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HomeMy WebLinkAbout1987-017ORDINANCE NO 87-017 ORDINANCE AUTHORIZING THE ISSUANCE, SALE, AND DELIVERY OF CITY OF DENTON UTILITY SYSTEM REVENUE REFUNDING BONDS, SERIES 1987, AND APPROVING AND AUTHORIZING INSTRUMENTS AND PROCEDURES RELATING THERETO THE STATE OF TEXAS COUNTY OF DENTON CITY OF DENTON WHEREAS, the City of Denton, Texas, heretofore has duly issued, and there are presently outstanding, the following revenue bonds City of Denton Utility System Revenue Bonds, Series 1984, dated March 1, 1984, scheduled to mature on December 1 in each of the years 1995 through 2004, being fully regis- tered bonds payable to the registered owners thereof, in denominations in multiples of $5,000, aggregating $500,000 in principal amounts (and being all of the outstanding bonds of said Series scheduled to mature on and after December 1, 1995), and City of Denton Utility System Revenue Bonds, Series 1984-A, dated October 1, 1984, scheduled to mature on December 1 of each of the years 1995 through 2009, being fully registered bonds payable to the registered owners thereof, in denominations in multiples of $5,000, aggre- gating $13,500,000 in principal amount (and being all of the outstanding bonds of said Series scheduled to mature on and after December 1, 1995), (collectively, the "Outstanding Bonds", in the aggregate principal amount of $14,000,000), and WHEREAS, the City Council of the City of Denton deems it necessary and advisable to refund the outstanding Bonds, and to authorize, issue, and deliver the bonds hereinafter described, and WHEREAS, the bonds hereinafter authorized are to be issued, sold, and delivered pursuant to Vernon's Ann Tex Civ St Article 717k, the City's Home Rule Charter and other applicable laws THEREFORE, THE COUNCIL OF THE CITY OF DENTON HEREBY ORDAINS THAT Section 1 AMOUNT AND PURPOSE OF THE BONDS The bond or bonds of the City of Denton, Texas (the "Issuer") are hereby authorized to be issued and delivered in the aggregate 1 principal amount of $17,485,000, FOR THE PURPOSE OF OBTAINING FUNDS REQUIRED TO REFUND $14,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF CITY OF DENTON UTILITY SYSTEM REVENUE BONDS Section 2 DESIGNATION OF THE BONDS Each bond issued pursuant to this Ordinance shall be designated "CITY OF DENTON UTILITY SYSTEM REVENUE REFUNDING BOND, SERIES 1987", and initially there shall be issued, sold, and delivered hereunder a single fully registered bond, without interest coupons, payable in installments of principal (the "Initial Bond"), but the Initial Bond may be assigned and transferred and/or con- verted into and exchanged for a like aggregate principal amount of fully registered bonds, without interest coupons, having serial maturities, and in the denomination or denominations of $5,000 or any integral multiple of $1>,000, all in the manner hereinafter provided The term "Bonds" as used in this Ordi- nance shall mean and include collectively the Initial Bond 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 INITIAL DATE, DENOMINATION, NUMBER, MATURI- TIES, INITIAL REGISTERED OWNER, AND CHARACTERISTICS OF THE INITIAL BOND (a) The Initial Bond is hereby authorized to be issued, sold, and delivered hereunder as a single fully registered Bond, without interest coupons, dated JANUARY 1, 1987, in the denomination and aggregate principal amount of $17,485,000, numbered R-1, payable in annual installments of principal to the initial registered owner thereof, to -wit SMITH BARNEY, HARRIS UPHAM & CO INCORPORATED, or to the registered assignee or assignees of said Bond or any portion or portions thereof (in each case, the "registered owner"), with the annual installments of principal of the Initial Bond to be payable on the dates, respectively, and in the principal amounts, respectively, stated in the FORM OF INITIAL BOND set forth in this Ordinance (b) The Initial Bond (1) may and shall be prepaid or redeemed prior to the respective scheduled due dates of in- stallments of principal thereof, (ii) may be assigned and transferred, (iii) may be converted and exchanged for other Bonds, (iv) shall have the characteristics, and (v) shall be signed and sealed, and the principal of and interest on the Initial Bond shall be payable, all as provided, and in the manner required or indicated, in the FORM OF INITIAL BOND set forth in this Ordinance Section 4 INTEREST The unpaid principal balance of the Initial Bond shall bear interest from the date of the Initial 3 Bond to the respective scheduled due dates, or to the respec- tive dates of prepayment or redemption, of the installments of principal of the initial Bond, and said interest shall be payable, all in the manner provided and at the rates and on the dates stated in the FORM OF INITIAL BOND set forth in this Ordinance Section 5 FORM OF INITIAL BOND The form of the Initial Bond, including the form of Registration Certificate of the Comptroller of Public Accounts of the State of Texas to be endorsed on the Initial Bond, shall be substantially as fol- lows FORM OF INITIAL BOND NO R-1 $17,485,000 UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF DENTON CITY OF DENTON UTILITY SYSTEM REVENUE REFUNDING BOND SERIES 1987 THE CITY OF DENTON, in Denton County, Texas (the "Issuer"), being a political subdivision of the State of Texas, hereby promises to pay to SMITH BARNEY, HARRIS UPHAM & CO INCORPORATED, or to the registered assignee or assignees of this Bond or any portion or portions hereof (in each case, the "registered owner") the aggregate principal amount of $17,485,000 (SEVENTEEN MILLION FOUR HUNDRED EIGHTY FIVE THOUSAND DOLLARS) in annual installments of principal due and payable on DECEMBER 1 in each of the years, and in the respective principal amounts, as set forth in the following schedule PRINCIPAL PRINCIPAL YEAR AMOUNT YEAR AMOUNT 1991 $ 255,000 1999 $1,175,000 1992 270,000 2000 1,155,000 1993 280,000 2001 1,135,000 1994 295,000 2002 1,115,000 1995 1,245,000 **** 1996 1,230,000 2007 5,070,000 1997 1,210,000 **** 1998 1,195,000 2009 1,855,000 and to pay interest, from the date of this Bond hereinafter stated, on the balance of each such installment of principal, 3 respectively, from time to time remaining unpaid, at the rates as follows 5 00% per annum on the above installment due in 1991 5 25% per annum on the above installment due in 1992 5 50% per annum on the above installment due in 1993 5 75% per annum on the above installment due in 1994 6 00% per annum on the above installment due in 1995 6 20% per annum on the above installment due in 1996 6 40% per annum on the above installment due in 1997 6 60% per annum on the above installment due in 1998 6 70% per annum on the above installment due in 1999 6 80% per annum on the above installment due in 2000 6 90% per annum on the above installment due in 2001 7 00% per annum on the above installment due in 2002 7 00% per annum on the above installment due in 2007 ************ 7 00% per annum on the above installment due in 2009 with said interest being payable on JUNE 1, 1987, and semi- annually on each DECEMBER 1 and JUNE 1 thereafter while this Bond or any portion hereof is outstanding and unpaid Said interest shall be calculated on the basis of a 360-day year composed of twelve 30-day months THE INSTALLMENTS OF PRINCIPAL OF AND THE INTEREST ON this Bond are payable in lawful money of the United States of America, without exchange or collection charges The install- ments of principal and the interest on this Bond are payable to the registered owner hereof through the services of TEXAS AMERICAN BANK/FORT WORTH, N A , FORT WORTH, TEXAS, which is the "Paying Agent/Registrar" for this Bond Payment of all princi- pal of and interest on this Bond shall be made by the Paying Agent/Registrar to the registered owner hereof on each princi- pal and/or interest payment date by check or draft, dated as of such date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the Issuer required by the ordinance authorizing the issuance of this Bond (the "Bond Ordinance") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided, and such check or draft shall be sent by the Paying Agent/Registrar by United States mail, first- class postage prepaid, on each such principal and/or interest payment date, to the registered owner hereof, at the address of the registered owner, as it appeared on the 15th day of the month next preceding each such date (the "Record Date") on the Registration Books kept by the Paying Agent/Registrar, as hereinafter described The Issuer covenants with the regis- tered owner of this Bond that on ox before each principal and/or interest payment date for this Bond it will make avail- able to the Paying Agent/Registrar, from the "Interest and Sinking Fund" maintained pursuant to the Bond Ordinance, the amounts required to provide for the payment, in immediately available funds, of all principal of and interest on this Bond, when due IF THE DATE for the payment of the principal of or inter- est on this Bond shall be a Saturday, Sunday, a legal holiday, or a day on which banking institutions in the City where 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 has been authorized Ln accordance with the Constitution and laws of the State of Texas FOR THE PURPOSE OF OBTAINING FUNDS REQUIRED TO REFUND $14,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF CITY OF DENTON UTILITY SYSTEM REVENUE BONDS ON DECEMBER 1, 1996, or on any interest payment date thereafter, the unpaid installments of principal of this Bond may be prepaid or redeemed prior to their scheduled due dates, at the option of the Issuer, with funds derived from any available source, as a whole, or in part, and, if in part, the particular portion of this Bond to be prepaid or redeemed eemed shall be selected and designated by the Issuer (provided portion of this Bond may be redeemed only in an integral multiple of $5,000), at the prepayment or redemption price of the par or principal amount thereof, plus accrued interest to the date fixed for prepayment or redemption ON DECEMBER 1, 2003, and on DECEMBER 1 of each of the years hereinafter specified, the installments of principal of this Bond which are due and payable on DECEMBER 1, 2007, and on DECEMBER 1, 2009, are sub3ect to mandatory prepayment and redemption prior to their scheduled due dates, and shall be prepaid and redeemed by the Issuer, in part, prior to their scheduled due dates, with money from the Interest and Sinking Fund, at a prepayment or redemption price equal to the princi- pal amount thereof and accrued interest to the date of prepay- ment or redemption, on the dates and in the principal amounts, respectively, as shown in the following schedule 5 December 1, 2007 Installment Principal Dates Amounts December 1, 2003 $1,095,000 December 1, 2004 $1,070,000 December 1, 2005 $ 990,000 December 1, 2006 $ 965,000 December 1, 2009 Installment Principal Date Amount December 1, 2008 $935,000 AT LEAST 30 days prior to the date fixed for any such prepayment or redemption a written notice of such prepayment or redemption shall be mailed by the Paying Agent/Registrar to the registered owner hereof By the date fixed for any such prepayment or redemption due provision shall be made by the Issuer with the Paying Agent/Registrar for the payment of the required prepayment or redemption price for this Bond or the portion hereof which is to be so prepaid or redeemed, plus accrued interest thereon to the date fixed for prepayment or redemption if such written notice of prepayment or redemption is given, and if due provision for such payment is made, all as provided above, this Bond, or the portion thereof which is to be so prepaid or redeemed, thereby automatically shall be treated as prepaid or redeemed prior to its scheduled due date, and shall not bear interest after the date fixed for its prepayment or redemption, and shall not be regarded as being outstanding except for the right of the registered owner to receive the prepayment or redemption price plus accrued inter- est to the date fixed for prepayment or redemption from the Paying Agent/Registrar out of the funds provided for such payment The Paying Agent/Registrar shall record in the Registration Books all such prepayments or redemptions of principal of this Bond or any portion hereof THIS BOND, to the extent of the unpaid or unredeemed principal balance hereof, or any unpaid and unredeemed portion hereof in any integral multiple of $5,000, may be assigned by the initial registered owner hereof and shall be transferred only in the Registration Books of the issuer kept by the Paying Agent/Registrar acting in the capacity of registrar for the Bonds, upon the terms and conditions set forth in the Bond Ordinance Among other requirements for such transfer, this Bond must be presented and surrendered to the Paying Agent/ - Registrar for cancellation, together with proper instruments of assignment, in form and with guarantee of signatures satisfac- tory to the Paying Agent/Registrar, evidencing assignment by the initial registered owner 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 transferred and 9 registered Any instrument or instruments of assignment satisfactory to the Paying Agent/Registrar may be used to evidence the assignment of this Bond or any such portion or portions hereof by the initial registered owner hereof A new bond or bonds payable to such assignee or assignees (which then will be the new registered owner or owners of such new Bond or Bonds) or to the initial registered owner as to any portion of this Bond which is not being assigned and transferred by the initial registered owner, shall be delivered by the Paying Agent/Registrar in conversion of and exchange for this Bond or any portion or portions hereof, but solely in the form and manner as provided in the next paragraph hereof for the conver- sion and exchange of this Bond or any portion hereof The registered owner of this Bond shall be deemed and treated by the Issuer and the Paying Agent/Registrar as the absolute owner hereof for all purposes, including payment and discharge of liability upon this Bond to the extent of such payment, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary AS PROVIDED above and in the Bond Ordinance, this Bond, to the extent of the unpaid or unredeemed principal balance hereof, may be converted into and exchanged for a like aggre- gate principal amount of fully registered bonds, without interest coupons, payable to the assignee or assignees duly designated in writing by the initial registered owner hereof, or to the initial registered owner as to any portion of this Bond which is not being assigned and transferred by the initial registered owner, in any denomination or denominations in any integral multiple of $5,000 (subject to the requirement here- inafter stated that each substitute bond issued in exchange for any portion of this Bond shall have a single stated principal maturity date), 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 If this Bond or any portion hereof is assigned and transferred or converted each bond issued in exchange for any portion hereof shall have a single stated principal maturity date correspond- ing to the due date of the installment of principal of this Bond or portion hereof for which the substitute bond is being exchanged, and shall bear interest at the rate applicable to and borne by such installment of principal or portion thereof Such bonds, respectively, shall be subject to redemption prior to maturity on the same dates and for the same prices as the corresponding installment of principal of this Bond or portion hereof for which they are being exchanged No such bond shall be payable in installments, but shall have only one stated principal maturity date AS PROVIDED IN THE BOND ORDINANCE, THIS BOND IN ITS PRESENT FORM MAY BE ASSIGNED AND TRANSFERRED OR CONVERTED ONCE ONLY, and to one or more assignees, but the 7 bonds issued and delivered in exchange for this Bond or any portion hereof may be assigned and transferred, and converted, subsequently, as provided in the Bond Ordinance The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for transferring, converting, and exchanging this Bond or any portion thereof, but the one requesting such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto The Paying Agent/Registrar shall not be required to make any such assignment, conversion, or exchange (1) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or, (ii) with respect to any Bond or portion thereof called for prepayment or redemption prior to maturity, within 45 days prior to its prepayment or redemption date IN THE EVENT any Paying Agent/Registrar for this Bond is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the Bond Ordinance that it promptly will appoint a competent and legally qualified sub- stitute therefor, and promptly will cause written notice thereof to be mailed to the registered owner of this Bond IT IS HEREBY certified, recited, and covenanted that this Bond has been duly and validly authorized, issued, sold, and delivered, that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Bond have been performed, existed, and been done in accordance with law, that this Bond is a special obligation of the Issuer, secured by and payable, together with other bonds, from a first lien on and pledge of the "Pledged Revenues", which include initially the "Net Revenues of the System" as such terms are defined in the Bond Ordinance, with the System consisting of the City's entire combined waterworks, sewer, and electric light and power system THE ISSUER has reserved the right, subject to the restric- tion stated in the Bond Ordinance, to issue Additional Bonds payable from and secured by a first lien on and pledge of the "Pledged Revenues" on a parity with this Bond THE REGISTERED OWNER hereof shall never have the right to demand payment of this Bond or the interest hereon out of any funds raised or to be raised by taxation or from any source whatsoever other than specified in the Bond Ordinance BY BECOMING the registered owner of this Bond, the regis- tered owner thereby acknowledges all of the terms and F provisions of the Bond Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Bond Ordinance is duly recorded and available for inspection in the official minutes and records of the governing body of the Issuer, and agrees that the terms and provisions of this Bond and the Bond Ordinance constitute a contract between the registered owner hereof and the Issuer IN WITNESS WHEREOF, the Issuer has caused this Bond to be signed with the manual signature of the Mayor of the Issuer and countersigned with the manual signature of the City Secretary of the Issuer, has caused the official seal of the Issuer to be duly impressed on this Bond, and has caused this Bond to be dated JANUARY 1, 1987 City Secretary, Mayor, City of Denton, Texas City of Denton, Texas (CITY SEAL) 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, certi- fied 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) Section 6 ADDITIONAL CHARACTERISTICS OF THE BONDS Registration and Transfer (a) The Issuer shall keep or cause to be kept at the principal corporate trust office of TEXAS AMERICAN BANK/FORT WORTH, N A , FORT WORTH, TEXAS (the "Paying Agent/Registrar") books or records of the registration and transfer of the Bonds (the "Registration Books"), and the Issuer hereby appoints the Paying Agent/Registrar as its 0 registrar and transfer agent to keep such books or records and make such transfers and registrations under such reasonable regulations as the Issuer and Paying Agent/Registrar may prescribe, and the Paying Agent/Registrar shall make such transfers and registrations as herein provided The Paying Agent/Registrar shall obtain and record in the Registration Books the address of the registered owner of each Bond to which payments with respect to the 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 Issuer shall have the right to inspect the Registration Books during regular business hours of the Paying Agent/Registrar, but otherwise the Paying Agent/Registrar shall keep the Regis- tration Books confidential and, unless otherwise required by law, shall not permit their inspection by any other entity Registration of each Bond may be transferred in the Registra- tion Books only upon presentation and surrender of such Bond to the Paying Agent/Registrar for transfer of registration and cancellation, together with proper written instruments of assignment, in form and with guarantee of signatures satis- factory to the Paying Agent/Registrar, evidencing (1) the assignment of the Bond, or any portion thereof in any integral multiple of $5,000, to the assignee or assignees thereof, and (ii) the right of such assignee or assignees to have the Bond or any such portion thereof registered in the name of such assignee or assignees Upon the assignment and transfer of any Bond or any portion thereof, a new substitute Bond or Bonds shall be issued in conversion and exchange therefor in the manner herein provided The Initial Bond, to the extent of the unpaid or unredeemed principal balance thereof, may be assigned and transferred by the initial registered owner thereof once only, and to one or more assignees designated in writing by the initial registered owner thereof All Bonds issued and de- livered in conversion of and exchange for the Initial Bond shall be in any denomination or denominations of any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute Bond shall have a single stated principal maturity date), shall be in the form prescribed in the FORM OF SUBSTITUTE BOND set forth in this Ordinance, and shall have the characteristics, and may be assigned, trans- ferred, and converted as hereinafter provided If the Initial Bond or any portion thereof is assigned and transferred or converted the Initial Bond must be surrendered to the Paying Agent/Registrar for cancellation, and each Bond issued in exchange for any portion of the Initial Bond shall have a single stated principal maturity date, and shall not be payable in installments, and each such Bond shall have a principal maturity date corresponding to the due date of the installment 10 of principal or portion thereof for which the substitute Bond is being exchanged, and each such Bond shall bear interest at the single rate applicable to and borne by such installment of principal or portion thereof for which it is being exchanged If only a portion of the Initial Bond is assigned and trans- ferred, there shall be delivered to and registered in the name of the initial registered owner substitute Bonds in exchange for the unassigned balance of the Initial Bond in the same manner as if the initial registered owner were the assignee thereof If any Bond or portion thereof other than the Initial Bond is assigned and transferred or converted each Bond issued in exchange therefor shall have the same principal maturity date and bear interest at the same rate as the Bond for which it is exchanged A form of assignment shall be printed or endorsed on each Bond, excepting the Initial Bond, which shall be executed by the registered owner or its duly authorized attorney or representative to evidence an assignment thereof Upon surrender of any Bonds or any portion or portions thereof for transfer of registration, an authorized representative of the Paying Agent/Registrar shall make such transfer in the Registration Books, and shall deliver a new fully registered substitute Bond or Bonds, having the characteristics herein described, payable to such assignee or assignees (which then will be the registered owner or owners of such new Bond or Bonds) , or to the previous registered owner in case only a portion of a Bond is being assigned and transferred, all in conversion of and exchange for said assigned Bond or Bonds or any portion or portions thereof, in the same form and manner, and with the same effect, as provided in Section 6(d), below, for the conversion and exchange of Bonds by any registered owner of a Bond The Issuer shall pay the Paying Agent/ Registrar's standard or customary fees and charges for making such transfer and delivery of a substitute Bond or Bonds, but the one requesting such transfer shall pay any taxes or other governmental charges required to be paid with respect thereto The Paying Agent/Registrar shall not be required to make transfers of registration of any Bond or any portion thereof W during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or, (11) with respect to any Bond or any portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date (b) Ownership of Bonds The entity in whose name any Bond shall be registered in the Registration Books at any time shall be deemed and treated as the absolute owner thereof for all purposes of this Ordinance, whether or not such Bond shall be overdue, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary, and payment of, 11 or on account of, the principal of, premium, if any, and interest on any such Bond shall be made only to such registered owner All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid (c) Payment of Bonds and Interest The Issuer hereby further appoints the Paying Agent/Registrar to act as the paying agent for paying the principal of and interest on the Bonds, and to act as its agent to convert and exchange or replace Bonds, all as provided in this Ordinance The Paying Agent/Registrar shall keep proper records of all payments made by the Issuer and the Paying Agent/Registrar with respect to the Bonds, and of all conversions and exchanges of Bonds, and all replacements of Bonds, as provided in this Ordinance (d) Conversion and Exchange or Replacement Authenti- cation Each Bond issued and delivered pursuant to this Ordinance, to the extent of the unpaid or unredeemed principal balance or principal amount thereof, may, upon surrender of such Bond at the principal corporate trust office of the Paying Agent/Registrar, together with a written request therefor duly executed by the registered owner or the assignee or assignees thereof, or its or their duly authorized attorneys or represen- tatives, with guarantee of signatures satisfactory to the Paying Agent/Registrar, may, at the option of the registered owner or such assignee or assignees, as appropriate, be con- verted into and exchanged for fully registered bonds, without interest coupons, in the form prescribed in the FORM OF SUBSTI- TUTE BOND set forth in this Ordinance, in the denomination of $5,000, or any integral multiple of $5,000 (subject to the requirement hereinafter stated that each substitute Bond shall have a single stated maturity date), as requested in writing by such registered owner or such assignee or assignees, in an aggregate principal amount equal to the unpaid or unredeemed principal balance or principal amount of any Bond or Bonds so surrendered, and payable to the appropriate registered owner, assignee, or assignees, as the case may be If the Initial Bond is assigned and transferred or converted each substitute Bond issued in exchange for any portion of the Initial Bond shall have a single stated principal maturity date, and shall not be payable in installments, and each such Bond shall have a principal maturity date corresponding to the due date of the installment of principal or portion thereof for which the substitute Bond is being exchanged, and each such Bond shall bear interest at the single rate applicable to and borne by such installment of principal or portion thereof for which it is being exchanged If a portion of any Bond (other than the Initial Bond) shall be redeemed prior to its scheduled maturity as provided herein, a substitute Bond or Bonds having the same 12 maturity date, bearing interest at the same rate, in the denomination or denominations of any integral multiple of $5,000 at the request of the registered owner, and in aggregate principal amount equal to the unredeemed portion thereof, will be issued to the registered owner upon surrender thereof for cancellation If any Bond or portion thereof (other than the Initial Bond) is assigned and transferred or converted, each Bond issued in exchange therefor shall have the same principal maturity date and bear interest at the same rate as the Bond for which it is being exchanged Each substitute Bond shall bear a letter and/or number to distinguish it from each other Bond The Paying Agent/Registrar shall convert and exchange or replace Bonds as provided herein, and each fully registered bond delivered in conversion of and exchange for or replacement of any Bond or portion thereof as permitted or required by any provision of this Ordinance shall constitute one of the Bonds for all purposes of this Ordinance, and may again be converted and exchanged or replaced It is specifically provided that any Bond authenticated in conversion of and exchange for or replacement of another Bond on or prior to the first scheduled Record Date for the Initial Bond shall bear interest from the date of the Initial Bond, but each substitute Bond so authenti- cated after such first scheduled Record Date shall bear inter- est from the interest payment date next preceding the date on which such substitute Bond was so authenticated, unless such Bond is authenticated after any Record Date but on or before the next following interest payment date, in which case it shall bear interest from such next following interest payment date, provided, however, that if at the time of delivery of any substitute Bond the interest on the Bond for which it is being exchanged is due but has not been paid, then such Bond shall bear interest from the date to which such interest has been paid in full THE INITIAL BOND issued and delivered pursuant to this Ordinance is not required to be, and shall not be, authenticated by the Paying Agent/Registrar, but on each substitute Bond issued in conversion of and exchange for or replacement of any Bond or Bonds issued under this Ordinance there shall be printed a certificate, in the form substantially as follows "PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE It is hereby certified that this Bond has been issued under the provisions of the Bond Ordinance described in this Bond, and that this Bond has been issued in conversion of and exchange for or replacement of a bond, bonds, or a portion of a bond or bonds of an issue which 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 13 TEXAS AMERICAN BANK/FORT WORTH, N A , FORT WORTH, TEXAS Paying Agent/Registrar Dated BY Authorized Representative" An authorized representative of the Paying Agent/Registrar shall, before the delivery of any such Bond, date and manually sign the above Certificate, and no such Bond shall be deemed to be issued or outstanding unless such Certificate is so ex- ecuted The Paying Agent/Registrar promptly shall cancel all Bonds surrendered for conversion and exchange or replacement No additional ordinances, orders, or resolutions need be passed or adopted by the governing body of the Issuer or any other body or person so as to accomplish the foregoing conversion and exchange or replacement of any Bond or portion thereof, and the Paying Agent/Registrar shall provide for the printing, execu- tion, and delivery of the substitute Bonds in the manner prescribed herein, and said Bonds shall be of type composition printed on paper with lithographed or steel engraved borders of customary weight and strength Pursuant to Vernon's Ann Tex Civ St Art 717k-6, and particularly Section 6 thereof, the duty of conversion and exchange or replacement of Bonds as aforesaid is hereby imposed upon the Paying Agent/Registrar, and, upon the execution of the above Paying Agent/Registrar's Authentication Certificate, the converted and exchanged or replaced Bond shall be valid, incontestable, and enforceable in the same manner and with the same effect as the Initial Bond which originally was issued pursuant to this Ordinance, ap- proved by the Attorney General, and registered by the Comptroller of Public Accounts The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for transferring, converting, and exchanging any Bond or any portion thereof, but the one requesting any such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto as a condition precedent to the exercise of such privilege of conversion and exchange The Paying Agent/Registrar shall not be required to make any such conversion and exchange or replacement of Bonds or any portion thereof (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or, (ii) with respect to any Bond or portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date (e) In General All Bonds issued in conversion and exchange or replacement of any other Bond or portion thereof, (i) shall be issued in fully registered form, without interest 14 coupons, with the principal of and interest on such Bonds to be payable only to the registered owners thereof, (ii) may and shall be redeemed prior to their scheduled maturities, (iii) may be transferred and assigned, (iv) may be converted and ex- changed for other Bonds, (v) shall have the characteristics, (vi) shall be signed and sealed, and (vii) the principal of and interest on the Bonds shall be payable, all as provided, and in the manner required or indicated, in the FORM OF SUBSTITUTE BOND set forth in this Ordinance (f) Pa ment ofreg Feests and Charges The Issuer hereby covenants with the ered owners of the Bonds that it will (i) pay the standard or customary fees and charges of the Paying Agent/Registrar for its services with respect to the payment of the principal of and interest on the Bonds, when due, and (ii) pay the fees and charges of the Paying Agent/ - Registrar for services with respect to the transfer of regis- tration of Bonds, and with respect to the conversion and exchange of Bonds solely to the extent above provided in this Ordinance (g) Substitute Paving Agent/Registrar The Issuer covenants with the registered owners of the Bonds that at all times while the Bonds are outstanding the Issuer 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 Issuer reserves the right to, and may, at its option, change the Paying Agent/Registrar upon not less than 120 days written notice to the Paying Agent/Registrar, to be effective not later than 60 days prior to the next principal or interest payment date after such notice In the event that the entity at any time acting as Paying Agent/Registrar (or its successor by merger, acquisition, or other method) should resign or other- wise cease to act as such, the Issuer covenants that promptly it will appoint a competent and legally qualified bank, trust company, financial institution, or other agency to act as Paying Agent/Registrar under this Ordinance Upon any change in the Paying Agent/Registrar, the previous Paying Agent/Regis- trar 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/Regis- trar designated and appointed by the Issuer Upon any change in the Paying Agent/Registrar, the Issuer promptly will cause a written notice thereof to be sent by the new Paying Agent/Regi- strar 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 15 Agent/Registrar shall be deemed to have agreed to the provi- sions of this Ordinance, and a certified copy of this Ordinance shall be delivered to each Paying Agent/Registrar Section 7 FORM OF SUBSTITUTE BONDS The form of all Bonds issued in conversion and exchange or replacement of any other Bond or portion thereof, including the form of Paying Agent/Registrar's Certificate to be printed on each of such Bonds, and the Form of Assignment to be printed on each of the Bonds, shall be, respectively, substantially as follows, with such appropriate variations, omissions, or insertions as are permitted or required by this Ordinance FORM OF SUBSTITUTE BOND NO UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF DENTON CITY OF DENTON UTILITY SYSTEM REVENUE SERIES 1987 INTEREST RATE MATURITY DATE PRINCIPAL AMOUNT REFUNDING BOND CUSIP NO ON THE MATURITY DATE specified above the CITY OF DENTON, in Denton County, Texas (the "Issuer"), being a a political subdivision of the State of Texas, hereby promises to pay to or to the registered assignee hereof (either being hereinafter called the "registered owner") the principal amount of and to pay interest thereon from JANUARY 1, 1987, to the maturity date specified above, or the date of redemption prior to maturity, at the interest rate per annum specified above, with interest being payable on JUNE 1, 1987, and semiannually on each DECEMBER 1 and JUNE 1 thereafter, except that if the date of authentication of this Bond is later than MAY 15, 1987, 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 (herein- after defined) 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 Said interest shall be calculated on the basis of a 360-day year composed of twelve 30-day months 16 THE PRINCIPAL OF AND INTEREST ON this Bond are payable in lawful money of the United States of America, without exchange or collection charges The principal of this Bond shall be paid to the registered owner hereof upon presentation and surrender of this Bond at maturity or upon the date fixed for its redemption prior to maturity, at the principal corporate trust office of TEXAS AMERICAN BANK/FORT WORTH, N A , FORT WORTH, TEXAS, which is the "Paying Agent/Registrar" for this Bond The payment of interest on this Bond shall be made by the Paying Agent/Registrar to the registered owner hereof on each interest payment date by check or draft, dated as of such interest payment date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the Issuer required by the ordinance authorizing the issuance of the Bonds (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 the address of the registered owner, as it appeared on the 15th day of the month next preceding each such date (the "Record Date") on the Registration Books kept by the Paying Agent/Registrar, as hereinafter described Any accrued interest due upon the redemption of this Bond prior to maturity as provided herein shall be paid to the registered owner at the principal corpor- ate trust office of the Paying Agent/Registrar upon presen- tation and surrender of this Bond for redemption and payment at the principal corporate trust office of the Paying Agent/Regis- trar The Issuer covenants with the registered owner of this Bond that on or before each principal payment date, interest payment date, and accrued interest payment date for this Bond it will make available to the Paying Agent/Registrar, from the "Interest and Sinking Fund" created by the Bond Ordinance, the amounts required to provide for the payment, in immediately available funds, of all principal of and interest on the Bonds, when due IF THE DATE for the payment of the principal of or inter- est on this Bond shall be a Saturday, Sunday, a legal holiday, or a day on which banking institutions in the City where 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 an issue of Bonds initially dated JANUARY 1, 1987, authorized in accordance with the Constitution 17 and laws of the State of Texas in the principal amount of $17,485,000, FOR THE PURPOSE OF OBTAINING FUNDS REQUIRED TO REFUND $14,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF CITY OF DENTON UTILITY SYSTEM REVENUE BONDS ON DECEMBER 1, 1996, or on any interest payment date thereafter, the Bonds of this Series may be redeemed prior to their scheduled maturities, at the option of the Issuer, with funds derived from any available and lawful source, as a whole, or in part, and, if in part, the particular Bonds, or portions thereof, to be redeemed shall be selected and designated by the Issuer (provided that a portion of a Bond may be redeemed only in an integral multiple of $5,000), at the redemption price of the par or principal amount thereof, plus accrued interest to the date fixed for redemption ON DECEMBER 1, 2003, and on DECEMBER 1 of each of the years hereinafter specified, the outstanding Bonds of this Series scheduled to mature on DECEMBER 1, 2007, and on DECEMBER 1, 2009, are subject to mandatory redemption prior to their scheduled maturities, and shall be redeemed by the Issuer, in part, prior to their scheduled maturities, with money from the Interest and Sinking Fund, with the particular Bonds or portion thereof to be redeemed to be selected by the Issuer at random, by lot or other customary method (provided that a portion of a Bond may be redeemed only in an integral multiple of $5,000), at a redemption price equal to the par or principal amount thereof and accrued interest to the date of redemption, on the dates, and in the principal amounts, respectively, as shown in the following schedule December 1, 2007 Maturit Principal Dates Amounts December 1, 2003 $1,095,000 December 1, 2004 $1,070,000 December 1, 2005 $ 990,000 December 1, 2006 $ 965,000 December 1 2009 Maturity Principal Date Amount December 1, 2008 $935,000 The principal amount of the Bonds required to be redeemed on any redemption date pursuant to the foregoing operation of the mandatory sinking fund shall be reduced, at the option of the Issuer, by the principal amount of any Bonds out of the matur- ity scheduled for redemption in part on such redemption date which, at least 45 days prior to the mandatory sinking fund redemption date, (1) shall have been acquired by the Issuer and delivered to the Paying Agent/Registrar for cancellation, or (2) shall have been acquired and cancelled by the Paying nu Agent/Registrar, at the direction of the Issuer, with funds from the Interest and Sinking Fund, in either case at a price not exceeding the par or principal amount of such Bonds plus accrued interest to the date of acquisition thereof AT LEAST 30 days prior to the date fixed for any redemp- tion of Bonds or portions thereof prior to maturity a written notice of such redemption shall be published once in a finan- cial publication, journal, or reporter of general circulation among securities dealers in The City of New York, New York (including, but not limited to, The Bond Buyer and The Wall Street Journal), or in the State of Texas (including, but not limited to, The Texas Bond Reporter) Such notice also shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, not less than 30 days prior to the date fixed for any such redemption, to the registered owner of each Bond to be redeemed at its address as it appeared on the 45th day prior to such redemption date, 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 Bond, and it is hereby specifically provided that the publication of such notice as required above shall be the only notice actually required in connection with or as a prerequisite to the redemption of any Bonds or portions there- of By the date fixed for any such redemption due provision shall be made with the Paying Agent/Registrar for the payment of the required redemption price for the Bonds or portions thereof which are to be so redeemed, plus accrued interest thereon to the date fixed for redemption If such written notice of redemption is published and 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 redemp- tion, and they shall not be regarded as being outstanding except for the right of the registered owner to receive the redemption price plus accrued interest from the Paying Agent/ Registrar out of the funds provided for such payment If a portion of any Bond shall be redeemed a substitute Bond 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 unre- deemed portion thereof, will be issued to the registered owner upon the surrender thereof for cancellation, at the expense of the Issuer, all as provided in the Bond Ordinance THIS BOND OR ANY PORTION OR PORTIONS HEREOF IN ANY INTE- GRAL MULTIPLE OF $5,000 may be assigned and shall be 19 transferred only in the Registration Books of the Issuer kept by the Paying Agent/Registrar acting in the capacity of regis- trar for the Bonds, upon the terms and conditions set forth in the Bond Ordinance Among other requirements for such assignment and transfer, this Bond must be presented and surrendered to the Paying Agent/Registrar, together with proper instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment of this Bond or any portion or portions hereof in any 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 transferred and registered The form of Assignment printed or endorsed on this Bond shall be executed by the registered owner or its duly authorized attorney or representative, to evidence the assignment hereof A new Bond or Bonds payable to such assignee or assignees (which then will be the new registered owner or owners of such new Bond or Bonds), or to the previous registered owner in the case of the assignment and transfer of only a portion of this Bond, may be delivered by the Paying Agent/Registrar in conversion of and exchange for this Bond, all in the form and manner as provided in the next paragraph hereof for the conver- sion and exchange of other Bonds The Issuer shall pay the Paying Agent/Registrar's standard or customary fees and charges for making such transfer, but the one requesting such transfer shall pay any taxes or other governmental charges required to be paid with respect thereto The Paying Agent/Registrar shall not be required to make transfers of registration of this Bond or any portion hereof (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or, (ii) with respect to any Bond or any portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date The registered owner of this Bond shall be deemed and treated by the Issuer and the Paying Agent/Registrar as the absolute owner hereof for all purposes, including payment and discharge of liability upon this Bond to the extent of such payment, and the Issuer and the Paying Agent/Registrar shall not be affected by any notice to the contrary 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 as- signees hereof, be 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 20 maturity date, and bearing interest at the same rate, in any 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 sur- render of this Bond to the Paying Agent/Registrar for cancella- tion, all in accordance with the form and procedures set forth in the Bond Ordinance The Issuer shall pay the Paying Agent/ - Registrar's standard or customary fees and charges for trans- ferring, converting, and exchanging any Bond or any portion thereof, but the one requesting such transfer, conversion, and exchange shall pay any taxes or governmental charges required to be paid with respect thereto as a condition precedent to the exercise of such privilege of conversion and exchange The Paying Agent/Registrar shall not be required to make any such conversion and exchange (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or, (ii) with respect to any Bond or portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date IN THE EVENT any Paying Agent/Registrar for the Bonds is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the Bond Ordinance that it promptly will appoint a competent and legally qualified substi- tute therefor, and promptly will 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, sold,and de- livered, that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Bond have been performed, existed, and been done in accordance with law, that this Bond is a special obligation of the Issuer, secured by and payable, together with other bonds, from a first lien on and pledge of the "Pledged Revenues", which include initially the "Net Revenues of the System", as such terms are defined in the Bond Ordinance, with the System consisting of the City's entire combined waterworks, sewer, and electric light and power system THE ISSUER has reserved the right, subject to the restric- tion stated in the Bond Ordinance, to issue Additional Bonds payable from and secured by a first lien on and pledge of the "Pledged Revenues" on a parity with this Bond and series of which it is a part THE REGISTERED OWNER hereof shall never have the right to demand payment of this Bond or the interest hereon out of any 21 funds raised or to be raised by taxation or from any source whatsoever other than specified in the Bond Ordinance BY BECOMING the registered owner of this Bond, the regis- tered owner thereby acknowledges all of the terms and provi- sions of the Bond Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Bond Ordinance is duly recorded and available for inspection in the official minutes and records of the governing body of the Issuer, and agrees that the terms and provisions of this Bond and the Bond Ordi- nance constitute a contract between each registered owner hereof and the issuer IN WITNESS WHEREOF, the Issuer has caused this Bond to be signed with the facsimile signature of the Mayor of the Issuer and countersigned with the facsimile signature of the City Secretary of the Issuer, and has caused the official seal of the Issuer to be duly impressed, or placed in facsimile, on this Bond (facsimile signature) City Secretary, City of Denton, Texas (facsimile signature) Mayor, City of Denton, Texas (CITY SEAL) FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE It is hereby certified that this Bond has been issued under the provisions of the Bond ordinance described in this Bond, and that this Bond has been issued in conversion of and exchange for or replacement of a bond, bonds, or a portion of a bond or bonds of an issue which 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 TEXAS AMERICAN BANK/FORT WORTH, N A , FORT WORTH, TEXAS Paying Agent/Registrar Dated By Authorized Representative 22 FORM OF ASSIGNMENT ASSIGNMENT FOR VALUE RECEIVED, the undersigned registered owner of this Bond, or duly authorized representative or attorney thereof, hereby assigns this Bond to (Assignee's Social (print or typewrite Assignee's name and Security or Taxpayer address, including zip code) Identification Number and hereby irrevocably constitutes and appoints attorney to transfer the registration of this Bond on the Paying Agent/Registrar's Registration Books with full power of substitution in the premises Dated Signature Guaranteed NOTICE The signature must be Registered Owner guaranteed by a member of the NOTICE The signature above New York Stock Exchange or a must correspond with the name commercial bank or trust of the Registered Owner ap- company pearing on the face of this Bond Section 8 DEFINITIONS As used in this Ordinance the following terms shall have the meanings set forth below, unless the text hereof specifically indicates otherwise (a) The terms "City" and "Issuer" shall mean the City of Denton, in Denton County, Texas (b) The term "City Council" or "Council" shall mean the governing body of the City (c) The term "Bonds" shall mean collectively the Initial Bond as defined and described in Section 1 of this Ordinance and all substitute bonds exchanged therefor, and all other substitute bonds and replacement bonds, issued pursuant to and as provided in this Ordinance 23 (d) The term "Parity Bonds" shall mean collectively (i) the outstanding City of Denton Utility System Refunding Revenue Bonds, Series 1983, authorized by ordinance passed on March 10, 1983 (the "Series 1983 Bonds"), (ii) the unrefunded City of Denton Utility System Revenue Bonds, Series 1984, which mature on December 1 in each of the years 1987 through 1994, author- ized by ordinance passed on February 21, 1984 (the "Series 1984 Bonds"), (ill) the unrefunded City of Denton Utility System Revenue Bonds, Series 1984-A, which mature on December 1 in each of the years 1987 through 1994, authorized by ordinance passed on September 25, 1984 (the Series 1984-A Bonds), and (iv) the Bonds (e) The term "Additional Bonds" shall mean the additional parity revenue bonds which the City reserves the right to issue in the future, in accordance with Section 25 of this Ordinance (f) The term "System" shall mean (1) the City's entire existing waterworks and sewer system and the City's entire existing electric light and power system, together with all future extensions, improvements, enlargements, and additions thereto, and all replacements thereof, and (2) any other related facilities, all or any part of the revenues or income from which do, in the future, at the option of the City, and in accordance with law, become "Pledged Revenues" as hereinafter defined, provided that, notwithstanding the foregoing, and to the extent now or hereafter authorized or permitted by law, the term System shall not mean any water, sewer, electric, or other facilities of any kind which are declared not to be a part of the System, and which are acquired or constructed by the City with the proceeds from the issuance of "Special Facilities Bonds", which are hereby defined as being special revenue obligations of the City which are not payable from or secured by any Pledged Revenues, but which are secured by and payable from liens on and pledges of any other revenues, sources, or payments, including, but not limited to, special contract revenues or payments received from any other legal entity in connection with such facilities, and such revenues, sources, or payments shall not be considered as or constitute Gross Rev- enues of the System, unless and to the extent otherwise pro- vided in the ordinance or ordinances authorizing the issuance of such "Special Facilities Bonds" (g) The terms "Gross Revenues of the System" and "Gross Revenues" shall mean all revenues and income of every nature derived or received by the City from the operation and owner- ship of the System, including the interest income from the investment or deposit of money in any Fund created by this Ordinance 24 (h) The terms "Net Revenues of the System", and "Net Revenues" shall mean all Gross Revenues after deducting there- from an amount equal to the current expenses of operation and maintenance of the System, including all salaries, labor, materials, repairs, and extensions necessary to render effi- cient service, provided, however, that only such repairs and extensions, as in the judgment of the City Council, reasonably and fairly exercised by the adoption of appropriate resolu- tions, are necessary to keep the System in operation and render adequate service to said City and the inhabitants thereof, or such as might be necessary to meet some physical accident or condition which would otherwise impair the Bonds or Additional Bonds, shall be deducted in determining Net Revenues" Payments required to be made by the City for water supply or water facilities, sewer services or sewer facilities, fuel supply, and for the purchase of electric power, which payments under law constitute operation and maintenance expenses of any part of the System, shall constitute and be regarded as ex- penses of operation and maintenance of the System under this ordinance Depreciation and amortization shall not constitute or be regarded as expenses of operation and maintenance of the System (i) The term "Pledged Revenues" shall mean (1) the Net Revenues, plus (2) any additional revenues, income, or other resources which are expected to be available to the City on a regular periodic basis, including, without limitation, any grants, donations, or income received or to be received from the United States Government, or any other public or private source, whether pursuant to an agreement or otherwise, which in the future may, at the option of the City, be pledged to the payment of the Parity Bonds or Additional Bonds (j) The term "year" or "fiscal year" shall mean the fiscal year used by the City in connection with the operation of the System (k) The term "Government obligations" shall mean direct obligations of the United States of America, including obliga- tions the principal of and interest on which are uncondition- ally guaranteed by the United States of America, which may be United States Treasury obligations such as its State and Local Government Series, and which may be in book -entry form Section 9 PLEDGE (a) The Bonds are "Additional Bonds" as permitted by Sections 24 and 25 of the ordinance passed on 25 March 10, 1983, authorizing the Series 1983 Bonds, and it is hereby determined, declared, and resolved that all of the Parity Bonds (including the Bonds) are secured and payable equally and ratably on a parity, and that Sections 8 through28, of this Ordinance are supplemental to and cumulative of Sec- tions 7 through 27 of the aforesaid ordinance passed on March 10, 1983, with Sections 8 through 28 of this Ordinance being applicable to all of the Parity Bonds (b) The Parity Bonds and any Additional Bonds, and the interest thereon, including any interest coupons appertaining thereto, are and shall be secured by and payable from a first lien on and pledge of the Pledged Revenues, and the Pledged Revenues are further pledged to the establishment and mainte- nance of the Funds created by this Ordinance, and any Funds created by any ordinance authorizing the issuance of any Additional Bonds The Parity Bonds and any Additional Bonds are not and will not be secured by or payable from a mortgage or deed of trust on any real, personal, or mixed properties constituting the System Section 10 SYSTEM FUND There heretofore has been and is hereby created and there shall be established and maintained on the books of the City, and accounted for separate and apart from all other funds of the City, a special fund to be entitled the "City of Denton Utility System Fund" (the "System Fund") All Gross Revenues shall be credited to the System Fund immedi- ately upon receipt, unless otherwise provided in this Ordi- nance All current expenses of operation and maintenance of the System shall be paid from such Gross Revenues credited to the System Fund as a first charge against same Before making any deposits hereinafter required to be made from the System Fund, the City shall retain in the System Fund at all times an amount at least equal to one -sixth of the amount budgeted for the then current fiscal year for the current operation and maintenance expenses of the System Section 11 INTEREST AND SINKING FUND For the sole purpose of paying the principal of and interest on all Parity Bonds and Additional Bonds, there heretofore has been and is hereby created and there shall be established and maintained on the books of the City, and accounted for separate and apart from all other funds of the City, a separate fund to be en- titled the "City of Denton Utility System Revenue Bonds Inter- est and Sinking Fund" (the "Interest and Sinking Fund") Section 12 RESERVE FUND There heretofore has been and is hereby created and there shall be established and maintained initially at Texas American Bank/Fort Worth, N A , Fort Worth, Texas, and thereafter, at the option of the City, established M. and maintained at any time at any national bank having a capital and surplus in excess of $25,000,000, a separate fund to be entitled the "City of Denton Utility System Bonds and Additional Bonds Reserve Fund" (the "Reserve Fund") The Reserve Fund shall be used to pay the principal of and interest on any Parity Bonds or Additional Bonds when and to the extent the amounts in the Interest and Sinking Fund available for such payment are insufficient for such purpose, and may be used for the purpose of finally retiring the last of any Parity Bonds or Additional Bonds Section 13 EXTENSION AND IMPROVEMENT FUND There heretofore has been and is hereby created and there shall be established and maintained on the books of the City, and accounted for separate and apart from all other funds of the City, a separate fund to be entitled the "City of Denton Utility System Extension and Improvement Fund" (the "Extension and Improvement Fund") The Extension and Improvement Fund shall be used for the purpose of paying the costs of improve- ments, enlargements, extensions, additions, replacements, or other capital expenditures related to the System, or for paying the costs of unexpected or extraordinary repairs or replace- ments of the System for which System funds are not available, or for paying unexpected or extraordinary expenses of operation and maintenance of the System for which System funds are not otherwise available, or for any other lawful purpose Section 14 EMERGENCY FUND There is hereby created and there shall be established and maintained on the books of the City, and accounted for separate and apart from all other funds of the City, a separate fund to be entitled the "City of Denton Utility System Emergency Fund" (the "Emergency Fund") The Emergency Fund shall be used for the purpose of paying unex- pected or extraordinary expenses of repair, replacement, operation, and maintenance of the System for which neither System funds nor the moneys in the Extension and Improvement Fund are available There was deposited in the Emergency Fund simultaneously with the delivery of the Series 1983 Bonds to the initial purchasers thereof from lawfully available funds of the City the amount of $250,000 All investment interest income from the Emergency Fund shall be transferred to the System Fund as received Section 15 DEPOSITS OF PLEDGED REVENUES Pledged Revenues shall be credited to or deposited in the Interest and Sinking Fund, the Reserve Fund, the Extension and Improvement Fund, and other funds when and as required by this Ordinance and any ordinance authorizing the issuance of Additional Bonds 27 Section 16 INVESTMENTS Money in any Fund established pursuant to this Ordinance or any ordinance authorizing the issuance of Additional Bonds, may, at the option of the City, be placed in time deposits or certificates of deposit secured by obligations of the type hereinafter described, or be in- vested in Government Obligations (as defined in Section 8 hereof) or obligations guaranteed or insured by the United States of America, which, in the opinion of the Attorney General of the United States, are backed by its full faith and credit or represent its general obligations, or invested in obligations of instrumentalities of the United States of America, including, but not limited to, evidences of indebted- ness issued, insured, or guaranteed by such governmental agencies as the Federal Land Banks, Federal Intermediate Credit Banks, Banks for Cooperatives, Federal Home Loan Banks, Govern- ment National Mortgage Association, United States Postal Service, Farmers Home Administration, Federal Home Loan Mort- gage Association, Small Business Administration, Federal Housing Association, or Participation Certificates in the Federal Assets Financing Trust, provided that all such deposits and investments shall be made in such manner as will, in the opinion of the City, permit the money required to be expended from any Fund to be available at the proper time or times as expected to be needed Such investments (except United States Treasury Obligations --State and Local Government Series invest- ments held in book entry form, which shall at all times be valued at cost) shall be valued in terms of current market value as of the last day of each fiscal year Unless otherwise set forth herein, all interest and income derived from such deposits and investments immediately shall be credited to, and any losses debited to, the Fund from which the deposit or investment was made, and surpluses in any Fund shall or may be disposed of as hereinafter provided Such investments shall be sold promptly when necessary to prevent any default in con- nection with the Parity Bonds or Additional Bonds consistent with the ordinances, respectively, authorizing their issuance Section 17 FUNDS SECURED That money in all Funds created by this Ordinance, to the extent not invested, shall be secured in the manner prescribed by law Section 18 PRIORITY OF DEPOSITS AND PAYMENTS FROM SYSTEM FUND That the City shall make the deposits and payments from Pledged Revenues in the System Fund when and as required by this Ordinance and any ordinance authorizing any Additional Bonds, and such deposits shall be made in the following manner and with the following irrevocable priorities, respectively First, to the Interest and Sinking Fund, when and in the amounts required by this Ordinance and any ordinance authorizing any Additional Bonds, Second, to the Reserve Fund, when and in the amounts required by this Ordinance and any ordinance authorizing any Additional Bonds, and Third, to the Extension and Improvement Fund, when and as required by Section 21 of this Ordinance Section 19 INTEREST AND SINKING FUND REQUIREMENTS The City shall cause to be deposited to the credit of the Interest and Sinking Fund the accrued interest and any premium received from the sale of the Initial Bond, and on or before the 25th day of each month, the City shall cause to be deposited to the credit of the Interest and Sinking Fund, in approximately equal monthly payments, amounts sufficient, together with any other funds on hand therein, to pay all of the interest or principal and interest coming due, including the principal amount of any Parity Bonds required to be redeemed prior to maturity pursuant to any mandatory redemption requirements, on the Parity Bonds and any Additional Bonds on the next succeeding interest payment date Any moneys so deposited in the Interest and Sinking Fund with respect to a mandatory redemption require- ment, together with other lawfully available funds of the City, may be used by the City, to purchase, in advance of a mandatory redemption date and at a price not exceeding the principal amount thereof plus accrued interest thereon to the date of purchase, Parity Bonds which would be subject to being chosen for mandatory redemption on such mandatory redemption date The Paying Agent shall cancel any Parity Bonds so purchased Section 20 RESERVE FUND REQUIREMENTS There is now on hand in the Reserve Fund an amount of money and Government Obligations which is in excess of $3,000,000 and which is in an amount at least equal to the average annual principal and interest requirements of all Parity Bonds and Additional Bonds to be outstanding immediately after the issuance and delivery of the Initial Bond (the "Required Reserve Amount"), p further, however, that the Required Reserve Amount shall never be less than $3,000,000 if the maximum annual principal and interest requirements on all outstanding Parity Bonds and Additional Bonds exceeds $3,000,000 After the delivery of any future Additional Bonds the City shall cause the Reserve Fund to be increased, if and to the extent necessary, so that such Fund will contain an amount of money and investments equal to the Required Reserve Amount Any increase in the Required Reserve Amount may be funded from Pledged Revenues, or from proceeds from the sale of any Additional Bonds, or any other available source or combination of sources All or any part of the Required Reserve Amount not funded initially and OW61 immediately after the delivery of any installment or issue of Additional Bonds shall be funded, within not more than five years from the date of such delivery, by deposits of Pledged Revenues in approximately equal monthly installments on or before the 25th day of each month Principal amounts of the Parity Bonds and any Additional Bonds which must be redeemed pursuant to any applicable mandatory redemption requirements shall be deemed to be maturing amounts of principal for the purpose of calculating principal and interest requirements on such bonds When and so long as the amount in the Reserve Fund is not less than the Required Reserve Amount no deposits shall be made to the credit of the Reserve Fund, but when and if the Reserve Fund at any time contains less than the Required Reserve Amount, then the City shall transfer from Pledged Revenues in the System Fund, and deposit to the credit of the Reserve Fund, monthly on or before the 25th day of each month, a sum equal to 1/60th of the Required Reserve Amount, until the Reserve Fund is restored to the Required Reserve Amount The City specifically covenants that when and so long as the Reserve Fund contains the Required Reserve Amount, the City shall cause all amounts in excess of the Required Reserve Amount to be deposited to the credit of the Interest and Sinking Fund Section 21 EXTENSION AND IMPROVEMENT FUND REQUIREMENTS During each year, subject and subordinate to making the re- quired deposits to the credit of the Interest and Sinking Fund and the Reserve Fund, the City shall be required to deposit to the credit of the Extension and Improvement Fund, from Pledged Revenues in the System Fund, an amount equal to 88 of the "Adjusted Gross Revenues of the System", which term is hereby defined to mean the following the Gross Revenues of the System for such year after deducting from such Gross Revenues an amount equal to the current expenses of operation and maintenance of the System for such year which are directly attribut- able to (i) all fuel costs related to the production of electric energy by the City and/or (ii) the pur- chase of electric energy by the City Additional excess Pledged Revenues may, at the option of the City Council, be deposited to the credit of the Improvement Fund as permitted by Section 22 (b) hereof, but no such addi- tional deposit is required All investment interest income from the Extension and Improvement Fund shall be retained in and remain a part of such Fund Section 22 DEFICIENCIES, EXCESS PLEDGED REVENUES (a) If on any occasion there shall not be sufficient Pledged 30 Revenues to make the required deposits into the Interest and Sinking Fund or the Reserve Fund, such deficiency shall be made up as soon as possible from the next available Pledged Rev- enues (b) Subject to making the required deposits to the credit of the various Funds when and as required by this Ordinance or any ordinance authorizing the issuance of Additional Bonds, any surplus Pledged Revenues may be used by the City for any lawful purpose Section 23 PAYMENT OF PARITY BONDS AND ADDITIONAL BONDS On or before June 1, 1987, and semiannually on or before each December 1 and June 1 thereafter while any of the Parity Bonds or Additional Bonds are outstanding and unpaid the City shall make available to the Paying Agents therefor, out of the Interest and Sinking Fund, or if necessary, out of the Reserve Fund, money sufficient to pay, on each of such dates, the principal of and interest on the Parity Bonds and Additional Bonds as the same matures and comes due, or to redeem the Parity Bonds or Additional Bonds prior to maturity, either upon mandatory redemption or at the option of the City At the direction of the City the Paying Agents shall either deliver paid Parity Bonds and Additional Bonds, and any interest coupons appertaining thereto, to the City or destroy all paid Parity Bonds and Additional Bonds, and any coupons appertaining thereto, and furnish the City with an appropriate certificate of cancellation or destruction Section 24 FINAL DEPOSITS (a) Any Parity Bond or Additional Bond shall be deemed to be paid, retired, and no longer outstanding within the meaning of this Ordinance when payment of the principal of, redemption premium, if any, on such Parity Bond or Additional Bond, plus interest thereon to the due date thereof (whether such due date be by reason of maturity, upon redemption, or otherwise) either (3.) shall have been made or caused to be made in accordance with the terms thereof (including the giving of any required notice of redemp- tion or provision for the proper giving of such notice having been made), or (ii) shall have been provided by irrevocably depositing with or making available to a Paying Agent therefor, in trust and irrevocably set aside exclusively for such pay- ment, (1) money sufficient to make such payment or (2) Govern- ment Obligations which mature as to principal and interest in such amounts and at such times as will insure the availability, without reinvestment, of sufficient money to make such payment, and all necessary and proper fees, compensation, and expenses of such Paying Agent pertaining to the Parity Bonds and Addi- tional Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for to the 31 satisfaction of such paying agent At such time as a Bond or Additional Bond shall be deemed to be paid hereunder, as aforesaid, it shall no longer be secured by or entitled to the benefits of this Ordinance or a lien on and pledge of the Pledged Revenues, and shall be entitled to payment solely from such money or Government Obligations (b) Any moneys so deposited with a paying agent may at the direction of the City also be invested in Government Obligations, maturing in the amounts and times as hereinbefore set forth, and all income from all Government Obligations in the hands of the paying agent pursuant to this Section which is not required for the payment of the Parity Bonds and Additional Bonds, the redemption premium, if any, and interest thereon, with respect to which such money has been so deposited, shall be turned over to the City or deposited as directed by the City Section 25 ADDITIONAL BONDS (a) The City shall have the right and power at any time and from time to time, and in one or more series or issues, to authorize, issue, and deliver additional parity revenue bonds (herein called "Additional Bonds"), in accordance with law, in any amounts, for any lawful purpose, including the refunding of any Parity Bonds or Addi- tional Bonds, or other obligations Such Additional Bonds, if and when authorized, issued, and delivered in accordance with this Ordinance, shall be payable from and secured by an irrev- ocable first lien on and pledge of the Pledged Revenues, equally and ratably on a parity in all respects with the Parity Bonds and any other outstanding Additional Bonds (b) The principal of all Additional Bonds must be scheduled to be paid or mature on December 1 of the years in which such principal is scheduled to be paid or mature Section 26 FURTHER REQUIREMENTS FOR ADDITIONAL BONDS Additional Bonds shall be issued only in accordance with this Ordinance, and no installment, Series, or issue of Additional Bonds shall be issued or delivered unless (a) The Mayor of the City and the City Secretary sign a written certificate to the effect that the City is not in default as to any covenant, condition, or obligation in connec- tion with all then outstanding Parity Bonds and Additional Bonds, and the ordinances authorizing same, and that the Interest and Sinking Fund and the Reserve Fund each contains the amount then required to be therein (b) An independent certified public accountant, or in- dependent firm of certified public accountants, acting by and 32 through a certified public accountant, signs a written certifi- cate to the effect that, in his or its opinion, during either the next preceding fiscal year, or any twelve consecutive calendar month period out of the 18-month period immediately preceding the month in which the ordinance authorizing the issuance of the then proposed Additional Bonds is passed, the Pledged Revenues were at least (1) 1 25 times an amount equal to the average annual principal and interest requirements, and (11) 1 10 times an amount equal to the principal and interest requirements during the fiscal year during which such require- ments are scheduled to be the greatest, of all Parity Bonds and Additional Bonds which are scheduled to be outstanding after the delivery of the then proposed Additional Bonds It is specifically provided, however, that in calculating the amount of Pledged Revenues for the purposes of this subsection (b), if there has been any increase in the rates or charges for ser- vices of the System which is then in effect, but which was not in effect during all or any part of the entire period for which the Pledged Revenues are being calculated (hereinafter referred to as the "entire period") then the certified public account- ant, or in lieu of the certified public accountant a firm of consulting engineers, shall determine and certify the amount of Pledged Revenues as being the total of (i) the actual Pledged Revenues for the entire period, plus (ii) a sum equal to the aggregate amount by which the actual billings to customers of the System during the entire period would have been increased if such increased rates or charges had been in effect during the entire period (c) Provision shall be made in the ordinance authorizing their issuance for increasing the Reserve Fund to the Required Reserve Amount as required by Section 20 hereof (e) All calculations of average annual principal and interest requirements of any bonds made in connection with the issuance of any then proposed Additional Bonds shall be made as of the date of such Additional Bonds, and also in making calculations for such purpose, and for any other purpose under this Ordinance, principal amounts of any bonds which must be redeemed prior to maturity pursuant to any applicable mandatory redemption requirements shall be deemed to be maturing amounts of principal of such bonds Section 27 GENERAL COVENANTS The City further cove- nants and agrees that in accordance with and to the extent required or permitted by law (a) Performance It will faithfully perform at all times any and all covenants, undertakings, stipulations, and provi- sions contained in this Ordinance, and each ordinance 33 authorizing the issuance of Additional Bonds, and in each and every Parity Bond and Additional Bond, that it will promptly pay or cause to be paid the principal of and interest on every Parity Bond and Additional Bond, on the dates and in the places and manner prescribed in such ordinances and Parity Bonds or Additional Bonds, and that it will, at the times and in the manner prescribed, deposit or cause to be deposited the amounts required to be deposited into the Interest and Sinking Fund and the Reserve Fund, and any holder of the Parity Bonds or Addi- tional Bonds may require the City, its officials, and em- ployees, to carry out, respect, or enforce the covenants and obligations of this Ordinance, or any ordinance authorizing the issuance of Additional Bonds, by all legal and equitable means, including specifically, but without limitation, the use and filing of mandamus proceedings, in any court of competent ]urisdiction, against the City, its officials, and employees (b) City's Legal Authority The City is a duly created and existing home rule city of the State of Texas, and is duly authorized under the laws of the State of Texas to create and issue the Parity Bonds and Additional Bonds, that all action on its part for the creation and issuance of the said obligations has been or will be duly and effectively taken, and that said obligations in the hands of the holders and owners thereof are and will be valid and enforceable special obligations of the City in accordance with their terms (c) Title The City has or will obtain lawful title to the lands, buildings, structures, and facilities constituting the System, that it warrants that it will defend the title to all the aforesaid lands, buildings, structures, and facilities, and every part thereof, for the benefit of the holders and owners of the Parity Bonds and Additional Bonds, against the claims and demands of all persons whomsoever, that it is lawfully qualified to pledge the Pledged Revenues to the payment of the Parity Bonds and Additional Bonds in the manner prescribed herein, and has lawfully exercised such rights (d) Liens The City will from time to time and before the same become delinquent pay and discharge all taxes, assess- ments, and governmental charges, if any, which shall be law- fully imposed upon it, or the System, that it will pay all lawful claims for rents, royalties, labor, materials, and supplies which if unpaid might by law become a lien or charge thereon, the lien of which would be prior to or interfere with the liens hereof, so that the priority of the liens granted hereunder shall be fully preserved in the manner provided herein, and that it will not create or suffer to be created any mechanic's, laborer's, materialman's, or other lien or charge which might or could be prior to the liens hereof, or do or 34 suffer any matter or thing whereby the liens hereof might or could be impaired, provided, however, that no such tax, assess- ment, or charge, and that no such claims which might be used as the basis of a mechanic's, laborer's, materialman's, or other lien or charge, shall be required to be paid so long as the validity of the same shall be contested in good faith by the City (e) Operation of System, No Free Service While the Parity Bonds or any Additional Bonds are outstanding and unpaid the City shall continuously and efficiently operate the System, and shall maintain the System in good condition, repair, and working order, all at reasonable cost No free service of the System shall be allowed, and should the City or any of its agencies, instrumentalities, lessors, or concessionaires make use of the services and facilities of the System, payment monthly of the standard retail price of the services provided shall be made by the City or any of its agencies, instrumen- talities, lessors, or concessionaires out of funds from sources other than the revenues of the System, unless made from surplus Pledged Revenues as permitted by Section 22(b) hereof (f) Further Encumbrance While the Parity Bonds or any Additional Bonds are outstanding and unpaid, the City shall not additionally encumber the Pledged Revenues in any manner, except as permitted in this Ordinance in connection with Additional Bonds, unless said encumbrance is made junior and subordinate in all respects to the liens, pledges, covenants, and agreements of this Ordinance and any ordinance authorizing the issuance of Additional Bonds, but the right of the City to issue revenue bonds payable from a subordinate lien on surplus Pledged Revenues is specifically recognized and retained, as permitted under Section 22(b) hereof) (g) Sale or Disposal of Property While the Parity Bonds or any Additional Bonds are outstanding and unpaid, the City shall not sell, convey, mortgage, encumber, lease, or in any manner transfer title to, or dedicate to other use, or other- wise dispose of, the System, or any significant or substantial part thereof, provided that whenever the City deems it neces- sary to dispose of any property, machinery, fixtures, or equipment, or dedicate such property to other use, it may do so either when it has made arrangements to replace the same or provide substitutes therefor, or it is determined by resolution of the City Council that no such replacement or substitute is necessary (h) Insurance (1) The City shall cause to be insured such parts of the System as would usually be insured by corpor- ations operating like properties, with a responsible insurance 35 company or companies, against risks, accidents, or casualties against which and to the extent insurance is usually carried by corporations operating like properties, including, to the extent reasonably obtainable, fire and extended coverage insurance, insurance against damage by floods, and use and occupancy insurance Public liability and property damage insurance also shall be carried unless the City Attorney gives a written opinion to the effect that the City is not liable for claims which would be protected by such insurance All insur- ance premiums shall be paid as an expense of operation of the System At any time while any contractor engaged in construc- tion work shall be fully responsible therefor, the City shall not be required to carry insurance on the work being con- structed if the contractor is required to carry appropriate insurance All such policies shall be open to the inspection of the Bondholders and their representatives at all reasonable times Upon the happening of any loss or damage covered by insurance from one or more of said causes, the City shall make due proof of loss and shall do all things necessary or desir- able to cause the insuring companies to make payment in full directly to the City The proceeds of insurance covering such property, together with any other funds necessary and available for such purpose, shall be used forthwith by the City for repairing the property damaged or replacing the property destroyed, provided, however, that if said insurance proceeds and other funds are insufficient for such purpose, then said insurance proceeds pertaining to the System shall be deposited in a special and separate trust fund, at an official depository of the City, to be designated the Insurance Account The Insurance Account shall be held until such time as other funds become available which, together with the Insurance Account, will be sufficient to make the repairs or replacements origin- ally required (2) The annual audit hereinafter required may contain a section commenting on whether or not the City has complied with the requirements of this Section with respect to the mainte- nance of insurance, and shall state whether or not all insur- ance premiums upon the insurance policies to which reference is made have been paid (i) Annual Budaet and Rate Covenant The City shall prepare, prior to the beginning of each fiscal year, an annual budget, in accordance with law, reflecting an estimate of cash receipts and disbursements for the ensuing fiscal year in sufficient detail to indicate the probable Gross Revenues and Pledged Revenues for such fiscal year The City shall fix, establish, maintain, and collect, such rates, charges, and fees for the use and availability of the System at all times as are necessary (1) to produce Gross Revenues sufficient, together 36 with any other Pledged Revenues, to pay all current operation and maintenance expenses of the System, and (2) to produce an amount of Pledged Revenues during each fiscal year at least equal to the greater of 1 25 times the average annual principal and interest requirements of all then outstanding Parity Bonds and Additional Bonds or 1 25 times the succeeding fiscal year's principal and interest requirements of all then outstanding Parity Bonds and Additional Bonds (3) Records The City shall keep proper books of record and account in which full, true, proper, and correct entries will be made of all dealings, activities, and transactions relating to the System, the Pledged Revenues, and the Funds created pursuant to this Ordinance, and all books, documents, and vouchers relating thereto shall at all reasonable times be made available for inspection upon request of any Bondholder or citizen of the City To the extent consistent with the provi- sions of this Ordinance, the City shall keep its books and records in a manner conforming to standard accounting practices as usually would be followed by private corporations owning and operating a similar System, with appropriate recognition being given to essential differences between municipal and corporate accounting practices (k) Audits After the close of each fiscal year while any of the Parity Bonds or any Additional Bonds are outstand- ing, an audit will be made of the books and accounts relating to the System and the Pledged Revenues by an independent certified public accountant or an independent firm of certified public accountants As soon as practicable after the close of each such year, and when said audit has been completed and made available to the City, a copy of such audit for the preceding year shall be mailed to the Municipal Advisory Council of Texas, to each paying agent for any bonds payable from Pledged Revenues, and to any Bondholders who shall so request in writing The annual audit reports shall be open to the inspec- tion of the Bondholders and their agents and representatives at all reasonable times (1) Governmental A4 ncies it will comply with all of the terms and conditions of any and all franchises, permits, and authorizations applicable to or necessary with respect to the System, and which have been obtained from any governmental agency, and the City has or will obtain and keep in full force and effect all franchises, permits, authorization, and other requirements applicable to or necessary with respect to the acquisition, construction, equipment, operation, and mainte- nance of the System 37 (m) No Competition It will not operate, or grant any franchise or, to the extent it legally may, permit the acquisi- tion, construction, or operation of, any facilities which would be in competition with the System, and to the extent that it legally may, the City will prohibit any such competing facilities (n) No Arbitrage The city covenants to and with the purchasers of the Parity Bonds and any Additional Bonds that no use will be made of the proceeds of any of such bonds at any time throughout the term of any of such bonds which, if such use had been reasonably expected on the date of delivery of any of such bonds to and payment therefor by the purchasers, would have caused any of such bonds to be arbitrage bonds within the meaning of Section 103(c) of the Internal Revenue Code of 1954, as amended, or the Internal Revenue Code of 1986, or any regulations or rulings pertaining thereto, and by this covenant the City is obligated to comply with the requirements of the aforesaid Codes and all applicable and pertinent Department of the Treasury regulations relating to arbitrage bonds The City further covenants that the proceeds of all such bonds will not otherwise be used directly or indirectly so as to cause all or any part of such bonds to be or become arbitrage bonds within the meaning of the aforesaid Codes, or any regulations pertain- ing thereto Section 28 AMENDMENT OF ORDINANCE (a) The holders or owners of Parity Bonds and Additional Bonds aggregating in principal amount 51% of the aggregate principal amount of then outstanding Parity Bonds and Additional Bonds shall have the right from time to time to approve any amendment to this Ordinance which may be deemed necessary or desirable by the City, provided, however, that nothing herein contained shall permit or be construed to permit the amendment of the terms and conditions in this Ordinance or in the Parity Bonds or Addi- tional Bonds so as to (1) Make any change in the maturity of the out- standing Parity Bonds or Additional Bonds, (2) Reduce the rate of interest borne by any of the outstanding Parity Bonds or Additional Bonds, (3) Reduce the amount of the principal payable on the outstanding Parity Bonds or Additional Bonds, (4) Modify the terms of payment of principal of or interest on the outstanding Parity Bonds or Addi- tional Bonds, or impose any conditions with respect to such payment, Wi (5) Affect the rights of the holders or owners of less than all of the Parity Bonds and Additional Bonds then outstanding, (6) Change the minimum percentage of the prin- cipal amount of Parity Bonds and Additional Bonds neces- sary for consent to such amendment (b) If at any time the City shall desire to amend the Ordinance under this Section, the City shall cause notice of the proposed amendment to be published in a financial publica- tion of general circulation in The City of New York, New York, once during each calendar week for at least two successive calendar weeks Such notice shall briefly set forth the nature of the proposed amendment and shall state that a copy thereof is on file at the principal office of the Paying Agents for inspection by all holders or owners of Parity Bonds and Addi- tional Bonds Such publication is not required, however, if notice in writing is given to each holder or owner of Parity Bonds and Additional Bonds (c) Whenever at any time not less than thirty days, and within one year, from the date of the first publication of said notice or other service of written notice the City shall receive an instrument or instruments executed by the holders or owners of at least 51% in aggregate principal amount of all Parity Bonds and Additional Bonds then outstanding, which instrument or instruments shall refer to the proposed amendment described in said notice and which specifically consent to and approve such amendment in substantially the form of the copy thereof on file with the Paying Agents, the City Council may pass the amendatory ordinance in substantially the same form (d) Upon the passage of any amendatory ordinance pursuant to the provisions of this Section, this Ordinance shall be deemed to be amended in accordance with such amendatory ordi- nance, and the respective rights, duties, and obligations under this Ordinance of the City, and all the holders or owners of then outstanding Parity Bonds and Additional Bonds and all future Parity Bonds and Additional Bonds shall thereafter be determined, exercised, and enforced hereunder, subject in all respects to such amendments (e) Any consent given by the holder or owner of a Parity Bond or Additional Bond pursuant to the provisions of this Section shall be irrevocable for a period of six months from the date of the first publication of the notice provided for in this Section, and shall be conclusive and binding upon all future holders or owners of the same Parity Bond or Additional Bond during such period Such consent may be revoked at any 39 time after six months from the date of the first publication of such notice by the holder or owner who gave such consent, or by a successor in title, by filing notice thereof with the paying agents and the City, but such revocation shall not be effective if the holders or owners of 51% in aggregate principal amount of the then outstanding Parity Bonds and Additional Bonds as in this Section defined have, prior to the attempted revocation, consented to, and approved the amendment (f) For the purpose of this Section, the fact of the holding of Parity Bonds or Additional Bonds which are in bearer, coupon form, by any bondholder and the amount and numbers of such bearer Parity Bonds or Additional Bonds and the date of their holding same, may be proved by the affidavit of the person claiming to be such holder or owner, or by a certi- ficate executed by any trust company, bank, banker, or any other depository wherever situated showing that at the date therein mentioned such person had on deposit with such trust company, bank, banker, or other depository, the Parity Bonds and Additional Bonds described in such certificate The City may conclusively assume that such ownership continues until written notice to the contrary is served upon the City The ownership of all registered Parity Bonds and Additional Bonds shall be determined from the registration books kept by the registrar therefor Section 29 DAMAGED, MUTILATED, LOST, STOLEN, OR DE- STROYED 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) A lication for Re lacement Bonds Application for replacement of damaged, mute ated, 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 Issuer and to the Paying Agent/Registrar such security or indemnity as may be required by them to save each of them harmless from any loss or damage with respect thereto Also, in every case of loss, theft, or destruction of a Bond, the registered owner shall furnish to the Issuer and to the Paying Agent/Registrar evidence to their satisfaction of the loss, theft, or destruction of such Bond, as the case may be In every case of damage or mutilation of a Bond, the registered owner shall surrender to the Paying 40 Agent/Registrar for cancellation the Bond so damaged or muti- lated (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 con- tinuing in the payment of the principal of, redemption premium, if any, or interest on the Bond, the Issuer may authorize the payment of the same (without surrender thereof except in the case of a damaged or mutilated Bond) instead of issuing a replacement Bond, provided security or indemnity is furnished as above provided in this Section (d) Charge for Issuing Replacement 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 Issuer whether or not the lost, stolen, or destroyed Bond shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Ordinance equally and proportionately with any and all other Bonds duly issued under this Ordinance (e) Issuer for Issuing Replacement Bonds In accordance with Section 6 of Vernon's Ann Tex Civ St Art 717k-6, this Section of this Ordinance shall constitute authority for the issuance of any such replacement bond without necessity of further action by the governing body of the Issuer or any other body or person, and the duty of the replacement of such bonds is hereby authorized and imposed upon the Paying Agent/Regis- trar, and the Paying Agent/Registrar shall authenticate and deliver such Bonds in the form and manner and with the effect, as provided in Section 6(d) of this Ordinance for Bonds issued in conversion and exchange for other Bonds Section 30 CUSTODY, APPROVAL, AND REGISTRATION OF INITIAL BOND, BOND COUNSEL'S OPINION, AND CUSIP NUMBERS The Mayor of the Issuer is hereby authorized to have control of the Initial Bond issued hereunder and all necessary records and proceedings pertaining to the Initial Bond pending its delivery and its investigation, examination, and approval by the Attor- ney General of the State of Texas, and its registration by the Comptroller of Public Accounts of the State of Texas Upon registration of the Initial Bond said Comptroller of Public Accounts (or a deputy designated in writing to act for said Comptroller) shall manually sign the Comptroller's Registration Certificate on the Initial Bond, and the seal of said 41 Comptroller shall be impressed, or placed in facsimile, on the Initial Bond The approving legal opinion of the Issuer's Bond Counsel and the assigned CUSIP numbers may, at the option of the Issuer, be printed on the Initial Bond or on any Bonds issued and delivered in conversion of and exchange or replace- ment of any Bond, but neither shall have any legal effect, and shall be solely for the convenience and information of the registered owners of the Bonds Section 31 COVENANTS REGARDING TAX-EXEMPT STATUS OF BONDS The Issuer hereby covenants to take such action or refrain from such action necessary to ensure the status of the Bonds as obligations described in section 103 of the Internal Revenue Code of 1986 or any predecessor thereof In particular, but not by way of limitation, the Issuer covenants as follows (a) None of the proceeds of the Bonds (including investment earnings thereon) will be used, directly or indirectly, in the trade or business of a person, other than the Issuer For purposes of the foregoing, any use of such proceeds in any manner contrary to the guidelines set forth in Revenue Procedures 82-14 and 82-15, 1982-1 C B 459, 460, or any amendments, revisions or supplements thereto, shall constitute the use of such proceeds in the trade or business of such person, (b) None of the proceeds of the Bonds (including investment earnings thereon) will be used, directly or indirectly, to finance loans to any persons, (c) Not by way of limitation, the Issuer will take such action or will refrain from any action which would adversely affect the exemption from federal income taxa- tion of the interest paid on the Bonds, including without limitation any action that would permit any of the Bonds to be treated as "private activity bonds" within the meaning of section 141 of the Code or as "federally guaranteed" within the meaning of section 149(b) of the Code, and will take, or require to be taken, such acts as may be reasonably within its ability and as may from time to time be required under applicable law or regulation to continue to cause interest on the Bonds to be excludable from gross income of the holder, including the preparation and filing of any statements or information reports required to be filed by the Issuer in order to maintain the tax-exempt status of the interest on the Bonds, and (d) The Issuer has not taken, has no present inten- tion of taking any action and knows of no action taken or 42 intended which would cause interest on the Bonds to be includable in the gross income of any bondholders for federal income tax purposes Section 32 COVENANTS REGARDING ARBITRAGE (a) A Rebate Fund is hereby established by the Issuer Such Fund shall be for the benefit of the United States of America The Rebate Fund is established for the purpose of compliance with section 148 of the Internal Revenue Code of 1986 (the Code") (b) At the close of each "Bond Year," the Issuer shall compute the amount of "Excess Earnings," if any, for the period beginning on the date of delivery of the Initial Bond and ending at the close of such "Bond Year" and transfer to the Rebate Fund an amount equal to the difference, if any, between the amount then in the Rebate Fund and the Excess Earnings so computed The term "Bond Year" means with respect to the Bonds each one-year period ending on the anniversary of the date of delivery of the Initial Bond If, at the close of any Bond Year, the amount in the Rebate Fund exceeds the amount that would be required to be paid to the United States of America under paragraph (d) below if the Bonds had been paid in full, such excess may be transferred from the Rebate Fund and paid to the Issuer (c) In general, "Excess Earnings" for any period of time means the sum of (i) the excess of -- (A) the aggregate amount earned during such period of time on all "Nonpurpose Obligations" (including gains on the disposition of such Obli- gations) in which "Gross Proceeds" of the issue are invested (other than amounts attributable to an excess described in this subparagraph (c)(i)), over (B) the amount that would have been earned during such period of time if the "Yield" on such Nonpurpose Obligations (other than amounts attrib- utable to an excess described in this subparagraph (c)(1)) had been equal to the yield on the issue, plus (ii) any income during such period of time attrib- utable to the excess described in subparagraph (c)(i) above "Excess Earnings" will not include amounts, if any, which need not be taken into account under the special rules of section 43 148(f)(4)(A) and (B) of the Code relating to bona fide debt service funds and the six-month temporary investment period The terms "Nonpurpose Obligations," "Gross Proceeds" and "Yield" shall have the meanings prescribed by section 148 of the Code and shall be applied in the manner prescribed in such section (d) The Issuer shall pay to the United States of America at least once every five -years an amount that ensures that at least 90 percent of the Excess Earnings from the date of delivery of the Bonds to the close of the period for which the payment is being made will have been paid The Issuer shall 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 under section 148(f) of the Code as a result of Excess Earnings (e) The Issuer shall keep such records as will enable the Issuer to fulfill its responsibilities under this section and section 148(f) of the Code and shall retain such records for at least six years following the final payment of principal and interest on the Bonds (f) The Issuer will not use any portion of the proceeds of the Bonds directly or indirectly to acquire "higher yielding investments," or to replace funds which were used directly or indirectly to acquire "higher yielding investments " The term higher yielding investments means any investment property (as defined in section 148(b)(2) of the Code) which produces a yield over the term of the issue which is materially higher than the yield on the issuer (as defined above) The foregoing limitation on higher yielding investments shall not apply to -- (1) proceeds of the Bonds invested for a reasonable temporary period of 3 years or less until such proceeds are needed for the purpose for which the bonds are issued, or (2) amounts invested fund if the gross earnings $100,000 in any bond year in a bona fide debt service on such fund are less than (g) The Issuer covenants to restrict the use of Initial Bond proceeds in such manner and to such extent, as may be necessary, so that the Bonds will not constitute arbitrage bonds under section 148 of the Code Any authorized represen- tative of the Issuer having responsibility with respect to the issuance of the Bonds is authorized and directed, alone or in con unction with any other official, employee or consultant of the Issuer to give an appropriate certificate on behalf of the 44 Issuer, for inclusion in the transcript of proceedings for the Bonds, setting forth the facts, estimates and circumstances and reasonable expectations pertaining to section 148 of the Code and, to the extent applicable, section 149(d) of the Code (h) The requirements of this Section are subject to, and shall be interpreted in accordance with section 148 of the Code Section 33 SALE OF INITIAL BOND The Initial Bond is hereby sold and shall be delivered to Smith Barney, Harris Upham & Cc Incorporated, as representative of the under- writers, in accordance with the Bond Purchase Contract dated the date of this meeting and presented to the City Council of the City at this meeting The Mayor of the Issuer is author- ized and directed to execute, on behalf of the Issuer, said Bond Purchase Contract in the form and substance submitted at this meeting Section 34 OFFICIAL STATEMENT An Official Statement dated as of the date of this meeting has been prepared in connection with the sale of the Initial Bond and the Bonds, in the form and substance submitted at this meeting Said Offi- cial Statement and any supplement or addenda thereto have been and are hereby approved, and their use in the offer and sale of the Bonds is hereby approved it is further officially found, determined, and declared that the statements and representa- tions contained in said Official Statement are true and correct in all material respects, to the best knowledge and belief of the Issuer The distribution and use of the Preliminary official Statement dated January 22, 1987, prior to the date hereof is hereby ratified and approved Section 35 REFUNDING OF OUTSTANDING BONDS That concur- rently with the delivery of the Initial Bond the Issuer shall deposit an amount from the proceeds from the sale of the Initial Bond, with Texas American Bank/Fort Worth, N A , Fort Worth, Texas, as Escrow Agent, sufficient, together with other available amounts, to refund all of the Outstanding Bonds in accordance with Section 7A of Vernon's Ann Tex Civ St Article 717k, as amended By resolution of the Issuer of even date herewith the Issuer has authorized the execution of an appropriate Escrow Agreement to accomplish such purpose It is hereby found and determined that the refunding of the Outstand- ing Bonds is advisable and necessary in order to restructure the debt service requirements and procedures of the Issuer, and that the debt service requirements on the Bonds will be less than those on the outstanding Bonds, resulting in a reduction in the amount of principal and interest which otherwise would be payable both on an actual and a present value basis 45 Section 36 FURTHER PROCEDURES The Mayor and City Secretary of the Issuer, and all other officers, employees, and agents of the Issuer, and each of them, shall be and they are hereby expressly authorized, empowered, and directed from time to time and at any time to do and perform all such acts and things and to execute, acknowledge, and deliver in the name and on behalf of the Issuer all such instruments and agreements, whether or not herein mentioned, as may be necessary or desir- able in order to carry out the terms and provisions of this Bond Ordinance, the Bonds, the sale and delivery of the Initial Bonds and the other Bonds, the Official Statement, and the Escrow Agreement In case any officer whose signature shall appear on any Bond shall cease to be such officer before the delivery of such Bond, such signature shall nevertheless be valid and sufficient for all purposes the same as if such officer had remained in office until such delivery 46 CERTIFICATE FOR ORDINANCE AUTHORIZING THE ISSUANCE, SALE, AND DELIVERY OF CITY OF DENTON UTILITY SYSTEM REVENUE REFUNDING BONDS, SERIES 1987, AND APPROVING AND AUTHORIZING INSTRUMENTS AND PROCEDURES RELATING THERETO THE STATE OF TEXAS COUNTY OF DENTON CITY OF DENTON We, the undersigned officers of said City, hereby certify as follows 1 The City Council of said City convened in SPECIAL MEETING ON THE 27TH DAY OF JANUARY, 1987, at the Municipal Building (City Hall), and the roll was called of the duly constituted officers and members of said City Council, to -wit Jennifer K Walters, City Secretary Ray Stephens, Mayor Mark Chew Linnie McAdams Jane Hopkins Jim Alexander Jim Riddlesperger Joe Alford and all of said absentees ��_4 thus constituting the following was persons were present, except the following a quorum wnerf transacted at sa )n, among otner Dus Meeting a written iness, ORDINANCE AUTHORIZING THE ISSUANCE, SALE, AND DELIVERY OF CITY OF DENTON UTILITY SYSTEM REVENUE REFUNDING BONDS, SERIES 1987, AND APPROVING AND AUTHORIZING INSTRUMENTS AND PROCEDURES RELATING THERETO was duly introduced for the consideration of said City Council and duly read It was then duly moved and seconded that said Ordinance be passed; and, after due discussion, said motion, carrying with it the passage of said Ordinance, prevailed and carried by the following vote AYES All members of said City Council shown present above voted "Aye" NOES None 2 That a true, full, and correct copy of the aforesaid Ordinance passed at the Meeting described in the above and foregoing paragraph is attached to and follows this Certifi- cate, that said Ordinance has been duly recorded in said City Council's minutes of said Meeting, that the above and foregoing paragraph is a true, full, and correct excerpt from said City Council's minutes of said Meeting pertaining to the passage of said Ordinance, that the persons named in the above and fore- going paragraph are the duly chosen, qualified, and acting officers and members of said City Council as indicated therein, and that each of the officers and members of said City Council was duly and sufficiently notified officially and personally, in advance, of the time, place, and purpose of the aforesaid Meeting, and that said Ordinance would be introduced and considered for passage at said Meeting, and that said Meeting was open to the public, and public notice of the time, place, and purpose of said meeting was given, all as required by Vernon's Ann Tex Civ St Article 6252-17 3 That the Mayor of said City has approved, and hereby approves, the aforesaid Ordinance, that the Mayor and the City Secretary of said City have duly signed said Ordinance, and that the Mayor and the City Secretary of said City hereby declare that their signing of this Certificate shall constitute the signing of the attached and following copy of said Ordi- nance for all purposes SIGNED AND SEALED the 27th day rWyk ReceMeta_r_y��� (SEAL) of January, 19877 mayor We, the undersigned, being respectively the City Attorney and the Bond Attorneys of the City of Denton, Texas, hereby certify that we prepared and approved as to legality the attached and following Ordinance prior to its passage as aforesaid City Attor ey Cal Bond Attorneys