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HomeMy WebLinkAboutOrdinance No. 08-1753 ORDINANCE NO. 08-1753 ORDINANCE AUTHORIZING THE ISSUANCE AND SALE OF CITY OF THE COLONY, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE REFUNDING BOND, SERIES 2008; PROVIDING FOR THE SECURITY FOR AND PAYMENT OF SAID BOND; AND ENACTING OTHER PROVISIONS RELATING TO THE SUBJECT THE STATE OF TEXAS ' COUNTY OF DENTON ' CITY OF THE COLONY ' WHEREAS, the City of The Colony, Texas (the "Issuer") has previously issued, and there are presently outstanding, bonds of the Issuer payable from a lien on and pledge of the net revenues of the Issuer's waterworks and sewer system; WHEREAS, certain of such previously issued and outstanding bonds are intended to be and shall be refunded pursuant to this Ordinance, the bonds to be refunded being described in Schedule I attached hereto and incorporated herein (collectively, the "Refunded Bonds"); WHEREAS, Chapter 1207, Texas Government Code ("Chapter 1207"), authorizes the Issuer to issue refunding bonds and to deposit the proceeds from the sale thereof, and any other available funds or resources, directly with a place of payment (paying agent) for the Refunded Bonds, and such deposit, if made before such payment dates, shall constitute the making of firm banking and financial arrangements for the discharge and final payment of the Refunded Bonds; WHEREAS, Chapter 1207 authorizes the Issuer to enter into an escrow agreement with any paying agent for the Refunded Bonds with respect to the safekeeping, investment, reinvestment, administration and disposition of any such deposit, upon such terms and conditions as the Issuer and such paying agent may agree, provided that such deposits may be invested and reinvested only in obligations described in Section 1207.062, Texas Government Code, as amended, and which shall mature and bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment or prepayment of the Refunded Bonds; WHEREAS, the Escrow Agreement hereinafter authorized constitutes an escrow agreement of the kind authorized and permitted by said Chapter 1207; WHEREAS, the City Council hereby finds and declares apublic purpose and it is in the best interests of the Issuer to refund the Refunded Bonds is in order to achieve a debt service savings and to restructure the Issuer's outstanding debt service, and that such refunding will result in a present value debt service savings of approximately $189,739 and an actual debt service savings of approximately $249,708 to the Issuer; WHEREAS, all the Refunded Bonds mature or are subject to redemption prior to maturity within 20 years of the date of the bond hereinafter authorized; WHEREAS, the bond hereafter authorized is being issued and delivered pursuant to said Chapter 1207 and Chapter 1502, Texas Government Code; and WHEREAS, it is officially found, determined, and declared that the meeting at which this Ordinance has been adopted was open to the public and public notice of the time, place and subject matter of the public business to be considered and acted upon at said meeting, including this Ordinance, was given, all as required by the applicable provisions of Tex. Gov't Code Ann. ch. 551; Now, Therefore BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF THE COLONY, TEXAS: Section 1. RECITALS, AMOUNT AND PURPOSE OF THE BOND. The recitals set forth ni the preamble hereof are incorporated herein and shall have the same force and effect as if set forth in this Section. The bond of the City of The Colony, Texas (the "Issuer") is hereby authorized to be issued and delivered in the aggregate principal amount of $3,420,000 for the public purpose of refunding the Refunded Bonds and to pay the costs incurred in connection with the issuance of the bond(collectively, the "Projects"). Section 2. DESIGNATION, DATE, DENOMINATIONS, NUMBERS, AND MATURITIES AND INTEREST RATES OF BOND. (a) Each bond issued pursuant to this Ordinance shall be designated: "CITY OF THE COLONY, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE REFUNDING BOND, Series 2008," and initially there shall be issued, sold, and delivered hereunder one fully registered bond, without interest coupons, dated April 1, 2008, in the denomination and principal amount of $3,420,000, numbered R-1, with any bond issued in replacement thereof being in the denomination and principal amount hereinafter stated and numbered consecutively from R-2 upward, payable in installments to the registered owner thereof, or to the registered assignee of said bond (in each case, the "Registered Owner"). (b) Principal of the bond shall mature and be payable in installments on the dates and in the principal installment amounts and shall bear interest at the per annum rates set forth in the following schedule: Payment Principal Interest Date Installment Rates August 15, 2008 $265,000 3.350% August 15, 2009 385,000 3.350% August 15, 2010 325,000 3.350% August 15, 2011 350,000 3.350% August 15, 2012 330,000 3.350% August 15, 2013 345,000 3.350% August 15, 2014 365,000 3.350% August 15, 2015 365,000 3.350% August 15, 2016 295,000 3.350% August 15, 2017 195,000 3.350% August 15, 2018 200,000 3.350% (c) Said interest shall accrue and be payable in the manner provided and on the dates stated in the FORM OF BOND set forth in this Ordinance. 2 (d) The term "Bond" as used in this Ordinance shall mean and include collectively the bond initially issued and delivered pursuant to this Ordinance and any substitute bond exchanged therefor, as well as any other substitute bond and replacement bond issued pursuant hereto. Section 3. CHARACTERISTICS OF THE BOND. (a) Registration and Transfer, Authentication. The Issuer shall keep or cause to be kept at the designated trust office of Bank of America, N.A., Dallas, Texas, the "Paying Agent/Registrar"), books or records for the registration of the transfer and exchange of the Bond (the "Registration Books"), and the Issuer hereby appoints the Paying Agent/Registrar as its registrar and transfer agent to keep such books or records and make such registrations of transfers and exchanges under such reasonable regulations as the Issuer and Paying Agent/Registrar may prescribe; and the Paying Agent/Registrar shall make such registrations, transfers and exchanges as herein provided. The Paying Agent/Registrar shall obtain and record in the Registration Books the address of the Registered Owner of each Bond to which payments with respect to the Bond shall be mailed, as herein provided; but it shall be the duty of each Registered Owner to notify the Paying Agent/Registrar in writing of the address to which payments shall be mailed, and such interest payments shall not be mailed unless such notice has been given. The Issuer shall have the right to inspect the Registration Books during regular business hours of the Paying Agent/Registrar, but otherwise the Paying Agent/Registrar shall keep the Registration Books confidential and, unless otherwise required by law, shall not permit their inspection by any other entity. The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for making such registration, transfer, exchange and delivery of a substitute Bond. Registration of assignments and transfers of a Bond shall be made in the manner provided and with the effect stated in the FORM OF BOND set forth in this Ordinance. Each substitute Bond shall bear a letter and/or number to distinguish it from each other Bond. Except as provided in Section 3(c) of this Ordinance, an authorized representative of the Paying Agent/Registrar shall, before the delivery of any such Bond, date and manually sign said Bond, and no such Bond shall be deemed to be issued or outstanding unless such Bond is so executed. The Paying Agent/Registrar promptly shall cancel a paid Bond and a Bond surrendered for transfer. No additional ordinances, orders, or resolutions need be passed or adopted by the governing body of the Issuer or any other body or person so as to accomplish the foregoing exchange of any Bond, and the Paying Agent/Registrar shall provide for the printing, execution, and delivery of the substitute Bond in the manner prescribed herein. Pursuant to Chapter 1201, Government Code, as amended, the duty of exchange of a Bond as aforesaid is hereby imposed upon the Paying Agent/Registrar, and, upon the execution of said Bond, the exchanged Bond shall be valid, incontestable, and enforceable in the same manner and with the same effect as the Bond that initially was issued and delivered pursuant to this Ordinance, approved by the Attorney General and registered by the Comptroller of Public Accounts. (b) Payment of Bond and Interest. The Issuer hereby further appoints the Paying Agent/Registrar to act as the paying agent for paying the principal of and interest on the Bond, all as provided in this Ordinance. The Paying Agent/Registrar shall keep proper records of all payments made by the Issuer and the Paying Agent/Registrar with respect to the Bond, and of all transfers of the Bond, and all replacements of a Bond, as provided in this Ordinance. However, in the event of a nonpayment of interest on a scheduled payment date, and for thirty (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 Issuer. Notice of the past due interest shall be sent at least five (5) business days prior to the Special Record Date by United States mail, first-class postage prepaid, to the address of the Registered 3 Owner appearing on the Registration Books at the close of business on the last business day next preceding the date of mailing of such notice. (c) In General. The 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 Owner thereof, (ii) shall be in the denomination, (iii) may be redeemed and prepaid prior to its scheduled maturity, (iv) may be transferred and assigned, (vi) shall have the characteristics, (vi) shall be signed, sealed, executed and authenticated, (vii) the principal of and interest on the Bond shall be payable, and (viii) shall be administered and the Paying Agent/Registrar and the Issuer shall have certain duties and responsibilities with respect to the Bond, all as provided, and in the manner and to the effect as required or indicated, in the FORM OF BOND set forth in this Ordinance. The Bond initially issued and delivered pursuant to this Ordinance is not required to be, and shall not be, authenticated by the Paying Agent/Registrar, but on each substitute Bond issued in exchange for any Bond issued under this Ordinance the Paying Agent/Registrar shall execute the PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE, in the form set forth in the FORM OF BOND. (d) The Issuer covenants with the Registered Owner of the Bond that at all times while the Bond is outstanding the Issuer will provide a competent and legally qualified bank, trust company, financial institution, or other entity to act as and perform the services of Paying Agent/Registrar for the Bond under this Ordinance, and that the Paying Agent/Registrar will be one entity. The Issuer reserves the right to, and may, at its option, change the Paying Agent/Registrar upon not less than 120 days written notice to the Paying Agent/Registrar, to be effective not later than 60 days prior to the next principal or interest payment date after such notice. In the event that the entity at any time acting as Paying Agent/Registrar (or its successor by merger, acquisition, or other method) should resign or otherwise cease to act as such, the Issuer covenants that promptly it will appoint a competent and legally qualified bank, trust company, financial institution, or other agency to act as Paying Agent/Registrar under this Ordinance. Upon any change in the Paying Agent/Registrar, the previous Paying Agent/Registrar promptly shall transfer and deliver the Registration Books (or a copy thereof), along with all other pertinent books and records relating to the Bond, to the new Paying Agent/Registrar designated and appointed by the Issuer. Upon any change in the Paying Agent/Registrar, the Issuer promptly will cause a written notice thereof to be sent by the new Paying Agent/Registrar to each Registered Owner of the Bond, by United States mail, first-class postage prepaid, which notice also shall give the address of the new Paying Agent/Registrar. By accepting the position and performing as such, each Paying Agent/Registrar shall be deemed to have agreed to the provisions of this Ordinance, and a certified copy of this Ordinance shall be delivered to each Paying Agent/Registrar. (e) 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 Certificate of Paying Agent/Registrar substantially in the form provided in this Ordinance, duly authenticated by manual execution of the Paying Agent/Registrar. It shall not be required that the same authorized representative of the Paying Agent/Registrar sign the Certificate of Paying Agent/Registrar on the Bond. In lieu of the executed Certificate 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 Issuer, and has been registered by the Comptroller. (f) Delivery of Initial Bond. On the closing date, one initial Bond representing the entire principal amount of the Bond, payable in stated installments to the purchaser designated in Section 13 or its designee, 4 executed by manual or facsimile signature of the Mayor and City Secretary of the Issuer, approved by the Attorney General of Texas, and registered and manually signed by the Comptroller of Public Accounts of the State of Texas, and with the date of delivery inserted thereon by the Paying Agent/Registrar, will be delivered to such purchaser or its designee. Section 4. FORM OF BOND. The form of the Bond, including the form of Paying Agent/Registrar's Authentication Certificate, the form of Assignment and the form of Registration Certificate of the Comptroller of Public Accounts of the State of Texas to be attached to the Bond initially issued and delivered pursuant to this Ordinance, shall be, respectively, substantially as follows, with such appropriate variations, omissions or insertions as are permitted or required by this Ordinance. (a) [Form of Bond] NO. R- UNITED STATES OF AMERICA PRINCIPAL STATE OF TEXAS AMOUNT CITY OF THE COLONY, TEXAS $ WATERWORKS AND SEWER SYSTEM REVENUE REFUNDING BOND SERIES 2008 INTEREST RATE DELIVERY DATE As shown below REGISTERED OWNER: PRINCIPAL AMOUNT: ON THE MATURITY DATE specified above, the City of The Colony (the "Issuer"), 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 assign (the "Registered Owner"), the principal amount from time to time unpaid and to pay interest thereon from the date of delivery of this Bond as specified above, at the rates per annum set forth in the table below, calculated on the basis of a 360-day year of twelve 30-day months. The principal of this Bond shall mature and be paid in installments on the dates and in the amounts set forth in the table below: Payment Date Principal Installment Interest Rate (Information from Section 2 to be inserted) THE PRINCIPAL OF AND INTEREST ON THIS BOND are payable in lawful money of the United States of America, without exchange or collection charges. The Issuer shall pay interest on the unpaid principal installments of this Bond on August 15, 2008, and on each February 15 and August 15 thereafter to the date of maturity or redemption thereof. The last principal installment of this Bond shall be paid to the Registered Owner hereof upon presentation and surrender of this Bond at maturity, or upon the date fixed for its redemption prior to maturity, at the principal office of Bank of America, N.A., Dallas, Texas, Texas, which is the "Paying Agent/Registrar" for this Bond. The payment of all other principal installments of and interest on this Bond shall be made by the Paying Agent/Registrar to the Registered Owner hereof on each principal 5 and interest payment date by check or draft, dated as of such principal and interest payment date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the Issuer required by the order authorizing the issuance of this Bond (the "Bond Order") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided; and such check or draft shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, on each such interest payment date, to the Registered Owner hereof, at its address as it appeared on the last busimness day of the month next preceding each such date (the "Record Date") on the Registration Books kept by the Paying Agent/Registrar, as hereinafter described. In addition, principal and interest may be paid by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the Registered Owner. In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the Issuer. Notice of the Special Record Date and of the scheduled payment date of the past due interest (which shall be 15 days after the Special Record Date) shall be sent at least five 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 Registration Books at the close of business on the last business day next preceding the date of mailing of such notice. ANY ACCRUED INTEREST due at maturity or upon the redemption of this Bond prior to maturity as provided herein shall be paid to the Registered Owner upon presentation and surrender of this Bond for redemption and payment at the principal corporate trust office of the Paying Agent/Registrar. The Issuer covenants with the Registered Owner of this Bond that on or before each principal payment date, interest payment date, and accrued interest payment date for this Bond it will make available to the Paying Agent/Registrar, from the "Interest and Sinking Fund" created by the Bond Ordinance, the amounts required to provide for the payment, in immediately available funds, of all principal of and interest on the Bond, when due. IF THE DATE for the payment of the principal of or interest on this Bond shall be a Saturday, Sunday, a legal holiday or a day on which banking institutions in the city where the principal corporate trust office of the Paying Agent/Registrar is located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day that is not such a Saturday, Sunday, legal holiday or day on which 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 dated April 1, 2008, authorized in accordance with the Constitution and laws of the State of Texas in the principal amount of $3,420,000 for the public purposes of refunding certain outstanding bonds of the City secured by a first lien on and pledge of the net revenue of the City's waterworks and sewer system and paying the costs incurred in connection with the issuance of the Bond. ON ANY DATE, the principal installments of this Bond may be redeemed prior to their scheduled maturities, at the option of the Issuer, with funds derived from any available and lawful source, as a whole, or in part, and, if in part, the particular principal installments or portions thereof, to be redeemed shall be selected and designated by the Issuer, at a redemption price equal to the principal amount to be redeemed plus accrued interest to the date fixed for redemption.. AT LEAST 20 days prior to the date fixed for any redemption of Bond or portions thereof prior to maturity a written notice of such redemption shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, at least 30 days prior to the date fixed for any such redemption, to the Registered Owner of each Bond to be redeemed at its address as it appeared on the 45th day prior to such redemption date; 6 provided, however, that the failure of the Registered Owner to receive such notice, or any defect therein or in the sending or mailing thereof, shall not affect the validity or effectiveness of the proceedings for the redemption of any Bond. By the date fixed for any such redemption due provision shall be made with the Paying Agent/Registrar for the payment of the required redemption price for the Bond or portions thereof that are to be so redeemed. If such written notice of redemption is sent and if due provision for such payment is made, all as provided above, the Bond or portions thereof that are to be so redeemed thereby automatically shall be treated as redeemed prior to their scheduled maturities, and they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the right of the Registered Owner to receive the redemption price from the Paying Agent/Registrar out of the funds provided for such payment. If a portion of any Bond shall be redeemed, a substitute Bond having the same maturity date, bearing interest at the same rate, in the authorized denomination, at the written request of the Registered Owner, and in aggregate principal amount equal to the unredeemed portion thereof, will be issued to the Registered Owner upon the surrender thereof for cancellation, at the expense of the Issuer, all as provided in the Bond Ordinance. THIS BOND IS issuable solely as A fully registered bond, without interest coupons, in the denomination of $3,420,000. As provided in the Bond Ordinance, this Bond may, at the request of the Registered Owner or the assignee or assignees hereof, be assigned, transferred and exchanged for a like aggregate principal amount of a fully registered Bond, without interest coupons, payable to the appropriate Registered Owner or assignee, as the case may be, having the same denomination, upon surrender of this Bond to the Paying Agent/Registrar for cancellation, all in accordance with the form and procedures set forth in the Bond Ordinance. Among other requirements for such assignment and transfer, this Bond must be presented and surrendered to the Paying Agent/Registrar, together with proper instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment of this Bond to the assignee in whose name or names this Bond is to be registered. The form of Assignment printed or endorsed on this Bond may be executed by the Registered Owner to evidence the assignment hereof, but such method is not exclusive, and other instruments of assignment satisfactory to the Paying Agent/Registrar may be used to evidence the assignment of this Bond from time to time by the Registered Owner. The Paying Agent/Registrar's reasonable standard or customary fees and charges for assigning, transferring, converting and exchanging any Bond or portion thereof will be paid by the Issuer. In any circumstance, any taxes or governmental charges required to be paid with respect thereto shall be paid by the one requesting such assignment, transfer or exchange, as a condition precedent to the exercise of such privilege. The Paying Agent/Registrar shall not be required to make any such transfer or exchange (1) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or (ii) with respect to the Bond or any portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date. IN THE EVENT any Paying Agent/Registrar for the Bond is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the Bond Ordinance that it promptly will appoint a competent and legally qualified substitute therefor, and cause written notice thereof to be mailed to the Registered Owner of the Bond. IT IS HEREBY certified, recited and covenanted that this Bond has been duly and validly authorized, issued and delivered; that all acts, conditions and things required or proper to be performed, exist and be done precedent to or in the authorization, issuance and delivery of this Bond have been performed, existed and been done in accordance with law; that this Bond constitutes a special obligation of the Issuer, and, together with certain previously issued parity bonds defined and described in the Ordinance, are payable as to both principal and interest solely from and equally secured by a lien on and pledge of the Net Revenues of the Issuer's water 7 and sewer system. Reference is hereby made to the Ordinance for a more complete statement of the covenants and provisions securing the payment of this Bond and the series of which it is one. THE ISSUER EXPRESSLY RESERVES the right to issue further and additional special revenue obligations equally secured by a lien on and pledge of the net revenues of the Issuer's combined Waterworks and Sewer System on a parity with the Bond of this issue; provided, however, that any and all such additional parity obligations may be issued only in accordance with and subject to the covenants, conditions, limitations and restrictions relating thereto which are set out and contained in the Ordinance, to which reference is hereby made for more complete and full particulars. THE REGISTERED OWNER HEREOF shall never have the right to demand payment of this obligation out of any funds raised or to be raised by taxation. THE ISSUER HAS RESERVED THE RIGHT to amend the Bond Ordinance as provided therein, and under some (but not all) circumstances amendments thereto must be approved by the Registered Owner of the outstanding Bond. BY BECOMING the Registered Owner of this Bond, the Registered Owner thereby acknowledges all of the terms and provisions of the Bond Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Bond Ordinance is duly recorded and available for inspection in the official minutes and records of the governing body of the Issuer, and agrees that the terms and provisions of this Bond and the Bond Ordinance constitute a contract between the Registered Owner hereof and the Issuer. IN WITNESS WHEREOF, the Issuer has caused this Bond to be signed with the manual or facsimile signature of the Mayor of the Issuer and countersigned with the manual or facsimile signature of the City Secretary of said Issuer, and has caused the official seal of the Issuer to be duly impressed, or placed in facsimile, on this Bond. (signature) (signature) City Secretary Mayor (SEAL) (b) [Form of Paying Agent/Registrar's Authentication Certificate] PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE (To be executed if this Bond is not accompanied by an executed Registration Certificate of the Comptroller of Public Accounts of the State of Texas) It is hereby certified that this Bond has been issued under the provisions of the Bond Ordinance described in the text of this Bond; and that this Bond has been issued in conversion or replacement of, or in exchange for, a Bond that originally 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: BAND OF AMERICA, N.A. Paying Agent/Registrar By: 8 Authorized Representative (c) [Form of Assignment] ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto Please insert Social Security or Taxpayer Identification Number of Transferee (Please print or typewrite name and address, including zip code, of Transferee.) the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney, to register the transfer of the within Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated: Signature Guaranteed: NOTICE: Signature(s) must be guaranteed by an NOTICE: The signature above must correspond with eligible guarantor institution participating in a the name of the registered owner as it appears upon securities transfer association recognized signature the front of this Bond in every particular, without guarantee program. alteration or enlargement or any change whatsoever. (d) [Form of Registration Certificate of the Comptroller of Public Accounts] COMPTROLLER'S REGISTRATION CERTIFICATE: REGISTER NO. I hereby certify that this Bond has been examined, certified as to validity and approved by the Attorney General of the State of Texas, and that this Bond has been registered by the Comptroller of Public Accounts of the State of Texas. Witness my signature and seal this Comptroller of Public Accounts of the State of Texas (COMPTROLLER'S SEAL) 9 (e) Form of Payment Record PAYMENT RECORD Principal Payments (amount and Remaining Name and Title of Date of installment(s) to which Principal Authorized Officer Signature of Authorized Payment payment is applied) Balance Making Entry Officer Section 5. SECURITY FOR THE BOND. (a) The Bond herein authorized is an "Additional Parity Bond" as described in the ordinances authorizing the outstanding Parity Bonds, and the principal thereof and the interest thereon, together with the principal of and interest on the outstanding Parity Bonds, are and shall be payable from and secured by an irrevocable first lien on and pledge of the Net Revenues to be derived from the operation and/or ownership of the System. (b) The Bond and the interest thereon are special obligations of the Issuer payable solely from the Net Revenues, and the Registered Owner thereof shall never have the right to demand payment thereof out of any funds raised or to be raised by taxation. Section 6. DEFINITIONS. Unless otherwise expressly provided or unless the context clearly requires otherwise, in this Ordinance the following terms shall have the meanings specified below: "Additional Bonds" means the additional parity revenue bonds or other obligations secured by a lien on and pledge of the Net Revenues on a parity with the Parity Bonds, as permitted to be issued under the provisions of this Ordinance. "Event of Default" means any Event of Default as defined in Section 15(a). "Fiscal Year" means twelve months' period used by the Issuer in connection with the operation of the System, which may be any twelve consecutive month period established by the Issuer. "Gross Revenues" shall have the meaning assigned to such term in Section 8(a). 10 "Initial Bond" means the Bond described in Section 4. "Interest and Sinking Fund" means the interest and sinking fund described in Section 8(a). "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, 2008. "Net Revenues" shall have the meaning assigned to such term in Section 8(b). "Parity Bonds" means the Issuer's outstanding Waterworks and Sewer System Revenue Bonds, Series 2004, the Bond and any Additional Bonds. "Rating Agency" means any nationally recognized securities rating agency which has assigned, at the request of the Issuer, a rating to the Parity Bonds. "Revenue Fund" means the revenue fund established and confirmed in Section 8(a). "Reserve Fund" means the reserve fund established and confirmed in Section 8(a). "Reserve Fund Obligation" means, to the extent permitted by law, (i) a policy of insurance or a surety bond, issued by an issuer of policies of insurance insuring the timely payment of debt service on governmental obligations, provided that a Rating Agency having an outstanding rating on Parity Bonds would rate the Parity Bonds fully insured by a standard policy issued by the Issuer of such Credit Facility in any one of its two highest generic rating categories for such obligations; and (ii) a letter or line of credit issued by any financial institution, provided that a Rating Agency having an outstanding rating on the Parity Bonds would rate the Parity Bonds in any one of its two highest generic rating categories for such obligations if the letter or line of credit proposed to be issued by such financial institution secured the timely payment of the entire principal amount of the Parity Bonds and the interest thereon. "Reserve Fund Obligation Payment" means any payment the Issuer is obligated to make from Net Revenues deposited in the Reserve Fund with respect to a Reserve Fund Obligation. "Reserve Fund Requirement" shall have the meaning assigned to such term in Section 8(d) or Section 8(e), as applicable. "Series 1998 Bonds" means the Issuer's outstanding Waterworks and Sewer System Revenue Bonds, Series 1998. "Series 2004 Bonds" means the Issuer's outstanding Waterworks and Sewer System Revenue Bonds, Series 2004. "System" means the Issuer's combined waterworks and sewer system. "Unclaimed Payments" means money deposited with the Paying Agent/Registrar for the payment of the principal of or interest on the Bond as the same come due and payable and remaining unclaimed by the Registered Owner of the Bond after the applicable payment or redemption date. 11 Section 7. PLEDGE. (a) The Bond is being issued as an Additional Bond on a parity with the outstanding Parity Bonds. The Bond, together with the outstanding Parity Bonds, is and shall be equally and ratably secured by and payable from a first lien on and pledge of the Net Revenues of the System. The Parity Bonds are special obligations of the Issuer, payable solely from the Net Revenues, and the Registered Owner thereof shall never the right to demand payment out of funds raised or to be raised by taxation. (b) Security Interest. Article 1208, Government Code, applies to the issuance of the Bond and the pledge of the Net Revenues granted by the Issuer under this Section, and is therefore valid, effective, and perfected. Should Texas law be amended at any time while the Bond is outstanding and unpaid, the result of such amendment being that the pledge of the Net Revenues granted by the Issuer under this Section is to be subject to the filing requirements of Chapter 9, Business & Commerce Code, in order to preserve to the Registered Owner of the Bond a security interest in said pledge, the Issuer agrees to take such measures as it determines are reasonable and necessary under Texas law to comply with the applicable provisions of Chapter 9, Business & Commerce Code and enable a filing of a security interest in said pledge to occur. Section 8. CREATION OF FUNDS AND ACCOUNTS; DEPOSIT OF PROCEEDS; INVESTMENTS. (a) Special Funds. The Issuer covenants and agrees that all revenues derived from the operation of the System (the "Gross Revenues") shall be kept separate from other funds of the Issuer. To that end, the following special funds have been established and shall be maintained at a depository bank of the Issuer so long as any of the Parity Bonds are outstanding and unpaid, to-wit: (1) "City of The Colony, Texas, Water and Sewer System Revenue Bonds Revenue Fund," herein called the "Revenue Fund"; (ii) "City of The Colony, Texas, Water and Sewer System Revenue Bonds Interest and Sinking Fund," herein called the "Interest and Sinking Fund"; and (iii) "City of The Colony, Texas, Water and Sewer System Revenue Bonds Reserve Fund," herein called the "Reserve Fund". (b) Flow of Funds. All Gross Revenues shall be deposited from day to day as collected into the Revenue Fund. Moneys on deposit in the Revenue Fund shall first be used to pay all operation and maintenance expenses of the System. The revenues of the System not actually required to pay operation and maintenance expenses (the "Net Revenues") shall be transferred from the Revenue Fund to the other funds described in this Ordinance, in the order of priority, in the manner, and in the amounts set forth in below (provided, that the provisions of Subsections (i) through (v) of this Subsection shall become effective at such time as the Series 1998 Bonds and Series 2004 Bonds are no longer outstanding): (i) To the payment of the amounts required to be deposited in the Interest and Sinking Fund for the payment of principal and interest on the Parity Bonds as the same becomes due and payable; 12 (ii) On a pro rata basis, to each debt service reserve fund created by any ordinance authorizing the issuance of Parity Bonds, which contains less than the amount to be accumulated and/or maintained therein, as provided in such resolutions; (iii) To the payment of amounts required to be deposited in any other fund or account required by any resolution authorizing the issuance of Parity Bonds; and (iv) To any fund or account held at any place or places, or to any payee, required by any other resolution of the Board which authorized the issuance of obligations or the creation of debt of the Issuer having a lien on the Pledged Revenues subordinate to the lien created herein on behalf of the Parity Bonds. (v) Any Pledged Revenues remaining in the Revenue Fund after satisfying the foregoing payments, or making adequate and sufficient provision for the payment thereof, may be appropriated and used for any other lawful purpose now or hereafter permitted by law. (c) There shall be deposited into the Interest and Sinking Fund the following: (i) such amounts, in equal monthly installments, commencing on the tenth day of the month following the month in which the Closing Date occurs, and on the tenth day of each month thereafter, as will be sufficient to pay the interest scheduled to come due on the Parity Bonds on the next Interest Payment Date, less any amounts already in deposit therein for such purpose derived from the proceeds of the Bond or from any other lawfully available source; and (ii) such amounts, in equal monthly installments, commencing on the tenth day of the month following the month in which the Closing Date occurs, and on the tenth day of each month thereafter, as will be sufficient to pay the next maturing principal of the Parity Bonds. (iii) The Interest and Sinking Fund shall be used to pay the principal of and interest on the Parity Bonds as such principal matures and such interest becomes due. (d) Reserve Fund Provisions if Series 2004 Bonds Outstanding. The following provisions shall apply so long as the Series 1998 Bonds and Series 2004 Bonds are outstanding: (i) So long as the funds on deposit in the Reserve Fund are equal to the Reserve Fund Requirement, no deposits need to be made to the credit of the Reserve Fund; but should the Reserve Fund at any time contain less than the Reserve Fund Requirement, which shall be an amount equal to the average annual debt service of the Parity Bonds and any Additional Bonds outstanding from time to time, then, subject and subordinate to making the required deposits to the credit of the Interest and Sinking Fund, the Issuer shall transfer from the first available Net Revenues in the Revenue Fund and deposit to the credit of the Reserve Fund, such amounts as are required to restore the amount on deposit therein to the Reserve Fund Requirement. The money on deposit in the Reserve Fund may be used to pay the principal of and interest on the Parity Bonds at any time there are not sufficient funds on deposit in the Interest and Sinking Fund for such purpose. (ii) Upon issuance of the Bond, the Issuer shall calculate the Reserve Fund Requirement that will be required after giving effect to the issuance of the Bond. In accordance with the procedures specified in the preceding paragraph and in addition to any deposits required to be made pursuant to 13 such paragraph, deposits shall be made to the Reserve Fund by the Issuer to accumulate in the Reserve Fund, within sixty months from the month in which the Closing Date occurs, an amount equal to the Reserve Fund Requirement if the issuance of the Bond results in an increase in the Reserve Fund Requirement. (e) Reserve Fund Provisions if Series 2004 Bonds are not Outstanding. The following provisions shall apply after the Series 1998 Bonds and 2004 Bonds are no longer outstanding: (i) The Issuer hereby covenants and agrees to accumulate and maintain in the Reserve Fund as a reserve for the payment ofthe Parity Bonds an amount (hereinafter called the "Reserve Fund Requirement") equal to not less than the average annual debt service of outstanding Parity Bonds (calculated on a fiscal year basis and determined as of the date the last series of Parity Bonds are delivered or incurred, as the case may be). The Reserve Fund Requirement shall be used solely for (i) the payment of the principal of and interest on Parity Bonds when other funds available therefor are insufficient and (ii) to make Reserve Fund Obligation Payments. (ii) If the issuance of the Bond results in an increase in the Reserve Fund Requirement, the Issuer shall deposit into the Reserve Fund on or before the last day of each month, beginning on or before the last day of the month next following the month in which the Bond is delivered, from available Net Revenues of the System a substantially equal amount per month which will within five calendar years of the date of such first deposit accumulate the additional amount required to be on deposit in the Reserve Fund as a result of the issuance of the Bond. So long as the cash, investments and Reserve Fund Obligations in the Reserve Fund total not less than the Reserve Fund Requirement, no additional deposits need be made to the credit of the Reserve Fund, but when and if the Reserve Fund at any time contains less than the Reserve Fund Requirement (other than as a result of the issuance of Additional Bonds as provided in Section 9 hereof), the Issuer covenants and agrees to cure the deficiency in the Reserve Fund Requirement by resuming monthly deposits to said fund from Net Revenues, such monthly deposits to be in amounts equal to not less than 1/60th of the then total Reserve Fund Requirement to be maintained in said fund and to be made on or before the last day of each month until the total Reserve Fund Requirement then to be maintained in said Fund has been fully restored. In addition, in the event that a portion of the Reserve Fund Requirement is represented by a Reserve Fund Obligation, the Reserve Fund Requirement shall be restored as soon as possible from monthly deposits of Net Revenues on deposit in the System Fund in accordance with this Section, but subject to making the full deposits and credits to the Bond Fund required to be made by the next following February 15 or August 15, as the case may be. Reimbursements to the provider, if any, of a Reserve Fund Obligation shall constitute the making up of a deficiency in the Reserve Fund to the extent that such reimbursements result in the reinstatement, in whole or in part, as the case may be, of the amount of the Reserve Fund Obligation. The Issuer hereby covenants and agrees that, subject only to the payments to be made to the Interest and Sinking Fund, the Net Revenues of the System shall be applied and appropriated and used to establish and maintain the Reserve Fund Requirement, including by paying Reserve Fund Obligation Payments when due, and cure any deficiency in such amount as required by the provisions of this Ordinance and any other ordinance pertaining to obligations the payment of which are secured by the Reserve Fund Requirement. (iii) During such time as the Reserve Fund contains the total Reserve Fund Requirement, the Issuer may, at its option, withdraw all surplus in the Reserve Fund in excess of the Reserve Fund Requirement and transfer such surplus to the System Fund or the Interest and Sinking Fund or pay, or provide for the payment of, the final principal amount of a series of Parity Bonds so that such series 14 of Parity Bonds is no longer deemed to be outstanding, provided that the face amount of any Reserve Fund Obligation may reduced at the option of the Issuer in lieu of such transfer; and further provided that any such surplus funds that are withdrawn from the Reserve Fund and that consist of proceeds of Parity Bonds or interest thereon shall only be used for purposes for which such Parity Bonds were issued or deposited to the Interest and Sinking Fund. (iv) The Issuer may at any time deposit, supplement, replace or substitute a Reserve Fund Obligation for cash or investments on deposit in the Reserve Fund or in substitution for or replacement of any existing Reserve Fund Obligation, provided, that the deposit, supplement, replacement or substitution of the Reserve Fund Obligation will not, in and of itself, cause any ratings then assigned to the Bond by any Rating Agency to be lowered and the ordinance authorizing the substitution of the Reserve Fund Obligation for all or part of the Reserve Fund Requirement contains a finding that such substitution is cost effective. (v) If the Issuer is required to make a withdrawal from the Reserve Fund for any of the purposes described in this Section, the Issuer shall promptly notify the issuer of such Reserve Fund Obligation of the necessity for a withdrawal from the Reserve Fund for any such purposes, and shall make such withdrawal first from available moneys or investments then on deposit in the Reserve Fund, and next from a drawing under any Reserve Fund Obligation to the extent of such deficiency. (vi) In the event there is a draw upon the Reserve Fund Obligation, the Issuer shall reimburse the issuer of such Reserve Fund Obligation for such draw, in accordance with the terms of any agreement pursuant to which the Reserve Fund Obligation is used, from Net Revenues, however, such reimbursement from Pledged Revenues shall be in accordance with the provisions of this Section and shall be subordinate and junior in right of payment to the payment of principal of and premium, if any, and interest on the then outstanding Parity Bonds. (vii) The Issuer may create and establish a debt service reserve fund pursuant to the provisions of any ordinance authorizing the issuance of Parity Bonds for the purpose of securing that particular issue or series of Parity Bonds or any specific group of issues or series of Parity Bonds and the amounts once deposited or credited to said debt service reserve funds shall no longer constitute Pledged Revenues and shall be held solely for the benefit of the owners of the particular Parity Bonds for which such debt service reserve fund was established. Each such debt service reserve fund shall be designated in such manner as is necessary to identify the Parity Bonds it secures and to distinguish such debt service reserve fund from the debt service reserve funds created for the benefit of other Parity Bonds. (f) 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. (g) Investments. Money in the funds created by this Ordinance, at the option of the Issuer, may be invested in such securities or obligations as permitted under applicable law. Any securities or obligations in which money is so invested shall be kept and held in trust for the benefit of the Registered Owner 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. Interest and income derived from investment of any fund created by this Ordinance shall be credited to such fund. 15 Section 9. ADDITIONAL PARITY REVENUE BONDS AND OBLIGATIONS. (a) Additional Bonds. The Issuer may issue Additional Bonds if the following conditions are met: (i) the Issuer is not then in default as to any covenant, condition or obligation prescribed by an ordinance authorizing the issuance of any Parity Bonds; (ii) the Additional Bonds are made to mature on August 15 in each of the years in which they are scheduled to mature; (iii) the Net Revenues of the System for any consecutive period of 12 months of the 15 months next preceding the month in which the ordinance authorizing the proposed Additional Bonds is adopted, or for the Issuer's completed fiscal year next preceding the date of such Additional Bonds, are equal to at least (A) 1.10 times the maximum annual principal and interest requirements and (B) 1.25 times the average annual principal and interest requirements of all Parity Bonds to be outstanding after the issuance of the Additional Bonds, as such Net Revenues are shown by a report by a certified public accountant or a licensed public accountant; provided, that, the calculation of Net Revenues for the purpose of this Section may be made on the basis of new rates and charges as then proposed and adopted by the Issuer and in effect not later than the issuance date of the Additional Bonds; and (iv) the amount to be accumulated and maintained in the Reserve Fund shall be increased to an amount not less than the average annual requirements for the payment of principal of and interest on Parity Bonds including the proposed Additional Bonds, such additional amount to be accumulated in equal monthly installments during a period not to exceed five years and one month. Section 10. PARTICULAR REPRESENTATIONS AND COVENANTS. (a) Payment of the Bonds. While the Bond is outstanding and unpaid, there shall be made available to the Paying Agent/Registrar, out of the Interest and Sinking Fund or, if funds in the Interest and Sinking Funds are insufficient for such purpose, the Reserve 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. (b) Performance of Obligations. The Issuer will faithfully perform at all times any and all covenants, undertakings, stipulations, and provisions contained in this Ordinance and in each Bond; the Issuer will promptly pay 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 Issuer 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. (c) Authorized Action. The Issuer 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 Registered Owner thereof are and will be valid and enforceable obligations of the Issuer in accordance with its terms. (d) Rate Covenant. The Issuer hereby covenants that it will establish rates for water and sewer services supplied by the System which shall produce or yield revenues sufficient to pay maintenance and operating expenses of the System, maintain the funds established hereunder and an additional amount equal 16 to at least 110% of the aggregate amount required to be paid in such year for principal and interest on all outstanding Parity Bonds. (e) Nonimpairment of Lien. The Issuer hereby covenants to take no action or omit to take any action, or suffer to be done or omitted to be done, any matter or thing whatsoever whereby the lien of the Parity Bonds on the revenues of the System might or could be lost'or impaired, and that the Issuer will pay or cause to be paid, or will make adequate provision for the satisfaction and discharge of all lawful claims and demands for labor, materials, supplies, or other objects which, if unpaid, might by law be given precedence to, or an equality with the Parity Bonds as a lien or charge upon the revenues of the System or any part thereof, provided that nothing in this section shall be construed to require the Issuer to pay, discharge or make provision for any such lien, charge, claim or demand so long as the validity thereof shall be by it in good faith contested. (f) No Sale or Encumbrance of System. The Issuer hereby covenants that it will not in any manner dispose of the System or any substantial part thereof, including any and all extensions and additions that may be made thereto, until the Parity Bonds shall have been paid in full as to both principal and interest; provided, however, that this covenant shall not be construed to prevent the disposal by the Issuer of property, which, in the Issuer's judgment, has become inexpedient to use in connection with the System, when other property of equal value is substituted therefor or when the proceeds of such disposition of such property are placed in the Interest and Sinking Fund, in addition to all other amounts required to be placed in the Interest and Sinking Fund in the current fiscal year, and are used for the retirement of Parity Bonds in advance of their respective maturities. (g) No Competing Systems. The Issuer hereby covenants that it will not grant a franchise for the operation of any competing water or sewer system in the Issuer until all Parity Bonds have been paid in full with respect to principal and interest. (h) No Free Service. The Issuer hereby covenants that it will not permit free water or services to be supplied to the Issuer or to any other user, and the Issuer hereby agrees that it will pay from its general fund the reasonable value of all water and services obtained from the System by the Issuer and all departments and agencies thereof. (i) Insurance. So long as any of the Parity Bonds are outstanding, the Issuer agrees to maintain, for the benefit of the registered owners of such bonds, insurance on the System of a kind and in an amount that usually would be carried by private companies engaged in a similar type of business. Section 9. DEFEASANCE OF BOND. (a) The Bond and the interest thereon shall be deemed to be paid, retired and no longer outstanding (a "Defeased Bond") within the meaning of this Ordinance, except to the extent provided in subsection (d) of this Section, when payment of the principal of such Bond, plus interest thereon to the due date (whether such due date be by reason of maturity or otherwise) either (i) shall have been made or caused to be made in accordance with the terms thereof, 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 in accordance with an escrow agreement or other instrument (the "Future Escrow Agreement") for such payment (1) lawful money of the United States of America sufficient to make such payment or (2) Defeasance Securities that mature as to principal and interest in such amounts and at such times as will insure the availability, without reinvestment, of sufficient money to provide for such payment, and when proper arrangements have been made by the Issuer with the Paying Agent/Registrar for the payment of its services until a Defeased Bond shall have become due and 17 payable. 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 and pledged as provided in this Ordinance, and such principal and interest shall be payable solely from such money or Defeasance Securities. Notwithstanding any other provision of this Ordinance to the contrary, it is hereby provided that any determination not to redeem a Defeased Bond that is made in conjunction with the payment arrangements specified in subsection (a)(i) or (ii) of this section shall not be irrevocable, provided that: (1) in the proceedings providing for such payment arrangements, the Issuer expressly reserves the right to call the Defeased Bond for redemption; (2) gives notice of the reservation of that right to the Registered Owner of the Defeased Bond immediately following the making of the payment arrangements; and (3) directs that notice of the reservation be included in any redemption notices that it authorizes. (b) Any moneys so deposited with the Paying Agent/Registrar may at the written direction of the Issuer be invested in Defeasance Securities, maturing in the amounts and times as herembefore set forth, and all income from such Defeasance Securities received by the Paying Agent/Registrar that is not required for the payment of the Bond and interest thereon, with respect to which such money has been so deposited, shall be turned over to the Issuer, or deposited as directed in writing by the Issuer. Any Future Escrow Agreement pursuant to which the money and/or Defeasance Securities are held for the payment of a Defeased Bond may contain provisions permitting the investment or reinvestment of such moneys in Defeasance Securities or the substitution of other Defeasance Securities upon the satisfaction of the requirements specified in subsection (a)(i) or (ii) of this sections. All income from such Defeasance Securities received by the Paying Agent/Registrar which is not required for the payment ofthe Defeased Bond, with respect to which such money has been so deposited, shall be remitted to the Issuer or deposited as directed in writing by the Issuer. (c) The term "Defeasance Securities" means (i) direct, noncallable obligations ofthe United States of America, including obligations that are unconditionally guaranteed by the United States of America., (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 of the purchase thereof 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 governing body of the Issuer adopts or approves the proceedings authorizing the financial arrangements are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. (d) Until a Defeased Bond shall have become due and payable, the Paying Agent/Registrar shall perform the services of Paying Agent/Registrar for such Defeased Bond the same as if they had not been defeased, and the Issuer shall make proper arrangements to provide and pay for such services as required by this Ordinance. Section 10. DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED BOND. (a) Replacement Bond. In the event any outstanding Bond is damaged, mutilated, lost, stolen or destroyed, the Paying Agent/Registrar shall cause to be printed, executed and delivered, a new Bond of the same principal amount, maturity and interest rate, as the damaged, mutilated, lost, stolen or destroyed Bond, in replacement for such Bond in the manner hereinafter provided. (b) Application for Replacement Bond. Application for replacement of a damaged, mutilated, lost, stolen or destroyed Bond shall be made by the Registered Owner thereof to the Paying Agent/Registrar. In 18 every case of loss, theft or destruction of a Bond, the Registered Owner applying for a replacement Bond shall furnish to the Issuer and to the Paying Agent/Registrar such security or indemnity as may be required by them to save each of them harmless from any loss or damage with respect thereto. Also, in every case of loss, theft or destruction of a Bond, the Registered Owner shall furnish to the Issuer and to the Paying Agent/Registrar evidence to their satisfaction of the loss, theft or destruction of such Bond, as the case may be. In every case of damage or mutilation of a Bond, the Registered Owner shall surrender to the Paying Agent/Registrar for cancellation the Bond so damaged or mutilated. (c) No Default Occurred. Notwithstanding the foregoing provisions of this , in the event any such Bond shall have matured, and no default has occurred that is then continuing in the payment of the principal of, redemption premium, if any, or interest on the Bond, the Issuer may authorize the payment of the same (without surrender thereof except in the case of a damaged or mutilated Bond) instead of issuing a replacement Bond, provided security or indemnity is furnished as above provided in this Section. (d) Charge for Issuing Replacement Bond. Prior to the issuance of any replacement Bond, the Paying Agent/Registrar shall charge the Registered Owner of such Bond with all legal, printing, and other expenses in connection therewith. Every replacement Bond issued pursuant to the provisions of this Section by virtue of the fact that any Bond is lost, stolen or destroyed shall constitute a contractual obligation of the Issuer whether or not the lost, stolen or destroyed Bond shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Ordinance equally and proportionately with any and all other Bonds duly issued under this Ordinance. (e) Authority for Issuing Replacement Bond. In accordance with Sec. 1206.022, Government Code, this Section 10 of this Ordinance shall constitute authority for the issuance of any such replacement Bond without necessity of further action by the governing body of the Issuer or any other body or person, and the duty of the replacement of such Bond is hereby authorized and imposed upon the Paying Agent/Registrar, and the Paying Agent/Registrar shall authenticate and deliver such Bond in the form and manner and with the effect, as provided in Section 3(a) of this Ordinance for a Bond issued in exchange for another Bond. Section 11. CUSTODY, APPROVAL, AND REGISTRATION OF BOND; BOND COUNSEL'S OPINION; CUSIP NUMBERS AND CONTINGENT INSURANCE PROVISION, IF OBTAINED; ENGAGEMENT OF BOND COUNSEL. (a) The Mayor of the Issuer is hereby authorized to have control of the Bond initially issued and delivered hereunder and all necessary records and proceedings pertaining to the Bond pending its delivery and their investigation, examination, and approval by the Attorney General of the State of Texas, and their registration by the Comptroller of Public Accounts of the State of Texas. Upon registration of the Bond said Comptroller of Public Accounts (or a deputy designated in writing to act for said Comptroller) shall manually sign the Comptroller's Registration Certificate attached to such Bond, and the seal of said Comptroller shall be impressed, or placed in facsimile, on such Bond. The approving legal opinion of the Issuer's Bond Counsel and the assigned CUSIP numbers may, at the option of the Issuer, be printed on the Bond issued and delivered under this Ordinance, but neither shall have any legal effect, and shall be solely for the convenience and information of the Registered Owner of the Bond. In addition, if bond insurance is obtained, the Bond may bear an appropriate legend as provided by the insurer. (b) The obligation of the initial purchaser to accept delivery of the Bond is subject to the initial purchaser being furnished with the final, approving opinion of McCall, Parkhurst & Horton L.L.P., bond counsel to the Issuer, which opinion shall be dated as of and delivered on the date of initial delivery of the Bond 19 to the initial purchaser. The engagement of such firm as bond counsel to the Issuer in connection with issuance, sale and delivery of the Bond is hereby approved and confirmed. The execution and delivery of an engagement letter between the Issuer and such firm, with respect to such services as bond counsel, is hereby authorized in such form as may be approved by the Mayor, and the Mayor is hereby authorized to execute such engagement letter. Section 12. COVENANTS REGARDING TAX EXEMPTION OF INTEREST ON THE BOND. (a) Covenants. The Issuer covenants to take any action necessary to assure, or refrain from any action that would adversely affect, the treatment of the Bond as an obligation described in section 103 of the Code, the interest on which is not includable in the "gross income" of the Registered Owner for purposes of federal income taxation. In furtherance thereof, the Issuer covenants as follows: (1) to take any action to assure that no more than 10 percent of the proceeds of the Bond (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 Issuer, 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" that 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 that 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 that would otherwise result in the Bond being treated as a "private activity bond" within the meaning of section 141(b) of the Code; (5) 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 that were used, directly or indirectly, to acquire investment property (as defined in section 148(b)(2) of the Code) that 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 an advance refunding bond, for a period of 30 days or less until such proceeds are needed for the purpose for which the Bond is issued, and in the case of a current refunding bond, for a period of 90 days or less, 20 (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 Reserve Fund Requirement 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) Rebate Fund. In order to facilitate compliance with the above covenant (a)(8), a "Rebate Fund" is hereby established by the Issuer 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 Registered Owner. The Rebate Fund is established for the additional purpose of compliance with section 148 of the Code. (c) Use of Proceeds. For purposes of the foregoing covenants (a)(1) and (a)(2), the Issuer 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 ofthe Refunded Bonds expended prior to the date of issuance of the Bond. It is the understanding of the Issuer 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 that modify or expand provisions of the Code, as applicable to the Bond, the Issuer will not be required to comply 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 that impose additional requirements applicable to the Bond, the Issuer 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 Issuer hereby authorizes and directs the Mayor to execute any documents, certificates or reports required by the Code and to make such elections, on behalf of the Issuer, that may be permitted by the Code as are consistent with the purpose for the issuance of the Bond. (d) Disposition of Project. The Issuer covenants that the projects financed with the proceeds of the Refunded Bonds will not be sold or otherwise disposed in a transaction resulting in the receipt by the Issuer of cash or other compensation, unless the Issuer 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 the foregoing, the portion of the property comprising personal property and disposed in the ordinary course shall not be treated as a transaction resulting in the receipt of cash or other compensation. For purposes hereof, the Issuer shall not be obligated to comply with this covenant if it obtains a legal opinion that such failure to 21 comply will not adversely affect the excludability for federal income tax proposes from gross income of the interest. (e) Designation as Qualified Tax-Exempt Obligations. The Issuer 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 Issuer represents, covenants and warrants the following: (a) that during the calendar year in which the Bond is issued, the Issuer (including any subordinate entities) has not designated nor will designate obligations that when aggregated with the Bond, will result in more than $10,000,000 of "qualified tax-exempt bonds" being issued; (b) that the Issuer reasonably anticipates that the amount oftax-exempt obligations issued, during the calendar year in which the Bond is issued, by the Issuer (or any subordinate entities) will not exceed $10,000,000; and, (c) that the Issuer will take such action or refrain from such action as necessary, and as more particularly set forth in this Section, hereof, in order that the Bond will not be considered a "private activity bond" within the meaning of section 141 of the Code. Section 13. SALE OF BOND; FURTHER PROCEDURES. (a) The Bond is hereby sold and shall be delivered as a private placement to Bank of America, N.A., Dallas, Texas, Texas for cash for the par value thereof, pursuant to the private placement letter dated the date of the final passage of this Ordinance which the Mayor is hereby authorized to execute and deliver. The Bond shall initially be registered in the name of the Purchaser. (b) The Mayor and Mayor Pro Tem, the City Manager and City Secretary and all other officers, employees and agents of the Issuer, and each of them, shall be and they are hereby expressly authorized, empowered and directed from time to time and at any time to do and perform all such acts and things and to execute, acknowledge and deliver in the name and under the corporate seal and on behalf of the Issuer a Paying Agent/Registrar Agreement with the Paying Agent/Registrar and all other instruments, whether or not herein mentioned, as may be necessary or desirable in order to carry out the terms and provisions of this Ordinance, the Bonds, the sale of the Bonds and the Official Statement. In case any officer whose signature shall appear on any Bond shall cease to be such officer before the delivery of such Bond, such signature shall nevertheless be valid and sufficient for all purposes the same as if such officer had remained in office until such delivery. Section 14. NO RULE 15c2-12 UNDERTAKING. The Issuer has not made an undertaking in accordance with Rule 15c2-12 of the Securities and Exchange Commission (the "Rule"). The Issuer is not, therefore, obligated pursuant to the Rule to provide any on-going disclosure relating to the Issuer or the Bond. Section 15. DEFAULT AND REMEDIES (a) Events of Default. Each of the following occurrences or events for the purpose of this Ordinance is hereby declared to be an "Event of Default," 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 of the 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. 22 (b) Remedies for Default. Upon the happening of any Event of Default, then and in every case the Registered 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 Registered Owner under this Ordinance, by mandamus or other suit, action or special proceeding in equity or at law, in any court of competent jurisdiction, for any relief permitted by law, including the specific performance of any covenant or agreement contained herein, or thereby to enjoin any act or thing that may be unlawful or in violation of any right of the Registered Owner hereunder or any combination of such remedies. (c) Remedies Not Exclusive. (i) 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. (ii) The exercise of any remedy herein conferred or reserved shall not be deemed a waiver of any other available remedy. Section 16. METHOD OF AMENDMENT. The Issuer hereby reserves the right to amend this Ordinance subject to the following terms and conditions, to-wit: (a) The Issuer may from time to time, without the consent of any Registered Owner, except as otherwise required by paragraph (b) below, amend or supplement this Ordinance in order to (i) cure any ambiguity, defect or omission in this Ordinance that does not materially adversely affect the interests of the Registered Owner, (ii) grant additional rights or security for the benefit of the Registered Owner, (iii) add events of default as shall not be inconsistent with the provisions of this Ordinance and that shall not materially adversely affect the interests of the Registered Owner, (v) qualify this Ordinance under the Trust Indenture Act of 1939, as amended, or corresponding provisions of federal laws from time to time in effect, or (iv) make such other provisions in regard to matters or questions arising under this Ordinance as shall not be inconsistent with the provisions of this Ordinance and that shall not in the opinion of the Issuer's Bond Counsel materially adversely affect the interests of the Registered Owner. (b) Except as provided in paragraph (a) above, the Registered Owner shall have the right from time to time to approve any amendment hereto that may be deemed necessary or desirable by the Issuer; provided, however, that without the consent of the Registered Owner of the then outstanding Bond, nothing herein contained shall permit or be construed to permit amendment of the terms and conditions of this Ordinance or in the Bond so as to: (1) Make any change in the maturity of the outstanding Bond; (2) Reduce the rate of interest borne by the outstanding Bond; (3) Reduce the amount of the principal of, or redemption premium, if any, payable on the outstanding Bond; (4) Modify the terms of payment of principal or of interest or redemption premium on the outstanding Bond or impose any condition with respect to such payment; or 23 (5) Change the minimum percentage of the principal amount of the Bond necessary for consent to such amendment. (c) If at any time the Issuer shall desire to amend this Ordinance under this Section, the Issuer shall send by U.S. mail to the Registered Owner of the Bond a copy of the proposed amendment and cause notice of the proposed amendment to be published at least once in a financial publication published in The City of New York, New York or in the State of Texas. Such published notice shall briefly set forth the nature of the proposed amendment and shall state that a copy thereof is on file at the office of the Issuer for inspection by the Registered Owner of such Bond. (d) Whenever at any time within one year from the date of publication of such notice the Issuer shall receive an instrument or instruments executed by the Registered Owner of the Bond, which instrument or instruments shall refer to the proposed amendment and that shall specifically consent to and approve such amendment, the Issuer may adopt the amendment in substantially the same form. (e) Upon the adoption of any amendatory Ordinance pursuant to the provisions of this Section, this Ordinance shall be deemed to be modified and amended in accordance with such amendatory Ordinance, and the respective rights, duties, and obligations of the Issuer and the Registered Owner of such Bond shall thereafter be determined, exercised, and enforced, subject in all respects to such amendment. (f) Any consent given by the Registered Owner of the Bond pursuant to the provisions of this Section shall be irrevocable for a period of six months from the date of the publication of the notice provided for in this Section, and shall be conclusive and binding upon all future Registered Owners of the same Bond during such period. Such consent may be revoked at any time after six months from the date of the publication of said notice by the Registered Owner who gave such consent, or by a successor in title, by filing notice with the Issuer. (g) For the purposes of establishing ownership of the Bond, the Issuer shall rely solely upon the registration of the ownership of such Bond on the registration books kept by the Paying Agent/Registrar. Section 17. APPROVAL OF ESCROW AGREEMENT AND TRANSFER OF FUNDS. The Mayor of the Issuer is hereby authorized and directed to execute and deliver and the City Secretary of the Issuer is hereby authorized and directed to attest an Escrow Agreement between the Issuer and The Bank of New York Trust Company, N.A., as Escrow Agent, substantially in the form presented at the meeting at which this Ordinance was adopted. In addition, the Mayor or other officer of the Issuer is authorized to purchase such securities, to execute subscriptions for the purchase of U. S. Treasury Securities, State and Local Government Series, and to authorize such contributions, including any surplus in the Reserve Fund occurring ass a result of the issuance of the Bond, as may be necessary for the Escrow Fund. Section 18. REDEMPTION OF REFUNDED BONDS. (a) The Issuer hereby directs that the Refunded Bonds be called for redemption on the dates set forth in Schedule I attached hereto. Each of such Refunded Bonds shall be redeemed at the redemption price of par plus accrued interest. The Mayor is hereby authorized and directed to issue or cause to be issued the Notice of Redemption of the Refunded Bonds in substantially the form set forth in Exhibit B attached hereto to the paying agents for the Refunded Bonds. 24 (b) In addition, the paying agents for the Refunded Bonds are hereby directed to provide the appropriate notices of redemption and defeasance as specified by the ordinances authorizing the issuance of the Refunded Bonds and are hereby directed to make appropriate arrangements so that the Refunded Bonds may be redeemed on their redemption date. The Refunded Bonds shall be presented for redemption at the paying agent therefor, and shall not bear interest after the date fixed for redemption. (c) The source of funds for payment of the principal of and interest on the Refunded Bonds on their respective maturity or redemption dates shall be from the funds deposited with the paying agent for the Refunded Bonds, pursuant to the Escrow Agreement approved in Section 17 of this Ordinance. Section 19. SEVERABILITY. If any section, article, paragraph, sentence, clause, phrase or word in this Ordinance, or application thereof to any persons or circumstances is held invalid or unconstitutional by a court of competent jurisdiction, such holding shall not affect the validity of the remaining portion of this Ordinance, despite such invalidity, which remaining portions shall remain in full force and effect. (Execution Page Follows) 25 PASSED, APPROVED AND EFFECTIVE this ATTEST: Ma r, City of The Colony, Texas City Se etary, City of The ony, Te as 4c ~7 APPROVED S T FO City Attorney, City of The ony, exas SCHEDULE-I SCHEDULE OF REFUNDED BONDS Description Maturity Date Principal Amount Waterworks & Sewer System Revenue Bonds, Series 1991 8/15/2008 $ 90,000 8/15/2009 80,000 I 8/15/2010 15,000 8/15/2011 25,000 Total $210,000 *Called for redemption on June 11, 2008, at par plus accrued interest. Description Maturity Date Principal Amount Water & Sewer System Revenue Bonds, Series 1995 8/15/2008 $ 55,000 8/15/2009 55,000 8/15/2010 60,000 8/15/2011 65,000 8/15/2012 65,000 8/15/2013 70,000 8/15/2014 75,000 8/15/2015 80,000 Total $525,000 *Called for redemption on June 11, 2008, at par plus accrued interest. Description Maturity Date Principal Amount Water & Sewer System Revenue Bonds, Series 1996-A 8/15/2008 $ 40,000 8/15/2009 45,000 8/15/2010 45,000 8/15/2011 50,000 8/15/2012 50,000 8/15/2013 55,000 8/15/2014 60,000 8/15/2015 60,000 8/15/2016 65,000 Total $470,000 *Called for redemption on June 11, 2008, at par plus accrued interest. Description Maturity Date Principal Amount Water & Sewer System Revenue Bonds, Series 1996-B 8/15/2008 $ 25,000 8/15/2009 30,000 8/15/2010 30,000 8/15/2011 30,000 8/15/2012 35,000 8/15/2013 35,000 8/15/2014 40,000 8/15/2015 40,000 8/15/2016 40,000 Total $305,000 *Called for redemption on June 11, 2008, at par plus accrued interest. Description Maturity Date Principal Amount Water & Sewer System Revenue Bonds, Series 1998 8/15/2009 $155,000 8/15/2010 160,000 8/15/2011 170,000 8/15/2012 175,000 8/15/2013 185,000 8/15/2014 195,000 8/15/2015 200,000 8/15/2016 210,000 8/15/2017 220,000 8/15/2018 230,000 Total $1,900,000 *Called for redemption on June 11, 2008, at par plus accrued interest. EXHIBIT A NOTICE OF REDEMPTION CITY OF THE COLONY, TEXAS WATERWORKS AND SEWER SYSTEM REVENUE BONDS CUSIP Prefix 88319 NOTICE IS HEREBY GIVEN that the City of The Colony, Texas (the "City") has called for redemption on the date and at the redemption price specified, the below listed outstanding bonds (collectively, the "Refunded Bonds") of the City as follows: City of The Colony, Texas Waterworks and Sewer System Revenue Bonds, Series 1991, dated March 15, 1991, maturing August 15, 2008, through August 15, 2011, in the aggregate principal amount of $210,000 (the "Refunded Series 1991 Bonds"), at the redemption price of the principal amount of Refunded Series 1991 Bonds called for redemption plus accrued interest thereon to the date fixed for redemption at The Bank of New York Trust Company, N.A., as set forth below. Redemption date: June 11, 2008. Principal Principal Maturity Amount Amount Date Outstanding To Be Refunded August 15, 2008 $90,000 $90,000 August 15, 2009 80,000 80,000 August 15, 2010 15,000 15,000 August 15, 2011 25,000 25,000 $210,000 $210,000 On June 11, 2008, interest on the Refunded Series 1991 Bonds so called for redemption shall cease to accrued and be payable. City of The Colony, Texas Waterworks and Sewer System Revenue Bonds, Series 1995, dated September 1, 1995, maturing August 15, 2008, through August 15, 2015, in the aggregate principal amount of $525,000 (the "Refunded Series 1995 Bonds"), at the redemption price of the principal amount of Refunded Series 1995 Bonds called for redemption plus accrued interest thereon to the date fixed for redemption at The Bank of New York Trust Company, N.A., as set forth below. Redemption date: June 11, 2008. Principal Principal Maturity Amount Amount Date Outstanding To Be Refunded August 15, 2008 $55,000 $55,000 August 15, 2009 55,000 55,000 August 15, 2010 60,000 60,000 August 15, 2011 65,000 65,000 August 15, 2012 65,000 65,000 August 15, 2013 70,000 70,000 August 15, 2014 75,000 75,000 August 15, 2015 80,000 80,000 $525,000 $525,000 On June 11, 2008, interest on the Refunded Series 1995 Bonds so called for redemption shall cease to accrued and be payable. ' City of The Colony, Texas Waterworks and Sewer System Revenue Bonds, Series 1996-A, dated September 1, 1996, maturing August 15, 2008, through August 15, 2016, in the aggregate principal amount of $470,000 (the "Refunded Series 1996-A Bonds"), at the redemption price of the principal amount of Refunded Series 1996-A Bonds called for redemption plus accrued interest thereon to the date fixed for redemption at The Bank of New York Trust Company, N.A., as set forth below. Redemption date: June 11, 2008. Principal Principal Maturity Amount Amount Date Outstanding To Be Refunded August 15, 2008 $40,000 $40,000 August 15, 2009 45,000 45,000 August 15, 2010 45,000 45,000 August 15, 2011 50,000 50,000 August 15, 2012 50,000 50,000 August 15, 2013 55,000 55,000 August 15, 2014 60,000 60,000 August 15, 2015 60,000 60,000 August 15, 2016 65,000 65,000 $470,000 $470,000 On June 11, 2008, interest on the Refunded Series 1996-A Bonds so called for redemption shall cease to accrued and be payable. City of The Colony, Texas Waterworks and Sewer System Revenue Bonds, Series 1996-B, dated September 1, 1996, maturing August 15, 2008, through August 15, 2016, in the aggregate principal amount of $305,000 (the "Refunded Series 1996-B Bonds"), at the redemption price of the principal amount of Refunded Series 1996-B Bonds called for redemption plus accrued interest thereon to the date fixed for redemption at The Bank of New York Trust Company, N.A., as set forth below. Redemption date: June 11, 2008. Principal Principal Maturity Amount Amount Date Outstanding To Be Refunded August 15, 2008 $25,000 $25,000 August 15, 2009 30,000 30,000 August 15, 2010 30,000 30,000 August 15, 2011 30,000 30,000 August 15, 2012 35,000 35,000 August 15, 2013 35,000 35,000 August 15, 2014 40,000 40,000 August 15, 2015 40,000 40,000 August 15, 2016 40,000 40,000 $305,000 $305,000 On June 11; 2008, interest on the Refunded Series 1996-B Bonds so called for redemption shall cease to accrued and be payable. City of The Colony, Texas Waterworks and Sewer System Revenue Bonds, Series 1998, dated January 15, 1998, maturing August 15, 2009, through August 15, 2018, in the aggregate principal amount of $1,900,000 (the "Refunded Series 1998 Bonds"), at the redemption price of the principal amount of Refunded Series 1998 Bonds called for redemption plus accrued interest thereon to the date fixed for redemption at The Bank of New York Trust Company, N.A., as set forth below. Redemption date: June 11, 2008. Principal Principal Maturity Amount Amount Date Outstanding To Be Refunded August 15, 2009 $155,000 155,000 August 15, 2010 160,000 160,000 August 15, 2011 170,000 170,000 August 15, 2012 175,000 175,000 August 15, 2013 185,000 185,000 August 15, 2014 195,000 195,000 August 15, 2015 200,000 200,000 August 15, 2016 210,000 210,000 August 15, 2017 220,000 220,000 August 15, 2018 230,000 230,000 $1,900,000 $1,900,000 On June 11, 2008, interest on the Refunded Series 1998 Bonds so called for redemption shall cease to accrued and be payable. THE REFUNDED BONDS shall be redeemed at The Bank of New York Trust company, N.A., as the Paying Agent/Registrar for said Refunded Bonds. Upon presentation of the Refunded Bonds at the Paying Agent/Registrar on the aforementioned redemption date, the registered owner thereof shall be entitled to receive the redemption price equal to par and accrued interest to the redemption date. NOTICE IS FURTHER GIVEN that due and proper arrangements have been made for providing the place of payment of the Refunded Bonds called for redemption with funds sufficient to pay the principal amount of the Refunded Bonds and the interest thereon to the redemption date. In the event the Refunded Bonds are not presented for redemption by the respective date fixed for their redemption, they shall not thereafter bear interest. UNDER THE PROVISIONS of Section 3406 of The Internal Revenue Code of 1986, as amended (the" Act"), paying agents making payments of interest and principal on municipal securities may be obligated to withhold a tax from remittance to individuals who have failed to furnish the paying agent with a valid taxpayer identification number. Bondholders who wish to avoid the imposition of the tax should submit certified taxpayer identification numbers (via form W-9) when presenting the Refunded Bonds for payment. THIS NOTICE is issued and given pursuant to the redemption provisions in the proceedings authorizing the issuance of the Refunded Bonds and in accordance with the recitals and provisions of each of the Refunded Bonds, respectively. NOTICE IS FURTHER GIVEN that the Refunded Bonds should be submitted to the following address: Mail Delivery or Hand Delivery The Bank of New York Corporate Trust Operations 111 Sanders Creek Parkway E. Syracuse, N.Y. 13057 CITY OF THE COLONY, TEXAS