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ORD 2009-18 - Authorizing Isuance of GO Bond Series 2009 $1,850,000 (NF Fire Station) 02-03-2009ORDINANCE NO. 2009 -P9 ORDINANCE AUTHORIZING THE ISSUANCE OF $1,850,000 CITY OF HUNTSVILLE, TEXAS GENERAL OBLIGATION BOND SERIES 2009 Adopted on February 3, 2009 m TABLE OF CONTENTS Page Recitals............................................................ 1 ARTICLE I DEFINITIONS AND OTHER PRELIMINARY MATTERS Section 1.01. Definitions ................. ............................... 1 3 Section 1.02. Other Definitions ............ ............................... 3 Section 1.03. Findings ................... ............................... 3 Section 1.04. Table of Contents, Titles and Headings .......................... 4 Section 1.05. Interpretation ............... ............................... ARTICLE H SECURITY FOR THE BOND Section 2.01. Tax Levy for Payment of the Bond ............................. 4 Section 2.02. Perfection of Security Interest .. ............................... 4 ARTICLE HI AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE BOND Section 3.01. Authorization ............... ............................... 5 5 Section 3.02. Date, Denomination, Maturities, Numbers and Interest .............. Section 3.03. Medium, Method and Place of Payment .......................... 6 Section 3.04. Execution and Initial Registration .............................. 7 Section 3.05. Ownership ........ .. ............................... • . • . . . 7 8 Section 3.06. Registration, Transfer and Exchange ............................ Section 3.07. Cancellation and Authentication . ............................... 9 Section 3.08. Replacement Bonds ......... ............................... 10 ARTICLE IV PREPAYMENT OF BOND BEFORE MATURITY Section 4.01. Limitation on Prepayment .... ............................... 11 Section 4.02. Optional Prepayment ........ ............................... 11 Section 4.03. Notice of Prepayment to Owners .............................. 11 Section 4.04. Effect of Prepayment ........ ............................... 11 Section 4.05. Conditional Notice of Prepayment ............................. 12 ARTICLE V PAYING AGENT/REGISTRAR Section 5.01. Appointment of Initial Paying Agent/Registrar .................... 12 Section 5.02. Qualifications .............. ............................... 13 Section 5.03. Maintaining Paying Agent/Registrar ............................ 13 Section 5.04. Termination ............... ............................... 13 Section 5.05. Notice of Change to Owners .. ............................... 13 Section 5.06. Agreement to Perform Duties and Functions ..................... 13 Section 5.07. Delivery of Records to Successor .............................. 14 ARTICLE VI FORM OF THE BOND Section 6.01. Form Generally ............ ............................... 14 Section 6.02. Form of Bond ............. ............................... 14 Section 6.03. CUSIP Registration ......... ............................... 19 Section 6.04. Legal Opinion ............. ............................... 19 ARTICLE VII SALE OF THE BOND; CONTROL AND DELIVERY OF THE BOND Section 7.01. Sale of Bond ............... 20 .............................. Section 7.02. Control and Delivery of the Bond ............................. 20 ARTICLE VIII CREATION OF FUNDS AND ACCOUNTS; DEPOSIT OF PROCEEDS; INVESTMENTS Section 8.01. Creation of Funds .......... ............................... 21 Section 8.02. Interest and Sinking Fund .... ............................... 21 Section 8.03. Construction Fund .......... ............................... 21 Section 8.04. Security of Funds ........... ............................... 22 Section 8.05. Deposit of Proceeds ......... ............................... 22 Section 8.06. Investments ............... ............................... 22 Section 8.07. Investment Income .......... ............................... 22 ARTICLE IX PARTICULAR REPRESENTATIONS AND COVENANTS Section 9.01. Payment of the Bond ........ ............................... 22 Section 9.02. Other Representations and Covenants .......................... 22 ii Section 9.03. Covenants Regarding Tax Exemption of Interest on the Bond ........ 23 ARTICLE X DEFAULT AND REMEDIES Section 10.01. Events of Default .......... ............................... 26 Section 10.02. Remedies for Default ....... ............................... 26 Section 10.03. Remedies Not Exclusive .... ............................... 26 ARTICLE XI DISCHARGE AND DEFEASANCE Section 11.01. Defeasance of Bonds ........ ............................... 27 ARTICLE XH NO RULE 150-12 UNDERTAKING Section 12.01. No Rule 15c2 -12 Undertaking ............................... 28 Section 12.02. Financial Information of the City ............................. 28 ARTICLE XHI AMENDMENTS; FURTHER PROCEDURES; AND SEVERABILITY Section 13.01. Amendments ............. ............................... 29 Section 13.02. Further Procedures ........ ............................... 29 Section 13.03. No Personal Liability ....... ............................... 29 Section 13.04. Severability .............. ............................... 30 EXHIBIT A- PAYING AGENT/REGISTRAR AGREEMENT EXHIBIT B- INVESTMENT AND COM HTMENT LETTER iii ORDINANCE NO. 2009-J9 ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF HUNTSVILLE, TEXAS GENERAL OBLIGATION BOND, SERIES 2009; PROVIDING FOR THE SECURITY FOR AND PAYMENT OF SAID BOND; PRESCRIBING THE FORM OF SAID BOND; AWARDING THE SALE THEREOF; AUTHORIZING A PAYING AGENT/REGISTRAR AGREEMENT AND AN INVESTMENT AND COMMITMENT LETTER; AND AUTHORIZING OTHER MATTERS RELATING TO THE BOND THE STATE OF TEXAS § COUNTY OF WALKER § CITY OF HUNTSVILLE § WHEREAS, at an election held within the City of Huntsville, Texas (the "City ") on November 6, 2007 the voters of the City authorized the City Council of the City to issue in one or more series the bonds set forth in proposition for the purpose set forth below, which aggregates $2,150,000 in aggregate principal amount; and WHEREAS, the City Council deems it to be in the best interest of the City to issue the $1,850,000 from the proposition for the purpose of (i) constructing, acquiring, improving and equipping a new fire station to serve the portion of the City east of Sam Houston Avenue; (ii) acquisition of any necessary sites, constructing necessary infrastructure and parking facilities; (iii) the purchase of fire trucks and communication technology; and (iv) to pay the costs associated with the sale of the Bond; and WHEREAS, 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 the meeting was given, all as required by Chapter 551, Texas Government Code. NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF HUNTSVILLE, TEXAS: ARTICLE I DEFINITIONS AND OTHER PRELIMINARY MATTERS Section 1.01. Definitions. Unless otherwise expressly provided or unless the context clearly requires otherwise, in this Ordinance the following terms shall have the meanings specified below: "Bond" means the City's general obligation bond entitled "City of Huntsville, Texas, General Obligation Bond, Series 2009" authorized to be issued by Section 3.01 of this Ordinance. IOIRBL.T.IIP.,R efMOTR.T:T"a "Closing Date" means the date of the initial delivery of and payment for the Bond. "Code" means the Internal Revenue Code of 1986, as amended, including applicable regulations, published rulings and court decisions relating thereto. "Construction Fund" means the construction fund established by Section 8.01(a)(ii) of this Ordinance. "Defeasance Securities" means (i) Federal Securities, (ii) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the City Council adopts or approves proceedings authorizing the issuance of refunding bonds or otherwise provide for the funding of an escrow to effect the defeasanee of the Bonds are rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent, and (iii) 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 City Council adopts or approves proceedings authorizing the issuance of refunding bonds or otherwise provide for the funding of an escrow to effect the defeasanee of the Bonds, are rated as to investment quality by a nationally recognized investment rating firm no less than "AAA" or its equivalent. "Designated Payment/Transfer Office" means (i) with respect to the initial Paying Agent/Registrar named herein, its designated office in Huntsville, Texas, and (ii) with respect to any successor Paying Agent/Registrar, the office of such successor designated and located as may be agreed upon by the City and such successor. "Event of Default" means any Event of Default as defined in Section 10.01 ofthis Ordinance. "Federal Securities" as used herein means direct, noncallable obligations ofthe United States ofAmerica, including obligations that are unconditionally guaranteed by the United States ofAmerica (including Interest Strips of the Resolution Funding Corporation). "Initial Bond" means the Bond described in Section 3.04(d) and 6.02. "Interest and Sinking Fund" means the interest and sinking fund established by Section 8.01(a) of this Ordinance. "Interest Payment Date" means the date or dates upon which interest on the Bond is scheduled to be paid until the maturity of the Bond, such dates being February 15 and August 15 of each year commencing August 15, 2009. "Ordinance" means this Ordinance. Hmt+ Ue0009: Ordi a = 2 "Original Issue Date" means the initial date from which interest on the Bond accrues and which is designated in Section 3.02(a) of this Ordinance. "Owner" means the person who is the registered owner ofthe Bond, as shown in the Register. "Paying Agent/Registrar" means First National Bank of Huntsville, any successor thereto or an entity which is appointed as and assumes the duties of paying agent/registrar as provided in this Ordinance. "Purchaser" means the person, firm or entity initially purchasing the Bond from the City and which is designated in Section 7.01 of this Ordinance. Date. "Record Date" means the last business day of the month next preceding an Interest Payment "Register" means the Register specified in Section 3.06(a) of this Ordinance. "Special Payment Date" means the Special Payment Date prescribed by Section 3.03(6) of this Ordinance. "Special Record Date" means the new record date for interest payment established in the event of a nonpayment of interest on a scheduled payment date, and for 30 days thereafter, as described in Section 3.03(b) of this Ordinance. "Unclaimed Payments" means money deposited with the Paying Agent/Registrar for the payment of principal, prepayment premium, if any, or interest on the Bond as the same become due and payable or money set aside for the payment of the Bond duly called for prepayment prior to maturity, and remaining unclaimed for 90 days after the applicable payment or prepayment date. Section 1.02. Other Definitions. The terms "City Council" and "City" shall have the meaning assigned in the preamble to this Ordinance. Section 1.03. Findings. The declarations, determinations and findings declared, made and found in the preamble to this Ordinance are hereby adopted, restated and made a part of the operative provisions hereof. Section 1.04. Table of Contents. Titles and Headings. The table of contents, titles and headings of the Articles and Sections of this Ordinance have been inserted for convenience of reference only and are not to be considered a part hereof and shall Hunt Ue0009: Ordnance not in any way modify or restrict any of the terms or provisions hereof and shall never be considered or given any effect in construing this Ordinance or any provision hereof or in ascertaining intent, if any question of intent should arise. Section 1.05. Interpretation. (a) Unless the context requires otherwise, words of the masculine gender shall be construed to include correlative words of the feminine and neuter genders and vice versa, and words of the singular number shall be construed to include correlative words of the plural number and vice versa. (b) This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein to sustain the validity of this Ordinance. ARTICLE H SECURITY FOR THE BOND Section 2.01. Tax Levy for Payment of the Bond. (a) The City Council hereby declares and covenants that it will provide and levy a tax legally and fully sufficient for payment of the Bond, it having been determined that the existing and available taxing authority of the City for such purpose is adequate to permit a legally sufficient tax in consideration of all other outstanding obligations of the City. (b) In order to provide for the payment of the debt service requirements on the Bond, being (i) the interest on the Bond and (ii) a sinking fund for its payment at maturity or a sinking fund of two percent (whichever amount is the greater), there is hereby levied for the current year and each succeeding year thereafter, while the Bond or interest thereon remain outstanding and unpaid, a tax within legal limitations on each $100 valuation of taxable property in the City that is sufficient to pay such debt service requirements, full allowance being made for delinquencies and costs of collection. (c) The tax levied by this Section shall be assessed and collected each year and applied to the payment of the debt service requirements on the Bond, and the tax shall not be diverted to any other purpose. Section 2.02. Perfection of Security Interest. Chapter 1208, Texas Government Code applies to the issuance of the Bond and the pledge of the taxes granted by the City under Sections 2.01 of this Ordinance, and such pledge, therefore, is valid, effective, and perfected. If Texas law is amended at any time while the Bond is outstanding and unpaid such that the pledge of the taxes granted by the City under Section 2.01 of this Ordinance is to be subject to the filing requirements of Chapter 9, Texas Business and Commerce Code, then H. HecoW o,atn. t in order to preserve to the registered owners ofthe Bond the perfection ofthe 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, Texas Business and Commerce Code and enable a filing to perfect the security interest in said pledge to occur. ARTICLE III AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE Bond Section 3.01. Authorization. (a) TheCity' sbondtobe designated "City ofHuntsville , Texas, General ObligationBond, Series 2009," is hereby authorized to be issued and delivered in accordance with the Constitution and laws of the State of Texas, including particularly Tex. Gov't Code Ann. § 1331,052, in the aggregate principal amount of $1,850,000 for the purpose of (i) constructing, acquiring, improving and equipping a new fire station to serve the portion of the City east of Sam Houston Avenue; (ii) acquisition of any necessary sites, constructing necessary infrastructure and parking facilities; (iii) the purchase of fire trucks and communication technology; and (iv) to pay the costs associated with the sale of the Bond. Section 3.02. Date Denomination Maturities Numbers and Interest. (a) The Bond shall have the Original Issue Date of February 24, 2009, shall be in fully registered form, without coupons, and initially there shall be issued, sold, and delivered hereunder one fully registered Bond, in the denomination and principal amount of $1,850,000, numbered from R -I with anyBond issued in replacement thereofbeing in the denomination and principal amount hereafter stated and numbered consecutively from R -2 upward, payable to the respective initial registered owners thereof (as designated in Section 7.01(a) hereof), or to the registered assignee or assignees of the Bond or any portion or portions thereof, and the unpaid principal of the Bond shall finally mature on August 15, 2019, but shall be payable in installments on August 15 in each of the years and in the amounts, respectively, as set forth in the following schedule: Hunt McGOW orai=ce Principal Principal Year Installment Year Installment 2009 $204,000 2015 $167,000 2010 144,000 2016 171,000 2011 148,000 2017 176,000 2012 153,000 2018 181,000 2013 157,000 2019 187,000 2014 162,000 Hunt McGOW orai=ce (b) The Bond shall bear interest on the unpaid balance of the principal amount thereof in the manner and from the date specified in the FORM OF BOND set forth in this Ordinance to the scheduled due date, or date of prepayment prior to the scheduled due date, of the principal installments of the Bond at the rate of 2.90% per annum. Section 3.03. Medium Method and Place of Payment. (a) The principal of, premium, if any, and interest on the Bond shall be paid in lawful money of the United States of America as provided in this Section. (b) Interest on the Bond shall be payable to the Owners whose names appear in the Register at the close of business on the Record Date; provided, however, that in the event of nonpayment of interest on a scheduled Interest 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 from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the "Special Payment Date ", which shall be at least 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each Owner of a Bond appearing on the books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. (c) Interest on the Bond shall be paid by check (dated as of the Interest Payment Date) and sent by the Paying Agent/Registrar to the person entitled to such payment by United States mail, first class postage prepaid, to the address of such person as it appears in the Register or by such other customary banking arrangements acceptable to the Paying Agent/Registrar and the person to whom interest is to be paid; provided, however, that such person shall bear all risk and expenses of such other customary banking arrangements. (d) The principal of the Bond shall be paid to the person in whose name such Bond is registered on the due date thereof (whether at the maturity date or the date of prior prepayment thereof) upon presentation and surrender of such Bond at the Designated Payment/Transfer Office. (e) If a date for the payment of the principal of or interest on the Bond is a Saturday, Sunday, legal holiday, or a day on which banking institutions in the city in which the Designated Payment /Transfer Office 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 a Saturday, Sunday, legal holiday, or day on which such banking institutions are required or authorized to close; and payment on such date shall have the same force and effect as if made on the original date payment was due. (f) Subject to Title 6, Texas Property Code, as amended, Unclaimed Payments remaining unclaimed for three years after the applicable payment or prepayment date shall be paid by the Paying Agent/Registrar to the City, to be used for any lawful purpose. Thereafter, neither the City, the x.a�iflvam: add Paying Agent/Registrar, nor any other person shall be liable or responsible to any Owners of such Bond for any further payment of such unclaimed moneys or on account of such Bond, subject to any applicable escheat, abandoned property, or similar law. Section 3.04. Execution and Initial Registration. (a) The Bond shall be executed on behalf of the City by the Mayor and City Secretary of the City, by their manual or facsimile signatures, and the official seal of the City shall be impressed or placed in facsimile thereon. Such facsimile signatures on the Bond shall have the same effect as if each of the Bond had been signed manually and in person by each of said officers, and such facsimile seal on the Bond shall have the same effect as if the official seal of the City had been manually impressed upon each of the Bond. (b) In the event that any officer of the City whose manual or facsimile signature appears on the Bond ceases to be such officer before the authentication of such Bond or before the delivery thereof, such manual or facsimile signature nevertheless shall be valid and sufficient for all purposes as if such officer had remained in such office_ (c) Except as provided below, no Bond shall be valid or obligatory for any purpose or be entitled to any security or benefit of this Ordinance unless and until there appears thereon the Bond of Paying Agent/Registrar substantially in the form provided in this Ordinance, duly authenticated by manual execution by an officer or duly authorized representative of the Paying Agent/Registrar. It shall not be required that the same authorized representative of the Paying Agent/Registrar sign the Bond of Paying Agent/Registrar on the Bond. In lieu of the executed Bond of Paying Agent/Registrar described above, the Initial Bond delivered on the Closing Date shall have attached thereto the Comptroller's Registration Certificate substantially in the form provided in this Ordinance, manually executed by the Comptroller of Public Accounts of the State of Texas or by his duly authorized agent, which certificate shall be evidence that the Initial Bond has been duly approved by the Attorney General of the State of Texas and that it is a valid and binding obligation of the City, and has been registered by the Comptroller of Public Accounts of the State of Texas. (d) On the Closing Date, one Initial Bond representing the entire principal amount of the Bond, payable in stated installments to the Purchaser or its designee, executed by manual or facsimile signature of the Mayor and City Secretary of the City, approved by the Attorney General of Texas, and registered and manually signed by the Comptroller ofPublic Accounts of the State ofTexas, will be delivered to the Purchaser or its designee. Section 3.05. Ownership. (a) 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, for the further purpose of making and receiving payment ofthe interest thereon (subject to the provisions herein that interest is to be paid to the person in whose name the Bond is registered on the Record Date or Special Record Date, as applicable), and for all other purposes, whether or not such Bond is overdue, and neither the City nor the Paying Agent/Registrar shall be bound by any notice or knowledge to the contrary. (b) All payments made to the person deemed to be the Owner of anyBond in accordance with this Section shall be valid and effectual and shall discharge the liability of the City and the Paying Agent/Registrar upon such Bond to the extent of the sums paid. Section 3.06. Registration, Transfer and Exchange. (a) So tong as any Bond remains outstanding, the City shall cause the Paying Agent/Registrar to keep at the Designated Payment /Transfer Office a register (the "Register ") in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of the Bond in accordance with this Ordinance. (b) Registration of any Bond maybe transferred in the Register only upon the presentation and surrender thereof at the Designated Payment/Transfer Office for transfer of registration and cancellation, together with proper written instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment of the Bond, and the right of such assignee or assignees thereof to have the Bond registered in the name of such assignee or assignees. No transfer of any Bond shall be effective until entered in the Register. Upon assignment and transfer of any Bond, a new Bond will be issued by the Paying Agent/Registrar in conversion and exchange for such transferred and assigned Bond. To the extent possible the Paying Agent /Registrar will issue such new Bond in not more than three business days after receipt of the Bond to be transferred in proper form and with proper instructions directing such transfer. (c) Any Bond may be converted and exchanged only upon the presentation and surrender thereof at the Designated Payment/Transfer Office, together with a written request therefor duly executed by the registered owner or assignee or assignees thereof, or its or their duly authorized attorneys or representatives, with guarantees of signatures satisfactory to the Paying Agcnt/Registrar, for a Bond of the same maturity and interest rate and in an aggregate principal amount equal to the unpaid principal amount of the Bond presented for exchange. To the extent possible, a new Bond shall be delivered by the Paying Agent/Registrar to the Owner of the Bond in not more than three business days after receipt ofthe Bond to be exchanged in proper form and with proper instructions directing such exchange. (d) Each Bond issued in exchange for any Bond assigned, transferred or converted shall have the same principal maturity date and bear interest at the same rate as the Bond for which it is being exchanged. Each substitute Bond shall bear a letter and /or number to distinguish it from each other Bond. The Paying Agent/Registrar shall convert and exchange the Bond as provided herein, and each substitute Bond delivered in accordance with this Section shall constitute an original x,mt�Qkc009: aam�ca 8 contractual obligation of the City and shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond in lieu of which such substitute Bond is delivered. (e) The City will pay the Paying Agent/Registrar's reasonable and customary charge for the initial registration or any subsequent transfer, exchange or conversion ofthe Bond, but the Paying Agent/Registrar will require the Owner to pay a sum sufficient to cover any tax or other governmental charge that is authorized to be imposed in connection with the registration, transfer, exchange or conversion of a Bond. In addition, the City hereby covenants with the Owners of the Bond that it will (i) pay the reasonable and standard or customary fees and charges of the Paying Agent/Registrar for its services with respect to the payment of the principal of and interest on the Bond, when due, and (ii) pay the fees and charges of the Paying Agent/Registrar for services with respect to the transfer, registration, conversion and exchange of Bond as provided herein. (f) Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Bond called for prepayment, in whole or in part, within 45 days of the date fixed for prepayment; provided, however, such limitation shall not be applicable to an exchange by the Owner of the uncalled balance of a Bond. Section 3.07. Cancellation and Authentication. (a) The Bond paid or prepaid before scheduled maturity in accordance with this Ordinance, and the Bond in lieu of which an exchange Bond or replacement Bond is authenticated and delivered in accordance with this Ordinance, shall be canceled and destroyed upon the making of proper records regarding such payment, prepayment, exchange or replacement. The Paying Agent/Registrar shall periodically furnish the City with certificates of destruction of such Bond. (b) Each substitute Bond issued pursuant to the provisions of Sections 3.06 and 3.08 of this Ordinance, in conversion of and exchange for or replacement of any Bond issued under this Ordinance, shall have printed thereon a Paying Agent/Registrar's Authentication Bond, in the form hereinafter set forth. An authorized representative of the Paying Agent/Registrar shall, before the delivery of any such Bond, manually sign and date such Bond, and no such Bond shall be deemed to be issued or outstanding unless such Bond is so executed. No additional ordinances, orders, or resolutions need be passed or adopted by the City Council or any other body or person so as to accomplish the foregoing conversion and exchange or replacement of any Bond or portion thereof, and the Paying Agent/Registrar shall provide for the printing, execution, and delivery ofthe substitute Bond in the manner prescribed herein. Pursuant to Title 9, Tex. Gov't Code Ann., as amended, and particularly Chapter 1201, SubchapterD thereof, the duty ofconversion and exchange or replacement ofthe Bond as aforesaid is hereby imposed upon the Paying Agent/Registrar, and, upon the execution ofthe above Paying Agent/Registrar's Authentication Bond, the converted and exchanged or replaced Bond shall be valid, incontestable, and enforceable in the same manner and with the same effect as the Initial Bond which was originally delivered pursuant to this Ordinance, approved by the Attorney General, and registered by the Comptroller of Public Accounts. n�a s anecaa9: o a 9 (c) ABond issued in conversion and exchange or replacement of any other Bond, (i) shall be issued in fully registered form, without interest coupons, with the principal of and interest on such Bond to be payable only to the registered owners thereof, (ii) may be prepaid prior to their scheduled maturities, (iii) may be transferred and assigned, (iv) may be converted and exchanged for another Bond, (v) shall have the characteristics, (vi) shall be signed and sealed, and (vii) shall be payable as to principal of and interest, all as provided, and in the manner required or indicated, in the Form of Bond set forth in this Ordinance, Section 3.08. Replacement Bonds. (a) Upon the presentation and surrender to the Paying Agent/Registrar, at theDesignated Payment /Transfer Office, of a mutilated Bond, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Bond offike tenor and principal amount, bearing a number not contemporaneously outstanding. The City or the Paying Agent/ Registrar may require the Owner of such Bond to pay a sum sufficient to cover any tax or other governmental charge that is authorized to be imposed in connection therewith and any other expenses connected therewith. (b) In the event that any Bond is lost, apparently destroyed or wrongfully taken, the Paying Agent/Registrar, pursuant to the applicable laws of the State of Texas and in the absence of notice or knowledge that such Bond has been acquired by a bona fide purchaser, shall authenticate and deliver a replacement Bond of like tenor and principal amount, bearing a number not contemporaneously outstanding, provided that the Owner first: (i) furnishes to the Paying Agent/Registrar satisfactory evidence of his or her ownership of and the circumstances of the loss, destruction or theft of such Bond; (ii) furnishes such security or indemnity as may be required by the Paying Agent/Registrar and the City to save them harmless; (iii) pays all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Paying Agent/Registrar and any tax or other governmental charge that is authorized to be imposed; and (iv) satisfies any otherreasonable requirements imposed bytheCity andthePaying Agent/Registrar. (c) If, after the delivery of such replacement Bond, a bona fide purchaser of the original Bond in lieu of which such replacement Bond was issued presents for payment such original Bond, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Bond from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the City or the Paying Agent/Registrar in connection therewith. H�UeGOW Ordinance 1.0 (d) In the event that any such mutilated, lost, apparently destroyed or wrongfully taken Bond has become or is about to become due and payable, the Paying Agent/Registrar, in its discretion, instead of issuing a replacement Bond, may pay such Bond if it has become due and payable or may pay such Bond when it becomes due and payable. (e) Each replacement Bond delivered in accordance with this Section shall constitute an original contractual obligation of the City and shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond in lieu of which such replacement Bond is delivered. ARTICLE IV PREPAYMENT OF BOND BEFORE MATURITY Section 4.01. Limitation on Prepayment. The Bond shall be subject to prepayment before scheduled maturity only as provided in this Article IV. Section 4.02. Optional Prepayment. (a) The City reserves the option to prepay the Bond as provided in the Form of Bond. (b) The City, at least forty -five (45) days before the prepayment date (unless a shorter period shall be satisfactory to the Paying Agent/Registrar), shall notify the Paying Agent/Registrar of such prepayment date and of the principal amount of the Bond to be prepaid. Section 4.03. Notice of Prepayment to Owners. (a) The Paying Agent/Registrar shall give notice of any prepayment of the Bond by sending notice by United States mail, first class postage prepaid, not less than three (3) days before the date fixed for prepayment, to the Owner of each Bond (or part thereof) to be prepaid, at the address shown on the Register. (b) The notice shall state the prepayment date, the place at which the Bond is to be surrendered for payment, and, if less than all of the Bond outstanding is to be prepaid, an identification of the installments of the Bond to be prepaid. (c) Any notice given as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives such notice. Hwtsvi11eG009: Ordi=.. l I Section 4.04. Effect of Prepayment. (a) Notice of prepayment having been given as provided in Section 4.03, the Bond or portions thereof called for prepayment shall become due and payable on the date fixed for prepayment and such Bond or portions thereof shall cease to bear interest from and after the date fixed for prepayment, whether or not such Bond is presented and surrendered for payment on such date. (b) If any Bond or portion thereof called for prepayment is not so paid upon presentation and surrender of such Bond for prepayment, such Bond or portion thereof shall continue to bear interest at the rate stated on the Bond until paid or until due provision is made for the payment of same. Section 4.05. Conditional Notice of Prepayment. With respect to any optional prepayment of the Bond, unless certain prerequisites to such prepayment required by this Ordinance have been met and the moneys sufficient to pay the principal of and premium, if any, and interest on the Bond to be prepaid shall have been received by the Paying Agent/Registrar prior to the giving of such notice of prepayment, such notice shall state that said prepayment may, at the option of the City, be conditional upon the satisfaction of such prerequisites and receipt of such moneys by the Paying Agent/Registrar on or prior to the date fixed for such prepayment, or upon any prerequisite set forth in such notice of prepayment. If a conditional notice of prepayment is given and such prerequisites to the prepayment and sufficient moneys are not received, such notice shall be of no force and effect, the City shall not prepay such Bond and the Paying Agent/Registrar shall give notice, in the manner in which the notice of prepayment was given, to the effect that the Bond has not been prepaid. ARTICLE V PAYING AGENT/REGISTRAR Section 5.01. Appointment of Initial Paying Agent/Registrar. (a) The City hereby appoints FirstNational Bank ofHuntsville, as its registrar and transfer agent to keep such books or records and make such transfers and registrations under such reasonable regulations as the City and the Paying Agent/Registrar may prescribe; and the Paying Agent/Registrar shall make such transfer and registrations as herein provided. It shall be the duty of the Paying Agent/Registrar to obtain from the Owners and record in the Register the address of such Owner of such Bond to which payments shall be mailed, as provided herein. The City or its designee shall have the right to inspect the Register 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. Hwm Mi C,O09: Ordinance 12 (b) The City hereby further appoints the Paying Agent/Registrar to act as the paying agent for paying the principal of and interest on the Bond, The Paying Agent/Registrar shall keep proper records of all payments made by the City and the Paying Agent/Registrar with respect to the Bond, and of all conversions, exchanges and replacements of such Bond, as provided in this Ordinance. (c) The execution and delivery of a Paying Agent/Registrar Agreement, specifying the duties and responsibilities of the City and the Paying Agent/Registrar, is hereby approved with such changes as may be approved by the Mayor of the City, and the Mayor and City Secretary of the City are hereby authorized to execute such agreement, Section 5.02. Qualifications Each Paying Agent/Registrar shall be (i) a,commercial bank, trust company, or other entity duly qualified and legally authorized under applicable law, (ii) authorized under such laws to exercise trust powers, (iii) subject to supervision or examination by a federal or state governmental authority, and (iv) a single entity. Section 5.03. Maintaining Paying Agent/Registrar. (a) At all times while the Bond is outstanding, the City will maintain a Paying Agent/Registrar that is qualified under Section 5.02 of this Ordinance. (b) If the Paying Agent/Registrar resigns or otherwise ceases to serve as such, the City will promptly appoint a replacement. Section 5.04. Termination. The City reserves the right to terminate the appointment of any Paying Agent/Registrar by delivering to the entity whose appointment is to be terminated a certified copy of a resolution of the City (i) giving notice of the termination of the appointment and of the Paying Agent/Registrar Agreement, stating the effective date of such termination, and (ii) appointing a successor Paying Agent/Registrar; provided that no such termination shall be effective until a successor Paying Agent/Registrar has accepted the duties of Paying Agent/Registrar for the Bond. Notwithstanding the foregoing, so long as the initial Purchaser of the Bond is the sole holder of the Bond, the City may not terminate the Paying Agent/Registrar without the consent of First National Bank of Huntsville. Section 5.05. Notice of Change to Owners. Promptly upon each change in the entity serving as Paying Agent/Registrar, the City will cause notice of the change to be sent to each Owner by United States mail, first class postage prepaid, at the address in the Register, stating the effective date of the change and the name of the replacement Paying Agent/Registrar and the mailing address of its Designated Payment/Transfer Office. Hom RICGM: o'd'n� 13 Section 5.06. Agreement to Perform Duties and Functions. By accepting the appointment as Paying Agent/Registrar, the Paying Agent/Registrar is deemed to have agreed to the provisions of this Ordinance and that it will perform the duties and functions of Paying Agent/Registrar prescribed hereby. Section 5.07. Delivery of Records to Successor. If a Paying Agent/Registrar is replaced, such Paying Agent/Registrar, promptly upon the appointment of the successor, will deliver the Register (or a copy thereof) and all other pertinent books and records relating to the Bond to the successor Paying Agent/Registrar. ARTICLE VI e UU i _ a31tii7►17 Section 6.01. Form Generally. (a) The Bond, including the Registration Bond ofthe Comptroller of Public Accounts of the State of Texas, the Bond of the Paying Agent/Registrar, and the Assignment form to appear on the Bond, (i) shall be substantially in the form set forth in this Article, with such appropriate insertions, omissions, substitutions, and other variations as are permitted or required by this Ordinance, and (ii) may have such letters, numbers, or other marks of identification (including identifying numbers and letters of the Committee on Uniform Securities Identification Procedures of the American Bankers Association) and such legends and endorsements (including any reproduction of an opinion of counsel) thereon as, consistently herewith, may be determined by the City or by the officers executing such Bond, as evidenced by their execution thereof. (b) Any portion of the text of any Bond may be set forth on the reverse side thereof, with an appropriate reference thereto on the face of the Bond. (c) The Bond shall be printed, lithographed, or engraved, and may be produced by any combination of these methods or produced in any other manner, all as determined by the officers executing such Bond, as evidenced by their execution thereof, except that the Initial Bond submitted to the Attorney General of Texas, the definitive Bond delivered to the Purchaser and any temporary Bond may be typewritten or photocopied or otherwise produced. Section 6.02. Form of Bond. The form of Bond, including the form of the Registration Bond of the Comptroller of Public Accounts of the State of Texas, the form of Bond of the Paying Agent/Registrar and the form of Assignment appearing on the Bond, shall be substantially as follows: 14�O c aov: o d m 14 (a) [Form of Bond] REGISTERED No. Interest Rate REGISTERED OWNER: PRINCIPAL AMOUNT: United States of America State of Texas CITY OF HUNTSVILLE, TEXAS GENERAL OBLIGATION BOND SERIES 2009 Maturity Date Original Issue Date 2009 REGISTERED Date of Delivery THE CITY OF HUNTSVILLE, IN THE COUNTY OF WALKER, TEXAS (the "City "), being a political subdivision of the State of Texas, for value received, hereby promises to pay, from the sources described herein, to the registered owner specified above, or registered assigns (hereinafter called the "Registered Owner "), the principal amount specified above, and to pay interest thereon, calculated on the basis of 360 -day year oftwelve 30 -day months, from the Date of Delivery set forth above on the balance of said principal amount from time to time remaining unpaid on August 15, 2009 and semiannually thereafter on each February 15 and August 15 to the maturity date specified above, or the date of prepayment prior to maturity, at the rate per annum set forth above. The unpaid principal of this Bond shall mature on August 15, 2019, but shall be paid in installments on August 15 in the years and in the amounts set forth in the table below: 2014 The principal of and interest on this Bond shall be payable without exchange or collection charges in lawful money of the United States of America, and at final maturity, upon presentation and Hi M.C,009: Ordinance 15 Principal Principal Year Installment Year Installment 2009 $ 2015 $ 2010 2016 2011 2017 2012 2018 2013 2019 2014 The principal of and interest on this Bond shall be payable without exchange or collection charges in lawful money of the United States of America, and at final maturity, upon presentation and Hi M.C,009: Ordinance 15 surrender of this Bond at the designated office in Huntsville, Texas (the "Designated Payment/Transfer Office "), of the initial Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. Interest on this Bond is payable by check dated as of the interest payment date, mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangements acceptable to the Paying Agem/Registrar, requested by, and at the risk and expense of, the person to whom interest is to be paid. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date; provided, however, that in the event of nonpayment of interest on a scheduled interest 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 from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the "Special Payment Date ", which shall be 15 days after the Special Record Date) shall be sent at least five 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 books of the Paying Agent/Registrar at the close of business on the last business day preceding the date of mailing such notice. The initial Paying Agent/Registrar is First National Bank of Huntsville. If a date for the payment of the principal of or interest on the Bond is a Saturday, Sunday, legal holiday, or a day on which banking institutions in the city in which the Designated Payment /Transfer Office 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 a Saturday, Sunday, legal holiday, or day on which such banking institutions are authorized to close; and payment on such date shall have the same force and effect as if made on the original date payment was due. This Bond is a fully registered bond specified in the title hereof issued in the total principal amount of $1,850,000 (herein referred to as the "Bond "), issued pursuant to a certain Ordinance of the City Council of the City (the "Ordinance "), for the purpose of (i) constructing, acquiring, improving and equipping a new fire station to serve the portion of the City east of Sam Houston Avenue; (ii) acquisition of any necessary sites, constructing necessary infrastructure and parking facilities; (iii) the purchase of fire trucks and communication technology; and (iv) to pay the costs associated with the sale of the Bond. The Bond and the interest thereon are payable from the levy of a direct and continuing ad valorem tax, within the limit prescribed by law, against all taxable property in the City. The City has reserved the option to prepay the Bond. The Bond maturing on and after August 15, 2016 may be prepaid at any time on or after August 15, 2015, at the option of the City with funds derived from any available and lawful source, as a whole, or from time to time in part, and, if in part, the particular principal installments or portions thereof to be prepaid shall be selected and designated by the City. Himt.v H.GOD9: adi.ce 16 The Bond may be prepaid in whole, or in part, on any date, with three (3) days prior written notice to the Owner of the Bond, by payment in an amount equal to the principal amount to be prepaid plus accrued interest thereon to the date of prepayment. Notice of such prepayment or prepayments shall be sent by United States mail, first class postage prepaid, not less than 3 days before the date fixed for prepayment, to the registered owner of the Bond to be prepaid in whole or in part. Notice having been so given, the Bond or portions thereof designated for prepayment shall become due and payable on the Prepayment Date specified in such notice, and from and after such date, notwithstanding that the Bond or portions thereof so called for prepayment shall not have been surrendered for payment, interest on such Bond or portions thereof shall cease to accrue. Conditional notice of prepayment may also be given as provided in the Ordinance. As provided in the Ordinance, and subject to certain limitations therein set forth, this Bond is transferable upon surrender of this Bond for transfer at the Designated Payment /Transfer Office, with such endorsement or other evidence of transfer as is acceptable to the Paying Agent/Registrar, and, thereupon, one or more new fully registered Bonds of the same stated maturity, of authorized denominations, bearing the same rate of interest, and for the same aggregate principal amount will be issued to the designated transferee or transferees. Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Bond called for prepayment, in whole or in part, within 45 days of the date fixed for prepayment; provided, however, such limitation shall not be applicable to an exchange by the Owner of the uncalled balance of a Bond. The City, the Paying Agent/Registrar, and any other person may treat the person in whose name this Bond is registered as the owner hereof for the purpose of receiving payment as herein provided (except interest shall be paid to the person in whose name this Bond is registered on the Record Date or Special Record Date, as applicable) and for all other purposes, whether or not this Bond be overdue, and neither the City nor the Paying Agent/Registrar shall be affected by notice to the contrary. IT IS HEREBY CERTIFIED AND RECITED that the issuance ofthis Bond and the series of which it is a part is duly authorized by law; that all acts, conditions and things required to be done precedent to and in the issuance of the Bond have been properly done and performed and have happened in regular and due time, form and manner, as required by law; and that the total indebtedness of the City, including the Bond, does not exceed any constitutional or statutory limitation. IN WITNESS WHEREOF, this Bond has been duly executed on behalf of the City, under its official seal, in accordance with law. H.t ille0009: Ordi. 17 City Secretary, City of Huntsville, Texas Mayor, City of Huntsville, Texas [CITY SEAL] (b) [Form of Certificate of Paying Agent/Registrar] CERTIFICATE OF PAYING AGENTIREGISTRAR This is one of the Bonds referred to in the within mentioned Ordinance. The series ofBonds of which this Bond is a part was originally issued as one Initial Bond which was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. Dated: (c) [Form of Assignment] as Paying Agent/Registrar ASSIGNMENT Authorized Signatory 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: 1 the within Bond and all rights hereunder and hereby irrevocably constitutes and appoints _ attorney to transfer the within Bond on the books kept for registration hereof, 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 and must be guaranteed in a manner acceptable to the Paying Agent/Registrar. Signature Guaranteed By: xmmillecrws:cadm w Is Authorized Signatory (d) The following Registration Certificate ofComptroller of Public Accounts shall appear on the Initial Bond in lieu of the Certificate of Paying Agent/Registrar: REGISTRATION CERTIFICATE OF COMPTROLLER OF PUBLIC ACCOUNTS OFFICE OF THE COMPTROLLER § OF PUBLIC ACCOUNTS 4 REGISTER NO. THE STATE OF TEXAS I HEREBY CERTIFY THAT there is on file and of record in my office a certificate to the effect that the Attorney General of the State of Texas has approved this Bond, and that this Bond has been registered this day by me. WITNESS [SEAL] MY SIGNATURE AND SEAL OF OFFICE this Section 6.03. CUSIP Registration. Comptroller of Public Accounts of the State of Texas The City may secure identification numbers through the CUSIP Service Bureau Division of Standard & Poor's Corporation, and may authorize the printing of such numbers on the face of the Bond. It is expressly provided, however, that the presence or absence of CUSIP numbers on the Bond shall be of no significance or effect as regards the legality thereof and neither the City nor the attomeys approving said Bond as to legality are to be held responsible for CUSIP numbers incorrectly printed on the Bond. Section 6.04. Legal Opinion. The approving legal opinion of McCall, Parkhurst & Horton L.L.P., Bond Counsel, may be printed on the back of each Bond or, in the case of a definitive Bond, attached to each definitive Bond, over the certification of the City Secretary, which may be executed in facsimile. H=wm�coos: adj.== 19 ARTICLE VII SALE OF THE BOND; CONTROL AND DELIVERY OF THE BOND Section 7.01. Sale of Bond. (a) The Bond is hereby sold, pursuant to private placement therefor, on this date, and shall be delivered to First National Bank of Huntsville (the "Purchaser" or initially the "Registered Owner ") at a price of par. The Mayor is authorized to execute the acceptance clause of the Investment and Commitment Letter with the Purchaser. The Bond shall initially be registered in the name of First National Bank of Huntsville. (b) All officers of the City are authorized to execute such documents, certificates and receipts as they may deem appropriate in order to consummate the delivery ofthe Bond in accordance with the Investment and Commitment Letter. (c) All officers of the City are authorized to do any and all things to execute and deliver any and all documents, certificates or other instruments necessary or required for the issuance of any policy or policies of municipal bond insurance relating to the Bond. The ordinance requirements and accompanying commitments for such insurance are hereby approved and made a part of this Ordinance by reference. To the extent permitted by applicable law, the City will comply with all notice and other applicable requirements of the insurer issuing the municipal bond insurance policy and financial guaranty insurance in connection with the issuance of the Bond, as such requirements may be in the effect and transmitted to Bond Counsel with such insurer's commitment to issue such insurance. (d) The obligation of the Purchaser to accept delivery of the Bond is subject to the Purchaser's being furnished with the final, approving opinion of McCall, Parkhurst & Horton L.L.P., Bond Counsel for the City, which opinion shall be dated and delivered the Closing Date. The engagement of such firm as bond counsel for the City in connection with the issuance, sale and delivery of the Bond is hereby approved, ratified and confirmed. Section 7.02. Control and Delivery of the Band. (a) The Mayor of the City is hereby authorized to have control of the Initial Bond and all necessary records and proceedings pertaining thereto pending investigation, examination and approval of the Attorney General of the State of Texas, registration by the Comptroller of Public Accounts of the State of Texas, and registration with, and initial exchange or transfer by, the Paying Agent/Registrar. (b) After registration by the Comptroller of Public Accounts of the State of Texas, delivery of the Bond shall be made to the Purchaser under and subject to the general supervision and Hnecv [].],009: Ordi w e 20 direction of the Mayor of the City, against receipt by the City of all amounts due to the City under the terms of sale. ARTICLE VIII CREATION OF FUNDS AND ACCOUNTS; DEPOSIT OF PROCEEDS; INVESTMENTS Section 8.01. Creation of Funds. (a) The City hereby establishes the following special funds or accounts: (i) the City of Huntsville, Texas, General Obligation Bond, Series 2009, Interest and Sinking Fund (the "Interest and Sinking Fund "); and (ii) the City of Huntsville, Texas, General Obligation Bond, Series 2009, Construction Fund (the "Construction Fund "). (b) The Interest and Sinking Fund and the Construction Fund shall be maintained at an official depository of the City. Section 8.02. Interest and Sinking Fund. (a) The taxes levied under Article II shall be deposited to the credit of the Interest and Sinking Fund at such times and in such amounts as necessary for the timely payment of the principal of and interest on the Bond. (b) Money on deposit in the Interest and Sinking Fund shall be used to pay the principal of and interest on the Bond as such become due and payable. Section 8.03. Construction Fund. (a) Money on deposit in the Construction Fund, including investment earnings thereof, shall be used for the purposes specified in Section 3.01 of this Ordinance. (b) All amounts remaining in the Construction Fund after the accomplishment of the purposes for which the Bond is hereby issued, including investment earnings of the Construction Fund, shall be deposited into the Interest and Sinking Fund, unless a change in applicable law permits or authorizes all or any part of such funds to be used for other purposes. H.mmlld7 : 0,di..cc 21 Section 8.04. Security of Funds. All moneys on deposit in the funds referred to in this Ordinance shall be secured in the manner and to the fullest extent required by the laws of the State of Texas for the security of public funds, and moneys on deposit in such funds shall be used only for the purposes permitted by this Ordinance. Section 8.05. Deposit of Proceeds. The proceeds of the Bond shall be deposited to the Construction Fund and used for the purposes specified in Section 3.01 hereof and for paying the costs of issuance with respect to the Bond. Section 8.06. Investments. (a) Money in the funds established by this Ordinance, at the option of the City, may be invested in such securities or obligations as permitted under applicable law. (b) Any securities or obligations in which money is so invested shall be kept and held in trust for the benefit of the Owners and shall be sold and the proceeds of sale shall be timely applied to the making of all payments required to be made from the fund from which the investment was made. Section 8.07. Investment Income. Interest and income derived from investment of any fund created by this Ordinance shall be credited to such fund. ARTICLE IX PARTICULAR REPRESENTATIONS AND COVENANTS Section 9.01. Payment of the Bond. While the Bond is outstanding and unpaid, there shall be made available to the Paying Agent/Registrar, out of the Interest and Sinking Fund, money sufficient to pay the interest on and the principal of the Bond, as applicable, as will accrue or mature on each applicable Interest Payment Date. Section 9.02. Other Representations and Covenants. (a) The City will faithfully perform at all times any and all covenants, undertakings, stipulations, and provisions contained in this Ordinance and in each Bond; the City will promptly pay Humsvi71eGC09: cadi.«e 22 or cause to be paid the principal of, interest on, and premium, if any, with respect to, each Bond on the dates and at the places and manner prescribed in such Bond; and the City will, at the times and in the manner prescribed by this Ordinance, deposit or cause to be deposited the amounts of money specified by this Ordinance. (b) The City is duly authorized under the laws of the State of Texas to issue the Bond; all action on its part for the creation and issuance of the Bond has been duly and effectively taken; and the Bond in the hands of the Owners thereof is and will be a valid and enforceable obligation of the City in accordance with its terms. Section 9.03. Covenants Regarding Tax Exemption of Interest on the Bond. (a) The City covenants to take any action necessary to assure, or refrain from any action which would adversely affect, the treatment of the Bond as an obligation as described in section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), the interest on which is not includable in the "gross income" of the holder for purposes of federal income taxation. In furtherance thereof, the City covenants as follows: (1) to take any action to assure that no more than 10 percent of the proceeds of the Bond or the projects financed therewith (less amounts deposited to a reserve fund, if any) are used for any "private business use," as defined in section 141(b)(6) of the Code or, if more than 10 percent of the proceeds or the projects financed therewith are so used, such amounts, whether or not received by the City, with respect to such private business use, do not, under the terms of this Ordinance or any underlying arrangement, directly or indirectly, secure or provide for the payment of more than 10 percent of the debt service on the Bond, in contravention of section 141(b)(2) of the Code; (2) to take any action to assure that in the event that the "private business use" described in subsection (1) hereof exceeds 5 percent of the proceeds of the Bond or the projects financed therewith (less amounts deposited into a reserve fund, if any) then the amount in excess of 5 percent is used for a "private business use" which is "related" and not "disproportionate," within the meaning of section 141(b)(3) of the Code, to the governmental use; (3) to take any action to assure that no amount which is greater than the lesser of $5,000,000, or 5 percent of the proceeds of the Bond (less amounts deposited into a reserve fund, if any) is directly or indirectly used to finance loans to persons, other than state or local governmental units, in contravention of section 141(c) of the Code; (4) to refrain from taking any action which would otherwise result in the Bond being treated as "private activity bonds" within the meaning of section 141(b) of the Code; Hsmrs HICG009:ordm 23 (S) to refrain from taking any action that would result in the Bond being "federally guaranteed" within the meaning of section 149(b) of the Code; (6) to refrain from using any portion of the proceeds of the Bond, directly or indirectly, to acquire or to replace funds which were used, directly or indirectly, to acquire investment property (as defined in section 148(b)(2) ofthe Code) which produces a materially higher yield over the term of the Bond, other than investment property acquired with (A) proceeds of the Bond invested for a reasonable temporary period of 3 years or less or, in the case of a refunding bond, for a period of 30 days or less until such proceeds are needed for the purpose for which the Bond is issued, (B) amounts invested in a bona fide debt service fund, within the meaning of section 1.148 -1(b) of the Treasury Regulations, and (C) amounts deposited in any reasonably required reserve or replacement fund to the extent such amounts do not exceed 10 percent of the proceeds of the Bond; (7) to otherwise restrict the use of the proceeds of the Bond or amounts treated as proceeds of the Bond, as may be necessary, so that the Bond does not otherwise contravene the requirements of section 148 of the Code (relating to arbitrage) and, to the extent applicable, section 149(d) of the Code (relating to advance refundings); and (8) to pay to the United States of America at least once during each five -year period (beginning on the date of delivery of the Bond) an amount that is at least equal to 90 percent of the "Excess Earnings," within the meaning of section 148(f) of the Code and to pay to the United States of America, not later than 60 days after the Bond has been paid in full, 100 percent of the amount then required to be paid as a result of Excess Earnings under section 148(f) of the Code. (b) In order to facilitate compliance with the above covenant (8), a "Rebate Fund" is hereby established by the City for the sole benefit of the United States of America, and such fund shall not be subject to the claim of any other person, including without limitation the Owners. The Rebate Fund is established for the additional purpose of compliance with section 148 of the Code. (c) The City understands that the term "proceeds" includes "disposition proceeds" as defined in the Treasury Regulations and, in the case of refunding bonds, transferred proceeds (if any) and proceeds of the refunded bonds expended prior to the date of issuance of the Bond. It is the understanding of the City that the covenants contained herein are intended to assure compliance with the Code and any regulations or rulings promulgated by the U.S. Department of the Treasury pursuant thereto. In the event that regulations or rulings are hereafter promulgated which modify or expand provisions of the Code, as applicable to the Bond, the City will not be required to comply H�IWGaos: admmm 24 with any covenant contained herein to the extent that such failure to comply, in the opinion of nationally recognized bond counsel, will not adversely affect the exemption from federal income taxation of interest on the Bond under section 103 of the Code. In the event that regulations or rulings are hereafter promulgated which impose additional requirements which are applicable to the Bond, the City agrees to comply with the additional requirements to the extent necessary, in the opinion of nationally recognized bond counsel, to preserve the exemption from federal income taxation of interest on the Bond under section 103 of the Code. In furtherance of such intention, the City hereby authorizes and directs the City Manager or Director of Finance to execute any documents, Bonds or reports required by the Code and to make such elections, on behalf of the City, which may be permitted by the Code as are consistent with the purpose for the issuance of the Bond. (d) The City covenants to account for the expenditure of sale proceeds and investment earnings to be used for the purposes described in Section 3.01 of this Ordinance (the "Project ") on its books and records in accordance with the requirements of the Code. The City recognizes that in order for the proceeds to be considered used for the reimbursement of costs, the proceeds must be allocated to expenditures within 18 months of the later of the date that (1) the expenditure is made, or (2) the Project is completed; but in no event later than three years after the date on which the original expenditure is paid. The foregoing notwithstanding, the City recognizes that in order for proceeds to be expended under the Code, the sale proceeds or investment earnings must be expended no more than 60 days after the earlier of (1) the fifth anniversary of the delivery of the Bond, or (2) the date the Bond is retired. The City agrees to obtain the advice of nationally- recognized bond counsel if such expenditure fails to comply with the foregoing to assure that such expenditure will not adversely affect the tax - exempt status of the Bond. For purposes of this subsection, 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. (e) The City covenants that the property constituting the Project will not be sold or otherwise disposed in a transaction resulting in the receipt by the City of cash or other compensation, unless the City obtains an opinion of nationally- recognized bond counsel that such sale or other disposition will not adversely affect the tax - exempt status of the Bond. For purposes of this subsection, the portion of the property comprising personal property and disposed of in the ordinary course shall not be treated as a transaction resulting in the receipt of cash or other compensation. For purposes of this subsection, 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. (f) The City hereby designates the Bond as a "qualified tax- exempt obligation" as defined in section 265(b)(3) of the Code. In furtherance of such designation, the City represents, covenants and warrants the following: (a) that during the calendar year in which the Bond is issued, the City (including any subordinate entities) has not designated nor will designate bonds, which when aggregated with the Bond, will result in more than $10,000,000 of "qualified tax - exempt obligations" being issued; (b) that the City reasonably anticipates that the amount oftax- exempt obligations issued, H� HeGoas: o d; 25 during the calendar year in which the Bond is issued, by the City (or any subordinate entities) will not exceed $10,000,000; and, (c) that the City will take such action or refrain from such action as necessary, and as more particularly set forth in this Section, in order that the Bond will not be considered a "private activity bond" within the meaning of section 141 of the Code. ARTICLE X DEFAULT AND REMEDIES Section 10.01. 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," to -wit: (i) the failure to make payment of the principal of or interest on the Bond when the same becomes due and payable; or (ii) 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 ofthe Owners, 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 Owner to the City. Section 10.02. Remedies for Default. (a) Upon the happening of any Event of Default, then and in every case any Owner or an authorized representative thereof, including but not limited to, a trustee or trustees therefor, may proceed against the City for the purpose of protecting and enforcing the rights of the 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 Owners hereunder or any combination of such remedies. (b) It is provided that all such proceedings shall be instituted and maintained for the equal benefit of all Owners of the Bond then outstanding. Section 10.03. Remedies Not Exclusive. (a) 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 Bond 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 Bond shall not be available as a remedy under this Ordinance. H=m HeG009: Ordim ce 26 (b) The exercise of any remedy herein conferred or reserved shall not be deemed a waiver of any other available remedy. ARTICLE XI DISCHARGE AND DEFEASANCE Section 11.01. Defeasance of Bonds. (a) Any Bond and the interest thereon shall be deemed to be paid, retired and no longer outstanding (a "Defeased Bond ") within the meaning ofthis Ordinance, except to the extent provided in subsections (c) and (e) of this Section, when payment of the principal of such Bond, plus interest thereon to the due date or dates (whether such due date or dates be by reason of maturity, upon prepayment, or otherwise) either (i) shall have been made or caused to be made in accordance with the terms thereof (including the giving of any required notice of prepayment or the establishment of irrevocable provisions for the giving of such notice) or (ii) shall have been provided for on or before such due date by irrevocably depositing with or making available to the Paying Agent/Registrar or an eligible trust company or commercial bank for such payment (1) lawful money of the United States of America sufficient to make such payment, (2) Defeasance Securities, 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 ensure the availability, without reinvestment, of sufficient money to provide for such payment and when proper arrangements have been made by the City with the Paying Agent/Registrar or an eligible trust company or commercial bank for the payment of its services until all Defeased Bonds shall have become due and payable or (3) any combination of (1) and (2). At such time as a Bond shall be deemed to be a Defeased Bond hereunder, as aforesaid, such Bond and the interest thereon shall no longer be secured by, payable from, or entitled to the benefits of, the ad valorem taxes herein levied as provided in this Ordinance, and such principal and interest shall be payable solely from such money or Defeasance Securities. (b) The deposit under clause (ii) of subsection (a) shall be deemed a payment of a Bond as aforesaid when proper notice of prepayment of such Bond shall have been given or upon the establishment of irrevocable provisions for the giving of such notice, in accordance with this Ordinance. Any money so deposited with the Paying Agent/Registrar or an eligible trust company or commercial bank as provided in this Section may at the discretion of the City Council also be invested in Defeasance Securities, maturing in the amounts and at the times as hereinbefore set forth, and all income from all Defeasance Securities in possession of the Paying Agent/Registrar or an eligible trust company or commercial bank pursuant to this Section which is not required for the payment of such Bond and premium, if any, and interest thereon with respect to which such money has been so deposited, shall be remitted to the City Council. (c) Notwithstanding any provision of any other Section of this Ordinance which may be contrary to the provisions of this Section, all money or Defeasance Securities set aside and held in trust pursuant to the provisions of this Section for the payment of principal ofthe Bond and premium, H.WM.C,009. Ordinance 27 if any, and interest thereon, shall be applied to and used solely for the payment of the particular Bond and premium, if any, and interest thereon, with respect to which such money or Defeasance Securities have been so set aside in trust. Until all Defeased Bonds shall have become due and payable, the Paying Agent/Registrar shall perform the services ofPaying Agent/Registrar for such Defeased Bonds the same as if they had not been defeased, and the City shall make proper arrangements to provide and pay for such services as required by this Ordinance. (d) Notwithstanding anything elsewhere in this Ordinance, if money or Defeasance Securities have been deposited or set aside with the Paying Agent/Registrar or an eligible trust company or commercial bank pursuant to this Section for the payment of the Bond and such Bond shall not have in fact been actually paid in full, no amendment of the provisions of this Section shall be made without the consent of the registered owner of each Bond affected thereby. (e) Notwithstanding the provisions ofsubsection (a) immediately above, to theextentthat, upon the defeasance of any Defeased Bond to be paid at its maturity, the City retains the right under Texas law to later call that Defeased Bond for prepayment in accordance with the provisions of this Ordinance, the City may call such Defeased Bond for prepayment upon complying with the provisions of Texas law and upon the satisfaction of the provisions of subsection (a) immediately above with respect to such Defeased Bond as though it was being defeased at the time of the exercise of the option to prepay the Defeased Bond and the effect of the prepayment is taken into account in determining the sufficiency of the provisions made for the payment of the Defeased Bond. ARTICLE XII NO RULE 15c2 -12 UNDERTAKING Section 12.01. No Rule 15c2 -12 Undertakin¢. The City has not made an undertaking with respect to the Bond in accordance with Rule 15c2 -12 of the Securities and Exchange Commission (the "Rule "). The City is not, therefore, obligated pursuant to the Rule to provide any on -going disclosure relating to the City or the Bond. Section 12.02. Financial Information of the City. While the Bond remains outstanding, unless waived by the Purchaser, the City shall provide the following to the Purchaser: (i) Audited financial statements, to be provided within 270 days after the close of each City fiscal year ending on and after September 30, 2008; and (ii) Such other financial information regarding the City as the Purchaser shall reasonably request. H=LvoileG009: Ordin. 28 F4A1KQ 4 - * -NI rr l AMENDMENTS; FURTHER PROCEDURES; AND SEVERABILITY Section 13.01. Amendments. This Ordinance shall not be amended or repealed by the City while any Bond remains outstanding, except as permitted by this Section. The City, without the consent of or notice to any Owner, from time to time and at any time, may amend this Ordinance in any manner not detrimental to the interests of the Owners, including the curing of any ambiguity, inconsistency, or formal defect or omission herein. In addition, the City, with the written consent of Owners holding a majority in aggregate principal amount of the Bond then outstanding affected thereby, may amend, add to, or rescind any of the provisions of this Ordinance; provided that, without the consent of all Owners of then outstanding Bond, no such amendment, addition, or recission shall (i) extend the time or times of payment ofthe principal of and interest on the Bond, reduce the principal amount thereof, prepayment price therefor, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of or interest on the Bond, (ii) give any preference to any Bond over any other Bond, or (iii) reduce the aggregate principal amount of the Bond required for consent to any such amendment, addition, or recission. Section 13.02. Further Procedures. The officers and employees of the City are hereby authorized 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 on behalf of and under the corporate seal of the City all such instruments, whether mentioned herein or not, as may be necessary or desirable in order to carry out the terms and provisions of this Ordinance, the initial sale and delivery of the Bond, the Paying Agent/Registrar Agreement, and the Official Statement. In addition, prior to the initial delivery of the Bond, the Mayor, the City Manager or Chief Financial Officer of the City, and Bond Counsel are hereby authorized and directed to approve any technical changes or corrections to this Ordinance or to any of the instruments authorized and approved by this Ordinance necessary in order to (i) correct any ambiguity or mistake or properly or more completely document the transactions contemplated and approved by this Ordinance and as described in the Official Statement, (ii) obtain a rating from any of the national bond rating agencies, or (iii) obtain the approval of the Bond by the Attorney General of Texas. In the event that any officer of the City whose signature shall appear on any certificate shall cease to be such officer before the delivery of such certificate, such signature nevertheless shall be valid and sufficient for all purposes the same as if such officer had remained in office until such delivery. Section 13.03. No Personal Liability. No covenant or agreement contained in the Bond, this Ordinance or any corollary instrument shall be deemed to be the covenant or agreement of any member of the City Council or any officer, &�i41eGM Odin 29 agent, employee or representative of the City Council in his individual capacity, and neither the directors, officers, agents, employees or representatives of the City Council nor any person executing the Bond shall be personally liable thereon or be subject to any personal liability for damages or otherwise or accountability by reason of the issuance thereof, or any actions taken or duties performed, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise, all such liability being expressly released and waived as a condition of and in consideration for the issuance of the Bond. Section 13.04. Severability. If any section, article, paragraph, sentence, clause, phrase or word in this Ordinance, or application thereof to any person or circumstance is held to be invalid or unenforceable , the remainder of this Ordinance and the application of such section, article, paragraph, sentence, clause, phrase or word to other persons and circumstances nevertheless shall be valid and enforceable; and it is hereby declared that this Ordinance would have been enacted without such invalid or unenforceable provision. [Execution page follows] H. ce 30 In accordance with Section 1201.( APPROVED on first and final reading on this ATTEST: City cretary, City of Huntsville, Texas [CITY SEAL] Texas Government Code, PASSED AND qn o%.v;i . 2009. of Huntsville, APPROVED AS TO LEGALITY: Huntsville, Texas 11 n�U ecoo9., 0,dm 1Ce ExecutionPage EXHIBIT A PAYING AGENTBEGISTRAR AGREEMENT H=Lavif1eG009. Ordinance A -1 PAYING AGENT/REGISTRAR AGREEMENT THIS AGREEMENT entered into as of February 24, 2009 (this "Agreement "), by and between the City of Huntsville, Texas (the "Issuer "), and First National Bank of Huntsville, a national banking association duly organized and existing under the laws of the United States of America (the "Bank" RECITALS WHEREAS, the Issuer has duly authorized and provided for the issuance of its General Obligation Bond, Series 2009 (the "Security ") in the aggregate principal amount of $1,850,000, such Security to be issued in fully registered form only as to the payment of principal and interest thereon; and WHEREAS, the Security is scheduled to be delivered to the initial purchasers thereof on or about February 24, 2009; and WHEREAS, the Issuer has selected the Bank to serve as Paying Agent/Registrar in connection with the payment of the principal of, premium, if any, and interest on said Security and with respect to the registration, transfer and exchange thereof by the registered owners thereof; and WHEREAS, the Bank has agreed to serve in such capacities for and on behalf of the Issuer and has full power and authority to perform and serve as Paying Agent/Registrar for the Security; 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 serve as Paying Agent with respect to the Security. As Paying Agent for the Security, the Bank shall be responsible for paying on behalf of the Issuer the principal, premium (if any), and interest on the Security as the same become due and payable to the registered owners thereof, all in accordance with this Agreement and the "Order" (hereinafter defined). The Issuer hereby appoints the Bank as Registrar with respect to the Security. As Registrar for the Security, the Bank shall keep and maintain for and on behalf of the Issuer books and records as to the ownership of said Security and with respect to the transfer and exchange thereof as provided herein and in the "Order." HU SVLLE�BmdE" "9_ Paying Agent Ageement The Bank hereby accepts its appointment, and agrees to serve as the Paying Agent and Registrar for the Security. Section 1.02. Compensation. In consideration of the sale of the Security to the Bank by the Issuer, no compensation will be owing to the Bank for its services hereunder. 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: "Acceleration Date" on 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 principal corporate trust office of the Bank as indicated on the signature page hereof. The Bank will notify the Issuer in writing of any change in location of the Bank Office. "Fiscal Year" means the fiscal year of the Issuer, ending September 30. "Holder" and "Security Holder" each means the 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, City Administrator or the Finance Director of the Issuer, or any one or more of said officials, and delivered to the Bank. "Legal Holiday" means a day on which the Bank is required or authorized to be closed. "Order" means the ordinance of the governing body of the Issuer pursuant to which the Security is issued, certified by the City Secretary or any other officer of the Issuer and delivered to the Bank. HU VILLMGO8.M9. Paying Agent Aga t "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. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same obligation as that evidenced by such particular Security (and, for the purposes of this definition, any mutilated, lost, destroyed, or stolen Security for which a replacement Security has been registered and delivered in lieu thereof pursuant to Section 4.06 hereof and the Order). "Prepayment Date" when used with respect to any Security to be redeemed means the date fixed for such prepayment pursuant to the terms of the Order. "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 and transfer of the Security. "Stated Maturity" means the date specified in the Order when the principal of a Security is scheduled to be due and payable. Section 2.02. Other Definitions. The terms 'Bank," Issuer," and "Security" have the meanings assigned to them in the recital paragraphs of this Agreement. 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 Paying 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 H SVLLE \G BQM2009: Paying Agmt Agmammt Security at its Stated Maturity, Prepayment Date, 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 interest on each Security when due, by computing the amount of interest to be paid each Holder and preparing and sending checks by United States Mail, first class postage prepaid, on each payment date, to the Holders of the Security (or its Predecessor Security) on the respective Record Date, to the address appearing on the Security Register or by such other method, acceptable to the Bank, requested in writing by the Holder at the Holder's risk and expense. Section 3.02. Payment Dates. The Issuer hereby instructs the Bank to pay the principal of and interest on the Security on the dates specified in the Order. ARTICLE FOUR REGISTRAR Section 4.01. Security Register - Transfers and Exchanges. The Bank agrees to keep and maintain for and on behalf of the Issuer at the Bank Office books and records (herein sometimes referred to as the "Security Register ") and, if the Bank Office is located outside the State of Texas, a copy of such books and records shall be kept in the State of Texas, for recording the names and addresses of the Holders of the Security, the transfer, exchange and replacement of the Security and the payment of the principal of and interest on the Security to the Holders and containing such other information as may be reasonably required by the Issuer and subject to such reasonable regulations as the Issuer and the Bank may prescribe. All transfers, exchanges and replacement of Security shall be noted in the Security Register. Every Security surrendered fortransfer or exchange shall be duly endorsed orbe 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 Financial Industry Regulatory Authority, in form satisfactory to the Bank, duly executed by the Holder thereof or his agent duly authorized in writing. The Bank may request any supporting documentation it feels necessary to effect a re- registration, transfer or exchange of the Security. To the extent possible and under reasonable circumstances, the Bank agrees that, in relation to an exchange or transfer of the Security, the exchange or transfer by the Holders thereof will be completed and new Security delivered to the Holder or the assignee of the Holder in not more than three (3) business days after the receipt of the Security to be canceled in an exchange or transfer and the written instrument of transfer or request for exchange duly executed by the Holder, or his duly authorized agent, in form and manner satisfactory to the Paying Agent/Registrar. HLOTrSV LLEt B9M2009: P.y A,mt Ag .a .t Section 4.02. Certificates. At any time when the Security is not subject to a book - entry-only system of registration and transfer, the Issuer shall provide an adequate inventory of printed Security to facilitate transfers or exchanges thereof. The Bank covenants that the inventory of printed Securities will be kept in safekeeping pending their use, and reasonable care will be exercised by the Bank in maintaining such Securities in safekeeping, which shall be not less than the care maintained by the Bank for debt securities of other political subdivisions or corporations for which it serves as registrar, or that is maintained for its own securities. Section 4.03. Form of Security Register. The Bank, as Registrar, will maintain the Security Register relating to the registration, payment, transfer and exchange of the Security 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 Security Register in any form other than those which the Bank has currently available and currently utilizes at the time. The Security Register may be maintained in written form or in any other form capable ofbeing converted into written form within a reasonable time. Section 4.04. List of Security Holders. The Bank will provide the Issuer at any time requested by the Issuer, upon payment of the required fee, a copy of the information contained in the Security Register. The Issuer may also inspect the information contained 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 contents ofthe 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 court order or as otherwise required by law. Upon receipt of a court order and prior to the release or disclosure of the contents of the Security Register, the Bank will notify the Issuer so that the Issuer may contest the court order or such release or disclosure of the contents of the Security Register. Section 4.05. Return of Canceled Certificates. The Bank will, at such reasonable intervals as it determines, surrender to the Issuer, Security in lieu of which or in exchange for which other Security have been issued, or which have been paid. HUNISV[LMG B.o 009 '. Paying Agent Agreement Section 4.06. Mutilated Destroyed, Lost or Stolen Security. The Issuer hereby instructs the Bank, subject to the applicable provisions of the Order, to deliver and issue Security in exchange for or in lieu of mutilated, destroyed, lost, or stolen Security as long as the same does not result in an overissuance. In case any Security shall be mutilated, or destroyed, lost or stolen, the Bank, in its discretion, may execute and deliver a replacement Security of like form and tenor, and in the same denomination and bearing a number not contemporaneously outstanding, in exchange and substitution for such mutilated Security, or in lieu of and in substitution for such destroyed lost or stolen Security, only after (i) the filing by the Holder thereof with the Bank of evidence satisfactory to the Bank of the destruction, loss or theft of such Security, and of the authenticity of the ownership thereof and (ii) the furnishing to the Bank of indemnification in an amount satisfactory to hold the Issuer and the Bank harmless. All expenses and charges associated with such indemnity and with the preparation, execution and delivery of a replacement Security shall be home by the Holder of the Security mutilated, or destroyed, lost or stolen. Section 4.07. 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 Security it has paid pursuant to Section 3.01, Security it has delivered upon the transfer or exchange of any Security pursuant to Section 4.0 1, and Security it has delivered in exchange for or in lieu of mutilated, destroyed, lost, or stolen Security pursuant to Section 4.06. ARTICLE FIVE THE BANK Section 5.01. Duties of Bank. The Bank undertakes to perform the duties set forth herein and agrees to use reasonable care in the performance thereof. 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 a Responsible Officer, unless it shall be proved that the Bank was negligent in ascertaining the pertinent facts. HUMI'S�7GLE�GOSond2tltl4: Paying Agent Ageemmt (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 that 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 of the foregoing statement, the Bank need not examine the ownership of any Security, but is protected in acting upon receipt of Security 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 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 with respect to the Issuer and in the Security 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. M4y Hold Security. The Bank, in its individual or any other capacity, may become the owner or pledgee of Security 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. Moneys Held by Bank. The Bank shall deposit any moneys received from the Issuer into a trust account to be held in a fiduciary capacity for the payment of the Security, with such moneys in the account that exceed the deposit insurance available to the Issuer by the Federal Deposit Insurance Corporation, to be fully collateralized with Security or obligations that are eligible under the laws of the State of Texas to HU 7MLL�2009: Prying AgmtAg wnt secure and be pledged as collateral for trust accounts until the principal and interest on such securities have been presented for payment and paid to the owner thereof. Payments made from such trust account shall be made by check drawn on such trust account unless the owner of such Security shall, at its own expense and risk, request such other medium of payment. Subject to the Unclaimed Property Law of the State of Texas, any money deposited with the Bank for the payment of the principal, premium (if any), or interest on any Security and remaining unclaimed for three years after the final maturity of the Security has become due and payable will be paid by the Bank to the Issuer if the Issuer so elects, and the Holder of such Security shall hereafter look only to the Issuer for payment thereof, and all liability of the Bank with respect to such monies shall thereupon cease. If the Issuer does not elect, the Bank is directed to report and dispose of the funds in compliance with Title Six of the Texas Property Code, as amended. Section 5.06. Indemnification. To the extent permitted by law, the Issuer agrees 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 against any claim or liability in connection with the exercise or performance of any of its powers or duties under this Agreement. Section 5.07. Interpleader. The Issuer and the Bank agree that the Bank may seek adjudication of any adverse claim, demand, 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 where the Issuer is located, and agree that service of process by certified or registered mail, return receipt requested, to the address referred to 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 located in the State and County where the Issuer is located of competent jurisdiction to determine the rights of any Person claiming any interest herein. ARTICLE SIX MISCELLANEOUS PROVISIONS Section 6.01. Amendment. This Agreement maybe amended onlyby an agreement inwriting signed by both ofthe parties hereto. f M VMLEMBOn 009. Paying Agent Agreement other. Section 6.02. Assignment. This Agreement may not be assigned by either party without the prior written consent of the 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 delivered to the Issuer or the Bank, respectively, at the addresses set forth below: Issuer City of Huntsville, Texas 1212 Avenue M Huntsville, Texas 77340 -4608 Attn: City Manager Paving Agent/Registrar First National Bank of Huntsville 1300 11'h Street Huntsville, Texas 77340 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. Any corporation or association into which the Bank may be converted or merged, or with which it may be consolidated, or to which it may sell, lease, or transfer its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation, or transfer to which it is a party, ipso facto, shall be and become successor Paying Agent/Registrar hereunder and vested with all of the powers, rights, obligations, duties, remedies, discretions, immunities, privileges, and all other matters as was its predecessor, without the execution or filing of any instruments or any further act, deed, or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding. HU SnLLE\f B.&009! Paying Agent Agreement Section 6.06. Severability. In case any provision herein shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions 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 Order constitute the entire agreement between the parties hereto relative to the Bank acting as Paying Agent/Registrar and if any conflict exists between this Agreement and the Order, the Order shall govern. Section 6.09. Counterparts. This 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 (i) on the date of final payment of the principal of and interest on the Security to the Holders thereof or (ii) may be earlier terminated by either party upon thirty (3 0) days written notice; provided, however, an early termination of this Agreement by either party shall not be effective until (a) a successor Paying Agent/Registrar has been appointed by the Issuer and such appointment accepted and (b) notice has been given to the Holders of the Security of the appointment of a successor Paying Agent/Registrar. Furthermore, the Bank and Issuer mutually agree that the effective date of an early termination of this Agreement shall not occur at any time which would disrupt, delay or otherwise adversely affect the payment of the Security. Upon an early termination ofthis Agreement, the Bank agrees to promptly transfer and deliver the Security Register (or a copy thereof), together with other pertinent books and records relating to the Security, to the successor Paying Agent/Registrar designated and appointed by the Issuer. The provisions of Section 1.02 and 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 governed by the laws of the State of Texas. HUMPMLLE1GOBO &W9'. Paying AgentAnement 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. FURST NATIONAL BANK OF HUNTSVILLE LM Title: M SVILLEMBOnd2009: Paying Agee[ Agr.e t 11 CITY OF HUNTFSVILLE, TEXAS HU SVILLO(M&nd20 : Paying Agetd Agreement EXHIBIT B INVESTMENT AND COMMITMENT LETTER Hmtwilk0009: o ai, =e B -1 February 3, 2009 City of Huntsville, Texas 1212 Avenue M Huntsville, Texas 77340 McCall, Parkhurst & Horton L.L.P. 600 Congress Avenue, Suite 1800 Austin, Texas 78701 I, the undersigned, being an authorized officer of First National Bank of Huntsville (the "Bank "), being a financial institution, to -wit: a bank within the definition of section 3(a)(2) of the Securities Act of 1933, acknowledge that the City of Huntsville, Texas (the "Issuer" or "City "), is issuing its General Obligation Bond, Series 2009 (the "Bond ") for the purpose of providing funds for (i) constructing, acquiring, improving and equipping anew fire station to serve the portion of the City east of Sam Houston Avenue; (ii) acquisition of any necessary sites, constructing necessary infrastructure and parking facilities; (iii) the purchase of fire trucks and communication technology; and (iv) to pay the costs associated with the sale of the Bond. The Bond is to be issued pursuant to the Constitution and general laws of the State of Texas, particularly Chapter 1331, Texas Government Code, as amended. The Bank hereby acknowledges receipt ofthe ordinance authorizing the issuance and sale of the Bond (the "Ordinance "), The Bank further understands that the Bond is payable from, and secured by a lien on and pledge of, the receipts of an ad valorem tax levied in sufficient amounts (within the limits prescribed by law) to provide for the payment of the interest on and principal of the Bond, as such interest and principal come due. The Bank further understands that the Bond will be sold for cash, will be approved by the Attorney General of the State of Texas, and will be delivered in one installment in the form of one fully- registered Bond representing the full maturity amount of the Bond, $1,850,000, which Bond is payable in annual installments, as set forth below, subject to prepayment at the option of the Issuer. The Bond will be initially registered in the name of the Bank. In connection with the Bond, the Bank agrees as follows: A. The Bank will purchase the Bond, which shall be delivered to the Bank on or about February 24, 2009. The interest rate on the Bond shall be 2.90% per annum. The first interest Hunie+vPQIiJ4W: lnvmMrent i.mier payment date for the Bond shall be August 15, 2009, with interest payable on each February 15 and August 15 thereafter until maturity or prior redemption. Principal of the Bond will be payable in annual installments, or upon prepayment at the option of the Issuer, under the terms and conditions described below. The purchase price for the Bond shall be the principal amount thereof Interest on the Bond will accrue from the date of initial delivery. Annual principal installment payments shall be made to the registered owner of the Bond on August 15 of each the years, and in the amounts, shown below: Year Principal Amount 2009 $ 204,000 2010 144,000 2011 148,000 2012 153,000 2013 157,000 2014 162,000 2015 167,000 2016 171,000 2017 176,000 2018 181,000 2019 187,000 B. It is understood and agreed that the principal installments of the Bond are subject to prepayment at the option of the Issuer maturing on and after August 15, 2016, in whole or in part, on August 15, 2015 or any date thereafter at a prepayment price equal to the principal amount to be so redeemed plus accrued interest on the principal amount to be so redeemed. If less than all of the Bond is to be prepaid, the City shall determine the amounts thereof to be prepaid and shall direct the Paying Agent/Registrar to call by lot portions thereof within such installment payments and in such amounts, for prepayment. C. The Bond will be fully registered as to principal and interest, and the Bank shall serve as the initial paying agent and registrar for the Bond without charge to the Issuer, except for the reimbursement of any reasonable expenditures incurred by the Bank in the capacity of paying agent and registrar. The Bond is transferable in whole, but not in part. D. In regard to its purchase of the Bond, the Bank acknowledges that no prospectus or other offering document has been prepared; however, the Issuer has furnished the Bank with all information necessary and requested by the Bank to permit the Bank to make an informed HwmviUl 09: kv..e.[L ' decision concerning its purchase of the Bond, and the Bank has made such inspections and investigations as it has deemed necessary to determine the investment quality of the Bond and to assess all risk factors associated with the purchase and ownership of the Bond. The Bank hereby acknowledges and represents that it has a business relationship with the Issuer and that it is familiar with the financial condition of the Issuer and the ability of the Issuer to timely pay the principal of and interest on the Bond. The Bank has been furnished with such financial information relating to the Issuer as it has requested for the purposes of making its assessment of an investment in the Bond. The Bank has had a reasonable opportunity to request and review such other information as it needs from the Issuer in order to enable it to make its investment decision. The Bank is not relying on McCall, Parkhurst & Horton L.L.P., the Issuer's Bond Counsel, as to the completeness or accuracy of any financial information provided to the Bank by the Issuer in connection with its determination to make an investment in the Bond. E. The Bond purchased by the Bank is being purchased for the account of the Bank as evidence of a loan (and not on behalf of another), and the Bank has no present intention of reselling such Bond or dividing its interest therein, either currently or after the passage of a fixed or determinable period of time or upon the occurrence or nonoccurrence of any predetermined event or circumstance; provided, however that the Bank reserves the right to sell, pledge, transfer, convey, hypothecate, or dispose of the Bond at some future date. F. Delivery of the Bond to the Bank (the "Closing ") shall be made at the Bank on or about February 24, 2009, it being understood that the delivery date may be extended by mutual consent of the Bank and the Issuer. G. The Bank acknowledges that the Bond will not berated. In addition, the Bank acknowledges that the Bond will not be listed on any securities exchange. Further, no trading market now exists in the Bond, and none may exist in the future. Accordingly, the Bank understands that it may need to bear the risks of this investment for an indefinite time, since any sale prior to the maturity for the Bond may not be possible or may be at a price below that which the Bank is paying for the Bond. H. It is understood and agreed that the Bank is buying the Bond in a private placement by the Issuer to the Bank. The Bond is exempt from any federal securities registration requirements by virtue of Section 3(a)(2) of the Securities Act of 1933. The private placement of the Bond is exempt from the provisions of Rule 15c2 -12 of the Securities and Exchange Commission (the "Rule "); consequently the lssuer has not undertaken to make any on -going disclosures for the benefit of the registered owner of the Bond in accordance with the Rule. I. This agreement shall be terminated by delivery of $1,850,000 in principal amount of the Bond to the Bank at the date of Closing, provided that the representations of the Bank in E. above, shall survive the termination hereof. The Issuer will designate the Bond as a "qualified tax - exempt obligation" within the meaning of section 265(b) of the Internal Revenue Code. In furtherance of that designation, in the xunmvu..eoos. tronm"nr telrtr Ordinance, the Issuer will covenant to take such action which would assure or to refrain from such action which would adversely affect the treatment of the Bond as a "qualified tax - exempt obligation." K. As a condition to the purchase of the Bond, the Bank shall receive at the Closing an opinion of Bond Counsel in substantially the form attached hereto as Exhibit A. In addition, the Bank shall receive, at the Closing, an opinion of the Attorney General of the State of Texas to the effect that the Bond has been lawfully issued by the Issuer and is a valid and binding obligation of the Issuer under applicable laws of the State of Texas. fl= . Heaoos -. mv�=em �T Respectfully submitted, FIRSTNATIONAL BANK OF HUNTSVILLE By:�- Titl d� Hunis•iI1c0009: b,.mw Lnun ACCEPTANCE ACCEPTED pursuant to the Ordinance adopted by the City Council of the City of Huntsville, Texas, this the 'day of February, 2009. M o ity of Huntsville, Texas xw�;uecoos: m. «mmm� t� EXHIBIT A [An opinion in substantially the followingform will be delivered byMeCall, Parkhurst & Horton L.L.P., Bond Counsel, upon the delivery of the Bonds, assuming no material changes in facts or law.] CITY OF HUNTSVILLE, TEXAS GENERAL OBLIGATION BOND, SERIES 2009 IN THE AGGREGATE PRINCIPAL AMOUNT OF $1,850,000 AS BOND COUNSEL FOR THE CITY OF HUNTSVILLE, TEXAS (the "City ") of the bond described above (the "Bond "), we have examined into the legality and validity of the Bond, which bears interest from the date specified in the text of the Bond, until maturity or prepayment, at the rates and payable on the dates specified in the text of the Bond and in the Ordinance of the City adopted on February _, 2009 authorizing the issuance of the Bond (the "Ordinance "). WE HAVE EXAMINED the applicable and pertinent provisions of the Constitution and laws of the State of Texas, and a transcript of certified proceedings of the City, and other pertinent instruments authorizing and relating to the issuance of the Bond, including the executed Bond (Certificate Number R -1). BASED ON SAID EXAMINATION, IT IS OUR OPINION that said Bond has been authorized, issued and delivered in accordance with law; and that except as the enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar matters now or hereafter enacted relating to creditors' rights generally or by principles of equity which permit the exercise of judicial discretion, the Bond constitutes a valid and legally binding obligation of the City payable from the levy of a direct and continuing ad valorem tax, within the limits prescribed by law, against all taxable property in the City, all as provided in the Ordinance. IT IS FURTHER OUR OPINION, except as discussed below, that the interest on the Band is excludable from the gross income of the owners thereof for federal income tax purposes under the statutes, regulations, published rulings, and court decisions existing on the date of this opinion. We are further of the opinion that the Bond is not "specified private activity bonds" and that, accordingly, interest on the Bond will not be included as an individual or corporate alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the "Code "). In expressing the aforementioned opinions, we have relied on certain representations, the accuracy of which we have not independently verified, and assume compliance by the City, with certain covenants, regarding the use and investment of the proceeds of the Bond and the use of the property financed therewith. We call your attention to the fact that if such representations are determined to be inaccurate or upon a failure by the City to comply with such covenants, interest on the Bond may become includable in gross income retroactively to the date of issuance of the Bond. 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. Nunlavill� . Inviceplienl LElkr A -1 Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service (the "Service "); rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Bond. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the City as the taxpayer. We observe that the City has covenanted not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, may result in the treatment of interest on the Bond as includable in gross income for federal income tax purposes. EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state, or local tax consequences of acquiring, carrying, owning, or disposing of the Bond. In particular, but not by way of limitation, we express no opinion with respect to the federal, state or local tax consequences arising from the enactment of any pending or future legislation. WE CALL YOUR ATTENTION TO THE FACT that the interest on tax - exempt obligations, such as the Bond, is included in a corporation's alternative minimum taxable income for purposes of determining the alternative minimum tax imposed on corporations by section 55 of the Code. OUR SOLE ENGAGEMENT in connection with the issuance of the Bond is as Bond Counsel for the City, and, in that capacity, we have been engaged by the City for the sole purpose of rendering an opinion with respect to the legality and validity of the Bond under the Constitution and laws of the State of Texas, and with respect to the exclusion from gross income of the interest on the Bond for federal income tax purposes, and for no other reason or purpose. We have not been requested to investigate or verify, and have not independently investigated or verified any records, data, or other materi al relating to the fi nancial condition or capabilities of the City, or th e disclosure thereof in connection with the sale of the Bond, and have not assumed any responsibility with respect thereto. We express no opinion and make no comment with respect to the marketability of the Bond and have relied solely on Bond executed by officials of the City as to the current outstanding indebtedness of the City and the assessed valuation of taxable property within the City. THE FOREGOING OPINIONS represent our legal judgment based upon a review of existing legal authorities that we deem relevant to render such opinions and are not a guarantee of a result. Respectfully, HunleVM000U9: InvwWent L r A -2 CERTIFICATE FOR ORDINANCE NO.2009 -Lg THE STATE OF TEXAS § COUNTY OF WALKER § CITY OF HUNTSVILLE § We, the undersigned officers and members of the City of Huntsville, Texas (the "City "), hereby certify as follows: I. The City Council of the City convened in a REGULAR MEETING ON THE 3RD DAY OF FEBRUARY, 2009, at the City Council Chambers, Huntsville City Hall (the "Meeting "), and the roll was called of the duly constituted officers and members of the City, to -wit: J. Turner, Mayor Torn Cole, Ward I Dalene Zender, Position I Mac Woodward, Ward 2 Melissa Mahaffey, Position 2 Clarence Griffin, Ward 3 Charles Forbus, Position 3 Wayne Barrett, Ward 4 Lanny D. Ray, Position 4 _ and all of the persons were present except for �c�VIYt, thus constituting a quorum. Whereupon, among other business, the following was transacted at the Meeting: a written ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF HUNTSVILLE, TEXAS GENERAL OBLIGATION BOND, SERIES 2009; PROVIDING FOR THE SECURITY FOR AND PAYMENT OF SAID BOND; PRESCRIBING THE FORM OF SAID BOND; AWARDING THE SALE THEREOF; AUTHORIZING A PAYING AGENT /REGISTRAR AGREEMENT AND AN INVESTMENT AND COMMITMENT LETTER; AND AUTHORIZING OTHER MATTERS RELATING TO THE BOND was duly introduced for the consideration of the City Council. It was then duly moved and seconded that the Ordinance be passed; and, after due discussion, said motion carrying with it the passage of the Ordinance, prevailed and carried by the following vote: AYES: �9 NOES: 1 A true, full and correct copy of the Ordinance passed at the Meeting described in the above and foregoing paragraph is attached to and follows this Certificate; that the Ordinance has been duly recorded in the City Council's minutes of the Meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the City Council's minutes of the Meeting pertaining to the passage of the Ordinance; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of the City Council as indicated therein; that each of the officers and members of the City Council was duly and sufficiently notified officially and MU VILLGGO \09:O ...C. personally, in advance, of the time, place and purpose of the Meeting, and that the Ordinance would be introduced and considered for passage at the Meeting, and each of the officers and members consented, in advance, to the holding ofthe Meeting for such purpose, and that the Meeting was open to the public and public notice of the time, place and purpose of the meeting was given, all as required by Chapter 551, Government Code, as amended. 3. The Mayor of the City has approved and hereby approves the Ordinance; that the Mayor and the City Secretary of the City have duly signed the Ordinance; and that the Mayor and the City Secretary of the City hereby declare that their signing of this Certificate shall constitute the signing of the attached and following copy of the Ordinance for all purposes. xumaVIu Gowv: aa.� SIGNED AND SEALED the azm��� City tocretary HUNTSVILLEG0 9: �ft GENERAL AND NO- LITIGATION CERTIFICATE THE STATE OF TEXAS § COUNTY OF WALKER § CITY OF HUNTSVILLE § We, the undersigned officers of the City, hereby certify as follows: GENERAL 1. This certificate is executed for and onbehalfof the City, for the benefit oftheAttorney General of the State of Texas and for the benefit of the Underwriter in connection with the issuance of the Securities. The words and terms used herein shall have the meanings whenever they are used given in Exhibit "A" attached hereto. 1 Any certificate signed by an official of the City delivered to the Underwriter or the Attorney General of the State of Texas shall be deemed a representation and warranty by the City as to the statement made therein. The Public Finance Division of the Office of the Attorney General of the State of Texas is hereby authorized to date this certificate as of the date of approval of the Securities and is entitled to relyupon the accuracy of the information contained herein unless notified by telephone or fax to the contrary. The Comptroller of Public Accounts is further authorized to register the Securities upon receipt of the Attorney General approval. After registration, the Bond, opinion and registration papers shall be delivered to Jana M. Hansen at McCall, Parkhurst & Horton L.L.P. MATTERS RELATING TO THE CITY 3. The City is a home -rule municipality, operating and existing under the Texas Constitution and laws of the State of Texas and the City Charter. There have been no changes or amendments to the City Charter spice the last issuance of obligations by the City. 4. No litigation of any nature has ever been filed pertaining to, affecting or contesting: (a) the Ordinance; (b) the issuance, delivery, payment, security or validity of the Securities; (c) the authority of the governing body and the officers of the City to issue, execute and deliver the Securities; (d) the validity of the corporate existence of the City; (e) the current tax rolls of the City,; and that no litigation is pending pertaining to, affecting, questioning or contesting the current boundaries of the City. S. Neither the corporate existence nor boundaries of the City is being contested, no litigation has been filed or is now pending which would affect the authority of the officers of the City to issue, execute, sign and deliver the Securities, and that no authority or proceedings for the issuance of the Securities have been repealed, revoked or rescinded. HUN7'SV LF)W2M, GE� OlXr CRT 6. We officially executed and signed the Securities with our manual signatures or by causing facsimiles of our manual signatures to be imprinted or copied on each of the Securities, and, if appropriate, we hereby adopt such facsimile signatures as our own, respectively, and declare that such facsimile signatures constitute our signatures the same as if we had manually signed each of the Securities. 7. The Securities are substantially in the form, and have been duly executed and signed in the manner, prescribed in the Ordinance. 8. At the time we so executed and signed the Securities we were, and at the time of executing this certificate we are, the duly chosen, qualified and acting officers indicated therein, and authorized to execute the same. 9. We have caused the official seal of the City to be impressed, or printed, or copied on the Securities and such seal on the Securities has been duly adopted as, and is hereby declared to be, the official seal of the City. 10. The currently outstanding tax debt ofthe City and the proposed Securities is set forth in Exhibit "B" attached hereto. 11. The true and correct schedule showing the annual debt service requirements of all the outstanding tax indebtedness of the City, together with the proposed Securities, is set forth in Exhibit "C" hereto. 12. The City is not in default in connection with any of the covenants, conditions or obligations contained in the Ordinance authorizing the issuance of the obligations listed in Exhibit "B ", and that the Interest and Sinking Fund and Reserve Fund, ifany, for such outstanding obligations contain the amount now required to be on deposit therein. 13. The currently effective ad valorem Tax Rolls of said City are those for the year 2008, being the most recently approved Tax Rolls of the City; that the taxable property in the City has been assessed as required by law; that the Tax Assessor of the City has duly verified the aforesaid Tax Rolls; and that the assessed value of taxable property in the City upon which the annual ad valorem tax of the City has been levied (after deducting the amount of all exemptions, if any, taken or required to be given under the Constitution and laws of the State of Texas), according to the aforesaid Tax Rolls for the year, as delivered to the City Secretary, and finally approved and recorded by the City Council of the City, is 51,255,486,453. 14. That on the basis of the facts, estimates and circumstances in effect on the date of delivery of the Securities, it is not expected that the proceeds of' the Securities will be used in a manner that would cause the Securities to be arbitrage Securities within the meaning of Section 148 of the Code. 15. The City has complied with the provisions of the Texas Election Code including the Bilingual Election and Voter Registration Materials Act, Texas Election Code and the Federal V oting Rights Act in all its elections. 16. The City solicited proposals for a private placement of the Securities from a number of banks and the Securities are being sold to First National Bank of Huntsville as a private placement after evaluating proposals received. [Execution Page Follows] IRINIB LElWM9: GENE LN011 .CRT City Manager NOTARY ACKNOWLEDGMENT Before me, on this day personally appeared the foregoing individuals, known to me to be the officers whose true and genuine signatures were subscribed to the foregoing instrument in my presence. Given under my hand and seal of office this A {Y" STEPHANIE A BRIM Notary Public, State of Texas My Commission Expires _ Januory 04, 2010 Not Public (Notary Seal) xU�rrsvtcuEtc02c CENEMNOUr.cET EXecutionPage EXHIBIT A DEFINITIONS City - City of Huntsville, Texas. City Council - The City Council of the City. City Documents - Collectively, the Investment and Commitment Letter, the Ordinance, and the Undertaking. Closing - February 24, 2009 or at such other time agreed upon between the City and the Underwriter. Ordinance - Ordinance Authorizing the Issuance of City of Huntsville, Texas General Obligation Bond, Series 2009; Providing for the Security for and Payment of Said Bond; Prescribing the Form of Said Bond; Awarding the Sale Thereof; Authorizing a Paying Agent/Registrar Agreement and an Investment and Commitment Letter; and Authorizing Other Matters Relating to the Bond (the "Ordinance "). Securities - The $1,850,000 City of Huntsville, Texas General Obligation Bond, Series 2009 (the "Securities "). Undertaking- The undertaking ofthe City which satisfies the requirements of section (b)(5)(i) of Rule 15c2 -12 under the Securities and Exchange Act of 1934, as amended. Underwriter - First National Bank of Huntsville HU SVILLVW2009: GENER LNOLU.CRT a —I •l: OUTSTANDING TAX INDEBTEDNESS Obligations in Process of Issuance General Obligation Bond, Series 2009 $1,850,000 ..... ............................... Outstanding Debt Tax and Wastewater and Sewer System Revenue (Limited Pledge) Certificates of Obligation, Series 1998 ................ ............................... 6,260,000 Combination Tax and Revenue Certificates of Obligation, Series 2000 .............. 675,000 Combination Tax and Revenue Certificates of Obligation, Series 2001 ............. 4,590,000 Combination Tax and Revenue Certificates of Obligation, Series 2004 .............. 980,000 General Obligation Refunding Bonds, Series 2005 ............................ 3,755,000 Limited Tax Note, Series 2005 ............ ............................... 590,000 TOTAL............................ ............................... $18,700.000 HUNT LLFl 2009: GENER LNOLMCKT B -1 EXHIBIT C AGGREGATE GENERAL OBLIGATION DEBT SERVICE C -I HLN SVILLVCA 009: GENERALN()LTT.CRT FEDERAL TAX CERTIFICATE In General. LL The undersigned is the of the City of Huntsville, Texas (the "Issuer "). 1.2. This Certificate is executed for the purpose of establishing the reasonable expectations of the Issuer as to future events regarding the Issuer's General Obligation Bond, Series 2009 (the "Bond "). The Bond is being issued pursuant to an ordinance of the Issuer (the "Ordinance ") adopted on the date of sale of the Bond. The Ordinance is incorporated herein by reference. 13. To the best of the undersigned's knowledge, information and belief, the expectations contained in this Certificate are reasonable. 1.4. The undersigned is an officer of the Issuer delegated with the responsibility of issuing and delivering the Bond. 1.5. The undersigned is not aware of any facts or circumstances that would cause him to question the accuracy of the representations made by _ (the "Purchaser ") in Section 5 of this Certificate. 2. The Pumose of the Bond and Useful Lives of Proiects 2.1. The Bond is being issued pursuant to the Ordinance (a) to provide for the payment of costs of issuing the Bond and (b) to (i) construct, acquire, improve and equip a new fire station to serve the portion of the City east of Sam Houston Avenue; (ii) acquisition of any necessary sites, constructing necessary infrastructure and parking facilities and (iii) the purchase of fire trucks and communication technology (the "Projects "). 22. The Issuer expects thatthe aggregate useful lives of the Projects exceed 25 years fronithe later of the date the Projects are placed in service or the date on which the Bond is issued. 2.3. All earnings, such as interest and dividends, received from the investment of the proceeds of the Bond during the period of acquisition and construction of the Projects and not used to pay interest on the Bond, will be used to pay the costs of the Projects, unless required to be rebated and paid to the United States in accordance with section 148(f) of the Internal Revenue Code of 1986 (the "Code "). The proceeds of the Bond, together with any investment earnings thereon, are expected not to exceed the amount necessary for the govermnental purpose of the Bond. The Issuer expects that no disposition proceeds will arise in connection with the Projects or the Bond. Expenditure of Bond Proceeds and Use of Projects. 3.1. The Issuer will incur, within six months after the date of issue of the Bond, a binding obligation to commence the Projects, either by entering into contracts for the construction of the Projects or by entering into contracts for architectural or engineering services for such Projects, or contracts for the development, purchase of construction materials, or purchase of equipment, for the Projects, with the amount to be paid under such contracts to be in excess of five percent of the proceeds which are estimated to be used for the cost of the Projects. 3.2. After entering into binding obligations, work on such Projects will proceed promptly with due diligence to completion. 3.3. All original proceeds derived from the sale of the Bond to be applied to the Projects and all investment earnings thereon (other than any amounts required to be rebated to the United States pursuant to section 148(f) of the Code) will be expended for the Projects no later than a date which is three years after the date of issue of the Bond. 34. The Ordinance provides that allocations of proceeds to expenditures for the Projects are expected not to be later than 18 months after the later of the date of the expenditure or the date that the Projects are placed in service, but, in any event, not longer than 60 days after the earlier of five years of the date hereof or the date the Bond is retired. 3.5. The Issuer will not invest the proceeds prior to such expenditure in any guaranteed investment contract or other non- purpose investment with a substantially guaranteed yield for a period equal to or greater than four years. 3.6. Other than members of the general public, the Issuer expects that throughout the lesser of the term of the Bond, or the useful lives of the Projects, the only user of the Projects will be the Issuer or the Issuer's employees and agents. The Issuer will be the manager of the Projects. In no event will the proceeds of the Bond or facilities financed therewith be used for private business use in an amount greater than $15 million. 33. Except as stated below, the Issuer expects not to sell or otherwise dispose of property constituting the Projects prior to the earlier of the end of such property's useful life or the final maturity of the Bond. The Ordinance provides that the Issuer will not sell or otherwise dispose of the Projects unless the Issuer receives an opinion of nationally- recognized bond counsel that such sale or other disposition will not adversely affect the tax- exempt status of the Bond. 3.8. For purposes of Subsection 3.7 hereof, the Issuer has not included the portion of the Projects comprised of personal property that is disposed in the ordinary course at a price that is expected to be less than 25 percent of the original purchase price. The Issuer, upon any disposition of such property, will transfer the receipts from the disposition of such property to the general operating fund and expend such receipts within six months for other governmental programs. 4. Interest and Sinking Fund 4.1. A separate and special Interest and Sinking Fund has been created and established solely to pay the principal of and interest on the Bond, with a portion of the Interest and Sinking Fund constituting a bona fide debt service fund for the Bond, and money deposited into the Interest and Sinking Fund for the Bond will not be invested at a yield higher than the yield on the Bond, except during the thirteen month period beginning on the date of each such deposit of money, and the amounts received from the investment of money in the Interest and Sinking Fund will not be invested at a yield higher than the yield on the Bond, except during the one year period beginning on the date of receipt of such amounts; provided, however, and except that, if any money so deposited, and any amounts received from the investment thereof, are accumulated in the Interest and Sinking Fund and remain on hand m the Interest and Sinking Fund after thirteen months from the date of deposit of any such money or one year after the receipt of any such amounts from the investment thereof, such money and amounts, to the extent of an aggregate not exceeding the lesser of five percent of the proceeds of the Bond or $100,000 will not be subject to investment yield restrictions, and shall constitute a separate portion of the Interest and Sinking Fund. 4.2. It is expected that a portion of the Interest and Sinking Fund will be used primarily to achieve a proper matching of revenues collected for the Bond and debt service on the Bond within each bond year, and it is expected that such portion of the Interest and Sinking Fund will be depleted once a year on a first -in - first - out basis, except for a possible carryover amount which will not exceed the greater of one year's earnings on such fund or 1/12 of annual debt service payable from such fund, but any money and amounts which may be accumulated in the Interest and Sinking Fund, to constitute a debt service reserve fund for the Bond as described in Subsection 4. 1, above, shall constitute a separate portion of the Interest and Sinking Fund, and will not be depleted annually, and will not be subject to yield restrictions; provided that in no event will such debt service reserve fund portion of the Interest and Sinking Fund ever exceed the lesser of five percent of the proceeds of the Bond or $100,000. Yield. All of the Bond have been the subject of a bona fide initial offering to the Purchaser who is acquiring as a member of the public and not for purposes of resale at a purchase price of 100 percent of the stated principal amount thereof. 6. Invested Sinking Fund Proceeds. Replacement Proceeds. 6.1. The Issuer has, in addition to the moneys received from the sale of the Bond, certain other moneys that are invested in various funds which are pledged for various purposes. These other funds are not available to accomplish the purposes described in Section 2 of this Certificate. 6.2. Other than the Interest and Sinking Fund, there are, and will be, no other funds or accounts established, or to be established, by or on behalf of the Issuer (a) which are reasonably expected to be used, or to generate earnings to be used, to pay debt service on the Bond, or (b) which are reserved or pledged as collateral for payment of debt service on the Bond and for which there is reasonable assurance that amounts therein will be available to pay such debt service if the Issuer encounters financial difficulties. Accordingly, there are no other amounts constituting "gross proceeds" of the Bond, within the meaning of section 148 of the Code. 7. Other Obligations. There are no other obligations ofthe Issuer that (a) are sold at substantially the same time as the Bond, i.e., within 15 days of the date of sale of the Bond, (b) are sold pursuant to a common plan of financing with the Bond, and (c) will be payable from the same source of funds as the Bond. Federal Tax Audit Resnonsibilities. The Issuer acknowledges that in the event of an examination by the Internal Revenue Service (the "Service ") to determine compliance of the Bond with the provisions of the Code as they relate to tax- exempt obligations, the Issuer will respond, and will direct its agents and assigns to respond, in a commercially reasonable manner to any inquiries from the Service in connection with such an examination. The Issuer understands and agrees that the examination may be subject to public disclosure under applicable Texas law. 9. Record Retention. The Issuer has covenanted in the Ordinance that it will comply with the requirements of the Code relating to the exclusion of the interest on the Bond under section 103 of the Code. The Service has determined that certain materials, records and information should be retained by the issuers of tax- exempt obligations for the purpose of enabling the Service to confirm the exclusion of the interest on such obligations under section 103 ofthe Code. ACCORDINGLY, THE ISSUER SHALL TAKE STEPS TO ENSURE THAT ALL MATERIALS, RECORDS AND INFORMATION NECESSARY TO CONFIRM THE EXCLUSION OF THE INTEREST ON THE BOND UNDER SECTION 103 OF THE CODE ARE RETAINED FOR THE PERIOD BEGINNING ON THE ISSUE DATE OF THE BOND AND ENDING THREE YEARS AFTER THE DATE THE BOND ARE RETIRED. The Issuer acknowledges receipt ofthe letter attached hereto as Exhibit 'B" which, in part, discusses specific guidance by the Service with respect to the retention of records relating to tax - exempt bond transactions. The Issuer also acknowledges that the letter does not constitute an opinion of Bond Counsel as to the proper record retention policy applicable to any specific transaction. 10. Rebate to United States. The Issuer has covenanted in the Ordinance that it will comply with the requirements of the Code, including section 148(f) of the Code, relating to the required rebate to the United States. Specifically, the Issuer will take steps to ensure that all earnings on gross proceeds of the Bond in excess of the yield on the Bond required to be rebated to the United States will be timely paid to the United States. The Issuer acknowledges receipt of the memorandum attached hereto as Exhibit "A" which discusses regulations promulgated pursuant to section 148(f) of the Code. This memorandum does not constitute an opinion of Bond Counsel as to the proper federal tax or accounting treatment of any specific transaction. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.] DATED: CITY OF HUNTSVILLE, TEXAS By: M or The undersigned represents that, to the best of the undersigned's knowledge, information and belief, the representations contained in Section 5 of this Federal Tax Certificate are accurate. FIRST NATIONAL BANK OF HUNLSVILLE Exhibit "A" LAW OFFICES WCALL, PARKHURST & HORTON L.L.P. BOO CONGRESS AVENUE 717 NORTH HARWOOD 700 N. ST, MARYS STREET NINTH FLOOR 1525 ONE RIVERWALN PLACE AUSTIN,T"AST67WZM DALLAS. 7E 5762M4657 SAN ANTONIO. TEXAS 7SM4503 TELEPHONE: (612) 4763A06 TELEPHONE: R14) 7546208 TELEPHONE 0!10)2262300 FACSIWLF(512)n4671 FACSIMILE, (214) 7548250 FACSIMLE: O10)2252384 January 1, 2006 ARBITRAGE REBATE REGULATIONS© The arbitrage rebate requirements set forth in section 148(f) of the Internal Revenue Code of 1988 (the "Code ') generally provide that in order for interest on any issue of bonds' to be excluded from gross income (i.e., tax- exempt) the issuer must rebate to the United States the sum of, (1) the excess of the amount earned on all "nonpurpose investments" acquired with "gross proceeds" of the issue over the amount which would have been earned if such investments had been invested at a yield equal to the yield on the issue, and (2) the earnings on such excess earnings. On June 18, 1993, the U.S. Treasury Department promulgated regulations relating to the computation of arbitrage rebate and the rebate exceptions. These regulations, which replace the previously - published regulations promulgated on May 15, 1989, and on May 18, 1992, are effective for bonds issued after June 34,1993. This memorandum was prepared by McCall, Parkhurst & Horton L.L.P. and provides a general discussion of these arbitrage rebate regulations. This memorandum does not otherwise discuss the general arbitrage regulations, other than as they may incidentally relate to rebate. This memorandum also does not attempt to provide an exhaustive discussion of the arbitrage rebate regulations and should not be considered advicewith respecttothe arbitrage rebate requirements as applied to any individual or governmental unit or any specific transaction. Any tax advice contained in this memorandum is of a general nature and is not intended to be used, and should not be used, by any person to avoid penalties under the Code. McCall, Parkhurst & Horton L.L,P. remains available to provide legal advice to issuers with respect to the provisions of these tax regulations but recommends that issuers seek competent financial and accounting assistance in calculating the amount of such issuer's rebate liability under section 148(f) of the Code and in making elections to apply the rebate exceptions. I In this memorandum the word "bond" is defined to include any bond, note, certificate, financing lease or other obligation of an issuer. Copyright 2006 by Harold T. Flanagan, McCall, Parkhurst & Horton L.L.P. All rights reserved. Effective Dates The regulations promulgated on June 18,1993, generally apply to bands delivered after June 30, 1993, although they do permit an issuer to elect to apply the rules to bonds issued priorto that date. The temporary regulations adopted by the U.S. Treasury Department in 1989 and 1992 incorporated the same effective dates which generally apply for purposes of section 148(fa of the Code. As such, the previous versions of the rebate regulations generally applied to bonds issued between August 1986 and June 30, 1993 (or, with an election, to bonds issued prior to August 15, 1993). The statutory provisions of section 148(f) of the Code, other than the exception for construction issues, apply to all bonds issued after August 15, 1986, (for private activity bonds) and August 31, 1986, (for governmental public purpose bonds). The statutory exception to rebate applicable for construction issues generally applies if such issue is delivered after December 19, 1989. The regulations provide numerous transitional rules for bonds sold prior to July 1, 1991 Moreover, since, under prior law, rules were previously published with respect to industrial development bonds and mortgage revenue bonds, the transitional rules contained in these regulations permit an issuer to elect to apply certain of these rules for computing rebate on pre - 1986 bonds. The regulations provide for numerous elections which would permit an issuer to apply the rules (other than 18 -month spending exception) to bonds which were issued prior to July 1, 1993 and remain outstanding on June 30, 1993. Due to the complexity of the regulations, it is impossible to discuss in this memorandum all circumstances forwhich specific elections are provided. If an issuer prefers to use these final version of rebate regulations in lieu of the computational method stated under prior law (e.g., due to prior redemption) or the regulations, please contact McCall, Parkhurst & Horton L.L.P. for advice as to the availability of such options. Future Value Computation Method The regulations employ an actuarial method for computing the rebate amount based on the future value of the investment receipts (i.e., earnings) and payments. The rebate method employs a two -step computation to determine the amount of the rebate payment. First, the issuer determines the bond yield. Second, the issuer determines the arbitrage rebate amount. The regulations require that the computations be made at the end of each five -year period and upon final matudtyof the issue (the "computation dates"). THE FINAL MATURITY DATE WILL ACCELERATE W CIRCUMSTANCES IN WHICH THE BONDS ARE OPTIONALLY REDEEMED PRIOR TO MATURITY. AS SUCH, IF BONDS ARE REFUNDED OR OTHERWISE REDEEMED, THE REBATE MAY BE DUE EARLIER THAN INITIALLY PROJECTED, In order to accommodate accurate record- keeping and to assure that sufficient amounts will be available for the payment of arbitrage rebate liability, however, we recommend that the computations be performed at least annually. Please refer to other materials provided by McCall, Parkhurst & Horton L-L.P. relating to federal tax rules regarding record retention. Underthe future value method, the amount of rebate is determined by compounding the aggregate earnings on all the investments from the date of receipt by the issuer to the computation date. Similarly, a payment for an investment is future valued from the date that the payment is made to the computation date. The receipts and payments are future valued at a discount rate equal to the yield on the bonds. The rebatabte arbitrage, as of any McCall, Parkhurst & Horton L.L.P. - Page 2 computation date, is equal to the excess of the (1) future value of all receipts from investments (i.e., earnings), over (2) the future value of all payments. The following example is provided in the regulations to illustrate how arbitrage rebate is computed under the future value method for a fixed -yield bond: "On January 1, 1994, City A issues a fixed yield issue and invests all the sale proceeds of the issue ($49 million). There are no other gross proceeds. The issue has a yield of 7.0000 percent per year compounded semiannually (computed on a 30 day month /360 day year basis). City A receives amounts from the investment and immediately expends them for the governmental purpose of the issue as follows: Date Amount 211/1994 $ 3,000,000 4/1/1994 5,000,000 6/1/1994 14,000,000 911/1994 20,000,000 7/1/1995 10,000,000 City A selects a bond year ending on January 1, and thus the first required computation date is January 1, 1999. The rebate amount as of this date is computed by determining the future value of the receipts and the payments for the investment. The compounding interval is each 6 -month (or shorter) period and the 30 day month /360 day year basis is used because these conventions were used to compute yield on the issue. The future value of these amounts, plus the computation credit, as of January 1, 1999, is: Date Receipts (Payments) 01t1t1994 02/1 /1994 04/1/1994 06/1/1994 09/1/1994 01/1/1995 07/1/1995 01/1 /1996 �• R�r rt4 - iii s4� i Rebate amount (01101/1999) General Method for Computing Yield on Bonds FY (7.0000 percent) ($69,119,339) 4,207,602 6,932,715 19,190,277 26,947,162 (1,317) 12,722,793 (1.229) $878.684" In general, the term "yield," with respect to a bond, means the discount rate that when used in computing the present value of all unconditionally due payments of principal and interest and all of the payments for a qualified guarantee produces an amount equal to the issue price of the bond. The term "issue price" has the same meaning as provided in sections McCall, Parkhurst & Norton L.L.R. - Page 3 1273 and 1274 of the Code, That is, if bonds are publicly offered (i.e., sold by the issuer to a bond house, broker or similar person acting in the capacity of underwriter or wholesaler), the issue price of each bond is determined on the basis of the initial offering price to the public (not to the aforementioned intermediaries) at which price a substantial amount of such bond was sold to the public (not to the aforementioned intermediaries). The "issue price" is separately determined for each bond (I-e,, maturity) comprising an issue. The regulations also provide varying periods for computing yield on the bonds depending on the method by which the interest payment is determined. Thus, for example, yield on an issue of bonds sold with variable interest rates (i.e., interest rates which are reset periodically based on changes in market) is computed separately for each annual period ending on the first anniversary of the delivery date that the issue is outstanding. In effect, yield on a variable yield issue is determined on each computation date by "looking back" at the interest payments for such period. The regulations, however, permit an issuer of a variable -yield issue to elect to compute the yield for annual periods ending on any date in order to permit a matching of such yield to the expenditure of the proceeds. Any such election must be made in writing, is irrevocable, and must be made no later than the earlier of (1) the fifth anniversary date, or (2) the final maturity date. Yield on a fixed interest rate issue (i.e., an issue of bonds the interest rate on which is determined as of the date of the issue) is computed over the entire term of the issue. Issuers of fixed -yield issues generally use the yield computed as of the date of issue for all rebate computations. Such yield on fixed -yield issues generally is recomputed only if (1) the issue is sold at a substantial premium, may be retired within five years of the date of delivery, and such date is earlier than its scheduled maturity date, or (2) the issue is a stepped - coupon bond. in such rases, the regulations require the issuer to recompute the yield on such issues by taking into account the early retirement value of the bonds. Similarly, recomputation may occur in circumstances in which the issuer or bondholder modify or waive certain terms of, or rights with respect to, the issue or in sophisticated hedging transactions. IN SUCH CIRCUMSTANCES ISSUERS ARE ADVISED TO CONSULT McCALL PARKHURST & NORTON L.L.P. TO ADDRESS THEFEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. For purposes of determining the principal or redemption payments on a bond, different rules are used for fixed -rate and variable -rate bonds. The payment is computed separately on each maturity of bonds rather than on the issue as awhole. In certain circumstances, the yield on the bond is determined by assuming that principal on the bond is paid as scheduled and that the bond is retired on the final maturity date for the stated retirement price. Far bonds subject to early redemption or stepped - coupon bonds, described above, or for bonds subject to mandatory early redemption, the yield is computed assuming the bonds are paid on the early redemption date for an amount equal to their value. Premiums paid to guarantee the payment of debt service on bonds are taken into account in computing the yield on the bond. Payments for guarantees are taken into account by treating such premiums as the payment of interest on the bonds. This treatment, in effect, raises the yield on the bond, thereby permitting the issuer to recover such fee with excess earnings. McCall, Parkhurst & Norton L.L.P. - Page 4 The guarantee must bean unconditional obligation of the guarantor enforceable by the bondholder for the payment of principal or interest on the bond or the tender price of a tender bond. The guarantee may be In the form of an insurance policy, surety bond, irrevocable letter or line of credit, or standby purchase agreement. Importantly, the guarantor must be legally entitled to full reimbursement for any payment made on the guarantee either immediately or upon commercially reasonable repayment terms. The guarantor may not be a co- obligor of the bonds or a user of more than 10 percent of the proceeds of the bonds. Payments for the guarantee may not exceed a reasonable charge for the transfer of credit risk. This reasonable charge requirement is not satisfied unless it is reasonably expected that the guarantee will result in a net present value savings on the bond (i.e., the premium does not exceed the present value of the interest savings resulting by virtue of the guarantee). if the guarantee is entered into after June 14, 1989, then any fees charged for the nonguarantee services must be separately stated or the guarantee fee is not recoverable. The regulations also treat certain "hedging" transactions in a manner similar to qualified guarantees. "Hedges" are contracts, e.g., interest rate swaps, futures contracts or options, which are intended to reduce the risk of interest rate fluctuations. Hedges and other financial derivatives are sophisticated and ever - evolving financial products with which a memorandum, such as this, can not readily deal. IN SUCH CIRCUMSTANCES ISSUERS ARE ADVISED TO CONSULT McCALL PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. Earninas on Nonouroose Investments The arbitrage rebate provisions apply oniyto the receipts from the investment of "gross proceeds" in "nonpurpose investments" For this purpose, nonpurpose investments are stock, bonds or other obligations acquired with the gross proceeds of the bonds for the period prior to the expenditure of the gross proceeds for the ultimate purpose. For example, investments deposited to construction funds, reserve funds (including surplus taxes or revenues deposited to sinking funds) or other similar funds are nonpurpose investments. Such investments include only those which are acquired with "gross proceeds." For this purpose, the term "gross proceeds" includes original proceeds received from the sale of the bonds, investment earnings from the investment of such original proceeds, amounts pledged to the payment of debt service on the bonds or amounts actually used to pay debt service on the bonds. The regulations do not provide a sufficient amount of guidance to include an exhaustive list of "gross proceeds" for this purpose; however, it can be assumed that "gross proceeds" represent all amounts received from the sale of bonds, amounts earned as a result of such sale or amounts (including taxes and revenues) which are used to pay, or secure the payment of, debt service for the bonds. The total amount of "gross proceeds" allocated to a bond generally can not exceed the outstanding principal amount of the bonds. The regulations provide that an investment is allocated to an issue for the period (1) that begins on the date gross proceeds are used to acquire the investment, and (2) that ends on the date such investment ceases to be allocated to the issue„ In general, proceeds are allocated to a bond issue until expended forthe ultimate purpose for which the bond was issued or for which such proceeds are received (e.g., construction of a bond - financed facility or payment of debt service on the bonds). Deposit of gross proceeds to the general fund of the McCall, Parkhurst & Horton L.L.P. - Page 5 issuer (or other fund in which they are commingled with revenues or taxes) does not eliminate or ameliorate the Issuer's obligation to compute rebate in most cases. As such, proceeds commingled with the general revenues of the issuer are not "freed -up" from the rebate obligation. An exception to this commingling limitation for bonds, other than private activity bonds, permits "investment earnings" (but not sale proceeds or other types of gross proceeds) to be considered spent when deposited to a commingled fund if those amounts are reasonably expected to be spent within six months. Other than for these amounts, issuers may consider segregating investments in orderto mare easily compute the amount of such arbitrage earnings by not having to allocate investments. Special rules are provided for purposes of advance refundings. These rules are too complex to discuss in this memorandum. Essentially, the rules relating to refundings, however, do not require that amounts deposited to the escrow fund to defease the prior obligations of the issuer be subject to arbitrage rebate to the extent that the investments deposited to the escrow fund do not have a yield in excess of the yield on the bonds. Any loss resulting from the investment of proceeds in an escrow fund below the yield on the bonds, however, may be recovered by combining those investments with investments deposited to other funds, e.g., reserve or construction funds. The arbitrage regulations also provide an exception to the arbitrage limitations for the investment of bond proceeds in tax - exempt obligations. As such, investment of proceeds in tax exempt bonds eliminates the Issuer's rebate obligation. A caveat; this exception does not apply to gross proceeds derived allocable to a bond, which is not subject to the alternative minimum tax under section 57(a)(5) of the Code, if invested in tax - exempt bonds subject to the alternative minimum tax, i.e., "private activity bonds. " Such "AMT- subject" investment is treated as a taxable investment and must comply with the arbitrage rules, including rebate. Earnings from these tax - exempt investments are subject to arbitrage restrictions, including rebate. Similarly, the investment of gross proceeds in certain tax- exempt mutual funds are treated as a direct investment in the tax - exempt obligations deposited in such fund. While issuers may invest in such funds for purposes of avoiding arbitrage rebate, they should be aware that if "private activity bonds" are included in the fund then a portion of the earnings will be subject to arbitrage rebate. Issuers should be prudent in assuring that the funds do not contain private activity bonds. The arbitrage regulations provide a number of instances in which earnings will be imputed to nonpurpose investments. Receipts generally will be imputed to investments that do not bear interest at an arm's - length (i.e., market) interest rate. As such, the regulations adopt a "market price" rule. In effect, this rule prohibits an issuerfrom investing bond proceeds in investments at a price which is higher than the market price of comparable obligations, in order to reduce the yield. Special rules are included for determining the market price for investment contracts, certificates of deposit and certain U.S. Treasury obligations. For example, to establish the fair market value of investment contracts a bidding process between three qualified bidders must be used. The fair market value of certificates of deposit which bear a fixed interest rate and are subject to an early withdrawal penalty is its purchase price if that price is not less than the yield on comparable U.S. Treasury obligations and is the highest yield available from the institution. In any event, a basic "common sense" rule -of -thumb that can be used to determine whether a fair market value has been paid is to ask whether the general Parkhurst & Norton L.L.P. - Page 6 funds of the issuer would be invested at the same yield or at a higher yield. An exception to this market price rule is available for United States Treasury Obligations - State or Local Government Series in which case the purchase price is always the market price. Reimbursement and Working Capital The regulations provide rules for purposes of determining whether gross proceeds are used for working capital and, if so, at what times those proceeds are considered spent. In general, working capital financings are subject to many of the same rules that have existed since the mid- 1970s. For example, the regulations generally continue the 13 -month temporary period. By adopting a "proceeds- spent -last" rule, the regulations also generally require that an issuer actually incur a deficit (i.e., expenditures must exceed receipts) for the computation period (which generally corresponds to the issuer's fiscal year), Also, the regulations continue to permit an operating reserve, but unlike prior regulations the amount of such reserve may not exceed five percent of the issuer's actual working capital expenditures for the prior fiscal year. Another change made by the regulations is that the issuer may not finance the operating reserve with proceeds of a tax- exempt obligation. Importantly, the regulations contain rules for determining whether proceeds used to reimburse an issuer for costs paid prior to the date of issue of the obligation, in fact, are considered spent at the time of reimbursement. These rules apply to an issuer who uses general revenues for the payment of all or a portion of the costs of a project then uses the proceeds of the bonds to reimburse those general revenues. Failure to comply with these rules would result in the proceeds continuing to be subject to federal income tax restrictions, including rebate. To qualify for reimbursement, a cost must be described in an expression (e.g., resolution, legislative authorization) evidencing the issuer's intent to reimburse which is made no later than 60 days after the payment of the cost. Reimbursement must occur no later than 16 months after the later of (1) the date the cost is paid or (2) the date the project is placed in service. Except for projects requiring an extended construction period or small issuers, in no event can a cost be reimbursed more than three years after the cost is paid. Reimbursement generally is not permitted forworking capital; only capital costs, grants and loans may be reimbursed. Moreover, certain anti -abuse rules apply to prevent issuers from avoiding the limitations on refundings. IN CASES INVOLVING WORKING CAPITAL OR REIMBURSEMENT, ISSUERS ARE ADVISED TO CONTACT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION. Rebate Pavments Rebate payments generally are due 60 days after each installment computation date. The interim computation dates occur each fifth anniversary of the Issue date. The final computation date is on the latest of (1) the date 60 days after the date the issue of bonds is no longer outstanding, (2) the date eight months after the date of issue for certain short-term obligations (i.e., obligations retired within three years), or (3) the date the issuer no longer reasonably expects any spending exception, discussed below, to apply to the issue. On such McCall, Parkhurst & Horton L.L.P. - Page 7 payment dates, other than the final payment date, an issuer is required to pay 90 percent of the rebatable arbitrage to the United States. On the final payment date, an issuer is required to pay 100 percent of the remaining rebate liability. Failure to timely pay rebate does not necessarily result in the loss of tax- exemption. Late payments, however, are subject to the payment of interest, and unless waived, a penalty of 50 percent (or, in the case of private activity bonds, other than qualified 501(c)(3) bonds, 100 percent) of the rebate amount which is due. IN SUCH CIRCUMSTANCES, ISSUERS ARE ADVISED TO CONSULT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. Rebate payments are refundable. The issuer, however, must establish to the satisfaction of the Commissioner of the Internal Revenue Service that the issuer paid an amount in excess of the rebate and that the recovery of the overpayment on that date would not result in additional rebatable arbitrage. An overpayment of less than $5,000 may not be recovered before the final computation date. Alternative Penalty Amount In certain cases, an issuer of a bond the proceeds of which are to be used for construction may elect to pay a penalty, in lieu of rebate. The penalty may be elected in circumstances in which the issuer expects to satisfy the two -year spending exception which is more fully described under the heading "Exceptions to Rebate" The penalty is payable, if at all, within 60 days after the end of each six -month period. This is more often than rebate. The election of the alternative penalty amount would subject an issuer, which fails the two -year spend -out requirements, to the payment of a penalty equal to one and one -half of the excess of the amount of proceeds which was required to be spent during that period over the amount which was actually spent during the period. The penalty has characteristics which distinguish it from arbitrage rebate. First, the penalty would be payable without regard to whether any arbitrage profit is actually earned. Second, the penalty continues to accrue until either (1) the appropriate amount is expended or (2) the issuer elects to terminate the penalty. To be able to terminate the penalty, the issuer must meet specific requirements and, in some instances, must payan additional penalty equal to three percent of the unexpended proceeds. Exceptions to Rebate The Code and regulations provide certain exceptions to the requirement that the excess investment earnings be rebated to the United States. a. Small Issuers. The First exception provides that if an issuer (together with all subordinate issuers) during a calendar year does not issue tax - exempt bonds2 in an aggregate 2 For this purpose, "private activity bonds" neither are afforded the benefit of this exception nor are taken into account for purposes of determining the amount of bonds issued. McCall, Parkhurst & Horton L.L.P. - Page 8 face amount exceeding $5 million, then the obligations are not subject to rebate. Only issuers with general taxing powers may take advantage of this exception. Subordinate issuers are those issuers which derive their authority to issue bonds from the same issuer, e.g., a city and a health facilities development corporation, or which are controlled by the same issuer, e.g., a state and the board of a public university. In the case of bonds issued for public school capital expenditures, the $5 million cap may be increased to as much as $15 million. For purposes of measuring whether bonds in the calendar year exceed these dollar limits, current refunding bonds can be disregarded if they meet certain structural requirements. Please contact McCall, Parkhurst & Horton L.L.P. for further information. b. Spending Exceptions. Six -Month Exception. The second exception to the rebate requirement is available to all tax - exempt bonds, all of the gross proceeds of which are expended during six months. The six month rule is available to bonds issued after the effective date of the Tax Reform Act of 1986. See the discussion of effective dates on page two. For this purpose, proceeds used for the redemption of bonds (otherthan proceeds of a refunding bond deposited to an escrow fund to discharge refunded bonds) can not be taken into account as expended. As such, bonds with excess gross proceeds generally can not satisfy the second exception unless the amount does not exceed the lesser of five percent or $100,000 and such de minim!$ amount must be expended within one year. Certain gross proceeds are not subject to the spend -out requirement, including amounts deposited to a bona fide debt service fund, to a reserve fund and amounts which become gross proceeds received from purpose investments. These amounts themselves, however, may be subject to rebate even though the originally expended proceeds were not. The Code provides a special rule for tax and revenue anticipation notes (i.e., obligations issued to pay operating expenses in anticipation of the receipt of taxes and other revenues). Such notes are referred to as TRANs. To determine the timely expenditure of the proceeds of a TRAN, the computation of the "cumulative cash flow deficit' is important. If the "cumulative cash flow deficit" (i.e., the point at which the operating expenditures of the issuer on a cumulative basis exceed the revenues of the issuer during the fiscal year) occurs within the first six months of the date of issue and must be equal to at least 90 percent of the proceeds of the IRAN, then the notes are deemed to satisfy the exception. This special rule requires, however, that the deficit actually occur, not that the issuer merely have an expectation that the deficit will occur. In lieu of the statutory exception for TRANS, the regulations also provide a second exception. Under this exception, 100 percent of the proceeds must be spent within six months, but before note proceeds can be considered spent, all other available amounts of the issuer must be spent first ("proceeds- spent -last' rule). In determining whether all available amounts are spent, a reasonable working capital reserve equal to five percent of the prior year's expenditures may be set aside and treated as unavailable. 18 -Month ExqWtion. The regulations also establish a non - statutory exception to arbitrage rebate if all of the gross proceeds (including investment earnings) are expended within 18 months afterthe date of issue. Under this exception, 15 percent of the gross proceeds must be expended within a six -month spending period, 60 percentwithin a 12 -month spending period and 100 percent within an 18 -month spending period. The rule permits an issuer to rely on its reasonable expectations for computing investment earnings which are included as gross McCall, Parkhurst & Horton L.L.P. - Page 9 proceeds during the first and second spending period. A reasonable retainage not to exceed five percent of the sale proceeds of the issue is not required to be spent within the 18 -month period but must be expended within 30 months. Rules similar to the six -month exception relate to the definition of gross proceeds. Two Year Exce Lion. Bonds issued after December 19, 1989 (i.e., the effective date of the Omnibus Reconciliation Act of 1989), at least 75 percent of the net proceeds of which are to be used for construction, may be exempted from rebate if the gross proceeds are spent within two years. Bonds more than 25 percent of the proceeds of which are used for acquisition or working capital may not take advantage of this exception. The exception applies only to governmental bonds, qualified 501(c)(3) bonds and private activity bonds for governmentally - owned airports and docks and wharves. The two-year exception requires that at least 10 percent of the available construction proceeds must be expended within six months after the dateof issue, 45 percentwithin 12 months, 75 percent within 18 months and 100 percent within 24 months. The term "available construction proceeds" generally means sale proceeds of the bonds together with investment earnings less amounts deposited to a qualified reserve fund or used to pay costs of issuance. Under this rule, a reasonable retainage not to exceed five percent need not be spent within 24 months but must be spent within 38 months. The two -year rule also provides for numerous elections which must be made not later than the date of issuance of the bonds. Once made, the elections are irrevocable. Certain elections permit an issuer to bifurcate bond issues, thereby treating only a portion of the issue as a qualified construction bond; and, permit an issuerto disregard earnings from reserve funds for purposes of determining "available construction proceeds." Another election permits an issuer to pay the alternative penalty amount discussed above in lieu of rebate if the issuer ultimately faits to satisfy the two -year rule. Issuers should discuss these elections with their financial advisors priorto issuance of the bonds. Of course, McCall, Parkhurst & Horton L.L.P. remains available to assist you by providing legal interpretations thereof. Debt Service Funds. Additionally, an exception to the rebate requirement, whether or not any of the previously discussed exceptions are available, applies for earnings on "bona fide debt service funds." A "bona fide debt service fund" is one in which the amounts are expended within 13 months of the accumulation of such amounts by the issuer. In general, most interest and sinking funds (otherthan any excess taxes orrevenues accumulated therein) satisfy these requirements. For private activity bonds, short term bonds (i.e., have a term of less than five years) or variable rate bonds, the exclusion is available only if the gross earnings in such fund does not exceed $100,000, for the bond year. For other bonds issued after November 11, 1988, no limitation is applied to the gross earnings an such funds for purposes of this exception. Therefore, subject to the foregoing discussion, the issuer is not required to take such amounts into account for purposes of the computation. FOR BONDS ISSUED AFTER THE EFFECTIVE DATE OF THE TAX REFORM ACT OF 1988 WHICH WERE OUTSTANDING AS OF NOVEMBER 11, 1988, OTHER THAN PRIVATE ACTIVITY BONDS, SHORT TERM BONDS OR VARIABLE RATE BONDS, A ONE -TIME ELECTION MAY BE MADE TO EXCLUDE EARNINGS ON 'BONA FIDE DEBT SERVICE FUNDS" WITHOUT REGARD TO THE $100,000, LIMITATION. THE ELECTION MUST BE MADE IN WRITING (AND MAINTAINED AS PART OF THE ISSUER`S BOOKS AND McCall, Parkhurst & Horton L.L.P. - Page 10 RECORDS) NO LATER THAN THE LATER OF MARCH 21,1990, OR THE FIRST DATE A REBATE PAYMENT IS REQUIRED. Conclusion McCall, Parkhurst & Horton L.L.P. hopes that this memorandum will prove to be useful as a general guide to the arbitrage rebate requirements. Again, this memorandum is not intended as an exhaustive discussion nor as specific advice with respect to any specific transaction. We advise our clients to seek competent financial and accounting assistance. Of course, we remain available to provide legal advice regarding all federal income tax matters, including arbitrage rebate. If you have any questions, please feel free to contact either Harold T. Flanagan or Faust N. Bowerman at (214) 754 -9200. McCall, Parkhurst & Horton L.L.P. - Page 11 Exhibit 'B" LAW OFFICES WCALL, PARKHURST 8r HORTON L.L.P. 600 CONGRESS AVENUE 717 NORTH HARWOOD 700 N. ST. MARY$ STREET 1800 ONE AMERICAN CENTER NINTH FLOOR AUSTIN, TEXAS 787013248 DALLAS, TEXAS 75201 -5587 TELEPHONE (512) 47 &$805 TELEPHONF(214) 754-9200 FACSIMILE (512) 4720371 FACSIAILE'.(214) 754 -9260 February 3, 2009 Mr. Winston Duke Director of Finance City of Huntsville, Texas 1212 Avenue M Huntsville, Texas 77340 Re: City of Huntsville, Texas General Obligation Bond, Series 2009 Dear Mr. Duke: 1525 ONE RIVFRWALK PLACE SAN ANTONIO, TEXAS 782853503 TELEPHONE (210) 22 23W FACSIMILE 1210) 226-2984 As you know, the City of Huntsville, Texas (the "Issuer ") will issue the captioned bond in order to provide for the acquisition and construction of the project. As a result of that issuance, the federal income tax laws impose certain restrictions on the investment and expenditure of amounts to be used for the project or to be deposited to the interest and sinking fund for the captioned bond. The purpose of this letter is to set forth, in somewhat less technical language, those provisions of the tax law which require the timely use of bond proceeds and that investment of these amounts be at a yield which is not higher than the yield on the captioned bond. For this purpose, please refer to line 21(e) of the Form 8038 -G included in the transcript of proceedings for the yield on the captioned bond. Generally, the federal tax laws provide that, unless excepted, amounts to be used for the project or to be deposited to the interest and sinking fund must be invested in obligations the combined yield on which does not exceed the yield on the bond. Importantly, for purposes of administrative convenience, the bond, however, have been structured in such away as to avoid, for the most part, this restriction on investment yield. They also contain certain covenants relating to expenditures of proceeds designed to alert you to unintentional failures to comply with the laws affecting expenditures of proceeds and dispositions of property. First, the sale and investment proceeds to be used for the project may be invested for up to three years without regard to yield. (Such amounts, however, may be subject to rebate.) Thereafter, they must be invested at or below the bond yield. Importantly, expenditure of these proceeds must be accounted in your books and records. Allocations of these expenditures must occur within 18 months of the later of the date paid or the date the project is completed. The foregoing notwithstanding, the allocation should not occur later than 60 days after the earlier of (1) of five years after the delivery date ofthe bond or (2) the date the bond is retired unless you obtain an opinion of bond counsel. Second, the interest and sinking fund is made up of amounts which are received annually for the payment of current debt service on all the Issuer's outstanding bonds. Any taxes or revenues deposited to the interest and sinking fund which are to be used for the payment of current debt service on the captioned bond, or any other outstanding bonds, are not subject to yield restriction. By definition, current debt service refers only to debt service to be paid within one year of the date of receipt of these amounts. For the most part, this would be debt service in the current fiscal year. These amounts deposited to the account for current debt service may be invested without regard to any constraint imposed by the federal income tax laws. Third, a portion of the interest and sinking fund is permitted to be invested without regard to yield restriction as a "minor portion." The "minor portion" exception is available for de minirnis amounts of taxes or revenues deposited to the interest and sinking fund. The maximum amount that may be invested as part of this account may not exceed the lesser of five percent of the principal amount of the bond or $100,000. Accordingly, you should review the current balance in the interest and sinking fund in order to determine if such balance exceeds the aggregate amounts discussed above. Additionally, in the future it is important that you be aware of these restrictions as additional amounts are deposited to the interest and sinking fund. The amounts in this fund which are subject to yield restriction would only be the amounts which are in excess of the sum of (1) the current debt service account and (2) the "minor portion" account. Moreover, to the extent that additional bonds are issued by the Issuer, whether for new money projects or for refunding, these amounts will change in their proportion. The Ordinance contains covenants that require the Issuer to comply with the requirements of the federal tax laws relating to the tax- exempt obligations. The Internal Revenue Service (the "Service") has determined that certain materials, records and information should be retained by the issuers of tax- exempt obligations for the purpose of enabling the Service to confirm the exclusion of the interest on such obligations under the Internal Revenue Code. Accordingly, the Issuer should retain such materials, records and information for the period beginning on the issue date of the captioned bond and ending three years after the date the captioned bond are retired. Please note this federal tax law standard may vary from state law standards. The material, records and information required to be retained will generally be contained in the transcript of proceedings for the captioned bond, however, the Issuer should collect and retain additional materials, records and information to ensure the continued compliance with federal tax law requirements. For example, beyond the transcript of proceedings for the bond, the Issuer should keep schedules evidencing the expenditure of bond proceeds, documents relating to the use of bond - financed property by governmental and any private parties (e.g, leases and management contracts, if any) and schedules pertaining to the investment of bond proceeds. In the event that you have questions relating to record retention, please contact us. Finally, you should notice that the Ordinance contains a covenant that limits the ability of the Issuer to sell or otherwise dispose of bond - financed property for compensation. Beginning for obligations issued after May 15, 1997 (including certain refunding bonds), or in cases in which an issuer elects to apply new private activity bond regulations, such sale or disposition causes the creation of a class of proceeds referred to as "disposition proceeds." Disposition proceeds, like sale proceeds and investment earnings, are tax - restricted funds. Failure to appropriately account, invest or expend such disposition proceeds would adversely affect the tax- exempt status of the bond. In the event that you anticipate selling property, even in the ordinary course, please contact us. Obviously, this letter only presents a fundamental discussion of the yield restriction rules as applied to amounts deposited to the interest and sinking fund. Moreover, this letter does not address the rebate consequences with respect to the interest and sinking fund and you should review the memorandum attached to the Federal Tax Certificate as Exhibit "A" for this purpose. If you have certain concerns with respect to the matters discussed in this letter or wish to ask additional questions with regards to certain limitations imposed, please feel free to contact our firm. Thank you for your consideration and we look forward to our continued relationship. Very truly yours, McCALL, PARKHURST & HORTON L.L.P. cc: Ms. Jana Hansen 8038 -G information Return for Tax - Exempt Governmentai odugatlons Education . . . . . . . . . . . . . . . . . . . . . . . . . . . Form ► Under Internal Revenue Code section 149(e) OMB No. 1545 -0720 (Rev. November 2000) ► See separate Instructions. 12 Department at the Treasury Caution: ff the issue price is under $100,000, use Form 8038 -GC. ❑ Imernal Revenue Service 13 - Re porting Authority If Amended Return, check here ► ❑ 1 Issuer's name 2 Issuer's employer identification number HUNTSVILLE, TEXAS (CITY OF) 74 6001426 3 Number and street (or P.O. box if mail is not delivered to street address) Room /suite 4 Report number 1212 AVENUE 16 3 01 5 City, town, or post office, state, and ZIP code 6 Date of issue HUNTSVILLE, TEXAS 77340 17 7 Name of issue 8 CUSIP number GENERAL OBLIGATION BONDS SERIES 2009 NONE 9 Name and tide of officer or legal representative whom the Iles may can tor more inrormanon I lelepnone rumuer el uinwr of iegai IcPvhenrduve WINSTON DUKE, DIRECTOR OF FINANCE ( 936 ) 291 -5400 rR1 To. of Iccua frherk annlirahle hox(esl and enter the issue price) See instructions and attach schedule 11 ❑ Education . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 (e) Yield 12 ❑ Health and hospital . . . . . . . . . . . . . . . . . . 12 _ % 13 ❑ Transportation . . . . . . . . . . . . . . . . . . . . . . . . . 13 14 ❑ Public safety. . . . . . . . . . . . . . . . . . 14 of Refunded Bonds (Complete this part only for refunding 15 ❑ Environment (including sewage bonds) . . . . . . . . . . . . . . . . . . . 15 32 16 ❑ Housing . . . . . . . . . . . . . . . . . . . . . . . . 16 . ► 17 ❑ Utilities . . . . . . 17 18 0 Other. Describe 0, VARIOUS MUNICIPAL PROJECTS 18 19 If obligations are TANS or RANs, check box ► ❑ If obligations are BANS, check box ► ❑ 20 If obligations are in the form of a lease or installment sale, check box ► ❑ nncrrintinn of flhlinatinnc Crlmnlefe fnr the entire issue for which this form is beino filed. (a) Final maturity date (b) Issue price (c) stated redemption price at maturity (d) Weighted average maturity (e) Yield 21 $ 1 $ 1 years _ % MUM Uses of Proceeds of Bond Issue (includinq underwriters, alscount 22 23 24 25 30 Proceeds used for accrued interest . . . . . . . . . . . . . . . . . . Issue pri ce of entire issue (enter amount from line 21, column (b)) . . . Proceeds used for bond issuance costs (including underwriters' discount) 24 Proceeds used for credit enhancement . . . . . 25 Proceeds allocated to reasonably required reserve or replacement fund 26 Proceeds used to currently refund prior issues . . . . . . . 27 Proceeds used to advance refund prior issues . . . 28 Total (add lines 24 through 28) . . . . . Nonrefundin roceeds of the issue (subtract line 29 from line 23 and enter amount here) . . . . . . -026 -027 -028 -029 . V30 ORM Description of Refunded Bonds (Complete this part only for refunding bonds.) NIA 31 Enter the remaining weighted average maturity of the bonds to be currently refunded . . . ► years 32 Enter the remaining weighted average maturity of the bonds to be advance refunded . . . ► years 33 Enter the last date on which the refunded bonds will be called . . . . . . . . ► 34 Enter the datels) the refunded bonds were issued ► 35 Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) 35 1 -0- 36a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract (see instr uctions) 36a -0- b Enter the final maturity date of the guaranteed investment contact ► ,... _.._- 37 Pooled financings: a Proceeds of this issue that are to be used to mckc ioar,, to odlr_r governmental units 370 -0- b If this issue is a loan made from the proceeds of another 'ety.- cxerrrpt. Issue, check box ► ❑ and enter the name of the issuer ► — and the date of the issue ► NIA 38 If the issuer has designated the issue under section 265(b)(3)(B�(I)(III)`(SQtall issuer exception), check box . . . ► 39 If the issuer has elected to pay a penalty in lieu of arbitrage reU{� k box 1I El 40 If the issuer has identified a hedge, check box c -- 111- El Under penalties of perjury, I declare that 1 have examined this return an ccomganyirig�chedules and statements, and to the best or my knowledge and b0eFtRie9.@reZrue_CGv %1% and complete. Sign 1. Here ' Sign re uu's aidhoriz representative Date ' Type or For Paperwork Red on Act Notice, see page 2 of the Instructions. cat. No. 637735 Form 8038 -G (Rev. 11 -2000)