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G-02-05-09-15B1 - 5/9/2002
CERTIFICATE FOR ORDINANCE NO. G -02-05-09-15B1 THE STATE OF TEXAS § COUNTIES OF WILLIAMSON AND TRAVIS § CITY OF ROUND ROCK § The undersigned City Secretary of the City of Round Rock, Texas (the "City"), hereby certify as follows: 1. The City Council of the City convened in a REGULARLY SCHEDULED MEETING ON THE 9TH DAY OF MAY, 2002, at the designated meeting place (the "Meeting"), and the roll was called of the duly constituted officers and members of the Council, to -wit:: Robert Stluka, Mayor Tom Nielson, Mayor Pro -tem, Place 1 Alan McGraw, Place 2 Carrie Pitt, Place 3 Earl Palmer, Place 4 Isabel Gallahan, Place 5 Gary Coe, Place 6 Christine Martinez, City Secretary and all of the persons were present, except the following absentees: %/0/YI NIELSoN thus constituting a quorum. Whereupon, among other business, the following was transacted at the Meeting: a written ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF ROUND ROCK, TEXAS GENERAL OBLIGATION AND REFUNDING BONDS, SERIES 2002; LEVYING AN AD VALOREM TAX IN SUPPORT OF THE BONDS; APPROVING A PAYING AGENT/REGISTRAR AGREEMENT, AN OFFICIAL STATEMENT, A BOND PURCHASE AGREEMENT AND AN ESCROW AGREEMENT; CALLING CERTAIN OBLIGATIONS FOR REDEMPTION AND AUTHORIZING OTHER MATTERS RELATING TO THE BONDS was duly introduced for the consideration of the City Council. It was then duly moved and seconded that the Ordinance be passed; and, after due discussion, said motion carrying with it the passage of the Ordinance, prevailed and carried by the following vote: AYES: NOES: 0 RROCK\GO&Refg2002: OrdinanceCert 2. A true, full and correct copy of the Ordinance passed at the Meeting described in the above and foregoing paragraph is attached to and follows this Certificate; that the Ordinance has been duly recorded in the City Council's minutes of the Meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the City Council's minutes of the Meeting pertaining to the passage of the Ordinance; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting city officials as indicated therein; that each of the elected officials and members of the City Council was duly and sufficiently notified officially and personally, in advance, of the time, place and purpose of the Meeting, and that the Ordinance would be introduced and considered for passage at the Meeting, and each of the elected officials and members consented, in advance, to the holding of the Meeting for such purpose, and that the Meeting was open to the public and public notice of the time, place and purpose of the meeting was given, all as required by Chapter 551, Government Code, as amended. 3. The Mayor of the City has approved and hereby approves the Ordinance and the Mayor and the City Secretary of the City have duly signed the Ordinance. RROCK\GO&Refg2002: OrdinanceCen 2 SIGNED AND SEALED the alibitih;LO Vnatn:lit City Secretary [CITY SEAL] RROCK\GO&Refg2002: OrdinanceCert 3 ORDINANCE NO. G -02-05-09-15B1 ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF ROUND ROCK, TEXAS GENERAL OBLIGATION AND REFUNDING BONDS, SERIES 2002; LEVYING AN AD VALOREM TAX IN SUPPORT OF THE BONDS; APPROVING A PAYING AGENT/REGISTRAR AGREEMENT, AN OFFICIAL STATEMENT, A BOND PURCHASE AGREEMENT AND AN ESCROW AGREEMENT; CALLING CERTAIN OBLIGATIONS FOR REDEMPTION AND AUTHORIZING OTHER MATTERS RELATING TO THE BONDS THE STATE OF TEXAS § COUNTIES OF WILLIAMSON AND TRAVIS § CITY OF ROUND ROCK § WHEREAS, at an election held within the City of Round Rock, Texas (the "City") on November 6, 2001 the voters of the City authorized the City Council of the City to issue in one or more series the bonds set forth in proposition numbers 1, 2, 3 and 4 set forth below, which aggregate $89,800,000 in aggregate principal amount; and WHEREAS, the City Council deems it to be in the best interest of the City to issue $16,345,000 from Proposition No. 1 for the purpose of constructing, improving, extending, expanding, upgrading and/or developing City street, bridges and intersections including, utility relocation, sidewalks, traffic safety and operational improvements, the purchase of any necessary right-of-way, drainage improvements and other related costs, reserving the right to issue the remaining $25,155,000 bonds authorized by Proposition No. 1; and WHEREAS, the City Council deems it to be in the best interest of the City to issue $6,125,000 from Proposition No. 2 for the purpose of constructing, acquiring, improving, renovating, equipping, and/or developing land and buildings for City park and recreational purposes including parkland, scenic easement, trail acquisition, pedestrian and bike trail improvements, a recreation center and a senior citizen center and other related costs, reserving the right to issue the remaining $11,175,000 bonds authorized by Proposition No. 2; and WHEREAS, the City Council deems it to be in the best interest of the City to issue $6,730,000 from Proposition No. 3 for the purpose of constructing, improving, renovating and equipping City police and fire department facilities including the acquisition of necessary sites and other related costs, reserving the right to issue the remaining $5,470,000 bonds authorized by Proposition No. 3; and WHEREAS, the City Council deems it to be in the best interest of the City to issue $5,800,000 from Proposition No. 4 for the purpose of constructing, improving, renovating, expanding and equipping Municipal Office Campus Phase II and Public Works Building expansion RROCK\GO&RefgBonds2002: Ordinance including acquisition of necessary sites and related water, wastewater, drainage, streets, sidewalks and parking infrastructure and other related costs, reserving the right to issue the remaining $13,000,000 bonds authorized by Proposition No. 4; and WHEREAS, the City has duly issued and there is now outstanding the following obligations: City of Round Rock, Texas General Obligation Bonds, Series 1987 (the "Series 1987 Bonds"); City of Round Rock, Texas Combination Tax and Revenue Certificates of Obligation, Series 1993 (the "Series 1993 Certificates"); and City of Round Rock, Texas General Obligation Refunding Bonds, Series 1993 (the "Series 1993 Bonds"); WHEREAS, the City now desires to refund the Series 1987 Certificates maturing August 1, 2006 in the aggregate principal amount of $330,000, the Series 1993 Certificates maturing August 15 in each of the years 2003 through 2010, inclusive, in the aggregate principal amount of $2,145,000 and the Series 1993 Bonds maturing August 15 in each of the years 2003 through 2009, inclusive, in the aggregate principal amount of $7,975,000; (collectively, the "Refunded Obligations"); and WHEREAS, the City Council of the City deems it advisable and in the best interest of the City to refund the Refunded Obligations in order to achieve a gross savings of $459,244.09 and a net present value savings of $186,317.22 and the City further finds that the aggregate amount of payments under the Refunded Obligations exceeds the aggregate amount of payments under the refunding bonds by $88,135.53; and WHEREAS, Chapter 1207, Texas Government Code, as amended ("Chapter 1207") authorizes the City to issue refunding bonds and to deposit the proceeds from the sale thereof together with any other available funds or resources, directly with a place of payment (paying agent) for the Refunded Obligations, 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 Obligations; and WHEREAS, Chapter 1207 further authorizes the City to enter into an escrow agreement with a paying agent for the Refunded Obligations with respect to the safekeeping, investment, reinvestment, administration and disposition of any such deposit, upon such terms and conditions as the City and such paying agent may agree, provided that such deposits may be invested and reinvested in Defeasance Securities, as defined herein; and WHEREAS, the Escrow Agreement hereinafter authorized, constitutes an agreement of the kind authorized and permitted by said Chapter 1207; and RROCK\GO&RefgBonds2002. Ordinance 2 WHEREAS, all the Refunded Obligations mature or are subject to redemption prior to maturity within 20 years of the date of the bonds hereinafter authorized; and WHEREAS, the City deems it appropriate to call for redemption the following Refunded Obligations: REFUNDED OBLIGATIONS REDEMPTION DATE REDEMPTION PRICE Series 1987 Bonds maturing on August 1, 2006 August 1, 2002 Par Series 1993 Certificates maturing on August 15 of each of the years 2003 through 2010, inclusive August 15, 2002 Par Series 1993 Bonds maturing on August 15 of each of the years 2003 through 2009, inclusive August 15, 2002 Par NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF ROUND ROCK, TEXAS: Section 1. RECITALS, AMOUNT AND PURPOSE OF THE BONDS. The recitals set forth in the preamble hereof are incorporated herein and shall have the same force and effect as if set forth in this section. The bond or bonds of the City are hereby authorized to be issued pursuant to Chapters 1207 and 1331, Texas Government Code, as amended and delivered in the aggregate principal amount of $45,465,000,: (i) to provide $35,000,000 in funds for the capital projects as set forth in the preamble to this Ordinance and pay certain of the costs of issuance and (ii) $10,465,000 to refund the Refunded Obligations and pay certain of the costs of issuance of the Bonds. Section 2. DESIGNATION, DATE, DENOMINATIONS, NUMBERS AND MATURITIES OF BONDS. Each bond issued pursuant to this Ordinance shall be designated: "CITY OF ROUND ROCK, TEXAS GENERAL OBLIGATION AND REFUNDING BOND, SERIES 2002" and initially there shall be issued, sold, and delivered hereunder fully registered bonds, without interest coupons, dated May 1, 2002, in the respective denominations and principal amounts hereinafter stated, numbered consecutively from R-1 upward (except the initial Bond submitted to the Attorney General of the State of Texas which will be numbered T-1), payable to the respective initial registered owners thereof (as designated in Section 12 hereof), or to the registered assignee or assignees of the Bonds or any portion or portions thereof (in each case, the "Registered Owner"), and the Bonds shall mature and be payable serially on August 15 in each of the years and in the principal amounts, respectively, as set forth in the following schedule: RROCK\GO&RefgBonds2002: Ordinance 3 YEARS AMOUNTS YEARS AMOUNTS 2003 $1,265,000 2014 $1,305,000 2004 2,695,000 2015 1,365,000 2005 3,185,000 2016 1,440,000 2006 2,155,000 2017 1,520,000 2007 2,640,000 2018 1,600,000 2008 1,590,000 2019 1,680 000 2009 1,400,000 2020 1,765,000 2010 1,120,000 2021 1,855,000 2011 1,150,000 2022 1,950,000 2012 1,200,000 2025 6,465,000 2013 1,250,000 2027 4,870,000 The term "Bonds" as used in this Ordinance shall mean and include collectively the bonds initially issued and delivered pursuant to this Ordinance and all substitute bonds exchanged therefor, as well as all other substitute bonds and replacement bonds issued pursuant hereto, and the term "Bond" shall mean any of the Bonds. Section 3. INTEREST. The Bonds scheduled to mature during the years, respectively, set forth below shall bear interest from the dates specified in the FORM OF BOND set forth in this Ordinance to their respective dates of maturity at the following rates per annum: YEARS RATES YEARS RATES 2003 3.250% 2014 4.500% 2004 3.500 2015 5.500 2005 3.500 2016 5.500 2006 5.000 2017 5.500 2007 5.000 2018 5.000 2008 5.000 2019 5.000 2009 4.000 2020 5.125 2010 4.500 2021 5.125 2011 4.500 2022 5.125 2012 4.300 2025 5.000 2013 4.400 2027 5.000 Interest shall be payable in the manner provided and on the dates stated in the FORM OF BOND set forth in this Ordinance. RROCK\GO&RefgBonds2002: Ordinance 4 Section 4. CHARACTERISTICS OF THE BONDS. (a) Registration, Transfer, Conversion and Exchange; Authentication. The City shall keep or cause to be kept at JPMorgan Chase Bank, Dallas, Texas (the "Paying Agent/Registrar") books or records for the registration of the transfer, conversion and exchange of the Bonds (the "Registration Books"), and the City hereby appoints the Paying Agent/Registrar as its registrar and transfer agent to keep such books or records and make such registrations of transfers, conversions and exchanges under such reasonable regula- tions as the City and Paying Agent/Registrar may prescribe; and the Paying Agent/Registrar shall make such registrations, transfers, conversions and exchanges as herein provided within three days of presentation in due and proper form. The Paying Agent/Registrar shall obtain and record in the Registration Books the address of the Registered Owner of each Bond to which payments with respect to the Bonds shall be mailed, as herein provided; but it shall be the duty of each Registered Owner to notify the Paying Agent/Registrar in writing of the address to which payments shall be mailed, and such interest payments shall not be mailed unless such notice has been given. The City shall have the right to inspect the Registration Books during regular business hours of the Paying Agent/Registrar, but otherwise the Paying Agent/Registrar shall keep the Registration Books confidential and, unless otherwise required by law, shall not permit their inspection by any other entity. The Paying Agent/Registrar shall make a copy of the Registration Books available in the State of Texas. The City shall pay the Paying Agent/Registrar's standard or customary fees and charges for making such registration, transfer, conversion, exchange and delivery of a substitute Bond or Bonds. Registration of assignments, transfers, conversions and exchanges of Bonds shall be made in the manner provided and with the effect stated in the FORM OF BOND 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 4(c) hereof, an authorized representative of the Paying Agent/Registrar shall, before the delivery of any such Bond, date and manually sign the 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 all paid Bonds and Bonds surrendered for conversion and exchange. No additional orders, orders, or resolutions need be passed or adopted by the govern- ing body of the City or any other body or person so as to accomplish the foregoing conversion and exchange of any Bond or portion thereof, and the Paying Agent/Registrar shall provide for the printing, execution, and delivery of the substitute Bonds in the manner prescribed herein, and the Bonds shall be of type composition printed on paper with lithographed or steel engraved borders of customary weight and strength. Pursuant to Chapter 1201, Texas Government Code, as amended, and particularly Subchapter D thereof, the duty of conversion and exchange of Bonds as aforesaid is hereby imposed upon the Paying Agent/Registrar, and, upon the execution of the Bond, the converted and exchanged Bond shall be valid, incontestable, and enforceable in the same manner and with the same effect as the Bonds which initially were issued and delivered pursuant to this Ordinance, approved by the Attorney General, and registered by the Comptroller of Public Accounts. (b) Payment of Bonds and Interest. The City hereby further appoints the Paying Agent/Registrar to act as the paying agent for paying the principal of and interest on the Bonds, all as provided in this Ordinance. The Paying Agent/Registrar shall keep proper records of all payments made by the City and the Paying Agent/Registrar with respect to the Bonds, and of all conversions RROCK\GO&RefgBonds2002: Ordinance 5 and exchanges of Bonds, and all replacements of Bonds, 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 City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (which shall be 15 days after the Special Record Date) shall be sent at least five (5) business days prior to the Special Record Date by United States mail, first-class postage prepaid, to the address of each Registered Owner 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 Bonds (i) shall be issued in fully registered form, without interest coupons, with the principal of and interest on such Bonds to be payable only to the Registered Owners thereof, (ii) may be transferred and assigned, (iii) may be converted and exchanged for other Bonds, (iv) shall have the characteristics, (v) shall be signed, sealed, executed and authenticated, (vi) the principal of and interest on the Bonds shall be payable, and (vii) shall be administered and the Paying Agent/Registrar and the City shall have certain duties and responsibilities with respect to the Bonds, all as provided, and in the manner and to the effect as required or indicated, in the FORM OF BOND set forth in this Ordinance. The Bonds initially issued and delivered pursuant to this Ordinance are not required to be, and shall not be, authenticated by the Paying Agent/Registrar, but on each substitute Bond issued in conversion of and exchange for any Bond or Bonds issued under this Ordinance the Paying Agent/Registrar shall execute the PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE, in the form set forth in the FORM OF BOND. (d) Substitute Paying Agent/Registrar. The City covenants with the Registered Owners of the Bonds that at all times while the Bonds are outstanding the City will provide a competent and legally qualified bank, trust company, financial institution, or other agency to act as and perform the services of Paying Agent/Registrar for the Bonds under this Ordinance, and that the Paying Agent/Registrar will be one entity. The City reserves the right to, and may, at its option, change the Paying Agent/Registrar upon not less than 30 days written notice to the Paying Agent/Registrar, to be effective at such time which will not disrupt or delay payment on 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 City 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 Bonds, to the new Paying Agent/Registrar designated and appointed by the City. Upon any change in the Paying Agent/Registrar, the City promptly will cause a written notice thereof to be sent by the new Paying Agent/Registrar to each Registered Owner of the Bonds, 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. RROCK\GO&RefgBonds2002: Ordinance 6 (e) Book -Entry -Only System. The Bonds issued in exchange for the Bonds initially issued as provided in Section 4(h) shall be issued in the form of a separate single fully registered Bond for each of the maturities thereof registered in the name of Cede & Co., as nominee of The Depository Trust Company of New York ("DTC") and except as provided in subsection (0 hereof, all of the outstanding Bonds shall be registered in the name of Cede & Co., as nominee of DTC. With respect to Bonds registered in the name of Cede & Co., as nominee of DTC, the City and the Paying Agent/Registrar shall have no responsibility or obligation to any securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities transactions among DTC participants (the "DTC Participant") or to any person on behalf of whom such a DTC Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence, the City and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any DTC Participant or any other person, other than a Registered Owner, as shown on the Registration Books, of any notice with respect to the Bonds, or (iii) the payment to any DTC Participant or any person, other than a Registered Owner, as shown on the Registration Books of any amount with respect to principal of or interest on the Bonds. Notwithstanding any other provision of this Ordinance to the contrary, but to the extent permitted by law, the City and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Bond is registered in the Registration Books as the absolute owner of such Bond for the purpose of payment of principal of and interest, with respect to such Bond, for the purposes of registering transfers with respect to such Bond, and for all other purposes of registering transfers with respect to such Bonds, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of and interest on the Bonds only to or upon the order of the respective Registered Owners, as shown in the Registration Books as provided in this Ordinance, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of principal of and interest on the Bonds to the extent of the sum or sums so paid. No person other than a Registered Owner, as shown in the Registration Books, shall receive a Bond evidencing the obligation of the City to make payments of principal, and interest pursuant to this Ordinance. Upon delivery by DTC to the Paying Agent/Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions in this Ordinance with respect to interest checks being mailed to the registered owner at the close of business on the Record Date the word "Cede & Co." in this Ordinance shall refer to such new nominee of DTC. (0 Successor Securities Depository; Transfer Outside Book -Entry -Only System. In the event that the City determines to discontinue the book -entry system through DTC or a successor or DTC determines to discontinue providing its services with respect to the Bond, the City shall either (i) appoint a successor securities depository, qualified to act as such under Section 17(a) of the Securities and Exchange Act of 1934, as amended, notify DTC and DTC Participants of the appointment of such successor securities depository and transfer one or more separate Bonds to such successor securities depository or (ii) notify DTC and DTC Participants of the availability through RROCK\GO&RefgBonds2002: Ordinance 7 DTC of Bonds and transfer one or more separate Bonds to DTC Participants having Bonds credited to their DTC accounts. In such event, the Bonds shall no longer be restricted to being registered in the Registration Books in the name of Cede & Co., as nominee of DTC, but maybe registered in the name of the successor securities depository, or its nominee, or in whatever name or names the Registered Owner transferring or exchanging Bond shall designate, in accordance with the provisions of this Ordinance. (g) Payments to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, so long as any Bond is registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, and interest on such Bond and all notices with respect to such Bond shall be made and given, respectively, in the manner provided in the Letter of Representations of the City to DTC. (h) DTC Blanket Letter of Representations. The City confirms execution of a Blanket Issuer Letter of Representations with DTC establishing the Book -Entry -Only System which will be utilized with respect to the Bonds. (i) Cancellation of Initial Bond. On the closing date, one initial Bond representing the entire principal amount of the Bonds, payable in stated installments to the order of the Underwriter of the Bonds or its designee set forth in Section 12 of this Ordinance, executed by manual or facsimile signature of the Mayor and City Secretary, approved by the Attorney General of Texas, and registered and manually signed by the Comptroller of Public Accounts of the State of Texas, will be delivered to such Underwriters set forth in Section 12 of this Ordinance or its designee. Upon payment for the initial Bond, the Paying Agent/Registrar shall cancel the initial Bond and deliver to DTC on behalf of such underwriter one registered definitive Bond for each year of maturity of the Bonds, in the aggregate principal amount of all the Bonds for such maturity. Section 5. FORM OF BOND. The form of the Bond, including the form of Paying Agent/Registrar's Authentication Certificate, the form of Assignment, the form of initial Bond and the form of Registration Certificate of the Comptroller of Public Accounts of the State of Texas to be attached to the Bonds initially issued and delivered pursuant to this Ordinance, shall be, respec- tively, substantially as follows, with such appropriate variations, omissions, or insertions as are permitted or required by this Ordinance including any reproduction of an opinion of counsel and information regarding the issuance of any bond insurance policy. NO. R - FORM OF BOND UNITED STATES OF AMERICA PRINCIPAL STATE OF TEXAS AMOUNT WILLIAMSON AND TRAVIS COUNTIES $ CITY OF ROUND ROCK, TEXAS GENERAL OBLIGATION AND REFUNDING BOND SERIES 2002 RROCK\GO&RefgBonds2002: Ordinance 8 INTEREST RATE DATE OF BOND MATURITY DATE CUSIP NO. May 1, 2002 REGISTERED OWNER: PRINCIPAL AMOUNT: DOLLARS ON THE MATURITY DATE specified above, ROUND ROCK, TEXAS (the "City"), being a political subdivision of the State of Texas, hereby promises to pay to the Registered Owner set forth above, or registered assigns (hereinafter called the "Registered Owner") the principal amount set forth above, and to pay interest thereon from May 1, on February 15, 2003 and semiannually thereafter on each August 15 and February 15 to the maturity date specified above, or the date of redemption prior to maturity, at the interest rate per annum specified above calculated on the basis of a 360 -day year of twelve 30 -day months; except that if this Bond is required to be authenticated and the date of its authentication is later than the first Record Date (hereinafter defined), such principal amount shall bear interest from the interest payment date next preceding the date of authentication, unless such date of authentication is after any Record Date but on or before the next following interest payment date, in which case such principal amount shall bear interest from such next following interest payment date; provided, however, that if on the date of authentication hereof the interest on the Bond or Bonds, if any, for which this Bond is being exchanged or converted from is due but has not been paid, then this Bond shall bear interest from the date to which such interest has been paid in full. Notwithstanding the foregoing, during any period in which ownership of the Bonds is determined only by a book entry at a securities depository for the Bonds, any payment to the securities depository, or its nominee or registered assigns, shall be made in accordance with existing arrangements between the City and the securities depository. THE PRINCIPAL OF AND INTEREST ON this Bond are payable in lawful money of the United States of America, without exchange or collection charges. The principal of this Bond shall be paid to the Registered Owner hereof upon presentation and surrender of this Bond at maturity or upon the date fixed for its redemption prior to maturity, at JPMorgan Chase Bank (the "Paying Agent/Registrar") at their office for payment in Dallas, Texas (the "Designated Payment/Transfer Office"). The payment of interest on this Bond shall be made by the Paying Agent/Registrar to the Registered Owner hereof on each interest payment date by check or draft, dated as of such interest payment date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the City required by the ordinance authorizing the issuance of this Bond (the "Bond Ordinance") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided; and such check or draft shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, on each such interest payment date, to the Registered Owner hereof, at its address as it appeared on the close of business on the last day of the month next preceding each such date (the "Record Date") on the registration books kept by the Paying Agent/Registrar (the "Registration Books"). In addition, RROCK\GO&RefgBonds2002. Ordinance 9 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 City. 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. DURING ANY PERIOD in which ownership of the Bonds is determined only by a book entry at a securities depository for the Bonds, if fewer than all of the Bonds of the same maturity and bearing the same interest rate are to be redeemed, the particular Bonds of such maturity and bearing such interest rate shall be selected in accordance with the arrangements between the City and the securities depository. ANY ACCRUED INTEREST due at maturity as provided herein shall be paid to the Registered Owner upon presentation and surrender of this Bond for payment at the Designated Payment/Transfer Office of the Paying Agent/Registrar. The City covenants with the Registered Owner of this Bond that on or before each 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 Bonds, when due. IF THE DATE for the payment of the principal of or interest on this Bond shall be a Saturday, Sunday, a legal holiday, or a day on which banking institutions in the City where the 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 which 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 one of a series of Bonds dated May 1, 2001, authorized in accordance with the Constitution and laws of the State of Texas in the principal amount of $45,465,000 TO: (i) REFUND THE REFUNDED OBLIGATIONS, (ii) FINANCE THE PROJECTS AS SET FORTH IN THE ORDINANCE AND (iii) PAY THE COSTS OF ISSUANCE. ON FEBRUARY 15, 2012, or on any date thereafter, the Bonds of this Series maturing on and after August 15, 2012 may be redeemed prior to their scheduled maturities, at the option of the City, with funds derived from any available and lawful source, at par plus accrued interest to the date fixed for redemption as a whole, or from time to time in part, and, if in part, the particular maturities to be redeemed shall be selected and designated by the City and if less than all of a maturity is to be redeemed, the Paying Agent/Registrar shall determine by lot the Bonds, or a portion thereof, within RROCK\GO&RefgBonds2002: Ordinance 10 such maturity to be redeemed (provided that a portion of a Bond may be redeemed only in an integral multiple of $5,000). THE BONDS MATURING ON AUGUST 15, 2025 AND AUGUST 15, 2027 are subject to mandatory sinking fund redemption by lot prior to maturity in the following amounts, on the following dates and at a price of par plus accrued interest to the redemption date. Bonds Maturing on August 15, 2025 Redemption Date Principal Amount August 15, 2023 $2,050,000 August 15, 2024 2,155,000 August 15, 2025* 2,260,000* *Final maturity Bonds Maturing on August 15, 2027 Redemption Date Principal Amount August 15, 2026 $2,375,000 August 15, 2027* 2,495,000* *Final maturity THE PRINCIPAL AMOUNT of the Bonds required to be redeemed pursuant to the operation of the mandatory sinking fund redemption provisions shall be reduced, at the option of the City by the principal amount of any Bonds of the stated maturity which, at least 50 days prior to a mandatory redemption date, (1) shall have been acquired by the City at a price not exceeding the principal amount of such Bonds plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation, (2) shall have been purchased and cancelled by the Paying Agent/Registrar at the request of the City with monies in the Interest and Sinking Fund at a price not exceeding the principal amount of the Bonds plus accrued interest to the date of purchase thereof, or (3) shall have been redeemed pursuant to the optional redemption provisions and not theretofore credited against a mandatory sinking fund redemption requirement. NO LESS THAN 30 days prior to the date fixed for any such redemption, the City shall cause the Paying Agent/Registrar to send notice by United States mail, first-class postage prepaid to the Registered Owner of each Bond to be redeemed at its address as it appeared on the Registration Books of the Paying Agent/Registrar at the close of business on the 45th day prior to the redemption date and to major securities depositories, national bond rating agencies and bond information services; provided, however, that the failure to send, mail or 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 Bonds. By the date fixed for any such redemption due RROCK\GO&RefgBonds2002: Ordinance 11 provision shall be made with the Paying Agent/Registrar for the payment of the required redemption price for the Bonds or portions thereof which are to be so redeemed. If due provision for such payment is made, all as provided above, the Bonds or portions thereof which 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 Bonds shall be redeemed a substitute Bonds or Bonds having the same maturity date, bearing interest at the same rate, in any denomination or denominations in any integral multiple of $5,000, 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 City, all as provided in the Bond Ordinance. ALL BONDS OF THIS SERIES are issuable solely as fully registered Bonds, without interest coupons, in the denomination of any integral multiple of $5,000. As provided in the Bond Ordinance, this Bond, or any unredeemed portion hereof, may, at the request of the Registered Owner or the assignee or assignees hereof, be assigned, transferred, converted into and exchanged for a like aggregate principal amount of fully registered Bonds, without interest coupons, payable to the appropriate Registered Owner, assignee or assignees, as the case may be, having the same denomination or denominations in any integral multiple of $5,000 as requested in writing by the appropriate Registered Owner, assignee or assignees, as the case may be, upon surrender of this Bond to the Paying Agent/Registrar 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 instru- ments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment of this Bond or any portion or portions hereof in any integral multiple of $5,000 to the assignee or assignees in whose name or names this Bond or any such portion or portions hereof is or are to be registered. The form of Assignment printed or endorsed on this Bond may be executed by the Registered Owner to evidence the assignment hereof, but such method is not exclusive, and other instruments of assignment satisfactory to the Paying Agent/Registrar may be used to evidence the assignment of this Bond or any portion or portions hereof from time to time by the Registered Owner. The 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 City. In any circumstance, any taxes or governmental charges required to be paid with respect thereto shall be paid by the one requesting such assignment, transfer, conversion or exchange, as a condition precedent to the exercise of such privilege. The Paying Agent/Registrar shall not be required to make any such transfer, conversion, or exchange during the period commencing on the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date. WHENEVER the beneficial ownership of this Bond is determined by a book entry at a securities depository for the Bonds, the foregoing requirements of holding, delivering or transferring this Bond shall be modified to require the appropriate person or entity to meet the requirements of the securities depository as to registering or transferring the book entry to produce the same effect. RROCK\GO&RefgBonds2002: Ordinance 12 IN THE EVENT any Paying Agent/Registrar for the Bonds is changed by the City, resigns, or otherwise ceases to act as such, the City 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 Owners of the Bonds. 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; and that ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Bond, as such interest comes due, and as such principal matures, have been levied and ordered to be levied against all taxable property in the City, and have been pledged for such payment, within the limit prescribed by law. 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 City, and agrees that the terms and provisions of this Bond and the Bond Ordinance constitute a contract between each Registered Owner hereof and the City. IN WITNESS WHEREOF, the City has caused this Bond to be signed with the manual or facsimile signature of the Mayor of the City and countersigned with the manual or facsimile signature of the City Secretary and has caused the official seal of the City to be duly impressed, or placed in facsimile, on this Bond. City Secretary Mayor [CITY SEAL] 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, Bonds, or a portion of a Bond or Bonds of a Series which RROCKIGO&RefgBonds2002: Ordinance 13 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 JPMORGAN CHASE BANK Paying Agent/Registrar By Authorized Representative 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: RROCK\GO&RefgBonds2002: Ordinance 14 NOTICE: Signature(s) must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. NOTICE: The signature above must correspond with the name of the Registered Owner as it appears upon the front of this Bond in every particular, with- out alteration or enlargement or any change whatsoever. 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] INSERTIONS FOR THE INITIAL BOND The initial Bond shall be in the form set forth in this Section, except that: A. immediately under the name of the Bond, the headings "INTEREST RATE" and "MATURITY DATE" shall both be completed with the words "As shown below" and "CUSIP NO." shall be deleted. B. the first paragraph shall be deleted and the following will be inserted: "ON THE MATURITY DATE SPECIFIED ABOVE, the City of Round Rock, Texas (the "City"), being a political subdivision, hereby promises to pay to the Registered Owner specified above, or registered assigns (hereinafter called the "Registered Owner"), on August 15 in each of the years, in the principal installments and bearing interest at the per annum rates set forth in the following schedule: RROCK\GO&RefgBonds2002: Ordinance 15 Years Principal Installments Interest Rates (Information from Sections 2 and 3 to be inserted) The City promises to pay interest on the unpaid principal amount hereof (calculated on the basis of a 360 -day year oftwelve 30 -day months) from May 1, 2002 at the respective Interest Rate per annum specified above. Interest is payable on February 15, 2003 and semiannually on each August 15 and February 15 thereafter to the date of payment of the principal installment specified above; except, that if this Bond is required to be authenticated and the date of its authentication is later than the first Record Date (hereinafter defined), such principal amount shall bear interest from the interest payment date next preceding the date of authentication, unless such date of authentication is after any Record Date but on or before the next following interest payment date, in which case such principal amount shall bear interest from such next following interest payment date; provided, however, that if on the date of authentication hereof the interest on the Bond or Bonds, if any, for which this Bond is being exchanged is due but has not been paid, then this Bond shall bear interest from the date to which such interest has been paid in full." C. The initial Bond shall be numbered "T-1." Section 6. TAX LEVY. A special Interest and Sinking Fund (the "Interest and Sinking Fund") is hereby created solely for the benefit of the Bonds, and the Interest and Sinking Fund shall be established and maintained by the City at an official depository bank of the City. The Interest and Sinking Fund shall be kept separate and apart from all other funds and accounts of the City, and shall be used only for paying the interest on and principal of the Bonds. All ad valorem taxes levied and collected for and on account of the Bonds shall be deposited, as collected, to the credit of the Interest and Sinking Fund. During each year while any of the Bonds or interest thereon are outstanding and unpaid, the governing body of the City shall compute and ascertain a rate and amount of ad valorem tax which will be sufficient to raise and produce the money required to pay the interest on the Bonds as such interest comes due, and to provide and maintain a sinking fund adequate to pay the principal of the Bonds as such principal matures (but never less than 2% of the original principal amount of the Bonds as a sinking fund each year); and the tax shall be based on the latest approved tax rolls of the City, with full allowance being made for tax delinquencies and the cost of tax collection. The rate and amount of ad valorem tax is hereby levied, and is hereby ordered to be levied, against all taxable property in the City for each year while any of the Bonds or interest thereon are outstanding and unpaid; and the tax shall be assessed and collected each such year and deposited to the credit of the Interest and Sinking Fund. The ad valorem taxes sufficient to provide for the payment of the interest on and principal of the Bonds, as such interest comes due and such principal matures, are hereby pledged for such payment, within the limit prescribed by law. Accrued interest and any premium on the Bonds shall be deposited in the Interest and Sinking Fund. Any such premium shall be used to only pay principal of the Bonds. Chapter 1208, Texas Government Code, applies to the issuance of the Bonds and the pledge of the ad valorem taxes granted by the City under this Section, and is therefore valid, effective, and RROCK\GO&RefgBonds2002: Ordinance 16 perfected. If Texas law is amended at any time while the Bonds are outstanding and unpaid such that the pledge of the ad valorem taxes granted by the City under this Section is to be subject to the filing requirements of Chapter 9, Business & Commerce Code, then in order to preserve to the Owners of the Bonds the perfection of the security interest in said pledge, the City agrees to take such measures as it determines are reasonable and necessary under Texas law to comply with the applicable provisions of Chapter 9, Business & Commerce Code and enable a filing to perfect the security interest in said pledge to occur. Section 7. ESTABLISHMENT OF PROJECT FUND AND ESCROW FUND. (a) Project Fund. The Series 2002 Project Fund is hereby created and shall be established and maintained by the City at an official depository bank of the City. Proceeds from the sale of the Bonds, excluding the premium, if any, and accrued interest, shall be deposited in the Project Fund. (b) Investment of Funds. The City hereby covenants that the proceeds of the sale of the Bonds will be used as soon as practicable for the purposes for which the Bonds are issued. Obligations purchased as an investment of money in any fund shall be deemed to be a part of such fund. Any money in any fund created by this Ordinance may be invested as permitted by the Public Funds Investment Act, as amended and the City's Investment Policy. (c) Security for Funds. All funds created by this Ordinance shall be secured in the manner and to the fullest extent required by law for the security of funds of the City. (d) Maintenance of Funds. Any funds created pursuant to this Ordinance may be created as separate funds or accounts or as subaccounts of the City's General Fund held by the City's depository, and, as such, not held in separate bank accounts, such treatment shall not constitute a commingling of the monies in such funds or of such funds and the City shall keep full and complete records indicating the monies and investments credited to each such fund. (e) Escrow Fund. A portion of the proceeds of the Bonds, together with any cash contribution, in an amount necessary to refund the Refunded Obligations shall be deposited in the Escrow Fund created and governed by the terms of the Escrow Agreement dated May 1, 2002 attached hereto as Exhibit "A." (f) Interest Earnings. Interest earnings derived from the investment ofproceeds from the sale of the Bonds shall be used along with the Bond proceeds for the purpose for which the Bonds are issued as set forth in Section 1 hereof or to pay principal or interest payments on the Bonds; provided that after completion of such purpose, if any of such interest earnings remain on hand, such interest earnings shall be deposited in the Interest and Sinking Fund. It is further provided, however, that any interest earnings on bond proceeds which are required to be rebated to the United States of America pursuant to Section 11 hereof in order to prevent the Bonds from being arbitrage bonds shall be so rebated and not considered as interest earnings for the purposes of this Section. Section 8. DEFEASANCE OF BONDS. (a) Any Bond and the interest thereon shall be deemed to be paid, retired and no longer outstanding (a "Defeased Bond") within the meaning of this RROCK\GO&RefgBonds2002: Ordinance 17 Ordinance, except to the extent provided in subsections (c) and (e) of this Section, when payment of the principal of such Bond, plus interest thereon to the due date or dates (whether such due date or dates be by reason of maturity, upon redemption, or otherwise) either (i) shall have been made or caused to be made in accordance with the terms thereof (including the giving of any required notice of redemption) 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 for such payment (1) lawful money of the United States of America sufficient to make such payment, (2) Defeasance Securities, certified by an independent public accounting firm of national reputation to mature as to principal and interest in such amounts and at such times as will ensure the availability, without reinvestment, of sufficient money to provide for such payment and when proper arrangements have been made by the City with the Paying Agent/Registrar for the payment of its services until all Defeased Bonds shall have become due and payable or (3) any combination of (1) and (2). At such time as a Bond shall be deemed to be a Defeased Bond hereunder, as aforesaid, such Bond and the interest thereon shall no longer be secured by, payable from, or entitled to the benefits of, the ad valorem taxes herein levied as provided in this Ordinance, and such principal and interest shall be payable solely from such money or Defeasance Securities. (b) The deposit under clause (ii) of subsection (a) shall be deemed a payment of a Bond as aforesaid when proper notice of redemption of such Bonds shall have been given, in accordance with this Ordinance. Any money so deposited with the Paying Agent/Registrar as provided in this Section may at the discretion of the City Council also be invested in Defeasance Securities, maturing in the amounts and at the times as hereinbefore set forth, and all income from all Defeasance Securities in possession of the Paying Agent/Registrar pursuant to this Section which is not required for the payment of such Bond and premium, if any, and interest thereon with respect to which such money has been so deposited, shall be turned over to the City Council. (c) Notwithstanding any provision of any other Section of this Ordinance which may be contrary to the provisions of this Section, all money or Defeasance Securities set aside and held in trust pursuant to the provisions of this Section for the payment of principal of the Bonds and premium, if any, and interest thereon, shall be applied to and used solely for the payment of the particular Bonds and premium, if any, and interest thereon, with respect to which such money or Defeasance Securities have been so set aside in trust. Until all Defeased Bonds shall have become due and payable, the Paying Agent/Registrar shall perform the services of Paying Agent/Registrar for such Defeased Bonds the same as if they had not been defeased, and the City shall make proper arrangements to provide and pay for such services as required by this Ordinance. (d) Notwithstanding anything elsewhere in this Ordinance, ifmoney or Defeasance Securities have been deposited or set aside with the Paying Agent/Registrar pursuant to this Section for the payment of Bonds and such Bonds shall not have in fact been actually paid in full, no amendment of the provisions of this Section shall be made without the consent of the registered owner of each Bond affected thereby. (e) Notwithstanding the provisions of subsection (a) immediately above, to the extent that, upon the defeasance of any Defeased Bond to be paid at its maturity, the City retains the right under RROCK\GO&RefgBonds2002: Ordinance 18 Texas law to later call that Defeased Bond for redemption in accordance with the provisions of the Ordinance authorizing its issuance, the City may call such Defeased Bond for redemption upon complying with the provisions of Texas law and upon the satisfaction of the provisions of subsection (a) immediately above with respect to such Defeased Bond as though it was being defeased at the time of the exercise of the option to redeem the Defeased Bond and the effect of the redemption is taken into account in determining the sufficiency of the provisions made for the payment of the Defeased Bond. As used in this section, Defeasance Securities means (i) Federal Securities, (ii) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the City Council adopts or approves proceedings authorizing the issuance of refunding bonds or otherwise provide for the funding of an escrow to effect the defeasance of the Bonds are rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent, and (iii) noncallable obligations of a state or an agency or a City, municipality, or other political subdivision of a state that have been refunded and that, on the date the City Council adopts or approves proceedings authorizing the issuance of refunding bonds or otherwise provide for the funding of an escrow to effect the defeasance of the Bonds, are rated as to investment quality by a nationally recognized investment rating firm no less than "AAA" or its equivalent. "Federal Securities" as used herein means direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America (including Interest Strips of the Resolution Funding Corporation). Section 9. DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED BONDS. (a) Replacement Bonds. In the event any outstanding Bond is damaged, mutilated, lost, stolen, or destroyed, the Paying Agent/Registrar shall cause to be printed, executed, and delivered, a new Bond of the same principal amount, maturity, and interest rate, as the damaged, mutilated, lost, stolen, or destroyed Bond, in replacement for such Bond in the manner hereinafter provided. (b) Application for Replacement Bonds. Application for replacement of damaged, mutilated, lost, stolen, or destroyed Bonds shall be made by the Registered Owner thereof to the Paying Agent/Registrar. In every case of loss, theft, or destruction of a Bond, the Registered Owner applying for a replacement bond shall furnish to the City and to the Paying Agent/Registrar such security or indemnity as may be required by them to save each of them harmless from any loss or damage with respect thereto. Also, in every case of loss, theft, or destruction of a Bond, the Registered Owner shall furnish to the City and to the Paying Agent/Registrar evidence to their satisfaction of the loss, theft, or destruction of such Bond, as the case may be. In every case of damage or mutilation of a Bond, the 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 Section, in the event any such Bond shall have matured, and no default has occurred which is then continuing in the payment of the principal of, redemption premium, if any, or interest on the Bond, the City may authorize the payment of the same (without surrender thereof except in the case of a damaged or RROCK\GO&RefgBonds2002: Ordinance 19 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 Bonds. 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 City whether or not the lost, stolen, or destroyed Bond shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Ordinance equally and proportionately with any and all other Bonds duly issued under this Ordinance. (e) Authority for Issuing Replacement Bonds. In accordance with Subchapter D of Texas Government Code, Chapter 1201, this Section 9 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 City or any other body or person, and the duty of the replacement of such Bonds is hereby authorized and imposed upon the Paying Agent/Registrar, and the Paying Agent/Registrar shall authenticate and deliver such Bonds in the form and manner and with the effect, as provided in Section 4(a) of this Ordinance for Bonds issued in conversion and exchange for other Bonds. Section 10. CUSTODY, APPROVAL, AND REGISTRATION OF BONDS; BOND COUNSEL'S OPINION; CUSIP NUMBERS AND CONTINGENT INSURANCE PROVISION, IF OBTAINED. The Mayor of the City is hereby authorized to have control of the Bonds initially issued and delivered hereunder and all necessary records and proceedings pertaining to the Bonds pending their 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 Bonds the Comptroller of Public Accounts (or a deputy designated in writing to act for the Comptroller) shall manually sign the Comptroller's Registration Certificate attached to such Bonds, and the seal of the Comptroller shall be impressed, or placed in facsimile, on such Certificate. The approving legal opinion of the City's Bond Counsel and the assigned CUSIP numbers may, at the option of the City, be printed on the Bonds 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 Owners of the Bonds. In addition, if bond insurance or other credit enhancement is obtained, the Bonds may bear an appropriate legend. Section 11. COVENANTS REGARDING TAX EXEMPTION OF INTEREST ON THE BONDS. (a) Covenants. The City covenants to take any action necessary to assure, or refrain from any action which would adversely affect, the treatment of the Bonds as obligations described in section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), the interest on which is not includable in the "gross income" of the holder for purposes of federal income taxation. In furtherance thereof, the City covenants as follows: (1) to take any action to assure that no more than 10 percent of the proceeds of the Bonds or the projects financed therewith (less amounts deposited to a reserve fund, if any) RROCK\GO&RefgBonds2002. Ordinance 20 are used for any "private business use," as defined in section 141(b)(6) of the Code or, if more than 10 percent of the proceeds or the projects financed therewith are so used, such amounts, whether or not received by the City, with respect to such private business use, do not, under the terms of this Ordinance or any underlying arrangement, directly or indirectly, secure or provide for the payment of more than 10 percent of the debt service on the Bonds, 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 Bonds or the projects financed therewith (less amounts deposited into a reserve fund, if any) then the amount in excess of 5 percent is used for a "private business use" which is "related" and not "disproportionate," within the meaning of section 141(b)(3) of the Code, to the governmental use; (3) to take any action to assure that no amount which is greater than the lesser of $5,000,000, or 5 percent of the proceeds of the Bonds (less amounts deposited into a reserve fund, if any) is directly or indirectly used to finance loans to persons, other than state or local governmental units, in contravention of section 141(c) of the Code; (4) to refrain from taking any action which would otherwise result in the Bonds being treated as "private activity bonds" within the meaning of section 141(b) of the Code; (5) to refrain from taking any action that would result in the Bonds 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 Bonds, directly or indirectly, to acquire or to replace funds which were used, directly or indirectly, to acquire investment property (as defined in section 148(b)(2) of the Code) which produces a materially higher yield over the term of the Bonds, other than investment property acquired with -- (A) proceeds of the Bonds invested for a reasonable temporary period of 3 years or less or, in the case of a refunding bond, for a period of 30 days or less until such proceeds are needed for the purpose for which the bonds are issued, (B) amounts invested in a bona fide debt service fund, within the meaning of section 1.148-1(b) of the Treasury Regulations, and (C) amounts deposited in any reasonably required reserve or replacement fund to the extent such amounts do not exceed 10 percent of the proceeds of the Bonds; (7) to otherwise restrict the use of the proceeds of the Bonds or amounts treated as proceeds of the Bonds, as may be necessary, so that the Bonds do not otherwise contravene RROCK\GO&RefgBonds2002: Ordinance 21 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 Bonds) an amount that is at least equal to 90 percent of the "Excess Earnings," within the meaning of section 148(0 of the Code and to pay to the United States of America, not later than 60 days after the Bonds have been paid in full, 100 percent of the amount then required to be paid as a result of Excess Earnings under section 148(0 of the Code. (b) Rebate Fund. In order to facilitate compliance with the above covenant (8), a "Rebate Fund" is hereby established by the City for the sole benefit of the United States of America, and such fund shall not be subject to the claim of any other person, including without limitation the bondholders. The Rebate Fund is established for the additional purpose of compliance with section 148 of the Code. (c) Proceeds. The City understands that the term "proceeds" includes "disposition proceeds" as defined in the Treasury Regulations and, in the case of refunding bonds, transferred proceeds (if any) and proceeds of the refunded bonds expended prior to the date of issuance of the Bonds. It is the understanding of the City that the covenants contained herein are intended to assure compliance with the Code and any regulations or rulings promulgated by the U.S. Department of the Treasury pursuant thereto. In the event that regulations or rulings are hereafter promulgated which modify or expand provisions of the Code, as applicable to the Bonds, the City 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 Bonds under section 103 of the Code. In the event that regulations or rulings are hereafter promulgated which impose additional requirements which are applicable to the Bonds, the City agrees to comply with the additional requirements to the extent necessary, in the opinion of nationally recognized bond counsel, to preserve the exemption from federal income taxation of interest on the Bonds under section 103 of the Code. In furtherance of such intention, the City hereby authorizes and directs the City Manager or Director of Finance to execute any documents, certificates or reports required by the Code and to make such elections, on behalf of the City, which may be permitted by the Code as are consistent with the purpose for the issuance of the Bonds. (d) Allocation Of, and Limitation On, Expenditures for the Project. The City covenants to account for the expenditure of sale proceeds and investment earnings to be used for the purposes described in Section 1 of this Ordinance (the "Project") on its books and records in accordance with the requirements of the Internal Revenue Code. The City recognizes that in order for the proceeds to be considered used for the reimbursement of costs, the proceeds must be allocated to expenditures within 18 months of the later of the date that (1) the expenditure is made, or (2) the Project is completed; but in no event later than three years after the date on which the original expenditure is paid. The foregoing notwithstanding, the City recognizes that in order for proceeds to be expended under the Internal Revenue Code, the sale proceeds or investment earnings must be expended no RROCK\GO&RefgBonds2002: Ordinance 22 more than 60 days after the earlier of (1) the fifth anniversary of the delivery of the Bonds, or (2) the date the Bonds are retired. The City agrees to obtain the advice of nationally -recognized bond counsel if such expenditure fails to comply with the foregoing to assure that such expenditure will not adversely affect the tax-exempt status of the Bonds. For purposes hereof, the City shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. (e) Disposition of Project. The City covenants that the property constituting the Project will not be sold or otherwise disposed in a transaction resulting in the receipt by the City of cash or other compensation, unless the City obtains an opinion of nationally -recognized bond counsel that such sale or other disposition will not adversely affect the tax-exempt status of the Bonds. 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 City shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. Section 12. SALE OF BONDS. The Bonds are hereby sold and shall be delivered to RBC Dain Rauscher Inc. on behalf of the Underwriters, (the "Underwriters") in accordance with the terms and provisions of a Bond Purchase Agreement in substantially the form presented to the City Council at the meeting to consider this Ordinance which the Mayor and Mayor Pro -Tem of the City are hereby authorized to execute and deliver and which the City Secretary of the City is hereby authorized to attest. The City will initially deliver to the Underwriters the Bonds authorized under this Ordinance. The Bonds shall initially be registered in the name of RBC Dain Rauscher Inc. Section 13. APPROVAL OF OFFICIAL STATEMENT. The City hereby approves the form and content of the Official Statement relating to the Bonds and any addenda, supplement or amendment thereto, and approves the distribution of such Official Statement in the reoffering of the Bonds by the Initial Purchaser in final form, with such changes therein or additions thereto as the officer executing the same may deem advisable, such determination to be conclusively evidenced by his execution thereof. The distribution and use of the Preliminary Official Statement dated April 25, 2002 prior to the date hereof is confirmed, approved and ratified. The City Council hereby finds and determines that the Preliminary Official Statement and final Official Statement were "deemed final" (as that term is defined in 17 CFR Section 240.15c(2)-12) as of their respective dates. Section 14. APPROVAL OF ESCROW AGREEMENT AND TRANSFER OF FUNDS. The Mayor of the City is hereby authorized and directed to execute and deliver and the City Secretary of the City is hereby authorized and directed to attest an Escrow Agreement in substantially the form attached hereto as Exhibit "A". In addition, the Mayor and Director of Finance are each hereby authorized to execute such subscriptions or other documentation for the purchase of United States Treasury Securities, and to authorize the transfer of such funds of the City, as may be necessary for the Escrow Fund. RROCK\GO&RefgBonds2002: Ordinance 23 Section 15. APPROVAL OF PAYING AGENT/REGISTRAR AGREEMENT. Attached hereto as Exhibit "C" is a substantially final form of Paying Agent/Registrar Agreement. The Mayor is hereby authorized to amend, complete or modify such agreement as necessary and are further authorized to execute such agreement and the City Secretary is hereby authorized to attest such agreement. Section 16. NOTICE OF REDEMPTION. Attached to this Ordinance, as Exhibit "D", and made a part hereof for all purposes, are copies of notices of deposit and prior redemption for the Refunded Obligations in substantially final form and such Refunded Obligations described in said notices of prior redemption are hereby called for redemption and shall be redeemed prior to maturity on the dates, places, and at the prices set forth therein. The Mayor and Director of Finance are each hereby authorized to amend, complete or modify such notices as necessary to call such Refunded Obligations for redemption. Section 17. NOTICE TO PAYING AGENT. The Refunded Obligations described in Exhibit "D" attached hereto are so called for redemption, and the respective paying agents for the Refunded Obligations are hereby directed to make appropriate arrangements so that such Refunded Bonds may be redeemed on the respective redemption dates. A copy of such notice of redemption shall be delivered to the respective paying agents so mentioned in the notices. Section 18. CONTINUING DISCLOSURE UNDERTAKING. (a) Annual Reports. The City shall provide annually to each NRMSIR and any SID, within six months after the end of each fiscal year, financial information and operating data with respect to the City of the general type included in the final Official Statement authorized by Section 13 of this Ordinance, being the information described in Exhibit "E" hereto. Any financial statements so to be provided shall be (1) prepared in accordance with the accounting principles described in Exhibit "E" hereto, or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation, and (2) audited, if the City commissions an audit of such statements and the audit is completed within the period during which they must be provided. If the audit of such financial statements is not complete within such period, then the City shall provide audited financial statements for the applicable fiscal year to each NRMSIR and any SID, when and if the audit report on such statements become available. If the City changes its fiscal year, it will notify each NRMSIR and any SID of the change (and of the date of the new fiscal year end) prior to the next date by which the City otherwise would be required to provide financial information and operating data pursuant to this Section. The financial information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to each NRMSIR and any SID or filed with the SEC. RROCK\GO&RefgBonds2002: Ordinance 24 (b) Material Event Notices. The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Bonds, if such event is material within the meaning of the federal securities laws: A. Principal and interest payment delinquencies; B. Non-payment related defaults; C. Unscheduled draws on debt service reserves reflecting financial difficulties; D. Unscheduled draws on credit enhancements reflecting financial difficulties; E. Substitution of credit or liquidity providers, or their failure to perform; F. Adverse tax opinions or events affecting the tax-exempt status of the Bonds; G. Modifications to rights of holders of the Bonds; H. Bond calls; I. Defeasances; J. Release, substitution, or sale ofproperty securing repayment of the Bonds; and K. Rating changes. The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with Section 18(a) of this Ordinance by the time required by such Section. (c) Limitations, Disclaimers, and Amendments. The City shall be obligated to observe and perform the covenants specified in this Section for so long as, but only for so long as, the City remains an "obligated person" with respect to the Bonds within the meaning of the Rule, except that the City in any event will give notice of any deposit made in accordance with Section 8 that causes the Bonds no longer to be outstanding. The provisions of this Section are for the sole benefit of the holders and beneficial owners of the Bonds, and nothing in this Section, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The City undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Section and does not hereby undertake to provide any other information that maybe relevant or material to a complete presentation of the City's financial results, condition, or prospects or hereby undertake to update any information provided in accordance with this Section or otherwise, except as expressly provided herein. The City does not make any RROCK\GO&RefgBonds2002: Ordinance 25 representation or warranty concerning such information or its usefulness to a decision to invest in or sell Bonds at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS SECTION, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. No default by the City in observing or performing its obligations under this Section shall comprise a breach of or default under the Ordinance for purposes of any other provision of this Ordinance. Nothing in this Section is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. The provisions of this Section may be amended by the City from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (1) the provisions of this Section, as so amended, would have permitted an underwriter to purchase or sell Bonds in the primary offering of the Bonds in compliance with the Rule, taking into account any amendments or interpretations of the Rule since such offering as well as such changed circumstances and (2) either (a) the holders of a majority in aggregate principal amount (or any greater amount required by any other provision of this Ordinance that authorizes such an amendment) of the outstanding Bonds consents to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interest of the holders and beneficial owners of the Bonds. If the City so amends the provisions of this Section, it shall include with any amended financial information or operating data next provided in accordance with Section 18(a) an explanation, in narrative form, of the reason for the amendment and of the impact of any change in the type of financial information or operating data so provided. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provision of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Bonds in the primary offering of the Bonds. (d) Definitions. As used in this Section, the following terms have the meanings ascribed to such terms below: "MSRB" means the Municipal Securities Rulemaking Board. RROCIC\GO&RefgBonds2002- Ordinance 26 "NRMSIR" means each person whom the SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to time. "Rule" means SEC Rule 15c2-12, as amended from time to time. "SEC' means the United States Securities and Exchange Commission. "SID" means any person designated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule from time to time. Section 19. AMENDMENT OF ORDINANCE. The City hereby reserves the right to amend this Ordinance subject to the following terms and conditions, to -wit: (a) The City may from time to time, without the consent of any holder, 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 holders, (ii) grant additional rights or security for the benefit of the holders, (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 holders, (iv) 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 (v) 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 City's Bond Counsel materially adversely affect the interests of the holders. (b) Except as provided in paragraph (a) above, the holders of Bonds aggregating in principal amount 51% of the aggregate principal amount of then outstanding Bonds that are the subject of a proposed amendment shall have the right from time to time to approve any amendment hereto that may be deemed necessary or desirable by the City; provided, however, that without the consent of 100% of the holders in aggregate principal amount of the then outstanding Bonds, nothing herein contained shall permit or be construed to permit amendment of the terms and conditions of this Ordinance or in any of the Bonds so as to: (1) Make any change in the maturity of any of the outstanding Bonds; (2) Reduce the rate of interest borne by any of the outstanding Bonds; (3) Reduce the amount of the principal of, or redemption premium, if any, payable on any outstanding Bonds; (4) Modify the terms of payment of principal or of interest or redemption premium on outstanding Bonds or any of them or impose any condition with respect to such payment; or RROCK\GO&RefgBonds2002: Ordinance 27 (5) Change the minimum percentage of the principal amount of any series of Bonds necessary for consent to such amendment. (c) If at any time the City shall desire to amend this Ordinance under this Section, the City shall send by U.S. mail to each registered owner of the affected Bonds 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 City for inspection by all holders of such Bonds. (d) Whenever at any time within one year from the date of publication of such notice the City shall receive an instrument or instruments executed by the holders of at least 51% in aggregate principal amount of all of the Bonds then outstanding that are required for the amendment, which instrument or instruments shall refer to the proposed amendment and that shall specifically consent to and approve such amendment, the City 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 City and all holders of such affected Bonds shall thereafter be determined, exercised, and enforced, subject in all respects to such amendment. (f) Any consent given by the holder of a 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 holders 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 holder who gave such consent, or by a successor in title, by filing notice with the City, but such revocation shall not be effective if the holders of 51% in aggregate principal amount of the affected Bonds then outstanding, have, prior to the attempted revocation, consented to and approved the amendment. Section 20. REMEDIES IN EVENT OF DEFAULT. In addition to all the rights and remedies provided by the laws of the State of Texas, it is specifically covenanted and agreed particularly that in the event the City (i) defaults in the payment of the principal, premium, if any, or interest on the Bonds, (ii) declares bankruptcy, or (iii) defaults in the observance or performance of any other of the covenant, agreement or obligation of the City, the failure to perform which materially adversely affects the rights of the owners, including but no limited to, their prospect or ability to be repaid in accordance with this Section and the continuation thereof for a period of 60 days after notice of such default is given by any owner to the City, the following remedies shall be available: (a) Any owner or an authorized representative thereof, including but not limited to, a trustee or trustees therefor, may proceed against the City for the purpose of protecting and enforcing the rights to the owners under this Ordinance, by mandamus or other suit, action or special proceeding RROCK\GO&RefgBonds2002: Ordinance 28 in equity or at law, in any court of competent jurisdiction, for any relief permitted by law, including the specific performance of any covenant or agreement contained herein, or thereby to enjoin any act or thing that may be unlawful or in violation of any right of the owners hereunder or any combination of such remedies. (b) It is provided that all such proceedings shall be instituted and maintained for the equal benefit of all owners of the Bonds then outstanding. (c) The bond insurer, if any, shall be deemed to be the sole holder of the Bonds for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the owners of the Bonds are entitled to take. (d) No remedy herein conferred or reserved is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or under the Bonds or now or hereafter existing at law or in equity; provided, however, that notwithstanding any other provision of this Ordinance, the right to accelerate the debt evidenced by the Bonds shall not be available as a remedy under this Ordinance. The exercise of any remedy herein conferred or reserved shall not be deemed a waiver of any other available remedy. Section 21. NO RECOURSE AGAINST CITY OFFICIALS. No recourse shall be had for the payment of principal of or interest on the Bonds or for any claim based thereon or on this Ordinance against any official of the City or any person executing any Bonds. Section 22. FURTHER ACTIONS. The officers and employees of the City are hereby authorized, empowered and directed from time to time and at any time to do and perform all such acts and things and to execute, acknowledge and deliver in the name and under the corporate seal and on behalf of the City all such instruments, whether or not herein mentioned, as maybe necessary or desirable in order to carry out the terms and provisions of this Ordinance, the Bonds, the initial sale and delivery of the Bonds, the Paying Agent/Registrar Agreement, the Bond Purchase Agreement and the Official Statement. In addition, prior to the initial delivery of the Bonds, the Mayor, is hereby authorized and directed to approve any changes or corrections to this Ordinance or to any of the instruments authorized and approved by this Ordinance necessary in order to (i) correct any ambiguity or mistake or properly or more completely document the transactions contemplated and approved by this Ordinance and as described in the Official Statement or (ii) obtain the approval of the Bonds by the Texas Attorney General's office. In case any officer of the City 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 23. INTERPRETATIONS. All terms defined herein and all pronouns used in this Ordinance shall be deemed to apply equally to singular and plural and to all genders. The titles and headings of the articles and sections of this Ordinance have been inserted for convenience of RROCK\GO&RefgBonds2002: Ordinance 29 reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof. This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to sustain the validity of the Bonds and the validity of the lien on and pledge to secure the payment of the Bonds. Section 24. INCONSISTENT PROVISIONS. All ordinances, orders or resolutions, or parts thereof, which are in conflict or inconsistent with any provisions of this Ordinance are hereby repealed to the extent of such conflict and the provisions of this Ordinance shall be and remain controlling as to the matters contained herein. Section 25. INTERESTED PARTIES. Nothing in this Ordinance expressed or implied is intended or shall be construed to confer upon, or to give to, any person or entity, other than the City and the registered owners of the Bonds, any right, remedy or claim under or by reason of this Ordinance or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in this Ordinance contained by and on behalf of the City shall be for the sole and exclusive benefit of the City and the registered owners of the Bonds. Section 26. SEVERABILITY. The provisions of this Ordinance are severable; and in case any one or more of the provisions of this Ordinance or the application thereof to any person or circumstance should be held to be invalid, unconstitutional, or ineffective as to any person or circumstance, the remainder of this Ordinance nevertheless shall be valid, and the application of any such invalid provision to persons or circumstances other than those as to which it is held invalid shall not be affected thereby. RROCK\GO&RefgBonds2002: Ordinance 30 By motion duly made, seconded and passed with an affirmative vote of all the Council members present, the requirement for reading this ordinance on two separate days was dispensed with in accordance with Sections 3.13 and 9.01(e)(2) of the City's Charter. READ, PASSED AND ADOPTED on first reading this 9th day of May, 2002. 1(1 , 1,1 / RO: ' T STLUKA, Mayor City of Round Rock, Texas ATTEST: CHRISTINE MARTINEZ, City Secretary RROCK\GO&RefgBonds2002: Ordinance 31 ti RROCK\GO&RefgBonds2002: Ordinance EXHIBIT A ESCROW AGREEMENT A-1 RROCK\GO&RefgBonds2002: Ordinance EXHIBIT B BOND PURCHASE AGREEMENT B-1 • RROCK\GO&RefgBonds2002- Ordinance EXHIBIT C PAYING AGENT/REGISTRAR AGREEMENT C-1 EXHIBIT D NOTICE OF REDEMPTION NOTICE IS HEREBY GIVEN that Round Rock, Texas ("City") has called for redemption the following obligations of the City (the "Bonds"): CITY OF ROUND ROCK, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 1993 Maturity Redemption Principal Interest CUSIP August 15 Date Amount Rate Number* 2003 August 15, 2002 $ 95,000 5.100% 779222NW4 2004 August 15, 2002 100,000 5.200 779222NY0 2005 August 15, 2002 105,000 5.300 779222PA0 2006 August 15, 2002 195,000 5.375 779222PC6 2007 August 15, 2002 600,000 5.500 779222PE2 2008 August 15, 2002 585,000 5.500 779222PG7 2009 August 15, 2002 340,000 5.500 779222PJ1 2010 August 15, 2002 125,000 5.500 779222PL6 CITY OF ROUND ROCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 1993 Maturity Redemption Principal Interest CUSIP August 15 Date Amount Rate Number* 2003 August 15, 2002 $2,750,000 5.100% 779222NX2 2004 August 15, 2002 2,400,000 5.200 779222NZ7 2005 August 15, 2002 2,510,000 5.300 779222PB8 2006 August 15, 2002 75,000 5.375 779222PD4 2007 August 15, 2002 75,000 5.500 779222PF9 2008 August 15, 2002 80,000 5.500 779222PH5 2009 August 15, 2002 85,000 5.500 779222PK8 *The CUSIP Numbers have been assigned to this issue by the CUSIP Service Bureau and are included solely for the convenience of the owners of the Bonds. The City shall not be responsible for the selection or the correctness of the CUSIP numbers set forth herein. The redemption price for the above Bonds is par plus accrued interest to the redemption date fixed for redemption. Such Bonds shall be redeemed and shall not longer bear interest after the redemption date. The redemption price for such Bonds shall be paid upon presentation to JPMorgan Chase Bank, the Paying Agent, at its principal payment office in Dallas, Texas. RROCK\GO&RefgBonds2002. Ordinance D- 1 BY MAIL OR BY COURIER: The Chase Manhattan Bank P. 0. Box 2320 9th Floor Dallas, Texas 75221-2320 Attn: Institutional Trust Services Withholding of 30% of gross redemption proceeds of any payment made within the United States may be required by the Interest and Dividend Tax Compliance Act of 1983 unless the Paying Agent has the correct taxpayer identification number (social security or employer identification number) or exemption certificate of the payee. Please furnish a properly completed Form W-9 or exemption certificate or equivalent when presenting your securities. RROCK\GO&RefgBonds2002: Ordinance D-2 CITY OF ROUND ROCK, TEXAS NOTICE OF REDEMPTION NOTICE IS HEREBY GIVEN that Round Rock, Texas ("City") has called for redemption the following obligations of the City (the "Bonds"): CITY OF ROUND ROCK, TEXAS GENERAL OBLIGATION BONDS, SERIES 1987 Maturity Redemption Principal Interest CUSIP August 1 Date Amount Rate Number* 2006 August 1, 2002 $ 330,000 5.000% 779222KC1 .The CUSIP Numbers have been assigned to this issue by the CUSIP Service Bureau and are included solely for the convenience of the owners of the Bonds. The City shall not be responsible for the selection or the correctness of the CUSIP numbers set forth herein. The redemption price for the above Bonds is par plus accrued interest to the date fixed for redemption. Such Bonds shall be redeemed and shall not longer bear interest after the redemption date. The redemption price for such Bonds shall be paid upon presentation to The Bank of New York, the Paying Agent, at its payment office in Houston, Texas. BY MAIL OR HAND DELIVERY: The Bank of New York Attn: Bond Redemption Dept. 1301 Fannin Street, Suite 2215 Houston, Texas 77002 Withholding of 30% of gross redemption proceeds of any payment made within the United States may be required by the Interest and Dividend Tax Compliance Act of 1983 unless the Paying Agent has the correct taxpayer identification number (social security or employer identification number) or exemption certificate of the payee. Please furnish a properly completed Form W-9 or exemption certificate or equivalent when presenting your securities. RROCK\GO&RefgBonds2002: Ordinance D-3 CITY OF ROUND ROCK, TEXAS EXHIBIT E DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Section 18 of this Ordinance. Annual Financial Statements and Operating Data The financial information and operating data with respect to the City to be provided annually in accordance with such Section are as specified (and included in the Appendix or under the headings of the Official Statement referred to) below: (1) Appendix B (2) Table 1 - (3) Table 2 - (4) Table 3 - (5) Table 4 - (6) Table 5 - (7) Table 7 - (8) Table 8 - (8) Table 9 - (9) Table 10 - (10) Table ll - Accounting Principles Excerpts from Annual Financial Report; Valuation, Exemptions and General Obligation Debt; Taxable Assessed Valuations by Category; Valuation and General Obligation Debt History; Tax Rate, Levy and Collection History; Ten Largest Taxpayers; Pro -Forma General Obligation Debt Service Requirements; Interest and Sinking Fund Budget Projection; Authorized But Unissued General Obligation Bonds; General Fund Revenues and Expenditure History; and Current Investments. The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to in paragraph 1 above. RROCK\GO&RefgBonds2002. Ordinance E- 1 PAYING AGENT/REGISTRAR AGREEMENT THIS AGREEMENT dated as of May 1, 2002 ("Agreement"), by and between Round Rock, Texas (the "Issuer"), and JPMorgan Chase Bank, a New York banking corporation duly organized and existing under the laws of the State of New York ("Bank"). RECITALS WHEREAS, the Issuer has duly authorized and provided for the issuance of bonds to be issued only in registered form, as to payment of principal and interest thereon in an aggregate principal amount of $45,465,000 and titled General Obligation and Refunding Bonds, Series 2002 (the "Bonds"); and WHEREAS, the Bonds are scheduled to be delivered to the initial purchasers thereof on or about May 23, 2002; and WHEREAS, the Issuer has selected the Bank to serve as Paying Agent/Registrar in connection with the payment of the principal of, premium, if any, and interest on the Bonds and with respect to the registration, transfer and exchange thereof by the registered owners thereof; and WHEREAS, the Bank has agreed to serve in such capacities for and on behalf of the City and has full power and authority to perform and serve as Paying Agent/Registrar for the Bonds; NOW, THEREFORE, it is mutually agreed as follows: ARTICLE ONE APPOINTMENT OF BANK AS PAYING AGENT AND REGISTRAR Section 1.01. Appointment. The Issuer hereby appoints the Bank to serve as Paying Agent with respect to the Bonds. As Paying Agent for the Bonds, the Bank shall be responsible for paying on behalf of the City the principal, premium (if any), and interest on the Bonds as the same become due and payable to the registered owners thereof, all in accordance with this Agreement and the "Ordinance" (hereinafter defined). The Issuer hereby appoints the Bank as Registrar with respect to the Bonds. As Registrar for the Bonds, the Bank shall keep and maintain for and on behalf of the Issuer books and records as to the ownership of the Bonds and with respect to the transfer and exchange thereof as provided herein and in the "Orders." RROCK\GO&Refg2002: PAYAG.AGR The Bank hereby accepts its appointment, and agrees to serve as the Paying Agent and Registrar for the Bonds. Section 1.02. Compensation. As compensation for the Bank's services as Paying Agent/Registrar, the Issuer hereby agrees to pay the Bank the fees and amounts set forth in Schedule A attached hereto. In addition, the Issuer agrees to reimburse the Bank upon its request for all reasonable expenses, disbursements and advances incurred or made by the Bank in accordance with any of the provisions hereof (including the reasonable compensation and the expenses and disbursements of its agents and counsel). ARTICLE TWO DEFINITIONS Section 2.01. Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: "Acceleration Date" on any Security means the date on and after which the principal or any or all installments of interest, or both, are due and payable on any Security which has become accelerated pursuant to the terms of the Security. "Bank Office" means the corporate trust office of the Bank as indicated herein. The Bank will notify the City in writing of any change in location of the Bank Office. "Fiscal Year" means the fiscal year of the Issuer. "Holder" and "Bond Holder" each means the Person in whose name a Bond is registered in the Bond Register. "Issuer Request" and "Issuer Order" means a written request or order signed in the name of the Issuer by the Mayor, delivered to the Bank. "Legal Holiday" means a day on which the Bank is required or authorized to be closed. "Ordinance" mean the ordinance of the governing body of the City pursuant to which the Bonds are issued, certified by the City Secretary or any other officer of the City and delivered to the Bank. RROCK\GO&Refg2002: PAYAG.AGR 2 "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision of a government. "Predecessor Bonds" of any particular Bond means every previous Bond evidencing all or a portion of the same obligation as that evidenced by such particular Bond (and, for the purposes of this definition, any mutilated, lost, destroyed, or stolen Bond for which a replacement Bond has been registered and delivered in lieu thereof pursuant to Section 4.06 hereof and the Ordinance). "Redemption Date" when used with respect to any Bond to be redeemed means the date fixed for such redemption pursuant to the terms of the Ordinance. "Responsible Officer" when used with respect to the Bank means the Chairman or Vice -Chairman of the Board of Directors, the Chairman or Vice -Chairman of the Executive Committee of the Board of Directors, the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant Cashier, any Trust Officer or Assistant Trust Officer, or any other officer of the Bank customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Bond Register" means a register maintained by the Bank on behalf of the City providing for the registration and transfer of the Bonds. "Stated Maturity" means the date specified in the Ordinance on which the principal of a Bond is scheduled to be due and payable. Section 2.02. Other Definitions. The terms "Bank," "Issuer," and "Bonds" have the meanings assigned to them in the recital paragraphs of this Agreement. The term "Paying Agent/Registrar" refers to the Bank in the performance of the duties and functions of this Agreement. RROCKIGO&Refg2002: PAYAG.AGR 3 ARTICLE THREE PAYING AGENT Section 3.01. Duties of Paying Agent. As Paying Agent, the Bank shall, provided adequate collected funds have been provided to it for such purpose by or on behalf of the Issuer, pay on behalf of the Issuer the principal of each Bond at its Stated Maturity, Redemption Date, or Acceleration Date, to the Holder upon surrender of the Bond to the Bank at the Bank Office. As Paying Agent, the Bank shall, provided adequate collected funds have been provided to it for such purpose by or on behalf of the Issuer, pay on behalf of the Issuer the interest on each Bond when due, by computing the amount of interest to be paid each Holder and preparing and sending checks by United States Mail, first class postage prepaid, on each payment date, to the Holders of the Bonds (or their Predecessor Bonds) on the respective Record Date, to the address appearing on the Bond Register or by such other method, acceptable to the Bank, requested in writing by the Holder at the Holder's risk and expense. Section 3.02. Payment Dates. The Issuer hereby instructs the Bank to pay the principal of and interest on the Bonds on the dates specified in the Orders. ARTICLE FOUR REGISTRAR Section 4.01. Bond Register - Transfers and Exchanges. The Bank agrees to keep and maintain for and on behalf of the Issuer at the Bank Office books and records (herein sometimes referred to as the "Bond Register") for recording the names and addresses of the Holders of the Bonds, the transfer, exchange and replacement of the Bonds and the payment of the principal of and interest on the Bonds to the Holders and containing such other information as may be reasonably required by the Issuer and subject to such reasonable regulations as the Issuer and the Bank may prescribe. All transfers, exchanges and replacement of Bonds shall be noted in the Bond Register. Every Bond surrendered for transfer or exchange shall be duly endorsed or be accompanied by a written instrument of transfer, the signature on which has been guaranteed by an officer of a federal or state bank or a member of the National Association of Bond Dealers, Inc., in form satisfactory to the Bank, duly executed by the Holder thereof or his agent duly authorized in writing. The Bank may request any supporting documentation it feels necessary to effect a re -registration, transfer or exchange of the Bonds. RROCK\GO&Refg2002: PAYAG.AGR 4 To the extent possible and under reasonable circumstances, the Bank agrees that, in relation to an exchange or transfer of Bonds, the exchange or transfer by the Holders thereof will be completed and new Bonds delivered to the Holder or the assignee of the Holder in not more than three (3) business days after the receipt of the Bonds to be canceled in an exchange or transfer and the written instrument of transfer or request for exchange duly executed by the Holder, or his duly authorized agent, in form and manner satisfactory to the Paying Agent/Registrar. Section 4.02. Bonds. The Issuer shall provide an adequate inventory of printed Bonds to facilitate transfers or exchanges thereof. The Bank covenants that the inventory of printed Bonds will be kept in safekeeping pending their use, and reasonable care will be exercised by the Bank in maintaining such Bonds in safekeeping, which shall be not less than the care maintained by the Bank for debt Bonds of other political subdivisions or corporations for which it serves as registrar, or that is maintained for its own securities. Section 4.03. Form of Bond Register. The Bank, as Registrar, will maintain the Bond Register relating to the registration, payment, transfer and exchange of the Bonds in accordance with the Bank's general practices and procedures in effect from time to time. The Bank shall not be obligated to maintain such Bond Register in any form other than those which the Bank has currently available and currently utilizes at the time. The Bond Register may be maintained in written form or in any other form capable of being converted into written form within a reasonable time. Section 4.04. List of Bond Holders. The Bank will provide the Issuer at any time requested by the Issuer, upon payment of the required fee, a copy of the information contained in the Bond Register. The Issuer may also inspect the information contained in the Bond Register at any time the Bank is customarily open for business, provided that reasonable time is allowed the Bank to provide an up-to-date listing or to convert the information into written form. The Bank will not release or disclose the contents of the Bond Register to any person other than to, or at the written request of, an authorized officer or employee of the Issuer, except upon receipt of a court order or as otherwise required by law. Upon receipt of a court order and prior to the release or disclosure of the contents of the Bond Register, the Bank will notify the Issuer so that the Issuer may contest the court order or such release or disclosure of the contents of the Bond Register. RROCK\GO&Refg2002. PAYAG.AGR 5 Section 4.05. Return of Cancelled Bonds. The Bank will, at such reasonable intervals as it determines, surrender to the Issuer, Bonds in lieu of which or in exchange for which other Bonds have been issued, or which have been paid. Section 4.06. Mutilated, Destroyed, Lost or Stolen Bonds. The Issuer hereby instructs the Bank, subject to the applicable provisions of the Orders, to deliver and issue Bonds in exchange for or in lieu of mutilated, destroyed, lost, or stolen Bonds as long as the same does not result in an overissuance. In case any Bond shall be mutilated, or destroyed, lost or stolen, the Bank, in its discretion, may execute and deliver a replacement Bond of like form and tenor, and in the same denomination and bearing a number not contemporaneously outstanding, in exchange and substitution for such mutilated Bond, or in lieu of and in substitution for such destroyed lost or stolen Bond, only after (1) the filing by the Holder thereof with the Bank of evidence satisfactory to the Bank of the destruction, loss or theft of such Bond, and of the authenticity of the ownership thereof and (ii) the furnishing to the Bank of indemnification in an amount satisfactory to hold the Issuer and the Bank harmless. All expenses and charges associated with such indemnity and with the preparation, execution and delivery of a replacement Bond shall be borne by the Holder of the Bond mutilated, or destroyed, lost or stolen. Section 4.07. Transaction Information to Issuer. The Bank will, within a reasonable time after receipt of written request from the Issuer, furnish the Issuer information as to the Bonds it has paid pursuant to Section 3.01, Bonds it has delivered upon the transfer or exchange of any Bonds pursuant to Section 4.01, and Bonds it has delivered in exchange for or in lieu of mutilated, destroyed, lost, or stolen Bonds pursuant to Section 4.06. ARTICLE FIVE THE BANK Section 5.01. Duties of Bank. The Bank undertakes to perform the duties set forth herein and agrees to use reasonable care in the performance thereof. Section 5.02. Reliance on Documents, Etc. (a) The Bank may conclusively rely, as to the truth of the statements and correctness of the opinions expressed therein, on Bonds or opinions furnished to the Bank. RROCK\GO&Refg2002: PAYAG.AGR 6 (b) The Bank shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Bank was negligent in ascertaining the pertinent facts. (c) No provisions of this Agreement shall require the Bank to expend or risk its own funds or otherwise incur any financial liability for performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity satisfactory to it against such risks or liability is not assured to it. (d) The Bank may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, bond, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. Without limiting the generality of the foregoing statement, the Bank need not examine the ownership of any Bonds, but is protected in acting upon receipt of Bonds containing an endorsement or instruction of transfer or power of transfer which appears on its face to be signed by the Holder or an agent of the Holder. The Bank shall not be bound to make any investigation into the facts or matters stated in a resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, bond, or other paper or document supplied by Issuer. (e) The Bank may consult with counsel, and the written advice of such counsel or any opinion of counsel shall be full and complete authorization and protection with respect to any action taken, suffered, or omitted by it hereunder in good faith and in reliance thereon. (f) The Bank may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attorneys of the Bank. Section 5.03. Recitals of Issuer. The recitals contained herein with respect to the Issuer and in the Bonds shall be taken as the statements of the Issuer, and the Bank assumes no responsibility for their correctness. The Bank shall in no event be liable to the Issuer, any Holder or Holders of any Bond, or any other Person for any amount due on any Bond from its own funds. Section 5.04. May Hold Bonds. The Bank, in its individual or any other capacity, may become the owner or pledgee of Bonds and may otherwise deal with the Issuer with the same rights it would have if it were not the Paying Agent/Registrar, or any other agent. Section 5.05. Moneys Held by Bank. RROCK\GO&Refg2002: PAYAG AGR 7 The Bank shall deposit any moneys received from the Issuer into a trust account to be held in a paying agency capacity for the payment of the Bonds, with such moneys in the account that exceed the deposit insurance available to the Issuer by the Federal Deposit Insurance Corporation to be fully collateralized with Bonds or obligations that are eligible under the laws of the State of Texas to secure and be pledged as collateral for trust accounts, until the principal and interest on such Bonds have been presented for payment and paid to the owner thereof. Payments made from such trust account shall be made by check drawn on such trust account unless the owner of such Bonds shall, at its own expense and risk, request such other medium of payment. Subject to the Unclaimed Property Laws of the State of Texas, any money deposited with the Bank for the payment of the principal, premium (if any), or interest on any Bond and remaining unclaimed for three years after the final maturity of the Bond has become due and payable will be paid by the Bank to the Issuer if the Issuer so elects, and the Holder of such Bond shall hereafter look only to the Issuer for payment thereof, and all liability of the Bank with respect to such monies shall thereupon cease. If the Issuer does not elect, the Bank is directed to report and dispose of the funds in compliance with Title Six of the Texas Property Code, as amended. Section 5.06. Indemnification. To the extent permitted by law, the Issuer agrees to indemnify the Bank for, and hold it harmless against, any loss, liability, or expense incurred without negligence or bad faith on the Bank's part, arising out of or in connection with the Bank's acceptance or administration of its duties hereunder, including the cost and expense incurred by the Bank in defending against any claim or from liability imposed on the Bank in connection with the Bank's exercise or performance of any of its powers or duties under this Agreement. Section 5.07. Interpleader. The Issuer and the Bank agree that the Bank may seek adjudication of any adverse claim, demand, or controversy over its person as well as funds on deposit, in either a Federal or State Issuer Court located in the State of Texas and County where either the Bank Office or the administrative offices of the Issuer is located, and agree that service of process by certified or registered mail, return receipt requested, to the address referred to in Section 6.03 of this Agreement shall constitute adequate service. The Issuer and the Bank further agree that the Bank has the right to file a Bill of Interpleader in any court of competent jurisdiction in the State of Texas to determine the rights of any Person claiming any interest herein. Section 5.08. Depository Trust Company Services. It is hereby represented and warranted that, in the event the Bonds are otherwise qualified and accepted for "Depository Trust Company" services or equivalent depository trust services by other organizations, the Bank has the capability and, to the extent within its control, will comply with RROCK\GO&Refg2002: PAYAG.AGR 8 the "Operational Arrangements," effective August 1, 1987, which establishes requirements for Bonds to be eligible for such type depository trust services, including, but not limited to, requirements for the timeliness of payments and funds availability, transfer turnaround time, and notification of redemptions and calls. Attached hereto is a copy ofthe Blanket Issuer Letter of Representations with The Depository Trust Company. ARTICLE SIX MISCELLANEOUS PROVISIONS Section 6.01. Amendment. This Agreement may be amended only by an agreement in writing signed by both of the parties hereto. other. Section 6.02. Assignment. This Agreement may not be assigned by either party without the prior written consent of the Section 6.03. Notices. Any request, demand, authorization, direction, notice, consent, waiver, or other document provided or permitted hereby to be given or furnished to the Issuer or the Bank shall be mailed or delivered to the Issuer or the Bank, respectively, at the addresses shown on the signature page of this Agreement. Section 6.04. Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 6.05. Successors and Assigns. All covenants and agreements herein by the Issuer shall bind its successors and assigns, whether so expressed or not. Section 6.06. Severability. In case any provision herein shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. RROCK\GO&Refg2002: PAYAG.AGR 9 Section 6.07. Benefits of Agreement. Nothing herein, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any benefit or any legal or equitable right, remedy, or claim hereunder. Section 6.08. Entire Agreement. This Agreement and the Orders constitute the entire agreement between the parties hereto relative to the Bank acting as Paying Agent/Registrar and if any conflict exists between this Agreement and the Orders, the Orders shall govern. Section 6.09. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement. Section 6.10. Termination. This Agreement will terminate (i) on the date of final payment of the principal of and interest on the Bonds to the Holders thereof or (ii) maybe earlier terminated by either party upon sixty (60) days written notice; provided, however, an early termination of this Agreement by either party shall not be effective until (a) a successor Paying Agent/Registrar has been appointed by the Issuer and such appointment accepted and (b) notice has been given to the Holders of the Bonds of the appointment of a successor Paying Agent/Registrar. Furthermore, the Bank and Issuer mutually agree that the effective date of an early termination of this Agreement shall not occur at any time which would disrupt, delay or otherwise adversely affect the payment of the Bonds. Upon an early termination of this Agreement, the Bank agrees to promptly transfer and deliver the Bond Register (or a copy thereof), together with other pertinent books and records relating to the Bonds, to the successor Paying Agent/Registrar designated and appointed by the Issuer. The provisions of Section 1.02 and of Article Five shall survive and remain in full force and effect following the termination of this Agreement. Section 6.11. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Texas. RROCK\GO&Rerg2002. PAYAG.AGR 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Attest: Title [BANK SEAL] RROCK\GO&Rcfg2002: PAYAG.AGR 11 JPMORGAN CHASE BANK By: Title: 2001 Bryan Street, 10th Floor Dallas, Texas 75201 [ISSUER SEAL] Attest: City Secretary RROCK\GO&Refg2002: PAYAG.AGR 12 ROUND ROCK, TEXAS 221 E. Main Street Round Rock, Texas 78664 Acceptance Fee Annual Administration Fee RROCK\GO&Refg2002: PAYAG.AGR SCHEDULE A Paying Agent/Registrar Fee Schedule [To Be Supplied by JPMorgan Chase Bank] A-1 ESCROW AGREEMENT Round Rock, Texas General Obligation and Refunding Bonds, Series 2002 THIS ESCROW AGREEMENT, dated as of May 15, 2002 (herein, together with any amendments or supplements hereto, called the "Agreement") is entered into by and between Round Rock, Texas (herein called the "Issuer") and JPMoran Chase Bank as escrow agent (herein, together with any successor in such capacity, called the "Escrow Agent"). The addresses of the Issuer and the Escrow Agent are shown on Exhibit "A" attached hereto and made a part hereof. WITNESSETH: WHEREAS, the Issuer heretofore issued and there presently remain outstanding the obligations (the "Refunded Obligations") described in the Verification Report of Grant Thornton LLP (the "Report") relating to the Refunded Obligations, attached hereto as Exhibit "B" and made a part hereof ; and WHEREAS, the Refunded Obligations are scheduled to mature in such years, bear interest at such rates, and be payable at such times and in such amounts as are set forth in the Report; and WHEREAS, when firm banking arrangements have been made for the payment ofprincipal and interest to the maturity or redemption dates of the Refunded Obligations, then the Refunded Obligations shall no longer be regarded as outstanding except for the purpose of receiving payment from the funds provided for such purpose; and WHEREAS, Chapter 1207, Texas Government Code, as amended (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 any place of payment (paying agent) for any of the Refunded Obligations, and such deposit, if made before such payment dates and in sufficient amounts, shall constitute the making of firm banking and financial arrangements for the discharge and final payment of the Refunded Obligations; and WHEREAS, Chapter 1207 further authorizes the Issuer to enter into an escrow agreement with any such paying agent for any of the Refunded Obligations with respect to the safekeeping, investment, 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 only in obligations authorized in Chapter 1207 and which shall mature and/or bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment ofprincipal and interest on the Refunded Obligations when due; and RROCK/GOAndRef'gBonds2002: EscrowAgreement WHEREAS, the Escrow Agent is a paying agent for the Refunded Obligations and this Agreement constitutes an escrow agreement of the kind authorized and required by said Chapter 1207; and WHEREAS, Chapter 1207 makes it the duty of the Escrow Agent to comply with the terms of this Agreement and timely make available to the other places of payment (paying agents) for the Refunded Obligations the amounts required to provide for the payment of the principal of and interest on such obligations when due, and in accordance with their terms, but solely from the funds, in the manner, and to the extent provided in this Agreement; and WHEREAS, the issuance, sale, and delivery of the Issuer's General Obligation and Refunding Bonds, Series 2002 (the "Refunding Obligations") have been issued, sold and delivered for the purpose, among others, of obtaining the funds required to provide for the payment of the principal of the Refunded Obligations at their respective maturity dates or dates of redemption and the interest thereon to such dates; and WHEREAS, the Issuer desires that, concurrently with the delivery of the Refunding Obligations to the purchasers thereof, certain proceeds of the Refunding Obligations, together with certain other available funds of the Issuer, if applicable, shall be applied to purchase certain direct obligations of the United States of America hereinafter defined as the "Escrowed Securities" for deposit to the credit of the Escrow Fund created pursuant to the terms of this Agreement and to establish a beginning cash balance (if needed) in such Escrow Fund; and WHEREAS, the Escrowed Securities shall mature and the interest thereon shall be payable at such times and in such amounts so as to provide moneys which, together with cash balances from time to time on deposit in the Escrow Fund, will be sufficient to pay interest on the Refunded Obligations as it accrues and becomes payable and the principal of the Refunded Obligations on their maturity dates or dates of redemption; and WHEREAS, to facilitate the receipt and transfer of proceeds of the Escrowed Securities, particularly those in book entry form, the Issuer desires to establish the Escrow Fund at the principal corporate trust office of the Escrow Agent; and WHEREAS, the Escrow Agent is herein also referred to as the "Paying Agent," and any paying agent for the Refunded Obligations, acting through the Escrow Agent, is also a party to this Agreement, as a paying agent for the Refunded Obligations to acknowledge their acceptance of the terms and provisions of this Agreement in such capacity. NOW, THEREFORE, in consideration of the mutual undertakings, promises and agreements herein contained, the sufficiency of which hereby are acknowledged, and to secure the full and timely payment of principal of and the interest on the Refunded Obligations, the Issuer and the Escrow Agent mutually undertake, promise, and agree for themselves and their respective representatives and successors, as follows: RROCK/GOAndRef'gBonds2002: EscrowAgreement 2 ARTICLE I DEFINITIONS AND INTERPRETATIONS Section 1.01. Definitions. Unless the context clearly indicates otherwise, the following terms shall have the meanings assigned to them below when they are used in this Agreement: "Code" means the Internal Revenue Code of 1986, as amended, or to the extent applicable the Internal Revenue Code of 1954, together with any other applicable provisions of any successor federal income tax laws. "Escrow Fund" means the fund created by this Agreement to be administered by the Escrow Agent pursuant to the provisions of this Agreement. "Escrowed Securities" means the direct noncallable, not pre -payable United States Treasury obligations and obligations the due timely payment of which is unconditionally guaranteed by the United States of America described in the Report or cash or other direct obligations of the United States of America substituted therefor pursuant to Article IV of this Agreement. "Paying Agent" means JPMorgan Chase Bank as paying agent for the Series 1993 Certificates of Obligation Refunded Obligations and the Series 1993 General Obligation Refunded Obligations. Section 1.02. Other Definitions. The terms "Agreement", "Issuer", "Escrow Agent", "Refunded Obligations", "Refunding Obligations," "Report" and "Paying Agent", when they are used in this Agreement, shall have the meanings assigned to them in the preamble to this Agreement. Section 1.03. Interpretations. The titles and headings of the articles and sections of this Agreement have been inserted for convenience and reference only and are not to be considered a part hereof and shall not in any way modify or restrict the terms hereof. This Agreement and all of the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to achieve the intended purpose of providing for the refunding of the Refunded Obligations in accordance with applicable law. ARTICLE II DEPOSIT OF FUNDS AND ESCROWED SECURITIES Section 2.01. Deposits in the Escrow Fund. Concurrently with the sale and delivery of the Refunding Obligations the Issuer shall deposit, or cause to be deposited, with the Escrow Agent, for deposit in the Escrow Fund, the funds and Escrowed Securities described in the Report, and the Escrow Agent shall, upon the receipt thereof, acknowledge such receipt to the Issuer in writing. RROCK/GOAndRefgBonds2002: EscrowAgreement 3 ARTICLE III CREATION AND OPERATION OF ESCROW FUND Section 3.01. Escrow Fund. The Escrow Agent has created on its books a special trust fund and irrevocable escrow to be known as the Issuer's Refunded Obligations Escrow Fund (the "Escrow Fund"). The Escrow Agent hereby agrees that upon receipt thereof it will irrevocably deposit to the credit of the Escrow Fund the funds and the Escrowed Securities described in the Report. Such deposit, all proceeds therefrom, and all cash balances from time to time on deposit therein (a) shall be the property of the Escrow Fund, (b) shall be applied only in strict conformity with the terms and conditions of this Agreement, and (c) are hereby irrevocably pledged to the payment of the principal of and interest on the Refunded Obligations, which payment shall be made by timely transfers of such amounts at such times as are provided for in Section 3.02 hereof. When the final transfers have been made for the payment of such principal of and interest on the Refunded Obligations, any balance then remaining in the Escrow Fund shall be transferred to the Issuer, and the Escrow Agent shall thereupon be discharged from any further duties hereunder. Section 3.02. Payment of Principal and Interest. The Escrow Agent is hereby irrevocably instructed to transfer from the cash balances from time to time on deposit in the Escrow Fund, the amounts required to pay the principal of the Refunded Obligations at their respective maturity dates and interest thereon to such maturity dates in the amounts and at the times shown in the Report. Section 3.03. Sufficiency of Escrow Fund. The Issuer represents that the successive receipts of the principal of and interest on the Escrowed Securities will assure that the cash balance on deposit from time to time in the Escrow Fund will be at all times sufficient to provide moneys for transfer to the Paying Agent at the times and in the amounts required to pay the interest on the Refunded Obligations as such interest comes due and the principal of the Refunded Obligations as the Refunded Obligations mature, all as more fully set forth in the Report. If, for any reason, at any time, the cash balances on deposit or scheduled to be on deposit in the Escrow Fund shall be insuffi- cient to transfer the amounts required by each place of payment (paying agent) for the Refunded Obligations to make the payments set forth in Section 3.02 hereof, the Issuer shall timely deposit in the Escrow Fund, from any funds that are lawfully available therefor, additional funds in the amounts required to make such payments. Notice of any such insufficiency shall be given as promptly as practicable as hereinafter provided, but the Escrow Agent shall not in any manner be responsible for any insufficiency of funds in the Escrow Fund or the Issuer's failure to make additional deposits thereto. Section 3.04. Trust Fund. The Escrow Agent shall hold at all times the Escrow Fund, the Escrowed Securities and all other assets of the Escrow Fund, wholly segregated from all other funds and securities on deposit with the Escrow Agent; it shall never allow the Escrowed Securities or any other assets of the Escrow Fund to be commingled with any other funds or securities of the Escrow Agent; and it shall hold and dispose of the assets of the Escrow Fund only as set forth herein. The Escrowed Securities and other assets of the Escrow Fund shall always be maintained by the Escrow Agent as trust funds for the benefit of the owners of the Refunded Obligations; and a special account thereof shall at all times be maintained on the books of the Escrow Agent. The owners of the RROCK/GOAndRef gBonds2002: EscrowAgreement 4 Refunded Obligations shall be entitled to the same preferred claim and first lien upon the Escrowed Securities, the proceeds thereof, and all other assets of the Escrow Fund to which they are entitled as owners of the Refunded Obligations. The amounts received by the Escrow Agent under this Agreement shall not be considered as a banking deposit by the Issuer, and the Escrow Agent shall have no right to title with respect thereto except as a constructive trustee and Escrow Agent under the terms of this Agreement. The amounts received by the Escrow Agent under this Agreement shall not be subject to warrants, drafts or checks drawn by the Issuer or, except to the extent expressly herein provided, by the Paying Agent. Section 3.05. Security for Cash Balances. Cash balances from time to time on deposit in the Escrow Fund shall, to the extent not insured by the Federal Deposit Insurance Corporation or its successor, be continuously secured by a pledge of direct obligations of, or obligations unconditionally guaranteed by, the United States of America, having a market value at least equal to such cash balances. ARTICLE IV LIMITATION ON INVESTMENTS Section 4.01. Except as provided in Sections 3.02, 4.02, 4.03 and 4.04 hereof, the Escrow Agent shall not have any power or duty to invest or reinvest any money held hereunder, or to make substitutions of the Escrowed Securities, or to sell, transfer or otherwise dispose of the Escrowed Securities. Section 4.02. Reinvestment of Certain Cash Balances in Escrow by Escrow Agent. In addition to the Escrowed Securities listed in the Report, the Escrow Agent shall reinvest cash balances shown in the Report in United States Treasury Obligations - State and Local Government Series with an interest rate equal to zero percent (0%) to the extent such Obligations are available from the Department of the Treasury. All such re -investments shall be made only from the portion of cash balances derived from the maturing principal of and interest on Escrowed Securities that are United States Treasury Certificates of Indebtedness, Notes or Bonds - State and Local Government Series. All such re -investments shall be acquired on and shall mature on the dates shown on the Report. Section 4.03. Substitutions and Reinvestments. At the discretion of the Issuer, the Escrow Agent shall reinvest cash balances representing receipts from the Escrowed Securities, make substitutions of the Escrowed Securities or redeem the Escrowed Securities and reinvest the proceeds thereof or hold such proceeds as cash, together with other moneys or securities held in the Escrow Fund provided that the Issuer delivers to the Escrow Agent the following: (1) an opinion by an independent certified public accountant that after such substitution or reinvestment the principal amount of the securities in the Escrow Fund (which shall be noncallable, not pre -payable direct obligations of the United States of America), together with the interest thereon and other available moneys, will be sufficient to pay, without further investment or reinvestment, as the same become due in accordance with the RROCK/GOAndRef'gBonds2002: EscrowAgreement 5 Report, the principal of, interest on and premium, if any, on the Refunded Obligations which have not previously been paid, and (2) an unqualified opinion of nationally recognized municipal bond counsel to the effect that (a) such substitution or reinvestment will not cause the Refunded Obligations to be "arbitrage bonds" within the meaning of Section 103 of the Code or the regulations thereunder in effect on the date of such substitution or reinvestment, or otherwise make the interest on the Refunded Obligations subject to federal income taxation, and (b) such substitution or reinvestment complies with the Constitution and laws of the State of Texas and with all relevant documents relating to the issuance of the Refunded Obligations. The Escrow Agent shall have no responsibility or liability for loss or otherwise with respect to investments made at the direction of the Issuer. Section 4.04. Substitution for Escrowed Securities. Concurrently with the initial deposit by the Issuer with the Escrow Agent, but not thereafter, the Issuer, at its option, may substitute cash or non-interest bearing direct noncallable and not pre -payable obligations of the United States Treasury (i.e., Treasury obligations which mature and are payable in a stated amount on the maturity date thereof, and for which there are no payments other than the payment made on the maturity date) (the "Substitute Obligations") for non-interest bearing Escrowed Securities, if any, but only if such Substitute Obligations (a) are in an amount, and/or mature in an amount, which is equal to or greater than the amount payable on the maturity date of the obligation listed in the Report for which such Substitute Obligation is substituted, (b) mature on or before the maturity date of the obligation listed in the Report for which such Substitute Obligation is substituted, and (c) produce the amount necessary to pay the interest on and principal of the Refunded Obligations, as set forth in the Report, as verified by a certified public accountant or a firm of certified public accountants. If, concurrently with the initial deposit by the Issuer with the Escrow Agent, any such Substitute Obligations are so substituted for any Escrowed Securities, the Issuer may, at any time thereafter, substitute for such Substitute Obligations the same Escrowed Securities for which such Substitute Obligations originally were substituted. Section 4.05. Arbitrage. The Issuer hereby covenants and agrees that it shall never request the Escrow Agent to exercise any power hereunder or permit any part of the money in the Escrow Fund or proceeds from the sale of Escrowed Securities to be used directly or indirectly to acquire any securities or obligations if the exercise of such power or the acquisition of such securities or obligations would cause any Refunding Obligations or Refunded Obligations to be an "arbitrage bond" within the meaning of the Code. RROCK/GOAndRefgBonds2002: EscrowAgreement 6 ARTICLE V APPLICATION OF CASH BALANCES Section 5.01. In General. Except as provided in Sections 3.02, 4.02, 4.03 and 4.04 hereof, no withdrawals, transfers, or reinvestment shall be made of cash balances in the Escrow Fund. ARTICLE VI RECORDS AND REPORTS Section 6.01. Records. The Escrow Agent will keep books of record and account in which complete and correct entries shall be made of all transactions relating to the receipts, disbursements, allocations and application of the money and Escrowed Securities deposited to the Escrow Fund and all proceeds thereof, and such books shall be available for inspection at reasonable hours and under reasonable conditions by the Issuer and the owners of the Refunded Obligations. Section 6.02. Reports. While this Agreement remains in effect, the Escrow Agent annually shall prepare and send to the Issuer a written report summarizing all transactions relating to the Escrow Fund during the preceding year, including, without limitation, credits to the Escrow Fund as a result of interest payments on or maturities of the Escrowed Securities and transfers from the Escrow Fund for payments on the Refunded Obligations or otherwise, together with a detailed statement of all Escrowed Securities and the cash balance on deposit in the Escrow Fund as of the end of such period. ARTICLE VII CONCERNING THE PAYING AGENTS AND ESCROW AGENT Section 7.01. Representations. The Escrow Agent hereby represents that it has all necessary power and authority to enter into this Agreement and undertake the obligations and responsibilities imposed upon it herein, and that it will carry out all of its obligations hereunder. Section 7.02. Limitation on Liability. The liability of the Escrow Agent to transfer funds for the payment of the principal of and interest on the Refunded Obligations shall be limited to the proceeds of the Escrowed Securities and the cash balances from time to time on deposit in the Escrow Fund. Notwithstanding any provision contained herein to the contrary, neither the Escrow Agent nor the Paying Agent shall have any liability whatsoever for the insufficiency of funds from time to time in the Escrow Fund or any failure of the obligors of the Escrowed Securities to make timely payment thereon, except for the obligation to notify the Issuer as promptly as practicable of any such occurrence. The recitals herein and in the proceedings authorizing the Refunding Obligations shall be taken as the statements of the Issuer and shall not be considered as made by, or imposing any obligation or liability upon, the Escrow Agent. The Escrow Agent is not a party to the proceedings authorizing the Refunding Obligations or the Refunded Obligations and is not responsible for nor RROCK/GOAndRefgBonds2002: EscrowAgreement 7 bound by any of the provisions thereof (except as a place of payment and paying agent and/or a Paying Agent/Registrar therefor). In its capacity as Escrow Agent, it is agreed that the Escrow Agent need look only to the terms and provisions of this Agreement. The Escrow Agent makes no representations as to the value, conditions or sufficiency of the Escrow Fund, or any part thereof, or as to the title of the Issuer thereto, or as to the security afforded thereby or hereby, and the Escrow Agent shall not incur any liability or responsibility in respect to any of such matters. It is the intention of the parties hereto that the Escrow Agent shall never be required to use or advance its own funds or otherwise incur personal financial liability in the performance of any of its duties or the exercise of any of its rights and powers hereunder. The Escrow Agent shall not be liable for any action taken or neglected to be taken by it in good faith in any exercise of reasonable care and believed by it to be within the discretion or power conferred upon it by this Agreement, nor shall the Escrow Agent be responsible for the consequences of any error of judgment; and the Escrow Agent shall not be answerable except for its own action, neglect or default, nor for any loss unless the same shall have been through its negligence or willful misconduct. Unless it is specifically otherwise provided herein, the Escrow Agent has no duty to determine or inquire into the happening or occurrence of any event or contingency or the performance or failure of performance of the Issuer with respect to arrangements or contracts with others, with the Escrow Agent's sole duty hereunder being to safeguard the Escrow Fund, to dispose of and deliver the same in accordance with this Agreement. If, however, the Escrow Agent is called upon by the terms of this Agreement to determine the occurrence of any event or contingency, the Escrow Agent shall be obligated, in making such determination, only to exercise reasonable care and diligence, and in event of error in making such determination the Escrow Agent shall be liable only for its own willful misconduct or its negligence. In determining the occurrence of any such event or contingency the Escrow Agent may request from the Issuer or any other person such reasonable additional evidence as the Escrow Agent in its discretion may deem necessary to determine any fact relating to the occurrence of such event or contingency, and in this connection may make inquiries of, and consult with, among others, the Issuer at any time. Section 7.03. Compensation. (a) Concurrently with the sale and delivery of the Refunding Obligations, the Issuer shall pay to the Escrow Agent, as a fee for performing the services hereunder and for all expenses incurred or to be incurred by the Escrow Agent in the administration of this Agreement, the sum of $ , the sufficiency of which is hereby acknowledged by the Escrow Agent. In the event that the Escrow Agent is requested to perform any extraordinary services hereunder, the Issuer hereby agrees to pay reasonable fees to the Escrow Agent for such extra- ordinary services and to reimburse the Escrow Agent for all expenses incurred by the Escrow Agent in performing such extraordinary services, and the Escrow Agent hereby agrees to look only to the Issuer for the payment of such fees and reimbursement of such expenses. The Escrow Agent hereby agrees that in no event shall it ever assert any claim or lien against the Escrow Fund for any fees for its services, whether regular or extraordinary, as Escrow Agent, or in any other capacity, or for reimbursement for any of its expenses. RROCK/GOAndRefgBonds2002: Esc row Agreement 8 (b) The Bank of New York is the place of payment (paying agent) for the Series 1987 Refunded Obligations. Concurrently with the sale and delivery of the Refunded Obligations the Issuer shall pay to The Bank of New York, the sum of $ which is comprised of a bond call fee of $ and closing out-of-pocket expenses of $ , the sufficiency of which is hereby acknowledged by The Bank of New York, for all future paying agency services of The Bank of New York for the Series 1987 Refunded Obligations; and The Bank of New York warrants that such sum is sufficient for such purpose. (c) JPMorgan Chase Bank is the place of payment (paying agent) for the Series 1993 Certificates of Obligation Refunded Obligations and Series 1993 General Obligation Refunded Obligations. The Issuer covenants to timely pay for all future paying agency services of JPMorgan Chase Bank for the Series 1993 Certificates of Obligation Refunded Obligations and Series 1993 General Obligation Refunded Obligations in accordance with the paying agent fee schedule now in effect through the final payment of the Series 1993 Certificates of Obligation Refunded Obligations and Series 1993 General Obligation Refunded Obligations, the sufficiency of which is hereby acknowledged by JPMorgan Chase Bank. Section 7.04. Successor Escrow Agents. If at any time the Escrow Agent or its legal successor or successors should become unable, through operation or law or otherwise, to act as escrow agent hereunder, or if its property and affairs shall be taken under the control of any state or federal court or administrative body because of insolvency or bankruptcy or for any other reason, a vacancy shall forthwith exist in the office of Escrow Agent hereunder. In such event the Issuer, by appropriate action, promptly shall appoint an Escrow Agent to fill such vacancy. If no successor Escrow Agent shall have been appointed by the Issuer within 60 days, a successor may be appointed by the owners of a majority in principal amount of the Refunded Obligations then outstanding by an instrument or instruments in writing filed with the Issuer, signed by such owners or by their duly authorized attorneys -in -fact. If, in a proper case, no appointment of a successor Escrow Agent shall be made pursuant to the foregoing provisions of this section within three months after a vacancy shall have occurred, the owner of any Refunded Obligation may apply to any court of competent jurisdiction to appoint a successor Escrow Agent. Such court may thereupon, after such notice, if any, as it may deem proper, prescribe and appoint a successor Escrow Agent. Any successor Escrow Agent shall be a corporation organized and doing business under the laws of the United States or the State of Texas, authorized under such laws to exercise corporate trust powers, authorized under Texas law to act as an escrow agent, having its principal office and place of business in the State of Texas, having a combined capital and surplus of at least $5,000,000 and subject to the supervision or examination by Federal or State authority. Any successor Escrow Agent shall execute, acknowledge and deliver to the Issuer and the Escrow Agent an instrument accepting such appointment hereunder, and the Escrow Agent shall execute and deliver an instrument transferring to such successor Escrow Agent, subject to the terms of this Agreement, all the rights, powers and trusts of the Escrow Agent hereunder. Upon the request of any such successor Escrow Agent, the Issuer shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor Escrow Agent all such rights, powers and duties. RROCK/GOAndRefgBonds2002: EscrowAgreement 9 The Escrow Agent at the time acting hereunder may at any time resign and be discharged from the trust hereby created by giving not less than sixty (60) days' written notice to the Issuer and publishing notice thereof, specifying the date when such resignation will take effect, in a newspaper printed in the English language and with general circulation in New York, New York, such publication to be made once at least three (3) weeks prior to the date when the resignation is to take effect. No such resignation shall take effect unless a successor Escrow Agent shall have been appointed by the owners of the Refunded Obligations or by the Issuer as herein provided and such successor Escrow Agent shall be a paying agent for the Refunded Obligations and shall have accepted such appointment, in which event such resignation shall take effect immediately upon the appointment and acceptance of a successor Escrow Agent. Under any circumstances, the Escrow Agent shall pay over to its successor Escrow Agent proportional parts of the Escrow Agent's fee and, if applicable, its Paying Agent's fee hereunder. ARTICLE VIII MISCELLANEOUS Section 8.01. Notice. Any notice, authorization, request, or demand required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when mailed by registered or certified mail, postage prepaid addressed to the Issuer or the Escrow Agent at the address shown on Exhibit "A" attached hereto. The United States Post Office registered or certified mail receipt showing delivery of the aforesaid shall be conclusive evidence of the date and fact of delivery. Any party hereto may change the address to which notices are to be delivered by giving to the other parties not less than ten (10) days prior notice thereof. Prior written notice of any amendment to this Agreement contemplated pursuant to Section 8.08 and immediate written notice of any incidence of a severance pursuant to Section 8.04 shall be sent to Moody's Investors Service, Attn: Public Finance Rating Desk/Refunded Bonds, 99 Church Street, New York, New York 10007 and Standard & Poor's Corporation, Attn: Municipal Bond Department, 25 Broadway, New York, New York 10004. Section 8.02. Termination of Responsibilities. Upon the taking of all the actions as described herein by the Escrow Agent, the Escrow Agent shall have no further obligations or responsibilities hereunder to the Issuer, the owners of the Refunded Obligations or to any other person or persons in connection with this Agreement. Section 8.03. Binding Agreement. This Agreement shall be binding upon the Issuer and the Escrow Agent and their respective successors and legal representatives, and shall inure solely to the benefit of the owners of the Refunded Obligations, the Issuer, the Escrow Agent and their respective successors and legal representatives. Section 8.04. Severability. In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. RROCK/GOAndRefgEtonds2002: EscrowAgreement 10 Section 8.05. Texas Law Governs. This Agreement shall be governed exclusively by the provisions hereof and by the applicable laws of the State of Texas. Section 8.06. Time of the Essence. Time shall be of the essence in the performance of obligations from time to time imposed upon the Escrow Agent by this Agreement. Section 8.07. Effective date of Agreement. This Agreement shall be effective upon receipt by the Escrow Agent of the funds described in the Report and the Escrowed Securities, together with the specific sums stated in subsections (a) and (b) of Section 7.03 for Escrow Agent and paying agency fees, expenses, and services. Section 8.08. Amendments. This Agreement shall not be amended except to cure any ambiguity or formal defect or omission in this Agreement. No amendment shall be effective unless the same shall be in writing and signed by the parties thereto. No such amendment shall adversely affect the rights of the holders of the Refunded Obligations. RROCK/GOAndRefgBonds2002: EscrowAgreement 11 EXECUTED as of the date first written above. RO RO K, T By. Mayo ATTEST: City Secretary (SEAL) RROCK/GOAndRefgBonds2002: EscrowAgreement 12 ATTEST: Title: (SEAL) RROCK/GOAndRefgBonds2002: EscrowAgreement JPMORGAN CHASE BANK By: Title: 13 Solely for the purpose of acknowledging the provisions in Section 7.03(b). THE BANK OF NEW YORK By RROCK/GOAndRefgBonds2002: EscrowAgreement 14 INDEX TO EXHIBITS Exhibit "A" Addresses of the Issuer and the Escrow Agent Exhibit "B" Verification Report of Grant Thornton LLP RROCK/GOAndRefgBonds2002: EscrowAgreement EXHIBIT "A" ADDRESSES OF THE ISSUER AND THE ESCROW AGENT ISSUER City of Round Rock, Texas 221 E. Main Street Round Rock, Texas 78664 Attention: Director of Finance ESCROW AGENT JPMorgan Chase Bank 2001 Bryan Street, 10th Floor Dallas, Texas 75201 Attention: Issuer Administrative Services RROCK/GOAndRergBonds2002: EscrowAgreement EXHIBIT "B" Verification Report RROCK/GOAndRefgBonds2002: EscrowAgreement $45,465,000 CITY OF ROUND ROCK, TEXAS GENERAL OBLIGATION AND REFUNDING BONDS, SERIES 2002 PURCHASE AGREEMENT May 9, 2002 The Honorable Mayor and City Council City of Round Rock, Texas 221 East Main Street Round Rock, Texas 78664 Dear Mayor and Members of the City Council: The undersigned (hereinafter sometimes called the "Representative"), acting on behalf of itself and on behalf of the other underwriters named in the list attached as Schedule I hereto (the Representative and such other underwriters being collectively called the "Underwriters"), offers to enter into the following agreement with the City of Round Rock, Texas (hereinafter called the "Issuer"), which, upon the Issuer's written acceptance of this offer, will be binding upon the Issuer and upon the Underwriters. This offer is made subject to the Issuer's written acceptance hereof on or before 10:00 p.m., Austin, Texas time on the date hereof, and, if not so accepted, will be subject to withdrawal by the Underwriters upon notice delivered to the Issuer at any time prior to the acceptance hereof by the Issuer. Terms not otherwise defined in this Purchase Agreement shall have the same meanings set forth in the Ordinance (as hereinafter defined) or in the Official Statement (as hereinafter defined). 1. Purchase and Sale of the Bonds. Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein, the Underwriters hereby agree to purchase from the Issuer, and the Issuer hereby agrees to sell and deliver to the Underwriters, all, but not less than all, of the Issuer's General Obligation and Refunding Bonds, Series 2002 (the `Bonds"). The principal amounts of the Bonds to be issued, the dated date therefor, the maturities and optional redemption provisions and interest rates per annum shall be as set forth in the Official Statement. The purchase price for the Bonds shall be $45,491,878.35 (representing the par amount of the Bonds of $45,465,000, plus a net original issue premium of $317,854.35 and less the underwriters' discount on the Bonds of $290,976.00), plus interest accrued on the Bonds from the dated date of the Bonds to the Closing Date (as hereinafter defined). Delivered to the Issuer herewith is a corporate check of the Representative payable to the order of the Issuer in the amount of $457,850.00. The Issuer agrees to hold such check uncashed until the Closing (as hereinafter defined) to ensure the performance by the Underwriters of their RAU505/64005; Austin 272635_2.DOC obligations to purchase, accept delivery of and pay for the Bonds at the Closing. Concurrently with the payment by the Underwriters of the purchase price of the Bonds, the Issuer shall return such check to the Representative as provided in Paragraph 6 hereof. Should the Issuer fail to deliver the Bonds at the Closing, or should the Issuer be unable to satisfy the conditions of the obligations of the Underwriters to purchase, accept delivery of and pay for the Bonds, as set forth in this Purchase Agreement (unless waived by the Underwriters), or should such obligations of the Underwriters be terminated for any reason permitted by this Purchase Agreement, such check shall immediately be returned to the Representative. In the event the Underwriters fail (other than for a reason permitted hereunder) to purchase, accept delivery of and pay for the Bonds at the Closing as herein provided, such check shall be retained by the Issuer as full liquidated damages for such failure of the Underwriters and for any defaults hereunder on the part of the Underwriters. The Representative hereby agrees not to stop or cause payment on said check to be stopped unless the Issuer has breached any of the terms of this Purchase Agreement. Inasmuch as this purchase and sale represents a negotiated transaction, the Issuer understands, and hereby confirms, that the Underwriters are not acting as a fiduciary of the Issuer, but rather are acting solely in their individual capacities as Underwriters for their own account. 2. The Bonds and the Official Statement End of the Underwriting Period. (a) The Bonds shall be as described in, and shall be issued and secured under and pursuant to the provisions of an ordinance authorizing the issuance and sale of the Bonds (the "Bond Ordinance"), adopted by the City Council of the Issuer on May 9, 2002. (b) The Preliminary Official Statement of the Issuer, dated April 25, 2002, including the cover page and Appendices thereto, relating to the Bonds (the "Preliminary Official Statement"), as amended to conform to the terms of this Purchase Agreement and with such changes and amendments to the date hereof as have been mutually agreed to by the Issuer and the Underwriters, as indicated on Exhibit A attached hereto, is hereinafter called the "Official Statement." (c) The Issuer hereby represents and warrants that the Preliminary Official Statement previously delivered to the Underwriters was deemed final by the Issuer as of its date, except for the omission of such information which is dependent upon the final pricing of the Bonds for completion, all as permitted to be excluded by Rule 15c2-12 under the Securities Exchange Act of 1934 ("Rule 15c2-12"). (d) The Issuer has duly authorized, approved and executed the Official Statement, which is final for purposes of Rule 15c2-12. (e) Unless otherwise notified in writing by the Representative by the Closing Date, the Issuer can assume that the "end of the underwriting period" for purposes of Rule 15c2-12 shall be the Closing Date. In the event such notice is so given in writing by the Representative, the Representative agrees to notify the Issuer in writing following the occurrence of the "end of the underwriting period" as defined in Rule 15c2-12. The "end of the underwriting period" as used in this Purchase Agreement shall mean the Closing Date or such later date as to which notice is given by the Representative in accordance with the preceding sentence. RAU505/64005; Austin 272635 2.DOC -2- (0 To the best knowledge and belief of the Issuer, the Official Statement contains information, including financial information or operating data, concerning every entity, enterprise, fund, account, or person that is material to an evaluation of the offering of the Bonds. The Issuer has complied in all material respects with all continuing disclosure agreements made by it in accordance with Rule 15c2-12. 3. Sale to Underwriters. It shall be a condition to the Issuer's obligation to sell and deliver the Bonds to the Underwriters and to the Underwriters' obligation to purchase, to accept delivery of and to pay for the Bonds, that the entire principal amount of the Bonds authorized by the Bond Ordinance shall be issued, sold and delivered by the Issuer and purchased, accepted and paid for by the Underwriters at the Closing. The Underwriters agree to offer the Bonds at prices not in excess of the initial offering prices or yields set forth on the inside front cover page of the Official Statement, plus interest accrued thereon from the date of the Bonds, and further represent that at least ten percent (10%) of the principal amount or maturity amount of the Bonds of each maturity shall be sold to the "public" (exclusive of dealers, brokers, investment bankers, etc.) at the offering price set forth on the inside front cover page of the Official Statement. 4. Use of Documents; Certain Covenants and Agreements of the Issuer. (a) The Issuer hereby authorizes the use by the Underwriters of the Bond Ordinance and the Official Statement, including any supplements or amendments thereto, and the information therein contained in connection with the public offering and sale of the Bonds. The Issuer ratifies and confirms the use by the Underwriters prior to the date hereof of the Preliminary Official Statement in connection with the public offering of the Bonds. (b) The Issuer covenants and agrees: (i) To cause reasonable quantities of the Official Statement, as requested by the Underwriters, to be delivered to the Underwriters, without charge, within seven business days of the date hereof. (ii) To provide such information as necessary for the Underwriters to comply with the filing requirements of Rule G-36 of the Municipal Securities Rulemaking Board. (iii) To apply the proceeds from the sale of the Bonds as provided in and subject to all of the terms and provisions of the Bond Ordinance authorizing their issuance and not to take or omit to take any action which action or omission will adversely affect the exclusion from gross income for federal income tax purposes of the interest on the Bonds under the Internal Revenue Code of 1986 (the "Code"). (iv) If, after the date of this Purchase Agreement to and including the date the Underwriters are no longer required pursuant to Rule 15c2-12 to provide the Official Statement to potential customers requesting an Official Statement (such date being the earlier of (A) 90 days from the end of the underwriting period and (B) the time when the Official Statement is available to any person from a nationally recognized municipal securities repository, but in no case less than 25 days after the end of the underwriting period), any event shall occur as a result of which it is necessary to amend or supplement the Official Statement in order to make the statements therein, in the light of the RAU505/64005; Austin 272635_2.DOC -3- circumstances when the Official Statement is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Official Statement to comply with law, to notify the Representative (and for the purposes of this clause (iv) to provide the Underwriters with such information as they may from time to time request), and to cooperate with the Representative in the preparation of either amendments or supplements to the Official Statement so that the statements in the Official Statement as so amended and supplemented will not, in light of the circumstances when the Official Statement is delivered to a purchaser, be misleading or so that the Official Statement will comply with law. (v) To furnish such information and execute such instruments and take such action in cooperation with the Underwriters as the Underwriters may reasonably request (A) to (y) qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions in the United States as the Underwriters may designate and (z) determine the eligibility of the Bonds for investment under the laws of such states and other jurisdictions and (B) to continue such qualifications in effect so long as required for the distribution of the Bonds; provided, however, that the Issuer will not be required to qualify as a foreign corporation or otherwise to do business or to file any general or special consents to service of process under the laws of any state or other jurisdiction. (vi) To advise the Underwriters immediately of receipt by the Issuer of any notification with respect to the suspension of the qualification of the Bonds for sale in any jurisdiction or the initiation or threat of any proceeding for that purpose. (vii) Between the date of this Purchase Agreement and the delivery of the Bonds, the Issuer will not, without the prior consent of the Underwriters, issue any bonds, notes or other obligations for borrowed money or incur any material liabilities, direct or contingent, payable from or secured by a pledge of the taxes, revenues or other assets of the Issuer. 5. Representations and Warranties of the Issuer. The Issuer hereby represents and warrants to the Underwriters as of the date hereof and as of the Closing Date, which representations and warranties shall survive the purchase and offering of the Bonds as follows: (a) The Issuer is a duly organized municipal corporation and a political subdivision duly created and validly existing under the Constitution and the laws of the State of Texas and has full legal right, power and authority pursuant to the Constitution and laws of the State of Texas, including particularly Chapters 1207 and 1331, Texas Government Code, as amended (the "Acts"), and at the date of the Closing will have, full legal right, power and authority to (i) enter into this Purchase Agreement, (ii) enter into the escrow agreement (the "Escrow Agreement") pertaining to the Refunded Bonds, between the Issuer and the escrow agent named in the Official Statement, (iii) adopt the Bond Ordinance, (iv) sell, issue and deliver the Bonds to the Underwriters as provided herein, (v) secure the payment of the Bonds as provided in the Bond Ordinance, and (vi) carry out and consummate the transactions contemplated by this Purchase Agreement, the Escrow Agreement, the Bond Ordinance and the Official Statement, RAU505/64005; Austin 272635 2.DOC -4- and the Issuer has complied, and will at the Closing be in compliance in all respects, with the terms of the Acts and the Bond Ordinance as they pertain to such transactions. (b) By all necessary official action of the Issuer prior to or concurrently with the acceptance hereof, the Issuer has duly adopted the Bond Ordinance, has duly authorized and approved the execution and delivery of, and the performance by the Issuer of the obligations on its part contained in the Bonds, the Bond Ordinance, this Purchase Agreement, the Escrow Agreement and the consummation by it of all other transactions contemplated by the Official Statement, the Bond Ordinance, this Purchase Agreement and the Escrow Agreement; the Bond Ordinance, this Purchase Agreement and the Escrow Agreement each constitute legal, valid and binding obligations of the Issuer, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws and principles of equity relating to or affecting the enforcement of creditors' rights; the Bonds, when issued, authenticated and delivered to the Underwriters in accordance with the Bond Ordinance and this Purchase Agreement, will be payable from a continuing ad valorem tax levied, within the limits prescribed by law, on all taxable property within the Issuer, will be entitled to the benefits of the Bond Ordinance and will be enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws and principles of equity relating to or affecting the enforcement of creditors' rights. (c) The Issuer is not in breach of or default under any applicable constitutional provision, law or administrative regulation of the State of Texas or the United States of America or any applicable judgment or decree or any loan agreement, indenture, bond, note, ordinance, resolution, agreement or other instrument to which the Issuer is a party or to which the Issuer or any of its property or assets are otherwise subject, and no event has occurred and is continuing which constitutes or with the passage of time or the giving of notice, or both, would constitute a default or event of default by the Issuer under any such instrument except as may be disclosed in the Official Statement; and the execution and delivery of the Bonds, this Purchase Agreement and the Escrow Agreement, adoption of the Bond Ordinance and compliance on the Issuer's part with the provisions contained therein, will not conflict with or constitute a breach of or default under any constitutional provision, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, ordinance, resolution, agreement or other instrument to which the Issuer is a party or to which the Issuer or any of its property or assets are otherwise subject, nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of the Issuer under the terms of any such law, regulation or instrument, except as provided by the Bonds and the Bond Ordinance. (d) All authorizations, approvals, licenses, permits, consents and orders of any governmental authority, legislative body, board, agency or commission having jurisdiction over the matter which are required for the due authorization of, which would constitute a condition precedent to, or the absence of which would have a material adverse effect on the due performance by the Issuer of its obligations under, this Purchase Agreement, the Escrow Agreement, the Bond Ordinance and the Bonds have been duly obtained, except for the approval of the Bonds by the Attorney General of the State of Texas (and the registration of the Bonds by the Comptroller of Public Accounts of the State of Texas) and such approvals, consents and RAU505/64005; Austin 272635_2.DOC -5- orders as are stated in the Official Statement as yet to be obtained or as may be required under the Blue Sky or securities laws of any state in connection with the offering and sale of the Bonds. (e) The Bonds conform to the description thereof contained in the Official Statement under the caption "THE BONDS" (except under the subcaption "Book -Entry -Only System") and the proceeds of the Bonds will be applied generally as described in the Official Statement. (f) There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, pending or, to the best knowledge of the Issuer after due inquiry, threatened against the Issuer, affecting the corporate existence of the Issuer or the titles of its officers to their respective offices, or affecting or seeking to prohibit, restrain or enjoin the sale, issuance or delivery of the Bonds or the levy, collection or application of the ad valorem taxes pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity or enforceability of the Bonds, the Bond Ordinance, the Escrow Agreement or this Purchase Agreement, or contesting in any way the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto, or contesting the powers of the Issuer or any authority for the issuance of the Bonds, the adoption of the Bond Ordinance or the execution and delivery of this Purchase Agreement and the Escrow Agreement, nor, to the best knowledge of the Issuer, is there any basis therefor, wherein an unfavorable decision, ruling or finding would have a material adverse effect on the validity or enforceability of the Bonds, the Bond Ordinance, this Purchase Agreement or the Escrow Agreement. (g) As of the date thereof, the Preliminary Official Statement did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (h) At the time of the Issuer's acceptance hereof and (unless an event occurs of the nature described in Paragraph 4(b)(iv)) at all times subsequent thereto during the period up to and including the date the Underwriters are no longer required pursuant to Rule 15c2-12 to provide the Official Statement to potential customers requesting an Official Statement (as more particularly described in Paragraph 4(b)(iv)), the Official Statement does not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (i) If the Official Statement is supplemented or amended pursuant to Paragraph 4(b)(iv), at the time of each supplement or amendment thereto and (unless subsequently again supplemented or amended pursuant to such paragraph) at all times subsequent thereto during the period up to and including the date the Underwriters are no longer required pursuant to Rule 15c2-12 to provide the Official Statement to potential customers requesting an Official Statement (as more particularly described in Paragraph 4(b)(iv)), the Official Statement as so supplemented or amended will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. RAU505/64005; Austin 272635_2.DOC -6- (j) The financial statements of, and other financial information regarding, the Issuer in the Official Statement fairly present the financial position and results of the operations of the Issuer as of the dates and for the periods therein set forth and (i) the unaudited financial statements have been prepared on a basis substantially consistent with the audited financial statements included in the Official Statement and reflect all adjustments necessary to that effect, and (ii) the other financial information has been determined on a basis substantially consistent with that of the Issuer's audited financial statements included in the Official Statement. (k) Any certificate signed by any official of the Issuer authorized to do so in connection with the transactions contemplated by this Purchase Agreement shall be deemed a representation and warranty by the Issuer to the Underwriters as to the statements made therein. 6. Closing. (a) At 10:00 a.m., Austin, Texas time, on May 23, 2002, or at such other time and date as shall have been mutually agreed upon by the Issuer and the Representative (the "Closing Date"), the Issuer will, subject to the terms and conditions hereof, deliver to the Representative the initial Bonds registered in the name of the Representative, in temporary form, together with the other documents hereinafter mentioned, and will have available for immediate exchange definitive Bonds deposited with The Depository Trust Company, New York, New York ("DTC"), or deposited with the Paying Agent/Registrar, if the Bonds are to be held in safekeeping for DTC by the Paying Agent/Registrar pursuant to DTC's FAST system and the Bond Ordinance, duly executed and authenticated in the form and manner contemplated below, together with the other documents hereinafter mentioned, and the Underwriters will, subject to the terms and conditions hereof, accept such delivery and pay the purchase price of the Bonds as set forth in Paragraph 1 hereof in immediately available funds (such events being referred to herein as the "Closing"). Concurrently with such payment by the Underwriters, the Issuer shall return to the Representative, the check referred to in Paragraph 1 hereof. Payment for the Bonds as aforesaid shall be made at the offices of the paying agent/registrar, or such other place as shall have been mutually agreed upon by the Issuer and the Underwriters. (b) Delivery of the definitive Bonds in exchange for the initial Bonds shall be made through DTC, utilizing the book -entry only form of issuance, and the Issuer agrees to enter into such agreement, including a "Letter of Representations," as may be required to allow for the use of such book -entry only system. The definitive Bonds shall be delivered in fully registered form bearing CUSIP numbers without coupons with one Certificate for each maturity of Bonds, registered in the name of CEDE & CO. and shall be made available at the Designated Payment/Transfer Office of the Paying Agent/Registrar to the Representative at least one business day before the Closing for purposes of inspection. 7. Closing Conditions. The Representative has entered into this Purchase Agreement in reliance upon the representations, warranties and agreements of the Issuer contained herein, and in reliance upon the representations, warranties and agreements to be contained in the documents and instruments to be delivered at the Closing and upon the performance by the Issuer of its obligations hereunder, both as of the date hereof and as of the date of the Closing. Accordingly, the Underwriters' obligations under this Purchase Agreement to purchase, to accept delivery of and to pay for the Bonds shall be conditioned upon the performance by the Issuer of its obligations to be performed hereunder and under such RAU505/64005; Austin 272635_2.DOC -7- documents and instruments at or prior to the Closing, and shall also be subject to the following additional conditions: (a) The representations and warranties of the Issuer contained herein or in any certificate or other document delivered pursuant to the provisions hereof shall be true, complete and correct on the date hereof and on and as of the date of the Closing, as if made on the date of the Closing. (b) At the time of the Closing, the Bond Ordinance shall be in full force and effect and shall not have been amended, modified or supplemented, and the Official Statement shall not have been supplemented or amended, except in any such case as may have been agreed to by the Representative. (c) At the time of the Closing, all official action of the Issuer relating to this Purchase Agreement, the Escrow Agreement, the Bonds and the Bond Ordinance shall be in full force and effect and shall not have been amended, modified or supplemented; and the Representative shall have received, in appropriate form, evidence thereof. (d) At the time of the Closing, there shall not have occurred any change in the condition, financial or otherwise, or in the earnings or operations of the Issuer, from that set forth in the Official Statement that, in the judgment of the Representative, is material and adverse and that makes it, in the judgment of the Representative, impracticable to market the Bonds on the terms and in the manner contemplated in the Official Statement. (e) The Issuer shall not have failed to pay principal or interest when due on any of its outstanding obligations for borrowed money. (f) All steps to be taken and all instruments and other documents to be executed, and all other legal matters in connection with the transactions contemplated by this Purchase Agreement shall be reasonably satisfactory in legal form and effect to counsel for the Underwriters. (g) At or prior to the Closing, the Representative shall have received copies of each of the following documents: (1) The Official Statement, and each supplement or amendment, if any, thereto, executed on behalf of the Issuer by the Mayor and the City Secretary of the Issuer. (2) The Bond Ordinance certified by the City Secretary under its seal as having been duly adopted by the Issuer and as being in effect, with such changes or amendments as may have been agreed to by the Representative, and containing therein the agreement of the Issuer to provide certain periodic information and notices of material events in accordance with Rule 15c2-12, as described in the Official Statement under the caption "CONTINUING DISCLOSURE OF INFORMATION." RAU505/64005; Austin 272635_2.DOC -8- (3) The Escrow Agreement, having been duly executed on behalf of the Issuer by the Mayor and City Secretary and JPMorgan Chase Bank, Dallas, Texas (the "Escrow Agent"). (4) The opinion of McCall, Parkhurst & Horton L.L.P., Bond Counsel, in substantially the form and substance of Appendix C to the Official Statement. (5) An opinion or certificate, dated on or prior to the date of Closing, of the Attorney General of the State of Texas, approving the Bonds, as required by law, and the registration certificates of the Comptroller of Public Accounts of the State of Texas for the Bonds. (6) The supplemental opinion, dated the date of the Closing, of McCall, Parkhurst & Horton L.L.P., addressed to the Issuer and the Underwriters to the effect that: (i) the Bonds are exempt securities within the meaning of Section 3(a)(2) of the Securities Act of 1933, as amended, and it is not necessary in connection with the sale of the Bonds to the public to register the Bonds under the Securities Act of 1933, as amended, or to qualify the Bond Ordinance under the Trust Indenture Act of 1939, as amended, and (ii) except to the extent noted therein, said firm has not verified and is not passing upon, and does not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Official Statement but that said firm has reviewed the information contained in the Official Statement under the captions "PLAN OF FINANCING" (other than information under the subcaption "Sources and Uses of Proceeds"), "THE BONDS" (other than information under the subcaptions "Book -Entry -Only System" and "Bondholders' Remedies"), "TAX MATTERS," "CONTINUING DISCLOSURE OF INFORMATION" (other than information under the subcaption "Compliance with Prior Undertakings"), and under the subcaptions "- Registration and Qualification of Bonds for Sale," "- Legal Investments and Eligibility to Secure Public Funds in Texas," and "- Legal Matters" under the caption "OTHER INFORMATION" and in APPENDIX C, and such firm is of the opinion that the information relating to the Bonds and the Bond Ordinance contained therein accurately and fairly reflects the provisions thereof and is correct as to matters of law. (7) An opinion, dated the date of the Closing and addressed to the Underwriters, of Vinson & Elkins L.L.P., Austin, Texas ("Underwriters' Counsel"), in substantially the form of Exhibit B hereto. (8) A certificate, dated the date of the Closing, signed by the Mayor and the City Manager, to the effect that (i) the representations and warranties of the Issuer contained herein or in any certificate or document delivered by the Issuer pursuant to the provisions hereof are true and correct in all material respects on and as of the date of Closing as if made on the date of Closing, and all agreements or conditions to be performed or complied with by the Issuer hereunder on or prior to the date of the Closing have been performed or complied with; (ii) except to the extent disclosed in the Official Statement, no litigation is RAU505/64005; Austin 272635_2.DOC -9- pending or, to the knowledge of such persons, threatened in any court to restrain or enjoin the issuance or delivery of the Bonds or the levy, collection or application of the ad valorem taxes pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity of the Bonds, the Bond Ordinance, the Escrow Agreement, or this Purchase Agreement, or contesting the powers of the Issuer or contesting the authorization of the Bonds or the Bond Ordinance, or contesting in any way the accuracy, completeness or fairness of the Official Statement (but in lieu of or in conjunction with such certificate, the Representative may, in its sole discretion, accept certificates or opinions of the General Counsel of the Issuer that, in his or her opinion, the issues raised in any such pending or threatened litigation are without substance or that the contentions of all plaintiffs therein are without merit); (iii) no event affecting the Issuer has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (iv) the descriptions and statements of or pertaining to the Issuer contained in the Official Statement, on the date of sale of the Bonds and on the date of the delivery of the Bonds, were and are true and correct in all material respects; (v) insofar as the Issuer and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (vi) insofar as the descriptions and statements including financial data, of or pertaining to entities, other than the Issuer, and their activities contained in the Official Statement are concerned, such statements and data have been obtained from sources which the Issuer believes to be reliable and the Issuer has no reason to believe that they are untrue in any material respect; and (vii) there has not been any material and adverse change in the affairs or financial condition of the Issuer since September 30, 2001, the latest date as to which audited financial information is available. (9) A certificate, dated the date of Closing, of an appropriate official of the Issuer to the effect that, on the basis of the facts, estimates and circumstances in effect on the date of delivery of the Bonds, it is not expected that the proceeds of the Bonds will be used in a manner that would cause the Bonds to be arbitrage bonds within the meaning of Section 148 of the Code. (10) Evidence satisfactory to the Representative that the Bonds have been rated "Aaa" by Moody's Investors Service, Inc. and "AAA" by Standard & Poor's Ratings Services, A Division of the McGraw-Hill Companies, Inc. and that all such ratings are in effect as of the date of Closing. (11) Evidence acceptable to the Underwriters of the purchase by the Issuer or the Escrow Agent of the federal securities, as described in the Escrow Agreement, and the deposit thereof to the escrow fund described therein. RAU505/64005; Austin 272635 2.DOC -10- (12) The verification of mathematical computations by Grant Thornton LLP (the "Verification Agent") referred to in the Official Statement, addressed to the Issuer, Bond Counsel and the Underwriters. (13) A copy of the policy of municipal bond insurance issued by Financial Security Assurance Inc., together with the customary opinion of its legal counsel as to the validity and enforceability of such policy and the fairness and accuracy of the language contained in the Official Statement. (14) Such additional legal opinions, certificates, instruments and other documents as the Representative or Underwriters' Counsel may request to evidence the truth and accuracy, as of the date hereof and as of the date of the Closing, of the Issuer's representations and warranties contained herein and of the statements and information contained in the Official Statement and the due performance or satisfaction by the Issuer on or prior to the date of the Closing of all the respective agreements then to be performed and conditions then to be satisfied by the Issuer. All of the opinions, letters, certificates, instruments and other documents mentioned above or elsewhere in this Purchase Agreement shall be deemed to be in compliance with the provisions hereof if, but only if, they are in form and substance satisfactory to the Underwriters. If the Issuer shall be unable to satisfy the conditions to the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Bonds contained in this Purchase Agreement, or if the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Bonds shall be terminated for any reason permitted by this Purchase Agreement, this Purchase Agreement shall terminate and neither the Underwriters nor the Issuer shall be under any further obligation hereunder, except that (i) the check referred to in Paragraph 1 hereof shall be immediately returned to the Representative by the Issuer and (ii) the respective obligations of the Issuer and the Underwriters set forth in Paragraph 9 hereof shall continue in full force and effect. 8. Termination. The Underwriters shall have the right to terminate in its absolute discretion the Underwriters' obligation under this Purchase Agreement to purchase, to accept delivery of and to pay for the Bonds by notifying the Issuer of its election to do so if, after the execution hereof and prior to the Closing: (a) (i) Legislation (including any amendment thereto) shall have been introduced in or adopted by either House of the Congress of the United States or recommended to the Congress or otherwise endorsed for passage by the President of the United States, the Treasury Department of the United States, the Internal Revenue Service or the Chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives, or legislation is proposed for consideration by either such committee by any member thereof or presented as an option for consideration by either such committee by the staff of such committee, or by the staff of the Joint Committee on Taxation of the Congress of the United States, or a bill to amend the Internal Revenue Code (which, if enacted, would be effective as of a date prior to the Closing) shall be filed in either RAU505/64005; Austin 272635_2.DOC -11- house, or (ii) a decision shall have been rendered by a court established under Article III of the Constitution of the United States or by the United States Tax Court, or (iii) an order, filing, ruling or regulation shall have been issued or proposed by or on behalf of the Treasury Department of the United States or the Internal Revenue Service or any other agency of the United States, or (iv) a release or official statement shall have been issued by the President of the United States or by the Treasury Department of the United States or by the Internal Revenue Service, the effect of which, in any such case described in clause (i), (ii), (iii), or (iv), would be to impose, directly or indirectly, federal income taxation upon interest received on obligations of the general character of the Bonds or upon income of the general character to be derived by the Issuer, other than as imposed on the Bonds and income therefrom under the federal tax laws in effect on the date hereof, in such a manner as in the judgment of the Underwriters would make it impracticable to market the Bonds on the terms and in the manner contemplated in the Official Statement. (b) Any action shall have been taken by the Securities and Exchange Commission or by a court which would require registration of any security under the Securities Act of 1933, as amended, or qualification of any indenture under the Trust Indenture Act of 1939, as amended, in connection with the public offering of the Bonds; any action shall have been taken by any court or by any governmental authority suspending the use of the Official Statement or any amendment or supplement thereto, or any proceeding for that purpose shall have been initiated or threatened in any such court or by any such authority; any state blue sky or securities commission or other governmental agency or body shall have withheld registration, exemption or clearance of the offering of the Bonds, as described herein, or issued a stop order or similar ruling relating thereto. (c) (i) The Constitution of the State of Texas shall be amended or an amendment shall be proposed, or (ii) legislation shall be enacted, or (iii) a decision shall have been rendered as to matters of Texas law, or (iv) any order, ruling or regulation shall have been issued or proposed by or on behalf of the State of Texas by an official, agency or department thereof, affecting the tax status of the Issuer, its property or income, its notes or bonds (including the Bonds) or the interest thereon, which in the judgment of the Underwriters would make it impracticable to market the Bonds on the terms and in the manner contemplated in the Official Statement. (d) Any fact or event shall exist or have existed that, in the Representative's judgment would make it impracticable to market the bonds on the terms and in the manner contemplated in the Official Statement, and requires or has required an amendment of or supplement to the Official Statement in order to make the statements therein, in light of the circumstances under which they were made, not misleading or to comply with law. (e) (i) (A) Trading generally shall have been suspended or materially limited on or by, as the case may be, either of the New York Stock Exchange or the American Stock Exchange, (B) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities, or (C) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the reasonable judgment of the Underwriters, is material and adverse and (ii) in the case of any of the events specified in clauses (A) through (C), such event singly or together with RAU505/64005; Austin 272635 2.DOC -12- any other such event makes it, in the judgment of the Representative, impracticable to market the Bonds on the terms and in the manner contemplated in the Official Statement. (f) There shall have occurred any downgrading, or any notice shall have been given of (i) any intended or potential downgrading or (ii) any review or possible change that does not indicate the direction of a possible change, in the rating accorded any of the Issuer's obligations (including the ratings to be accorded the Bonds) by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act of 1933, as amended. (g) Legislation shall have been enacted by the federal government or the State of Texas, a decision of any federal or State of Texas court shall have been made, or a ruling or regulation (proposed, temporary or final) of the Securities and Exchange Commission or other governmental agency shall have been made or issued that, in the opinion of Underwriters' Counsel, has the effect of requiring the contemplated distribution of the Bonds or any agreement offered in connection therewith to be registered under the Securities Act of 1933, as amended, or the Bond Ordinance to be qualified as an indenture under the Trust Indenture Act of 1939, as amended. (h) A change in applicable law shall occur or any governmental authority, board, agency or commission of the federal government or in the State of Texas shall take any action the result of which in each case is to prohibit the purchase of and payment for the Bonds by the Underwriters, or the resale of the Bonds by the Underwriters, on the terms and conditions herein. (i) The debt ceiling of the United States is such that the federal securities required to fund the Escrow Agreement are not available for delivery on the date of the delivery of the Bonds. 9. Expenses. (a) The Underwriters shall be under no obligation to pay, and the Issuer shall pay, any expenses incident to the performance of the Issuer's obligations hereunder, including, but not limited to (i) the cost of preparation, printing and delivery of the Preliminary Official Statement and the Official Statement; (ii) the cost of preparation and printing of the Bonds; (iii) the fees and disbursements of McCall, Parkhurst & Horton L.L.P. for their services as Bond Counsel to the Issuer; (iv) the fees and disbursements of the financial advisor to the Issuer; (v) the fees and disbursements of any other engineers, accountants, and other experts, consultants or advisers retained by the Issuer; and (vi) the fees, if any, for bond ratings. (b) The Underwriters shall pay (i) the cost of preparation and printing of this Purchase Agreement; (ii) all advertising expenses in connection with the public offering of the Bonds; and (iii) all other expenses incurred by them or any of them in connection with the public offering of the Bonds, including the fees and disbursements of Underwriters' Counsel. 10. Notices. Any notice or other communication to be given to the Issuer under this Purchase Agreement may be given by delivering the same in writing at City of Round Rock, Texas, 221 East Main Street, Round Rock, Texas 78664, Attention: City Manager, and any notice or other communication to be given to the Underwriters under this Purchase Agreement RAU505/64005; Austin 272635 2.DOC -13- may be given by delivering the same in writing to RBC Dain Rauscher Inc., 1001 Fannin, Suite 400, Houston, Texas 77002, Attention: Mark Nitcholas. 11. Parties in Interest. This Purchase Agreement as heretofore specified shall constitute the entire agreement between us and is made solely for the benefit of the Issuer and the Underwriters (including successors or assigns of the Underwriters) and no other person shall acquire or have any right hereunder or by virtue hereof. This Purchase Agreement may not be assigned by the Issuer. All of the Issuer's representations, warranties and agreements contained in this Purchase Agreement shall remain operative and in full force and effect, regardless of (i) any investigations made by or on behalf of the Underwriters; (ii) delivery of and payment for the Bonds pursuant to this Purchase Agreement; and (iii) any termination of this Purchase Agreement. 12. Effectiveness. This Purchase Agreement shall become effective upon the acceptance hereof by the Issuer and shall be valid and enforceable at the time of such acceptance. 13. Representative Capacity. Any authority, right, discretion or other power conferred upon the Underwriters or the Representative under any provision of this Purchase Agreement may be exercised by the Representative, and the Issuer shall be entitled to rely upon any request, notice or statement if the same shall have been given or made by the Representative. 14. CHOICE OF LAW. THIS PURCHASE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF TEXAS. 15. Severability. If any provision of this Purchase Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provisions of any Constitution, statute, rule of public policy, or any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions of this Purchase Agreement invalid, inoperative or unenforceable to any extent whatever. 16. Business Day. For purposes of this Purchase Agreement, "business day" means any day on which the New York Stock Exchange is open for trading. 17. Paragraph Headings. Paragraph headings have been inserted in this Purchase Agreement as a matter of convenience of reference only, and it is agreed that such paragraph headings are not a part of this Purchase Agreement and will not be used in the interpretation of any provisions of this Purchase Agreement. 18. Counterparts. This Purchase Agreement may be executed in several counterparts each of which shall be regarded as an original (with the same effect as if the signatures thereto and hereto were upon the same document) and all of which shall constitute one and the same document. RAU505/64005; Austin 272635_2.DOC -14- Accepted and agreed to this 9th day of May, 2002 CITY OF ROUND ROCK, TEXAS By: Title: ATTEST: By: Very truly yours, RBC DAIN RAUSCHER C. as Representative for, e Unde 'ters identified on Sche By Title: City Secretary Austin 272635 t.DOC -15- Authorized Officer SCHEDULE I LIST OF UNDERWRITERS RBC DAIN RAUSCHER INC. MORGAN KEEGAN & COMPANY, INC. LEGG MASON WOOD WALKER, INC. J.P. MORGAN SECURITIES INC. ESTRADA HINOJOSA & COMPANY, INC. RAU505/64005; Austin 272635_2.DOC [Attach form of Official Statement completed as provided in Section 1 hereof] RAU505/64005; Austin 272635 2.DOC A-1 Exhibit A Exhibit B May 23, 2002 RBC Dain Rauscher Inc. Morgan Keegan & Company, Inc. Legg Mason Wood Walker, Inc. J.P. Morgan Securities Inc. Estrada Hinojosa & Company, Inc. c/o RBC Dain Rauscher Inc. 1001 Fannin, Suite 400 Houston, Texas 77002 Re: City of Round Rock, Texas, General Obligation and Refunding Bonds, Series 2002 Ladies and Gentlemen: We have acted as counsel to you as Underwriters of $45,465,000 aggregate principal amount of the captioned General Obligation and Refunding Bonds, Series 2002 (the "Bonds") issued by the City of Round Rock, Texas (the "Issuer"), pursuant to an ordinance adopted by the City Council of the Issuer on May 9, 2002 (the "Ordinance"). The Underwriters are purchasing the Bonds pursuant to the Purchase Agreement (the "Purchase Agreement") with respect thereto, dated May 9, 2002. Unless otherwise expressly provided herein, capitalized terms used in this opinion shall have the meanings ascribed to them in the Purchase Agreement. As your counsel, we have examined executed copies of the Ordinance, the Purchase Agreement and the Official Statement and the certificates and opinions referred to in Paragraph 7(g) of the Purchase Agreement. In addition, we have examined the originals or copies, certified or otherwise identified to our satisfaction, of such records of the Issuer, agreements and other instruments, certificates of public officials and representatives of the Issuer, and such other documents as we have deemed necessary or advisable as a basis for the opinions hereinafter expressed. Based on the foregoing and in reliance on the matters described below, we are of the opinion that the offer and sale of the Bonds by you do not require the registration of any security under the Securities Act of 1933, as amended and now in effect, and no instrument need be qualified under the Trust Indenture Act of 1939, as amended and now in effect, in connection therewith. RAU505/64005; Austin 272635 2.DOC B-1 Because the primary purpose of our professional engagement was not to establish factual matters and because of the wholly or partially non -legal character of many determinations involved in the preparation of the Official Statement, we are not passing upon and do not assume any responsibility for the accuracy, completeness, or fairness of the statements contained in the Official Statement, and make no representation that we have independently verified the accuracy, completeness or fairness of any such statements. At your request, we have participated as your counsel in conferences with representatives of the Issuer, the bond counsel to the Issuer, the financial advisors to the Issuer and your representatives, at which conferences the contents of the Official Statement and related matters were discussed. Based on our participation in the above- mentioned conferences and in reliance thereon and on the certificates, opinions and other documents herein mentioned, we advise you that no facts have come to our attention that lead us to believe that the Official Statement (except as to any statistical or financial data included in the Official Statement, as to which we are not called upon to express any opinion or belief) contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The opinions expressed herein are expressed only insofar as the laws of the State of Texas and the United States of America may be applicable. This opinion may be relied upon only by the addressees hereof and may not be used or relied upon by any other person for any purpose whatsoever without, in each instance, our prior written consent. RAU505/64005; Austin 272635 2.DOC Very truly yours, B-2 $45,465,000 CITY OF ROUND ROCK, TEXAS GENERAL OBLIGATION AND REFUNDING BONDS, SERIES 2002 PURCHASE AGREEMENT May 9, 2002 The Honorable Mayor and City Council City of Round Rock, Texas 221 East Main Street Round Rock, Texas 78664 Dear Mayor and Members of the City Council: The undersigned (hereinafter sometimes called the "Representative"), acting on behalf of itself and on behalf of the other underwriters named in the list attached as Schedule I hereto (the Representative and such other underwriters being collectively called the "Underwriters"), offers to enter into the following agreement with the City of Round Rock, Texas (hereinafter called the "Issuer"), which, upon the Issuer's written acceptance of this offer, will be binding upon the Issuer and upon the Underwriters. This offer is made subject to the Issuer's written acceptance hereof on or before 10:00 p.m., Austin, Texas time on the date hereof, and, if not so accepted, will be subject to withdrawal by the Underwriters upon notice delivered to the Issuer at any time prior to the acceptance hereof by the Issuer. Terms not otherwise defined in this Purchase Agreement shall have the same meanings set forth in the Ordinance (as hereinafter defined) or in the Official Statement (as hereinafter defined). 1. Purchase and Sale of the Bonds. Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein, the Underwriters hereby agree to purchase from the Issuer, and the Issuer hereby agrees to sell and deliver to the Underwriters, all, but not less than all, of the Issuer's General Obligation and Refunding Bonds, Series 2002 (the `Bonds"). The principal amounts of the Bonds to be issued, the dated date therefor, the maturities and optional redemption provisions and interest rates per annum shall be as set forth in the Official Statement. The purchase price for the Bonds shall be $45,491,878.35 (representing the par amount of the Bonds of $45,465,000, plus a net original issue premium of $317,854.35 and less the underwriters' discount on the Bonds of $290,976.00), plus interest accrued on the Bonds from the dated date of the Bonds to the Closing Date (as hereinafter defined). Delivered to the Issuer herewith is a corporate check of the Representative payable to the order of the Issuer in the amount of $457,850.00. The Issuer agrees to hold such check uncashed until the Closing (as hereinafter defined) to ensure the performance by the Underwriters of their RAU505/64005; Austin 272635_2.DOC obligations to purchase, accept delivery of and pay for the Bonds at the Closing. Concurrently with the payment by the Underwriters of the purchase price of the Bonds, the Issuer shall return such check to the Representative as provided in Paragraph 6 hereof. Should the Issuer fail to deliver the Bonds at the Closing, or should the Issuer be unable to satisfy the conditions of the obligations of the Underwriters to purchase, accept delivery of and pay for the Bonds, as set forth in this Purchase Agreement (unless waived by the Underwriters), or should such obligations of the Underwriters be terminated for any reason permitted by this Purchase Agreement, such check shall immediately be returned to the Representative. In the event the Underwriters fail (other than for a reason permitted hereunder) to purchase, accept delivery of and pay for the Bonds at the Closing as herein provided, such check shall be retained by the Issuer as full liquidated damages for such failure of the Underwriters and for any defaults hereunder on the part of the Underwriters. The Representative hereby agrees not to stop or cause payment on said check to be stopped unless the Issuer has breached any of the terms of this Purchase Agreement. Inasmuch as this purchase and sale represents a negotiated transaction, the Issuer understands, and hereby confirms, that the Underwriters are not acting as a fiduciary of the Issuer, but rather are acting solely in their individual capacities as Underwriters for their own account. 2. The Bonds and the Official Statement: End of the Underwriting Period. (a) The Bonds shall be as described in, and shall be issued and secured under and pursuant to the provisions of an ordinance authorizing the issuance and sale of the Bonds (the "Bond Ordinance"), adopted by the City Council of the Issuer on May 9, 2002. (b) The Preliminary Official Statement of the Issuer, dated April 25, 2002, including the cover page and Appendices thereto, relating to the Bonds (the "Preliminary Official Statement"), as amended to conform to the terms of this Purchase Agreement and with such changes and amendments to the date hereof as have been mutually agreed to by the Issuer and the Underwriters, as indicated on Exhibit A attached hereto, is hereinafter called the "Official Statement." (c) The Issuer hereby represents and warrants that the Preliminary Official Statement previously delivered to the Underwriters was deemed final by the Issuer as of its date, except for the omission of such information which is dependent upon the final pricing of the Bonds for completion, all as permitted to be excluded by Rule 15c2-12 under the Securities Exchange Act of 1934 ("Rule 15c2-12"). (d) The Issuer has duly authorized, approved and executed the Official Statement, which is final for purposes of Rule 15c2-12. (e) Unless otherwise notified in writing by the Representative by the Closing Date, the Issuer can assume that the "end of the underwriting period" for purposes of Rule 15c2-12 shall be the Closing Date. In the event such notice is so given in writing by the Representative, the Representative agrees to notify the Issuer in writing following the occurrence of the "end of the underwriting period" as defined in Rule 15c2-12. The "end of the underwriting period" as used in this Purchase Agreement shall mean the Closing Date or such later date as to which notice is given by the Representative in accordance with the preceding sentence. RAU505/64005; Austin 272635_2.DOC -2- (f) To the best knowledge and belief of the Issuer, the Official Statement contains information, including financial information or operating data, concerning every entity, enterprise, fund, account, or person that is material to an evaluation of the offering of the Bonds. The Issuer has complied in all material respects with all continuing disclosure agreements made by it in accordance with Rule 15c2-12. 3. Sale to Underwriters. It shall be a condition to the Issuer's obligation to sell and deliver the Bonds to the Underwriters and to the Underwriters' obligation to purchase, to accept delivery of and to pay for the Bonds, that the entire principal amount of the Bonds authorized by the Bond Ordinance shall be issued, sold and delivered by the Issuer and purchased, accepted and paid for by the Underwriters at the Closing. The Underwriters agree to offer the Bonds at prices not in excess of the initial offering prices or yields set forth on the inside front cover page of the Official Statement, plus interest accrued thereon from the date of the Bonds, and further represent that at least ten percent (10%) of the principal amount or maturity amount of the Bonds of each maturity shall be sold to the "public" (exclusive of dealers, brokers, investment bankers, etc.) at the offering price set forth on the inside front cover page of the Official Statement. 4. Use of Documents; Certain Covenants and Agreements of the Issuer. (a) The Issuer hereby authorizes the use by the Underwriters of the Bond Ordinance and the Official Statement, including any supplements or amendments thereto, and the information therein contained in connection with the public offering and sale of the Bonds. The Issuer ratifies and confirms the use by the Underwriters prior to the date hereof of the Preliminary Official Statement in connection with the public offering of the Bonds. (b) The Issuer covenants and agrees: (i) To cause reasonable quantities of the Official Statement, as requested by the Underwriters, to be delivered to the Underwriters, without charge, within seven business days of the date hereof. (ii) To provide such information as necessary for the Underwriters to comply with the filing requirements of Rule G-36 of the Municipal Securities Rulemaking Board. (iii) To apply the proceeds from the sale of the Bonds as provided in and subject to all of the terms and provisions of the Bond Ordinance authorizing their issuance and not to take or omit to take any action which action or omission will adversely affect the exclusion from gross income for federal income tax purposes of the interest on the Bonds under the Internal Revenue Code of 1986 (the "Code"). (iv) If, after the date of this Purchase Agreement to and including the date the Underwriters are no longer required pursuant to Rule 15c2-12 to provide the Official Statement to potential customers requesting an Official Statement (such date being the earlier of (A) 90 days from the end of the underwriting period and (B) the time when the Official Statement is available to any person from a nationally recognized municipal securities repository, but in no case less than 25 days after the end of the underwriting period), any event shall occur as a result of which it is necessary to amend or supplement the Official Statement in order to make the statements therein, in the light of the RAU505/64005; Austin 272635_2.DOC -3- circumstances when the Official Statement is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Official Statement to comply with law, to notify the Representative (and for the purposes of this clause (iv) to provide the Underwriters with such information as they may from time to time request), and to cooperate with the Representative in the preparation of either amendments or supplements to the Official Statement so that the statements in the Official Statement as so amended and supplemented will not, in light of the circumstances when the Official Statement is delivered to a purchaser, be misleading or so that the Official Statement will comply with law. (v) To furnish such information and execute such instruments and take such action in cooperation with the Underwriters as the Underwriters may reasonably request (A) to (y) qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions in the United States as the Underwriters may designate and (z) determine the eligibility of the Bonds for investment under the laws of such states and other jurisdictions and (B) to continue such qualifications in effect so long as required for the distribution of the Bonds; provided, however, that the Issuer will not be required to qualify as a foreign corporation or otherwise to do business or to file any general or special consents to service of process under the laws of any state or other jurisdiction. (vi) To advise the Underwriters immediately of receipt by the Issuer of any notification with respect to the suspension of the qualification of the Bonds for sale in any jurisdiction or the initiation or threat of any proceeding for that purpose. (vii) Between the date of this Purchase Agreement and the delivery of the Bonds, the Issuer will not, without the prior consent of the Underwriters, issue any bonds, notes or other obligations for borrowed money or incur any material liabilities, direct or contingent, payable from or secured by a pledge of the taxes, revenues or other assets of the Issuer. 5. Representations and Warranties of the Issuer. The Issuer hereby represents and warrants to the Underwriters as of the date hereof and as of the Closing Date, which representations and warranties shall survive the purchase and offering of the Bonds as follows: (a) The Issuer is a duly organized municipal corporation and a political subdivision duly created and validly existing under the Constitution and the laws of the State of Texas and has full legal right, power and authority pursuant to the Constitution and laws of the State of Texas, including particularly Chapters 1207 and 1331, Texas Government Code, as amended (the "Acts"), and at the date of the Closing will have, full legal right, power and authority to (i) enter into this Purchase Agreement, (ii) enter into the escrow agreement (the "Escrow Agreement") pertaining to the Refunded Bonds, between the Issuer and the escrow agent named in the Official Statement, (iii) adopt the Bond Ordinance, (iv) sell, issue and deliver the Bonds to the Underwriters as provided herein, (v) secure the payment of the Bonds as provided in the Bond Ordinance, and (vi) carry out and consummate the transactions contemplated by this Purchase Agreement, the Escrow Agreement, the Bond Ordinance and the Official Statement, RAU505/64005; Austin 272635_2.DOC -4- and the Issuer has complied, and will at the Closing be in compliance in all respects, with the terms of the Acts and the Bond Ordinance as they pertain to such transactions. (b) By all necessary official action of the Issuer prior to or concurrently with the acceptance hereof, the Issuer has duly adopted the Bond Ordinance, has duly authorized and approved the execution and delivery of, and the performance by the Issuer of the obligations on its part contained in the Bonds, the Bond Ordinance, this Purchase Agreement, the Escrow Agreement and the consummation by it of all other transactions contemplated by the Official Statement, the Bond Ordinance, this Purchase Agreement and the Escrow Agreement; the Bond Ordinance, this Purchase Agreement and the Escrow Agreement each constitute legal, valid and binding obligations of the Issuer, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws and principles of equity relating to or affecting the enforcement of creditors' rights; the Bonds, when issued, authenticated and delivered to the Underwriters in accordance with the Bond Ordinance and this Purchase Agreement, will be payable from a continuing ad valorem tax levied, within the limits prescribed by law, on all taxable property within the Issuer, will be entitled to the benefits of the Bond Ordinance and will be enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws and principles of equity relating to or affecting the enforcement of creditors' rights. (c) The Issuer is not in breach of or default under any applicable constitutional provision, law or administrative regulation of the State of Texas or the United States of America or any applicable judgment or decree or any loan agreement, indenture, bond, note, ordinance, resolution, agreement or other instrument to which the Issuer is a party or to which the Issuer or any of its property or assets are otherwise subject, and no event has occurred and is continuing which constitutes or with the passage of time or the giving of notice, or both, would constitute a default or event of default by the Issuer under any such instrument except as may be disclosed in the Official Statement; and the execution and delivery of the Bonds, this Purchase Agreement and the Escrow Agreement, adoption of the Bond Ordinance and compliance on the Issuer's part with the provisions contained therein, will not conflict with or constitute a breach of or default under any constitutional provision, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, ordinance, resolution, agreement or other instrument to which the Issuer is a party or to which the Issuer or any of its property or assets are otherwise subject, nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of the Issuer under the terms of any such law, regulation or instrument, except as provided by the Bonds and the Bond Ordinance. (d) All authorizations, approvals, licenses, permits, consents and orders of any governmental authority, legislative body, board, agency or commission having jurisdiction over the matter which are required for the due authorization of, which would constitute a condition precedent to, or the absence of which would have a material adverse effect on the due performance by the Issuer of its obligations under, this Purchase Agreement, the Escrow Agreement, the Bond Ordinance and the Bonds have been duly obtained, except for the approval of the Bonds by the Attorney General of the State of Texas (and the registration of the Bonds by the Comptroller of Public Accounts of the State of Texas) and such approvals, consents and RAU505/64005; Austin 272635_2.DOC -5- orders as are stated in the Official Statement as yet to be obtained or as may be required under the Blue Sky or securities laws of any state in connection with the offering and sale of the Bonds. (e) The Bonds conform to the description thereof contained in the Official Statement under the caption "THE BONDS" (except under the subcaption "Book -Entry -Only System") and the proceeds of the Bonds will be applied generally as described in the Official Statement. (f) There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, pending or, to the best knowledge of the Issuer after due inquiry, threatened against the Issuer, affecting the corporate existence of the Issuer or the titles of its officers to their respective offices, or affecting or seeking to prohibit, restrain or enjoin the sale, issuance or delivery of the Bonds or the levy, collection or application of the ad valorem taxes pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity or enforceability of the Bonds, the Bond Ordinance, the Escrow Agreement or this Purchase Agreement, or contesting in any way the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto, or contesting the powers of the Issuer or any authority for the issuance of the Bonds, the adoption of the Bond Ordinance or the execution and delivery of this Purchase Agreement and the Escrow Agreement, nor, to the best knowledge of the Issuer, is there any basis therefor, wherein an unfavorable decision, ruling or finding would have a material adverse effect on the validity or enforceability of the Bonds, the Bond Ordinance, this Purchase Agreement or the Escrow Agreement. (g) As of the date thereof, the Preliminary Official Statement did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (h) At the time of the Issuer's acceptance hereof and (unless an event occurs of the nature described in Paragraph 4(b)(iv)) at all times subsequent thereto during the period up to and including the date the Underwriters are no longer required pursuant to Rule 15c2-12 to provide the Official Statement to potential customers requesting an Official Statement (as more particularly described in Paragraph 4(b)(iv)), the Official Statement does not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (i) If the Official Statement is supplemented or amended pursuant to Paragraph 4(b)(iv), at the time of each supplement or amendment thereto and (unless subsequently again supplemented or amended pursuant to such paragraph) at all times subsequent thereto during the period up to and including the date the Underwriters are no longer required pursuant to Rule 15c2-12 to provide the Official Statement to potential customers requesting an Official Statement (as more particularly described in Paragraph 4(b)(iv)), the Official Statement as so supplemented or amended will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. RAU505/64005; Austin 272635 2.DOC -6- (j) The financial statements of, and other financial information regarding, the Issuer in the Official Statement fairly present the financial position and results of the operations of the Issuer as of the dates and for the periods therein set forth and (i) the unaudited financial statements have been prepared on a basis substantially consistent with the audited financial statements included in the Official Statement and reflect all adjustments necessary to that effect, and (ii) the other financial information has been determined on a basis substantially consistent with that of the Issuer's audited financial statements included in the Official Statement. (k) Any certificate signed by any official of the Issuer authorized to do so in connection with the transactions contemplated by this Purchase Agreement shall be deemed a representation and warranty by the Issuer to the Underwriters as to the statements made therein. 6. Closing. (a) At 10:00 a.m., Austin, Texas time, on May 23, 2002, or at such other time and date as shall have been mutually agreed upon by the Issuer and the Representative (the "Closing Date"), the Issuer will, subject to the terms and conditions hereof, deliver to the Representative the initial Bonds registered in the name of the Representative, in temporary form, together with the other documents hereinafter mentioned, and will have available for immediate exchange definitive Bonds deposited with The Depository Trust Company, New York, New York ("DTC"), or deposited with the Paying Agent/Registrar, if the Bonds are to be held in safekeeping for DTC by the Paying Agent/Registrar pursuant to DTC's FAST system and the Bond Ordinance, duly executed and authenticated in the form and manner contemplated below, together with the other documents hereinafter mentioned, and the Underwriters will, subject to the terms and conditions hereof, accept such delivery and pay the purchase price of the Bonds as set forth in Paragraph 1 hereof in immediately available funds (such events being referred to herein as the "Closing"). Concurrently with such payment by the Underwriters, the Issuer shall return to the Representative, the check referred to in Paragraph 1 hereof. Payment for the Bonds as aforesaid shall be made at the offices of the paying agent/registrar, or such other place as shall have been mutually agreed upon by the Issuer and the Underwriters. (b) Delivery of the definitive Bonds in exchange for the initial Bonds shall be made through DTC, utilizing the book -entry only form of issuance, and the Issuer agrees to enter into such agreement, including a "Letter of Representations," as may be required to allow for the use of such book -entry only system. The definitive Bonds shall be delivered in fully registered form bearing CUSIP numbers without coupons with one Certificate for each maturity of Bonds, registered in the name of CEDE & CO. and shall be made available at the Designated Payment/Transfer Office of the Paying Agent/Registrar to the Representative at least one business day before the Closing for purposes of inspection. 7. Closing Conditions. The Representative has entered into this Purchase Agreement in reliance upon the representations, warranties and agreements of the Issuer contained herein, and in reliance upon the representations, warranties and agreements to be contained in the documents and instruments to be delivered at the Closing and upon the performance by the Issuer of its obligations hereunder, both as of the date hereof and as of the date of the Closing. Accordingly, the Underwriters' obligations under this Purchase Agreement to purchase, to accept delivery of and to pay for the Bonds shall be conditioned upon the performance by the Issuer of its obligations to be performed hereunder and under such RAU505/64005; Austin 272635 2.DOC -7- documents and instruments at or prior to the Closing, and shall also be subject to the following additional conditions: (a) The representations and warranties of the Issuer contained herein or in any certificate or other document delivered pursuant to the provisions hereof shall be true, complete and correct on the date hereof and on and as of the date of the Closing, as if made on the date of the Closing. (b) At the time of the Closing, the Bond Ordinance shall be in full force and effect and shall not have been amended, modified or supplemented, and the Official Statement shall not have been supplemented or amended, except in any such case as may have been agreed to by the Representative. (c) At the time of the Closing, all official action of the Issuer relating to this Purchase Agreement, the Escrow Agreement, the Bonds and the Bond Ordinance shall be in full force and effect and shall not have been amended, modified or supplemented; and the Representative shall have received, in appropriate form, evidence thereof. (d) At the time of the Closing, there shall not have occurred any change in the condition, financial or otherwise, or in the earnings or operations of the Issuer, from that set forth in the Official Statement that, in the judgment of the Representative, is material and adverse and that makes it, in the judgment of the Representative, impracticable to market the Bonds on the terms and in the manner contemplated in the Official Statement. (e) The Issuer shall not have failed to pay principal or interest when due on any of its outstanding obligations for borrowed money. (f) All steps to be taken and all instruments and other documents to be executed, and all other legal matters in connection with the transactions contemplated by this Purchase Agreement shall be reasonably satisfactory in legal form and effect to counsel for the Underwriters. (g) At or prior to the Closing, the Representative shall have received copies of each of the following documents: (1) The Official Statement, and each supplement or amendment, if any, thereto, executed on behalf of the Issuer by the Mayor and the City Secretary of the Issuer. (2) The Bond Ordinance certified by the City Secretary under its seal as having been duly adopted by the Issuer and as being in effect, with such changes or amendments as may have been agreed to by the Representative, and containing therein the agreement of the Issuer to provide certain periodic information and notices of material events in accordance with Rule 15c2-12, as described in the Official Statement under the caption "CONTINUING DISCLOSURE OF INFORMATION." RAU505/64005; Austin 272635 2.DOC -8- (3) The Escrow Agreement, having been duly executed on behalf of the Issuer by the Mayor and City Secretary and JPMorgan Chase Bank, Dallas, Texas (the "Escrow Agent"). (4) The opinion of McCall, Parkhurst & Horton L.L.P., Bond Counsel, in substantially the form and substance of Appendix C to the Official Statement. (5) An opinion or certificate, dated on or prior to the date of Closing, of the Attorney General of the State of Texas, approving the Bonds, as required by law, and the registration certificates of the Comptroller of Public Accounts of the State of Texas for the Bonds. (6) The supplemental opinion, dated the date of the Closing, of McCall, Parkhurst & Horton L.L.P., addressed to the Issuer and the Underwriters to the effect that: (i) the Bonds are exempt securities within the meaning of Section 3(a)(2) of the Securities Act of 1933, as amended, and it is not necessary in connection with the sale of the Bonds to the public to register the Bonds under the Securities Act of 1933, as amended, or to qualify the Bond Ordinance under the Trust Indenture Act of 1939, as amended, and (ii) except to the extent noted therein, said firm has not verified and is not passing upon, and does not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Official Statement but that said firm has reviewed the information contained in the Official Statement under the captions "PLAN OF FINANCING" (other than information under the subcaption "Sources and Uses of Proceeds"), "THE BONDS" (other than information under the subcaptions "Book -Entry -Only System" and "Bondholders' Remedies"), "TAX MATTERS," "CONTINUING DISCLOSURE OF INFORMATION" (other than information under the subcaption "Compliance with Prior Undertakings"), and under the subcaptions "- Registration and Qualification of Bonds for Sale," "- Legal Investments and Eligibility to Secure Public Funds in Texas," and "- Legal Matters" under the caption "OTHER INFORMATION" and in APPENDIX C, and such firm is of the opinion that the information relating to the Bonds and the Bond Ordinance contained therein accurately and fairly reflects the provisions thereof and is correct as to matters of law. (7) An opinion, dated the date of the Closing and addressed to the Underwriters, of Vinson & Elkins L.L.P., Austin, Texas ("Underwriters' Counsel"), in substantially the form of Exhibit B hereto. (8) A certificate, dated the date of the Closing, signed by the Mayor and the City Manager, to the effect that (i) the representations and warranties of the Issuer contained herein or in any certificate or document delivered by the Issuer pursuant to the provisions hereof are true and correct in all material respects on and as of the date of Closing as if made on the date of Closing, and all agreements or conditions to be performed or complied with by the Issuer hereunder on or prior to the date of the Closing have been performed or complied with; (ii) except to the extent disclosed in the Official Statement, no litigation is RAU505/64005; Austin 272635_2.DOC -9- pending or, to the knowledge of such persons, threatened in any court to restrain or enjoin the issuance or delivery of the Bonds or the levy, collection or application of the ad valorem taxes pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity of the Bonds, the Bond Ordinance, the Escrow Agreement, or this Purchase Agreement, or contesting the powers of the Issuer or contesting the authorization of the Bonds or the Bond Ordinance, or contesting in any way the accuracy, completeness or fairness of the Official Statement (but in lieu of or in conjunction with such certificate, the Representative may, in its sole discretion, accept certificates or opinions of the General Counsel of the Issuer that, in his or her opinion, the issues raised in any such pending or threatened litigation are without substance or that the contentions of all plaintiffs therein are without merit); (iii) no event affecting the Issuer has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (iv) the descriptions and statements of or pertaining to the Issuer contained in the Official Statement, on the date of sale of the Bonds and on the date of the delivery of the Bonds, were and are true and correct in all material respects; (v) insofar as the Issuer and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (vi) insofar as the descriptions and statements including financial data, of or pertaining to entities, other than the Issuer, and their activities contained in the Official Statement are concerned, such statements and data have been obtained from sources which the Issuer believes to be reliable and the Issuer has no reason to believe that they are untrue in any material respect; and (vii) there has not been any material and adverse change in the affairs or financial condition of the Issuer since September 30, 2001, the latest date as to which audited financial information is available. (9) A certificate, dated the date of Closing, of an appropriate official of the Issuer to the effect that, on the basis of the facts, estimates and circumstances in effect on the date of delivery of the Bonds, it is not expected that the proceeds of the Bonds will be used in a manner that would cause the Bonds to be arbitrage bonds within the meaning of Section 148 of the Code. (10) Evidence satisfactory to the Representative that the Bonds have been rated "Aaa" by Moody's Investors Service, Inc. and "AAA" by Standard & Poor's Ratings Services, A Division of the McGraw-Hill Companies, Inc. and that all such ratings are in effect as of the date of Closing. (11) Evidence acceptable to the Underwriters of the purchase by the Issuer or the Escrow Agent of the federal securities, as described in the Escrow Agreement, and the deposit thereof to the escrow fund described therein. RAU505/64005; Austin 272635_2.DOC -10- (12) The verification of mathematical computations by Grant Thornton LLP (the "Verification Agent") referred to in the Official Statement, addressed to the Issuer, Bond Counsel and the Underwriters. (13) A copy of the policy of municipal bond insurance issued by Financial Security Assurance Inc., together with the customary opinion of its legal counsel as to the validity and enforceability of such policy and the fairness and accuracy of the language contained in the Official Statement. (14) Such additional legal opinions, certificates, instruments and other documents as the Representative or Underwriters' Counsel may request to evidence the truth and accuracy, as of the date hereof and as of the date of the Closing, of the Issuer's representations and warranties contained herein and of the statements and information contained in the Official Statement and the due performance or satisfaction by the Issuer on or prior to the date of the Closing of all the respective agreements then to be performed and conditions then to be satisfied by the Issuer. All of the opinions, letters, certificates, instruments and other documents mentioned above or elsewhere in this Purchase Agreement shall be deemed to be in compliance with the provisions hereof if, but only if, they are in form and substance satisfactory to the Underwriters. If the Issuer shall be unable to satisfy the conditions to the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Bonds contained in this Purchase Agreement, or if the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Bonds shall be terminated for any reason permitted by this Purchase Agreement, this Purchase Agreement shall terminate and neither the Underwriters nor the Issuer shall be under any further obligation hereunder, except that (i) the check referred to in Paragraph 1 hereof shall be immediately returned to the Representative by the Issuer and (ii) the respective obligations of the Issuer and the Underwriters set forth in Paragraph 9 hereof shall continue in full force and effect. 8. Termination. The Underwriters shall have the right to terminate in its absolute discretion the Underwriters' obligation under this Purchase Agreement to purchase, to accept delivery of and to pay for the Bonds by notifying the Issuer of its election to do so if, after the execution hereof and prior to the Closing: (a) (i) Legislation (including any amendment thereto) shall have been introduced in or adopted by either House of the Congress of the United States or recommended to the Congress or otherwise endorsed for passage by the President of the United States, the Treasury Department of the United States, the Internal Revenue Service or the Chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives, or legislation is proposed for consideration by either such committee by any member thereof or presented as an option for consideration by either such committee by the staff of such committee, or by the staff of the Joint Committee on Taxation of the Congress of the United States, or a bill to amend the Internal Revenue Code (which, if enacted, would be effective as of a date prior to the Closing) shall be filed in either RAU505/64005; Austin 272635_2.DOC -11- house, or (ii) a decision shall have been rendered by a court established under Article III of the Constitution of the United States or by the United States Tax Court, or (iii) an order, filing, ruling or regulation shall have been issued or proposed by or on behalf of the Treasury Department of the United States or the Internal Revenue Service or any other agency of the United States, or (iv) a release or official statement shall have been issued by the President of the United States or by the Treasury Department of the United States or by the Internal Revenue Service, the effect of which, in any such case described in clause (i), (ii), (iii), or (iv), would be to impose, directly or indirectly, federal income taxation upon interest received on obligations of the general character of the Bonds or upon income of the general character to be derived by the Issuer, other than as imposed on the Bonds and income therefrom under the federal tax laws in effect on the date hereof, in such a manner as in the judgment of the Underwriters would make it impracticable to market the Bonds on the terms and in the manner contemplated in the Official Statement. (b) Any action shall have been taken by the Securities and Exchange Commission or by a court which would require registration of any security under the Securities Act of 1933, as amended, or qualification of any indenture under the Trust Indenture Act of 1939, as amended, in connection with the public offering of the Bonds; any action shall have been taken by any court or by any governmental authority suspending the use of the Official Statement or any amendment or supplement thereto, or any proceeding for that purpose shall have been initiated or threatened in any such court or by any such authority; any state blue sky or securities commission or other governmental agency or body shall have withheld registration, exemption or clearance of the offering of the Bonds, as described herein, or issued a stop order or similar ruling relating thereto. (c) (i) The Constitution of the State of Texas shall be amended or an amendment shall be proposed, or (ii) legislation shall be enacted, or (iii) a decision shall have been rendered as to matters of Texas law, or (iv) any order, ruling or regulation shall have been issued or proposed by or on behalf of the State of Texas by an official, agency or department thereof, affecting the tax status of the Issuer, its property or income, its notes or bonds (including the Bonds) or the interest thereon, which in the judgment of the Underwriters would make it impracticable to market the Bonds on the terms and in the manner contemplated in the Official Statement. (d) Any fact or event shall exist or have existed that, in the Representative's judgment would make it impracticable to market the bonds on the terms and in the manner contemplated in the Official Statement, and requires or has required an amendment of or supplement to the Official Statement in order to make the statements therein, in light of the circumstances under which they were made, not misleading or to comply with law. (e) (i) (A) Trading generally shall have been suspended or materially limited on or by, as the case may be, either of the New York Stock Exchange or the American Stock Exchange, (B) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities, or (C) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the reasonable judgment of the Underwriters, is material and adverse and (ii) in the case of any of the events specified in clauses (A) through (C), such event singly or together with RAU505/64005; Austin 272635_2.DOC -12- any other such event makes it, in the judgment of the Representative, impracticable to market the Bonds on the terms and in the manner contemplated in the Official Statement. (f) There shall have occurred any downgrading, or any notice shall have been given of (i) any intended or potential downgrading or (ii) any review or possible change that does not indicate the direction of a possible change, in the rating accorded any of the Issuer's obligations (including the ratings to be accorded the Bonds) by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act of 1933, as amended. (g) Legislation shall have been enacted by the federal government or the State of Texas, a decision of any federal or State of Texas court shall have been made, or a ruling or regulation (proposed, temporary or final) of the Securities and Exchange Commission or other governmental agency shall have been made or issued that, in the opinion of Underwriters' Counsel, has the effect of requiring the contemplated distribution of the Bonds or any agreement offered in connection therewith to be registered under the Securities Act of 1933, as amended, or the Bond Ordinance to be qualified as an indenture under the Trust Indenture Act of 1939, as amended. (h) A change in applicable law shall occur or any governmental authority, board, agency or commission of the federal government or in the State of Texas shall take any action the result of which in each case is to prohibit the purchase of and payment for the Bonds by the Underwriters, or the resale of the Bonds by the Underwriters, on the terms and conditions herein. (i) The debt ceiling of the United States is such that the federal securities required to fund the Escrow Agreement are not available for delivery on the date of the delivery of the Bonds. 9. Expenses. (a) The Underwriters shall be under no obligation to pay, and the Issuer shall pay, any expenses incident to the performance of the Issuer's obligations hereunder, including, but not limited to (i) the cost of preparation, printing and delivery of the Preliminary Official Statement and the Official Statement; (ii) the cost of preparation and printing of the Bonds; (iii) the fees and disbursements of McCall, Parkhurst & Horton L.L.P. for their services as Bond Counsel to the Issuer; (iv) the fees and disbursements of the financial advisor to the Issuer; (v) the fees and disbursements of any other engineers, accountants, and other experts, consultants or advisers retained by the Issuer; and (vi) the fees, if any, for bond ratings. (b) The Underwriters shall pay (i) the cost of preparation and printing of this Purchase Agreement; (ii) all advertising expenses in connection with the public offering of the Bonds; and (iii) all other expenses incurred by them or any of them in connection with the public offering of the Bonds, including the fees and disbursements of Underwriters' Counsel. 10. Notices. Any notice or other communication to be given to the Issuer under this Purchase Agreement may be given by delivering the same in writing at City of Round Rock, Texas, 221 East Main Street, Round Rock, Texas 78664, Attention: City Manager, and any notice or other communication to be given to the Underwriters under this Purchase Agreement RAU505/64005; Austin 272635_2.DOC -13- may be given by delivering the same in writing to RBC Dain Rauscher Inc., 1001 Fannin, Suite 400, Houston, Texas 77002, Attention: Mark Nitcholas. 11. Parties in Interest. This Purchase Agreement as heretofore specified shall constitute the entire agreement between us and is made solely for the benefit of the Issuer and the Underwriters (including successors or assigns of the Underwriters) and no other person shall acquire or have any right hereunder or by virtue hereof. This Purchase Agreement may not be assigned by the Issuer. All of the Issuer's representations, warranties and agreements contained in this Purchase Agreement shall remain operative and in full force and effect, regardless of (i) any investigations made by or on behalf of the Underwriters; (ii) delivery of and payment for the Bonds pursuant to this Purchase Agreement; and (iii) any termination of this Purchase Agreement. 12. Effectiveness. This Purchase Agreement shall become effective upon the acceptance hereof by the Issuer and shall be valid and enforceable at the time of such acceptance. 13. Representative Capacity. Any authority, right, discretion or other power conferred upon the Underwriters or the Representative under any provision of this Purchase Agreement may be exercised by the Representative, and the Issuer shall be entitled to rely upon any request, notice or statement if the same shall have been given or made by the Representative. 14. CHOICE OF LAW. THIS PURCHASE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF TEXAS. 15. Severability. If any provision of this Purchase Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provisions of any Constitution, statute, rule of public policy, or any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions of this Purchase Agreement invalid, inoperative or unenforceable to any extent whatever. 16. Business Day. For purposes of this Purchase Agreement, "business day" means any day on which the New York Stock Exchange is open for trading. 17. Paragraph Headings. Paragraph headings have been inserted in this Purchase Agreement as a matter of convenience of reference only, and it is agreed that such paragraph headings are not a part of this Purchase Agreement and will not be used in the interpretation of any provisions of this Purchase Agreement. 18. Counterparts. This Purchase Agreement may be executed in several counterparts each of which shall be regarded as an original (with the same effect as if the signatures thereto and hereto were upon the same document) and all of which shall constitute one and the same document. RAU505/64005; Austin 272635_2.DOC -14- Accepted and agreed to this 9th day of May, 2002 CITY OF ROUND ROCK, TEXAS ATTEST: By: Title: Very truly yours, RBC DAIN RAUSCHER I C. as Representative for e Unde . ers identified on Schee . e I /, dridepil; By 0,10,6±thiwNaAti," City Secretary Austin 272635 1.DOC -15- Authorized Officer SCHEDULE I LIST OF UNDERWRITERS RBC DAIN RAUSCHER INC. MORGAN KEEGAN & COMPANY, INC. LEGG MASON WOOD WALKER, INC. J.P. MORGAN SECURITIES INC. ESTRADA HINOJOSA & COMPANY, INC. RAU505/64005; Austin 272635 2.DOC [Attach form of Official Statement completed as provided in Section 1 hereof] RAU505/64005; Austin 272635 2.DOC A-1 Exhibit A Exhibit B May 23, 2002 RBC Dain Rauscher Inc. Morgan Keegan & Company, Inc. Legg Mason Wood Walker, Inc. J.P. Morgan Securities Inc. Estrada Hinojosa & Company, Inc. c/o RBC Dain Rauscher Inc. 1001 Fannin, Suite 400 Houston, Texas 77002 Re: City of Round Rock, Texas, General Obligation and Refunding Bonds, Series 2002 Ladies and Gentlemen: We have acted as counsel to you as Underwriters of $45,465,000 aggregate principal amount of the captioned General Obligation and Refunding Bonds, Series 2002 (the "Bonds") issued by the City of Round Rock, Texas (the "Issuer"), pursuant to an ordinance adopted by the City Council of the Issuer on May 9, 2002 (the "Ordinance"). The Underwriters are purchasing the Bonds pursuant to the Purchase Agreement (the "Purchase Agreement") with respect thereto, dated May 9, 2002. Unless otherwise expressly provided herein, capitalized terms used in this opinion shall have the meanings ascribed to them in the Purchase Agreement. As your counsel, we have examined executed copies of the Ordinance, the Purchase Agreement and the Official Statement and the certificates and opinions referred to in Paragraph 7(g) of the Purchase Agreement. In addition, we have examined the originals or copies, certified or otherwise identified to our satisfaction, of such records of the Issuer, agreements and other instruments, certificates of public officials and representatives of the Issuer, and such other documents as we have deemed necessary or advisable as a basis for the opinions hereinafter expressed. Based on the foregoing and in reliance on the matters described below, we are of the opinion that the offer and sale of the Bonds by you do not require the registration of any security under the Securities Act of 1933, as amended and now in effect, and no instrument need be qualified under the Trust Indenture Act of 1939, as amended and now in effect, in connection therewith. RAU505/64005; Austin 272635_2.DOC B-1 Because the primary purpose of our professional engagement was not to establish factual matters and because of the wholly or partially non -legal character of many determinations involved in the preparation of the Official Statement, we are not passing upon and do not assume any responsibility for the accuracy, completeness, or fairness of the statements contained in the Official Statement, and make no representation that we have independently verified the accuracy, completeness or fairness of any such statements. At your request, we have participated as your counsel in conferences with representatives of the Issuer, the bond counsel to the Issuer, the financial advisors to the Issuer and your representatives, at which conferences the contents of the Official Statement and related matters were discussed. Based on our participation in the above- mentioned conferences and in reliance thereon and on the certificates, opinions and other documents herein mentioned, we advise you that no facts have come to our attention that lead us to believe that the Official Statement (except as to any statistical or financial data included in the Official Statement, as to which we are not called upon to express any opinion or belief) contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The opinions expressed herein are expressed only insofar as the laws of the State of Texas and the United States of America may be applicable. This opinion may be relied upon only by the addressees hereof and may not be used or relied upon by any other person for any purpose whatsoever without, in each instance, our prior written consent. RAU505/64005; Austin 272635 2.DOC Very truly yours, B-2 FEDERAL TAX CERTIFICATE 1. In General. 1.1. The undersigned is the Mayor of the City of Round Rock, Texas (the "Issuer"). 1.2. This Certificate is executed for the purpose of establishing the reasonable expectations of the Issuer as to future events regarding the Issuer's General Obligation and Refunding Bonds, Series 2002 (the "Bonds"). The Bonds are being issued pursuant to an ordinance of the Issuer (the "Ordinance") adopted on the date of sale of the Bonds. The Ordinance is incorporated herein by reference. 1.3. To the best of the undersigned's knowledge, information and belief, the expectations contained in this Certificate are reasonable. 1.4. The undersigned is an officer of the Issuer delegated with the responsibility, among others, of issuing and delivering the Bonds. 1.5. The undersigned is not aware of any facts or circumstances that would cause him to question the accuracy of the representations made by RBC Dain Rauscher, Inc. (the "Underwriter") in Section 4.1 and by First Southwest Company (the "Financial Advisor") in Section 4.2 of this Certificate. 2. The Purpose of the Bonds and Useful Lives of Projects. 2.1. The purpose for the issuance of the Bonds, as more fully described in the Ordinance, is (a) in part, to establish an Escrow Fund (the "Escrow Fund") pursuant to an Escrow Agreement (the "Escrow Agreement") between the Issuer and an escrow agent to currently refund the outstanding obligations of the Issuer (the "Refunding Portion") as listed in Exhibit "B" to the Escrow Agreement (the "Outstanding Bonds") within 90 days of the date of this Certificate, (b) in part, to construct, improve, extend, expand, upgrade and/or develop the Issuer's street, bridges and intersections, including utility relocation, sidewalks, traffic safety and operational improvements, the purchase of any necessary right-of-way, drainage improvements and other related costs; (ii) to construct, acquire, improve, renovate, equip, and/or develop land and buildings for the Issuer's park and recreational purposes including parkland, scenic easement, trail acquisition, pedestrian and bike trail improvements, a recreation center and a senior citizen center and other related costs; (iii) to construct, improve, renovate and equip the Issuer's police and fire department facilities including the acquisition of necessary sites (iv) construct, improve, renovate, expand and equip Municipal Office Campus Phase II and Public Works Building expansion of necessary sites and related water, wastewater, drainage, streets, sidewalks and parking infrastructure and other related costs (the "Project") and (c) in part, to pay the related expenses of issuing the Bonds. The portion of the Bonds described in (b) above is hereafter referred to as the "New Money Portion." The Escrow Agreement is included in the transcript for the Bonds and incorporated herein by reference. 2.2. The proceeds of the Outstanding Bonds were used to finance or refinance obligations issued to provide for various projects to be owned and operated by the Issuer (the "Prior Bond Projects"). The Prior Bond Projects remain in service and have not been sold or otherwise disposed of by the Issuer. 2.3. The Issuer expects that 120 percent of the aggregate useful lives of the Projects and the Prior Bond Projects, on the later of the date that such Projects are, or Prior Bond Projects were placed in service or the date of issuance of the Outstanding Bonds, will exceed 22 years. 2.4. Other than members of the general public, the Issuer expects that throughout the lesser of the term of the Bonds, or the useful lives of the Projects and the Prior Bond Projects, the only user of the Prior Bond Projects will be the Issuer or the Issuer's employees and agents (other than a manager or lessee). The Issuer will be the manager of the Projects and the Prior Bond Projects. 2.5. Except as stated below, the Issuer expects not to sell or otherwise dispose of property constituting the Projects and the Prior Bond Projects prior to the earlier of the end of such property's useful life or the final maturity of the Bonds. The Ordinance provides that the Issuer will not sell or otherwise dispose of the Projects and the Prior Bond Projects unless the Issuer receives an opinion of nationally -recognized bond counsel that such sale or other disposition will not adversely affect the tax-exempt status of the Bonds. 2.6. For purposes of Section 2.5 hereof, the Issuer has not included the portion of the Projects and the Prior Bond Projects comprised of personal property that is disposed in the ordinary course at a price that is expected to be less than 25 percent of the original purchase price. The Issuer, upon any disposition of such property, will transfer the receipts from the disposition of such property to the general operating fund and expend such receipts within six months for other governmental programs. 3. Source and Disbursement of Funds. All original proceeds derived from the sale of the Bonds and investment earnings thereon will be expended no later than a date which is 90 day after the date of issue of the Bonds for the payment of principal and interest on the Outstanding Bonds. 4. Yields. 4.1. All of the Bonds have been the subject of a bona fide initial offering to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters or wholesalers) at prices no higher or at yields no lower than that shown on the cover of the Official Statement. At least 10 percent of the principal amount of each maturity of the Bonds were sold to the public (excluding such bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at an initial offering price or yield not greater than the price or not lower than the yield shown on the cover of the Official Statement for such maturity. The Official Statement is included in the transcript for the Bonds and is incorporated herein by reference. 4.2. The premium paid for bond insurance is solely for the transfer of credit risk for the payment of debt service on the Bonds. The Financial Advisor has represented that the present value of the premium paid for bond insurance for each obligation constituting the Bonds to which such premium is properly allocated and which are insured thereby is less than the present value of the interest reasonably expected to be saved as a result of the insurance on each obligation constituting the Bonds. The premium has been paid to a person which is not a user or related to the user of any proceeds of the Bonds. In determining present value for this purpose, the yield of the Bonds (determined with regard to the payment of the guarantee fee) has been used as the discount rate. 2 5. Transferred Proceeds and Disposition Proceeds. As of the date of this Certificate, all of the amounts received from the sale of the Outstanding Bonds and the investment earnings thereon have been expended. 6. Interest and Sinking Fund. 6.1. A separate and special Interest and Sinking Fund has been created and established solely to pay the principal of and interest on the Bonds, with a portion of the Interest and Sinking Fund constituting a bona fide debt service fund for the Bonds, and money deposited into the Interest and Sinking Fund for the Bonds will not be invested at a yield higher than the yield on the Bonds, except during the thirteen month period beginning on the date of each such deposit of money, and the amounts received from the investment of money in the Interest and Sinking Fund will not be invested at a yield higher than the yield on the Bonds, except during the one year period beginning on the date of receipt of such amounts; provided, however, and except that, if any money so deposited, and any amounts received from the investment thereof, are accumulated in the Interest and Sinking Fund and remain on hand in the Interest and Sinking Fund after thirteen months from the date of deposit of any such money or one year after the receipt of any such amounts from the investment thereof, such money and amounts, to the extent of an aggregate not exceeding the lesser of five percent of the proceeds of the Bonds or $100,000 will not be subject to investment yield restrictions, and shall constitute a separate portion of the Interest and Sinking Fund. 6.2. It is expected that a portion of the Interest and Sinking Fund will be used primarily to achieve a proper matching of revenues collected for the Bonds and debt service on the Bonds within each bond year, and it is expected that such portion of the Interest and Sinking Fund will be depleted once a year on a first -in - first -out basis, except for a possible carryover amount which will not exceed the greater of one year's earnings on such fund or 1/12 of annual debt service payable from such fund, but any money and amounts which may be accumulated in the Interest and Sinking Fund, to constitute a debt service reserve fund for the Bonds as described in Section 6.1, above, shall constitute a separate portion of the Interest and Sinking Fund, and will not be depleted annually, and will not be subject to yield restrictions; provided that in no event will such debt service reserve fund portion of the Interest and Sinking Fund ever exceed the lesser of five percent of the proceeds of the Bonds or $100,000. 7. Expenditure of Bond Proceeds and Use of Projects. 7.1. The Issuer will incur, within six months after the date of issue of the Bonds, a binding obligation to commence the Projects, either by entering into contracts for the construction of the Projects or by entering into contracts for architectural or engineering services for such Projects, or contracts for the development, purchase of construction materials, or purchase of equipment, for the Projects, with the amount to be paid under such contracts to be in excess of five percent of the proceeds which are estimated to be used for the cost of the Projects. 7.2. After entering into binding obligations, work on such Projects will proceed promptly with due diligence to completion. 7.3. All original proceeds derived from the sale of the New Money Portion of the Bonds to be applied to the Projects and all investment earnings thereon (other than any amounts required to be rebated to the United States pursuant to section 148(0 of the Internal Revenue Code of 1986 (the 3 "Code") will be expended for the Projects no later than a date which is three years after the date of issue of the Bonds. 7.4. The Ordinance provides that allocations of proceeds to expenditures for the Projects are expected not to be later than 18 months after the later of the date of the expenditure or the date that the Projects are placed in service, but, in any event, not longer than 60 days after the earlier of five years of the date hereof or the date the Bonds are retired. 7.5. The Issuer will not invest the proceeds of the New Money Portion of the Bonds prior to such expenditure in any guaranteed investment contract or other nonpurpose investment with a substantially guaranteed yield for a period equal to or greater than four years.] 8. Invested Sinking Fund Proceeds, Replacement Proceeds. 8.1. The Issuer has, in addition to the moneys received from the sale of the Bonds, certain other moneys that are invested in various funds which are pledged for various purposes. These other funds are not available to accomplish the purposes described in Section 2. 8.2. Other than the Interest and Sinking Fund there are, and will be, no other funds or accounts established, or to be established, by or on behalf of the Issuer (a) which are reasonably expected to be used, or to generate earnings to be used, to pay debt service on the Bonds, or (b) which are reserved or pledged as collateral for payment of debt service on the Bonds and for which there is reasonable assurance that amounts therein will be available to pay such debt service if the Issuer encounters financial difficulties. Accordingly, there are no other amounts constituting "gross proceeds" of the Bonds, within the meaning of section 148 of the Code. 9. Other Obligations. There are no other obligations of the Issuer which (a) are sold at substantially the same time as the Bonds, i.e., within 15 days of the date of sale of the Bonds, (b) are sold pursuant to a common plan of financing with the Bonds, and (c) will be payable from the same source of funds as the Bonds. 10. Rebate to United States. The Issuer has covenanted in the Ordinance that it will comply with the requirements of the Code, including section 148(f) of the Code, relating to the required rebate to the United States. Specifically, the Issuer will take steps to ensure that all earnings on gross proceeds of the Bonds in excess of the yield on the Bonds required to be rebated to the United States will be timely paid to the United States. The Issuer acknowledges receipt of the memorandum attached hereto as Exhibit "A" which discusses regulations promulgated pursuant to section 148(0 of the Code. This memorandum does not constitute an opinion of Bond Counsel as to the proper federal tax or accounting treatment of any specific transaction. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.] 4 DATED: CITY OF ROUND ROCK, TEXAS The undersigned represents that, to the best of the undersigned's knowledge, information and belief, the representations contained in Section 4.1 of this Federal Tax Certificate are accurate. RBC DAIN RAUSCHER, INC. By: The undersigned represents that, to the best of the undersigned's knowledge, information and belief, the representations contained in Section 4.2 of this Federal Tax Certificate are accurate. FIRST SOUTHWEST COMPANY By: Exhibit "A" LAW OFFICES McCALL, PARKHURST & HORTON L.L.P. 600 CONGRESS AVENUE 717 NORTH HARWOOD 700 N. ST. MARY'S STREET 1250 ONE AMERICAN CENTER NINTH FLOOR 1225 ONE RIVERWALK PLACE AUSTIN, TEXAS 78701-3248 DALLAS, TEXAS 75201-6587 SAN ANTONIO, TEXAS 78205-3503 TELEPHONE: (512) 478-3805 TELEPHONE: (214) 754-9200 TELEPHONE: (210) 225-2800 FACSIMILE: (512) 472-0871 FACSIMILE: (214) 754-9250 FACSIMILE: (210) 225-2984 January 1, 1995 ARBITRAGE REBATE REGULATIONS© The Tax Reform Act of 1986 amended the provisions of the Internal Revenue Code by providing a newly -enacted section 148(0 of the Internal Revenue Code of 1986 (the "Code"), relating to arbitrage rebate. This arbitrage rebate requirement generally provides that in order for interest on any issue of obligations to be excluded from gross income (i.e., tax-exempt) the issuer must rebate to the United States the sum of, (1) the excess of the amount earned on all "nonpurpose investments" acquired with "gross proceeds" of the issue over the amount which would have been earned if such investments had been invested at a yield equal to the yield on the issue, and (2) the earnings on such excess earnings. These rules are substantially similar to the rules which, prior to the Tax Reform Act of 1986, applied to industrial development bonds and mortgage revenue bonds. Section 148(0 of the Code has been amended by several subsequent tax acts, most notably, the Revenue Reconciliation Acts of 1989 and 1990. These amendments primarily provided a special exception to rebate for certain construction issues, as discussed under the heading "Exceptions to Rebate." On June 18, 1993, the U.S. Treasury Department promulgated regulations relating to the computation of arbitrage rebate and the rebate exceptions. These regulations, which replace the previously -published regulations promulgated on May 15, 1989, and on May 18, 1992, are effective for bonds issued after June 30, 1993. These newly -promulgated regulations also replace the arbitrage regulations, other than those relating to rebate, which were published in 1978. This memorandum was prepared by McCall, Parkhurst & Horton L.L.P. and provides a general discussion of the arbitrage rebate regulations. This memorandum does not otherwise discuss the general arbitrage regulations, other than as they may incidentally relate to rebate. This memorandum also does not attempt to provide an exhaustive discussion of the arbitrage rebate regulations and should not be considered advice with respect to the arbitrage rebate requirements as applied to any individual or governmental unit or any specific transaction. McCall, Parkhurst & Horton L. L. P. remains available to provide legal advice to issuers with respect to the provisions of these tax regulations but recommends Copyright 1995 by Harold T. Flanagan, McCall, Parkhurst & Horton L.L.P. AH rights reserved. that issuers seek competent financial and accounting assistance in calculating the amount of such issuer's rebate liability under section 148(f) of the Code and in making elections to apply the rebate exceptions. In this memorandum the word "bond" is defined to include any bond, note, certificate, financing lease or other obligation of an issuer. Effective Dates The regulations promulgated on June 18, 1993, generally apply to bonds delivered after June 30, 1993, but, as discussed below, also permit an issuer to elect to apply the newly - promulgated rules to bonds issued prior to that date. The temporary regulations adopted by the U.S. Treasury Department in 1989 and 1992 incorporated the same effective dates which generally apply for purposes of section 148(f) of the Code. The statutory provisions of section 148(0 of the Code, other than the exception for construction issues, apply to all bonds issued after August 15, 1986, (for private activity bonds) and August 31, 1986, (for govemmental public purpose bonds). As such, the previous versions of the rebate regulations generally applied to bonds issued between August 1986 and June 30, 1993 (or, with an election, to bonds issued prior to August 15, 1993). The statutory exception to rebate applicable to construction issues generally applies to such issues if delivered after December 19, 1989. The newly -promulgated regulations provide numerous transitional rules for bonds sold prior to July 1, 1993. Moreover, since, under prior law, rules were previously published with respect to industrial development bonds and mortgage revenue bonds, the transitional rules contained in these newly -promulgated regulations permit an issuer to elect to apply certain of these rules for computing rebate on pre -1986 bonds. The regulations provide for numerous elections which would permit an issuer to apply the newly -promulgated rules (other than 18 - month spending exception) to bonds which were issued prior to July 1, 1993 and remain outstanding on June 30, 1993. Due to the complexity of the regulations, it is impossible to discuss in this memorandum all circumstances for which specific elections are provided. If an issuer would prefer, in certain circumstances, to use the newly -promulgated regulations in lieu of the computational method stated under prior law (e.g., due to prior redemption) or the previously -published regulations, please contact McCall, Parkhurst & Horton L.L.P. for advice as to the availability of such options. Future Value Computation Method The regulations employ an actuarial method for computing the rebate amount based on the future value of the investment receipts (i.e., earnings) and payments. The rebate method employs a two-step computation to determine the amount of the rebate payment. First, the issuer determines the bond yield. Second, the issuer determines the arbitrage rebate amount. The regulations require that the computations be made at the end of each five-year period and upon final maturity of the issue (the "computation dates"). THE FINAL MATURITY DATE WILL ACCELERATE IN CIRCUMSTANCES IN WHICH THE BONDS ARE OPTIONALLY REDEEMED PRIOR TO MATURITY. AS SUCH, IF BONDS ARE REFUNDED OR OTHERWISE REDEEMED, THE REBATE MAY BE DUE EARLIER THAN INITIALLY McCall, Parkhurst & Horton L.L.P. - Page 2 PROJECTED. In order to accommodate accurate record-keeping and to assure that sufficient amounts will be available for the payment of arbitrage rebate liability, however, we recommend that the computations be performed at least annually. Under the future value method, the amount of rebate is determined by compounding the aggregate earnings on all the investments from the date of receipt by the issuer to the computation date. Similarly, a payment for an investment is future valued from the date that the payment is made to the computation date. The receipts and payments are future valued at a discount rate equal to the yield on the bonds. The rebatable arbitrage, as of any computation date, is equal to the excess of the (1) future value of all receipts (i.e., earnings) from investments, over (2) the future value of all payments. The following example is provided in the regulations to illustrate how arbitrage rebate is computed under the future value method for a fixed -yield bond: "On January 1, 1994, City A issues a fixed yield issue and invests all the sale proceeds of the issue ($49 million). There are no other gross proceeds. The issue has a yield of 7.0000 percent per year compounded semiannually (computed on a 30 day month/360 day year basis). City A receives amounts from the investment and immediately expends them for the governmental purpose of the issue as follows: Date Amount 2/1/1994 $ 3,000,000 4/1/1994 5,000,000 6/1/1994 14,000,000 9/1/1994 20,000,000 7/1/1995 10,000,000 City A selects a bond year ending on January 1, and thus the first required computation date is January 1, 1999. The rebate amount as of this date is computed by determining the future value of the receipts and the payments for the investment. The compounding interval is each 6 -month (or shorter) period and the 30 day month/360 day year basis is used because these conventions were used to compute yield on the issue. The future value of these amounts, plus the computation credit, as of January 1, 1999, is: McCall, Parkhurst & Horton L.L.P. - Page 3 Date Receipts (Payments) 01/1/1994 02/1/1994 04/1/1994 06/1/1994 09/1/1994 01/1/1995 07/1/1995 01/1/1996 ($49,000,000) 3,000,000 5,000,000 14,000,000 20, 000, 000 (1,000) 10, 000, 000 (1,000) Rebate amount (01/01/1999) General Method for Computing Yield on Bonds FY (7.0000 percent) ($69,119,339) 4,207,602 6,932,715 19,190,277 26, 947,162 (1,317) 12,722,793 (1,229) $878,664" In general, the term "yield," with respect to a bond, means the discount rate that when used in computing the present value of all unconditionally due payments of principal and interest and all of the payments for a qualified guarantee produces an amount equal to the present value of the issue price of the bond. For this purpose, the term "issue price" has the same meaning as provided in sections 1273 and 1274 of the Code. That is, if bonds are publicly offered (i.e., sold by the issuer to a bond house, broker or similar person acting in the capacity of underwriter or wholesaler), the issue price of each bond is determined on the basis of the initial offering price to the public (not to the aforementioned intermediaries) at which price a substantial amount of such bond was sold to the public (not to the aforementioned intermediaries). The "issue price" is separately determined for each bond (i.e., maturity) which comprises an issue. The regulations also provide varying periods for computing yield on the bonds depending on the method by which the interest payment is determined. Thus, for example, yield on an issue of bonds sold with variable interest rates (i.e., interest rates which are reset periodically based on changes in market) is computed separately for each annual period ending on the first anniversary of the delivery date that the issue is outstanding. In effect, yield on a variable yield issue is determined on each computation date by "looking back" at the interest payments for such period. The regulations, however, permit an issuer of a variable - yield issue to elect to compute the yield for annual periods ending on any date in order to permit a matching of such yield to the expenditure of the proceeds. Any such election must be made in writing, is irrevocable, and must be made no later than the earlier of (1) the fifth anniversary date, or (2) the final maturity date. Yield on a fixed interest rate issue (i.e., an issue of bonds the interest rate on which is determined as of the date of the issue) is computed over the entire term of the issue. Issuers of fixed -yield issues generally use the yield computed as of the date of issue for all rebate computations. Such yield on fixed -yield issues generally is recomputed only if (1) the issue is sold at a substantial premium, may be retired within five years of the date of delivery, and such date is earlier than its scheduled maturity date, or (2) the issue is a stepped -coupon bond. In such cases, the regulations require the issuer to recompute the yield on such issues by taking McCall, Parkhurst & Horton L.L.P. - Page 4 into account the early retirement value of the bonds. Similarly, recomputation occurs in circumstances in which the issuer or bondholder modify or waive certain terms of, or rights with respect to, the issue or in sophisticated hedging transactions. IN SUCH CIRCUMSTANCES= ISSUERS ARE ADVISED TO CONSULT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. For purposes of determining the principal or redemption payments on a bond, different rules are used for fixed-rate and variable-rate bonds. The payment is computed separately on each maturity of bonds rather than on the issue as a whole. In certain circumstances, the yield on the bond is determined by assuming that principal on the bond is paid as scheduled and that the bond is retired on the final maturity date for the stated retirement price. For bonds subject to early redemption or stepped -coupon bonds, described above, or for bonds subject to mandatory early redemption, the yield is computed assuming the bonds are paid on the early redemption date for an amount equal to their value. Section 148 of the Code provides that premiums paid to guarantee the payment of debt service on bonds are taken into account in computing the yield on the bond. Payments for guarantees are taken into account by treating such premiums as the payment of interest on the bonds. This treatment, in effect, raises the yield on the bond, thereby permitting the issuer to recover such fee with excess earnings. The guarantee must be an unconditional obligation of the guarantor enforceable by the bondholder for the payment of principal or interest on the bond or the tender price of a tender bond. The guarantee may be in the form of an insurance policy, surety bond, irrevocable letter or line of credit, or standby purchase agreement. Importantly, the guarantor must be legally entitled to full reimbursement for any payment made on the guarantee either immediately or upon commercially reasonable repayment terms. The guarantor may not be a co -obligor of the bonds or a user of more than 10 percent of the proceeds of the bonds. Payments for the guarantee may not exceed a reasonable charge for the transfer of credit risk. This reasonable charge requirement is not satisfied unless it is reasonably expected that the guarantee will result in a net present value savings on the bond (i.e., the premium does not exceed the present value of the interest savings resulting by virtue of the guarantee). If the guarantee is entered into after June 14, 1989, then any fees charged for the nonguarantee services must be separately stated or the guarantee fee is not recoverable. The regulations also treat certain "hedging" transactions in a manner similar to qualified guarantees. "Hedges" are contracts, e.g., interest rate swaps, futures contracts or options, which are intended to reduce the risk of interest rate fluctuations. Hedges and other financial derivatives are sophisticated and ever -evolving financial products with which a memorandum, such as this, can not readily deal. IN SUCH CIRCUMSTANCES, ISSUERS ARE ADVISED TO CONSULT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. McCall, Parkhurst & Horton L.L.P. - Page 5 Earnings on Nonpurpose Investments The arbitrage rebate provisions apply only to the receipts from the investment of "gross proceeds" in "nonpurpose investments." For this purpose, nonpurpose investments are stock, bonds or other obligations acquired with the gross proceeds of the bonds for the period prior to the use of the gross proceeds for its ultimate purpose. For example, investments deposited to construction funds, reserve funds (including surplus taxes or revenues deposited to sinking funds) or other similar funds are nonpurpose investments. Such investments include only those which are acquired with "gross proceeds." For this purpose, "gross proceeds" include original proceeds received from the sale of the bonds, investment earnings from the investment of such original proceeds, amounts pledged to the payment of debt service on the bonds or amounts actually used to pay debt service on the bonds. The regulations do not provide a sufficient amount of guidance to include an exhaustive list of "gross proceeds" for this purpose; however, it can be assumed that "gross proceeds" represent all amounts received from the sale of bonds, amounts earned as a result of such sale or amounts (including taxes and revenues) which are used to pay, or secure the payment of, debt service for the bonds. The total amount of "gross proceeds" allocated to a bond generally can not exceed the outstanding principal amount of the bonds. The regulations provide generally that an investment is allocated to an issue for the period (1) that begins on the date gross proceeds are used to acquire the investment, and (2) that ends on the date such investment ceases to be allocated to the issue. In general, proceeds are allocated to a bond issue until expended for the ultimate purpose for which the bond was issued or for which such proceeds are received (e.g., construction of a bond - financed facility or payment of debt service on the bonds). Deposit of gross proceeds to the general fund of the issuer (or other fund in which they are commingled with revenues or taxes) does not alleviate the obligation to compute rebate in most cases. As such, proceeds commingled with the general revenues of the issuer are not "freed -up" from the rebate obligation. An exception to this commingling limitation for bonds, other than private activity bonds, permits "investment earnings" (but not sale proceeds or other types of gross proceeds) to be considered spent when deposited to a commingled fund if those amounts are reasonably expected to be spent within six months. Other than for these amounts, issuers may consider segregating investments in order to more easily compute the amount of such arbitrage earnings by not having to allocate investments. Special rules are provided for purposes of advance refundings. These rules are too complex to discuss in this memorandum. Essentially, the rules relating to refundings, however, do not require that amounts deposited to the escrow fund to defease the prior obligations of the issuer be subject to arbitrage rebate to the extent that the investments deposited to the escrow fund do not have a yield in excess of the yield on the bonds. Any loss resulting from the investment of proceeds in an escrow fund below the yield on the bonds, however, may be recovered by combining those investments with investments deposited to other funds, e.g., reserve or construction funds. The arbitrage regulations also provide that the investment of bond proceeds in tax- exempt obligations does not result in arbitrage. The provisions of the Technical and Miscellaneous Revenue Act of 1988, however, amended that rule by providing that investment McCall, Parkhurst & Horton L.L.P. - Page 6 of bond proceeds in "private activity bonds" (i.e., bonds subject to the alternative minimum tax under section 57(a)(5) of the Code) are treated as investments in taxable obligations. As such, earnings from these tax-exempt investments are subject to rebate. Similarly, the investment of gross proceeds in certain tax-exempt mutual funds are treated as a direct investment in the tax-exempt obligations deposited in such fund. While issuers may invest in such funds for purposes of avoiding arbitrage rebate, they should be aware that if "private activity bonds" are included in the fund then a portion of the earnings will be subject to arbitrage rebate. Issuers should be prudent in assuring that the funds do not contain private activity bonds. The arbitrage regulations provide a number of instances in which earnings will be imputed to the nonpurpose investments. Receipts generally will be imputed to investments that do not bear interest at an arm's-length (i.e., market) interest rate. As such, the regulations adopt a "market price" rule. In effect, this rule prohibits an issuer from investing bond proceeds in investments at a price which is higher than the market price of comparable obligations, in order to reduce the yield. Special rules are included for determining the market price for investment contracts, certificates of deposit and certain U.S. Treasury obligations. For example, to establish the fair market value of investment contracts a bidding process between three qualified bidders must be used. The fair market value of certificates of deposit which bear a fixed interest rate and are subject to an early withdrawal penalty is its purchase price if that price is not less than the yield on comparable U.S. Treasury obligations and is the highest yield available from the institution. In any event, a basic "common sense" rule -of -thumb that can be used to determine whether a fair market value has been paid is to ask whether the general funds of the issuer would be invested at the same yield. An exception to this market price rule is available for United States Treasury Obligations - State or Local Government Series in which case the purchase price is always the market price. Reimbursement and Working Capital The final regulations provide new rules for purposes of determining whether gross proceeds are used for working capital and, if so, at what times those proceeds are considered spent. In general, working capital financings are subject to many of the same rules that have existed since the mid-1970s. For example, the regulations generally continue the 13 -month temporary period. By adopting a "proceeds -spent -last" rule, the regulations also generally require that an issuer actually incur a deficit (i.e., expenditures must exceed receipts) for the computation period (which generally corresponds to the issuer's fiscal year). Also, the regulations continue to permit an operating reserve, but unlike prior regulations the amount of such reserve may not exceed five percent of the issuer's actual working capital expenditures for the prior fiscal year. Another change made by the regulations is that the issuer may not finance the operating reserve with proceeds of a tax-exempt obligation. Importantly, the regulations also adopt rules for determining whether proceeds used to reimburse an issuer for costs paid prior to the date of issue of the obligation, in fact, are considered spent at the time of reimbursement. These rules apply to an issuer who uses general revenues for the payment of all or a portion of the costs of a project then uses the proceeds of the bonds to reimburse those general revenues. Failure to comply with these rules McCall, Parkhurst & Horton L.L.P. - Page 7 would result in the proceeds continuing to be subject to federal income tax restrictions, including rebate. To qualify for reimbursement, a cost must be described in an expression (e.g., resolution, legislative authorization) evidencing the issuer's intent to reimburse which is made no later than 60 days after the payment of the cost. Reimbursement must occur no later than 18 months after the later of (1) the date the cost is paid or (2) the date the project is placed in service. Except for projects requiring an extended construction period or small issuers, in no event can a cost be reimbursed more than three years after the cost is paid. Reimbursement generally is not permitted for working capital; only capital costs, grants and loans may be reimbursed. Moreover, certain anti -abuse rules apply to prevent issuers from avoiding the limitations on refundings. IN CASES INVOLVING WORKING CAPITAL OR REIMBURSEMENT, ISSUERS ARE ADVISED TO CONTACT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION. Rebate Payments Rebate payments generally are due 60 days after each installment computation date. The interim computation dates occur each fifth anniversary of the issue date. The final computation date is on the latest of (1) the date 60 days after the date the issue of bonds is no longer outstanding, (2) the date eight months after the date of issue for certain short-term obligations (i.e., obligations retired within three years), or (3) the date the issuer no longer reasonably expects any spending exception, discussed below, to apply to the issue. On such payment dates, other than the final payment date, an issuer is required to pay 90 percent of the rebatable arbitrage to the United States. On the final payment date, an issuer is required to pay 100 percent of the remaining rebate liability. Failure to timely pay rebate does not necessarily result in the Toss of tax -exemption. Late payments, however, are subject to the payment of interest, and unless waived, a penalty of 50 percent (or, in the case of private activity bonds, other than qualified 501(c)(3) bonds, 100 percent) of the rebate amount which is due. IN SUCH CIRCUMSTANCES, ISSUERS ARE ADVISED TO CONSULT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. Rebate payments are refundable. The issuer, however, must establish to the satisfaction of the Commissioner of the Internal Revenue Service that the issuer paid an amount in excess of the rebate and that the recovery of the overpayment on that date would not result in additional rebatable arbitrage. An overpayment of less than $5,000 may not be recovered before the final computation date. Alternative Penalty Amount In certain cases, an issuer of a bond the proceeds of which are to be used for construction may elect to pay a penalty, in lieu of rebate. The penalty may be elected in circumstances in which the issuer expects to satisfy the two-year spending exception which is McCall, Parkhurst & Horton L.L.P. - Page 8 more fully described under the heading "Exceptions to Rebate." The penalty is payable, if at all, within 60 days after the end of each six-month period. This is more often than rebate. The election of the altemative penalty amount would subject an issuer, which fails the two-year spend -out requirements, to the payment of a penalty equal to one and one-half of the excess of the amount of proceeds which was required to be spent during that period over the amount which was actually spent during the period. The penalty has characteristics which distinguish it from arbitrage rebate. First, the penalty would be payable without regard to whether any arbitrage profit is actually earned. Second, the penalty continues to accrue until either (1) the appropriate amount is expended or (2) the issuer elects to terminate the penalty. To be able to terminate the penalty, the issuer must meet specific requirements and, in some instances, must pay an additional penalty equal to three percent of the unexpended proceeds. Exceptions to Rebate The Code and regulations provide certain exceptions to the requirement that the excess investment earnings be rebated to the United States. a. Small Issuers. The first exception provides that if an issuer (together with all subordinate issuers) during a calendar year does not issue tax-exempt obligations in an aggregate face amount exceeding $5 million, then the obligations are not subject to rebate. Only issuers with general taxing powers may take advantage of this exception. For this purpose, "private activity bonds" neither are afforded the benefit of this exception nor are taken into account for purposes of determining the amount of bonds issued. Subordinate issuers are those issuers which derive their authority to issue bonds from the same issuer, e.g., a city and a health facilities development corporation, or which are controlled by the same issuer, e.g., a state and the board of a public university. b. Spending Exceptions. Six -Month Exception. The second exception to the rebate requirement is available to all tax-exempt bonds, all of the gross proceeds of which are expended during six months. The six month rule is available to bonds issued after the effective date of the Tax Reform Act of 1986. See the discussion of effective dates on page two. For this purpose, proceeds used for the redemption of bonds (other than proceeds of a refunding bond deposited to an escrow fund to discharge refunded bonds) can not be taken into account as expended. As such, bonds with excess gross proceeds generally can not satisfy the second exception unless the amount does not exceed the lesser of five percent or $100,000 and such de minimis amount must be expended within one year. Certain gross proceeds are not subject to the spend -out requirement, including amounts deposited to a bona fide debt service fund, to a reserve fund and amounts which become gross proceeds received from purpose investments. These amounts themselves, however, may be subject to rebate even though the originally expended proceeds were not. McCall, Parkhurst & Horton L.L.P. - Page 9 The Code provides a special rule for tax and revenue anticipation notes (i.e., obligations issued to pay operating expenses in anticipation of the receipt of taxes and other revenues). Such notes are referred to as TRANs. To determine the timely expenditure of the proceeds of a TRAN, the computation of the "cumulative cash flow deficit" is important. If the "cumulative cash flow deficit" (i.e., the point at which the operating expenditures of the issuer on a cumulative basis exceed the revenues of the issuer during the fiscal year) occurs within the first six months of the date of issue and must be equal to at least 90 percent of the proceeds of the TRAN, then the notes are deemed to satisfy the exception. This special rule requires, however, that the deficit actually occur, not that the issuer merely have an expectation that the deficit will occur. In lieu of the statutory exception for TRANs, the regulations also provide a second exception. Under this exception, 100 percent of the proceeds must be spent within six months, but before note proceeds can be considered spent, all other available amounts of the issuer must be spent first ("proceeds -spent -last" rule). In determining whether all available amounts are spent, a reasonable working capital reserve equal to five percent of the prior year's expenditures may be set aside and treated as unavailable. 18 -Month Exception. The regulations also establish a non -statutory exception to arbitrage rebate if all of the gross proceeds (including investment earnings) are expended within 18 months after the date of issue. Under this exception, 15 percent of the gross proceeds must be expended within a six-month spending period, 60 percent within a 12 -month spending period and 100 percent within an 18 -month spending period. The rule permits an issuer to rely on its reasonable expectations for computing investment earnings which are included as gross proceeds during the first and second spending period. A reasonable retainage not to exceed five percent of the sale proceeds of the issue is not required to be spent within the 18 -month period but must be expended within 30 months. Rules similar to the six-month exception relate to the definition of gross proceeds. Two Year Exception. Bonds issued after December 19, 1989 (i.e., the effective date of the Omnibus Reconciliation Act of 1989), at least 75 percent of the net proceeds of which are to be used for construction, may be exempted from rebate if the gross proceeds are spent within two years. Bonds more than 25 percent of the proceeds of which are used for acquisition or working capital may not take advantage of this exception. The exception applies only to governmental bonds, qualified 501(c)(3) bonds and private activity bonds for governmentally - owned airports and docks and wharves. The two-year exception requires that at least 10 percent of the available construction proceeds must be expended within six months after the date of issue, 45 percent within 12 months, 75 percent within 18 months and 100 percent within 24 months. The term "available construction proceeds" generally means sale proceeds of the bonds together with investment earnings less amounts deposited to a qualified reserve fund or used to pay costs of issuance. Under this rule, a reasonable retainage not to exceed five percent need not be spent within 24 months but must be spent within 36 months. The two-year rule also provides for numerous elections which must be made not later than the date of issuance of the bonds. Once made, the elections are irrevocable. Certain elections permit an issuer to bifurcate bond issues, thereby treating only a portion of the issue as a qualified construction bond; and, permit an issuer to disregard earnings from reserve funds for purposes of determining "available construction proceeds." Another election permits an issuer to pay the alternative penalty amount discussed above in lieu of rebate if the issuer McCall, Parkhurst & Horton L.L.P. - Page 10 ultimately fails to satisfy the two-year rule. Issuers should discuss these elections with their financial advisors prior to issuance of the bonds. Of course, McCall, Parkhurst & Horton L.L.P. remains available to assist you by providing legal interpretations thereof. c. Debt Service Funds. Additionally, an exception to the rebate requirement, whether or not any of the previously discussed exceptions are available, applies for earnings on "bona fide debt service funds." A "bona fide debt service fund" is one in which the amounts are expended within 13 months of the accumulation of such amounts by the issuer. In general, most interest and sinking funds (other than any excess taxes or revenues accumulated therein) satisfy these requirements. For private activity bonds, short term bonds (i.e., have a term of less than five years) or variable rate bonds, the exclusion is available only if the gross earnings in such fund does not exceed $100,000, for the bond year. For other bonds issued after November 11, 1988, no limitation is applied to the gross earnings on such funds for purposes of this exception. Therefore, subject to the foregoing discussion, the issuer is not required to take such amounts into account for purposes of the computation. FOR BONDS ISSUED AFTER THE EFFECTIVE DATE OF THE TAX REFORM ACT OF 1986 WHICH WERE OUTSTANDING AS OF NOVEMBER 11, 1988, OTHER THAN PRIVATE ACTIVITY BONDS, SHORT TERM BONDS OR VARIABLE RATE BONDS, A ONE-TIME ELECTION MAY BE MADE TO EXCLUDE EARNINGS ON "BONA FIDE DEBT SERVICE FUNDS" WITHOUT REGARD TO THE $100,000, LIMITATION. THE ELECTION MUST BE MADE IN WRITING (AND MAINTAINED AS PART OF THE ISSUER'S BOOKS AND RECORDS) NO LATER THAN THE LATER OF MARCH 21,1990, OR THE FIRST DATE A REBATE PAYMENT IS REQUIRED. Conclusion McCall, Parkhurst & Horton L.L.P. hopes that this memorandum will prove to be useful as a general guide to the arbitrage rebate requirements. Again, this memorandum is not intended as an exhaustive discussion nor as specific advice with respect to any specific transaction. We advise our clients to seek competent financial and accounting assistance. Of course, we remain available to provide legal advice regarding all federal income tax matters, including arbitrage rebate. If you have any questions, please feel free to contact Harold T. Flanagan at (214) 754-9200. McCall, Parkhurst & Horton L.L.P. - Page 11 Exhibit "B" LAW OFFICES McCALL, PARKHURST & HORTON L.L.P. 600 CONGRESS AVENUE 717 NORTH HARWOOD 700 N. ST. MARY'S STREET 1250 ONE AMERICAN CENTER NINTH FLOOR 1225 ONE RIVERWALK PLACE AUSTIN, TEXAS 78701-3248 DALLAS, TEXAS 75201-6587 SAN ANTONIO, TEXAS 78205-3503 TELEPHONE: (512) 478-3805 TELEPHONE: (214) 754-9200 TELEPHONE: (210) 225-2800 FACSIMILE: (512) 472-0871 FACSIMILE: (214) 754-9250 FACSIMILE: (210) 225-2984 May 9, 2002 Mr. David Kautz Director of Finance City of Round Rock, Texas 221 East Main Street Round Rock, Texas 78664 Re: City of Round Rock, Texas General Obligation and Refunding Bonds, Series 2002 Dear Mr. Kautz: As you know, the City of Round Rock, Texas (the "Issuer") will issue the captioned bonds in order to provide for the acquisition and construction of the project and the refunding, in advance of their maturities, of portions of bonds previously issued by the Issuer. As a result of that issuance, the federal income tax laws impose certain restrictions on the investment and expenditure of amounts to be used for the project or to be deposited to the interest and sinking fund for the captioned bonds. The purpose of this letter is to set forth, in somewhat less technical language, those provisions of the tax law which require the timely use of bond proceeds and that investment of these amounts be at a yield which is not higher than the yield on the captioned bonds. For this purpose, please refer to line 21(e) of the Form 8038-G included in the transcript of proceedings for the yield on the captioned bonds. Generally, the federal tax laws provide that, unless excepted, amounts to be used for the project or to be deposited to the interest and sinking fund must be invested in obligations the combined yield on which does not exceed the yield on the bonds. Importantly, for purposes of administrative convenience, the bonds, however, have been structured in such a way as to avoid, for the most part, this restriction on investment yield. They also contain certain covenants relating to expenditures of proceeds designed to alert you to unintentional failures to comply with the laws affecting expenditures of proceeds and dispositions of property. First, the sale and investment proceeds to be used for the project may be invested for up to three years without regard to yield. (Such amounts, however, may be subject to rebate.) Thereafter, they must be invested at or below the bond yield. Importantly, expenditure of these proceeds must be accounted in your books and records. Allocations of these expenditures must occur within 18 months of the later of the date paid or the date the project is completed. The foregoing notwithstanding, the allocation should not occur later than 60 days after the earlier of (1) of five years after the delivery date of the bonds or (2) the date the bonds are retired unless you obtain an opinion of bond counsel. Second, the interest and sinking fund is made up of amounts which are received annually for the payment of current debt service on all the Issuer's outstanding bonds. Any taxes or revenues deposited to the interest and sinking fund which are to be used for the payment of current debt service on the captioned bonds, or any other outstanding bonds, are not subject to yield restriction. By definition, current debt service refers only to debt service to be paid within one year of the date of receipt of these amounts. For the most part, this would be debt service in the current fiscal year. These amounts deposited to the account for current debt service may be invested without regard to any constraint imposed by the federal income tax laws. Third, a portion of the interest and sinking fund is permitted to be invested without regard to yield restriction as a "minor portion." The "minor portion" exception is available for de minimis amounts of taxes or revenues deposited to the interest and sinking fund. The maximum amount that may be invested as part of this account may not exceed the lesser of five percent of the principal amount of the bonds or $100,000. Accordingly, you should review the current balance in the interest and sinking fund in order to determine if such balance exceed the aggregate amounts discussed above. Additionally, in the future it is important that you be aware of these restrictions as additional amounts are deposited to the interest and sinking fund. The amounts in this fund which are subject to yield restriction would only be the amounts which are in excess of the sum of (1) the current debt service account and (2) the "minor portion" account. Moreover, to the extent that additional bonds are issued by the Issuer, whether for new money projects or for refunding, these amounts will change in their proportion. Finally, you should notice that the contains a covenant that limits the ability of the Issuer to sell or otherwise dispose of bond -financed property for compensation. Beginning for obligations issued after May 15, 1997 (including certain refunding bonds), or in cases in which an issuer elects to apply new private activity bond regulations, such sale or disposition causes the creation of a class of proceeds referred to as "disposition proceeds." Disposition proceeds, like sale proceeds and investment earnings, are tax -restricted funds. Failure to appropriately account, invest or expend such disposition proceeds would adversely affect the tax-exempt status of the bonds. In the event that you anticipate selling property, even in the ordinary course, please contact us. Obviously, this letter only presents a fundamental discussion of the yield restriction rules as applied to amounts deposited to the interest and sinking fund. Moreover, this letter does not address the rebate consequences with respect to the interest and sinking fund and you should review the memorandum attached to the Federal Tax Certificate as Exhibit "A" for this purpose. If you have certain concerns with respect to the matters discussed in this letter or wish to ask additional questions with regards to certain limitations imposed, please feel free to contact our firm. Thank you for your consideration and we look forward to our continued relationship. Very truly yours, McCALL, PARKHURST & HORTON L.L.P. Exhibit "C" CERTIFICATE OF ELECTION PURSUANT TO SECTION 148(f)(4)(C) OF THE INTERNAL REVENUE CODE OF 1986 I, the undersigned, being the duly authorized representative of the City of Round Rock, Texas (the "Issuer") hereby state that the Issuer elects the provisions of section 148(f)(4)(C) of the Internal Revenue Code of 1986 (the "Code"), relating to the exception to arbitrage rebate for temporary investments, as more specifically designated below, with respect to the Issuer's General Obligation and Refunding Bonds, Series 2002 (the "Bonds") which are being issued on the date of delivery of the Bonds in a face amount equal to $45,465,000. The CUSIP Number for the Bonds is stated on the Form 8038-G filed in connection with the Bonds. The Issuer intends to take action to comply with the two-year temporary investments exception to rebate afforded construction bonds under section 148(f)(4)(C) of the Code. Capitalized terms have the same meaning as defined in the Federal Tax Certificate. p1. PENALTY ELECTION. In the event that the Issuer should fail to expend the "available construction proceeds" of the Bonds in accordance with the provisions of section 148(f)(4)(C) of the Code, the Issuer elects, in lieu of rebate, the penalty provisions of section 148(f)(4)(C)(vii)(I) of the Code. pi2. RESERVE FUND ELECTION. The Issuer elects to exclude from "available construction proceeds," within the meaning of section 148(f)(4)(C)(vi) of the Code, of the Bonds, earnings on the Reserve Fund in accordance with section 148(f)(4)(C)(vi)(IV) of the Code. 3. MULTIPURPOSE ELECTION. The Issuer elects to treat that portion of the Bonds the proceeds of which are to be used for the payment of expenditures for construction, reconstruction or rehabilitation of the Projects, as defined in the instrument authorizing the issuance of the Bonds, in an amount which is currently expected to be equal to $ as a separate issue in accordance with the provisions of section 148(f)(4)(C)(v)(II) of the Code. (Note: This election is not necessary unless less than 75 percent of the proceeds of the Bonds will be used for construction, reconstruction or renovation.) 44. ACTUAL FACTS. For purposes of determining compliance with section 148(f)(c) of t e ode (other than qualification of the Bonds as a qualified construction issue), the Issuer elects to use actual facts rather than reasonable expectations. ® 5. NO ELECTION. The Issuer understands that the elections which are adopted as evidenced by the check in the box adjacent to the applicable provision are irrevocable. Further, the Issuer understands that qualification of the Bonds for eligibility for the exclusion from the rebate requirement set forth in section 148(f) of the Code is based on subsequent events and is unaffected by the Issuer's expectations of such events as of the date of delivery of the Bonds. Accordingly, while failure to execute this certificate and to designate the intended election does not preclude qualification, it would preclude the Issuer from the relief afforded by such election. DATED: City of Round Rock, Texas 221 East Main Street Round Rock, Texas 78664 Employer I.D. Number: 74-6017485 Form 8038-6 (Rev. November 2000) Department of the Treasury Internal Revenue Service Information Return for Tax -Exempt Governmental Obligations ► Under Internal Revenue Code section 149(e) ► See separate Instructions. Caution: If the issue price is under $100,000, use Form 8038 -GC. OMB No. 1545-0720 Part I Reporting Authority If Amended Return, check here 0- 1 1 Issuer's name ROUND ROCK (CITY OF) 2 Issuer's employer identification number 74 ; 6017485 3 Number and street (or P.O. box if mail is not delivered to street address) 221 EAST MAIN STREET Room/suite 4 Report number 3 01 5 City, town, or post office, state, and ZIP code ROUND ROCK, TEXAS 78664 6 Date of issue 5-23-02 7 Name of issue GENERAL OBLIGATION AND REFUNDING BONDS, SERIES 2002 8 CUSIP number 9 Name and title of officer or legal representative whom the IRS may call for more information DAVID KAUTZ, DIRECTOR OF FINANCE 10 Telephone number of officer or legal representative ( 512 ) 218-5400 art ype of Issue (check applicable box(es) and enter the issue price) See instructions and attach schedule 11 0 Education 12 ❑ Health and hospital 13 ❑ Transportation 14 0 Public safety 15 ❑ Environment (including sewage bonds) 16 0 Housing 17 ❑ Utilities 18 ® Other. Describe 0- 19 19 If obligations are TANs or RANs, check box ► 0 If obligations are BANs, check box 0- 20 20 If obligations are in the form of a lease or installment sale, check box ► 0 Part III Description of Obligations. Complete for the entire issue for 11 12 13 14 15 16 17 18 45,782,854 (a) Final maturity date (b) Issue price (c) Stated redemption price at maturity (d) Weighted average maturity (e) Yield 21 8.15-2027 $ 45,782,854 $ 45,465,000 13.219 years 4.8535 % ar ses of Proceeds of Bond Issue (including underwriters' discount) 22 Proceeds used for accrued interest 23 Issue price of entire issue (enter amount from line 21, column (b)) 24 Proceeds used for bond issuance costs (including underwriters' discount) 25 Proceeds used for credit enhancement 26 Proceeds allocated to reasonably required reserve or replacement fund 27 Proceeds used to currently refund prior issues 28 Proceeds used to advance refund prior issues 29 Total (add lines 24 through 28) 30 Nonrefunding proceeds of the issue (subtract line 29 from line 23 and enter amount here) . . . Description of Refunded Bonds (Complete this part only for refunding bonds.) 31 Enter the remaining weighted average maturity of the bonds to be currently refunded . 32 Enter the remaining weighted average maturity of the bonds to be advance refunded . 33 Enter the last date on which the refunded bonds will be called 34 Enter the date(s) the refunded bonds were issued ► 24 586,674 22 23 131,005 45,782,854 25 101,671 26 -o- 27 10,384,509 28 -o- Part V 29 30 11,072,854 34,710,000 . . ► 4.189: 5.548: 2.399 years . . ► N/A years 0. 8-1-02;8-15-02;8-15-02 Part VI Miscellaneous 4-2-87; 6-30-93; 6-30-93 35 Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) 36a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract (see instructions) b Enter the final maturity date of the guaranteed investment contract 0- 37 37 Pooled financings: a Proceeds of this issue that are to be used to make loans to other governmental units b If this issue is a loan made from the proceeds of another tax-exempt issue, check box ► 0 and enter the name of the issuer ► and the date of the issue ► N/A 38 If the issuer has designated the issue under section 265(b)(3)(B)(i)(III) (small issuer exception), check box 39 If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box 40 If the issuer has identified a hedge, check box Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and e , they a - true, c ect, ajld complete. 35 36a -0- 37a -0- Sign Here For Paperwork Reduction Act Notice, see page 2 of the Instructions. Cat. No. 63773S Form 8038-G (Rev. 11-2000) IN WITNESS WHEREOF, the City has caused this Bond to be signed with the manual or facsimile signature of the Mayor of the City and countersigned with the manual or facsimile signature of the City Secretary and has caused the official seal of the City to be duly impressed, or placed in facsimile, on this Bond. City Secretary GENERAL AND NO -LITIGATION CERTIFICATE THE STATE OF TEXAS COUNTIES OF WILLIAMSON AND TRAVIS CITY OF ROUND ROCK We, the undersigned officials of the City, hereby certify as follows: GENERAL 1. This certificate is executed for and on behalf of the City, for the benefit of the Attorney General of the State of Texas and for the benefit of the Underwriters in connection with the issuance of the Bonds. The words and terms used herein shall have the meanings whenever they are used given in Exhibit "A" attached hereto. 2. Any certificate signed by an official of the City delivered to the Underwriters or the Attorney General of the State of Texas shall be deemed a representation and warranty by the City as to the statement made therein. The Public Finance Division of the Office of the Attorney General of the State of Texas is hereby authorized to date this certificate as of the date of approval of the Bonds and is entitled to rely upon the accuracy of the information contained herein unless notified by telephone or fax to the contrary. The Comptroller of Public Accounts is further authorized to register the Bonds upon receipt of the Attorney General approval. After registration, the Bonds, opinions and registration papers shall be delivered to C.D. Polumbo at McCall, Parkhurst & Horton L.L.P. MATTERS RELATING TO THE City 3. The City is a duly incorporated home rule City, operating and existing under the Texas Constitution and laws of the State of Texas, including its home rule charter which has not been amended since the last issuance of obligations by the City. 4. We officially executed and signed the Bonds with our manual signatures or by causing facsimiles of our manual signatures to be imprinted or copies on each of the Bonds, and, if appropriate, we hereby adopt said facsimile signatures as our own, respectively, and declare that the facsimile signatures constitute our signatures the same as if we had manually signed each of the Bonds. 5. The Bonds are substantially in the form, and have been duly executed and signed in the manner prescribed in the Ordinance. 6. At the time we so executed and signed the Bonds we were, and at the time of executing this certificate we are, the duly chosen, qualified and acting officers indicated therein, and authorized to execute the same. RROCK\GOAndRefgBonds2002: Genera1NoLitCert 7. No litigation of any nature has been filed or is now pending to restrain or enjoin the issuance or delivery of the Bonds, or which would affect the provision made for their payment or security, or in any manner questioning the proceedings or authority concerning the issuance of the Bonds, and that so far as we know and believe no such litigation is threatened. 8. Neither the corporate existence nor boundaries of the City is being contested, no litigation has been filed or is now pending which would affect the authority of the officers of the City to issue, execute, sign, and deliver the Bonds, and no authority or proceedings for the issuance of the Bonds have been repealed, revoked or rescinded. 9. We have caused the official seal of the City to be impressed, or printed, or copied on the Bonds and said seal on the Bonds has been duly adopted as, and is hereby declared to be, the official seal of the City. 10. The currently outstanding tax debt of the City and the proposed Bonds are set forth in Exhibit "B" attached hereto. 11. The true and correct schedule showing the annual requirements of all the outstanding tax indebtedness of the City, together with the proposed Bonds, is set forth in Exhibit "C" hereto. 12. The currently effective ad valorem tax rolls of the City are those for the year 2001, being the most recently approved tax rolls of the City; that the taxable property in the City has been assessed as required by law; that the Tax Assessor of the City has duly verified the aforesaid tax rolls, and that the assessed value of taxable property in the City upon which the annual ad valorem tax of the City has been levied (after deducting the amount of all exemptions, if any, taken or required to be given under the Constitution and laws of the State of Texas), according to the aforesaid tax rolls for said year and finally approved and recorded by the City Council of the City, is $4,570,088,960. 13. That no default exists in connection with any of the covenants contained in any of the orders authorizing the issuance of the Refunded Obligations (as defined in the ordinance authorizing the Bonds). 14. That none of the Refunded Obligations have ever been held in or purchased for the account of any of the special funds created and maintained under the ordinances authorizing their issuance for payment or security of said Refunded Obligations. 15. The City has complied with the provisions of the Texas Election Code including the Bilingual Election and Voter Registration Materials Act, Texas Election Code and the Federal Voting Rights Act in all its elections. RROCK\GOAndRefgBonds2002: GeneralNoLitCert 2 CLOSING MATTERS 16. That the representations and warranties of the City contained in the Purchase Agreement or in any certificate or document delivered by the City pursuant to the provisions in the Purchase Agreement are true and correct in all material respects on and as of the date of Closing as if made on the date of Closing, and all agreements or conditions to be performed or complied with by the City according to the Purchase Agreement on or prior to the date of the Closing have been performed or complied with; (ii) except to the extent disclosed in the Official Statement, no litigation is pending or, to my knowledge, threatened in any court to restrain or enjoin the issuance or delivery of the Bonds or the levy, collection or application of the ad valorem taxes pledged or to be pledged to pay the principal of and interest on the General Obligation Bonds, or the pledge thereof, or the collection or application of the Net Revenues of the System pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity of the Bonds, the Bond Ordinance, the Escrow Agreement or the Purchase Agreement, or contesting the powers of the City or contesting the authorization of the Bonds or the Bond Ordinance, or contesting in any way the accuracy, completeness or fairness of the Official Statement; (iii) no event affecting the City has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (iv) the descriptions and statements of or pertaining to the City contained in the Official Statement, on the date of sale of the Bonds and on the date of the delivery of the Bonds, were and are true and correct in all material respects; (v) insofar as the City and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (vi) insofar as the descriptions and statements including financial data, of or pertaining to entities, other than the City, and their activities contained in the Official Statement are concerned, such statements and data have been obtained from sources which the City believes to be reliable and the City has no reason to believe that they are untrue in any material respect; and (vii) there has not been any material and adverse change in the affairs or financial condition of the City since September 30, 2001, the latest date as to which audited financial information is available. 17. That on the basis of the facts, estimates and circumstances in effect on the date of delivery of the Bonds, it is not expected that the proceeds of the Bonds will be used in a manner that would cause the Bonds to be arbitrage bonds within the meaning of Section 148 of the Code. (THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) RROCK\GOAndRefgBonds2002: GeneralNoLitCert 3 SIGNED AND SEALED this the CI retary 1. AI A..+ lana;: City r Ex • cute either I or II below: day of , 2002. I. The signatures of the officers subscribed above are hereby certified to be true and genuine. Bank By: Authorized Officer (BANK SEAL) or (Initials of Authorized Officer if Bank has no seal on premises II. Before me, on this day personally appeared the foregoing individuals, known to me to be the officers whose true and genuine signatures were subscribed to the foregoing instrument in my presence. Given under my hand and seal of office this (Notary Seal) RROCK\GOAndRefgBonds2002: GeneralNoLitCert 4 Notary Public Bonds Bond Ordinance City City Council Closing Official Statement Purchase Agreement Underwriters EXHIBIT A DEFINITIONS City of Round Rock, Texas General Obligation and Refunding Bonds, Series 2002 in the aggregate principal amount of $45,465,000 dated May 1, 2002. Ordinance No. G -02-05-09-15B1 Authorizing the Issuance of City of Round Rock, Texas General Obligation and Refunding Bonds, Series 2002; Levying an Ad Valorem Tax in Support of the Bonds; Approving a Paying Agent/Registrar Agreement, an Official Statement, a Bond Purchase Agreement and an Escrow Agreement; Calling Certain Obligations for Redemption and Authorizing Other Matters Relating to the Bonds. City of Round Rock, Texas The City Council of Round Rock, Texas. May 23, 2002 or at such other time agreed upon between the City and the Underwriters. The Official Statement dated May 9, 2002 relating to the issuance of the Bonds. The Purchase Agreement among the City and the Initial Purchasers, dated May 9, 2002. RBC Dain Rauscher Inc., Morgan Keegan & Co., Inc., Legg Mason Wood Walker, Inc., JPMorgan Chase & Company and Estrada Hinojosa & Co., Inc. RROCK\GOAndRefgBonds2002: GeneralNoLitCert A-1 EXHIBIT B OUTSTANDING TAX INDEBTEDNESS Bonds in Process of Issuance City of Round Rock, Texas General Obligation and Refunding Bonds, Series 2002 $45,465,000 Outstanding Debt City of Round Rock, Texas General Obligation Bonds, Series 1975 65,000 City of Round Rock, Texas Certificates of Obligation, Series 1975 17,000 City of Round Rock, Texas Certificate of Obligation, Series 1993 90,000 City of Round Rock, Texas General Obligation Refunding Bonds, Series 1993 2,585,000 City of Round Rock, Texas Combination Tax and Revenue Certificates of Obligation, Series 1995 3,280,000 City of Round Rock, Texas General Obligation and Refunding Bonds, Series 1996 12,735,000 City of Round Rock, Texas Combination Tax and Revenue Certificates of Obligation, Series 1997 4,950,000 City of Round Rock, Texas General Obligation Refunding Bonds, Series 1997 5,170,000 City of Round Rock, Texas General Obligation Bonds, Series 1998 8,780,000 City of Round Rock, Texas Combination Tax and Revenue Certificates of Obligation, Series 1998 2,390,000 City of Round Rock, Texas Combination Tax and Revenue Certificates of Obligation, Series 2000 10,650,000 TOTAL $96,177,000 RROCK\GOAndRefgBonds2002: GeneralNoLitCert B-1 EXHIBIT C COMBINATION DEBT SERVICE SCHEDULE •M IMO 410 :J. 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N N N v3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 O 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Vi to vi to0 0 0 0 0 0 0 to vi O O O O to tri O O v') O v'i to '0 01 00 to f CN 0 N to 0 V'1 0 'O 7r N 0 00 0 to to to tr) '.O N O) N N0 .-, - to 'I • N N M M t to \O \O N 00 0, 0 --, N M rf •-, N M N N N N N N N 69 VN to N to o0 00 - to 0to N_ 0 On oo 'D a � -.oo 0 o0 0 to 0 0 r On t- 00 N ▪ M _ N N 00 to 0 o0 r- .-» 0 0 r- •-, to r` r) 0 0 M to ,-, N N 0 0 M r` '0 0 o0 00 VD 00 0 b N Or-.6 06 tri V • O� 00 00 '0 N4 tri O M4 O_ O O M _ kr, 00 C\ -� 7 Cr, vO VD O'N CT 0 ON O) Q) CT 0 ON OT N to V N to 00 0 V V'? to oo ^, N N N NN N N N N N V V M �t d' n M M r \O (1 M M M 4 V V V 'V V V 4 V V V' N N N 69 V N to N to o0 00 to 0_ v) _N 0 O 00 vO rt '.O -• 00 0 00 0 to 0 0 r- ▪ C\ [� 00 N v M N t- CT to -.. — tn r- M 0 0 M to N r` 0 0 M r NO 0 0000000VD 00 0 r- N M V M to N t0 a ri N 00 0� N V '.O O O 00 7 O O to M r` 0 C\ M n 0 M a M 0 r` 3 cp, V m'0 0, 000 0 00 N VD V N 0 NO to a M M N -• O 0,._, M N N Cl N N N N N N 69 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 O 0 0 0 0 0 0 0 0 0 0 0 O O 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 f`7. M. M ri M. M to to to to p tri to O O to to O to O O O to O M N 0 CO N 00 M N'0 CT .-• to 0 00 N 0 C) 01 M ,�. 0 N M VD ON CA- N '0 0 N o 00 M t 00 Cr,-. M 7 V0 0 N V MN N N N N N N ri ri ri M N N (4 p N M 'p7 v) 'O ( oo O� O '• N M V to VD l� 00 01 O ▪ N M to VO N M 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 CT N N N N N N N N N N N N N N N N N N N N N Cl N N N N $ 67,271,961 $ 96,277,000 $ 87,675,031 * Excludes the Refunded Obligations and includes self-supporting debt. RROCK\GOAndRefgBonds2002: GeneralNoLitCert DATE: May 3, 2002 SUBJECT: City Council Meeting — May 9, 2002 ITEM: 15.B.1. Consider an ordinance authorizing the issuance of City of Round Rock, Texas General Obligation and Refunding Bonds, Series 2002; levying an ad valorem tax in support of the bonds; approving a paying agent/registrar agreement, an official statement, a bond purchase agreement and an escrow agreement; calling certain obligations for redemption and authorizing other matters relating to bonds. (First Reading) Resource: David Kautz, Finance Director History: The City is selling General Obligation bonds in the amount of $35 million for new project financing plus approximately $10.8 million for a refunding transaction. The $35 million was authorized by voters as part of an $89.8 authorization last November. The refunding transaction will provide for a small present value savings due to lower market interest rates and for a restructuring of current outstanding bonds. Funding: Cost: N/A Source of funds: N/A Outside Resources: N/A Impact/Benefit: These bonds will provide financing for general projects as authorized by voters and will be paid for through property taxes. Public Comment: N/A Sponsor: N/A