONDS, SERIES 2009", in the aggregate principal amount of $96,490,000 (the "Securities"), dated March 1, 2009 to be issued as registered securities without coupons; All things necessary to make the Securities the valid obligations of the Issuer, in accordance with their terms, will be taken upon the issuance and delivery thereof; The Issuer is desirous that the Bank act as the Paying Agent of the Issuer in paying the principal, premium (if any) and interest on the Securities, in accordance with the terms thereof, and that the Bank act as Registrar for the Securities; The Issuer has duly authorized the execution and delivery of this Agreement; and all things necessary to make this Agreement the valid agreement of the Issuer, in accordance with its terms, have been done. NOW, THEREFORE, it is mutually agreed as follows: ARTICLE ONE APPOINTMENT OF BANK AS PAYING AGENT AND REGISTRAR Section 1.01 Appointment. The Issuer hereby appoints the Bank to act as Paying Agent with respect to the Securities in order to pay, when due, the principal, premium (if any), and interest on all or any of the Securities to the Holders of the Securities. The Issuer hereby appoints the Bank as Registrar with respect to the Securities. The Bank hereby accepts its appointment, and agrees to act, as the Paying Agent and the Registrar. As compensation for the Bank's services as Paying Agent/Registrar, the Issuer hereby agrees to pay the Bank the fees and amounts set forth in Annex A hereto for the first year of this Agreement and thereafter the fees and amounts set forth in the Bank's current fee schedule then in effect for services as Paying Agent/Registrar for political subdivisions, which shall be 80476190.1 supplied to the Issuer on or before ninety (90) days prior to the close of the Fiscal Year of the Issuer and which shall be effective upon the first day of the following Fiscal Year. The Issuer covenants to provide notice to the Bank upon any change in the Issuer's Fiscal Year within ten (10) business days of the governing body of the Issuer's decision to change the Fiscal Year of the Issuer. In addition, the Issuer agrees to reimburse the Bank upon its request for all reasonable expenses, disbursements, and advances incurred or made by the Bank in accordance with any of the provisions hereof (including the reasonable compensation and the expenses and disbursements of its agents and counsel). ARTICLE TWO DEFINITIONS Section 2.01 Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following terms, whenever the same appears herein without qualifying language, are defined to mean as follows: Acceleration Date of any Security means the date on and after which the principal or any or all installments of interest, or both, are due and payable on any Security which has become accelerated pursuant to the terms of the Security. Bank Office means the corporate trust office of the Bank set forth on the signature page of this agreement. The Bank will notify the Issuer, in writing, of any change in location of the Bank Office. Bond Ordinance means the resolution, order, or ordinance of the governing body of the Issuer pursuant to which the Securities are issued, certified by the City Secretary or Assistant City Secretary or any other officer of the Issuer, and delivered to the Bank. Fiscal Year means the fiscal year of the Issuer, which currently begins on August 1 and ends on July 31 of each year. Holder and Security Holder each means a Person in whose name a Security is registered in the Security Register. Issuer Request and Issuer Order means a written request or order signed in the name of the Issuer by the Mayor or the City Secretary or Assistant City Secretary of the City Council of the Issuer delivered to the Bank. Legal Holiday means a day on which the Bank is required or authorized to be closed. Person means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision of a government. 80476190.1 -2- Redemption Date when used with respect to any Security to be redeemed means the date fixed for such redemption pursuant to the terms of the Bond Ordinance. Responsible Officer when used with respect to the Bank means the Chairman or Vice -Chairman of the Board of Directors, the Chairman or Vice -Chairman of the Executive Committee of the Board of Directors, the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant Cashier, any Trust Officer or Assistant Trust Officer, or any other officer of the Bank customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. Security Register means a register maintained by the Bank on behalf of the Issuer providing for the registration of Securities and of transfers of Securities. Stated Maturity means the date specified in the Bond Ordinance as the fixed date on which the principal of a Security is scheduled to be due and payable. Section 2.02 Other Definitions. The terms "Bank", "Issuer", and "Securities" have the meanings assigned to them in the opening paragraph of this Agreement or in the recitals of the Issuer. The term "Paying Agent/Registrar" refers to the Bank in the performance of the duties and functions of this Agreement. ARTICLE THREE PAYING AGENT Section 3.01 Duties of Paving Agent. As Paying Agent, the Bank shall, provided adequate collected funds have been provided to it for such purpose by or on behalf of the Issuer, pay on behalf of the Issuer the principal of each Security at its Stated Maturity, Redemption Date, if any, or Acceleration Date, to the Holder upon surrender of the Security to the Bank at the Bank Office. As Paying Agent, the Bank shall, provided adequate collected funds have been provided to it for such purpose by or on behalf of the Issuer, pay on behalf of the Issuer the principal of and interest on each Security when due, by computing the amount of interest to be paid each Holder preparing the checks and mailing the checks on the payment date, to the Holders of the Securities on the Record Date, addressed to their address appearing on the Security Register. Section 3.02 Payment Dates. The Issuer hereby instructs the Bank to pay the principal of and interest on the Securities at the dates specified in the Bond Ordinance. 80476190.1 -3- ARTICLE FOUR REGISTRAR Section 4.01 Transfer and Exchange. The Issuer shall keep at the Bank Office a register (the "Security Register") in which, subject to such reasonable written regulations as the Issuer may prescribe (which regulations shall be furnished the Bank herewith or subsequent hereto by Issuer Order), the Issuer shall provide for the registration of the Securities and for transfers of Securities. The Bank is hereby appointed Registrar for the purpose of registering Securities and transfers of Securities as herein provided. The Bank agrees to maintain the Security Register while it is Registrar. Every Security surrendered for transfer or exchange shall be duly endorsed or be accompanied by a written instrument of transfer, the signature on which has been guaranteed by an officer of a federal or state bank or a member of the National Association of Securities Dealers, in form satisfactory to the Bank, duly executed by the Holder thereof, or his agent, duly authorized in writing. Registrar may request any supporting documentation it feels necessary to effect a re - registration. Section 4.02 Form of Security Register. The Bank as Registrar will maintain the records of the Security Register in accordance with the Bank's general practices and procedures in effect from time to time. The Bank shall not be obligated to maintain such Register in any form other than those which the Bank has currently available and currently utilizes at the time. The Securities Register may be maintained in written form or in any other form capable of being converted into written form within a reasonable time. Section 4.03 List of Security Holders. The Bank will provide the Issuer at any time requested by the Issuer, upon payment of any required fee, a copy of the information contained in the Security Register. The Issuer may also inspect the information in the Security Register at any time the Bank is customarily open for business, provided that reasonable time is allowed the Bank to provide an up-to-date listing or to convert the information into written form. The Bank will not release or disclose the content of the Security Register to any person other than to, or at the written request of, an authorized officer or employee of the Issuer, except upon receipt of a subpoena, court order, or as required by law. Upon receipt of a subpoena or court order the Bank will notify the Issuer so that the Issuer may contest the subpoena or court order. 80476190.1 -4- Section 4.04 Return of Canceled Securities. The Bank will, at such reasonable intervals as it determines, surrender to the Issuer Securities in lieu of which or in exchange for which other Securities have been issued or which have been paid or provide a certificate of destruction relating thereto. Section 4.05 Transaction Information to Issuer. The Bank will, within a reasonable time after receipt of written request from the Issuer, furnish the Issuer information as to the Securities it has paid pursuant to Section 3.01 and Securities it has delivered upon the transfer or exchange of any Securities pursuant to Section 4.01. ARTICLE FIVE THE BANK Section 5.01 Duties of Bank. The Bank undertakes to perform the duties set forth herein and in the Bond Ordinance and agrees to use reasonable care in the performance thereof. The Bank is also authorized to transfer funds relating to the closing and initial delivery of the Securities in the manner disclosed in the closing memorandum approved by the Issuer as prepared by the Issuer's financial advisor or other agent. The Bank may act on a facsimile or e- mail transmission of the closing memorandum acknowledged by the financial advisor or the Issuer as the final closing memorandum. The Bank shall not be liable for any losses, costs or expenses arising directly or indirectly from the Bank's reliance upon and compliance with such instructions. Section 5.02 Reliance on Documents, Etc. (a) The Bank may conclusively rely, as to the truth of the statements and correctness of the opinions expressed therein, on certificates or opinions furnished to the Bank. (b) The Bank shall not be liable for any error of judgment made in good faith by the Responsible Officer, unless it shall be proved that the Bank was negligent in ascertaining the pertinent facts. (c) No provisions of this Agreement shall require the Bank to expend or risk its own funds or otherwise incur any financial liability for performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing the repayment of such funds or adequate indemnity satisfactory to it against such risks or liability is not assured to it. (d) The Bank may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, security, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. Without limiting the generality 80476190.1 -5- of the foregoing statement, the Bank need not examine the ownership of any Securities but is protected in acting upon receipt of Securities containing an endorsement or instruction of transfer or power of transfer which appears on its face to be signed by the Holder or an agent of the Holder. The Bank shall not be bound to make any investigation into the facts or matters stated in a resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, security or other paper or document supplied by the Issuer. (e) The Bank may consult with counsel, and the written advice of such counsel or any opinion of counsel shall be full and complete authorization and protection with respect to any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (f) The Bank may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attorneys of the Bank. Section 5.03 Recitals of Issuer. The recitals contained herein and in the Securities shall be taken as the statements of the Issuer, and the Bank assumes no responsibility for their correctness. The Bank shall in no event be liable to the Issuer, any Holder or Holders of any Security, or any other Person for any amount due on any Security from its own funds. Section 5.04 May Hold Securities. The Bank, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Issuer with the same rights it would have if it were not the Paying Agent/Registrar or any other agent. Section 5.05 Money Held by Bank. A paying agent account shall at all times be kept and maintained by the Bank for the receipt, safekeeping, and disbursement of money received from the Issuer hereunder for the payment of the Securities, and money deposited to the credit of such account until paid to the Holders of the Securities shall be continuously collateralized by securities or obligations which qualify and are eligible under the laws of the State of Texas to secure and be pledged as collateral for paying agent accounts to the extent such money is not insured by the Federal Deposit Insurance Corporation. The Bank shall be under no liability for interest on any money received by it hereunder. Any money deposited with the Bank for the payment of the principal, premium (if any), or interest on any Security and remaining unclaimed for four years after final maturity of the Security has become due and payable will be held by the Bank and disposed of only in accordance with Title 6 of the Texas Property Code (Unclaimed Property). The Bank will comply with the reporting provisions of Chapter 74 of the Texas Property Code with respect to property that is presumed abandoned under Chapter 72 or Chapter 75 of the Texas Property Code or inactive under Chapter 73 of the Texas Property Code. 80476190.1 -6- Section 5.06 Indemnification. The Issuer agrees, to the extent it legally may, to indemnify the Bank for, and hold it harmless against, any loss, liability, or expense incurred without negligence or bad faith on its part arising out of' or in connection with its acceptance or administration of its duties hereunder, including the cost and expense (including its counsel fees) of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties under this Agreement. The foregoing indemnities in this paragraph shall survive the resignation or substitution of the Bank or the termination of this Agreement. Section 5.07 Interpleader. The Issuer and the Bank agree that the Bank may seek adjudication of any adverse claim, demands or controversy over its person as well as funds on deposit, in either a Federal or State District Court located in the State and County or Counties where either the Bank (Texas offices only) or the Issuer is located, waive personal service of any process, and agree that service of process by certified or registered mail, return receipt requested, to the address set forth in Section 6.03 of this Agreement shall constitute adequate service. The Issuer and the Bank further agree that the Bank has the right to file a Bill of Interpleader in any court of competent jurisdiction in the State of Texas to determine the rights of any Person claiming interest herein. Section 5.08 Depository Trust Company. It is hereby represented and warranted that, in the event the Securities are otherwise qualified and accepted for "Depository Trust Company" services or equivalent depository trust services by other organizations, the Bank has the capability and, to the extent within its control, will comply with the "Operational Arrangements", promulgated from time to time by The Depository Trust Company, which establishes requirements for securities to be eligible for the timeliness of payments and funds availability, transfer turnaround time, and notification of redemptions and calls. ARTICLE SIX MISCELLANEOUS PROVISIONS Section 6.01 Amendment. This Agreement may be amended only by an agreement in writing signed by both of the parties hereof. Section 6.02 Assignment. This Agreement may not be assigned by either party without the prior written consent of the other. Section 6.03 Notices. Any request, demand, authorization, direction, notice, consent, waiver or other document provided or permitted hereby to be given or furnished to the Issuer or the Bank shall be mailed or 80476190.1 -7- delivered to the Issuer or the Bank, respectively, at the addresses shown on the signature page of this Agreement. Section 6.04 Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 6.05 Successors and Assigns. All covenants and agreements herein by the Issuer shall bind its successors and assigns, whether so expressed or not. Section 6.06 Severability. In case any provision herein, or application thereof, shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions or applications shall not in any way be affected or impaired thereby. Section 6.07 Benefits of Agreement. Nothing herein, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any benefit or any legal or equitable right, remedy, or claim hereunder. Section 6.08 Entire Agreement. This Agreement and the Bond Resolution constitute the entire agreement between the parties hereto relative to the Bank acting as Paying Agent/Registrar for the Securities, and if any conflict exists between this Agreement and the Bond Resolution, the Bond Resolution shall govern. Section 6.09 Counterparts. The Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement. Section 6.10 Termination. This Agreement will terminate on the date of final payment by the Bank issuing its checks for the final payment of principal of and interest on the Securities. This Agreement may be earlier terminated upon 60 days written notice by either party; provided, however, that this Agreement may not be terminated (i) by the Bank until a successor Paying Agent/Registrar that is a national or state banking institution and a corporation or association organized and existing under the laws of the United States of America or of any state which possesses trust powers and is subject to supervision or examination by a federal or state regulatory agency has been appointed by the Issuer and has accepted such appointment, or (ii) at 80476190.1 -8- any time during which such termination might, in the judgment of the Issuer, disrupt, delay, or otherwise adversely affect the payment of the principal, premium, if any, or interest on the Securities. Prior to terminating this Agreement, the Issuer may reasonably require the Bank to show that such termination will not occur during a period described in (ii) above. The provisions of Section 1.02 of Article Five shall survive and remain in full force and effect following the termination of this Agreement. Section 6.11 Governing Law. This Agreement shall be construed in accordance with and govemed by the laws of the State of Texas and the United States of America. 80476190.1 [The remainder of this page intentionally left blank] -9- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. (CITY SEAL) ATTEST: Title: City Secretary Attest: Title: 80476190.1 CITY OF CORPUS CHRISTI, TEXAS By: 7j4ilit Title: Mayor Address: P.O. Box 9277 Corpus Christi, Texas 78469 THE BANK OF NEW YORK ME TRUST COMPANY, N.A. By: Title: Add ro : 2001 Bryan Street, 8th Floor Dallas, Texas 75201 S-1 Eta tt‘ac- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. (CITY SEAL) ATTEST: Jitle<City Secretary 80476190.1 CITY OF CORPUS CHRISTI, TEXAS By: Title: Ma Address. .O. Box 9277 Corpus Christi, Texas 78469 . rtvb ous ya9cA_ THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. By: � Title: alANT VICE PRESIDENT Address: 2001 Bryan Street, 8th Floor Dallas, Texas 75201 S-1 80476190.1 Annex A Paying Agent/Registrar Fee Schedule A-1 THE BANK OF NEW YORK MELLON The Bank of New York Mellon Trust Company. N.A. Fee Schedule City of Corpus Christi, Texas Utility System Revenue Improvement Bonds, Series 2009 Acceptance Fee None A one-time charge covering the Bank Officer's review of governing documents, communication with members of the closing party, including representatives of the issuer, investment banker(s) and attorney(s), establishment of procedures and controls, set-up of trust accounts and tickler suspense items and the receipt and disbursement/investment of bond proceeds. This fee is payable on the closing date. Annual Paying Agent Administration Fee $500 An annual charge covering the normal paying agent duties related to account administration and bondholder services. Our pricing is based on the assumption that the bonds are DTC-eligible/book-entry only. if the bonds are certificated or physical, then we will have to charge an additional $1000 per year as a paying agent. This fee is payable annually, in advance. OR One-time, Upfront Paying Agent Administration Fee $4,500 A one-time charge covering the normal duties and responsibilities related to account administration. This fee is payable on the closing date. Extraordinary Services!Misc Fees: At Appraisal The charges for performing extraordinary or other services not contemplated at the time of the execution of the transaction or not specifically covered elsewhere in this schedule will be commensurate with the service to be provided and may be charged in BNYMTC's sole discretion. If it is contemplated that the Trustee hold and/or value collateral or enter into any investment contract, forward purchase or similar or other agreement, additional acceptance, administration and counsel review fees will be applicable to the agreement governing such services. If the bonds are converted to certificated form, additional annual fees will be charged for any applicable tender agent and/or registrar/paying agent services. Additional information will be provided at such time. Should this transaction terminate prior to closing, all out-of-pocket expenses incurred, including legal fees, will be billed at cost. If all outstanding bonds of a series are defeased or called in full prior to their maturity, a termination fee may be assessed at that time. These extraordinary services may include, but are not limited to, supplemental agreements, consent operations, unusual releases, tender processing, sinking fund redemptions, failed remarketing processing, the preparation of special or interim reports, custody of collateral, a one-time fee to be charged upon termination of an engagement. Counsel, accountants, special agents and others will be charged at the actual amount of fees and expenses billed, C filing fees, money market sweep fees, auditor confirmation fees, wire transfer fees, 2001 Bryan — 6" Floor Dallas, TX 75201 THE BANK OF NEW YORK MELLON The Bank of New York Mellon Trust Company. N.A. transaction fees to settle third -party trades and reconcilement fees to balance trust account balances to third - party investment provider statements Annual fees include one standard audit confirmation per year without charge. Standard audit confirmations include the final maturity date, principal paid, principal outstanding, interest cycle, interest paid, cash and asset information, interest rate, and asset statement information. Non-standard audit confirmation requests may be assessed an additional fee. Periodic tenders, sinking fund, optional or extraordinary call redemptions will be assessed at $300 per event. The fee for non-interest bearing balances left uninvested with the Bank will be 10 basis points for the quarter, based on quarter -end spot balance levels, in excess of $250,000 (held in the U.S. offices of the Bank). Terms and Disclosures Terms of Proposal Final acceptance of the appointment under the Indenture is subject to approval of authorized officers of BNYM and full review and execution of all documentation related hereto. Please note that if this transaction does not close, you will be responsible for paying any expenses incurred, including Counsel Fees. We reserve the right to terminate this offer if we do not enter into final written documents within three months from the date this document is first transmitted to you. Fees may be subject to adjustment during the life of the engagement. Customer Notice Required by the USA Patriot Act To help the US government fight the funding of terrorism and money laundering activities, US Federal law requires all financial institutions to obtain, verify, and record information that identifies each person (whether an individual or organization) for which a relationship is established. What this means to you: When you establish a relationship with BNY, we will ask you to provide certain information (and documents) that will help us to identify you. We will ask for your organization's name, physical address, tax identification or other government registration number and other information that will help us to identify you. We may also ask for a Certificate of Incorporation or similar document or other pertinent identifying documentation for your type of organization. We thank you for your assistance. 2001 Bryan - 8th Floor Dallas, TX 75201 80470964.4 EXHIBIT E DTC LETTER OF REPRESENTATIONS E-1 Blanket Issuer Letter of Representations rro be Cornptelect by Issuer] City of Corpus Christi, Tx (Nun erlover; Attention: Underwriting Department — Eligibility The Depository Trust Company 55 Water Street; 50th Floor New York, NY 10041-0099 April 7, 1998 lone; Ladies and Ceodemeo: This letter sets forth our understanding with respect to all issues (the 'Securities) that Issuer shall request be made eligible for deposit.by The Depository Trust Company ('DTC). To Induce DTC to accept the Securities as eligible for deposit at DTC, and to act In accordance with DTCs Rules with respect to the Securities. issuer represents to DTC that Issuer will comply with the requirements stated is DTCs Operational Mrangemeats, as they may be amended fivers time to time. Note Schedule A contour statements that DTC behaves accaaatly loathe DTC, the method elan boa - tatty binsfess of savvmtoa 3,olbotcd tbmu h UTC and certain related rotten Very truly yours. City of corpus Christi, TIC U a6mued Ofaer'enorma) Jorge Cruz-AEDO, Direc for of Finance Myatt' Tek) 1201 Leopard St. Daeet Aar Corpus Christi, TX 78401 Coat) wel Maw Number) SCHEDULE A SAMPLE OFFERING DOCUMENT LANGUAGE DESCRIBING BOOK -ENTRY -ONLY ISSUANCE (Prepared by DTC --bracketed material may be applicable only to certain issues) 1. The Depository Trust Company ("DTC'), New York, NY will act as securities depository for the securities (the 'Se auifes"). The Securities will be issued as fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee). One fully -registered Security certificate will be issued for (each issue of] the Securities. [each] in the aggregate principal amount of such issue, and will be deposited with DTC. [lf, however; the aggregate principal amount of [any] issue exceeds. $200 minion, one certificate will be issued with respect to each 3200 million of principal amount and an additional certificate will be issued with respect to any remainingpris.dyal amotmt of such issue.] 2. DTC is a Sntited-propose taut company organized under the New York Banldng law. a "banking organization within the meaning of the New York Bathing taw, a member of the Federal Reserve System, a'dearing corporation wit in the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 14A of the Securities Exchange Act of 1934 DTC holds securities that its participants ('Participants') deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, is deposited securities through electronic computerized book -entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Etcbange, Inc., the American Stock Exchange, Inc.. and the National A:sodation of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a camas' relationship with a Direct Participant either directly or indirectly ('Indirect Participants'). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Cnmmieeinn 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a sit for the Securities on DTCl records. The ownership interest of each actual purchaser of each Security (Beneficial Owner") is in tum to be recorded on the Direct and Indirect Participants' records. Beneficial Owners Will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the eraumcdon.Tnnsfers of ownership interests in the Securities are to be accomplished by entries made on the books of Participants acting on bebaff of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, exceptha the event that use of the book -entry system for the Securities is discontinued 4. To facilitate subsequent transfers, an Securities deposited by Participants with DTC are registered in the name of DTCs partnership nominee, Cede & Co. The deposit of' Securities with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC records reflect only ire identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. S. Conveyance of notices and other communications by DTC to Direct Participants, by Direct participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. (6. Redemption notices shall be sent to Cede & Co. ff less than aB of the Securities within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Putidpantin such Issue to be redeemed) 7. Neither DTC nor Cede & Co. will consent or vote with respect to Securities. Under its usual procedures, DTC mails an Omnibus Flury to the Issuer as soon as possible after the record date.•The Omnibus Proxy assigns Cede & consenting or voting rights to those Direct Participants to whose amounts the Secsmities are credited on the record date (identified in a listing attached to the Omnibus Proty). 8. Principal and interest payments on the Securities will be made to DTC. DTC's practice is to credit Direct Participants' accounts on payable date in accordance with their respective holdings shown on DTC's records unless DTC bas reason to believe that it will not receive payment on payable date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the amormes of customers in bearer forma registered in 'strut name,' and will be the responsibility of such Participant and not of DTC, the Agent, or die Issuer. subject to any statutory or regulatory requirements as may be in effect from time to tlnie. Payment of principal and test to DTC is the responsibility of the Issuer or the Agent, disbursement of such payments to Direct Participants shall be the responsthility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. j9. A Beneficial Owner sbaf give notice to elect to have its Securities purchased or tendered, through ter Participant to tie Minden/Remarketing] Agent, and shall effect delivery °Isle* Securities by causing the Direct participant to transfer the Participant's bntcest in the Securities, on DTCes records, to the (Tenderliternarketingl Agent The requirement for physical delivery of Securities in connection wills a demand for purchase or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities sue transferred by Direct Participants on DTC's records.] ' 10. DTC may discontinue providing its services as securities depository with respect to the Securities at any time by giving reasonable notice to the Issuer or the Agent. Under such dmurnstaaas, in the event that a successor securities depository is not obtained, Security certificates are required to be printed and delivered 11. The Issuer may deride to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered 12. The infonmdon in this section concerning DTC and DTCs book-entry system has been obtained from sources that the Issuer believes to be reliable, but the Issuer takes no responsibility for the eccurac thereof. 80470964.4 EXHIBIT F REIMBURSEMENT AGREEMENT F-1 EXECUTION COPY REIMBURSEMENT AGREEMENT (RESERVE FUND SURETY) This AGREEMENT (this "Agreement") is made as of April 2, 2009 by and between ASSURED GUARANTY CORP., a Maryland insurance corporation (together with its successors and assigns, "Assured Guaranty"), and the City of Corpus Christi, Texas, together with its successors and assigns, the "Issuer"). WITNESSETH: WHEREAS, the Issuer will issue the Obligations (as hereinafter defined) pursuant to the terms of the Authorizing Resolution (as hereinafter defined); WHEREAS, pursuant to the terms of the Financing Agreement (as hereinafter defined) the Issuer has agreed to make certain payments with respect to the Obligations; WHEREAS, the Issuer has requested that Assured Guaranty, subject to the terms and conditions set forth in the Commitment, issue its Policy (as hereinafter defined) pursuant to which Assured Guaranty will guarantee certain payments by the Issuer subject to the terms and conditions of the Policy; WHEREAS, as consideration for Assured Guaranty issuing the Policy, the Issuer has agreed to (i) cause to be paid to Assured Guaranty a premium as provided in the Commitment, (ii) reimburse Assured Guaranty for any payment made by Assured Guaranty under the Policy, and (iii) indemnify Assured Guaranty for certain amounts as more fully set forth herein; WHEREAS, the Issuer acknowledges and agrees that execution and delivery of this agreement is a requirement of Assured Guaranty and an element of the consideration for issuance of the Policy; NOW, THEREFORE, in consideration of the premises and of the agreements herein contained and of the execution of the Policy, the Issuer and Assured Guaranty agree as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions. Except as otherwise defined herein, the following words and phrases shall have the following meanings: "Agreement" shall mean this Reimbursement Agreement dated April 2, 2009 between Assured Guaranty and the Issuer, as such agreement may be amended or supplemented. "Assured Guaranty" shall have the meaning set forth in the first paragraph of this Agreement. 4841-9578-7522.4 "Authorizing Resolution" shall mean the Ordinance authorizing the issuance of the Obligations approved by the Issuer's governing body on February 24, 2009, as amended or supplemented from time to time. "Available Funds" shall mean the Pledged Revenues, as defined in the Authorizing Resolution. "Bond Purchase Agreement" shall mean the Bond Purchase Agreement dated as of March 13, 2009 by and between the Issuer and the Underwriter's named herein. "Commitment" shall mean the commitment of Assured Guaranty to issue the Policy dated March 9, 2009. "Continuing Disclosure Agreement" shall mean the continuing disclosure undertaking of' the Issuer included in the Authorizing Resolution. "Debt Service Payments" shall mean those payments required to be made by or on behalf of the Issuer, which will be applied to payment of principal of and interest on the Obligations. "Demand for Payment" shall mean the certificate submitted to Assured Guaranty for payment under the Policy substantially in the form attached to the Policy. "Event of Default" shall have the meaning given that term in Section 5.01 hereof. "Financing Documents" shall mean the Authorizing Resolution, the Bond Purchase Agreement, this Agreement, and the Continuing Disclosure Agreement as such documents are amended from time to time. "Global Requirement Amount" shall have the meaning ascribed to such term as set forth in the Authorizing Resolution, but only as such term relates to the Obligations. "Obligations" shall mean the $96,490,000 City of Corpus Christi, Texas Utility System Revenue Improvement Bonds, Series 2009. "Official Statement" shall mean the Official Statement dated March 13, 2009 relating to the Obligations. "Owners" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent for such purpose. "Paying Agent" shall mean The Bank of New York Mellon Trust Company, N.A., or any successor thereto. "Policy" shall mean financial guaranty insurance policy no. D-2009-378 issued by Assured Guaranty guaranteeing, subject to the terms and limitations thereof, the Debt Service Payments. 2 "Policy Coverage" shall mean the amount available at any particular time to be paid under the terms of the Policy, which amount shall never exceed the Policy Limit. "Policy Limit" shall mean the Reserve Account Requirement, provided that such amount shall not exceed the amount set forth in the Policy. "Policy Payment" shall mean an amount equal to the Debt Service Payment required to be made by the Issuer pursuant to the Authorizing Resolution less (i) that portion of the Debt Service Payment paid by or on behalf of the Issuer, and (ii) other funds legally available for payment to the Owners, all as certified in a Demand for Payment. "Reimbursement Rate" shall mean the lesser of the per annum rate of interest (i), publicly announced from time to time by JP Morgan Chase Bank, National Association at its principal office in New York, New York as its prime lending rate (any change in such prime rate of interest to be effective on the date such change is announced by JP Morgan Chase Bank, National Association) plus three percent (3%) per annum and (ii) the maximum rate of interest permitted to be charged pursuant to Chapter 1204, as amended, Texas Government Code. The Reimbursement Rate shall be calculated on the basis of the actual number of days elapsed over a 360 -day year. In the event JP Morgan Chase Bank ceases to announce its prime rate publicly, the prime rate shall be the publicly announced prime rate or base lending rate of such national bank as Assured Guaranty shall specify. "Reserve Account Requirement" shall have the meaning ascribed to such term as set forth in the Authorizing Resolution, but only as such term relates to the Obligations. "State" shall mean the State of Texas. Section 1.02. Generic Terms. The term "hereof' or "herein" unless otherwise modified by more specific reference, shall refer to this Agreement. Unless otherwise specified, the term "Article" or "Section" shall refer to an Article or Section of this Agreement. ARTICLE II THE POLICY Section 2.01. The Policy. Assured Guaranty will issue the Policy in accordance with and subject to the terms and conditions of the Commitment. The maximum liability of Assured Guaranty under the Policy and the coverage and term thereof shall be subject to and limited by the terms and conditions of the Policy. Section 2.02. Premium. In consideration of Assured Guaranty agreeing to issue the Policy, the Issuer hereby agrees to cause to be paid to Assured Guaranty the premium set forth in the Commitment. The premium on the Policy is not refundable for any reason. Section 2.03. Policy Limit. Payments under the Policy will reduce the Policy Coverage to the extent of such payment. 3 Section 2.04. Settlement. Assured Guaranty shall have the exclusive right to settle and determine any claim, liability, suit or judgment relating to the Policy. Any such decision by Assured Guaranty shall be final and binding upon the Issuer for all purposes of this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.01. Due Organization and Qualification. The Issuer is municipal corporation and political subdivision of the State Section 3.02. Power and Authority. The Issuer has full corporate power and authority to execute and deliver this Agreement and the Financing Documents. The execution and delivery of this Agreement and the Financing Documents have been duly authorized by the Issuer, and all necessary approvals for the execution, delivery and performance of this Agreement and the Financing Documents have been obtained by the Issuer. Section 3.03. Non -contravention. The execution and delivery of this Agreement and the Financing Documents, the consummation of the transactions contemplated by this Agreement and the Financing Documents, and the fulfillment of or compliance with the terms and conditions of this Agreement and the Financing Documents, does not conflict with or result in any breach or violation of any of the terms, conditions or provisions of any applicable laws, including regulations, or any material agreement, organizational document or instrument to which it is now a party or by which it is bound, or constitute a default under any of the foregoing which breach or default would materially and adversely affect the consummation of the transactions contemplated by this Agreement. Section 3.04. Conditions Required for Delivery of the Policy. The Issuer shall provide or cause to be provided to Assured Guaranty prior to the issuance of the Policy (i) conformed copies of this Agreement and the Financing Documents, (ii) certifications of the Issuer, as requested by Assured Guaranty, if any, and (iii) such opinions of legal counsel to the Issuer evidencing necessary or appropriate corporate action taken by the Issuer, and such other documents as may reasonably be requested by Assured Guaranty (including documents evidencing any required approvals of the transactions contemplated by this Agreement and the Financing Documents). ARTICLE IV REIMBURSEMENT; INDEMNIFICATION; PAYMENTS Section 4.01. Reimbursement for Payments Under the Policy and Expenses; Indemnification; Payment. (a) The Issuer will reimburse Assured Guaranty, from Available Funds, without demand or notice by Assured Guaranty to the Issuer, or any other person, to the extent of each Policy Payment with interest on each Policy Payment from and including the date made to the date of the reimbursement at the lesser of the Reimbursement Rate 4 or the maximum rate of interest permitted by then applicable law. Such reimbursement shall be made not later than 12 months after any Policy Payment. (b) The Issuer will pay all other amounts required to be paid to Assured Guaranty pursuant to the terms of this Agreement or in connection with the transactions contemplated by the Financing Documents, this Agreement, or the Policy, from Available Funds, within five business days of receipt of written notice from Assured Guaranty of the amounts so owed. (c) The Issuer will pay or reimburse Assured Guaranty, to the extent permitted by law, and solely from Available Funds, any and all charges, fees, costs, losses, liabilities and expenses which Assured Guaranty in fact pays or incurs, including, but not limited to, fees and expenses of attorneys, accountants, consultants and auditors and reasonable costs of investigations, in connection with (i) any accounts established to facilitate payments under the Policy, (ii) the administration, enforcement, defense or preservation of any rights in respect of this Agreement or any Financing Document including defending, monitoring or participating in any litigation or proceeding (including any bankruptcy proceeding in respect of the Issuer, or any affiliate thereof) relating to this Agreement or any other Financing Document, any party to this Agreement or any other Financing Document or the transaction contemplated by the Financing Documents, (iii) the foreclosure against, sale or other disposition of any collateral securing any obligations under this Agreement or any other Financing Document, if any, or the pursuit of any remedies under any other Financing Document, to the extent such costs and expenses are not recovered from such foreclosure, sale or other disposition, (iv) any amendment, waiver or other action with respect to, or related to this Agreement, the Policy or any other Financing Document whether or not executed or completed, or (v) any action taken by Assured Guaranty to cure a default or termination or similar event (or to mitigate the effect thereof) under any Financing Document; costs and expenses shall include a reasonable allocation of compensation and overhead attributable to time of employees of Assured Guaranty spent in connection with the actions described in clauses (ii) -(v) above. Assured Guaranty reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect of this Agreement or any other Financing Document. (d) The Issuer will pay interest on the amounts owed in clauses (a), (b), and (c), of this Section 4.01 from the date of any payment due or paid as described in clauses (a) or (c), and from the date of receipt of written notice from Assured Guaranty, as provided in clause (b), in each case at the Reimbursement Rate. If the interest provisions of this clause (d) shall result in an effective rate of interest which, for any period, exceeds the limit of the usury or any other laws applicable to the indebtedness created herein (which includes clause (ii) of the definition of Reimbursement Rate), then all sums in excess of those lawfully collectible as interest for the period in question shall, without further agreement or notice between or by any party hereto, be applied as additional interest for any later periods of time when amounts are outstanding hereunder to the extent that interest otherwise due hereunder for such periods plus such additional interest would not exceed the limit of the usury or such other laws, and any excess shall be applied upon principal immediately upon receipt of such moneys by Assured Guaranty, with the same force and effect as if the Issuer had specifically designated such extra sums to be so applied and Assured Guaranty had agreed to accept such extra payment(s) as additional interest for such later periods. In no event shall any agreed -to or actual exaction as consideration for the indebtedness created herein exceed the limits imposed or provided by the law applicable to this transaction for the use or detention of money or for forbearance in seeking its collection. Section 4.02. Allocation of Payments. Assured Guaranty and the Issuer hereby agree that each payment received by Assured Guaranty from or on behalf of the Issuer as a reimbursement to Assured Guaranty as required by Section 4.01 hereof shall be applied by Assured Guaranty as follows: (i) first, toward repayment of the aggregate Policy Payments made by Assured Guaranty and not yet repaid; payment of which will reinstate all or a portion of the Policy Coverage to the extent of such repayment (but not to exceed the Policy Limit), and (ii) second, upon reinstatement of the Policy Coverage to the Policy Limit, toward other amounts as determined by Assured Guaranty in its sole discretion, including, without limitation, any interest payable with respect to any Policy Payments then due to Assured Guaranty. Section 4.03. Security for Payments. To the extent, but only to the extent, that, the Authorizing Resolution or any other Financing Document or related indenture, trust agreement, ordinance, resolution, mortgage, security agreement or any similar instrument, if any, pledges to the Issuer, the Owners or any trustee therefore or to any holder of any other obligations of the Issuer secured on a parity basis with the Obligations, or grants a security interest or lien in or on any collateral, property, revenue or other payments ("Collateral and Revenues") in order to secure the Obligations or such parity obligations or provide a source of payment for the Obligations or such parity obligations, the Issuer hereby grants to Assured Guaranty a security interest in or lien on, as the case may be, and pledges to Assured Guaranty all such Collateral and Revenues as security for payment of all amounts due hereunder, under the Authorizing Resolution and under any other Financing Document, (A) which security interest, lien and/or pledge created or granted under this Section 4.03 shall be subordinate only to (i) the interests of the Owners or owners of such parity obligations and any trustee therefor in such Collateral and Revenues, and (ii) the interests of any grantee of any other previously granted security interest in, lien on and/or pledge of such Collateral and Revenue, and (B) which security interest, lien and/or pledge created or granted under this Section 4.03 shall be on a parity with any security interest in, lien on and/or pledge of such Collateral and Revenue hereafter granted to any provider of any letter of credit, surety bond or financial guaranty insurance policy issued to fund a reserve account to the reserve requirement with respect to any parity obligations hereafter issued pursuant to the Authorizing Resolution. The Issuer agrees that it will, from time to time, execute, acknowledge and deliver any instruments as may be necessary or appropriate as shall be requested by Assured Guaranty to perfect or protect the security interests granted hereby. Section 4.04. Payments. All payments made to Assured Guaranty under this Agreement shall be paid in lawful currency of the United States in immediately available funds to Assured Guaranty Corp., 1325 Avenue of the Americas, New York, New York 10019, Attention: Accounting Department, or at such other place as shall be designated by Assured Guaranty. 6 Section 4.05. Unconditional Obligation. The obligations of the Issuer to pay all amounts due under this Agreement shall be an absolute and unconditional obligation of the Issuer and will be paid or performed strictly in accordance with this Agreement, irrespective of: (a) (i) any lack of validity or enforceability of or any amendment or other modifications of, or waiver with respect to the Obligations or any Financing Document, or (ii) any amendment or other modification of, or waiver with respect to the Policy; (b) any exchange, release or non -perfection of any security interest in property securing the Obligations, this Agreement or any Financing Documents; (c) whether or not such Obligations are contingent or matured, disputed or undisputed, liquidated or unliquidated; (d) any amendment, modification or waiver of or any consent to departure from this Agreement, the Policy or all or any of the Financing Documents; (e) the existence of any claim, setoff, defense (other than the defense of payment in full), reduction, abatement or other right which the Issuer may have at any time against the Paying Agent or any other person or entity other than Assured Guaranty, whether in connection with this Agreement, the transactions contemplated herein or in the Financing Documents or any unrelated transactions; (f) any statement or any other document presented under or in connection with the Policy or the Commitment proving in any and all respects invalid, inaccurate, insufficient, fraudulent or forged or any statement therein being untrue or inaccurate in any respect; or (g) any payment by Assured Guaranty under the Policy against presentation of a certificate or other document which does not strictly comply with the terms of the Policy. ARTICLE V EVENTS OF DEFAULT; REMEDIES Section 5.01. Events of Default. The following events shall constitute Events of Default hereunder: (a) The Issuer shall fail to pay to Assured Guaranty any amount payable under Article IV hereof; or (b) Any representation or warranty made by the Issuer hereunder or under the Financing Documents or in any report, certificate, financial statement or other instrument provided in connection with the Commitment, the Policy or this Agreement shall have been or is untrue in any material respect; or 7 (c) Except as otherwise provided in this Section 5.01, the Issuer shall fail to perform any of its other obligations hereunder or under any other Financing Document; or (d) The occurrence and continuation of an event of default under any Financing Document; or (e) The Issuer shall (i) voluntarily commence any proceeding or file any petition seeking relief under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law, (ii) consent to the institution of; or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for such party or for a substantial part of its property, (iv) file an answer admitting the material allegations of a petition fled against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take action for the purpose of effecting any of the foregoing; or (f) An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Issuer, or of a substantial part of its property, under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law or (ii) the appointment of a receiver, trustee, custodian, sequestrator or similar official for the Issuer or for a substantial part of its property, and such proceeding or petition shall continue undismissed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for thirty (30) days. Section 5.02. Remedies. Whenever an Event of Default referred to in Section 5.01 hereof shall have happened and be continuing, Assured Guaranty may take whatever action at law or in equity as may appear necessary or desirable in Assured Guaranty's judgment to collect the amounts then due and thereafter to become due hereunder or to enforce performance of any obligation of the Issuer to Assured Guaranty hereunder or under any Financing Document. Section 5.03. No Remedy Exclusive. Unless otherwise expressly provided, no remedy herein conferred upon or reserved to Assured Guaranty is intended to be exclusive of any other available remedy, but each remedy shall be cumulative and shall be in addition to other remedies given under this Agreement or any Financing Document or existing at law or in equity. No delay or failure to exercise any right or power occurring under this Agreement or any Financing Document upon the happening of any Event of Default set forth in Section 5.01 hereof or an event of default under any Financing Document shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. 8 ARTICLE VI MISCELLANEOUS Section 6.01. Interest Computations. All computations of premium, interest and fees due hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days. Section 6.02. Exercise of Rights. No failure or delay on the part of Assured Guaranty to exercise any right, power or privilege under this Agreement and no course of dealing between Assured Guaranty and the Issuer or any other party shall operate as a waiver of any such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which Assured Guaranty would otherwise have pursuant to law or equity. No notice to or demand on any party in any case shall entitle such party to any other or further notice or demand in similar or other circumstances, or constitute a waiver of the right of the other party to any other or further action in any circumstances without notice or demand. Section 6.03. Amendments and Waivers. This Agreement may only be amended, modified, waived, supplemented, discharged or terminated only by written instruments signed by the parties hereto. The Issuer hereby agrees that Assured Guaranty may issue a substitute or replacement for the Policy to cure any ambiguity or omission in the Policy which does not materially change the terms of the Policy nor adversely affect the rights of the Owners, and this Agreement shall apply to such substituted Policy. So long as the Policy is in effect, the Issuer agrees not to amend or supplement any Financing Document so as to adversely affect the rights of Assured Guaranty without the prior written consent of Assured Guaranty. Section 6.04. Successors and Assigns; Descriptive Headings. (a) This Agreement shall bind, and the benefits thereof shall inure to, the Issuer and Assured Guaranty and their respective successors and assigns; provided, that the Issuer may not transfer or assign any or all of its rights and obligations hereunder without the prior written consent of Assured Guaranty. (b) The descriptive headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 6.05. Waiver. The Issuer waives any defense that this Agreement was executed subsequent to the date of the Policy, admitting and covenanting that such Policy was executed pursuant to their request and in reliance on their promise to execute this Agreement. Section 6.06. Notices, Requests, Demands. Except as otherwise expressly provided herein, all written notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made when actually received, or in the case of telex or telecopier notice sent over a telex or a telecopier machine owned or operated by a 9 party hereto, when sent, addressed as specified below or at such other address as any of the parties may hereafter specified in writing to the others: If to the Issuer: If to Assured Guaranty: City of Corpus Christi, Texas 1201 Leopard Street Corpus Christi, Texas 78401-2120 Attention: City Attorney Facsimile No.: (361) 826-3239 Telephone No.: (361) 826-3360 Assured Guaranty Corp 1325 Avenue of the Americas New York, New York 10019 Attention: Risk Management, Public Finance Surveillance Facsimile No.: (212) 581-3268 Telephone No.: (212) 974-0100 E-mail: RiskManagementDept@assuredguaranty.com Policy No.: D-2009-379 (in each case in which notice or other communication to Assured Guaranty refers to an event of default, a claim on the Policy or any other event with respect to which failure on the part of Assured Guaranty 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 the General Counsel via facsimile at facsimile number (212) 581-3268 and shall be marked to indicate "URGENT MATERIAL ENCLOSED"). Section 6.07. Survival of Representations and Warranties. All representations, warranties and obligations contained herein shall survive the execution and delivery of this Agreement and the Policy. Section 6.08. Governing Law. THIS AGREEMENT AND ANY DISPUTES OR CONTROVERIES ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAW, WITHOUT REGARD TO CHOICE OF LAW RULES. Section 6.09. Consent to Jurisdiction. To the extent permitted by applicable law, the parties hereto shall not seek and hereby waive the right to any review of the judgment of any such court by any court of any other nation or jurisdiction which may be called upon to grant an enforcement of such judgment. Section 6.10. Counterparts. This Agreement may be executed in counterparts by the parties hereto and such counterparts shall constitute one and the same instrument, each of which shall be deemed to be an original instrument. Section 6.11. Further Assurances. Assured Guaranty and the Issuer agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, 10 acknowledged and delivered, such supplements hereto (including any financing statements, if applicable) and such further instruments as may be required by law or as shall reasonably be requested by Assured Guaranty for carrying out the intention of or facilitating the performance of this Agreement. Section 6.12. Severability. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, the parties hereto agree that such holding shall not invalidate or make unenforceable any other provision hereof. The parties hereto further agree that the holding by any court of competent jurisdiction that any remedy pursued by any party hereto is unavailable or unenforceable shall not affect in any way the ability of such party to pursue any other remedy available to it. Section 6.13. Survival of Obligations. Notwithstanding anything to the contrary contained in this Agreement, the obligation of the Issuer to pay all amounts due hereunder and the rights of Assured Guaranty to pursue all remedies shall survive the expiration, termination or substitution of the Policy and this Agreement. Section 6.14. Information and Reporting. The Issuer covenants to provide to Assured Guaranty, promptly upon request, any information regarding the Obligations, the Financing Documents or the financial condition and operations of the Issuer as reasonably requested by Assured Guaranty. 11 IN WITNESS WHEREOF, each of the parties hereto have duly executed and delivered this Agreement as of the date first above written. tog') Approved as to form: Lisa Agw Assistant ttorney C*tv-A For City Attomey 12 CITY OF CORPUS CHRISTI, TEXAS By: C-e—vt 0 ' -vim Name: Cindy O%Brien Title: Interim Assistant City Manager of Administrative Services ASSURED GUARANTY CORP. By: Name: John Trahan Title: Managing Director IN WITNESS WHEREOF, each of the parties hereto have duly executed and delivered this Agreement as of the date first above written. CITY OF CORPUS CHRISTI, TEXAS By: Name: Constance P. Sanchez Title: Interim Director of Financial Services ASSURED GUARANTY CORP. B 12 John Trahan Managing Director EXHIBIT G DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Section 32 of this Ordinance. Annual Financial Statements and Operating Data The financial information and operating data with respect to the City to be provided annually in accordance with such Section for each Year ending in and after 2009 are as specified (and included in the Appendix or under the headings of the Official Statement referred to) below: Tables 1 through 25 contained in the Official Statement; and the Audited Financial Statement of the City, as set forth in Appendix B to the Official Statement. Accounting Principles The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to above. 80470964.4 G-1