ASSESSMENT BONDS, SERIES 2011 (WAXAHACHIE PUBLIC IMPROVEMENT DISTRICT NO. 1 PHASE I PROJECT)

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1 NEW ISSUE NOT RATED In the opinion of Bond Counsel, interest on the Series 2011 Bonds will be excludable from gross income for purposes of federal income taxation under the existing statutes, subject to the matters described under TAX MATTERS herein. See LEGAL MATTERS and TAX MATTERS herein for a discussion of Bond Counsel s opinion, including a description of certain alternative minimum tax consequences. $1,340,000 CITY OF WAXAHACHIE, TEXAS (a municipal corporation of the State of Texas located in Ellis County) SPECIAL ASSESSMENT BONDS, SERIES 2011 (WAXAHACHIE PUBLIC IMPROVEMENT DISTRICT NO. 1 PHASE I PROJECT) Dated: Date of Delivery Due: February 15, as shown on the inside cover The City of Waxahachie, Texas Special Assessment Bonds, Series 2011 (Waxahachie Public Improvement District No. 1 Phase I Project) (the Series 2011 Bonds ), are being issued by the City of Waxahachie, Texas (the City ) in fully registered form, without coupons, in authorized denominations of $5,000 and any integral multiples thereof. The Series 2011 Bonds will bear interest at the rates set forth below, calculated on the basis of a 360-day year of twelve 30-day months, payable semi-annually on each February 15 and August 15, commencing August 15, The Series 2011 Bonds will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ), New York, New York. Purchases of beneficial interests in the Series 2011 Bonds will be made in book-entry only form and purchasers of beneficial interests in the Series 2011 Bonds will not receive physical bond certificates. For so long as the book-entry only system is maintained, the principal of, premium, if any, and interest on the Series 2011 Bonds will be paid from the sources described herein by The Bank of New York Mellon Trust Company, National Association, as trustee (the Trustee ), to DTC as the registered owner thereof. Disbursement of such payments to the DTC Participants is the responsibility of DTC and disbursement of such payments to the beneficial owners is the responsibility of the DTC Participants and Indirect Participants, as more fully described herein. Any purchaser, as a beneficial owner of a Series 2011 Bond, must maintain an account with a broker or dealer who is, or acts through, a DTC Participant in order to receive payment of the principal of, premium, if any, and interest on such Series 2011 Bond. See BOOK-ENTRY ONLY SYSTEM herein. Proceeds of the Series 2011 Bonds will be used to provide funds for (i) the payment of a portion of the costs of construction, acquisition or purchase of certain water, wastewater, storm drainage and roadway public improvements within certain of the lands within Waxahachie Public Improvement District No. 1, a public improvement district of the City (the PID ), constituting Phase I of the PID ( Phase I of the PID ), (ii) the funding of the Debt Service Reserve Fund in the amount of the Debt Service Reserve Fund Requirement for the Series 2011 Bonds, (iii) the payment of a portion of the costs incidental to the organization, administration, operation and financing of the PID, (iv) the funding of the Prepayment Reserve Fund, (v) the funding of capitalized interest on the Series 2011 Bonds, and (vi) the payment of the costs of issuance of the Series 2011 Bonds. See THE PHASE I IMPROVEMENTS herein and APPENDIX A Form of Indenture hereto. The Series 2011 Bonds are being issued by the City pursuant to the Public Improvement District Act, Chapter 372, Texas Local Government Code, as amended (the PID Act ), Resolution No adopted by the City Council of the City (the City Council ) on April 16, 2007 and Ordinance No. 2597, duly enacted by the City Council on December 27, 2010, by a Trust Indenture dated as of January 1, 2011 (the Indenture ), entered into by and between the City and the Trustee. Capitalized terms not otherwise defined herein shall have the meanings assigned to them in the Indenture. The Series 2011 Bonds, when issued and delivered, will constitute valid and binding special obligations of the City payable solely from and secured by monies collected from Special Assessments levied against properties in Phase I of the PID in accordance with a Service and Assessment Plan (the Special Assessment Revenues ), all to the extent and upon the conditions described herein. See SECURITY FOR THE SERIES 2011 BONDS herein. The Series 2011 Bonds are subject to optional, mandatory sinking fund and extraordinary mandatory redemption at the times, in the amounts, and at the redemption prices more fully described herein under the caption DESCRIPTION OF THE SERIES 2011 BONDS Redemption Provisions. The Series 2011 Bonds involve a degree of risk (See BONDHOLDERS RISKS herein) and are not suitable for all investors (See SUITABILITY FOR INVESTMENT herein). Prospective purchasers should carefully evaluate the risks and merits of an investment in the Series 2011 Bonds, should consult with their legal and financial advisors before considering a purchase of the Series 2011 Bonds, and should be willing to bear the risks of loss of their investment in the Series 2011 Bonds. The Series 2011 Bonds are not credit enhanced or rated and no application has been made for a rating with respect to the Series 2011 Bonds. THE SERIES 2011 BONDS ARE SPECIAL OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM THE SPECIAL ASSESSMENT REVENUES FROM THE PHASE I IMPROVEMENT ASSESSMENTS PLEDGED TO THE SERIES 2011 BONDS, AND ANY OTHER FUNDS HELD UNDER THE INDENTURE, AS AND TO THE EXTENT PROVIDED IN THE INDENTURE. THE SERIES 2011 BONDS DO NOT GIVE RISE TO A CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWERS OF THE CITY AND ARE NOT PAYABLE EXCEPT AS PROVIDED IN THE INDENTURE. NOTWITHSTANDING ANYTHING IN THE INDENTURE TO THE CONTRARY, THE OWNERS OF THE SERIES 2011 BONDS SHALL NEVER HAVE THE RIGHT TO DEMAND PAYMENT THEREOF OUT OF ANY FUNDS OF THE CITY OTHER THAN THE SPECIAL ASSESSMENT REVENUES FROM THE PHASE I IMPROVEMENT ASSESSMENTS AND ANY OTHER FUNDS HELD UNDER THE INDENTURE, AS AND TO THE EXTENT PROVIDED IN THE INDENTURE. THE CITY SHALL HAVE NO LEGAL OR MORAL OBLIGATION TO PAY FOR THE SERIES 2011 BONDS OUT OF ANY FUNDS OF THE CITY OTHER THAN THE SPECIAL ASSESSMENT REVENUES FROM PHASE I IMPROVEMENT ASSESSMENTS. This cover page contains certain information for quick reference only. It is not a summary of the Series 2011 Bonds. Investors must read this entire Official Statement to obtain information essential to the making of an informed investment decision. The Series 2011 Bonds are offered for delivery when, as, and if issued by the City and accepted by the Underwriter, subject to, among other things, the approval of the Series 2011 Bonds by the Attorney General of Texas and the receipt of the opinion of McCall, Parkhurst & Horton L.L.P., Bond Counsel, as to the validity of the Series 2011 Bonds and the excludability of interest thereon from gross income for federal income tax purposes. Certain legal matters will be passed upon for the Underwriter by its counsel, Squire, Sanders & Dempsey (US) LLP, for the City by its counsel, Chapman & Chapman LLP, for the Phase I Developer by its counsel, Bellinger & DeWolf, L.L.P., and for the Trustee by its counsel, McGuire, Craddock & Strother, P.C. It is expected that the Series 2011 Bonds will be delivered in book-entry form through the facilities of DTC on or about January 20, December 27, 2010

2 MATURITY, AMOUNT, INTEREST RATE, PRICE, AND INITIAL CUSIP NUMBER $1,340,000 Term Bond due February 15, 2038, 7.15%, Price %, Initial CUSIP No PAA8 The City is not responsible for the use of CUSIP numbers, nor is any representation made as to their correctness. They are included solely for the convenience of the readers of this Official Statement.

3 CITY OF WAXAHACHIE, TEXAS CITY COUNCIL N.B. Buck Jordan, Mayor John Wray, Mayor Pro-Term Chuck Beatty, Member Kevin Strength, Member Mark Singleton, Member CITY MANAGER DIRECTOR OF FINANCE CITY SECRETARY CITY ATTORNEY Paul Stevens Charles Harris, CPA Lori Saunders Steve Chapman PID ADMINISTRATOR MuniCap, Inc. FINANCIAL ADVISOR TO CITY Southwest Securities FINANCIAL ADVISOR TO PID First Southwest Company BOND COUNSEL McCall, Parkhurst & Horton L.L.P. UNDERWRITER S COUNSEL Squire, Sanders & Dempsey (US) LLP CITY ATTORNEY Chapman & Chapman LLP

4 MAP SHOWING THE DEVELOPMENT IN CONTEXT OF THE SURROUNDING AREA

5 BLOCK T CHESTNUT ROAD SHETLAND STREET MAP OF PHASE I OF THE DEVELOPMENT LOT TABLE BLOCK S BLOCK S BLOCK S 5R PARK & DRAINAGE EASEMENT OMAHA COURT AFFIRMED ROAD ACRES SF 9 10 CITATION LANE BLOCK R CITATION LANE SECRETARIAT STREET BLOCK Q 15 BLOCK LOT TYPE BLOCK D 1-2,4-30, SF-2 BLOCK E 1,26 SF-2 BLOCK F 1-14 SF-2 BLOCK G 1-11, SF-3 BLOCK H 1-28 SF-3 BLOCK I 1-17 SF-3 BLOCK J 1-11 SF-3 BLOCK Q 1-8 SF-1 BLOCK R 1-13 SF-1 BLOCK S 1-4,8-15 SF-1 BLOCK T SF-1 BLOCK X 1-6 SF-1 PLATTED LOTS - SF-1 PLATTED LOTS - SF-2 PLATTED LOTS - SF BLOCK D ARABIAN ROAD ARABIAN ROAD BLOCK D BLOCK D BLOCK D CLYDESDALE STREET BLOCK F BLOCK D 3 BLOCK D ARABIAN ROAD THOROUGHBRED STREET SARATOGA DRIVE BLOCK X PIMLICO DRIVE PIMLICO DRIVE BLOCK G AMENITY CENTER THOROUGHBRED STREET BLOCK G BLOCK I MANOR LANE BLOCK H ACRES S.F TRAVELLER STREET CHESTNUT ROAD 14 BLOCK J STREET WHIRLAWAY STALLION STREET BLOCK G BLOCK G Phase 1 Development Waxahachie PID No. 1 Waxahachie, Texas November 15, 2010 Drawing name: I:\PLA\Mustang Creek\exhibits\ownership\ \OWNERSHIP.dwg Plotted on: Nov 15, :31pm 0 50' 100' 200' 400' NOTE: This plan is diagrammatic only and is intended to show potential configuration. This plan is only conceptual and is not based upon a detailed survey of existing site conditions such as property limits, subsurface conditions, limits of trees, topography, utilities, easements, etc. November 15, 2010

6 SADDLEBROOK ESTATES CONCEPT PLAN

7 NO DEALER, BROKER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED BY THE CITY OR THE UNDERWRITER TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS OFFICIAL STATEMENT, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EITHER OF THE FOREGOING. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY AND THERE SHALL BE NO OFFER, SOLICITATION OR SALE OF THE SERIES 2011 BONDS BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER, SOLICITATION OR SALE. THE UNDERWRITER HAS REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND AS PART OF, ITS RESPONSIBILITIES TO INVESTORS UNDER THE UNITED STATES FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS TRANSACTION. THE INFORMATION SET FORTH HEREIN HAS BEEN FURNISHED BY THE CITY AND OBTAINED FROM SOURCES, INCLUDING THE PHASE I DEVELOPER, WHICH ARE BELIEVED BY THE CITY AND THE UNDERWRITER TO BE RELIABLE, BUT IT IS NOT GUARANTEED AS TO ACCURACY OR COMPLETENESS, AND IS NOT TO BE CONSTRUED AS A REPRESENTATION OF THE UNDERWRITER. THE INFORMATION AND EXPRESSIONS OF OPINION HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE, AND NEITHER THE DELIVERY OF THIS OFFICIAL STATEMENT, NOR ANY SALE MADE HEREUNDER, SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CITY OR THE PHASE I DEVELOPER SINCE THE DATE HEREOF. NEITHER THE CITY NOR THE UNDERWRITER MAKE ANY REPRESENTATION AS TO THE ACCURACY, COMPLETENESS, OR ADEQUACY OF THE INFORMATION SUPPLIED BY THE DEPOSITORY TRUST COMPANY FOR USE IN THIS OFFICIAL STATEMENT. THE SERIES 2011 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, NOR HAS THE INDENTURE BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH LAWS. THE REGISTRATION OR QUALIFICATION OF THE SERIES 2011 BONDS UNDER THE SECURITIES LAWS OF ANY JURISDICTION IN WHICH THEY MAY HAVE BEEN REGISTERED OR QUALIFIED, IF ANY, SHALL NOT BE REGARDED AS A RECOMMENDATION THEREOF. NONE OF SUCH JURISDICTIONS, OR ANY OF THEIR AGENCIES, HAVE PASSED UPON THE MERITS OF THE SERIES 2011 BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. CERTAIN STATEMENTS INCLUDED OR INCORPORATED BY REFERENCE IN THIS OFFICIAL STATEMENT CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, SECTION 21E OF THE UNITED STATES EXCHANGE ACT OF 1934, AS AMENDED, AND SECTION 27A OF THE SECURITIES ACT. SUCH STATEMENTS ARE GENERALLY IDENTIFIABLE BY THE TERMINOLOGY USED

8 SUCH AS PLAN, EXPECT, ESTIMATE, PROJECT, ANTICIPATE, BUDGET OR OTHER SIMILAR WORDS. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ANY OF ITS EXPECTATIONS OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR, OTHER THAN AS DESCRIBED UNDER CONTINUING DISCLOSURE HEREIN.

9 TABLE OF CONTENTS i Page INTRODUCTION... 1 DESCRIPTION OF THE SERIES 2011 BONDS... 3 General Description... 3 Redemption Provisions... 3 Record Date For Interest Payment... 6 BOOK-ENTRY ONLY SYSTEM... 7 SECURITY FOR THE SERIES 2011 BONDS General Special Assessment Revenues Collection and Deposit of Special Assessments Unconditional Levy of Assessments Perfected Security Interest Developer Reserve Fund Debt Service Reserve Fund Prepayment Reserve Fund Deposit and Application of Special Assessment Revenues Administrative Fund Defeasance Events of Default Remedies in Event of Default Investment or Deposit of Funds Additional Obligations SOURCES AND USES OF FUNDS DEBT SERVICE REQUIREMENTS ASSESSMENT PROCEDURES General Assessment Methodology Collection Procedures Assessment Amounts Prepayment of Special Assessments Priority of Lien Covenant to Commence Foreclosure Proceedings THE CITY Background City Government Major Employers THE PID General Powers and Authority PID Administrator... 30

10 TABLE OF CONTENTS (continued) Page THE PHASE I IMPROVEMENTS General Ownership of Phase I Improvements Maintenance of Phase I Improvements THE DEVELOPMENT Overview Development Plan/Status Builders Zoning, Permitting and Environmental Marketing Community Amenities Utilities Public Schools Competition THE PHASE I DEVELOPER General Waxahachie 287, L.P BONDHOLDERS RISKS Assessment Limitations Risks Related to the Current Real Estate Market Competition Loss of Tax Exemption Bankruptcy Direct and Overlapping Indebtedness, Assessments and Taxes Depletion of Developer Reserve Fund, Debt Service Reserve Fund and Prepayment Reserve Fund Hazardous Substance Regulation Bondholders Remedies and Bankruptcy Bankruptcy Limitation to Bondholders Rights Management and Ownership General Risks of Real Estate Investment and Development Projections and Absorptions Provided by the Developer Dependence Upon Developer TAX MATTERS Opinion Federal Income Tax Accounting Treatment of Original Issue Discount Collateral Federal Income Tax Consequences State, Local and Foreign Taxes ii

11 TABLE OF CONTENTS (continued) Page LEGAL MATTERS Legal Proceedings Legal Opinions Litigation - The City Litigation - The Developer SUITABILITY FOR INVESTMENT ENFORCEABILITY OF REMEDIES NO RATING CONTINUING DISCLOSURE UNDERWRITING LEGAL INVESTMENT AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS INVESTMENTS SOURCES OF INFORMATION General Experts Updating of Official Statement FORWARD-LOOKING STATEMENTS AUTHORIZATION AND APPROVAL APPENDICES APPENDIX A Form of Indenture APPENDIX B Service and Assessment Plan APPENDIX C Proposed Form of Opinion of Bond Counsel APPENDIX D Proposed Form of Disclosure Agreement APPENDIX E Financial Analysis iii

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13 OFFICIAL STATEMENT $1,340,000 City of Waxahachie, Texas Special Assessment Bonds, Series 2011 (Waxahachie Public Improvement District No. 1 Phase I Project) INTRODUCTION The purpose of this Official Statement, including the cover page, inside cover and appendices hereto, is to provide certain information in connection with the issuance and sale by the City of Waxahachie, Texas (the City ) of its $1,340,000 aggregate principal amount of Special Assessment Bonds, Series 2011 (Waxahachie Public Improvement District No. 1 Phase I Project) (the Series 2011 Bonds ). PROSPECTIVE INVESTORS SHOULD BE AWARE OF CERTAIN RISK FACTORS, ANY OF WHICH, IF MATERIALIZED TO A SUFFICIENT DEGREE, COULD DELAY OR PREVENT PAYMENT OF PRINCIPAL OF AND/OR INTEREST ON THE SERIES 2011 BONDS. THE SERIES 2011 BONDS ARE NOT A SUITABLE INVESTMENT FOR ALL INVESTORS. See SUITABILITY FOR INVESTMENT and BONDHOLDERS RISKS herein. The Series 2011 Bonds are being issued pursuant to the Constitution and laws of the State of Texas, including the Public Improvement District Act, Chapter 372, Texas Local Government Code, as amended (the PID Act ), Resolution No. 1087, duly adopted by the City Council of the City (the City Council ) on April 16, 2007 (the PID Resolution ), Ordinance No. 2597, duly enacted by the City Council on December 27, 2010 (the Bond Ordinance ) and a Trust Indenture dated as of January 1, 2011 (the Indenture ), by and between the City and The Bank of New York Mellon Trust Company, National Association, as trustee (the Trustee ). Reference is made to the Indenture for a full statement of the authority for, and the terms and provisions of, the Series 2011 Bonds. All capitalized terms used in this Official Statement that are not defined herein shall have the respective meanings set forth in the Indenture. See APPENDIX A - Form of Indenture hereto. The Series 2011 Bonds are being issued in order to provide funds for (i) the payment of a portion of the costs of construction, acquisition or purchase of certain water, wastewater, storm drainage and roadway public improvements described herein (the Phase I Improvements ) within certain of the lands within the Waxahachie Public Improvement District No. 1 (the PID ), constituting Phase I of the PID ( Phase I of the PID ), (ii) the funding of the Debt Service Reserve Fund in the amount of the Debt Service Reserve Fund Requirement for the Series 2011 Bonds, (iii) the payment of a portion of the costs incidental to the organization, administration, operation and financing of the PID, (iv) the funding of the Prepayment Reserve Fund, (v) the funding of capitalized interest on the Series 2011 Bonds, and (vi) the payment of the costs of issuance of the Series 2011 Bonds. See THE PHASE I IMPROVEMENTS herein and APPENDIX A Form of Indenture and APPENDIX B Service and Assessment Plan hereto.

14 THE SERIES 2011 BONDS ARE SPECIAL OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM THE SPECIAL ASSESSMENT REVENUES FROM THE PHASE I IMPROVEMENT ASSESSMENTS (AS SUCH TERMS ARE HEREINAFTER DEFINED), AND ANY OTHER FUNDS HELD UNDER THE INDENTURE, AS AND TO THE EXTENT PROVIDED IN THE INDENTURE. THE SERIES 2011 BONDS DO NOT GIVE RISE TO A CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWERS OF THE CITY AND ARE NOT PAYABLE EXCEPT AS PROVIDED IN THE INDENTURE. NOTWITHSTANDING ANYTHING IN THE INDENTURE TO THE CONTRARY, THE OWNERS OF THE SERIES 2011 BONDS SHALL NEVER HAVE THE RIGHT TO DEMAND PAYMENT THEREOF OUT OF ANY FUNDS OF THE CITY OTHER THAN THE SPECIAL ASSESSMENT REVENUES FROM THE PHASE I IMPROVEMENT ASSESSMENTS AND ANY OTHER FUNDS HELD UNDER THE INDENTURE, AS AND TO THE EXTENT PROVIDED IN THE INDENTURE. THE CITY SHALL HAVE NO LEGAL OR MORAL OBLIGATION TO PAY FOR THE SERIES 2011 BONDS OUT OF ANY FUNDS OF THE CITY OTHER THAN THE SPECIAL ASSESSMENT REVENUES FROM PHASE I IMPROVEMENT ASSESSMENTS. The principal of, premium, if any, and interest on the Series 2011 Bonds are secured by a pledge of and a lien upon the Special Assessment Revenues from Phase I Improvement Assessments, as provided in the Indenture. The Special Assessment Revenues derive from Special Assessments to be levied against the parcels or lots within Phase I of the PID, all to the extent and upon the conditions described herein. Phase I of the PID is expected to consist of 209 single-family homes, of which 58 are built. In accordance with the PID Act, the City has caused the preparation of a Service and Assessment Plan, dated June 18, 2007, as amended and supplemented (the Service and Assessment Plan ), which describes the special benefit received on the property within the PID, provides the basis and justification for the determination of special benefit on such property, establishes the methodology for the levy of Special Assessments and provides for the allocation of Special Assessment Revenues for payment of principal of, premium, if any, and interest on the Series 2011 Bonds. The Service and Assessment Plan is reviewed and updated annually for the purpose of determining the annual budget for improvements and the Annual Installments (herefinafter described) of Special Assessments due in a given year. The determination by the City of the assessment methodology set forth in the Service and Assessment Plan is the result of the discretionary exercise by the City Council of its legislative authority and governmental powers and is conclusive and binding on all current and future owners and landowners within Phase I of the PID. See SECURITY FOR THE SERIES 2011 BONDS herein and APPENDIX B Service and Assessment Plan hereto. Pursuant to the PID Act and the Indenture, the owner of any property assessed may voluntarily prepay all or part of any Special Assessment levied against any lot or parcel, together with accrued interest to the date of payment, at any time. See SECURITY FOR THE SERIES 2011 BONDS herein. Set forth herein are brief descriptions of the City, the PID, the PID Resolution, the Bond Ordinance, the Assessment Ordinance (hereinafter described), the Service and Assessment Plan, the Phase I Improvements, the Development and the Phase I Developer, together with summaries of terms of the Series 2011 Bonds and the Indenture and certain provisions of the PID Act. All references herein to the Service and Assessment Plan, the PID Resolution, the Bond Ordinance, 2

15 the Assessment Ordinance, the Indenture and the PID Act are qualified in their entirety by reference to such documents or such PID Act and all references to the Series 2011 Bonds are qualified by reference to the definitive forms thereof and the information with respect thereto contained in the Indenture. Copies of these documents may be obtained during the period of the offering of the Series 2011 Bonds from the Underwriter, Stifel Nicolaus & Company, Incorporated, 501 N. Broadway, St. Louis, MO 63102, telephone number (800) The full text of the Indenture appears as Appendix A attached hereto and the full text of the Service and Assessment Plan appears as Appendix B attached hereto. The information provided under this caption INTRODUCTION is intended to provide a brief overview of the information provided in the other captions herein and is not intended, and should not be considered, fully representative or complete as to the subjects discussed hereunder. General Description DESCRIPTION OF THE SERIES 2011 BONDS The Series 2011 Bonds will be dated, will bear interest at the rate per annum (computed on the basis of a 360-day year consisting of twelve 30-day months) and, subject to the redemption provisions set forth below, will mature on the date and in the amount set forth in the inside cover page of this Official Statement. Interest on the Series 2011 Bonds will be payable semi-annually on each February 15 and August 15, commencing August 15, 2011 until maturity or prior redemption. The Bank of New York Mellon Trust Company, National Association is the initial Trustee, Paying Agent and Registrar for the Series 2011 Bonds. The Series 2011 Bonds will be issued in fully registered form, without coupons, in authorized denominations of $5,000 and any integral multiple thereof. Upon initial issuance, the ownership of the Series 2011 Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ( DTC ), and purchases of beneficial interests in the Series 2011 Bonds will be made in book-entry only form. See BOOK-ENTRY ONLY FORM and SUITABILITY FOR INVESTMENT herein. Redemption Provisions Optional Redemption. The Series 2011 Bonds are subject to optional redemption by the City, in whole or in part, on any date on or after February 15, 2021, at a redemption price equal to 100% of the principal amount of the Series 2011 Bonds to be redeemed, plus unpaid interest accrued to the date of redemption. If less than all of the Series 2011 Bonds are to be redeemed pursuant to an optional redemption by the City, the Trustee shall select the Series 2011 Bonds to be redeemed under -Additional Provisions with Respect to Redemption below. Mandatory Sinking Fund Redemption. The Series 2011 Bonds are subject to mandatory sinking fund redemption by the City prior to their scheduled maturities on February 15 of the years and in the amounts set for the below at a redemption price equal to 100% of the principal amount redeemed plus accrued interest to the redemption date. 3

16 Mandatory Redemption Date Mandatory Sinking Fund Payment Mandatory Redemption Date Mandatory Sinking Fund Payment 2012 $ 5, $ 45, , , , , , , , , , , , , , , , , , , , , , , , * 125, ,000 *Final Maturity Series 2011 Bonds delivered or transferred in exchange for other Series 2011 Bonds shall be numbered (with appropriate prefix) in order of their authentication by the Trustee and shall be in Authorized Denominations. Such Series 2011 Bonds shall mature on the same date, shall be in the same amount and shall bear interest at the same rate as the Series 2011 Bond or Series 2011 Bonds in lieu of which they are delivered. The Series 2011 Bonds to be redeemed will be selected by the Trustee by lot, or in such other equitable manner as the Trustee may determine. The Series 2011 Bonds shall be redeemed in Authorized Denominations. The principal amount of the Series 2011 Bonds required to be redeemed on each mandatory sinking fund redemption date shall be reduced, at the option of the City, by the principal amount of any Series 2011 Bond which, at least forty-five (45) days prior to the mandatory sinking fund redemption date, have been acquired by the City and delivered to the Trustee for cancellation or have been redeemed through optional or extraordinary mandatory redemption and canceled by the Trustee and not theretofore credited against a scheduled mandatory sinking fund redemption. Each such Series 2011 Bond so delivered or previously purchased or redeemed shall be credited by the Trustee at one hundred percent (100%) of the principal amount thereof toward the obligation of the City on such mandatory sinking fund redemption date, and the principal amount of such Series 2011 Bonds to be redeemed by operation of mandatory sinking fund redemption shall be reduced accordingly. Extraordinary Mandatory Redemption. The Series 2011 Bonds are subject to extraordinary mandatory redemption prior to maturity by the City, on any date, at a redemption price equal to 100% of the principal amount of the Series 2011 Bonds, or portions thereof, to be redeemed, plus accrued and unpaid interest to the date fixed for redemption, with the principal amount equal to and payable from (i) Special Assessment Revenues from Prepayments of Phase I Improvement Assessments, including Prepayments from the Phase I Developer pursuant to the 4

17 Developer Prepayment Agreement, when such Prepayments have been deposited in the Phase I Improvement Assessment Prepayment Account and have been transferred to the Bond Redemption Fund, along with funds transferred from the Debt Service Reserve Fund to the Bond Redemption Fund and (ii) proceeds of the Series 2011 Bonds transferred to the Bond Redemption Fund from the Improvement Fund. See ASSESSMENT PROCEDURES - Prepayment of Special Assessments herein for the definition and description of Prepayments. Accrued and unpaid interest to the date fixed for redemption shall be payable from the Interest and Sinking Fund. Notwithstanding the foregoing, the Trustee will not be required to make an extraordinary mandatory redemption of Series 2011 Bonds unless it has at least $5,000 available in the Bond Redemption Fund with which to redeem Series 2011 Bonds. In lieu of redeeming Series 2011 Bonds pursuant to the extraordinary mandatory redemption provisions herein described, the City may purchase Series 2011 Bonds in the open market at a price not in excess of 100% of the principal amount of such Series 2011 Bonds (excluding accrued and unpaid interest but including any brokerage and other charges.) In the event of any extraordinary redemption of maturities of Series 2011 Bonds for which mandatory sinking fund payments have been established as described above, the mandatory sinking fund payments for such Series 2011 Bonds shall be adjusted, at the option of the City, as described in the last paragraph under the subheading DESCRIPTION OF SERIES 2011 BONDS - Redemption Provisions - Mandatory Sinking Fund Redemption. Redemption if Bonds in Amounts in Funds and Accounts Sufficient for that Purpose. If the amount held in the Debt Service Reserve Fund, together with the amount held in the Phase I Improvement Assessment Account, the Interest and Sinking Fund and in the Prepayment Reserve Fund, is sufficient to pay the principal amount of all Outstanding Series 2011 Bonds on the next day the City may optionally redeem the Series 2011 Bonds at par, together with the interest accrued on such Series 2011 Bonds, and all amounts due or to be due as Administrative Expenses and payable from the Administrative Fund have been paid or provided for, then all such amounts (other than amounts in the Administrative Fund) shall be transferred to the Bond Redemption Fund and used to redeem the Series 2011 Bonds in whole on the next date on which Series 2011 Bonds may be optionally redeemed as set forth in the Indenture. Notice of Redemption. Notice of any optional redemption, mandatory sinking fund redemption or extraordinary mandatory redemption shall be given by the Trustee at least thirty (30) days prior to the redemption date by giving written notice to the Owner of each Series 2011 Bond to be redeemed in whole or in part at the address shown on the Register by first-class mail, postage prepaid. Any such notice shall be conclusively presumed to have been duly given, whether or not the Owner receives such notice. When such Series 2011 Bonds have been called for redemption, in whole or in part, and due provision has been made to redeem same, such Series 2011 Bonds, or portions thereof, shall no longer be regarded as Outstanding except for the purposes of receiving payment from the funds provided for redemption, and the right of the Owners to collect interest on such Series 2011 Bonds or portions thereof which would otherwise accrue after the redemption date shall be terminated. 5

18 Conditional Notice of Redemption. In the case of an optional redemption, the notice of redemption may state (1) that it is conditioned upon the deposit of moneys, in an amount necessary to effect the redemption, with the Trustee no later than the redemption date or (2) that the City retains the right to rescind such notice at any time prior to the scheduled redemption date if the City delivers a certificate to the Trustee instructing the Trustee to rescind the redemption notice (in either case, a Conditional Redemption ), and such notice and optional redemption shall be of no effect if such moneys are not so deposited or if the notice is rescinded as described below. Any Conditional Redemption may be rescinded in whole or in part at any time prior to the redemption date if the City delivers a certificate to the Trustee instructing the Trustee to rescind the redemption notice. Any Series 2011 Bonds are subject to Conditional Redemption where redemption has been rescinded or funds to effect the redemption have not been deposited shall remain Outstanding, and the rescission or failure to deposit funds shall not constitute an Event of Default under the Indenture. The Trustee shall give prompt notice of such rescission or failure to deposit funds to the affected Registered Owner. Additional Provisions with Respect to Redemption. Series 2011 Bonds may be redeemed in part only in Authorized Denominations. If less than all of the Series 2011 Bonds are to be redeemed pursuant to an optional call, the Series 2011 Bonds to be redeemed shall be selected by lot, in such manner as the Trustee may determine and treating each minimum Authorized Denomination of the Series 2011 Bonds as a single Series 2011 Bond for such purposes. Upon surrender of any Series 2011 Bond in part, the Trustee, in accordance with the provisions of the Indenture, shall authenticate and deliver in exchange thereof a Series 2011 Bond or Series 2011 Bonds of like tenor, maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Series 2011 Bond or Series 2011 Bonds so surrendered. Record Date For Interest Payment The record date ( Record Date ) for the interest payable on the Series 2011 Bonds on any Interest Payment Date means the close of business on the last Business Day of the preceding month. In the event of a non-payment of interest on a scheduled Interest Payment Date, and for 30 days thereafter, a new record date for such interest payment (a Special Record Date ) will be established by the Trustee, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest ( Special Payment Date, which shall be 15 days after the Special Record Date) shall be sent at least five Business Days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each Owner of a Series 2011 Bond appearing on the registration books of the Trustee at the close of business on the last Business Day next preceding the date of mailing of such notice. 6

19 BOOK-ENTRY ONLY SYSTEM The Series 2011 Bonds will be available only in book-entry form in authorized denominations of $5,000 and any integral multiple thereof. Purchasers of the Series 2011 Bonds will not receive certificates representing their interests in the Series 2011 Bonds purchased. The City will enter into a letter of representations (the Book-Entry Agreement ) with DTC providing for such book-entry system. This section describes how ownership of the Series 2011 Bonds is to be transferred and how the principal of, redemption premium, if any, and interest on the Series 2011 Bonds are to be paid to and credited by DTC while the Series 2011 Bonds are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The City and the Underwriter believe the source of such information to be reliable, but neither of the City nor the Underwriter take any responsibility for the accuracy or completeness thereof. The Depository Trust Company ( DTC ), New York, New York, will act as securities depository for the Series 2011 Bonds. The Series 2011 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Series 2011 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and 7

20 Purchases of Series 2011 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2011 Bonds on DTC s records. The ownership interest of each actual purchaser of each Series 2011 Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2011 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2011 Bonds, except in the event that use of the book-entry system for the Series 2011 Bonds is discontinued. To facilitate subsequent transfers, all Series 2011 Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2011 Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2011 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2011 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Series 2011 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2011 Bonds, such as redemptions and proposed amendments to the Series 2011 Bond documents. For example, Beneficial Owners of Series 2011 Bonds may wish to ascertain that the nominee holding the Series 2011 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Series 2011 Bonds are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series 2011 Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Series 2011 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8

21 Principal, premium, if any, and interest payments on the Series 2011 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts, upon DTC s receipt of funds and corresponding detail information from the City on the payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with Series 2011 Bonds held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Trustee or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, if any, and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Series 2011 Bonds at any time by giving reasonable notice to the City. Under such circumstances, in the event that a successor securities depository is not obtained, Series 2011 Bond certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, Series 2011 Bond certificates will be printed and delivered to DTC. Thereafter, Series 2011 Bond certificates may be transferred and exchanged as described in the Indenture. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. NEITHER THE CITY NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO THE DTC PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEE WITH RESPECT TO THE PAYMENTS TO OR THE PROVIDING OF NOTICE FOR THE DTC PARTICIPANTS, THE INDIRECT PARTICIPANTS OR THE BENEFICIAL OWNERS OF THE SERIES 2011 BONDS. THE CITY CANNOT AND DOES NOT GIVE ANY ASSURANCES THAT DTC, THE DTC PARTICIPANTS OR OTHERS WILL DISTRIBUTE PAYMENTS OF PRINCIPAL OF OR INTEREST ON THE SERIES 2011 BONDS PAID TO DTC OR ITS NOMINEE, AS THE REGISTERED OWNER, OR PROVIDE ANY NOTICES TO THE BENEFICIAL OWNERS OR THAT THEY WILL DO SO ON A TIMELY BASIS, OR THAT DTC WILL ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE CURRENT RULES APPLICABLE TO DTC ARE ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION, AND THE CURRENT PROCEDURES OF DTC TO BE FOLLOWED IN DEALING WITH DTC PARTICIPANTS ARE ON FILE WITH DTC. 9

22 SECURITY FOR THE SERIES 2011 BONDS General THE SERIES 2011 BONDS ARE SPECIAL OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM THE SPECIAL ASSESSMENT REVENUES FROM THE PHASE I IMPROVEMENT ASSESSMENTS PLEDGED TO THE SERIES 2011 BONDS, AND ANY OTHER FUNDS HELD UNDER THE INDENTURE, AS AND TO THE EXTENT PROVIDED IN THE INDENTURE. THE SERIES 2011 BONDS DO NOT GIVE RISE TO A CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWERS OF THE CITY AND ARE NOT PAYABLE EXCEPT AS PROVIDED IN THE INDENTURE. THE OWNERS OF THE SERIES 2011 BONDS SHALL NEVER HAVE THE RIGHT TO DEMAND PAYMENT THEREOF OUT OF ANY FUNDS OF THE CITY OTHER THAN THE SPECIAL ASSESSMENT REVENUES FROM THE PHASE I IMPROVEMENT ASSESSMENTS AND ANY OTHER FUNDS HELD UNDER THE INDENTURE, AS AND TO THE EXTENT PROVIDED IN THE INDENTURE. THE CITY SHALL HAVE NO LEGAL OR MORAL OBLIGATION TO PAY FOR THE SERIES 2011 BONDS OUT OF ANY FUNDS OF THE CITY OTHER THAN THE SPECIAL ASSESSMENT REVENUES AND ANY OTHER FUNDS HELD UNDER THE INDENTURE PLEDGED TO THE SERIES 2011 BONDS. The principal of, premium, if any, and interest on the Series 2011 Bonds are secured by a pledge of and a first lien upon the Special Assessment Revenues from the Phase I Improvement Assessments as set forth in the Indenture. Such Special Assessment Revenues are derived from Special Assessments to be levied against the properties within Phase I of the PID, pursuant to the Service and Assessment Plan, all to the extent and upon the conditions described herein. Special Assessment Revenues The City is authorized by the PID Act, Ordinance No duly enacted by the City Council on June 18, 2007 (the Assessment Ordinance ), and other provisions of law to finance the Phase I Improvements by levying Special Assessments upon properties in Phase I of the PID benefitted thereby. For a description of the assessment methodology and the amounts of Special Assessments anticipated to be levied in Phase I of the PID, see ASSESSMENT PROCEDURES herein and APPENDIX B Service and Assessment Plan hereto. Pursuant to the Indenture, Special Assessment Revenues consist of (i) the monies collected from Special Assessments levied against properties in Phase I of the PID, including interest on Special Assessments during the period a Special Assessment or any installment thereof is current or delinquent, prepayments, foreclosure proceeds, proceeds from a guarantor of the Special Assessments, and penalties for non-timely payment of Special Assessments, and (ii) earnings and income derived from the investment or deposit of Special Assessments in the special funds or accounts created and established under the Indenture for the payment and security of the Series 2011 Bonds. Pursuant to the Indenture, Special Assessments consist of (i) the assessments levied against properties in Phase I of the PID for the Phase I Improvements to pay Debt Service Requirements on the Series 2011 Bonds as set forth in the Service and Assessment Plan, which 10

23 are payable in periodic installments as provided in the Assessment Ordinance (the Phase I Improvement Assessments ), and (ii) the annual special assessments levied by the City against properties in Phase I of the PID to pay administrative, organizational, maintenance and operational costs associated with, or incidental to, the administration, organization, maintenance and operation of the PID, as further described in the Indenture, all as provided in the Service and Assessment Plan, the Assessment Ordinance and the Bond Ordinance (the Administrative Expense Assessments ). Special Assessments also include any supplemental assessments levied for Phase I Improvements in accordance with Sections and of the PID Act. The City will covenant in the Indenture that if any Special Assessment shall become void or unenforceable, for any cause, or if the City makes a mistake in a Special Assessment relating to the cost assessed for the Phase I Improvements, the City will cause a supplemental assessment or reassessment to be levied in the manner as provided by Sections and of the PID Act. See APPENDIX A Form of Indenture hereto. The PID Act provides that the Special Assessments (including any reassessment, with interest, the expense of collection and reasonable attorney s fees, if incurred) are a first and prior lien (the Assessment Lien ) against the property assessed, superior to all other liens or claims, except liens and claims by State of Texas, city, county, school districts, or other political subdivisions for ad valorem taxes and are a personal liability of and charge against the owners of property, regardless of whether the owners are named. Pursuant to the PID Act, the Assessment Lien is effective from the date of the Assessment Ordinance until the Special Assessments are paid, and is enforceable by the City Council in the same manner that an ad valorem property tax levied against real property may be enforced by the City Council. See ASSESSMENT PROCEDURES herein. Collection and Deposit of Special Assessments The Special Assessments shown on the Assessment Roll, together with the interest thereon, shall remain and constitute a trust fund for the redemption and payment of the Principal Installments of the Series 2011 Bonds and for the interest due thereon and to pay Administrative Expenses as and to the extent provided in the Indenture. The Phase I Improvement Assessments assessed to pay Debt Service Requirements on the Series 2011 Bonds, together with interest thereon, are payable in annual installments established by the Assessment Ordinance and the Service and Assessment Plan to correspond, as nearly as practicable, to the Debt Service Requirements. A Phase I Improvement Assessment has been made payable in the Assessment Ordinance in each Fiscal Year preceding the date of final maturity of the Series 2011 Bonds which, if collected, will be sufficient to pay the portion of the Debt Service Requirements attributable to Special Assessments in the Service and Assessment Plan. Each Annual Installment is payable in the same manner and at the same time as the general ad valorem taxes on real property are payable, and become delinquent at the same times and bear the same proportionate penalties and interest after delinquency as do the general ad valorem taxes on real property, all as shown in the Assessment Ordinance. A record of the Special Assessments on each parcel, tract or lot which are to be collected in each year during the term of the Series 2011 Bonds has been prepared by the City and is 11

24 shown on the Assessment Roll. Sums received from the collection of the Phase I Improvement Assessments to pay the Debt Service Requirements (including delinquent installments, Foreclosure Proceeds, proceeds from a guarantor of Phase I Improvement Assessments to pay the Debt Service Requirements on the Bonds, and penalties) and of the interest thereon shall be deposited into the Pledged Revenue Fund, except that amounts received as Prepayments shall be deposited into the Phase I Improvement Assessment Prepayment Account. Any sums collected as an annual Administrative Expense Assessment to pay Administrative Expenses shall be deposited in the Administrative Fund. Unconditional Levy of Assessments The City has imposed special assessments on the property within Phase I of the PID to pay the principal component of the Debt Service Requirements scheduled for payment from Special Assessment Revenues as described in the Service and Assessment Plan and coming due during each Fiscal Year. This Phase I Improvement Assessment shall be effective on the date of, and strictly in accordance with the terms of, the Assessment Ordinance. Each Phase I Improvement Assessment may be paid immediately in full or in periodic annual installments over a period of time equal to the term of the Series 2011 Bonds, which installments shall include interest on the Phase I Improvement Assessments. Pursuant to the Assessment Ordinance, each Phase I Improvement Assessment shall bear interest at the rate borne by the Series 2011 Bonds per annum plus 0.50% from the date of issuance of the Series 2011 Bonds until paid at the rate calculated on the basis of a 360 day year of twelve 30-day months. Each Annual Installment, including the interest on the unpaid amount of an Phase I Improvement Assessment, shall be assessed on September 1 and shall be due on October 1 of each year. Each Annual Installment together with interest thereon shall be delinquent if not paid prior to February 1 of the year after such Annual Installment is due. As authorized by Section (b)(14) of the PID Act, the City has levied, assessed, and will collect, each year while the Series 2011 Bonds are Outstanding and unpaid to pay the annual costs incurred by the City in the administration and operation of Phase I an Administrative Expense Assessment. The Administration Expense Assessment shall remain in effect from year to year until all Series 2011 Bonds are finally paid or until the City adjusts the levy after an annual review in any year pursuant to Section (d) of the PID Act. Administration Expense Assessments shall be due in the manner set forth in the ordinance levying the Administrative Expense Assessment on October 1 of each year and shall be delinquent if not paid by February 1 of the following year. There will be no split payment of an Annual Installment or an Administration Expense Assessment or discount for the early payment of an Annual Installment or an Administration Expense Assessment. Phase I Improvement Assessments and Administrative Expense Assessments together with interest, penalties, and expense of collection and reasonable attorneys fees, as permitted by the Texas Tax Code shall be first and prior lien against the property assessed, superior to all other liens and claims, except liens or claims for state, county, school district, or municipal ad valorem taxes and shall be a personal liability of and charge against the owner of the property 12

25 regardless of whether the owners are named. The lien for Special Assessments and each Annual Installment thereof and penalties and interest shall begin on the effective date of the Assessment Ordinance until the Assessments are paid or until all Series 2011 Bonds are finally paid. Failure to pay an Annual Installment when due shall not accelerate the payment of the remaining Annual Installments of the Phase I Improvement Assessment and such remaining Annual Installments (including interest) shall continue to be due and payable at the same time and in the same amount and manner as if such default had not occurred. Perfected Security Interest Chapter 1208, Texas Government Code, applies to the issuance of the Series 2011 Bonds and the pledge of the Special Assessment Revenues and such pledges are, therefore, valid, effective, and perfected. Should Texas law be amended at any time while the Series 2011 Bonds are outstanding and unpaid, the result of such amendment being that the pledge of such revenues is subject to the filing requirements of Chapter 9, Texas Business & Commerce Code, in order to preserve to the registered owners of the Series 2011 Bonds a security interest in such pledge, the City will covenant in the Indenture to take such measures as it determines are reasonable and necessary to enable a filing of a security interest in said pledge to occur. See APPENDIX A Form of Indenture hereto. Developer Reserve Fund Pursuant to the Indenture, a Developer Reserve Fund will be created for the benefit of the Bonds and held by the Trustee. The Phase I Developer will deposit $50,000 to the credit of the Developer Reserve Fund upon delivery of the Series 2011 Bonds. Prior to the Developer Reserve Fund Release Date (hereinafter defined), funds on deposit in the Developer Reserve Fund will be transferred by the Trustee in an aggregate amount equal to all outstanding Developer Parcel Delinquency Amounts (to the extent not previously so transferred) into the Phase I Improvement Assessment Account prior to each transfer from the Phase I Improvement Assessment Account. Any amounts in the Developer Reserve Fund will be released, except during the occurrence of an ongoing Event of Default, on the first February 16 to occur after the issuance by the City of certificates of occupancy for 90% of all homes to be constructed on all lots ultimately designed, engineered and platted on all land within Phase I, currently contemplated to be 209 single-family homes, as provided for in the Indenture (the Developer Reserve Fund Release Date ). At such time as the condition of release is met, any amounts deposited in the Developer Reserve Fund shall be irrevocably and unconditionally released to the Phase I Developer, or to the Phase I Developer s successors and assigns as identified in a written notice from the Phase I Developer to the Trustee and the City. The Trustee shall determine the value of cash and investments on deposit in the Developer Reserve Fund as of February 10 and August 10 of each Fiscal Year. If as of the date of determination the value of cash and investments on deposit in the Developer Reserve Fund exceeds $50,000, the Trustee shall transfer such excess to the Interest and Sinking Fund. 13

26 Debt Service Reserve Fund Pursuant to the Indenture, a Debt Service Reserve Fund will be created for the benefit of the Series 2011 Bonds and held by the Trustee and will be funded with proceeds of the Series 2011 Bonds in the amount of the Debt Service Reserve Fund Requirement. Pursuant to the Indenture, Debt Service Reserve Fund Requirement for the Series 2011 Bonds shall be an amount equal to the maximum annual Debt Service Requirement on the Series 2011 Bonds, which, as of the date of delivery of the Series 2011 Bonds, equals $131, If, on any Maturity Date, Mandatory Sinking Fund Redemption Date or Interest Payment Date, the amount on deposit in the Interest and Sinking Fund is insufficient to pay the debt service on the Series 2011 Bonds due on such date, the Trustee shall transfer from the Debt Service Reserve Fund to the Interest and Sinking Fund the amounts necessary to cure such deficiency. The Trustee shall determine the value of cash and investments on deposit in the Debt Service Reserve Fund as of the last day of each Fiscal Year of the City. So long as no Event of Default under the Indenture shall have occurred and be continuing, if as of the date of such determination the value of cash and investments on deposit in the Debt Service Reserve Fund exceeds the Debt Service Reserve Fund Requirement for the Series 2011 Bonds, the Trustee shall transfer such excess to the Interest and Sinking Fund. In the event of an extraordinary mandatory redemption of the Series 2011 Bonds from the proceeds of a Prepayment, the Trustee, pursuant to written directions from the City, shall transfer from the Debt Service Reserve Fund to the Bond Redemption Fund the amount specified in such directions, which shall be an amount equal to the difference between the Debt Service Reserve Requirement immediately prior to such extraordinary mandatory redemption and the Debt Service Reserve Requirement immediately after such extraordinary mandatory redemption. If the amount held in the Debt Service Reserve Fund, together with the amounts held in the Phase I Improvement Assessment Account, the Interest and Sinking Fund and in the Prepayment Reserve Fund, is sufficient to pay the principal amount of all Outstanding Bonds on the next date the Bonds may be optionally redeemed at par, together with the interest accrued on such Bonds to such date, and all amounts due or to be due as Administrative Expenses and payable from the Administrative Fund have been paid or provided for, then all such amounts (other than amounts in the Administrative Fund) shall be transferred to the Bond Redemption Fund and used to redeem the Bonds in whole on the next date on which Bonds may be optionally redeemed pursuant to the Indenture. Prepayment Reserve Fund Pursuant to the Indenture, a Prepayment Reserve Fund will be created and held by the Trustee for the benefit of the Series 2011 Bonds and will be funded with proceeds of the Series 2011 Bonds in the amount of $1, Money deposited in the Prepayment Reserve Fund will be used and withdrawn by the Trustee for the purpose of making transfers to the Interest and Sinking Fund, pursuant to, and at the times specified in, the Indenture to pay a portion of the accrued interest on Bonds being redeemed pursuant to an extraordinary mandatory redemption. The amount to be transferred shall be an amount, for each Prepayment, equal to the amount of interest that would have accrued 14

27 on the Phase I Improvement Assessment but for the Prepayment for the period from and including the date of the Prepayment to but excluding the date of redemption of Bonds pursuant to an extraordinary mandatory redemption with the proceeds of such Prepayment. If, on any Maturity Date, Mandatory Sinking Fund Redemption Date or Interest Payment Date, the amount on deposit in the Interest and Sinking Fund is insufficient to pay the debt service due on such date, and if there are not sufficient monies in the Debt Service Reserve Fund to cure such deficiency, the Trustee shall transfer from the Prepayment Reserve Fund to the Interest and Sinking Fund the amounts necessary to cure such deficiency. All amounts in the Prepayment Reserve Fund shall be transferred to the Bond Redemption Fund and used to redeem the Bonds in whole pursuant to the Indenture. Deposit and Application of Special Assessment Revenues The City has created under the Indenture a Pledged Revenue Fund held by the Trustee and within such Fund, a Phase I Improvement Assessment Account and a Phase I Improvement Assessment Prepayment Account. Upon receipt, and in no event less than ten (10) Business Days of receipt thereof, the City shall transfer to the Trustee, for the benefit of the Series 2011 Bonds, for deposit to (i) the Phase I Improvement Assessment Account, all amounts representing revenues from Phase I Improvement Assessments other than revenues from Prepayments, and (ii) the Phase I Improvement Assessment Prepayment Account, all amounts representing Prepayments. On or before the Business Day immediately prior to February 15 and August 15 of each year while any Series 2011 Bonds are Outstanding, the Trustee shall transfer all amounts on deposit in the Phase I Improvement Assessment Account, to the following Funds in the following order of priority: FIRST: To the Interest and Sinking Fund, an amount necessary, if any, to increase the balance in the Interest and Sinking Fund to an amount equal to the aggregate amount of all remaining scheduled Debt Service Requirements for the Bonds during the current Fiscal Year, as provided in the Indenture, or a greater amount designated in writing by the City. SECOND: To the Debt Service Reserve Fund, the amount necessary, if any, to cause the amount on deposit in the Debt Service Reserve Fund to equal the Debt Service Reserve Fund Requirement for the Bonds. THIRD: To the Prepayment Reserve Fund, the amount necessary, if any, to cause the amount on deposit in the Prepayment Reserve Fund to equal $1, Prior to the Developer Reserve Fund Release Date, on the Business Day immediately prior to February 15 of each year, after the transfer of all amounts to be transferred pursuant to Section 4.1(d) of the Indenture, the Trustee shall transfer, to the extent funds are available therefor, amounts on deposit in the Phase I Improvement Assessment Account which constitute Delinquent Developer Parcel Assessment Payments to the Developer Reserve Fund in the amount necessary, if any, to cause the amount on deposit in the Developer Reserve Fund to equal $50,

28 Any amounts remaining after the foregoing transfers have been made shall be held in the Pledged Revenue Fund and shall be used to cover first, shortfalls in the Interest and Sinking Fund necessary to pay scheduled Debt Service Requirements for the Bonds in the then current Fiscal Year, and second, shortfalls in the Debt Service Reserve Fund. Promptly upon the deposit of Prepayments to the Phase I Improvement Assessment Prepayment Account, the Trustee shall transfer all amounts on deposit therein to the Bond Redemption Fund and shall apply such amount, together with the amount required to be transferred from the Debt Service Reserve Fund to the extraordinary mandatory redemption of Series 2011 Bonds. See APPENDIX A Form of Indenture hereto. Administrative Fund The City has created under the Indenture an Administrative Fund held by the Trustee. Upon receipt, and in no event less than ten (10) Business Days after receipt thereof, the City shall transfer to the Trustee, for deposit to the Administrative Fund, all amounts representing Special Assessment Revenues from Administrative Expense Assessments. The City may draw monies from the Administrative Fund to pay Administrative Expenses as they become due (excluding the costs of issuing the Series 2011 Bonds) by delivery to the Trustee of a request for disbursement pursuant to the terms of the Indenture. Fees or charges incurred by the City payable to the Trustee in satisfaction of the City liability to the Trustee for the services described herein are paid from the Administrative Fund. Amounts on deposit in the Administrative Fund are not available to pay debt service on Series 2011 Bonds. Defeasance Except to the extent provided in the Bond Ordinance and the Indenture, any Series 2011 Bond shall be deemed to be paid and no longer Outstanding within the meaning of the Indenture (a Defeased Debt ) when payment of the principal of, redemption premium, if any, on such Defeased Debt, plus interest thereon to the due date thereof (whether such due date be by reason of maturity, upon redemption, or otherwise), either (i) shall have been made in accordance with the terms thereof, or (ii) shall have been provided by irrevocably depositing with the Trustee, in trust, and irrevocably set aside exclusively for such payment, (1) money sufficient to make such payment or (2) Government Obligations certified by an independent public accounting firm of national reputation to mature as to principal and interest in such amount 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 the Trustee pertaining to the Series 2011 Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for to the satisfaction of the Trustee. At such time as a Defeased Debt shall be deemed to be paid under the Indenture, as aforesaid, it shall no longer be secured by or entitled to the benefits of the Indenture except for the purposes of any such payment from such money or Government Obligations. Any money so deposited with the Trustee may at the direction of the City also be invested in Government Obligations, maturing in the amounts and times as set forth in the Indenture, and all income from all Government Obligations in the hands of the Trustee pursuant the Indenture which is not required for the payment of the Series 2011 Bonds, the redemption 16

29 premium, if any, and interest thereon, with respect to which such money has been so deposited, shall be turned over to the City. Any determination not to redeem Defeased Debt that is made in conjunction with the payment arrangements specified above in (i) or (ii) shall not be irrevocable, provided that: (1) in the proceedings providing for such defeasance, the City expressly reserves the right to call the Defeased Debt for redemption; (2) the City gives notice of the reservation of that right to the owners of the Defeased Debt immediately following the defeasance; (3) the City directs that notice of the reservation be included in any defeasance or redemption notices that it authorizes; and (4) at or prior to the time of the redemption, the City satisfies the conditions set forth in the first paragraph of this section with respect to such Defeased Debt as though it was being defeased at the time of the exercise of the option to redeem the Defeased Debt, after taking the redemption into account in determining the sufficiency of the provisions made for the payment of the Defeased Debt. Government Obligations are defined under the Indenture as (i) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (ii) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date of the purchase thereof are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date purchased are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. Events of Default The Indenture defines each of the following to be an Event of Default : (a) if default occurs in the payment of the principal of any of the Bonds, when the same shall be due and payable either at maturity or pursuant to mandatory sinking fund redemption; or (b) if default occurs in the payment of any installment of interest on any of the Bonds, when the same shall become due and payable; or (c) the Bankruptcy or Insolvency of the City; or (d) if the City shall default in the due and punctual performance of any of the covenants, conditions, agreements and provisions contained in the Indenture, other than as specified in (a), (b) and (c) above, on the part of the City to be performed, and such default shall continue for sixty (60) days after written notice specifying such default and requiring same to be remedied shall have been given to the City by the Trustee, which may give such notice in its discretion and shall give such notice at the written request of the Owners of not less than ten percent (10%) in principal amount of the Bonds then Outstanding; provided, however, if the default stated in the notice is capable of cure but cannot reasonably be cured within the applicable period, the City shall be entitled to a further extension of time reasonably necessary to 17

30 remedy such default so long as corrective action is instituted by the City within the applicable period and is diligently pursued until such failure is corrected, but in no event for a period of time of more than ninety (90) days after such notice. Remedies in Event of Default Upon the happening and continuance of any Event of Default the Trustee may proceed, and upon the written request of the Owners of not less than a majority in principal amount of the Bonds then Outstanding, shall proceed to protect and enforce its rights and the rights of the Owners of the Series 2011 Bonds under the Indenture by such suits, actions or special proceedings in equity or at law, or by proceedings in the office of any board or officer having jurisdiction, either for the specific performance of any covenant or agreement contained herein or in aid or execution of any power herein granted or for the enforcement of any proper legal or equitable remedy, as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce such rights. To the extent allowed by law, in the enforcement of any remedy under the Indenture, the Trustee shall be entitled to sue for, enforce payment of and receive any and all amounts then or during any default becoming, and at any time remaining, due from the City for Principal Installments, interest, or otherwise under any of the provisions of the Indenture or of the Bonds, together with any and all costs and expenses of collection and of all proceedings hereunder and under such Bonds, without prejudice, to any other right or remedy of the Trustee or of the Owners of the Bonds, and to recover and enforce judgment or decree against the City, but solely as provided herein, for any portion of such amounts remaining unpaid, with interest, costs and expenses, and to collect in any manner provided by law, the monies adjudged or decreed to be payable from said sources. If at any time the monies in the Funds designated for the purpose of making payments of principal or interest on the Bonds shall not be sufficient to pay, in a timely manner, the Principal Installments or the interest on the Bonds as the same become due and payable, such monies, together with any monies then available or thereafter becoming available for such purpose, whether through the exercise of the remedies provided for in the Indenture or otherwise, shall, after payment of the costs and expenses of the proceedings resulting in the collection of such money and of the fees of, and the expenses, liabilities, and advances incurred or made by, the Trustee (including all accrued and unpaid Trustee fees and the fees of its attorneys), be applied as follows: FIRST: to the payment to the Owners entitled thereto of all installments of interest then due on the Bonds, in the order of the maturity of the installments of such interest, and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the Persons entitled thereto, without any discrimination or preference except as to any difference, if any, in the respective rates of interest specified in the Bonds; and SECOND: to the payment of the Principal Installments of any Bonds which are due, and, if the amount available shall not be sufficient to pay all of such amounts, then to the payment thereof ratably, according to the amount due. 18

31 In case any action taken by the Trustee on account of any default shall have been discontinued or abandoned for any reason, then and in every such case the City, the Trustee and the Owners of the Bonds shall be restored to their former positions and rights hereunder, respectively, and all rights, remedies, powers and duties of the Trustee shall continue as though no such action had been taken. Anything in the Indenture to the contrary notwithstanding, the Owners of not less than a majority in principal amount of the Bonds then Outstanding under the Indenture shall have the right by an instrument or concurrent instruments in writing executed and delivered to the Trustee, to direct the method and place of conducting all remedial actions to be taken by the Trustee under the Indenture, provided that such direction shall not be otherwise than in accordance with law or the provisions of the Indenture, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be in violation of the law or the provisions of the Indenture, would subject the Trustee to liability or would be unjustly prejudicial to Owners of Bonds not parties to such direction. No Owner of any of the Outstanding Bonds shall have any right to institute any suit, action, mandamus or other proceeding in equity or at law for the execution of any trust under the Indenture or the protection or enforcement of any right under the Indenture or any action of the City authorizing the issuance of Bonds, or any right under the laws of the State of Texas, except only an action for mandamus against the governing body of the City, or for the recovery of overdue and unpaid Principal Installments, interest or premium (if any), unless; (i) such Owner previously shall have given to the Trustee written notice of the Event of Default or breach of trust or duty on account of which such suit or action is to be taken; (ii) the Owners of not less than twenty percent (20%) in principal amount of the Bonds then Outstanding shall have made written request of the Trustee after the right to exercise such powers or right of action, as the case may be, shall have accrued, and shall have afforded the Trustee a reasonable opportunity either to proceed to exercise the powers herein granted or granted by the laws of the State of Texas, or to institute such action, suit or proceeding in its or their name; (iii) there shall have been furnished to the Trustee security and indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred therein or thereby; and (iv) the Trustee shall have refused or neglected to comply with such request within a reasonable time. Such notification, request and furnishing of indemnity are hereby declared in every such case, at the option of the Trustee, to be conditions precedent to the execution of the powers and trusts of the Indenture or for any other remedy hereunder or under the laws of the State of Texas. It is understood and intended that no one or more Owners of the Bonds secured by the Indenture shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Indenture, or to enforce any right hereunder or under the laws of Texas with respect to the Bonds or the Indenture, except in the manner therein provided, and that all proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the benefit of all Owners of the Outstanding Bonds, except as otherwise permitted herein with reference to overdue and unpaid Principal Installments, interest or premium, if any. All rights of action under the Indenture or under any of the Bonds, enforceable by the Trustee, may be enforced by it without the possession of any of the Bonds or the production thereof on the trial or other proceeding relative thereto, and any such suit, action or proceeding 19

32 instituted by the Trustee shall be brought in its name for the benefit of all the Owners of such Bonds, subject to the provisions of the Indenture. The remedies conferred upon or reserved to the Trustee or to the Owners of the Bonds are intended to be exclusive of any other remedy or remedies. No delay or omission of the Trustee or of any Owner of the Bonds to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or any acquiescence therein; and every power and remedy given by the Indenture to the Trustee and the Owners of the Bonds, may be exercised from time to time and as often as may be deemed expedient. The Trustee may, and upon written request of the Owners of not less than a majority in principal amount of the Bonds then Outstanding shall, waive any default which in its opinion shall have been remedied before the completion of the enforcement of any remedy under the Indenture, but no such waiver shall extend to or affect any other existing or any subsequent default or defaults or impair any rights or remedies consequent thereon. Investment or Deposit of Funds Money in the Pledged Revenue Fund, the Developer Reserve Fund, the Interest and Sinking Fund, the Administrative Fund, the Bond Redemption Fund, the Prepayment Reserve Fund, the Developer Reserve Fund and the Improvement Fund shall be deposited or invested in any Authorized Investments as instructed by the City, as described in the Indenture, maturing on a date or dates on or prior to the need for such money. Authorized Investments are defined in the Indenture as any investment that may be made by the City pursuant to the Texas Public Funds Investment Act (Chapter 2256, Texas Government Code). See INVESTMENTS herein. Money in the Debt Service Reserve Fund shall be deposited or invested in such Authorized Investments as instructed as described below by the City, maturing on the earlier of a date or dates not later than (a) the date of maturity of the last Bond then Outstanding or (b) five (5) years after the date of the investment. Any income or interest earned on any Fund shall accrue to and be deposited in the Fund from which said monies were deposited or invested, except to the extent otherwise provided in the Indenture. The Trustee shall invest money only upon receipt of written instructions from the City as to each deposit or investment. The Trustee shall be entitled to assume that the City has obtained the necessary approvals to submit the written instructions to the Trustee. In the absence of direction, the Trustee may invest in U.S. Treasury Plus Money Market Funds, or in other funds of the Trustee or successor Trustee, to the extent permitted by law. Notwithstanding anything in the Indenture to the contrary, investments of money in the Bond Redemption Fund shall bear a rating equal to or greater than the rating borne by the Bonds. Additional Obligations The City is not authorized to issue additional bonds secured by the Special Assessment Revenues under the Indenture other than Refunding Bonds. The City may issue Refunding Bonds on parity with the Series 2011 Bonds the proceeds of which would be utilized to refund all or any portion of the Outstanding Series 2011 Bonds and to pay all costs incident to the Refunding Bonds. The principal of all Refunding Bonds must be scheduled to be paid or mature 20

33 on February 15 of the years in which such principal is scheduled to be paid or mature. All Refunding Bonds must bear interest at a fixed rate and any interest payment dates for Refunding Bonds must be February 15 and August 15. Notwithstanding the foregoing, the City has the right to issue such bonds, notes, or other obligations as are authorized to be issued by municipal corporations by and subject to the requirements of, the provisions of the Constitution and laws of the State of Texas applicable to municipal corporations. Any such obligations issued by the City would be payable from sources other than the Special Assessment Revenues pledged to the Series 2011 Bonds. See BONDHOLDERS RISKS Direct and Overlapping Indebtedness, Assessments and Taxes. SOURCES AND USES OF FUNDS The table that follows summarizes the estimated sources and uses of proceeds of the Series 2011 Bonds, and other available funds: Sources of Funds: Principal Amount $1,340, Other Funds (1) 50, Total Sources $1,390, Use of Funds: Deposit to Improvement Fund $ 835, Deposit to Interest and Sinking Fund 54, Deposit to Debt Service Reserve Fund 131, Deposit the Prepayment Reserve Fund 1, Deposit to Developer Reserve Fund (2) 50, Deposit to Administrative Fund 20, Costs of Issuance (3) 297, Total Uses $1,390, (1) Phase I Developer contribution. (2) Funded from Phase I Developer contribution, not from proceeds of the Series 2011 Bonds. (3) Includes Underwriter s discount and structuring fee. 21

34 DEBT SERVICE REQUIREMENTS The following table sets forth the approximate debt service requirements for the Series 2011 Bonds: Year Ending (September 30) Principal* Interest Total 2011 $ - $ 54,558 $ 54, ,000 95, , ,000 95, , ,000 94, , ,000 93, , ,000 92, , ,000 91, , ,000 90, , ,000 89, , ,000 87, , ,000 85, , ,000 83, , ,000 81, , ,000 78, , ,000 76, , ,000 73, , ,000 69, , ,000 65, , ,000 61, , ,000 57, , ,000 52, , ,000 47, , ,000 41, , ,000 35, , ,000 28, , ,000 21, , ,000 13, , ,000 4, ,469 $1,340,000 $1,862,436 $3,202,436 * Includes amortization installments. Amounts may not add up due to rounding. 22

35 ASSESSMENT PROCEDURES General As required by applicable law, when the City determined to defray a portion of the costs of the Phase I Improvements through Special Assessments, it adopted the PID Resolution generally describing the Phase I Improvements and the land within the PID to be subject to Special Assessments to pay the cost therefor. The City caused an assessment roll to be prepared (the Assessment Roll ), which Assessment Roll showed the land within the PID to be assessed, the amount of the benefit to and the assessment against each lot or parcel of land and the number of annual installments in which the assessment was to be divided. The Assessment Roll was filed with the City Secretary and is available for public inspection. Statutory notice was given to the owners of the property to be assessed and a public hearing was conducted to hear testimony from affected property owners as to the propriety and advisability of undertaking the Phase I Improvements and funding a portion of the same with Special Assessments. Following the hearing, the City determined to proceed to levy the Special Assessments pursuant to the Assessment Ordinance and thereafter the Special Assessments became legal, valid and binding liens upon the property against which the assessments are made. Under the PID Act, the costs of Phase I Improvements may be assessed by the City against the assessable property in the PID so long as the special benefit conferred upon the assessed property by the Phase I Improvements equals or exceeds the Special Assessments. The costs of the Phase I Improvements may be assessed using any methodology that results in the imposition of equal shares of cost on assessed property similarly benefited. The allocation of benefits and assessments to the benefitted land within the PID is presented in the Service and Assessment Plan included herein as Appendix B, which should be read in its entirety. See APPENDIX B Service and Assessment Plan hereto. Assessment Methodology The Service and Assessment Plan describes the special benefit received by each parcel of assessable property as a result of the Phase I Improvements, provides the basis and justification for the determination that such special benefit exceeds the Special Assessments being levied, and establishes the methodology by which the City allocates the special benefit of the Phase I Improvements to parcels in a manner that results in equal shares of costs being apportioned to parcels similarly benefited. As described in the Service and Assessment Plan, the costs of the Phase I Improvements are being funded by a combination of Special Assessments and Phase I Developer contribution. As set forth in the Service and Assessment Plan, the benefits received by the Phase I Improvements are spread among the 209 single-family homes expected to be built in Phase I of the PID (the Assessed Property ) based on the relative value of each parcel after undertaking the Phase I Improvements. The portion of the costs of the Phase I Improvements payable from Special Assessments levied on the Assessed Property is hereinafter referred to as the PID Costs. For purposes of allocating the PID Costs and for determining the relative value of each parcel, the Assessed Property has been classified into one of three lot types, including 90-foot wide lots (the 90-foot Lots ), 70-foot wide lots (the 70-foot Lots ) and 60-foot wide lots (the 60-foot Lots ). The City has determined that the portion of the PID Costs payable by 23

36 the Assessed Property shall be allocated to the Assessed Property based on the relative value of each parcel and that such method of allocation will result in the imposition of equal shares of the PID Costs on parcels similarly situated. The Special Assessments and the interest thereon are expected to be paid in annual installments as described in the Service and Assessment Plan (the Annual Installments ). The determination by the City of the assessment methodology set forth in the Service and Assessment Plan is the result of the discretionary exercise by the City Council of its legislative authority and governmental powers and is conclusive and binding on the Phase I Developer, all other current owners of property within the PID and all future owners and developers within the PID. See APPENDIX B Service and Assessment Plan hereto for an allocation of benefits and assessments to the benefitted land in the PID. Collection Procedures Under the PID Act, the Annual Installments may be collected in the same manner and at the same time as regular ad valorem taxes of the City. The Special Assessments are enforced by the City in the same manner that an ad valorem tax lien against real property is enforced. Delinquent installments of the Special Assessments incur interest, penalties and attorney s fees in the same manner as delinquent ad valorem taxes. Under the PID Act, the Assessment Lien is a first and prior lien against the property assessed, superior to all other liens and claims except liens or claims for State of Texas, county, city, school district, municipal or other political subdivision ad valorem taxes. See BONDHOLDERS RISKS Assessment Limitations herein. The City will covenant in the Indenture to determine and collect Annual Installments for each year billed by the City s Tax Assessor/Collector (the City s Tax Assessor/Collector ), which currently is the Ellis County Tax Assessor/Collector, on a single bill to each property owner. The City s Tax Assessor/Collector prepares the bills upon receipt of the certified tax roll from the Ellis Central Appraisal District, which is responsible for the appraisal of property within Ellis County. The City s Tax Assessor/Collector prepares tax bills indicating the taxes and assessments on the property as separate line items. Tax bills are mailed to each property owner by October 1 of each year, or as soon thereafter as practicable, and are due and payable until the following February 1, when they became delinquent. The Administrator (as defined herein) is responsible for calculating Annual Installments in accordance with the Service and Assessment Plan. The City will certify the Assessment Roll, with such annual installments, upon receipt from the Administrator of the Assessment Roll. After certifying the Assessment Roll, the City will forward it to the City s Tax Assessor/Collector for preparation and distribution of bills. 24

37 Taxes and Annual Installments are paid to the City s Tax Assessor/Collector. Property within the City is generally appraised as of January 1 of each year. Taxes become due October 1 of the same year, and become delinquent on February 1 of the following year. In the event taxes and Special Assessments are not timely paid, there are penalties and interest as set forth below: Date Payment Received Cumulative Penalty Cumulative Interest Total February 6% 1% 7% March 7% 2% 9% April 8% 3% 11% May 9% 4% 13% June 10% 5% 15% July 12% 6% 18% After July, the penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, a 20% attorney s collection fee may be added to the total penalty and interest charge. In general, property subject to lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. An automatic stay by creditors or other entities, including governmental units, could prevent governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In most cases, post-petition taxes and Special Assessments are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. Assessment Amounts Assessment Amounts. The maximum amounts of the Special Assessments have been established by the methodology established by the City in the Service and Assessment Plan. The Special Assessments have been levied against the parcels comprising the Assessed Property as indicated on the Assessment Roll. See Appendix B Service and Assessment Plan hereto. Rate and Method of Apportionment of Special Assessments. For purposes of the Service and Assessment Plan, the City Council has determined that the PID Costs shall be allocated to the Assessed Property based on the relative value of each parcel after undertaking the Phase I Improvements and that such method of allocation will result in the imposition of equal shares of PID Costs on parcels similarly situated. Having taken into consideration the matters described above, the City Council has determined to allocate the portion of the PID Costs payable by the Assessed Property based on the relative value of each parcel after undertaking the Phase I Improvements. There are a total of 209 units expected to be built on the Assessed Property, consisting of foot Lots, foot Lots and foot Lots. The table below presents the estimated total Special Assessments to be levied on each unit within Phase I of the PID. See APPENDIX B- Service and Assessment Plan hereto for the estimated annual Special Assessments per unit. 25

38 Estimated Total Lot Type Special Assessment (Per Lot) 90-foot Lots $7, foot Lots $6, foot Lots $5,742 The land within Phase I of the PID has been, and is expected to continue to be, subject to taxes and assessments imposed by taxing entities other than the City. These taxes would be payable in addition to the Special Assessments. In addition to the Special Assessments set forth above, the Phase I Developer has anticipated that each residential unit will pay a maintenance and operation fee and a homeowner s association fee. In addition, exclusive of voter approved millages levied for general obligation bonds, as to which no limit applies, the City, the County and the Waxahachie Independent School District may each levy ad valorem taxes upon land in Phase I of the PID. The City has no control over the level of ad valorem taxes or special assessments levied by other taxing authorities. The table below reflects the overlapping ad valorem taxes and special assessments currently levied on Phase I of the PID. Ad Valorem Taxing Entity Tax Rate* City of Waxahachie Ellis County Ellis County Lateral Road Waxahachie Independent School District Total *Per $100 taxable appraised value. In the event that the number of residential dwelling units actually built in a parcel of land within Phase I of the PID is lower than the number of residential dwelling units anticipated to be built in such parcel, based on the assumptions set forth in the Service and Assessment Plan, resulting in the principal portion of a Special Assessment allocable to a residential dwelling unit in the PID exceeding the maximum principal portion of a Special Assessment, the Phase I Developer, pursuant to a Developer Prepayment Agreement, has agreed to prepay the amount of Special Assessment due in excess of the maximum principal portion of Special Assessment allocable to such residential dwelling unit, such prepayments will be used to redeem bonds pursuant to the Indenture. The actual maximum annual debt service Special Assessment per 90- foot Lot, 70-foot Lot and 60-foot Lot, based on the final pricing of the Series 2011 Bonds, shall equal $960.55, $ and $720.41, respectively. See APPENDIX E Financial Analysis hereto for an analysis of Special Assessment Revenues anticipated to be available to secure the Series 2011 Bonds. Prepayment of Special Assessments Pursuant to the PID Act and the Indenture, the owner of any property assessed may voluntarily prepay (a Prepayment ) all or part of any Phase I Improvement Assessment levied against any lot or parcel, together with accrued interest to the date of payment, at any time. 26

39 Upon receipt of such prepayments, such amounts will applied towards the extraordinary mandatory redemption of the Series 2011 Bonds. Pursuant to the Indenture, amounts received at the time of a Prepayment which represent a payment of principal, interest, or penalties on a delinquent installment of a Phase I Improvement Assessment are not to be considered a Prepayment, but rather are to be treated as payment of regularly scheduled Special Assessment Revenues. Priority of Lien The Special Assessments or any reassessment, the expense of collection, and reasonable attorney s fees, if incurred, constitute a first and prior lien against the property assessed, superior to all other liens and claims except liens or claims for State of Texas, county, city, including the City, school districts, or other political subdivision ad valorem taxes, and are a personal liability of and charge against the owners of the property regardless of whether the owners are named. The lien is effective from the date of the Assessment Ordinance until the Special Assessment is paid, and may be enforced by the City in the same manner as an ad valorem tax levied against real property may be enforced by the City. The owner of any property assessed may pay the entire Special Assessment levied against any lot or parcel, together with accrued interest to the date of payment, at any time. Covenant to Commence Foreclosure Proceedings In the event of delinquency in the payment of any Annual Installment, except for unpaid Special Assessments on homestead property (unless the lien associated with the assessment attached prior to the date the property became a homestead), the City is empowered to order institution of an action in state district court to foreclose the lien of such delinquent Special Assessment. In such action the real property subject to the delinquent unpaid Special Assessment may be sold at judicial foreclosure sale for the amount of such delinquent installments, plus penalties and interest. The City will covenant in the Indenture with and for the benefit of the Owners that it will determine or cause to be determined, no later than March 1 of each year, whether or not any installment or installments of Special Assessments are delinquent and, if such delinquencies exist, the City will order and cause to be commenced, on or before March 1 or immediately thereafter, action to collect such outstanding Special Assessments and may thereafter diligently prosecute an action in State district court to foreclose the lien for the amount of any delinquent installment or installments of Special Assessments. See APPENDIX A Form of Indenture hereto. To the extent it may legally do so, and taking into account the prior liens on assessed land for ad valorem taxes, the City will covenant in the Indenture that property will not be sold in a judicial foreclosure for less than the amount of a currently delinquent Special Assessment installment due on the property, including delinquent penalties, interest, and attorney fees, without the consent of a majority in principal amount of the owners of the Outstanding Bonds. Any sale of property for nonpayment of an installment or installments of a Special Assessment will be subject to the lien established for remaining unpaid installments of the Special Assessment against such property and such property may again be sold at a judicial foreclosure sale if the purchaser thereof fails to make timely payment of the nondelinquent installments of the Special Assessment against such property as they become due and payable pursuant to the 27

40 terms of the Assessment Resolution and the Bond Ordinance. Judicial foreclosure proceedings are not mandatory; however, the City will covenant in the Indenture to order and cause such actions to be commenced. In the event a foreclosure is necessary, there could be a delay in payments to owners of the Bonds pending prosecution of the foreclosure proceedings and receipt by the City of the proceeds of the foreclosure sale. It is possible that no bid would be received at the foreclosure sale, and in such event there could be an additional delay in payment of the principal of and interest on Bonds or such payment may not be made in full. Background THE CITY The City is a home-rule city centrally located in Ellis County (the County ) on the banks of Waxahachie Creek, approximately 30 miles south of Dallas at the intersection of Interstate Highway 35E and U.S. Highway 287. The City was organized in 1849 and since 1971 has served as a home-rule city. The City serves as the County seat and is the principal commercial center of the County. The City is located approximately 40 miles southeast of the Dallas-Fort Worth International Airport and 32 miles south of Dallas Love Field Airport. Two railroads, a bus line and eight motor freight lines serve the City. City Government The City operates under a Mayor/Council Manager form of government. The City Council is the principal legislative and governing body of the City. The City Council is comprised of five members, including the Mayor. City Council members are elected to 2-year terms. The current members of the City Council and their respective expiration of terms of office are as follows: Term Council Member Expires N.B. Buck Jordan, Mayor 2011 John Wray, Mayor Pro-Term 2012 Chuck Beatty, Member 2011 Kevin Strength, Member 2012 Mark Singleton, Member 2012 The principal administrators of the City include the following: Name Paul Stevens Charles Harris Lori Saunders Steve Chapman Position City Manager Director of Finance City Secretary City Attorney 28

41 Major Employers The major employers in the City are set forth in the table below. Employer Type of Business Estimated No. of Employers Walgreens Co. Distribution Center 700 Wal-Mart Supercenter Retail Sales 500 Dart Container Corporation- Insulated Foam Dinnerware 470 Dartco of Texas Owens Corning Fiberglass Fiberglass Insulation 450 Baylor Medical-Ellis County Healthcare Services 403 U.S. Aluminum Corporation Commercial Storefronts 300 HE Butt Grocery Store Retail Grocery 300 International Extrusion Extrusion-Anodizing 262 Waxahachie ISD Public Education 257 Southwestern Assembly of God Private Higher Education 250 University Source: North Central Texas Council of Governments General THE PID The PID Act authorizes municipalities, such as the City, to create public improvement districts within their boundaries or extraterritorial jurisdiction, and to impose assessments within the public improvement district to pay for certain improvements. The PID was created by the City in accordance with the PID Act by the PID Resolution for the purpose of, among others, funding the Phase I Improvements. The PID is not a separate political subdivision of the State of Texas and is governed by the City Council. The PID is located entirely within the City limits of the City and contains approximately 1,965 acres of land. A map of the property within the PID is attached as Exhibit A to the Service and Assessment Plan. The Phase I Improvements are expected to support only the 209 lots comprising Phase I of the PID. Phase I of the PID contains approximately platted acres of land. See APPENDIX B - Service and Assessment Plan hereto. Powers and Authority Pursuant to the PID Act, the City may establish and create the PID and undertake improvement projects that confer a special benefit on property located within the PID, whether located within the City limits or the City s extraterritorial jurisdiction. The PID Act provides that the City has the power to issue general obligations and revenue bonds to pay costs of improvements authorized under the PID Act. The PID Act further provides that the City may 29

42 levy and collect Special Assessments on property in the PID, payable in periodic installments based on the benefit conferred by an improvement project to pay all or part of its cost. Pursuant to the PID Act and the PID Resolution, the City has the power to undertake the acquisition, construction or improvement of water, wastewater or drainage facilities and improvements; acquiring, constructing, improving, widening, narrowing, closing or rerouting streets, roadways or their rights-of-way; acquisition, by purchase or otherwise, of real property in connection with each authorized improvement, the establishment and improvement of parks and open space, and payment of expenses incurred in the establishment, administration and operation of the PID. Pursuant to the authority granted by the PID Act and the PID Resolution, the City has determined to undertake the acquisition and construction of certain water, wastewater, storm drainage, and roadway public improvements within Phase I of the PID comprising the Phase I Improvements and to finance a portion of the costs thereof through the issuance of the Series 2011 Bonds. The City has further determined to provide for the payment of debt service on the Series 2011 Bonds through Special Assessment Revenues. See ASSESSMENT PROCEEDINGS herein and APPENDIX B Service and Assessment Plan hereto. PID Administrator MuniCap, Inc. (the Administrator ), located in Columbia, Maryland, has been retained by the City to assist with the administration of the PID. This assistance will include estimating the Annual Installments to be collected by the City on the property in the PID, updating the Service and Assessment Plan each year, responding to inquiries from property owners and others regarding the Special Assessments and the PID, performing arbitrage rebate calculations, and preparation of quarterly reports to provide continuing disclosure information. The Administrator is a public finance consulting firm with a specialized practice providing services related to the formation and administration of special districts. These services include the preparation of special assessment methodologies, calculation of annual special assessments, continuing disclosure and financial services related to the administration of special assessments districts. General THE PHASE I IMPROVEMENTS The Phase I Improvements consist of the acquisition and/or construction of certain water, wastewater, storm drainage and roadway public improvements. The Phase I Improvements have been constructed by the Phase I Developer and are expected to be acquired by the City. The Phase I Improvements are expected to support the 209 lots comprising Phase I of the PID and Phase I of the Development (hereinafter defined). The market and assessed values as of January 1, 2010 for the property comprising Phase I of the PID, as provided by the Ellis Central Appraisal District, is $8,892,099. The costs of the Phase I Improvements, which have been funded by the Developer, were approximately 30

43 $2,829, Only a portion of the Phase I Improvements, in the approximate amount of $835,817.08, is expected to be reimbursed with proceeds of the Series 2011 Bonds. See BONDHOLDERS RISKS Additional Developer Financing Necessary to Complete Improvements hereto. The table below reflects the costs of the Phase I Improvements. Type of Improvement Cost Street grading $ 129, Onsite water distribution system 404, Onsite wastewater management system 444, Storm Drainage Management System 497, Paving 976, Onsite performance, payment 20, and maintenance bonds Engineering 357, Total $ 2,829, Ownership of Phase I Improvements The Phase I Improvements have been dedicated to and accepted by the City and will constitute a portion of the City s infrastructure improvements. Maintenance of Phase I Improvements The City will provide for the ongoing maintenance and repair of the Phase I Improvements constructed and conveyed, as outlined in the Service and Assessment Plan. THE DEVELOPMENT The following information has been provided by the Phase I Developer. Certain of the following information is beyond the direct knowledge of the City, and the City has no way of guaranteeing the accuracy of such information. The Phase I Developer has reviewed this Official Statement and warrants and represents that (i) the information herein under the caption THE DEVELOPMENT and (ii) the information relating to the Development under BONDHOLDERS RISKS, does not contain any untrue statement of a material fact and does not omit to state any material fact necessary in order to make the statements made herein, in the light of the circumstances under which they are made, not misleading. Overview The Development, known as Saddlebrook Estates Development, is a 1,965 acre masterplanned community, with commercial uses, located within the territorial boundaries of the City, East of Highway 287, between Brennan Road and Coral Road. The Development is approximately 34 miles South of downtown Dallas. Upon completion, it is expected that the Development will contain approximately 4,790 single-family homes, 97 multi-family units, and 116 acres of commercial development. The 31

44 Development is expected to contain numerous amenities including a swimming pool, a clubhouse, a spray park, a pavilion and a playground. Approximately 265 acres of the Development are expected to be dedicated as easements for public purposes, including street rights-of-way, parks, lake improvements, various pipeline easements, or are otherwise not available or expected to be available for development. Development Plan/Status The Development is expected to be developed in multiple phases and, upon completion, is expected to contain approximately 4,790 single family homes, 97 multi-family units, and 116 acres of commercial development, together with a swimming pool, a clubhouse, a spray park, a pavilion, a playground and 265 acres of lakes and open space. Approximately 642 acres of the Development are expected to be developed by Waxahatchie 287, L.P., a Texas limited partnership, and are expected to contain approximately 1,660 single-family homes, 97 multifamily units and 116 acres of commercial development. The remaining 1,320 acres are expected to be developed by HW Waxahachie, L.P., a Texas limited partnership, and are expected to contain approximately 3,130 single-family homes. Waxahachie 287, L.P. and HW Waxahachie, L.P. are hereinafter collectively referred to as the Developers. The initial phase of development is expected to contain 209 single-family residential units ( Phase I of the Development ) and is expected to be developed by Waxahachie 287, L.P. (in its capacity as developer of Phase I of the Development, the Phase I Developer ). The Phase I Improvements are expected to support Phase I of the Development and, as a result, only special assessments to be levied in Phase I of the Development are expected to secure the Series 2011 Bonds. Although special assessments may be levied on PID property outside of Phase I of the Development, no such special assessments are expected to be available to secure the Series 2011 Bonds. As of September 1, 2010, installation of the Phase I Improvements had been completed and all 209 lots in Phase I of the Development had been developed. Construction and sale of homes within Phase I of the Development is currently underway and is expected to be completed in As of September 1, 2010, 60 of the 209 homes expected to be constructed in Phase I of the Development had either been constructed or are currently under construction. Of these 60 homes, 53 are owner occupied, 4 are currently listed for sale, one is being used as a model home for marketing purposes, and 2 are currently under construction. As of September, 1, 2010, 128 of the remaining 209 lots comprising Phase I of the Development were under contract with Builders (hereinafter defined) as of September 1, It is anticipated that the remaining 21 lots will be under contract with builders by March

45 The table below reflects the lot sizes and expected home prices for the 209 lots comprising phase I of the Development. Product Type No. of Lots/Units Expected Lot Price* Expected Home Price* 90-foot Lots 43 $42,000 $210, foot Lots 88 31, , foot Lots 78 25, ,000 TOTAL 209* * As described herein, approximately 60 homes have been constructed, or are currently being constructed, 53 of which have been sold to homeowners. The Phase I Developer anticipates that Phase I of the Development will absorb (closing to homebuyers) as follows: Build-Out Build-Out Year Homes (1) 2010 (2) foot Lots foot Lots foot Lots Total (1) Projections provided by the Phase I Developer. (2) As of September 1, 2010, 60 homes had been completed, 53 of which are owner occupied. Builders The Phase I Developer has entered into contracts with three builders, Lennar Homes of Texas ( Lennar Homes ), Cheldan Homes ( Cheldan Homes ) and Sienna Homes ( Sienna Homes and, together with Lennar Homes and Cheldan Homes, the Builders ), for the construction and sale of homes within Phase I of the Development. The Builders have also entered into contracts for the purchase of 128 of the remaining 149 finished lots within Phase I of the Development. Lennar Homes has contracted for 50 of the remaining lots, Cheldan Homes has contracted for 56 of the remaining lots and Siena Homes has contracted for 22 of the remaining lots. Lennar Homes. Lennar Homes is a subsidiary of Lennar Homes, Inc., which in turn is a subsidiary of Lennar Corporation, one of the country s largest publicly traded homebuilding companies. Lennar Corporation, founded in 1954, has homebuilding operations in 17 states and is one of the nation s leading builders of homes for all generations, building affordable, first-time, move-up and retirement homes. Lennar Corporation has delivered more than 740,000 homes and for more than two decades has been among the nation s ten largest single family homebuilders. 33

46 Cheldan Homes. Cheldan Homes is a privately held home builder headquartered in Ft. Worth, Texas. Cheldan Homes was founded in 1995 by Joey Goss and over the past 15 years has remained one of the largest and most successful private builders in the Dallas/Ft. Worth area. The management team in total has in excess of 50 years of homebuilding experience. Cheldan Homes is an affiliate of the Phase I Developer. Cheldan Homes currently has 24 communities in the Dallas/Ft. Worth area and 3 communities in San Antonio. Over the last 10 years, Cheldan Homes has consistently ranked as one of the top 20 builders in the Dallas/Ft. Worth area based on closing volume. Cheldan Homes product focus is entry and first move-up detached home product. Siena Homes. Siena Homes was formed in 2009 and is a division of Crescent Estates Custom Homes ( Crescent Homes ). Crescent Homes is a custom homebuilder in the Dallas/Ft. Worth area. Crescent Homes product focus is full custom homebuilding operations with price points from $1,000,000 to $5,000,000. Crescent Homes is owned by Mehrdad Moayedi and is an affiliate of the Phase I Developer. Siena is currently operating in 4 communities in the Dallas/Ft. Worth area and 1 community in each of San Antonio and Austin will be the first year that Siena Homes will close homes. Siena Homes product is primarily focused on the first and second move up buyer with sales prices ranging from $180,000 to $500,000. Zoning, Permitting and Environmental There are no municipal zoning restrictions on the site. As of July 31, 2010, sixty-two building permits had been issued to the Builders. A Phase I Environmental Site Assessment was performed on the land within the Development. The assessment revealed no evidence of recognized environmental conditions. Marketing An extensive marketing plan has been conceived and executed for the Development. Such marketing plan is centered around the Builders website and fueled by the construction of a model home, press releases and signage at the site. Community Amenities A 2.78 acre community amenities center has been completed that includes a swimming pool, a clubhouse, a spray park, a pavilion and a playground. The amenities center is expected to be available to all residents of the Development. 34

47 Utilities The City will provide water and sewer service to the Development at times and in amounts necessary to support new homes constructed within the Development. The water infrastructure and sewer infrastructure within the Development currently have capacity to serve 800 and 1,460 equivalent single family connections, respectively. Oncor Electric Delivery will provide electrical service to the Development. Public Schools The Development is located within the Waxahachie Independent School District. The Texas Education Agency rates school districts as Exemplary, Recognized or Acceptable. The Waxahachie Independent School District is rated as Recognized by the Texas Education Agency. Subject to the ability of the Waxahachie Independent School District to re-district any of the Development lands, elementary school students will attend Felty Elementary School (located approximately 4.6 miles from the Development), middle school students will attend Clift Middle School (located approximately 3.6 miles from the Development) and high school students will attend Waxahachie High School (located approximately 4.9 miles from the Development). The State of Texas, through the school district, provides free bus transportation for students residing more than two miles from a school. Competition The competitive position of the Phase I Developer in the sale of developed lots or of any other home builder in the construction and sale of single-family residential units is affected by most of the factors discussed under BONDHOLDERS RISKS herein. Project Name Developer No of Units No of Units Remaining Proximity to Development Date Started Completed/ Expected Completion Date Price Points Clift Estates Kelcorp LP miles 01/ /2013 $100,000 - $134,000 Karsen Heights Unknown miles 12/ /2009 $105,000 - $135,000 Buffalo Ridge Onyx Capital LLC miles 08/ /2011 $129,000 - $149,000 Garden Valley Bethany Garden Valley Ltd miles 09/ /2012 $120,000 - $190,000 THE PHASE I DEVELOPER The following information has been provided by the Phase I Developer. Certain of the following information is beyond the direct knowledge of the City, and the City has no way of guaranteeing the accuracy of such information. The Phase I Developer has reviewed this Official Statement and warrants and represents that (i) the information herein under the caption THE PHASE I DEVELOPER and (ii) the information relating to the Phase I Developer under BONDHOLDERS RISKS does not contain any untrue statement of a material fact and does 35

48 not omit to state any material fact necessary in order to make the statements made herein, in the light of the circumstances under which they are made, not misleading. General In general, the activities of a developer in a development such as the Development include purchasing the land within a public improvement district, designing the subdivision, designing the utilities and streets to be installed in the subdivision, designing any community facilities to be built, defining a marketing program and building schedule, securing necessary governmental approvals and permits for development, arranging for the construction of roads and the installation of utilities (including, in some cases, water, sewer, and drainage facilities, as well as telephone and electric service) and selling improved lots and commercial reserves to builders, developers, or other third parties. The relative success or failure of a developer to perform such activities in development of the property within a development may have a profound effect on the security of the revenue bonds issued by a public improvement district such as the Series 2011 Bonds. A developer is generally under no obligation to a public improvement district, such as the PID, to develop the property which it owns in a development. Furthermore, there is no restriction on the developer s right to sell any or all of the land which the developer owns within a development. In addition, a developer is ordinarily the major taxpayer within a development during the development phase of the property. Approximately 642 acres of the Development, including Phase I of the Development, have been, or are expected to be, developed by Waxahachie 287, L.P. Approximately 1,300 acres of the Development are expected to be developed by HW Waxahachie, L.P. Only Phase I of the Development, which has already been developed by Waxahachie 287, L.P., as the Phase I Developer, is expected to benefit from the infrastructure improvements being financed by the Series 2011 Bonds and, as a result, the Series 2011 Bonds will be secured solely by Special Assessments levied against lots in Phase I of the Development. Since Waxahachie 287, L.P. is the sole developer of Phase I of the Development and HW Waxahachie, L.P. is developing future phases of the Development, the description of the developer in this section is limited to Waxahachie 287, L.P., as Phase I Developer. Waxahachie 287, L.P. Waxahachie 287, L.P. is a Texas limited partnership affiliated with Centurion American Development Group ( Centurion ). The Phase I Developer s general partner is Centamtar Terras, LLC ( Centamtar ), a Texas limited liability company. CTMGT, LLC ( CTMGT ), a Texas limited liability company is the sole managing member of Centamtar. Mehrdad Moayedi is the sole managing member of CTMGT and is also President of Centurion, an affiliate of the Phase I Developer. Since 1990, Centurion and Centurion affiliated companies have developed over 30,000 single-family lots in dozens of communities in Northern Texas. Key Personnel. Mehrdad Moayedi. Mehrdad Moayedi, sole managing member of CTMGT and President of Centurion, has more than 20 years of experience in the development industry. He has a background in construction and real estate. After forming JBM Development in 1986, Mr. 36

49 Moayedi completed several construction and fee development projects in subdivisions of northeast Tarrant County, Texas, in addition to various construction and remodeling projects. In 1990, JBM Development merged with Centurion American Custom Homes and formed Centurion. Centurion has diversified holdings, with residential developments ranging from upscale high-rise residential towers to affordable housing communities for first-time home buyers. Ross Calhoun, Vice President of Entitlement. Mr. Calhoun joined the Centurion team in He is experienced in both the public and private sectors. In the public sector, his experience has included city planning and city management of the City of Arlington where he had responsibility for 2000 city employees and managed annual budgets in excess of 100 million dollars. This local government insight contributes to his successes in dealing with development project entitlement requirements at all levels of government. In the private sector, his experience has been with land development companies, such as Herman Smith Company, where he participated in the development of upscale subdivisions and commercial developments. He has also served on the Board of Directors of the Tarrant Appraisal District and is a Past President of the Fort Worth Homebuilders Association. Mr. Calhoun is a member of The American Society of Landscape Architects and has been active in state and national associations related to government and the building industry. Jeff Shirley, Vice President of Finance. Mr. Shirley, a Certified Public Accountant, joined the Centurion team during the spring of Prior to joining Centurion, Mr. Shirley was President of United Development Funding ( UDF ) from July 2005 to June Prior to his executive stint with UDF from August 2002 through June 2005, Mr. Shirley served as Texas Regional Vice President for the Lennar Homes of Texas Corporation. Mr. Shirley s primary focus was the formation, execution, financing and management of FIN 46 compliant transactions for the Texas region. Mr. Shirley directed in excess of $300 million in land development and financing activities, including the formation of two land acquisition and development funds between Lennar and UDF. From June 1996 through July 2002, Mr. Shirley was employed by the Fortress Group, a publicly traded homebuilder headquartered in Vienna, Virginia. During his tenure with Fortress, Mr. Shirley served as the Vice President of Finance and subsequently as Chief Financial Officer. The Fortress Group grew to become one of the nation s 30 largest homebuilders before its sale to the Lennar Corporation. From September 1981 through June 1996, Mr. Shirley worked within several divisions in public accounting practices representing real estate transactions in Chicago and Southern California for Coopers & Lybrand, Kenneth Leventhal & Company and Price Waterhouse. Mr. Shirley graduated from Augustana College in Rock Island, Illinois with a Bachelor of Arts degree, cum laude, in accounting and business. Brad Biber, Assistant Vice President. Mr. Biber joined the Centurion team in Mr. Biber has a diverse background ranging from chief operation officer to president of several small to mid-level companies. Prior to joining Centurion, he operated a successful custom home building company. Mr. Biber and his team are responsible for cash management for over ninety divisions. They prepare cash flow analysis on new projects and projects under construction, and obtain financing for acquisition and development projects. 37

50 BONDHOLDERS RISKS Before purchasing any of the Series 2011 Bonds, prospective investors and their professional advisors should carefully consider all of the risk factors described below which may create possibilities wherein interest may not be paid when due or that the Series 2011 Bonds may not be paid at maturity or otherwise as scheduled, or, if paid, without premium, if applicable. The following risk factors (which are not intended to be an exhaustive listing of all possible risks associated with an investment in the Series 2011 Bonds) should be carefully considered prior to purchasing any of the Series 2011 Bonds. Moreover, the order of presentation of the risks summarized below does not necessarily reflect the significance of such investment risks. The ability of the City to pay debt service on the Series 2011 Bonds as due is subject to various factors that are beyond the City s control. These factors include, among others, (a) the ability or willingness of property owners within the PID to pay Special Assessments levied by the PID, (b) the timely sale of lots within the PID by the Phase I Developer to independent third parties and the related distribution of the PID s Special Assessment obligations to multiple parties, (c) the policies of the Appraisal District regarding the timing and manner in which Special Assessments are disbursed to the Trustee, (d) cash flow delays associated with the institution of foreclosure and enforcement proceedings against property within the PID, (e) the retention of the value of real property located within the PID, (f) general and local economic conditions which bear an impact upon real property values, the ability to liquidate real property holdings and the overall value of real property development projects, and (g) general economic conditions which will bear an impact upon the general ability to market and sell the lots within the PID, it being understood that poor economic conditions within the City, State and region may slow the assumed pace of sales of such lots. The rate of development of the property in the PID is directly related to the vitality of the residential housing industry. In the event that the sale of the lands within the PID should proceed more slowly than expected and the Phase I Developer is unable to pay the Special Assessments, only the value of the lands, with improvements, will be available for payment of the debt service on the Series 2011 Bonds, and such value can only be realized through the foreclosure or expeditious liquidation of the lands within the PID. There can be and there is no assurance that the value of such lands will be sufficient for that purpose and the expeditious liquidation of real property through foreclosure or similar means is generally considered to yield sales proceeds in a lesser sum than might otherwise be received through the orderly marketing of such real property. The Series 2011 Bonds, which are limited, special revenue obligations of the City and are not the obligation of the State of Texas, Ellis County, or any other political subdivision thereof, are secured solely by the Special Assessment Revenues. The Underwriter is not obligated to repurchase any of the Series 2011 Bonds, and no representation is made by the Underwriter or the City that a market for the Series 2011 Bonds will develop and be maintained in the future. If a market does develop, no assurance can be given regarding future price maintenance of the Series 2011 Bonds. 38

51 The City has not applied for or received a rating on the Series 2011 Bonds. The absence of a rating could affect the future marketability of the Series 2011 Bonds. There is no assurance that a secondary market for the Series 2011 Bonds will develop or that holders who desire to sell their Series 2011 Bonds prior to the stated maturity will be able to do so. Assessment Limitations Annual Installments of Special Assessments are billed to property owners in the PID. Annual Installments are due and payable, and bear the same penalties and interest for nonpayment, as for ad valorem taxes as set forth under ASSESSMENT PROCEDURES herein. Additionally, Annual Installments established by the Service and Assessment Plan correspond in number and proportionate amount to the number of installments and principal amounts of Series 2011 Bonds maturing in each year and the annual collection costs for such year. See ASSESSMENT PROCEDURES herein. The unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and assessment installment payments in the future. In order to pay debt service on the Series 2011 Bonds, it is necessary that Annual Installments are paid in a timely manner. Due to the lack of predictability in the collection of Annual Installments in the newly created PID, the City has established a Developer Reserve Fund, to be funded by the Phase I Developer, and a Debt Service Reserve Fund, to be funded from the proceeds of the Series 2011 Bonds, to cover delinquencies. The Annual Installments are secured by the Assessment Lien. However, there can be no assurance that foreclosure proceedings will occur in a timely manner so as to avoid depletion of the Debt Service Reserve Fund and delay in payments of debt service on the Series 2011 Bonds. See BONDHOLDERS RISKS Remedies and Bankruptcy herein. Upon an ad valorem tax lien foreclosure event of a property within the PID, a Special Assessment that is also delinquent will be foreclosed in the same manner as the ad valorem tax lien (assuming all necessary conditions and procedures for foreclosure are duly satisfied). To the extent that a foreclosure sale results in insufficient funds to pay in full both the delinquent ad valorem taxes and the delinquent Special Assessments, any remaining unpaid balance of the delinquent Special Assessments would likely be extinguished. Based upon the language of V.T.C.A., Local Government Code, (b), case law relating to other types of assessment liens and opinions of the Texas Attorney General, the Assessment Lien as it relates to installment payments that are not yet due should remain in effect following an ad valorem tax lien foreclosure, with future installment payments not being accelerated. V.T.C.A., Local Government Code (d) supports this position, stating that a special assessment lien runs with the land and the portion of an assessment payment that has not yet come due is not eliminated by foreclosure of an ad valorem tax lien. The Assessment Lien is superior to any homestead rights that first arise and are subsequently claimed by a property owner after the adoption of the Assessment Ordinance. The Assessment Lien would be subordinate to any homestead rights to the extent properly claimed by a property owner prior to the adoption of the Assessment Ordinance, thus precluding foreclosure 39

52 of the Assessment Lien on such pre-existing homestead property. Under Texas law, in order to establish homestead rights, the claimant must show a combination of both overt acts of homestead usage and intention on the part of the owner to claim the land as a homestead. Mere ownership of the property alone is insufficient and the intent to use the property as a homestead must be a present one, not an intention to make the property a homestead at some indefinite time in the future. As of the date of adoption of the Assessment Resolution, no such homestead rights had been claimed. Failure by owners of the parcels to pay Annual Installments when due, depletion of the Debt Service Reserve Fund, delay in foreclosure proceedings, or the inability of the City to sell parcels which have been subject to foreclosure proceedings for amounts sufficient to cover the delinquent installments of Special Assessments levied against such parcels may result in the inability of the City to make full or punctual payments of debt service on the Series 2011 Bonds. THE SPECIAL ASSESSMENTS CONSTITUTE A FIRST AND PRIOR LIEN AGAINST THE PROPERTY ASSESSED, SUPERIOR TO ALL OTHER LIENS AND CLAIMS EXCEPT LIENS AND CLAIMS FOR STATE OF TEXAS, COUNTY OR SCHOOL DISTRICT OR MUNICIPAL AD VALOREM TAXES AND IS A PERSONAL OBLIGATION OF AND CHARGE AGAINST THE OWNERS OF PROPERTY LOCATED WITHIN THE PID. Risks Related to the Current Real Estate Market During recent years, the real estate market has experienced significant slowing of new home sales and new home closings due in part to the subprime mortgage crisis involving adjustable rate mortgages and other creative mortgage financing tools that allowed persons with higher credit risk to buy homes. The economic crisis that resulted from higher interest rates, at a time when many subprime mortgages were due to reset their interest rates, has served to reduce the availability of mortgages to many potential home buyers, making entry into the real estate market difficult. These downturns in the real estate market and other factors beyond the control of the Phase I Developer, including general economic conditions, may impact the timing of lot and home sales within the PID. There have been reports of various public-private efforts to relieve the subprime mortgage crisis but as of yet no one can predict with certainty when the real estate market will rebound. Competition The housing industry in the Waxahachie area is very competitive, and neither the Phase I Developer nor the City can give any assurance that the building programs which are planned will ever commence. The competitive position of the Phase I Developer in the sale of developed lots or of any other home builder in the construction and sale of single-family residential units is affected by most of the factors discussed in this section, and such competitive position is directly related to maintenance of taxable values in the district. Loss of Tax Exemption The Indenture contains covenants by the City intended to preserve the exclusion from gross income of interest on the Series 2011 Bonds for federal income tax purposes. As discussed 40

53 under the caption TAX MATTERS herein, interest on the Series 2011 Bonds could become includable in gross income for purposes of federal income taxation, retroactive to the date the Series 2011 Bonds were issued, as a result of future acts, or omissions of the City in violation of its covenants in the Indenture. Bankruptcy The payment of Special Assessments and the ability of the City to foreclose on the lien of a delinquent unpaid Special Assessment may be limited by bankruptcy, insolvency or other laws generally affecting creditors rights or by the laws of the State of Texas relating to judicial foreclosure. Although bankruptcy proceedings would not cause the Special Assessments to become extinguished, bankruptcy of a property owner in all likelihood would result in a delay in prosecuting foreclosure proceedings. Such a delay would increase the likelihood of a delay or default in payment of the principal of and interest on the Series 2011 Bonds, and the possibility that delinquent Special Assessments might not be paid in full. Direct and Overlapping Indebtedness, Assessments and Taxes The ability of an owner of property within the PID to pay the Special Assessments could be affected by the existence of other taxes and assessments imposed upon the property. The City and other public entities whose boundaries overlap those of the PID currently impose ad valorem taxes on the property within the PID and will likely do so in the future. Such entities could also impose assessment liens on the property within the PID. The lien created on the property within the PID through the levy of ad valorem taxes would be superior and paramount to that for the Special Assessments securing the Series 2011 Bonds. The imposition of additional superior and paramount liens, or for that matter for private financing, may reduce the ability or willingness of the landowners to pay the Special Assessments. Depletion of Developer Reserve Fund, Debt Service Reserve Fund and Prepayment Reserve Fund Failure of the owners of property within the PID to pay the Special Assessments when due could result in the rapid, total depletion of the Developer Reserve Fund, the Debt Service Reserve Fund or the Prepayment Reserve Fund prior to replenishment from the resale of property upon a foreclosure or otherwise or delinquency redemptions after a foreclosure sale, if any. There could be a default in payments of the principal of and interest on the Series 2011 Bonds if sufficient amounts are not available in the Developer Reserve Fund, the Debt Service Reserve Fund or the Prepayment Reserve Fund. The Indenture provides that if, after a withdrawal from the Developer Reserve Fund, the Prepayment Reserve Fund or the Debt Service Reserve Fund the amount in the Debt Service Reserve Fund is less than the Debt Service Reserve Fund Requirement, the amount in the Prepayment Reserve Fund is less than $1, or the amount in the Developer Reserve Fund is less than $50,000 the Trustee shall transfer an amount from the Pledged Revenue Fund to the Developer Reserve Fund or the Debt Service Reserve Fund, as applicable, sufficient to cure such deficiency, as described under SECURITY FOR THE SERIES 2011 BONDS - Deposit and Application of Special Assessment Revenues herein. 41

54 Hazardous Substance While governmental taxes, assessments and charges are a common claim against the value of a parcel, other less common claims may be relevant. One of the most serious in terms of the potential reduction in the value that may be realized to the assessment is a claim with regard to a hazardous substance. In general, the owners and operators of a parcel may be required by law to remedy conditions relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as CERCLA or Superfund Act, is the most well known and widely applicable of these laws. It is likely that, should any of the parcels of land located in the PID be affected by a hazardous substance, the marketability and value of parcels would be reduced by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller. The value of the land within the PID does not take into account the possible liability of the owner (or operator) for the remedy of a hazardous substance condition of the parcel. The City has not independently verified, and is not aware, that the owner (or operator) of any of the parcels within the PID has such a current liability with respect to such parcel; however, it is possible that such liabilities do currently exist and that the City is not aware of them. Further, it is possible that liabilities may arise in the future with respect to any of the land within the PID resulting from the existence, currently, of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of a parcel that is realizable upon a delinquency. The Phase I Developer has had a Phase I Environmental Site Assessment performed. The Phase I Environmental Site Assessment concluded that based on a review of historical data, state and federal database information, and the results of a site inspection, there was no evidence of environmental impairment significant enough to adversely affect the planned site development. Regulation Development within the PID may be subject to future federal, state and local regulations. Approval may be required from various agencies from time to time in connection with the layout and design of development in the PID, the nature and extent of public improvements, land use, zoning and other matters. Failure to meet any such regulations or obtain any such approvals in a timely manner could delay or adversely affect development in the PID and property values. Bondholders Remedies and Bankruptcy In the event of default in the payment of principal of or interest on the Series 2011 Bonds or the occurrence of any other Event of Default under the Indenture, and upon the written request of the Owners of the Bonds of not less than a majority in principal amount of the Outstanding Bonds, the Trustee shall proceed to protect and enforce its rights and the rights of the owners of 42

55 the Bonds under the Indenture by such suits, actions or special proceedings in equity or at law, or by proceedings in the office of any board or officer having jurisdiction, either for mandamus or the specific performance of any covenant or agreement contained therein or in aid or execution of any power granted or for the enforcement of any proper legal or equitable remedy, as the Trustee shall deem most effectual to protect and enforce such rights. The issuance of a writ of mandamus may be sought if there is no other available remedy at law to compel performance of the Bonds or the Indenture and the City s obligations are not uncertain or disputed. The remedy of mandamus is controlled by equitable principles, so rests with the discretion of the court, but may not be arbitrarily refused. There is no acceleration of maturity of the Bonds in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. The Owners of the Bonds cannot themselves foreclose on property within the PID or sell property within the PID in order to pay the principal of and interest on the Bonds. The enforceability of the rights and remedies of the owners of the Bonds further may be limited by laws relating to bankruptcy, reorganization or other similar laws of general application affecting the rights of creditors of political subdivisions such as the PID. In this regard, should the City file a petition for protection from creditors under federal bankruptcy laws, the remedy of mandamus or the right of the City to seek judicial foreclosure of its Assessment Lien would be automatically stayed and could not be pursued unless authorized by a federal bankruptcy judge. See BONDHOLDERS RISKS - Bankruptcy Limitation to Bondholders Rights herein. Any bankruptcy court with jurisdiction over bankruptcy proceedings initiated by or against a taxpayer within the PID pursuant to the Federal Bankruptcy Code could, subject to its discretion, delay or limit any attempt by the City to collect delinquent ad valorem taxes or Special Assessments against such taxpayer. In addition, in 2006, the Texas Supreme Court ruled in Tooke v. City of Mexia, 197 S.W.3d 325 (Tex. 2006) ( Tooke ) that a waiver of sovereign immunity must be provided for by statute in clear and unambiguous language. In so ruling, the Court declared that statutory language such as sue and be sued, in and of itself, did not constitute a clear and unambiguous waiver of sovereign immunity. In Tooke, the Court noted the enactment in 2005 of sections , Texas Local Government Code (the Local Government Immunity Waiver Act ), which, according to the Court, waives immunity from suit for contract claims against most local governmental entities in certain circumstances. The Local Government Immunity Waiver Act covers cities and relates to contracts entered into by cities for providing goods or services to cities. The City is not aware of any Texas court construing the Local Government Immunity Waiver Act in the context of whether contractual undertakings of local governments that relate to their borrowing powers are contracts covered by the Act. Because it is unclear whether the Texas legislature has effectively waived the City s sovereign immunity from a suit for money damages in the absence of City action, the Trustee or the owners of the Bonds may not be able to bring such a suit against the City for breach of the Bonds or the Indenture covenants. Chapter 1371, Texas Government Code ( Chapter 1371 ), which pertains to the issuance of public securities by issuers such as the City, permits the City to waive sovereign immunity in the proceedings authorizing its debt, but in connection with the issuance of the Bonds, the City has not waived sovereign immunity and is not using the authority to do so as provided by Chapter As noted above, the Indenture provide that Bondholders may exercise the remedy of mandamus to enforce the obligations of the City under the Indenture. Neither the remedy of mandamus nor any other type of injunctive relief was at issue in Tooke, and it is unclear whether 43

56 Tooke will be construed to have any effect with respect to the exercise of mandamus, as such remedy has been interpreted by Texas courts. In general, Texas courts have held that a writ of mandamus may be issued to require public officials to perform ministerial acts that clearly pertain to their duties. Texas courts have held that a ministerial act is defined as a legal duty that is prescribed and defined with a precision and certainty that leaves nothing to the exercise of discretion or judgment, though mandamus is not available to enforce purely contractual duties. However, mandamus may be used to require a public officer to perform legally-imposed ministerial duties necessary for the performance of a valid contract to which the State or a political subdivision of the State is a party (including the payment of monies due under a contract). Bankruptcy Limitation to Bondholders Rights The enforceability of the rights and remedies of the owners of the Series 2011 Bonds may be limited by laws relating to bankruptcy, reorganization or other similar laws of general application affecting the rights of creditors of political subdivisions such as the City. The City is authorized under Texas law to voluntarily proceed under Chapter 9 of the Federal Bankruptcy Code, 11 U.S.C The City may proceed under Chapter 9 if it (1) is generally not paying its debts, or unable to meet its debts, as they become due, (2) desires to effect a plan to adjust such debts, and (3) has either obtained the agreement of or negotiated in good faith with its creditors, is unable to negotiate with its creditors because negotiation is impracticable, or reasonably believes that a creditor may attempt to obtain a preferential transfer. If the City decides in the future to proceed voluntarily under the Federal Bankruptcy Code, the City would develop and file a plan for the adjustment of its debts, and the Bankruptcy Court would confirm the plan if (1) the plan complies with the applicable provisions of the Federal Bankruptcy Code, (2) all payments to be made in connection with the plan are fully disclosed and reasonable, (3) the City is not prohibited by law from taking any action necessary to carry out the plan, (4) administrative expenses are paid in full, (5) all regulatory or electoral approvals required under Texas law are obtained and (6) the plan is in the best interests of creditors and is feasible. The rights and remedies of the owners of the Series 2011 Bonds would be adjusted in accordance with the confirmed plan of adjustment of the City s debt. Management and Ownership The management and ownership of the Phase I Developer and related property owners could change in the future. Purchasers of the Series 2011 Bonds should not rely on the management experience of such entities. There are no assurances that such entities will not sell the subject property or that officers will not resign or be replaced. In such circumstances, a new developer or new officers in management positions may not have comparable experience in residential homebuilding. General Risks of Real Estate Investment and Development Investments in developing real estate are generally considered to be speculative in nature and to involve a high degree of risk. The Development will be subject to the risks generally incident to real estate investments and development. Many factors that may affect the 44

57 Development, as well as the operating revenues of the Phase I Developer, including those derived from the Development, are not within the control of the Phase I Developer. Such factors include changes in national, regional and local economic conditions; changes in long and short term interest rates; changes in the climate for real estate purchases; changes in demand for or supply of competing properties; changes in local, regional and national market and economic conditions; unanticipated development costs, market preferences and architectural trends; unforeseen environmental risks and controls; the adverse use of adjacent and neighboring real estate; changes in interest rates and the availability of mortgage funds to buyers of the homes to be built in the Development, which may render the sale of such homes difficult or unattractive; acts of war, terrorism or other political instability; delays or inability to obtain governmental approvals; changes in laws; moratorium; acts of God (which may result in uninsured losses); strikes; labor shortages; energy shortages; material shortages; inflation; adverse weather conditions; contractor or subcontractor defaults; and other unknown contingencies and factors beyond the control of the applicable developer. Furthermore, the operating revenues of such entities may be materially adversely affected if specific conditions in the lot purchase contracts are not met by such entities. Failure to meet the lot purchase contract s conditions allows the applicable lot purchaser, e.g., Lennar, to terminate its obligation to purchase lots and obtain its earnest money deposit back. See THE PHASE I DEVELOPER herein. The Development cannot be initiated or completed without the applicable developer obtaining a variety of governmental approvals and permits, some of which have already been obtained. Such permits are necessary to initiate construction of each phase of the Development and to allow the occupancy of the homes and to satisfy conditions included in the approvals and permits. There can be no assurance that all of these permits and approvals can be obtained or that the conditions to the approvals and permits can be fulfilled. The failure to obtain any of the required approvals or fulfill any one of the conditions could cause materially adverse financial results for the developer. See THE DEVELOPMENT herein. Projections and Absorptions Provided by the Developer Included in this Official Statement are various projections for lot closings, completion dates, completion costs and other items. The projections for lot closings, completion dates, completion costs and other items have been provided by the Phase I Developer and are based on assumptions concerning future events. Circumstances that may not yet be ascertainable, which the Phase I Developer believes to be significant and which the Phase I Developer cannot control may also exist. There are usually differences between projections for lot closings, completion dates, completion costs and other items and actual lot closings, completion dates, completion costs and other items, because the lot closings, completion dates, completion costs and other items frequently do not occur as expected, and those differences may be material. The projections and assumptions provided by the Phase I Developer have not been prepared or confirmed by an independent market study or any other independent analysis. There can be no assurances given that the various assumptions and projections set forth or referenced in this Official Statement can be achieved. The structuring of the financing described herein, including the sizing of original principal amounts of the Series 2011 Bonds, has been based to a large extent on certain projections and assumptions provided by the Phase I Developer. Such assumptions and 45

58 projections relate to, among other things, projections regarding lot absorption and home sales during the Development s build-out period. Dependence Upon Developer The Phase I Developer, as the owner of a majority of the 209 lots comprising Phase I of the Development, currently has the largest percentage obligation of any entity for payment of the Special Assessments. The ability of the Phase I Developer to make full and timely payment of the Special Assessments will directly affect the ability of the City to meet its debt service obligations with respect to the Series 2011 Bonds. The Phase I Developer is a nominally capitalized limited liability company, the primary asset of which is its unsold lots and land within the PID. The Phase I Developer will have no source of funds with which to pay the Special Assessments other than funds resulting from the sale of lots to builders. As described under THE DEVELOPMENT - The Builders herein, the Builders are affiliates of the Phase I Developer. The source of funding for future land development activities and infrastructure construction to develop the remaining lots proposed for the Development also consists of proceeds of lot sales, as well as possible bank financing. There can be no assurances given as to the financial ability of the Phase I Developer to advance any funds to the City to supplement the Special Assessments or as to whether the Phase I Developer actually will advance such funds. Opinion TAX MATTERS On the date of initial delivery of the Series 2011 Bonds, McCall, Parkhurst & Horton L.L.P., Dallas, Texas, Bond Counsel to the City, will render its opinion that, in accordance with statutes, regulations, published rulings and court decisions existing on the date thereof ( Existing Law ), for federal income tax purposes, interest on the Series 2011 Bonds (i) will be excludable from the gross income of the holders thereof and (ii) will not be treated as specified activity bonds the investment on which would be included as an alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the Code ). Except as stated above, Bond Counsel to the City will express no opinion as to any other federal, state or local tax consequences of the purchase, ownership or disposition of the Series 2011 Bonds. See APPENDIX C - Form of Opinion of Bond Counsel. In rendering its opinion, Bond Counsel to the City will rely upon (a) certain information and representations of the City, including information and representations contained in the City s federal tax certificate, and (b) covenants of the City contained in the Series 2011 Bond documents relating to certain matters, including arbitrage and the use of the proceeds of the Series 2011 Bonds and the property financed or refinanced therewith. Failure by the City to observe the aforementioned representations or covenants could cause the interest on the Series 2011 Bonds to become taxable retroactively to the date of issuance. The Code and the regulations promulgated thereunder contain a number of requirements that must be satisfied subsequent to the issuance of the Series 2011 Bonds in order for interest on the Series 2011 Bonds to be, and to remain, excludable from gross income for federal income tax 46

59 purposes. Failure to comply with such requirements may cause interest on the Series 2011 Bonds to be included in gross income retroactively to the date of issuance of the Series 2011 Bonds. The opinion of Bond Counsel to the City is conditioned on compliance by the City with such requirements, and Bond Counsel to the City has not been retained to monitor compliance with these requirements subsequent to the issuance of the Series 2011 Bonds. Bond Counsel s opinion represents its legal judgment based upon its review of Existing Law and the reliance on the aforementioned information, representations and covenants. Bond Counsel s opinion is not a guarantee of a result. Existing Law is subject to change by the Congress and to subsequent judicial and administrative interpretation by the courts and the Department of the Treasury. There can be no assurance that Existing Law or the interpretation thereof will not be changed in a manner which would adversely affect the tax treatment of the purchase, ownership or disposition of the Series 2011 Bonds. A ruling was not sought from the Internal Revenue Service by the City with respect to the Series 2011 Bonds or the property financed or refinanced with proceeds of the Series 2011 Bonds. No assurances can be given as to whether the Internal Revenue Service will commence an audit of the Series 2011 Bonds, or as to whether the Internal Revenue Service would agree with the opinion of Bond Counsel. If an Internal Revenue Service audit is commenced, under current procedures the Internal Revenue Service is likely to treat the City as the taxpayer and the Series 2011 Bondholders may have no right to participate in such procedure. No additional interest will be paid upon any determination of taxability. Federal Income Tax Accounting Treatment of Original Issue Discount The initial public offering price to be paid for one or more maturities of the Series 2011 Bonds may be less than the principal amount thereof or one or more periods for the payment of interest on the bonds may not be equal to the accrual period or be in excess of one year (the Original Issue Discount Bonds ). In such event, the difference between (i) the stated redemption price at maturity of each Original Issue Discount Bond, and (ii) the initial offering price to the public of such Original Issue Discount Bond would constitute original issue discount. The stated redemption price at maturity means the sum of all payments to be made on the bonds less the amount of all periodic interest payments. Periodic interest payments are payments which are made during equal accrual periods (or during any unequal period if it is the initial or final period) and which are made during accrual periods which do not exceed one year. Under existing law, any owner who has purchased such Original Issue Discount Bond in the initial public offering is entitled to exclude from gross income (as defined in section 61 of the Code) an amount of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such original issue discount allocable to the accrual period. For a discussion of certain collateral federal tax consequences, see discussion set forth below. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Bond prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Bond was held by such initial owner) is includable in gross income. 47

60 Under existing law, the original issue discount on each Original Issue Discount Bond is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the date of the Series 2011 Bonds and ratably within each such six-month period) and the accrued amount is added to an initial owner s basis for such Original Issue Discount Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Original Issue Discount Bond. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original Issue Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Bonds should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of the treatment of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Bonds. Collateral Federal Income Tax Consequences The following discussion is a summary of certain collateral federal income tax consequences resulting from the purchase, ownership or disposition of the Series 2011 Bonds. This discussion is based on existing statutes, regulations, published rulings and court decisions, all of which are subject to change or modification, retroactively. The following discussion is applicable to investors, other than those who are subject to special provisions of the Code, such as financial institutions, property and casualty insurance companies, life insurance companies, individual recipients of Social Security or Railroad Retirement benefits, individuals allowed an earned income credit, certain S corporations with accumulated earnings and profits and excess passive investment income, foreign corporations subject to the branch profits tax and taxpayers who may be deemed to have incurred or continued indebtedness to purchase tax-exempt obligations. THE DISCUSSION CONTAINED HEREIN MAY NOT BE EXHAUSTIVE. INVESTORS, INCLUDING THOSE WHO ARE SUBJECT TO SPECIAL PROVISIONS OF THE CODE, SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF TAX-EXEMPT OBLIGATIONS BEFORE DETERMINING WHETHER TO PURCHASE THE SERIES 2011 BONDS. Interest on the Series 2011 Bonds will be includable as an adjustment for adjusted current earnings to calculate the alternative minimum tax imposed on corporations by Section 48

61 55 of the Code. Section 55 of the Code imposes a tax equal to 20 percent for corporations, or 26 percent for noncorporate taxpayers (28 percent for taxable income exceeding $175,000), of the taxpayer s alternative minimum taxable income, if the amount of such alternative minimum tax is greater than the taxpayer s regular income tax for the taxable year. Under section 6012 of the Code, holders of tax-exempt obligations, such as the Series 2011 Bonds, may be required to disclose interest received or accrued during each taxable year on their returns of federal income taxation. Section 1276 of the Code provides for ordinary income tax treatment of gain recognized upon the disposition of a tax-exempt obligation, such as the Series 2011 Bonds, if such obligation was acquired at a market discount and if the fixed maturity of such obligation is equal to, or exceeds, one year from the date of issue. Such treatment applies to market discount bonds to the extent such gain does not exceed the accrued market discount of such bonds; although for this purpose, a de minimis amount of market discount is ignored. A market discount bond is one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturity or, in the case of a bond issued at an original issue discount, the revised issue price (i.e., the issue price plus accrued original issue discount). The accrued market discount is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the number of days between the acquisition date and the final maturity date. State, Local and Foreign Taxes Investors should consult their own tax advisors concerning the tax implications of the purchase, ownership or disposition of the Series 2011 Bonds under applicable state or local laws. Foreign investors should also consult their own tax advisors regarding the tax consequences unique to investors who are not United States persons. Legal Proceedings LEGAL MATTERS Delivery of the Series 2011 Bonds will be accompanied by the unqualified approving legal opinion of the Attorney General to the effect that the Series 2011 Bonds are valid and legally binding obligations of the City under the Constitution and laws of the State of Texas, payable from the proceeds of the Special Assessments and, based upon their examination of a transcript of certified proceedings relating to the issuance and sale of the Series 2011 Bonds, the legal opinion of Bond Counsel, to a like effect. McCall, Parkhurst & Horton L.L.P. serves as Bond Counsel to the City. Squire, Sanders & Dempsey (US) LLP serves as Underwriter s Counsel. The legal fees paid to Bond Counsel, and a portion of the fees to be paid to Underwriter s Counsel, for services rendered in connection with the issuance of the Series 2011 Bonds are based on a percentage of the Series 2011 Bonds actually issued, sold, and delivered and, therefore, such fees are contingent upon the sale and delivery of the Series 2011 Bonds. 49

62 Legal Opinions The City will furnish the Underwriter a transcript of certain certified proceedings incident to the authorization and issuance of the Series 2011 Bonds. Such transcript will include a certified copy of the approving opinion of the Attorney General of Texas, as recorded in the Bond Register of the Comptroller of Public Accounts of the State of Texas, to the effect that the Series 2011 Bonds are valid and binding special obligations of the City. The City will also furnish the legal opinion of McCall, Parkhurst & Horton L.L.P., Bond Counsel, to the effect that, based upon an examination of such transcript, the Series 2011 Bonds are valid and binding special obligations of the City under the Constitution and laws of the State of Texas. The legal opinion of Bond Counsel will further state that the Series 2011 Bonds, including principal of an interest thereon, are payable from and secured by a pledge of and lien on the Special Assessment Revenues. Bond Counsel will also provide a legal opinion to the effect that interest on the Series 2011 Bonds will be excludable from gross income for federal income tax purposes under Section 103(a) of the Code, subject to the matters described above under the caption TAX MATTERS, including the alternative minimum tax consequences. A copy of the opinion of Bond Counsel is attached hereto as APPENDIX C Proposed Form of Opinion of Bond Counsel. Bond Counsel s fees for services rendered with respect to the sale of the Series 2011 Bonds are contingent upon the issuance and delivery of the Series 2011 Bonds. The various legal opinions to be delivered concurrently with the delivery of the Series 2011 Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. Litigation - The City At the time of delivery and payment for the Series 2011 Bonds, the City will certify that, except as disclosed herein, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or, overtly threatened against the City affecting the existence of the PID, or seeking to restrain or to enjoin the sale or delivery of the Series 2011 Bonds, the application of the proceeds thereof, in accordance with the Indenture, or the collection or application of Special Assessments securing the Series 2011 Bonds, or in any way contesting or affecting the validity or enforceability of the Series 2011 Bonds, the Assessment Ordinance, the Indenture, any action of the City contemplated by any of the said documents, or the collection or application of the revenues provided for the payment of the Series 2011 Bonds, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the City or its authority with respect to the Series 2011 Bonds or any action of the City contemplated by any of said documents. 50

63 Litigation - The Developer At the time of delivery and payment for the Series 2011 Bonds, the Phase I Developer will certify that, except as disclosed herein, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory body, public board or body pending, or, to the best knowledge of the Phase I Developer, threatened against or affecting the Phase I Developer wherein an unfavorable decision, ruling or finding would have a material adverse effect on the financial condition of the Phase I Developer or its co-general partners or would adversely affect (1) the transactions contemplated by, or the validity or enforceability of, the Series 2011 Bonds, the Indenture, the Bond Ordinance, the Service and Assessment Plan, the Developer Prepayment Agreement or the Bond Purchase Agreement, or otherwise described in this Official Statement, or (2) the tax-exempt status of interest on the Series 2011 Bonds. SUITABILITY FOR INVESTMENT Investment in the Series 2011 Bonds poses certain economic risks. No dealer, broker, salesman or other person has been authorized by the City or the Underwriter to give any information or make any representations, other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by either of the foregoing. Additional information will be made available to each prospective investor, including the benefit of a site visit to the City and the opportunity to ask questions of the Phase I Developer, as such prospective investor deems necessary in order to make an informed decision with respect to the purchase of the Series 2011 Bonds. ENFORCEABILITY OF REMEDIES The remedies available to the owners of the Series 2011 Bonds upon an event of default under the Indenture are in many respects dependent upon judicial actions, which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, including the federal bankruptcy code, the remedies specified by the Indenture and the Series 2011 Bonds may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Series 2011 Bonds will be qualified, as to the enforceability of the remedies provided in the various legal instruments, by limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors and enacted before or after such delivery. NO RATING No application for a rating of the Series 2011 Bonds has been made to any rating agency, nor is there any reason to believe that the City would have been successful in obtaining an investment grade rating for the Series 2011 Bonds had application been made. CONTINUING DISCLOSURE Pursuant to Rule 15c2-12 of the Securities and Exchange Commission (the Rule ), the City and the Phase I Developer will enter into a Continuing Disclosure Agreement (the Disclosure Agreement ), for the benefit of the Bondholders (including owners of beneficial 51

64 interests in the Series 2011 Bonds), to provide certain financial information and operating data relating to the City, the Development and the Phase I Developer by certain dates prescribed in the Disclosure Agreement (the Reports ). The specific nature of the information to be contained in the Reports is set forth in Appendix D - Proposed Form of Disclosure Agreement. Under certain circumstances, the failure of the City or the Phase I Developer to comply with its obligations under the Disclosure Agreement constitutes an event of default thereunder. Such a default will not constitute an event of default under the Indenture, but such event of default under the Disclosure Agreement would allow the Bondholders (including owners of beneficial interests in the Series 2011 Bonds) to bring an action for specific performance. During the last five years, the City has complied in all material respects with all continuing disclosure agreements made by it in accordance with SEC Rule 15c2-12. The City has agreed to update information and to provide notices of material events only as provided in the Disclosure Agreement. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided in this Official Statement, except as provided in the Disclosure Agreement. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell the Series 2011 Bonds at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of the Disclosure Agreement or from any statement made pursuant to the Disclosure Agreement. UNDERWRITING Stifel, Nicolaus & Company, Incorporated (the Underwriter ) has agreed to purchase the Series 2011 Bonds from the City at a purchase price of $1,313, (the par amount of the Series 2011 Bonds, $1,340,000.00, less an underwriting discount of $26,800.00). The Underwriter s obligations are subject to certain conditions precedent and if obligated to purchase any of the Series 2011 Bonds the Underwriter will be obligated to purchase all of the Series 2011 Bonds. The Series 2011 Bonds may be offered and sold by the Underwriter at prices lower than the initial offering prices stated on the cover hereof, and such initial offering prices may be changed from time to time by the Underwriter. LEGAL INVESTMENT AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS The PID Act and Section of the Public Security Procedures Act (V.T.C.A., Chapter 1201, Government Code, as amended) provides that the Series 2011 Bonds are negotiable instruments governed by V.T.C.A., Chapter 8, Business and Commerce Code, as amended, and are legal and authorized investments for insurance companies, fiduciaries, trustees, or for the sinking funds of municipalities or other political subdivisions or public agencies of the State. With respect to investment in the Series 2011 Bonds by municipalities or other political subdivisions or public agencies of the State of Texas, the Public Funds Investment Act, V.T.C.A., Chapter 2256, Government Code, as amended, requires that the Series 2011 Bonds be assigned a rating of A or its equivalent as to investment quality by a national rating agency. See NO RATING above. In addition, the PID Act and various provisions of the Texas Finance Code provide that, subject to a prudent investment standard, the Series 2011 Bonds are legal investments for state banks, savings banks, trust companies with a capital of one million dollars 52

65 or more, and savings and loan associations. The Series 2011 Bonds are eligible to secure deposits to the extent of their market value. No review by the City has been made of the laws in other states to determine whether the Series 2011 Bonds are legal investments for various institutions in those states. No representation is made that the Series 2011 Bonds will be acceptable to public entities to secure their deposits or acceptable to such institutions for investment purposes. The City made no investigation of other laws, rules, regulations or investment criteria which might apply to such institutions or entities or which might limit the suitability of the Series 2011 Bonds for any of the foregoing purposes or limit the authority of such institutions or entities to purchase or invest in the Series 2011 Bonds for such purposes. INVESTMENTS The City invests its funds in investments authorized by Texas law in accordance with investment policies approved by the City Council. Both Texas law and the City s investment policies are subject to change. Under Texas law, the City is authorized to invest in (1) obligations, including letter of credit, of the United States or its agencies and instrumentalities, (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit and share certificates meeting the requirements of the Texas Public Funds Investment Act (Chapter 2256, Texas Government Code, as amended (the PFIA )) that are issued by or through an institution that either has its main office or a branch office in Texas, and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for City deposits, or are invested by the City through a depository institution that has its main office or a branch office in the State of Texas and otherwise meet the requirements of the PFIA, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (9) certain bankers acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally recognized credit rating agency, (10) commercial paper with a stated maturity of 270 days or less that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (11) noload money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in 53

66 their investment objectives the maintenance of a stable net asset value of $1 for each share, and (12) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in the this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent. If specifically authorized in the authorizing document, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described in the next succeeding paragraph. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAA-m or an equivalent by at least one nationally recognized rating service. The City may also contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to provide for the investment and management of its public funds or other funds under its control for a term up to two years, but the City retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the City must do so by order, ordinance, or resolution. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. Political subdivisions such as the City are authorized to implement securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (6) of the first paragraph under this subcaption, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm not less than A or its equivalent, or (c) cash invested in obligations that are described in clauses (1) through (6) and (10) through (12) of the first paragraph under this subcaption, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the governmental body, held in the name of the governmental body and deposited at the time the investment is made with the City or a third party designated by the City; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less. Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups. 54

67 All City funds must be invested consistent with a formally adopted Investment Strategy Statement that specifically addresses each funds investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under Texas law, City investments must be made with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person s own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived. At least quarterly the investment officers of the City shall submit an investment report detailing: (1) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority from the City Council. Under Texas law the City is additionally required to: (1) annually review its adopted policies and strategies; (2) adopt a rule, order, ordinance or resolution stating that it has reviewed its investment policy and investment strategies and records any changes made to either its investment policy or investment strategy in the respective rule, order, ordinance or resolution; (3) require any investment officers with personal business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (4) require the registered principal of firms seeking to sell securities to the City to: (a) receive and review the City s investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude investment transactions conducted between the City and the business organization that are not authorized by the City s investment policy (except to the extent that this authorization is dependent on an analysis of the makeup of the City s entire portfolio or requires an interpretation of subjective investment standards), and (c) deliver a written statement attesting to these requirements; (5) perform an annual audit of the management controls on investments and adherence to the City s investment policy; (6) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (7) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (8) restrict the investment in no-load mutual funds in the aggregate to no more than 15% of the entity s monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service; (9) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements; and (10) at least annually review, revise, and adopt a list of qualified brokers that are authorized to engage in investment transactions with the City. 55

68 SOURCES OF INFORMATION General The information contained in this Official Statement has been obtained primarily from the City s records, the Phase I Developer and its representatives, the PID Administrator, First Southwest Company, as financial advisor to the PID (the PID Financial Advisor ) and other sources believed to be reliable. In accordance with its responsibilities under the federal securities law, the Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of the transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement or any sale hereunder will create any implication that there has been no change in the financial condition or operations of the City described herein since the date hereof. This Official Statement contains, in part, estimates and matters of opinion that are not intended as statements of fact, and no representation or warranty is made as to the correctness of such estimates and opinions or that they will be realized. The summaries of the statutes, resolutions, and engineering and other related reports set forth herein are included subject to all of the provisions of such documents. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Experts The information contained in this Official Statement relating to engineering, to the description of the Phase I Improvements generally and, in particular, the engineering information included in the sections captioned THE CITY, THE PID, and THE PHASE I IMPROVEMENTS has been provided by the Developer. The information contained in this Official Statement relating to the Special Assessments, to the description of the Phase I Improvements generally and, in particular, the engineering information included in this section captioned THE CITY, THE PID, ASSESSMENT PROCEDURES and THE PHASE I IMPROVEMENTS has been provided by the PID Administrator and such information has been included herein in reliance upon the authority of said firm as experts. The information contained in APPENDIX E Financial Analysis to this Official Statement has been provided by the PID Financial Advisor and such information has been included herein in reliance upon the authority of said firm as financial advisors. Updating of Official Statement If, subsequent to the date of the Official Statement, the City learns, through the ordinary course of business and without undertaking any investigation or examination for such purposes, or is notified by the Underwriter, of any adverse event which causes the Official Statement to be materially misleading, and unless the Underwriter elects to terminate its obligation to purchase the Series 2011 Bonds, the City will promptly prepare and supply to the Underwriter an appropriate amendment or supplement to the Official Statement satisfactory to the Underwriter; 56

69 provided, however, that the obligation of the City to so amend or supplement the Official Statement will terminate when the City delivers the Series 2011 Bonds to the Underwriter, unless the Underwriter notifies the City on or before such date that less than all of the Series 2011 Bonds have been sold to ultimate customers; in which case the City s obligations hereunder will extend for an additional period of time (but not more than 90 days after the date the City delivers the Series 2011 Bonds) until all of the Series 2011 Bonds have been sold to ultimate customers. FORWARD-LOOKING STATEMENTS Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, project, anticipate, budget or other similar words. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ANY OF ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR, OTHER THAN AS DESCRIBED UNDER CONTINUING DISCLOSURE HEREIN. 57

70 AUTHORIZATION AND APPROVAL The execution and delivery of this Official Statement has been duly authorized by the City Council of the City of Waxahachie. CITY OF WAXAHACHIE, TEXAS ATTEST: /s/ N.B. Buck Jordan Mayor /s/ Lori Saunders City Secretary 58

71 APPENDIX A FORM OF INDENTURE

72 (THIS PAGE IS INTENTIONALLY LEFT BLANK)

73 TRUST INDENTURE by and between CITY OF WAXAHACHIE, TEXAS (the "ISSUER") AND THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION (the "TRUSTEE") Dated as of January 1, 2011 Relating to the $1,340,000 CITY OF WAXAHACHIE, TEXAS SPECIAL ASSESSMENT BONDS, SERIES 2011 (WAXAHACHIE PUBLIC IMPROVEMENT DISTRICT NO. 1 PHASE I PROJECT)

74 TABLE OF CONTENTS ARTICLE 1 DEFINITIONS AND INTERPRETATIONS... 4 Section 1.1. Definitions Section 1.2. Interpretations ARTICLE 2 THE SERIES 2011 BONDS Section 2.1. Authorization Section 2.2. Initial Series of Bonds, Designation, Date, and Interest Payment Dates Section 2.3. Amounts; Terms; Numbers and Denomination Section 2.4. Execution of Bonds; Seal Section 2.5. Approval, Registration and Delivery Section 2.6 Authentication Section 2.7 Payment of Principal and Interest Section 2.8 Successor Trustee Section 2.9 Ownership; Unclaimed Principal and Interest Section 2.10 Registration, Transfer and Exchange Section 2.11 Cancellation of Bonds Section 2.12 Replacement Bonds Section 2.13 Book-Entry Registration ARTICLE 3 GENERAL PROVISIONS; REFUNDING BONDS Section 3.1. Issuer Covenants and Representations Section 3.2 Negative Covenants Section 3.3 Authorization for Trust Indenture; Trust Indenture to Constitute Contract. 20 Section 3.4 Refunding Bonds ARTICLE 4 FUNDS AND ACCOUNTS, INITIAL DEPOSITS AND APPLICATION OF MONEY Section 4.1 Pledged Revenue Fund Section 4.2 Improvement Fund Section 4.3 Interest and Sinking Fund Section 4.4 Administrative Fund Section 4.5 Bond Redemption Fund Section 4.6 Debt Service Reserve Fund Section 4.7 Prepayment Reserve Fund; Release Section 4.8 Developer Reserve Fund; Release Section 4.9 Rebate Fund; Rebatable Arbitrage Section 4.10 Lien Forgiveness upon Payment of Bonds Section 4.11 Deposit and Investment of Funds Section 4.12 Payment of Bonds Section 4.13 Advances from Available Funds ARTICLE 5 REMEDIES Section 5.1 Events of Default Section 5.2 Actions by Trustee Section 5.3 Priority of Payment Upon Default Section 5.4 Default Cured i

75 Section 5.5 Direction of Proceedings by Owners of Bonds Section 5.6 Remedies Section 5.7 Non-possession of Bonds Section 5.8 Available Remedies Section 5.9 Delay in Exercise of Rights ARTICLE 6 REDEMPTION Section 6.1 Optional Redemption Section 6.2 Mandatory Sinking Fund Redemption Section 6.3 Extraordinary Mandatory Redemption Section 6.4 Notice of Redemption Section 6.5 Additional Provisions with Respect to Redemption Section 6.6 Purchase Price for Bonds Section 6.7 Trustee to Redeem Bonds ARTICLE 7 FORM OF BONDS AND CERTIFICATES Section 7.1 Forms Section 7.2 Legal Opinion; CUSIP ARTICLE 8 SECURITY FOR THE BONDS Section 8.1 Pledge of Special Assessment Revenues Section 8.2 Special Obligations Section 8.3 Assessment Roll Section 8.4 Collection and Deposit of Special Assessments Section 8.5 Unconditional Levy of Assessments Section 8.6 Prepayments in Full Section 8.7 Partial Prepayments ARTICLE 9 THE TRUSTEE Section 9.1 Acceptance of Trust Section 9.2 Trustee Obligation to Bring Suit Section 9.3 Trustee Not Responsible for Other Depositories Section 9.4 Compensation of Trustee Section 9.5 Trustee May Rely on Certificates Section 9.6 Trustee May Own Bonds Section 9.7 Representations of Issuer in Bonds Section 9.8 Trustee Solely Liable for Negligence Section 9.9 Resignation of Trustee Section 9.10 Removal of Trustee Section 9.11 Replacement of Trustee Section 9.12 Powers of Successor Trustee Section 9.13 Prudent Person Section 9.14 Limited Duties Section 9.15 Certain Rights of Trustee Section 9.16 Money or Bonds to Be Held in Trust ARTICLE 10 AMENDMENTS Section 10.1 Amendment Without Consent of Owners of Bonds Section 10.2 Restriction on Amendments ii

76 Section 10.3 Amendment of Trust Indenture with Consent of Owners of Bonds Section 10.4 Notice and Adoption of Amendment Section 10.5 Revocation of Consent ARTICLE 11 PROVISIONS CONCERNING SALE AND APPLICATION OF PROCEEDS OF BONDS Section 11.1 Sale of the Series 2011 Bonds Section 11.2 Refunding Bonds. Refunding Bonds authorized by this Trust Indenture shall be awarded at a price, and proceeds shall be deposited, as set forth in the Supplemental Trust Indenture for the Refunding Bonds Section 11.3 Related Matters Section 11.4 No Personal Liability ARTICLE 12 SATISFACTION AND DISCHARGE OF TRUST INDENTURE Section 12.1 Satisfaction and Discharge of Trust Indenture ARTICLE 13 COVENANTS REGARDING TAX EXEMPTION OF INTEREST ON THE SERIES 2011 BONDS Section Covenants Regarding Tax Exemption Of Interest On The Series 2011 Bonds ARTICLE 14 COLLECTION PROCEDURES AND MISCELLANEOUS PROVISIONS Section 14.1 Issuer to Pursue Collections Section 14.2 Foreclosure Covenant Section 14.3 Issuer Covenants Concerning Billing and Collection of Special Assessments. 54 Section 14.4 Good Faith Covenant Section 14.5 Further Assurances Section 14.6 Punctual Payment Section 14.7 Reassessments Section 14.8 Severability Section Notices Section Effect of Covenants, Etc EXHIBIT "A" FORM OF BONDS EXHIBIT "B" DESCRIPTION OF THE PROPERTY WITHIN PHASE I OF WAXHACHIE PUBLIC IMPROVEMENT DISTRICT NO. 1 EXHIBIT "C" BOND ORDINANCE EXHIBIT "D" (FORM OF) REQUISITION REQUESTING DISBURSEMENT FROM IMPROVEMENT FUND EXHIBIT "E" (FORM OF) REQUISITION REQUESTING DISBURSEMENT FROM ADMINISTRATIVE FUND EXHIBIT "F" DEVELOPER PARCELS iii

77 TRUST INDENTURE THIS TRUST INDENTURE is made and entered into as of the 1st day of January, 2011 (this Agreement, together with all Exhibits attached hereto and any amendments or supplements hereto, is hereinafter sometimes designated the "Trust Indenture"), by and between the CITY OF WAXAHACHIE, TEXAS, a general law city organized and operating under the laws of the State of Texas (the "City" or the "Issuer"); and The Bank of New York Mellon Trust Company, National Association, a limited purpose national banking association with trust powers duly organized, existing and authorized to accept and execute trusts of the character set forth herein, with an administrative office in Dallas, Texas, acting as trustee (the "Trustee"). WHEREAS, the City, pursuant to the Public Improvement Assessment Act, Chapter 372, Texas Local Government Code, as amended (the "Act"), has duly created a public improvement district known as Waxahachie Public Improvement District No. 1 (the "PID"); WHEREAS, the general nature of the proposed improvements to be provided by the PID, in phases with the first phase designated "Phase I", is the acquisition, construction and improvement of water, wastewater or drainage facilities and improvements; acquiring, constructing, improving, widening, narrowing, closing or rerouting streets, roadways or their rights-of-way; acquisition, by purchase or otherwise, of real property or contract rights in connection with each authorized improvement; the establishment and improvement of parks and open space; and payment of expenses incurred in the establishment, administration and operation of the PID, including the costs of constructing and acquiring all of the Phase I Improvements, together with bond issuance costs, legal and financial fees, capitalization of bond interest, the creation of a debt service reserve fund, payment of expenses incurred in the establishment, administration and operation of the PID and acquisition, by purchase or otherwise, of real property or contract rights in connection with each authorized improvement; WHEREAS, on the 27th day of December, 2010, the Governing Body of the Issuer duly adopted that certain Ordinance No. 2597, a copy of which is attached hereto as Exhibit "C" and made a part hereof for all purposes (the "Bond Ordinance"), authorizing the issuance of $1,340,000 City of Waxahachie, Texas Special Assessment Bonds, Series 2011 (Waxahachie Public Improvement District No. 1 Phase I Project) (the "Series 2011 Bonds"); WHEREAS, the Issuer duly filed a certified copy of the Bond Ordinance with the Trustee; WHEREAS, the Trustee accepts the trusts created by this Trust Indenture, and evidences such acceptance by joining in the execution hereof; WHEREAS, all capitalized terms have the meanings ascribed to them in this Trust Indenture; 1

78 ESTABLISHMENT OF TRUST ESTATE NOW, THEREFORE, in consideration of the premises and acceptance by the Trustee of the trusts hereby created and of the purchase and acceptance of the Bonds by the Owners thereof, and for other good and valuable consideration, the receipt of which is hereby acknowledged, and in order to secure the payment of the principal of, premium, if any, and interest on the Bonds as the same are issued and become due and payable, whether at maturity or by prior redemption, and the performance and observance by the Issuer of all the covenants and conditions contained in this Trust Indenture and the Bonds, the Issuer does hereby grant, bargain, sell, convey, pledge, mortgage, assign and grant a security interest unto the Trustee, and to its successors in trust, to the extent and under the terms and conditions provided herein, in and to the following property (the "Trust Estate"), to-wit. I. Any and all money and securities which from time to time may be held by the Trustee under the terms of this Trust Indenture (excluding Special Assessment Revenues from Administrative Expense Assessments), including proceeds from the issuance of the Bonds, all Funds (excluding the Rebate Fund and the Administrative Fund) established in accordance with this Trust Indenture, including the Developer Reserve Fund and the Debt Service Reserve Fund; II. Any and all Special Assessment Revenues apportioned to the payment of the Bonds derived from the imposition by the Issuer of Phase I Improvement Assessments on property located within the boundaries of Phase I of the PID pursuant to the Service and Assessment Plan; III. Any and all other property of every kind and nature which may from time to time hereafter (by delivery or by writing of any kind) be conveyed, mortgaged, pledged, assigned, transferred, delivered to or deposited with the Trustee by the Issuer or by anyone on its behalf (or with its written consent) as and for additional security hereunder, and the Trustee is hereby authorized to receive any and all such property at any and all times and to hold and apply the same, subject to the terms hereof; and IV. Any and all proceeds of the foregoing property and proceeds from the investment of the foregoing property. 2

79 TO HAVE AND TO HOLD, all the same, with all privileges and appurtenances thereto hereby conveyed, pledged and assigned or agreed or intended so to be, unto the Trustee and its successors in said Trust Estate, and to them and their assigns forever. IN TRUST NEVERTHELESS, upon the terms and trust herein set forth, for the payment of the Bonds and the interest thereon, and for the equal and proportionate benefit and security of all and singular the present and future Owners of the Bonds issued and to be issued under this Trust Indenture, without preference, priority or distinction as to lien or otherwise, except as otherwise hereinafter provided, of any one Bonds over any other Bonds by reason of priority in the issuance, sale or negotiation thereof or otherwise. PROVIDED, HOWEVER, that, if the Issuer shall pay, or cause to be paid, to the Owners of the Bonds the principal of, premium, if any, and interest on the Bonds at the times and in the manner stated in the Bonds according to the true intent and meaning thereof, and shall pay or cause to be paid to the Trustee all sums of money due or to become due to it in accordance with the terms and provisions hereof, then these presents in the Trust Estate and the rights hereby granted shall, at the option of the Issuer, cease, terminate and be void, and thereupon the Trustee shall cancel and discharge the lien of this Trust Indenture and execute and deliver to the Issuer such instruments in writing as shall be requisite to satisfy the lien thereof, reconvey to the Issuer the Trust Estate hereby conveyed and assign and deliver to the Issuer any property which at that time is subject to the lien of this Trust Indenture and which may then be in its possession, except those amounts held by the Trustee for the payment of principal of, premium, if any, or interest on any of the Bonds, and other fees and expenses payable by Issuer, all in the manner provided in this Trust Indenture; otherwise, this Trust Indenture shall be and remain in full force and effect upon the Trust Estate, subject to the covenants herein set forth. IN ADDITION, the Bonds are special obligations of the Issuer payable solely from the Special Assessment Revenues, as and to the extent provided in this Trust Indenture. The Bonds do not give rise to a charge against the general credit or taxing powers of the Issuer and are not payable except as provided in this Trust Indenture. Notwithstanding anything to the contrary herein, the Owners of the Bonds shall never have the right to demand payment thereof out of any funds of the Issuer other than the Special Assessment Revenues. The Issuer shall have no legal or moral obligation to pay for the Bonds out of any funds of the Issuer other than Special Assessment Revenues. This Trust Indenture further witnesseth, and it is expressly declared, that the Bonds secured hereunder are to be issued, authenticated and delivered and all said property, rights and interest, including, without limitation, amounts hereby assigned and pledged, are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as expressed hereinafter and in the Bond Ordinance, and the Issuer has agreed and covenanted, and does hereby agree and covenant, with the Trustee and with the respective Owners of the Bonds, as follows: 3

80 ARTICLE 1 DEFINITIONS AND INTERPRETATIONS Section 1.1. Definitions. For all purposes of this Trust Indenture, the following words and terms, whenever the same appear herein without qualifying language, are defined to have the meanings set out below, unless the context requires a different interpretation: Accounts mean any of the accounts established pursuant to Article 4. Act means the Public Improvement District Assessment Act, Chapter 372, Texas Local Government Code, as amended. Administrative Expense Assessment has the meaning assigned to such term in Section 8.5. Administrative Expenses means the administrative, organization, maintenance and operation costs associated with, or incident to, the administration, organization, maintenance and operation of Phase I, including, but not limited to, the costs of: (a) creating and organizing the PID, including conducting hearings, preparing notices and petitions, and all costs incident thereto, including engineering fees, legal fees and consultant fees, (b) the annual administrative, organization, maintenance, and operation costs and expenses associated with, or incident and allocable to, the administration, organization, and operation of Phase I in relation to the Phase I Improvements, (c) computing, levying, billing and collecting Special Assessments or the installments thereof, (d) maintaining the record of installments of the Special Assessments and the system of registration and transfer of the Bonds, (e) paying and redeeming the Bonds, (f) investing or depositing of monies, (g) complying with the Code with respect to the Bonds, and (h) the Trustee fees and expenses relating to the Bonds, including reasonable fees. Administrative Expenses do not include payment of the actual principal of and interest on the Bonds or any such costs which constitute expenses payable as an expense of issuing the Bonds. Administrative Fund means the Fund established in Section 4.4. Administrator means MuniCap, Incorporated or another independent financial consultant retained by the City for the purpose of computing the Special Assessments. Annual Installment has the meaning assigned to such term in Section 8.5. Assessment Ordinance means Ordinance No adopted by the governing body of the Issuer on the 18th day of June, 2007, authorizing the imposition of Special Assessments and any amendment or supplement thereto that may be hereafter adopted by the governing body of the Issuer, and levying annual Phase I Improvement Assessments to pay the Debt Service Requirements on the 4

81 Bonds against each parcel of land in Phase I subject to the Special Assessments and annual Administrative Expenses Assessments to pay Administrative Expenses. Assessment Roll means the Assessment Roll, which is attached to the Service and Assessment Plan as Exhibit "C" to the Service and Assessment Plan, as revised from time to time in accordance with the Act and the Service and Assessment Plan, which shows, among other things, the properties within Phase I subject to Special Assessments, the amount assessed, and the installment payments on the Special Assessments. Authorized Denominations means $5,000 and any $5,000 multiple in excess thereof. Authorized Investments means obligations that are eligible for investment by the City pursuant to the Public Funds Investment Act, Chapter 2256, Texas Government Code, as amended. Authorized Representative means, when used with respect to the Trustee, the persons holding the titles of "President," "Vice President," "Assistant Vice President," "Cashier," Assistant Cashier," "Trust Officer," "Assistant Trust Officer," "Secretary," "Assistant Secretary" or "Treasurer" of the Trustee or any other employee of the Trustee who has been authorized by the Board of Directors of the Trustee to execute Trust Indentures similar to this Trust Indenture and related documents. The term "Authorized Representative", when used with respect to the Issuer, means the Mayor, City Manager or any other officer or employee of the Issuer who is designated in writing by the Governing Body or by resolution of the Governing Body as an Authorized Representative for purposes of this Trust Indenture. Available Money means amounts at any time held for the credit of a Fund or Account (i) which constitute Special Assessment Revenues, (ii) which are proceeds of the Bonds, (iii) which have been received from the Developer (other than payments of Special Assessment Revenues) and held by the Trustee for at least 123 days during which time no petition by or against the Developer under the Bankruptcy Code has been filed unless such petition has been dismissed and such dismissal is final and not subject to appeal, (iv) as to which the Trustee has received an opinion of bond counsel or other counsel with expertise in matters dealing with bankruptcy, and in either case acceptable to the Trustee, stating that no disbursement thereof pursuant to this Trust Indenture may be recovered under Section 544, 547, 549 or 550 of the Bankruptcy Code or under any similar provision of applicable State law, and (v) which constitute investment proceeds from the investment of any amounts described in clauses (i) through (iv). Bankruptcy or Insolvency of the Issuer means commencement by the Issuer of any voluntary case under any applicable bankruptcy, insolvency or similar law now or hereafter in effect, or any consent by the Issuer to the appointment of or taking of possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Issuer or any substantial part of its property, or any general assignment by the Issuer for the benefit of creditors, or failure by the Issuer generally to pay its debts as they become due. 5

82 Bankruptcy Code means the United States Bankruptcy Code, 11 U.S.C. 101 et seq., as from time to time amended and in effect. Bond Ordinance means the City of Waxahachie Ordinance No. 2597, adopted by the Governing Body of the Issuer on the 27th day of December, 2010, which authorizes the issuance of the Bonds, a copy of which is attached hereto as Exhibit "C" and made a part hereof for all purposes. Bond Redemption Fund means the Fund as defined and established for the Bonds in Section 4.5. Bonds means any Bond or all Bonds as authorized by the Bond Ordinance and issued in accordance with this Trust Indenture, including the Series 2011 Bonds, Refunding Bonds and any Exchange Bonds and Replacement Bonds. Business Day means any day which is not a Saturday, Sunday, or a day on which the Trustee is required or authorized by law or executive order to close, a day on which the New York Stock Exchange is closed, or a legal holiday or a day on which banking institutions located in Dallas, Texas are closed. Cede & Co. means the nominee of DTC in whose name the Bonds are to be registered. City or Issuer means the City of Waxahachie, Texas, a general law city organized and operating under the laws of the State of Texas. City Manager means the City Manager for the City. Code means the Internal Revenue Code of 1986, as amended. Comptroller means the Comptroller of Public Accounts of the State of Texas. Debt Service Requirements means, as of any particular date of computation, with respect to any Bonds and with respect to any period, the aggregate of the amounts to be paid or set aside from the Interest and Sinking Fund by the Trustee on behalf of the Issuer as of such date or in such period for the payment of the Principal Installment, premium, if any, and interest (to the extent not capitalized) on such Bonds. Debt Service Reserve Fund means the Fund established in Section 4.6. Debt Service Reserve Fund Requirement means an amount, equal to the maximum annual Debt Service Requirements on the Bonds, which, as of the date of delivery of the Series 2011 Bonds, equals $131,

83 Delinquent Developer Parcel Assessment Payment means a payment of a Developer Parcel Delinquency Amount received by the City and deposited with the Trustee after the Business Day immediately prior to February 15 of each year. Developer means Waxahachie 287, L.P., a Texas limited partnership, and its successors and assigns. Developer Parcel Delinquency Amount means, as of any date of determination, any amount of an Annual Installment of Special Assessments for any Developer Parcel assessed to pay Debt Service Requirements on the Bonds remaining unpaid on or after February 1 of the year after such Annual Installment is due. Developer Parcels means those lots identified by their tax identification number in Exhibit "F" hereto. Developer Prepayment Agreement means the Developer Prepayment Agreement, dated as of January 1, 2011, by and between the Issuer and the Developer, pursuant to which the Developer agrees to prepay the amount calculated by the Administrator by which the principal portion of the Phase I Improvement Assessments on a parcel exceeds the maximum principal portion of the Phase I Improvement Assessments per residential dwelling unit for a parcel, plus interest accrued to the date of such Prepayment, and to pay the principal portion of the Phase I Improvement Assessments, plus accrued interest, on all parcels subject to Phase I Improvement Assessments that are transferred by the Developer to a party that is exempt from the payment of the Phase I Improvement Assessments or that the Developer causes to become non-benefitted property, all as described in the Developer Prepayment Agreement. Developer Reserve Fund means the Fund established in Section 4.8. Developer Reserve Fund Release Date means the February 16 specified in Section 4.8(b). DTC means The Depository Trust Company, New York, New York. Electronic Means means electronic mail, telecopy or facsimile transmission or other similar means of communication approved in writing by the Trustee. Event of Default means those events of default provided for in Section 5.1. Exchange Bonds means Bonds registered, authenticated, and delivered by the Trustee, as provided in Section Federal Tax Certificate shall mean the federal tax certificate of the Issuer delivered concurrently with the delivery of the Bonds. 7

84 Fiscal Year means the twelve (12) month accounting period used by the Issuer, which currently ends on September 30 of each year. The Fiscal Year may be any twelve (12) consecutive month period established by the Issuer. Foreclosure Proceeds means the amounts received from the judicial sale of any assessed property within Phase I as a result of the nonpayment of Special Assessments. Funds means any of the Funds established pursuant to Article 4. Governing Body means the City Council of the City. Improvement Fund means the Fund established in Section 4.2. Interest and Sinking Fund means the Fund established in Section 4.3. Interest Payment Date, when used in connection with any Bond, means August 15, 2011, and each February 15 and August 15 thereafter until maturity. Issue Date means, with respect to the Series 2011 Bonds, January 20, Mandatory Sinking Fund Redemption Dates means the mandatory redemption dates set forth in Section 6.2. Mandatory Sinking Fund Payments means the mandatory sinking fund payments on the dates, and in the amounts, set forth in Section 6.2, which are to be made into the Interest and Sinking Fund for the purpose of redeeming the Bonds prior to maturity. Maturity Date means February 15, Outstanding means, as of the date of determination, and with respect to any Bonds, all such Bonds theretofore issued and delivered under this Trust Indenture, except: (1) Bonds theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (2) Bonds for whose purchase, payment or redemption money in the necessary amount has been theretofore deposited in an account, other than the Pledged Revenue Fund identified in Section 4.1, with the Trustee in trust for the Owners of such Bonds; provided, however, that if such Bonds are to be redeemed, notice of such redemption shall have been given pursuant to this Trust Indenture and irrevocably provided for to the satisfaction of the Trustee or waived; 8

85 (3) Bonds in exchange for or in lieu of which other Bonds have been registered and delivered pursuant to this Trust Indenture; and (4) Bonds alleged to have been mutilated, destroyed, lost or stolen which have been paid as provided in this Trust Indenture. Owner or Registered Owner means the Person who is the registered owner of any Outstanding Bond. Paying Agent/Registrar means the entity serving as Trustee, when serving as Paying Agent or Registrar. Person or Persons means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other entity recognized by the laws of the State. Phase I means the property within the boundaries of the PID depicted and described on Exhibit "B" attached hereto. Phase I Improvement Assessment Account means the Account created by that name held in the Pledged Revenue Fund. Phase I Improvement Assessment Prepayment Account means the Account created by that name held in the Pledged Revenue Fund. Phase I Improvement Assessments has the meaning assigned to such term in Section 8.5. Phase I Improvements means the expenditures, facilities, improvements and services for Phase I defined as "District Improvements" in the Service and Assessment Plan. Pledged Revenue Fund means the Fund defined and established in Section 4.1 and consisting of the Phase I Improvement Assessment Account and the Phase I Improvement Assessment Prepayment Account. Prepayment means the payment, in whole or in part, of the principal component of a Phase I Improvement Assessment before the due date thereof, pursuant to Section 8.6 and 8.7. Amounts received at the time of a Prepayment which represent a payment of principal, interest or penalties on a delinquent installment of a Phase I Improvement Assessment are not to be considered a Prepayment, but rather are to be treated as the payment of regularly scheduled Special Assessment Revenues. Prepayment Reserve Fund means the Fund established in Section

86 Principal Installment means as of any particular date of computation and with respect to the Bonds, an amount of money equal to the aggregate of the principal amount of Bonds scheduled to be redeemed pursuant to mandatory sinking fund redemptions on such date and scheduled to mature (as reduced by all scheduled mandatory sinking fund redemptions prior to maturity) on such date. Principal Office, when used with respect to the Trustee, means the principal office of the Trustee situated in Dallas, Texas, at which the Trustee conducts its corporate trust business. Public Improvement District or PID means Waxahachie Public Improvement District No. 1, a public improvement district within the jurisdiction of the City and operating pursuant to the Act. Rebate Fund means that Fund established pursuant to Section 4.9. Record Date means, for any Interest Payment Date, the close of business on the last Business Day of the month next preceding such Interest Payment Date. Refunding Bonds means Bonds secured by a parity lien with the Outstanding Bonds on the Pledged Revenues issued pursuant to Section 3.4, as more specifically described in a Supplemental Trust Indenture, authorizing the refunding or advance refunding of all or any portion of the Outstanding Bonds. Register means the books of registration kept by the Registrar in which are maintained the names and addresses of, and the principal amounts registered to, the Registered Owners. Registrar means the entity serving as Trustee, when serving as Registrar. Replacement Bond means the Bond authorized by the Issuer to be issued in substitution for mutilated, lost, apparently destroyed, or wrongfully taken Bonds, as provided in Section Rule means SEC Rule 15c2-12, as amended from time to time. SEC means the United States Securities and Exchange Commission. Securities Depository means DTC or any successor entity which serves as a securities depository pursuant to Section Series means any designated series of Bonds issued under this Trust Indenture. Series 2011 Bonds means $1,340,000 City of Waxahachie, Texas Special Assessment Bonds, Series 2011 (Waxahachie Public Improvement District No. 1 Phase I Project). Service and Assessment Plan means the Service and Assessment Plan prepared in accordance with the Act and approved by the governing body of the Issuer, as part of the Assessment Ordinance, 10

87 on June 18, 2007, and updated and amended on December 27, 2010, setting forth the plan for services and activities of the PID, including Phase I, and setting forth the plan for apportioning the cost of the improvements to be assessed against properties in the PID, including Phase I, as may be updated and amended from time to time. Special Assessments means: (a) the Phase I Improvement Assessments levied against properties in Phase I for Phase I Improvements to pay Debt Service Requirements on the Bonds as set forth in the Service and Assessment Plan which are payable in periodic installments as provided in the Assessment Ordinance; and (b) the annual Administrative Expense Assessments levied and to be levied against properties in Phase I, all as provided in the Service and Assessment Plan, the Assessment Ordinance and the Bond Ordinance. Special Assessments also include any supplemental assessments levied for Phase I Improvements in accordance with Sections and of the Act. Special Assessment Revenues means the monies collected from Special Assessments levied against properties in Phase I, including interest on Special Assessments during the period a Special Assessment or any installment thereof is current or delinquent, Prepayments, Foreclosure Proceeds, proceeds from a guarantor of the Special Assessments, and penalties for non-timely payment of Special Assessments. Earnings and income derived from the investment or deposit of Special Assessments in the special Funds or Accounts created and established under this Trust Indenture shall also constitute Special Assessment Revenues. Special Record Date means that in the event of a non-payment of interest on a scheduled Interest Payment Date, and for thirty (30) calendar days thereafter, a new record date for such payment (a "Special Record Date") will be established by the Trustee, if and when funds for the payment thereof have been received from the Issuer. Notice of the Special Record Date and of the scheduled payment date of the past due payment (the "Special Payment Date", which shall be fifteen (15) calendar days after the Special Record Date) shall be sent at least five (5) Business Days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of the Registered Owner appearing on the books of the Trustee at the close of business on the last Business Day next preceding the date of mailing of such notice. State means State of Texas. Supplemental Trust Indenture means any trust indenture amending or supplementing this Trust Indenture or which may be entered into in accordance with the provisions of this Trust Indenture for the purpose of creating one or more Series of Refunding Bonds. Trust Estate means the property and assets conveyed to the Trustee pursuant to the granting clauses of this Trust Indenture. 11

88 Trustee means The Bank of New York Mellon Trust Company, National Association, a limited purpose national banking association with trust powers, with an administrative office in Dallas, Texas, and any successor trustee hereunder. Underwriter means Stifel, Nicolaus & Company, Incorporated. Value of Authorized Investments means the amortized value of any Authorized Investments, provided, however, that all United States of America, United States Treasury Obligations State and Local Government Series shall be valued at par and those obligations which are redeemable at the option of the holder shall be valued at the price at which such obligations are then redeemable. The computations shall include accrued interest on the investment securities paid as a part of the purchase price thereof and not collected. For the purposes of this definition "amortized value," when used with respect to a security purchased at par means the purchase price of such security and when used with respect to a security purchased at a premium above or discount below par, means as of any subsequent date of valuation, the value obtained by dividing the total premium or discount by the number of interest payment dates remaining to maturity on any such security after such purchase and by multiplying the amount as calculated by the number of interest payment dates having passed since the date of purchase and (i) in the case of a security purchased at a premium, by deducting the product thus obtained from the purchase price, and (ii) in the case of a security purchased at a discount, by adding the product thus obtained to the purchase price. Section 1.2. Interpretations. All terms defined herein and all pronouns used in this Trust Indenture shall be deemed to apply equally to singular and plural and to all genders. The titles and headings of the Articles and Sections of this Trust Indenture have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms and provisions hereof. This Trust Indenture and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to sustain the validity of this Trust Indenture and the Bonds. All references in this Trust Indenture to designated "Articles," "Sections," and other subdivisions are to the designated Articles, Sections and other subdivisions of this Trust Indenture unless otherwise specified. All references in this Trust Indenture to "Exhibits" are to the designated Exhibits to this Trust Indenture unless otherwise specified. ARTICLE 2 THE SERIES 2011 BONDS Section 2.1. Authorization. The Series 2011 Bonds shall be issued in fully registered form in the total authorized aggregate amount of ONE MILLION THREE HUNDRED FOURTY THOUSAND AND NO/100 DOLLARS ($1,340,000.00), the proceeds of which will be used for the purposes of providing for the payment of capitalized interest, costs of issuance of the Series 2011 Bonds and costs of construction, acquisition or purchase of the Phase I Improvements, and establishing the Debt Service Reserve Fund and the Prepayment Reserve Fund. 12

89 Section 2.2. Initial Series of Bonds, Designation, Date, and Interest Payment Dates. The initial Series of Bonds being issued under this Trust Indenture shall be the Series 2011 Bonds. The Series 2011 Bonds shall be designated as the $1,340,000 "City of Waxahachie, Texas Special Assessment Bonds, Series 2011 (Waxahachie Public Improvement District No. 1 Phase I Project)" and shall be dated as of the Issue Date. The Bonds shall bear interest from and including the Issue Date, or the most recent Interest Payment Date to which interest has been paid or duly provided for, at the rate set out in Section 2.3, calculated on the basis of a 360-day year of twelve 30-day months, payable on each Interest Payment Date until maturity or prior redemption. Section 2.3. Amounts; Terms; Numbers and Denomination. The Series 2011 Bonds shall be numbered, shall mature in the principal amount, and shall bear interest at the rate as set forth below: Bond Principal Number Amount Maturity Date Interest Rate R-1 $1,340,000 February 15, % The Bonds shall be subject to redemption prior to maturity as provided herein. Bonds delivered on transfer of or in exchange for other Bonds shall be numbered (with appropriate prefix) in order of their authentication by the Trustee, and shall be in Authorized Denominations. The Exchange Bonds shall mature on the same date and bear interest at the same rate as the Bond or Bonds in lieu of which they are delivered. Section 2.4. Execution of Bonds; Seal. The Bonds shall be signed on behalf of the Issuer by the Mayor and countersigned by the City Secretary, by their manual, lithographed, or facsimile signatures, and the official seal of the City shall be impressed or placed in facsimile thereon. Such facsimile signatures on the Bonds shall have the same effect as if each of the Bonds had been signed manually and in person by each of said officers, and such facsimile seal on the Bonds shall have the same effect as if the official seal of the Issuer had been manually impressed upon each of the Bonds. If any officer of the Issuer whose manual or facsimile signature shall appear on the Bonds shall cease to be such officer before the authentication of such Bonds or before the delivery of such Bonds, such manual or facsimile signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in such office. Section 2.5. Approval, Registration and Delivery. It shall be the duty of the Issuer to deliver the Bonds and all pertinent records and proceedings to the Attorney General of Texas, for examination and approval by the Attorney General. After the Bonds have been approved by the Attorney General, they shall be delivered to the Comptroller for registration. Upon registration of the Bonds, the Comptroller (or a deputy lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's Registration Certificate prescribed herein to be attached or affixed to the Bonds, and the seal of said Comptroller shall be impressed, or placed in facsimile, thereon. 13

90 Section 2.6 Authentication. Only such Bonds as shall bear thereon a certificate of authentication, substantially in the form provided in Section 7.1, manually executed by an authorized signatory of the Trustee, shall be entitled to the benefits of this Trust Indenture or shall be valid or obligatory for any purpose. Such duly executed certificate of authentication shall be conclusive evidence that the Bond so authenticated was delivered by the Trustee hereunder. Section 2.7 Payment of Principal and Interest. The Trustee is hereby appointed as the Trustee for the Bonds in conformity with the terms and conditions of this Trust Indenture. The principal of the Bonds shall be payable, without exchange or collection charges, in any coin or currency of the United States of America which, on the date of payment, is legal tender for the payment of debts due the United States of America, upon their presentation and surrender as they respectively become due and payable at maturity or at their earlier redemption date, at the Principal Office of the Trustee. The interest on each Bond shall be payable by check on the Interest Payment Date, mailed by the Trustee, first class, postage prepaid, on or before each Interest Payment Date to the Owner of record as of the applicable Record Date, to the address of such Owner as shown on the Register. The Securities Depository or a nominee thereof shall be the Registered Owner of the Bonds as long as a Securities Depository is serving in that capacity under this Trust Indenture and payment will be made to the Securities Depository as provided in Section So long as the Bonds are not held by a Securities Depository upon the properly documented written request of each Registered Owner of not less than One Million Dollars ($1,000,000) aggregate principal amount of Bonds received by the Trustee not less than fifteen (15) calendar days prior to the applicable Record Date, interest owed to such Owner will be paid by federal funds wire transfer to any account located within the United States of America designated in the request. Each payment of principal, if any, or interest on the Bonds, will be accompanied by a statement of the CUSIP numbers of the Bonds on which such payment is made and the amounts paid in respect of each CUSIP number. If any Interest Payment Date shall not be a Business Day, then the date for such payment shall be the next succeeding day which is a Business Day, and payment on such date shall have the same force and effect as if made on the original date such payment was due. Section 2.8 Successor Trustee. The Issuer covenants that at all times while any Bonds are Outstanding it will provide a legally qualified bank, trust company, financial institution or other agency to act as Trustee for the Bonds. Each successor Trustee hereunder, by acting in that capacity, shall be deemed to have agreed to the provisions of this Trust Indenture. Promptly upon the appointment of any successor Trustee, the previous Trustee shall deliver the Register or a copy thereof to the successor Trustee, and the successor Trustee shall notify each Owner, by United States mail, first class postage prepaid, of such change and of the address of the successor Trustee. Section 2.9 Ownership; Unclaimed Principal and Interest. The Issuer, the Trustee, and any other Person shall treat the Person in whose name any Bond is registered on the Register as the absolute Owner of such Bond for the purpose of making and receiving payment of the principal thereof and premium (if any) and for the further purpose of making and receiving payment of the interest thereon, and for all other purposes, whether or not such Bond is overdue, and neither the 14

91 Issuer nor the Trustee shall be bound by any notice or knowledge to the contrary. All payments made to the Person deemed to be the Owner of any Bond in accordance with this Section shall be valid and effectual and shall discharge the liability of the Issuer and the Trustee upon such Bond to the extent of the sums paid. Amounts held by the Trustee which represent principal of, premium (if any) and interest on the Bonds remaining unclaimed by the Owner after the expiration of three years from the date such amounts have become due and payable shall be reported and disposed of by the Trustee in accordance with the provisions of Title 6, Texas Property Code, as amended, to the extent that such provisions are applicable to such amounts. Section 2.10 Registration, Transfer and Exchange. So long as any Bonds remain Outstanding, the Trustee shall maintain the Register in the State by providing duplicate records to the Issuer, upon request, in which, subject to such reasonable regulations as it may prescribe, the Trustee shall provide for the registration and transfer of Bonds in accordance with the terms of this Trust Indenture. Each Bond shall be transferable only upon the presentation and surrender thereof at the Principal Office of the Trustee, duly endorsed for transfer, or accompanied by an assignment duly executed by the Registered Owner or his authorized representative in form satisfactory to the Trustee. Upon due presentation of any Bond for transfer, the Trustee shall authenticate and deliver in exchange therefor, within seventy-two (72) hours after such presentation, a new Bond or Bonds, registered in the name of the transferee or transferees, in Authorized Denominations and of the same maturity and aggregate principal amount and bearing interest at the same rate as the Bond or Bonds so presented. All Bonds shall be exchangeable upon presentation and surrender thereof at the Principal Office of the Trustee for a Bond or Bonds of the same maturity and interest rate and in any Authorized Denomination, in an aggregate principal amount equal to the unpaid principal amount of the Bond or Bonds presented for exchange. The Trustee shall be and is hereby authorized to authenticate and deliver Exchange Bonds in accordance with the provisions of this Section. Each Bond delivered in accordance with this Section shall be entitled to the benefits and security of this Trust Indenture to the same extent as the Bond or Bonds in lieu of which such Bond is delivered. The Issuer or the Trustee may require the Owner of any Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of such Bond. Any fee or charge of the Trustee for such transfer or exchange shall be paid by the Issuer. The Trustee shall not be required to register the transfer of any Bond during the period beginning on the Record Date next preceding a scheduled Interest Payment Date (other than final payment) and ending after such interest payment has been made. The Trustee shall not be required 15

92 to transfer or exchange any Bond called for redemption during the period beginning forty-five (45) days prior to the date fixed for redemption and ending on the date fixed for redemption; provided, however, that this limitation shall not apply to the exchange by the Owner of the unredeemed portion of a Bond called for redemption in part. Section 2.11 Cancellation of Bonds. All Bonds paid in accordance with this Trust Indenture, shall be canceled and destroyed upon the making of proper records regarding such payment. The Trustee shall furnish the Issuer with appropriate certificates of destruction of such Bonds. All Bonds in lieu of which Exchange Bonds or Replacement Bonds are authenticated and delivered in accordance herewith shall be canceled. Section 2.12 Replacement Bonds. Upon the presentation and surrender to the Trustee of a mutilated Bond and satisfaction of the requirements specified below, the Trustee shall authenticate and deliver in exchange therefor a Replacement Bond of like maturity, interest rate, and principal amount, bearing a number not contemporaneously outstanding. The Issuer or the Trustee may require the Owner of such Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith and any other expenses connected therewith, including the fees and expenses of the Trustee. If any Bond is mutilated, lost, apparently destroyed, or wrongfully taken, the Issuer, pursuant to the applicable laws of the State and in the absence of notice or knowledge that such Bond has been acquired by a bona fide purchaser, shall execute and the Trustee shall authenticate and deliver a Replacement Bond of like maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding, provided that the Owner thereof shall have: (a) (b) (c) (d) furnished to the Issuer and the Trustee satisfactory evidence of the ownership of and the circumstances of the mutilation, loss, destruction, or theft of such Bond; furnished such security or indemnity as may be required by the Trustee and the Issuer to save them harmless; paid all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Trustee, and any tax or other governmental charge that may be imposed; and met any other reasonable requirements of the Issuer and the Trustee. If, after the delivery of such Replacement Bond, a bona fide purchaser of the original Bond in lieu of which such Replacement Bond was issued presents for payment such original Bond, the Issuer and the Trustee shall be entitled to recover such Replacement Bond from the Person to whom it was delivered or any Person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Issuer or the Trustee in connection therewith. 16

93 If any such mutilated, lost, apparently destroyed or wrongfully taken Bond has become or is about to become due and payable, the Issuer, in its discretion may, instead of issuing a Replacement Bond, authorize the Trustee to pay such Bond upon satisfaction of the applicable requirements listed in (a) through (d) of this Section. Each Replacement Bond delivered in accordance with this Section 2.12 shall be entitled to the benefits and security of this Trust Indenture to the same extent as the Bond or Bonds in lieu of which such Replacement Bond is delivered. Section 2.13 Book-Entry Registration. (a) The Bonds shall be initially registered so as to participate in a book-entry only securities depository system with the Securities Depository. The Issuer and the Trustee or any agent of either of them hereunder are hereby authorized to execute, deliver, and take the actions set forth in such letters to or agreements with the Securities Depository as shall be necessary to effectuate such securities depository system. DTC is hereby appointed as "Securities Depository" hereunder. If the Securities Depository notifies the Trustee that it is unwilling or unable to continue to exercise its functions as Securities Depository hereunder or is no longer registered or in good standing as a securities depository under the Securities Exchange Act of 1934 or other applicable statutes or regulations, the Trustee shall notify the Issuer and the Issuer shall exercise reasonable efforts to engage and appoint a successor Securities Depository to act as such hereunder within ninety (90) days after the Trustee first receives notice or otherwise knows of such event or condition. All definitive Bonds initially shall be registered in the name of Cede & Co., as nominee for the initial Securities Depository. The Securities Depository shall have sole responsibility for recording transfers of beneficial ownership of such Bonds among, and distributing payments of principal, premium (if any), and interest and notices in respect of such Bonds received by the Securities Depository to the beneficial owners thereof until it shall have been discharged as Securities Depository hereunder. Neither the Issuer nor the Trustee nor their agents shall have any responsibility or obligation with respect to any matter having to do with such beneficial ownership including recording such transfers or distributing such payments. If the Issuer determines that the value of the Bonds entirely registered in the name of the Securities Depository or its nominee would be increased or it would otherwise be in the best interests of the beneficial owners thereof if such Bonds were not registered in the name of the Securities Depository or its nominee, then the Issuer shall discharge the Securities Depository from its obligations hereunder with respect to the Bonds and give written notice thereof to the Trustee. If the Issuer fails to appoint a successor Securities Depository for the Bonds in accordance with, and within the period specified in, this Section or discharges the Securities Depository from its obligations with respect to the Bonds in accordance with this Section, then upon surrender by the Securities Depository of the Bonds to the Trustee, the Issuer shall execute and the Trustee shall authenticate, register, and deliver, in the name of and to the participants and members and in the denominations specified by the Securities Depository, one or more new Bonds aggregating a like aggregate principal amount for the Bonds of each maturity. The expense of registering the Bonds as aforesaid shall be paid by the Trustee out of the funds held by it 17

94 under this Trust Indenture. The Trustee, out of the funds held by it under this Trust Indenture, shall be required to pay the Trustee's additional fees, in an amount to be agreed upon by the Issuer and the Trustee, as paying agent and transfer agent should the Bonds change from book-entry form to certificated form for any reason. Each Bond shall, while registered in the name of the Securities Depository, include the following description of restrictions on transfer: "Notwithstanding the foregoing, if this Bond is registered in the name of a Securities Depository, as defined in the Trust Indenture, this Bond may not be so transferred except as provided in the Trust Indenture, to an alternate nominee thereof, or to a successor Securities Depository or a nominee thereof." (b) With respect to the Bonds registered in the name of Cede & Co., as nominee of DTC, or any successor entity thereto, the Issuer and the Trustee shall have no responsibility or obligation to any broker-dealer, bank or other financial institution for which DTC holds the Bonds from time to time as Securities Depository (a "Depository Participant") or to any Person on behalf of whom such a Depository Participant holds an interest in the Bonds (an "Indirect Participant"). Without limiting the immediately preceding sentence, the Issuer and the Trustee have no responsibility or obligation with respect to (i) accuracy of records of DTC, Cede & Co., or any Depository Participant with respect to any ownership interest in the Bonds or (ii) the delivery to any Depository Participant or any other Person, other than an Owner of a Bond, of any amount with respect to any ownership interest in the Bonds or (iii) the delivery to any Depository Participant or any Indirect Participant or any other Person, other than an Owner of a Bond, of any amount with respect to principal of or interest on the Bonds. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions in this Trust Indenture with respect to interest checks or drafts being mailed to the Owner, the word "Cede & Co." in this Trust Indenture shall refer to such new nominee of DTC. Notwithstanding any other provision of this Trust Indenture to the contrary, so long as any Bond is registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of and interest on such Bond and all notices with respect to such Bond all shall be made and given, respectively, in the manner provided in the letter of representation to DTC with respect to the Bonds. 18

95 will: Section 3.1. ARTICLE 3 GENERAL PROVISIONS; REFUNDING BONDS Issuer Covenants and Representations. The Issuer covenants and agrees that it (a) promptly cause to be paid to the Trustee for payment to the Owners the principal of, premium, if any, and interest on the Bonds at the place, on the dates and in the manner provided herein; (b) faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in the Bonds and this Trust Indenture; and (c) cooperate with the Trustee to insure that this Trust Indenture and all supplements thereto, and other instruments as may be required from time to time to be kept hereunder, will be recorded and filed in such manner and in such places as may from time to time be required by law in order fully to preserve and protect the security of Owners and the rights of the Trustee hereunder. The Issuer further represents that it is duly authorized under the Constitution and laws of the State to issue the Bonds authorized by the Bond Ordinance, and to pledge and assign the Trust Estate pledged and assigned in the manner and to the extent set forth in this Trust Indenture, and that all action on its part for the issuance of the Bonds has been duly and effectively taken and that the Bonds are and will be legal, valid and enforceable obligations of the Issuer in accordance with the true intent and meaning thereof. Section 3.2 Negative Covenants. The Issuer covenants and agrees that it shall not: (a) create or assume any mortgage, lien, encumbrance, security interest, pledge, charge or other exception to title upon or against any of the properties or assets constituting the Trust Estate, any revenues derived therefrom or any other funds held by the Trustee for the benefit of the Owners, except as expressly permitted by this Trust Indenture; (b) sell, lease, transfer, convey or otherwise dispose of all or any part of the Trust Estate or its interest therein; (c) create or incur any debt secured by the Trust Estate or the Issuer's interest therein, other than Refunding Bonds; and (d) take any other action within its control that will impair the lien of this Trust Indenture on the Trust Estate. 19

96 Section 3.3 Authorization for Trust Indenture; Trust Indenture to Constitute Contract.This Trust Indenture is entered into pursuant to Section of the Act, and, by being incorporated by reference in the Bond Ordinance, specifies all of the terms and conditions identified by Section of the Act. In consideration of the purchase and acceptance of the Bonds by those who shall purchase and own the same from time to time, this Trust Indenture shall be a part of the contract of the Issuer with the Owners, and shall be deemed to be and shall constitute a contract between the Issuer, Trustee and Owners who from time to time own the Bonds, and the provisions of this Trust Indenture are covenants and agreements with such Owners which the Issuer hereby determines to be necessary and desirable for the security and payment thereof. If there is conflict between the provisions of this Trust Indenture and the Bond Ordinance, the provisions of this Trust Indenture shall control. Section 3.4 Refunding Bonds. (a) Notwithstanding any contrary provision of this Trust Indenture, including specifically Section 3.2(c), the Issuer shall not issue additional bonds, notes or other obligations under this Trust Indenture, payable from Special Assessment Revenues on a parity with the Series 2011 Bonds, other than Refunding Bonds. The Issuer reserves the right to issue Refunding Bonds, the proceeds of which would be utilized to refund all or any portion of the Outstanding Series 2011 Bonds or Outstanding Refunding Bonds and to pay all costs incident to the Refunding Bonds, as authorized by the laws of the State. The Issuer reserves the right to incur debt payable solely from revenue derived from contracts with other entities, including private corporations, municipalities and political subdivisions issued particularly for the purchase, construction, improvement, extension, replacement, enlargement or repair of the facilities needed in performing any such contract. (b) The principal of all Refunding Bonds must be scheduled to be paid, be subject to mandatory sinking fund redemption or mature on February 15 of the years in which such principal is scheduled to be paid, subject to mandatory sinking fund redemption or mature. All Refunding Bonds must bear interest at a fixed rate and any interest payment dates for Refunding Bonds must be February 15 and August 15. The date, rate or rates of interest on, interest payment dates, maturity dates, redemption and all other terms and provisions of Refunding Bonds shall be set forth in a Supplemental Trust Indenture. (c) Upon their authorization by the Issuer, the Refunding Bonds of a Series issued under this Section 3.4 shall be issued and shall be delivered to the purchasers or owners thereof, but before, or concurrently with, the delivery of said Refunding Bonds to such purchasers or owners there shall have been filed with the Trustee (1) a copy, certified by the City Secretary of the City, of the ordinance or ordinances of the City authorizing the issuance, sale, execution and delivery of the Refunding Bonds and the execution and delivery of a Supplemental Trust Indenture establishing, among other things, the date, rate or rates of interest on, interest payment dates, maturity dates, redemption and all other terms and provisions of such Refunding Bonds, and (2) an original executed counterpart of the Supplemental Trust Indenture for such Refunding Bonds. 20

97 ARTICLE 4 FUNDS AND ACCOUNTS, INITIAL DEPOSITS AND APPLICATION OF MONEY Section 4.1 Pledged Revenue Fund. (a) The Issuer hereby creates and establishes with the Trustee the "City of Waxahachie, Texas Special Assessment Bonds (Waxahachie Public Improvement District No. 1 Phase I Project) Pledged Revenue Fund" (the "Pledged Revenue Fund"), and, within such Fund, the Issuer hereby creates and establishes a Phase I Improvement Assessment Account and a Phase I Improvement Assessment Prepayment Account. The Pledged Revenue Fund shall be held by the Trustee solely for the benefit of the Bonds. (b) Upon receipt, and in no event less than ten (10 ) Business Days of receipt thereof, the City shall transfer to the Trustee for deposit to (i) the Phase I Improvement Assessment Account, all amounts representing revenues from Phase I Improvement Assessments other than revenues from Prepayments, and (ii) the Phase I Improvement Assessment Prepayment Account, all amounts representing Prepayments. (c) On or before the Business Day immediately prior to February 15 and August 15 of each year while any Bonds are Outstanding, the Trustee shall transfer amounts on deposit in the Phase I Improvement Assessment Account to the following Funds in the following order of priority: FIRST: To the Interest and Sinking Fund, an amount necessary, if any, to increase the balance in the Interest and Sinking Fund to an amount equal to the aggregate amount of all remaining scheduled Debt Service Requirements for the Bonds during the current Fiscal Year, as provided herein, or a greater amount designated in writing by the Issuer; SECOND: To the Debt Service Reserve Fund, the amount necessary, if any, to cause the amount on deposit in the Debt Service Reserve Fund to equal the Debt Service Reserve Fund Requirement for the Bonds; and THIRD: To the Prepayment Reserve Fund, the amount necessary, if any, to cause the amount on deposit in the Prepayment Reserve Fund to equal $1, (d) Prior to the Developer Reserve Fund Release Date, on the Business Day immediately prior to February 15 of each year, after the transfer of all amounts to be transferred pursuant to Section 4.1(c) hereof, the Trustee shall transfer, to the extent funds are available therefor, amounts on deposit in the Phase I Improvement Assessment Account which constitute Delinquent Developer Parcel Assessment Payments to the Developer Reserve Fund in the amount necessary, if any, to cause the amount on deposit in the Developer Reserve Fund to equal $50,

98 (e) Any amounts remaining after all of the foregoing transfers have been made shall be held in the Pledged Revenue Fund and shall be used to cover first, any shortfalls in the Interest and Sinking Fund necessary to pay scheduled Debt Service Requirements for the Bonds in the then current Fiscal Year, and second, shortfalls in the Debt Service Reserve Fund. (f) Promptly upon the deposit of Prepayments to the Phase I Improvement Assessment Prepayment Account, the Trustee shall transfer all amounts on deposit therein to the Bond Redemption Fund and shall apply such amount, together with the amount required to be transferred from the Debt Service Reserve Fund pursuant to Section 4.6(e), to the extraordinary mandatory redemption of Bonds pursuant to Section 6.3. Section 4.2 Improvement Fund. There is hereby created a special fund with the Trustee to be called the "City of Waxahachie, Texas Special Assessment Bonds (Waxahachie Public Improvement District No. 1 Phase I Project) Improvement Fund." The Improvement Fund shall be held by the Trustee as a separate account distinct from all other accounts of the Issuer, solely for the benefit of the Bonds. The Improvement Fund shall consist of the proceeds received from the sale of the Series 2011 Bonds, to be deposited into the Improvement Fund pursuant to Section 11.1(b). Disbursement from the Improvement Fund shall be made to pay the costs of issuance of the Series 2011 Bonds and the costs of acquisition and construction of the Phase I Improvements, together with all expenses incidental thereto. Prior to making each disbursement from the Improvement Fund, the Trustee shall receive a request for disbursement executed by the Issuer in the form attached hereto as Exhibit "D". After receipt from the Issuer of notification of the completion of the acquisition and construction of the Phase I Improvements and the payment of all costs of issuance and other claims from the Improvement Fund, the Trustee shall notify the Issuer of the amount of the surplus, if any, remaining in the Improvement Fund. The Issuer shall have authority to expend the surplus remaining in the Improvement Fund on the acquisition or construction of the Phase I Improvements. Thereafter, any surplus remaining in the Improvement Fund after acquisition and construction of the Phase I Improvements representing investment income shall be transferred to the Interest and Sinking Fund, and the remainder shall be transferred to the Redemption Fund and used to redeem Bonds pursuant to Section 6.3. Section 4.3 Interest and Sinking Fund. For purposes of providing funds to pay the Debt Service Requirements on the Bonds as the same become due and payable, the Issuer agrees to maintain, at the Trustee, a separate and special fund hereby created and known as the "City of Waxahachie, Texas Special Assessment Bonds (Waxahachie Public Improvement District No. 1 Phase I Project) Interest and Sinking Fund". The Interest and Sinking Fund shall be held by the Trustee solely for the benefit of the Bonds. The amount of capitalized interest on the Series 2011 Bonds payable from the proceeds of the sale of the Series 2011 Bonds shall be deposited into the Interest and Sinking Fund upon issuance of the Series 2011 Bonds pursuant to Section 11.1(b). The amount of Series 2011 Bond proceeds to be set aside as capitalized interest shall not exceed the amounts permitted by, nor cover periods not authorized in, Section of the Texas 22

99 Government Code, as amended. There shall also be deposited into the Interest and Sinking Fund, no later than the Business Day immediately prior to each principal payment date and Interest Payment Date on the Bonds, from the amounts available in the Pledged Revenue Fund, an amount which, together with Available Money on deposit in the Interest and Sinking Fund, shall be equal to one hundred percent (100%) of the amount required to fully pay the principal of and interest on the Bonds payable at such principal payment date or Interest Payment Date whether at maturity or as a scheduled mandatory redemption. Section 4.4 Administrative Fund. (a) There is hereby created with the Trustee a special fund, herein called the "City of Waxahachie, Texas Special Assessment Bonds (Waxahachie Public Improvement District No. 1 Phase I Project) Administrative Fund," to be held by the Trustee as a separate account, distinct from all other accounts of the Issuer, solely for the benefit of the Bonds. The Trustee will deposit into the Administrative Fund from the proceeds of each Series of the Bonds the amounts to be deposited pursuant to Section 11.1(b). Upon receipt, and in no event less than ten (10 ) Business Days of receipt thereof, the City shall transfer to the Trustee for deposit to the Administrative Fund, all amounts representing Special Assessment Revenues from Administrative Expense Assessments. (b) The Issuer may draw monies from the Administrative Fund to pay Administrative Expenses (excluding the costs of issuing the Bonds) by delivery to the Trustee of a request for disbursement in the form set out in Exhibit "E", executed by the Issuer. Such amounts shall be applied by the Issuer to pay Administrative Expenses as they become due. Fees or charges incurred by the Issuer payable to the Trustee in satisfaction of the Issuer liability to the Trustee for the services described herein shall be paid from the Administrative Fund. Section 4.5 Bond Redemption Fund. There is hereby created a separate special fund with the Trustee to be called the "City of Waxahachie, Texas Special Assessment Bonds, (Waxahachie Public Improvement District No. 1 Phase I Project) Redemption Fund" (the "Bond Redemption Fund"). The Bond Redemption Fund shall be held by the Trustee solely for the benefit of the Bonds. The Trustee shall deposit into the Bond Redemption Fund all amounts required to be transferred to such Fund from the Phase I Improvement Assessment Prepayment Account pursuant to, and at the times specified in, Sections 4.1, from the Debt Service Reserve Fund pursuant to Section 4.6(e), and from the Improvement Fund pursuant to Section 4.2. The Trustee shall apply all such amounts in the Redemption Fund to redeem or purchase Bonds in accordance with Sections 6.1, 6.3 and 6.6. Except as otherwise provided in Section 4.9, accrued interest on any Bonds redeemed or purchased shall be paid from the Interest and Sinking Fund and the Prepayment Reserve Fund. Section 4.6 Debt Service Reserve Fund (a) There is hereby created a special fund with the Trustee to be called the "City of Waxahachie, Texas Special Assessment Bonds, (Waxahachie Public Improvement District No. 1 Phase I Project) Debt Service Reserve Fund". The Debt Service Reserve Fund shall be held by the Trustee solely for the benefit of the Bonds. The Trustee will deposit into the Debt Service Reserve 23

100 Fund from the proceeds of the Series 2011 Bonds the amount to be deposited pursuant to Section 11.1(b). (b) If, on any Maturity Date, Mandatory Sinking Fund Redemption Date or Interest Payment Date, the amount on deposit in the Interest and Sinking Fund is insufficient to pay the debt service due on such date, the Trustee shall transfer from the Debt Service Reserve Fund to the Interest and Sinking Fund the amounts necessary to cure such deficiency. (c) Whenever a transfer is made from the Debt Service Reserve Fund to the Interest and Sinking Fund due to a deficiency in the Interest and Sinking Fund, the Trustee shall immediately provide written notice thereof to the Issuer specifying the amount withdrawn. (d) The Trustee shall determine the value of cash and investments on deposit in the Debt Service Reserve Fund as of the last day of each Fiscal Year. So long as no Event of Default shall have occurred and be continuing, if as of the last day of each Fiscal Year the value of cash and investments on deposit in the Debt Service Reserve Fund exceeds the Debt Service Reserve Fund Requirement for the Bonds, the Trustee shall transfer such excess to the Interest and Sinking Fund. (e) In the event of an extraordinary mandatory redemption pursuant to Section 6.3 from the proceeds of a Prepayment, the Trustee, pursuant to written directions from the Issuer, shall transfer from the Debt Service Reserve Fund to the Bond Redemption Fund the amount specified in such directions, which shall be an amount equal to the difference between the Debt Service Reserve Requirement immediately prior to such extraordinary mandatory redemption and the Debt Service Reserve Requirement immediately after such extraordinary mandatory redemption. (f) If the amount held in the Debt Service Reserve Fund, together with the amounts held in the Phase I Improvement Assessment Account, the Interest and Sinking Fund and in the Prepayment Reserve Fund, is sufficient to pay the principal amount of all Outstanding Bonds on the next date the Bonds may be optionally redeemed by the City at a redemption price of par, together with the interest accrued on such Bonds to such date, and all amounts due or to be due as Administrative Expenses and payable from the Administrative Fund have been paid or provided for, then all such amounts (other than amounts in the Administrative Fund) shall be transferred to the Bond Redemption Fund and used to redeem the Bonds in whole on the next date on which the Bonds may be optionally redeemed at par. (g) If, after a withdrawal from the Debt Service Reserve Fund, and after taking into account any transfers made pursuant to Section 4.1(c), the amount in the Debt Service Reserve Fund is less than the Debt Service Reserve Fund Requirement for the Bonds, the Trustee shall transfer an amount from the Phase I Improvement Assessment Account to the Debt Service Reserve Fund pursuant to Section 4.1(e) sufficient to cure such deficiency and replenish the Debt Service Reserve Fund, but only to the extent that such transferred amount is not necessary to pay principal, interest or Mandatory Sinking Fund Payments. 24

101 Section 4.7 Prepayment Reserve Fund; Release. (a) There is hereby created a special fund with the Trustee to be called the "City of Waxahachie, Texas Special Assessment Bonds (Waxahachie Public Improvement District No. 1 Phase I Project) Prepayment Reserve Fund." The Prepayment Reserve Fund shall be held by the Trustee for the benefit of the Bonds. The Trustee will deposit into the Prepayment Reserve Fund from the proceeds of the Bonds the amounts to be deposited pursuant to Section 11.1(b). Money deposited in the Prepayment Reserve Fund will be used and withdrawn by the Trustee for the purpose of making transfers to the Interest and Sinking Fund, pursuant to, and at the times specified in, Section 6.3 to pay a portion of the accrued interest on Bonds being redeemed pursuant to Section 6.3. The amount to be transferred shall be an amount, for each Prepayment, equal to the amount of interest that would have accrued on the Phase I Improvement Assessment but for the Prepayment for the period from and including the date of the Prepayment to but excluding the date of redemption of Bonds pursuant to Section 6.3 with the proceeds of such Prepayment. (b) If, on any Maturity Date, Mandatory Sinking Fund Redemption Date or Interest Payment Date, the amount on deposit in the Interest and Sinking Fund is insufficient to pay the debt service due on such date, and if there are not sufficient monies in the Debt Service Reserve Fund to cure such deficiency, the Trustee shall transfer from the Prepayment Reserve Fund to the Interest and Sinking Fund the amounts necessary to cure such deficiency. (c) All amounts in the Prepayment Reserve Fund shall be transferred to the Bond Redemption Fund and used to redeem the Bonds in whole pursuant to Section 4.6(f). Section 4.8 Developer Reserve Fund; Release. (a) There is hereby created a special fund with the Trustee to be called the "City of Waxahachie, Texas Special Assessment Bonds (Waxahachie Public Improvement District No. 1 Phase I Project) Developer Reserve Fund." The Developer Reserve Fund shall be held by the Trustee solely for the benefit of the Bonds. The Developer shall deposit or cause to be deposited $50,000 into the Developer Reserve Fund prior to the issuance of the Series 2011 Bonds. Prior to the Developer Reserve Fund Release Date, funds deposited in the Developer Reserve Fund shall be transferred by the Trustee in an aggregate amount equal to all outstanding Developer Parcel Delinquency Amounts (to the extent not previously so transferred) into the Phase I Improvement Assessment Account prior to each transfer from the Phase I Improvement Assessment Account pursuant to Section 4.1(c). (b) Any amounts deposited in the Developer Reserve Fund shall be released, except during the occurrence of an ongoing current Event of Default, on the first February 16 to occur after the issuance by the City of certificates of occupancy for ninety percent (90%) of all homes to be constructed on all lots ultimately designed, engineered and platted on all land within Phase I, currently contemplated to be 209 homes. 25

102 At such time as the condition for release is met, any amounts deposited in the Developer Reserve Fund shall be irrevocably and unconditionally released to the Developer, or to the Developer's successors and assigns as identified in a written notice from the Developer to the Trustee and the City. The City and the Trustee shall solely and conclusively rely as to payment of amounts released from the Developer Reserve Fund on any such written notice from the Developer as to its successors and assigns. The City shall provide written notice of the release to the Trustee and Developer, or to the Developer's successors and assigns. (c) The Trustee shall determine the value of cash and investments on deposit in the Developer Reserve Fund as of February 10 and August 10 of each Fiscal Year. If as of the date of determination the value of cash and investments on deposit in the Developer Reserve Fund exceeds $50,000, the Trustee shall transfer such excess to the Interest and Sinking Fund. Section 4.9 Rebate Fund; Rebatable Arbitrage. (a) There is hereby created a special fund with the Trustee to be called the "City of Waxahachie, Texas Special Assessment Bonds (Waxahachie Public Improvement District No. 1 Phase I Project) Rebate Fund." The Rebate Fund shall be held by the Trustee in accordance with the terms and provisions of this Trust Indenture, solely for the benefit of the Issuer. Amounts on deposit in the Rebate Fund shall be used solely for the purpose of paying amounts due the United States Government in accordance with the Code. The Rebate Fund shall not be part of the Trust Estate and shall not be security for the Bonds. (b) The Issuer hereby certifies and covenants that it will not, and will not direct the Trustee to use, or permit the use of any proceeds of the Bonds, directly or indirectly, in any manner, and shall not take or omit to take any action, if such use, action or omission would cause the Bonds to be treated as an obligation not described in Section 103(a) of the Code. The covenants herein made and the certifications herein authorized are for the benefit of the Owners with respect to the Bonds and may be relied upon by such Owners and by Bond Counsel rendering opinions on the same. Within the limitations of this Article IV, the City shall be permitted to direct the Trustee to transfer money from one Fund or Account or subaccount to another, adjust interest rates on Authorized Investments or take such other actions as may be required in order to prevent the Bonds from becoming "arbitrage bonds." (c) The Issuer hereby covenants to cause to be calculated on the Rebate Calculation Date the amount of Rebatable Arbitrage (each as defined in the Federal Tax Certificate), attributable to the Bonds as of such Rebate Calculation Date. Rebatable Arbitrage shall be calculated in the manner set forth in the Federal Tax Certificate and in compliance with the Code. The Issuer shall, within ten (10) Business Days of the Rebate Calculation Date, send written notice to the Trustee and the Administrator, of the amount of Rebatable Arbitrage as of such Rebate Calculation Date. Within thirty (30) calendar days following the Rebate Calculation Date, the Issuer shall direct the Trustee to transfer such amounts from the Funds and Accounts as necessary to cause to be on deposit in the Rebate Fund an amount equal to the Rebatable Arbitrage determined on the most recent Rebate 26

103 Calculation Date. The Issuer shall direct the Trustee to make such transfers to the extent available therein, first from the Improvement Fund, then from the Phase I Improvement Assessment Account, and then from the Debt Service Reserve Fund, until the amount on deposit in the Rebate Fund equals the Rebatable Arbitrage calculated on the most recent Rebate Calculation Date. In the event that the Issuer fails to cause the Rebatable Arbitrage to be calculated on the Rebate Calculation Date or fails to direct the Trustee to make such transfers to the Rebate Fund by February 15 of any year, the Trustee shall retain an independent certified public accountant experienced and skilled in the calculation of rebate to perform such calculation and shall transfer the amounts required as stated in the previous sentence to the Rebate Fund without further direction from the Issuer. The Trustee shall give written notice of such calculation and transfers to the Issuer and the Administrator. The costs of calculating the Rebatable Arbitrage shall be an Administrative Expense. (d) The Issuer hereby covenants to direct the Trustee to pay Rebatable Arbitrage to the United States in installments as required under the Code. In order to assure that Rebatable Arbitrage is paid to the United States rather than to a third party, investments of funds on deposit in the Rebate Fund shall be made in accordance with the Code and the Federal Tax Certificate. (e) The Issuer shall keep and retain for a period of six (6) years following retirement of the Bonds, records of the determinations made pursuant to this Section 4.9 and the Federal Tax Certificate. (f) The Trustee conclusively shall be deemed to have complied with the provisions of this Section and shall not be liable or responsible if it follows the instructions set forth in this Section 4.9. If, on each Rebate Calculation Date, the amount on deposit in the Rebate Fund exceeds the amount of the Rebatable Arbitrage, the Issuer may direct the Trustee to transfer the amount in excess of the Rebatable Arbitrage to the Interest and Sinking Fund. Section 4.10 Lien Forgiveness upon Payment of Bonds. After the payment of all Phase I Improvements, when there is (i) Available Money in the Debt Service Reserve Fund, Pledged Revenue Fund, Bond Redemption Fund, Improvement Fund, Prepayment Reserve Fund and Interest and Sinking Fund sufficient to make all interest payments to maturity or earlier redemption date, to pay all Principal Installments of and premium, if any, on the Bonds and (ii) sufficient money in the Administrative Fund to pay the Administrative Expenses related to the payment of the Debt Service Requirements due and reasonably estimated to become due to the final Maturity Date or earlier redemption date of all the Bonds, no further payments need to be made into the Administrative Fund, the Pledged Revenue Fund, the Debt Service Reserve Fund, the Bond Redemption Fund, the Improvement Fund, the Prepayment Reserve Fund and Interest and Sinking Fund, and the balances remaining in such Funds (other than the Administrative Fund) shall be used to pay or redeem the Bonds. 27

104 Section 4.11 Deposit and Investment of Funds. (a) Money in the Pledged Revenue Fund, the Interest and Sinking Fund, the Administrative Fund, the Bond Redemption Fund, the Prepayment Reserve Fund, the Developer Reserve Fund and the Improvement Fund shall be deposited or invested in any Authorized Investments as instructed as described below by the Issuer, maturing on a date or dates on or prior to the need for such money. Money in the Debt Service Reserve Fund shall be deposited or invested in such Authorized Investments as instructed as described below by the Issuer, maturing on the earlier of a date or dates not later than (a) the date of maturity of the last Bond then Outstanding or (b) five (5) years after the date of the investment. Any income or interest earned on any Fund shall accrue to and be deposited in the Fund from which said monies were deposited or invested, except to the extent otherwise provided herein. The Trustee shall invest money only upon receipt of written instructions from the Issuer as to each deposit or investment. The Trustee shall be entitled to assume that the Issuer has obtained the necessary approvals to submit the written instructions to the Trustee. In the absence of direction, the Trustee may invest in U.S. Treasury Plus Money Market Funds, or in other funds of the Trustee or successor Trustee, to the extent permitted by law. Notwithstanding any other provision of this Trust Indenture to the contrary, investments of money in the Bond Redemption Fund shall bear a rating equal to or greater than the rating borne by the Bonds. (b) All Authorized Investments purchased as an investment of any Fund or Account created hereunder shall be valued as of any date of determination at the Value of Authorized Investments. Section 4.12 Payment of Bonds. While any of the Bonds are Outstanding, the Issuer shall cause to be paid solely from funds on deposit in the Funds created hereunder (other than the Administrative Fund) amounts sufficient to fully pay and discharge promptly the Debt Service Requirements on the Bonds as such payments accrue or mature, whether by reason of maturity, redemption, or otherwise; such transfer of funds must be made in such manner as will cause immediately available funds to be available for payment of the Bonds at the close of the Business Day next preceding the date the Debt Service Requirement payment is due on the Bonds, all as set forth in this Trust Indenture. Section 4.13 Advances from Available Funds. In the event of a delinquency in the payment of any installment of the Special Assessment levied upon any property for the payment of the Principal Installments of and interest on the Bonds, the Issuer may, but is not obligated to, be the purchaser of the delinquent property upon which any of said Special Assessments are levied in like manner in which it may become the purchaser of property sold for the nonpayment of general ad valorem property taxes, and in the event the Issuer does so become the purchaser of such property, shall pay and transfer and deposit into the Phase I Improvement Assessments Account the amount of any remaining amount of unpaid Special Assessment, delinquent Special Assessment installment and interest thereon. The Issuer may also pay and transfer from available funds and deposit into the Phase I Improvement Assessments Account, but shall not be so obligated, the amount of any such assessment pending redemption or sale. Any amounts so advanced by the Issuer shall be recoverable upon sale or redemption of the property. The Issuer shall not be obligated to advance 28

105 available funds to cure any deficiency in the Phase I Improvement Assessments Account, or any other Fund created hereunder, and has determined that it would not obligate itself to advance available funds from other funds of the Issuer to cure any such deficiency. ARTICLE 5 REMEDIES Section 5.1 of Default": Events of Default. Each of the following events is hereby declared an "Event (a) if default occurs in the payment of the principal of any of the Bonds, when the same shall become due and payable, either at maturity or pursuant to mandatory sinking fund redemption; or (b) if default occurs in the payment of any installment of interest on any of the Bonds when the same shall become due and payable; or (c) the Bankruptcy or Insolvency of the Issuer; or (d) if the Issuer shall default in the due and punctual performance of any of the covenants, conditions, agreements and provisions contained in this Trust Indenture, other than as specified in Section 5.1(a), 5.1(b) and 5.1(c), on the part of the Issuer to be performed, and such default shall continue for sixty (60) days after written notice specifying such default and requiring same to be remedied shall have been given to the Issuer by the Trustee, which may give such notice in its discretion and shall give such notice at the written request of the Owners of not less than ten percent (10%) in principal amount of the Bonds then Outstanding; provided, however, if the default stated in the notice is capable of cure but cannot reasonably be cured within the applicable period, the Issuer shall be entitled to a further extension of time reasonably necessary to remedy such default so long as corrective action is instituted by the Issuer within the applicable period and is diligently pursued until such failure is corrected, but in no event for a period of time of more than ninety (90) days after such notice. Section 5.2 Actions by Trustee. Upon the happening and continuance of any Event of Default specified in Section 5.1 herein, then and in every such case the Trustee may proceed, and upon the written request of the Owners of not less than a majority in principal amount of the Bonds then Outstanding hereunder shall proceed, to protect and enforce its rights and the rights of the Owners of the Bonds under this Trust Indenture by such suits, actions or special proceedings in equity or at law, or by proceedings in the office of any board or officer having jurisdiction, either for mandamus or the specific performance of any covenant or agreement contained herein or in aid or execution of any power herein granted or for the enforcement of any proper legal or equitable remedy, as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce such rights. 29

106 To the extent allowed by law, in the enforcement of any remedy under this Trust Indenture the Trustee shall be entitled to sue for, enforce payment of and receive any and all amounts then or during any default becoming, and at any time remaining, due from the Issuer for Principal Installments, interest or otherwise under any of the provisions of this Trust Indenture or of the Bonds, together with any and all costs and expenses of collection and of all proceedings hereunder and under such Bonds, without prejudice, to any other right or remedy of the Trustee, of the Owners of the Bonds, and to recover and enforce judgment or decree against the Issuer, but solely from Special Assessments for any portion of such amounts remaining unpaid, with interest, costs and expenses, and to collect in any manner provided by law, the monies adjudged or decreed to be payable from said sources and the Trustee shall never have the right to demand payment thereof out of any funds of the Issuer other than the Special Assessment Revenues. Section 5.3 Priority of Payment Upon Default.If at any time the monies in the Funds designated for the purpose of making payments of principal of or interest on the Bonds shall not be sufficient to pay, in a timely manner, the Principal Installments or the interest on the Bonds as the same become due and payable, such monies, together with any monies then available or thereafter becoming available for such purpose, whether through the exercise of the remedies provided for in this Article or otherwise, shall, after payment of the costs and expenses of the proceedings resulting in the collection of such money and of the fees of, and the expenses, liabilities, and advances incurred or made by, the Trustee (including all accrued and unpaid Trustee fees and the fees of its attorneys), be applied as follows: FIRST: to the payment to the Owners entitled thereto of all installments of interest then due on the Bonds, in the order of the maturity of the installments of such interest, and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the Persons entitled thereto, without any discrimination or preference except as to any difference, if any, in the respective rates of interest specified in the Bonds; SECOND: to the payment of the Principal Installments of any Bonds which are due, and, if the amount available shall not be sufficient to pay all of such amounts, then to the payment thereof ratably, according to the amount due. Section 5.4 Default Cured. In case any action taken by the Trustee on account of any default shall have been discontinued or abandoned for any reason, then and in every such case the Issuer, the Trustee and the Owners of the Bonds shall be restored to their former positions and rights hereunder, respectively, and all rights, remedies, powers and duties of the Trustee shall continue as though no such action had been taken. Section 5.5 Direction of Proceedings by Owners of Bonds. Anything in this Trust Indenture to the contrary notwithstanding, the Owners of not less than a majority in principal amount of the Bonds then Outstanding hereunder shall have the right, subject to Section 9.2, by an 30

107 instrument or concurrent instruments in writing executed and delivered to the Trustee, to direct the method and place of conducting all remedial actions to be taken by the Trustee hereunder, provided that such direction shall not be otherwise than in accordance with law or the provisions of this Trust Indenture, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be in violation of the law or the provisions of this Trust Indenture, would subject the Trustee to liability or would be unjustly prejudicial to Owners of Bonds not parties to such direction. Section 5.6 Remedies. No Owner of any of the Outstanding Bonds shall have any right to institute any suit, action, mandamus or other proceeding in equity or at law for the execution of any trust hereunder or the protection or enforcement of any right under this Trust Indenture or any action of the Issuer authorizing the issuance of Bonds, or any right under the laws of the State, except only an action for mandamus against the City, or for the recovery of overdue and unpaid Principal Installments, interest or premium (if any), unless; (i) such Owner previously shall have given to the Trustee written notice of the Event of Default or breach of trust or duty on account of which such suit or action is to be taken; (ii) the Owners of not less than twenty percent (20%) in principal amount of the Bonds then Outstanding shall have made written request of the Trustee after the right to exercise such powers or right of action, as the case may be, shall have accrued, and shall have afforded the Trustee a reasonable opportunity either to proceed to exercise the powers herein granted or granted by the laws of the State, or to institute such action, suit or proceeding in its or their name; (iii) there shall have been furnished to the Trustee security and indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred therein or thereby; and (iv) the Trustee shall have refused or neglected to comply with such request within a reasonable time. Such notification, request and furnishing of indemnity are hereby declared in every such case, at the option of the Trustee, to be conditions precedent to the execution of the powers and trusts of this Trust Indenture or for any other remedy hereunder or under the laws of the State. It is understood and intended that no one or more Owners of the Bonds hereby secured shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of this Trust Indenture, or to enforce any right hereunder or under the laws of the State with respect to the Bonds or this Trust Indenture, except in the manner herein provided, and that all proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the benefit of all Owners of the Outstanding Bonds, except as otherwise permitted herein with reference to overdue and unpaid Principal Installments, interest or premium, if any. Section 5.7 Non-possession of Bonds. All rights of action under this Trust Indenture or under any of the Bonds, enforceable by the Trustee, may be enforced by it without the possession of any of the Bonds or the production thereof on the trial or other proceeding relative thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in its name for the benefit of all the Owners of such Bonds, subject to the provisions of this Trust Indenture. Section 5.8 Available Remedies. The remedies herein conferred upon or reserved to the Trustee or to the Owners of the Bonds are intended to be exclusive of any other remedy or remedies. 31

108 Section 5.9 Delay in Exercise of Rights. No delay or omission of the Trustee or of any Owner of the Bonds to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or any acquiescence therein; and every power and remedy given by this Trust Indenture to the Trustee and the Owners of the Bonds, respectively, may be exercised from time to time and as often as may be deemed expedient. The Trustee may, and upon written request of the Owners of not less than a majority in principal amount of the Bonds then Outstanding shall, waive any default which in its opinion shall have been remedied before the completion of the enforcement of any remedy under this Trust Indenture, but no such waiver shall extend to or affect any other existing or any subsequent default or defaults or impair any rights or remedies consequent thereon. ARTICLE 6 REDEMPTION Section 6.1 Optional Redemption. The Series 2011 Bonds are subject to optional redemption by the Issuer, in whole or in part, in integral multiples of $5,000 on any date on or after February 15, 2021 at a redemption price equal to one hundred percent (100%) of the par amount of principal being redeemed plus unpaid interest accrued to the date of redemption. Section 6.2 Mandatory Sinking Fund Redemption. (a) Prior to their Maturity Date, a portion of the Series 2011 Bonds shall be redeemed from amounts on deposit in the Interest and Sinking Fund on February 15 in the years and in the required principal amounts set out below: The Series 2011 Bonds are subject to mandatory sinking fund redemption by the City prior to maturity on February 15 in the years and in the amounts set forth below at a redemption price equal to 100% of the principal amount redeemed plus accrued interest to the redemption date. Mandatory Redemption Date Mandatory Sinking Fund Payment Mandatory Redemption Date Mandatory Sinking Fund Payment 02/15/2012 $ 5, /15/2026 $ 45, /15/ , /15/ , /15/ , /15/ , /15/ , /15/ , /15/ , /15/ , /15/ , /15/ , /15/ , /15/ , /15/ , /15/ , /15/ , /15/ ,

109 02/15/ , /15/ , /15/ , /15/ , /15/ , /15/ , /15/ , /15/2038* 125, /15/ , *Final Maturity (b) Series 2011 Bonds delivered on transfer of or in exchange for other Series 2011 Bonds shall be numbered (with appropriate prefix) in order of their authentication by the Trustee and shall be in Authorized Denominations. The Series 2011 Bonds shall mature on the same date, be in the same amount and bear interest at the same rate as the Series 2011 Bond or Series 2011 Bonds in lieu of which they are delivered. (c) On each Mandatory Sinking Fund Redemption Date, the Trustee shall make the Mandatory Sinking Fund Payment from the Interest and Sinking Fund. The Series 2011 Bonds to be redeemed will be selected by the Trustee by lot, or in such other equitable manner as the Trustee may determine. The Series 2011 Bonds shall be redeemed in Authorized Denominations. The principal amount of the Series 2011 Bonds required to be redeemed on each Mandatory Sinking Fund Redemption Date shall be reduced, at the option of the Issuer, by the principal amount of any Series 2011 Bonds which, at least forty-five (45) days prior to the Mandatory Sinking Fund Redemption Date, have been acquired by the Issuer and delivered to the Trustee for cancellation or have been redeemed (otherwise than through mandatory sinking fund redemption pursuant to this Section 6.2) and canceled by the Trustee and not theretofore credited against a scheduled mandatory sinking fund redemption. Each such Series 2011 Bond so delivered or previously purchased or redeemed shall be credited by the Trustee at one hundred percent (100%) of the principal amount thereof toward the obligation of the Issuer on such Mandatory Sinking Fund Redemption Date, and the principal amount of such Series 2011 Bonds to be redeemed by operation of mandatory sinking fund redemption shall be reduced accordingly. Section 6.3 Extraordinary Mandatory Redemption. (a) The Bonds are subject to extraordinary mandatory redemption prior to maturity, on any date, at a redemption price equal to the principal amount of the Bonds, or portions thereof, to be redeemed plus accrued and unpaid interest thereon, to the date fixed for redemption, with the principal amount equal to and payable from (i) Special Assessment Revenues from Prepayments of Phase I Improvement Assessments, including Prepayments from the Developer pursuant to the Developer Prepayment Agreement, when such Prepayments have been deposited in the Phase I Improvement Assessment Prepayment Account and have been transferred to the Bond Redemption Fund along with funds transferred from the Debt Service Reserve Fund to the Bond Redemption Fund pursuant to Section 4.6(e), and (ii) proceeds of the Bonds transferred to the Bond Redemption Fund from the Improvement Fund pursuant to Section 4.2. Accrued and unpaid interest to the date 33

110 fixed for redemption shall be payable from the Interest and Sinking Fund. The Bonds to be so redeemed shall be selected by the Trustee by lot only from the applicable Series of Bonds. Notwithstanding the foregoing, the Trustee will not be required to make an extraordinary mandatory redemption pursuant to this Section 6.3(a) unless it has at least $5,000 available in the Bond Redemption Fund with which to redeem Bonds. (b) In lieu of redeeming Bonds with the funds described in this Section, the City may purchase Bonds in the open market of the maturity to be redeemed at the price not in excess of that provided in Section 6.6. (c) In the event of any extraordinary redemption pursuant to this Section of Series 2011 Bonds for which Mandatory Sinking Fund Payments have been established, the Mandatory Sinking Fund Payments for such Bonds shall be adjusted, at the option of the Issuer, pursuant to Section 6.2(c). Section 6.4 Notice of Redemption. (a) Notice of redemptions shall be given by the Trustee at least thirty (30) days prior to the redemption date by giving written notice to the Owner of each Series 2011 Bond to be redeemed in whole or in part at the address shown on the Register by first-class mail, postage prepaid. Such notice shall state the complete official name of the Series 2011 Bonds to be redeemed, CUSIP numbers, the redemption date and the Maturity Date of such Bonds, any other information appropriate to identify sufficiently the Bonds being redeemed, the principal amount of the Bonds to be redeemed and, if less than all of the then Outstanding Bonds are to be redeemed, the identification certificate numbers (and, in the case of partial redemption, the respective principal amounts) of the Bonds to be redeemed, the redemption agent's name and address, and the place at which the Bonds are to be surrendered for payment. Any notice mailed as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives such notice. By the date of such redemption, due provision shall be made with the Trustee for the payment of the redemption price of the Series 2011 Bonds to be redeemed, plus accrued and unpaid interest thereon to the redemption date, with Available Money. When such Bonds have been called for redemption, in whole or in part, as provided above and due provision has been made to redeem same, such Bonds, or portions thereof, shall no longer be regarded as Outstanding except for the purpose of receiving payment from the funds provided for redemption, and the right of the Owners to collect interest on such Bonds or portions thereof which would otherwise accrue after the redemption date shall be terminated. (b) In the case of an optional redemption, the notice may state (1) that it is conditioned upon the deposit of moneys, in an amount equal to the amount necessary to effect the redemption, with the Trustee no later than the redemption date or (2) that the Issuer retains the right to rescind such notice at any time prior to the scheduled redemption date if the Issuer delivers a certificate to the Trustee instructing the Trustee to rescind the redemption notice (in either case, a "Conditional 34

111 Redemption"), and such notice and optional redemption shall be of no effect if such moneys are not so deposited or if the notice is rescinded as described in subsection (c) of this Section. (c) Any Conditional Redemption may be rescinded in whole or in part at any time prior to the redemption date if the Issuer delivers a certificate to the Trustee instructing the Trustee to rescind the redemption notice. Any Bonds subject to Conditional Redemption where redemption has been rescinded or funds to effect the redemption have not been deposited shall remain Outstanding, and the rescission or failure to deposit funds shall not constitute an Event of Default under this Trust Indenture. The Trustee shall give prompt notice of such rescission or failure to deposit funds to the affected Registered Owners. Section 6.5 Additional Provisions with Respect to Redemption. (a) Bonds may be redeemed in part only in Authorized Denominations. If less than all of the Bonds are to be redeemed pursuant to an optional or mandatory call, the Bonds to be redeemed shall be selected by lot, in such manner as the Trustee may determine and treating each minimum Authorized Denomination of the Bonds as a single Bond for such purposes. (b) Upon surrender of any Bond for redemption in part, the Trustee, in accordance with the provisions of this Trust Indenture, shall authenticate and deliver in exchange therefor a Bond or Bonds of like tenor, maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered. Section 6.6 Purchase Price for Bonds. Upon receipt of written notice from the Issuer specifying Bonds to be purchased, the Trustee shall apply monies available for redemption to the purchase of Bonds which were otherwise to be redeemed in such order or priority and subject to such restrictions as may be prescribed in this Trust Indenture in the manner provided in this Section. The purchase price paid by the Trustee (excluding accrued and unpaid interest but including any brokerage and other charges) for any Bond purchased by the Issuer shall not exceed the principal amount of such Bond. Section 6.7 Trustee to Redeem Bonds. Subject to the limitations set forth or referred to in Section 6.5, the Trustee shall call for redemption on each Mandatory Sinking Fund Redemption Date, when said Bonds are to be redeemed in accordance with this Trust Indenture, such principal amount of said Bonds as are to be redeemed on said date with the amount of such monies then available therefor. ARTICLE 7 FORM OF BONDS AND CERTIFICATES 35

112 Section 7.1 Forms. The form of the Bonds, including the form of the Trustee's authentication certificate, the form of assignment, and the form of the Comptroller's Registration Certificate for the Bonds, shall be substantially as set forth in Exhibit "A", which is attached hereto and made a part hereof for all purposes, with such additions, deletions, and variations as may be necessary or desirable and not prohibited by this Trust Indenture or the Bond Ordinance. Section 7.2 Legal Opinion; CUSIP. The opinion of McCall, Parkhurst & Horton L.L.P., Dallas, Texas, and CUSIP Numbers may be printed on the Bonds, but errors or omissions in the printing of such opinion or such numbers shall have no effect on the validity of the Bonds. If bond insurance is obtained, the Bonds may bear an appropriate legend as provided by the insurer. ARTICLE 8 SECURITY FOR THE BONDS Section 8.1 Pledge of Special Assessment Revenues. The Issuer hereby covenants and agrees that the Special Assessment Revenues from Phase I Improvement Assessments are hereby irrevocably pledged to the payment and security of the Bonds, including the establishment and maintenance of the special funds created and established for the payment and security thereof, all as herein provided; and it is hereby provided that the pledge of the Special Assessment Revenues from Phase I Improvement Assessments to the payment of the Bonds, the interest thereon, and the premium, if any, thereon be valid and binding without any physical delivery thereof or further act by the Issuer, and the lien upon such revenues created for the payment and security of the Bonds shall be, except as otherwise provided in the Act or by law, prior in right and claim as to any other indebtedness, liability, or obligation of the Issuer. Chapter 1208 of the Texas Government Code applies to the issuance of the Bonds and the pledge of the proceeds of Special Assessment Revenues from Phase I Improvement Assessments thereto, and such pledge is therefore, valid, effective, and perfected. Should Texas law be amended at any time while the Bonds are outstanding and unpaid, the result of such amendment being that the pledge of the Special Assessment Revenues from Phase I Improvement Assessments is to be subject to the filing requirements of Chapter 9, Texas Business & Commerce Code, in order to preserve to the Registered Owners of the Bonds a security interest in such pledge, the Issuer agrees to make such measures as it determines are reasonable and necessary to enable a filing of a security interest in said pledge. Section 8.2 Special Obligations. The Bonds are special obligations of the Issuer payable solely from the Special Assessment Revenues from Phase I Improvement Assessments, as and to the extent provided in this Trust Indenture. The Bonds do not give rise to a charge against the general credit or taxing powers of the Issuer and are not payable except as provided in this Trust Indenture. Notwithstanding anything to the contrary herein, the Owners of the Bonds shall never have the right to demand payment thereof out of any funds of the Issuer other than the Special Assessment 36

113 Revenues. The Issuer shall have no legal or moral obligation to pay for the Bonds out of any funds of the Issuer other than Special Assessment Revenues from Phase I Improvement Assessments. Section 8.3 Assessment Roll. The Phase I Improvement Assessments are shown on the Assessment Roll, the aggregate amount of which is ONE MILLION THREE HUNDRED FORTY THOUSAND AND NO/100 DOLLARS ($1,340,000), and which, plus accrued interest, shall be pledged to payment of the Debt Service Requirements of the Bonds. Reference is made to the Assessment Roll for a particular description of the lots or parcels of land and the amount of Special Assessment on each. Section 8.4 Collection and Deposit of Special Assessments. The Special Assessments shown on the Assessment Roll, together with the interest thereon, shall remain and constitute a trust fund for the redemption and payment of the Principal Installments of the Bonds and for the interest due thereon and to pay Administrative Expenses as and to the extent provided in this Trust Indenture. The Phase I Improvement Assessments assessed to pay Debt Service Requirements on the Bonds, together with interest thereon, are payable in annual installments established by the Assessment Ordinance and the Service and Assessment Plan to correspond, as nearly as practicable, to the Debt Service Requirements. A Phase I Improvement Assessment has been made payable in the Assessment Ordinance in each Fiscal Year preceding the date of final maturity of the Bonds which, if collected, will be sufficient to pay the portion of the Debt Service Requirements attributable to Special Assessments in the Service and Assessment Plan. Each Annual Installment is payable in the same manner and at the same time as the general ad valorem taxes on real property are payable, and become delinquent at the same times and bear the same proportionate penalties and interest after delinquency as do the general ad valorem taxes on real property, all as shown in the Assessment Ordinance. A record of the Special Assessments on each parcel, tract or lot which are to be collected in each year during the term of the Bonds has been prepared by the Issuer and is shown on the Assessment Roll. Sums received from the collection of the Phase I Improvement Assessments to pay the Debt Service Requirements (including delinquent installments, Foreclosure Proceeds, proceeds from a guarantor of Phase I Improvement Assessments to pay the Debt Service Requirements on the Bonds, and penalties) and of the interest thereon shall be deposited into the Pledged Revenue Fund, except that amounts received as Prepayments shall be deposited into the Phase I Improvement Assessment Prepayment Account. Any sums collected as an annual Administrative Expense Assessment to pay Administrative Expenses shall be deposited in the Administrative Fund. Section 8.5 Unconditional Levy of Assessments. The Issuer has imposed a special assessment on the property within Phase I to pay the principal component of the Debt Service Requirements scheduled for payment from Special Assessment Revenues as described in the Service 37

114 and Assessment Plan (the "Phase I Improvement Assessment") and coming due during each Fiscal Year. This Phase I Improvement Assessment shall be effective on the date of, and strictly in accordance with the terms of, the Assessment Ordinance. Each Phase I Improvement Assessment may be paid immediately in full or in periodic annual installments (the "Annual Installment") over a period of time equal to the term of the Bonds, which installments shall include interest on the Phase I Improvement Assessments as described herein. Pursuant to the Assessment Ordinance, each Phase I Improvement Assessment shall bear interest at the rate borne by the Bonds per annum plus 0.50% from the date of issuance of the Bonds until paid at the rate calculated on the basis of a 360 day year of twelve 30-day months. Each Annual Installment, including the interest on the unpaid amount of an Phase I Improvement Assessment, shall be assessed on September 1 and shall be due on October 1 of each year, with the first Annual Installment being due, with respect to the Series 2011 Bonds, on October 1, 2011 and each subsequent Annual Installment being due on October 1 of each year thereafter with the final Annual Installment due on the principal maturity date of the Bonds. Each Annual Installment together with interest thereon shall be delinquent if not paid prior to February 1 of the year after such Annual Installment is due. As authorized by Section (b)(14) of the Act, the Issuer has levied, assessed, and will collect, each year while the Bonds are Outstanding and unpaid to pay the annual costs incurred by the Issuer in the administration and operation of Phase I an administrative expense assessment (the "Administration Expense Assessment"). The Administration Expense Assessment shall remain in effect from year to year until all Bonds are finally paid or until the Issuer adjusts the levy after an annual review in any year pursuant to Section (d) of the Act. Administration Expense Assessments shall be due in the manner set forth in the ordinance levying the Administrative Expense Assessment on October 1 of each year and shall be delinquent if not paid by February 1 of the following year. There will be no split payment of an Annual Installment or an Administration Expense Assessment or discount for the early payment of an Annual Installment or an Administration Expense Assessment. Phase I Improvement Assessments and Administrative Expense Assessments together with interest, penalties, and expense of collection and reasonable attorneys fees, as permitted by the Texas Tax Code shall be first and prior lien against the property assessed, superior to all other liens and claims, except liens or claims for state, county, school district, or municipal ad valorem taxes and shall be a personal liability of and charge against the owner of the property regardless of whether the owners are named. The lien for Special Assessments and each Annual Installment thereof and penalties and interest shall begin on the effective date of the Assessment Ordinance until the Assessments are paid or until all Bonds are finally paid. Failure to pay an Annual Installment when due shall not accelerate the payment of the remaining Annual Installments of the Phase I Improvement Assessment and such remaining Annual Installments (including interest) shall continue to be due and payable at the same time and in the same amount and manner as if such default had not occurred. 38

115 Section 8.6 Prepayments in Full. The provisions of Section of the Act are applicable to the payment of the unpaid Phase I Improvement Assessments and the corresponding mandatory redemption of the Bonds. Pursuant thereto, whenever an owner of assessed land elects to pay off an unpaid Phase I Improvement Assessment in full, including prepayments made pursuant to the Developer Prepayment Agreement, and remove the lien of such Phase I Improvement Assessment, the Issuer shall collect from such owner the total of the following sums (in addition to any delinquent installments of such Phase I Improvement Assessment, including the interest and penalties thereon, which are treated as Special Assessment Revenues from Phase I Improvement Assessments): a. The unpaid, nondelinquent principal of such Phase I Improvement Assessment, including principal for the current year but not yet paid, for deposit into the Phase I Improvement Assessment Prepayment Account. b. Interest on the Phase I Improvement Assessment from the date of annual assessment to the date of prepayment, for deposit into the Phase I Improvement Assessment Account. Section 8.7 Partial Prepayments. Whenever an owner of assessed land elects to prepay the Phase I Improvement Assessment in part and remove the lien of such Phase I Improvement Assessment in part, the Issuer shall collect from each owner the total of the following sums (in addition to any delinquent installments of such Phase I Improvement Assessment, including the interest and penalties thereon, which are treated as Special Assessment Revenues from Phase I Improvement Assessments): a. The portion of the unpaid, nondelinquent principal of such Phase I Improvement Assessment to be prepaid, for deposit into the Phase I Improvement Assessment Prepayment Account. b. Interest on the prepaid portion of the Phase I Improvement Assessment from the date of annual assessment to the date of partial prepayment, for deposit into the Phase I Improvement Assessment Account. When a Phase I Improvement Assessment has been partially prepaid, the Issuer or the PID shall issue a revised record for that parcel, a copy of which shall be filed with the Trustee and the Secretary of the Issuer, showing the proportionate reduction in such Phase I Improvement Assessment Annual Installments of the portion of the parcel which has had the lien for such Phase I Improvement Assessment removed. Thereafter, the Issuer or the PID shall mail subsequent Annual Installments at the reduced amount. 39

116 ARTICLE 9 THE TRUSTEE Section 9.1 Acceptance of Trust. The Trustee accepts and agrees to execute the respective trusts imposed upon it by this Trust Indenture, but only upon the terms and conditions and subject to the provisions of this Trust Indenture to all of which the parties hereto and the respective Owners of the Bonds agree. Section 9.2 Trustee Obligation to Bring Suit. The Trustee shall be under no obligation to institute any suit, or to take any remedial proceeding under this Trust Indenture, or to enter any appearance or in any way defend in any suit in which it may be made defendant, or to take any steps in the execution of the trust hereby created or in the enforcement of any rights and powers hereunder, until it shall be indemnified to its satisfaction by the Owners against any and all costs and expenses, outlays and counsel fees and other reasonable disbursements, and against all liability; provided, however, that in no event shall the Trustee request or require indemnification as a condition to making any deposits, payments or transfers when required hereunder, or to deliver any notice when required hereunder. The Trustee may in its sole discretion, nevertheless, begin suit, or appear in and defend suit, or do anything else permitted or required by this Trust Indenture to be done by it as such Trustee, without indemnity, and in any such case the Owners shall reimburse the Trustee, as the case may be, for all costs and expenses, outlays and counsel fees and other reasonable disbursements properly incurred in connection therewith. If the Owners shall fail to make such reimbursement, the Trustee may, subject to Section 9.8, reimburse itself from any monies in its possession under the provisions of this Trust Indenture and shall be entitled to a preference therefor over any of the Bonds Outstanding hereunder. Section 9.3 Trustee Not Responsible for Other Depositories. The Trustee shall not be liable or responsible because of the failure of the Issuer or of any of its employees or agents to make any collections or deposits or to perform any act herein required of the Issuer or its employees or agents or because of the loss of any monies arising through the insolvency or the act or default or omission of any depository, or trustee other than itself, in which such monies have been deposited under the provisions of this Trust Indenture. The Trustee shall not be responsible for the application of any of the proceeds of the Bonds or any other monies deposited with it and paid out, invested, withdrawn or transferred in accordance with the provisions of this Trust Indenture. The Trustee shall not be liable for interest on any Funds which are not invested. The Trustee invests monies only as instructed in writing by the Issuer and shall not be liable for any losses thereon. The immunities and exemptions from liability of the Trustee hereunder extend to its respective directors, officers, employees, and agents. Section 9.4 Compensation of Trustee. The Issuer shall pay to the Trustee, but solely from amounts on deposit in the Administrative Fund, reasonable compensation for all services performed by it hereunder and also all its reasonable expenses, charges and other disbursements and those of its attorneys, agents and employees incurred in and about the administration and execution of the trusts 40

117 hereby created and the performance of their powers and duties hereunder. If the Issuer shall fail to make any payment required by this Section, the Trustee may make such payments from any monies in its possession under the provisions of this Trust Indenture and shall be entitled to a preference therefor over any of the Bonds Outstanding hereunder. The Trustee s right to compensation for its services and reimbursement for its costs and expenses shall survive its resignation or removal and the termination of this Trust Indenture. Section 9.5 Trustee May Rely on Certificates. In case at any time it shall be necessary or desirable for the Trustee to make any investigation respecting any fact preparatory to taking or not taking any action or doing or not doing anything as such Trustee, and in any case in which this Trust Indenture provides for permitting or taking any action, the Trustee may rely upon any certificate required or permitted to be filed with it under the provisions of this Trust Indenture, and any such certificate shall be evidence of such fact to protect it in any action that it may or may not take or in respect of anything it may or may not do, in good faith, by reason of the supposed existence of such fact. Any request, notice or other instrument from the Issuer to the Trustee shall be deemed to have been signed by the proper party or parties if signed by an Authorized Representative of the Issuer and the Trustee may accept a certificate signed by the Secretary of the Issuer as to any resolution adopted or any other action taken by the Issuer. Section 9.6 Trustee May Own Bonds. Any bank or trust company acting as Trustee under this Trust Indenture, and its directors, officers, employees or agents, may in good faith buy, sell, own, hold and deal in any of the Bonds issued under and secured by this Trust Indenture, and may join in any action which any Owner of the Bonds may be entitled to take with like effect as if such bank or trust company were not the Trustee under this Trust Indenture. Section 9.7 Representations of Issuer in Bonds. The recitals, statements and representations contained herein and in the Bonds (excluding the Trustee's authentication certificate on the Bonds as Trustee) shall be taken and construed as made by and on the part of the Issuer and not by the Trustee, and the Trustee assumes and shall be under no responsibility for the correctness of the same. Section 9.8 Trustee Solely Liable for Negligence. In performing its duties under the terms of this Trust Indenture, the Trustee shall be liable only for its own negligence or willful misconduct, and shall incur no liability in acting or proceeding, or in not acting or not proceeding, reasonably and in good faith, upon any resolution, order, notice, request, consent, waiver, certificate, statement, affidavit, requisition, bond or other paper or document which it in good faith believes to be genuine and to have been adopted or signed by the proper board or Person or to have been prepared and furnished pursuant to any of the provisions of this Trust Indenture, or upon the opinion of any attorney, engineer, or accountant believed by the Trustee to be qualified in relation to the subject matter. Section 9.9 Resignation of Trustee. The Trustee may resign and thereby become discharged from the trusts created by notice in writing to be given to the Issuer and mailed to the 41

118 Owners of the Bonds not less than thirty (30) days before such resignation is to take effect, but such resignation shall take effect immediately upon the appointment of a successor Trustee, if such successor Trustee shall be appointed before the time limited by such notice and shall then accept the trusts hereof. Section 9.10 Removal of Trustee. The Trustee may be removed from office under this Trust Indenture at any time by an instrument or concurrent instruments in writing, signed by the Issuer, and filed by the Issuer with the Trustee. A written notice of the replacement of the Trustee shall be mailed by the Issuer to the Owners of the Bonds. The Trustee may also be removed from office under the Trust Indenture at any time and an entity other than the Trustee may be appointed to replace the Trustee by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in principal amount of the Bonds hereby secured and then Outstanding and filed with the Issuer. A copy of each such instrument shall be delivered promptly by the Issuer to the Trustee. The Trustee may also be removed at any time for any breach of trust or violation of this Trust Indenture or if the Trustee does not meet the minimum required capital and surplus of at least $50,000,000 set forth in Section 9.11 or such other amount as may be approved by an Ordinance duly passed by the Issuer. Removal of a Trustee shall not take effect until a successor Trustee has been appointed. The Trustee shall be entitled to payment of all fees and expenses which have accrued hereunder to and including the date of such removal or resignation. Section 9.11 Replacement of Trustee. If at any time the Trustee shall resign, or shall be removed, be dissolved or otherwise become incapable of acting, or the bank or trust company acting as Trustee shall be taken over by any governmental official, agency, department or board, the position of Trustee shall thereupon be filled by the direction of the Issuer under this Trust Indenture (except where replaced by the Owners as provided in Section 9.10). The Issuer shall mail a written notice of the replacement of the Trustee to the Owners of the Bonds. Any Trustee hereafter appointed shall be a bank or trust company duly organized and doing business under the laws of the United States of America or the State, authorized under such laws to exercise corporate trust powers and subject to examination by federal or state authority, of good standing, and having, at the time of its appointment, a combined capital and surplus aggregating not less than $50,000,000 and must succeed to the duties of Trustee under this Trust Indenture. If, in a proper case, no appointment of a successor Trustee shall be made pursuant to Section 9.9 within ninety (90) days after the receipt by the Issuer of the Trustee s notice of resignation given pursuant to Section 9.9 or of removal of the Trustee pursuant to Section 9.10, the retiring Trustee, at the expense of the Issuer, or any Owner may apply to any court of competent jurisdiction to appoint 42

119 a successor Trustee. The court may thereupon, after such notice, if any, as such court may deem proper and prescribe, appoint a successor Trustee. Section 9.12 Powers of Successor Trustee. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor, and also to the Issuer, an instrument in writing accepting such appointment hereunder, and thereupon such successor Trustee, without any further act, shall become fully vested with all the rights, immunities, powers and trusts, and subject to all the duties and obligations, of its predecessor; but such predecessor shall, nevertheless, on the written request of its successor or of the Issuer, and upon payment of the compensation, expenses, charges and other disbursements of such predecessor which are due and payable pursuant to the provisions of this Article, execute and deliver an instrument transferring to such successor Trustee all the rights, immunities, powers and trusts of such predecessor hereunder; and every predecessor Trustee shall deliver all property and monies held by it hereunder to its successor. Should any instrument in writing from the Issuer be required by any successor Trustee for more fully and certainly vesting in such Trustee the rights, immunities, powers and trusts hereby vested or intended to be vested in the predecessor Trustee, any such instrument in writing shall and will, on request, be executed, acknowledged and delivered by the Issuer. Notwithstanding any of the foregoing provisions of this Article, any bank or trust company having power to perform the duties and execute the trusts of this Trust Indenture and otherwise qualified to act as Trustee hereunder with or into which the bank or trust company acting as Trustee may be merged or consolidated, or to which the assets and business or to which all, or substantially all, of the corporate trust business, of such bank or trust company may be sold, shall automatically and without further action be deemed the successor of the Trustee. Any predecessor Trustee shall transfer the Letter of Credit, if any, to the successor Trustee. Section 9.13 Prudent Person. In case any Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Trust Indenture, and use the same degree of care and skill in their exercise, as a reasonably prudent Person would exercise or use under the circumstances in the conduct of its own affairs. Section 9.14 Limited Duties. (a) The Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Trust Indenture and no implied covenants or obligations shall be read into this Trust Indenture against the Trustee. (b) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. (c) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of the required percentage specified in this Trust Indenture of the aggregate principal amount of Bonds then Outstanding relating to the time, method, and place of conducting any proceeding for any remedy 43

120 available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Trust Indenture. (d) No provision of this Trust Indenture shall require the Trustee to expend or risk its funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or adequate indemnity against such risk or liability or the payment of its fees and expenses is not reasonably assured to it. Section 9.15 Certain Rights of Trustee. (a) The Trustee shall not be required to take notice or be deemed to have notice of any Event of Default hereunder unless the Trustee shall be specifically notified of such Event of Default in writing by the Issuer or by the Owner of an Outstanding Bond, and in the absence of such notice the Trustee may conclusively assume that no Event of Default exists; provided, however, that the Trustee shall be required to take and be deemed to have notice of its failure to receive the money necessary to make payment when due of Debt Service Requirements. (b) Notwithstanding the effective date of this Trust Indenture or anything to the contrary in this Trust Indenture, the Trustee shall have no liability or responsibility for any act or event relating to this Trust Indenture which occurs prior to the date the Trustee formally executes this Trust Indenture and commences acting as Trustee hereunder. (c) Except for information provided in writing by the Trustee concerning the Trustee, the Trustee shall have no responsibility with respect to any information in any disclosure material distributed with respect to the Bonds. The Trustee shall have no responsibility for compliance with federal or State securities laws in connection with the issuance of the Bonds or any continuing compliance items. Section 9.16 Money or Bonds to Be Held in Trust. All money received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder other than such interest as it expressly agrees to pay. 44

121 ARTICLE 10 AMENDMENTS Section 10.1 Amendment Without Consent of Owners of Bonds. This Trust Indenture may be amended, without the consent of any of the Owners, upon direction of and by the Issuer, together with the Trustee, through agreements supplemental hereto as shall not be in conflict with the terms and provisions hereof (which Supplemental Trust Indentures shall thereafter form a part hereof) for any of the following purposes: (i) to add to the covenants for the benefit of the Owners or to surrender any right or power conferred upon the Issuer; (ii) to cure any ambiguity, to correct, or supplement any provision which may be inconsistent with any other provision, or to make any other provision, with respect to matters or questions arising with respect to the Bonds, which shall not be inconsistent with the provisions of this Trust Indenture and applicable law, provided that such action shall not, in the judgment of the Trustee, adversely affect the interests of the Owners of the Bonds; and (iii) to make such additions, deletions, or modifications as may be necessary to provide for compliance with Section 148(f) of the Code relating to the required rebate to the United States or to enable the Issuer to comply with such provision by alternative means selected by the Issuer as may be provided by the Code, or otherwise as may be necessary to assure exclusion from federal income taxation of the interest on the Bonds. Section 10.2 Restriction on Amendments. Neither this Trust Indenture nor the Bonds shall be modified or amended in any respect except as provided in, and in accordance with, and subject to the provisions of this Article. Nothing in this Article shall affect or limit the rights or obligations of the Issuer to pass, make, do, execute, acknowledge, or deliver any ordinance, act, or other instrument which this Trust Indenture provides to be delivered to the Trustee. Section 10.3 Amendment of Trust Indenture with Consent of Owners of Bonds. Except as provided in Section 10.1, the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding to be affected by an amendment of this Trust Indenture shall have the right, at any time and from time to time, to consent to and approve an amendment of this Trust Indenture as shall be deemed desirable by the Issuer for the purpose of modifying, altering, amending, adding to or rescinding any of the terms or provisions contained in this Trust Indenture; provided, however, that nothing in this Article shall permit (a) an extension of the maturity of the Principal Installment of or the interest on any Bond or any mandatory redemption, or (b) a reduction in the principal amount of any Bond or the rate of interest on any Bond or a Mandatory Sinking Fund Payment, or (c) a privilege or priority of any Bond or Bonds over any other Bond or Bonds, or (d) a reduction in the aggregate principal amount of the Bonds required for consent to such amendment. The Trustee 45

122 may require bond counsel to provide an opinion that the amendment does not adversely affect the exemption of the interest on the Bonds from federal income taxation. Bonds owned or held by or for the account of or for the benefit of the Issuer shall not be deemed to be Outstanding for the purpose of amending this Trust Indenture. Section 10.4 Notice and Adoption of Amendment. If the Issuer desires to amend this Trust Indenture, it shall cause the Trustee to give notice to be sent by first class mail to the Registered Owners of the Bonds and to the Issuer. Such notice shall briefly set forth the nature of the proposed amendment and shall state that copies thereof are on file at the Principal Office of the Trustee for inspection by all Owners of Bonds. Except for amendments under Section 10.1, if within ninety (90) days or such longer period as shall be prescribed by the Issuer following the mailing of such notice, the Owners of not less than a majority in aggregate principal amount of the Bonds Outstanding affected by an amendment shall have consented to the amendment as herein provided, no Owner of any Bond shall have any right to object to any of the terms and provisions contained therein, or in any manner to question the propriety of the execution thereof, or enjoin or restrain the Issuer from taking any action pursuant to the provisions thereof, and all of the rights of the Owners of Outstanding Bonds shall thereafter be determined, exercised, and enforced hereunder, subject in all respects to such amendments. Section 10.5 Revocation of Consent. Any consent given by any Owner of a Bond pursuant to the provisions of this Article shall be irrevocable for a period of six (6) months from the date notice of the amendment was mailed as provided in Section 10.4, and shall be conclusive and binding upon all future Owners of the same Bond during such period. Such consent may be revoked at any time after six (6) months from the date the notice was mailed by the Owner who gave such consent or by a successor in title, by filing notice thereof with the Trustee, but such revocation shall not be effective if the Owners of a majority in aggregate principal amount of the affected Bonds Outstanding have, prior to the attempted revocation, consented to and approved the amendment. Section 10.6 Supplemental Trust Indentures Part of Trust Indenture. The Trustee is authorized to join with the Issuer in the execution of any such Supplemental Trust Indenture and to make the further agreements and stipulations which may be contained therein. Any Supplemental Trust Indenture executed in accordance with the provisions of this Article 10 shall thereafter form a part of this Trust Indenture, and all the terms and conditions contained in any such Supplemental Trust Indenture as to any provision authorized to be contained therein shall be and shall be deemed to be part of the terms and conditions of this Trust Indenture for any and all purposes. In case of the execution and delivery of any Supplemental Trust Indenture, express reference may be made thereto in the text of any Bonds issued thereafter, if deemed necessary or desirable by the Trustee or the Issuer. Upon the execution of any Supplemental Trust Indenture pursuant to the provisions of Sections 10.1 and 10.3, this Trust Indenture shall be modified and amended in accordance therewith, and the respective rights, duties, and obligations under this Trust Indenture of the Issuer and the 46

123 Trustee and all Owners of Bonds then Outstanding shall thereafter be determined, exercised and enforced hereunder, subject in all respects to such modifications and amendments. ARTICLE 11 PROVISIONS CONCERNING SALE AND APPLICATION OF PROCEEDS OF BONDS Section 11.1 Sale of the Series 2011 Bonds. (a) Sale of the Series 2011 Bonds is hereby awarded to the Underwriter at a total purchase price of $1,313,200 (representing the $1,340, aggregate principal amount of the Series 2011 Bonds, less an underwriter s discount of $26,800), all subject to the approving opinion as to the legality of the Bonds of the Attorney General of the State of Texas and the opinion of McCall, Parkhurst & Horton L.L.P., bond counsel. (b) Proceeds of the Series 2011 Bonds shall be deposited as follows: (i) (ii) (iii) (iv) (v) (vi) $54, to the Interest and Sinking Fund to pay capitalized interest on the Series 2011 Bonds; $1, to the Prepayment Reserve Fund; $131, to the Debt Service Reserve Fund; $270, to the Improvement Fund to pay costs of issuance of the Series 2011 Bonds; $20, to the Administrative Fund to pay Administrative Expenses; and $835, to the Improvement Fund to pay the costs of Phase I Improvements. Section 11.2 Refunding Bonds. Refunding Bonds authorized by this Trust Indenture shall be awarded at a price, and proceeds shall be deposited, as set forth in the Supplemental Trust Indenture for the Refunding Bonds. Section 11.3 Related Matters. To satisfy in a timely manner all of the Issuer s obligations under this Trust Indenture, all Authorized Representatives of the Issuer are hereby authorized and directed to take all other actions that are reasonably necessary to provide for the issuance of the Bonds, including, without limitation, executing and delivering on behalf of the Issuer all certificates, consents, receipts, requests, and other documents as may be reasonably necessary to satisfy the 47

124 Issuer's obligations under this Trust Indenture and the Bond Ordinance and to direct the application of funds of the Issuer consistent with the provisions of such agreements and this Trust Indenture. Section 11.4 No Personal Liability. No recourse shall be had for payment of the Principal Installment of or interest on any Bonds or for any claim based thereon, or on this Trust Indenture, against any official or employee of the Issuer, the Trustee or any Person executing any Bonds. ARTICLE 12 SATISFACTION AND DISCHARGE OF TRUST INDENTURE Section 12.1 Satisfaction and Discharge of Trust Indenture. (a) If the whole amount of the principal and the interest and the premium, if any, due or to become due and payable upon all of the Bonds then Outstanding shall be paid or sufficient funds shall be held by the Trustee for such purpose, and provision shall also be made for paying all other sums payable hereunder by the Issuer, and if any Bonds to be redeemed prior to maturity shall have been duly called for redemption or irrevocable instructions to call such Bonds for redemption shall have been given by the Issuer to the Trustee, then and in that case the right, title and interest of the Trustee herein shall thereupon cease, determine and become void, provided that the sufficiency of the above funds held by the Trustee for such purpose must be verified in a report which must be obtained by the Trustee from an independent nationally recognized certified public accountant. The Trustee in such case, on demand of the Issuer, shall release this Trust Indenture and shall execute such documents to evidence such release as may be reasonably required by the Issuer, and shall turn over to the Issuer all balances remaining in all Funds and Accounts created by this Trust Indenture, other than funds held for redemption or payment of Bonds or interest thereon; otherwise this Trust Indenture shall be, continue and remain in full force and effect. (b) Any Bond shall be deemed to be paid and no longer Outstanding within the meaning of this Trust Indenture (a "Defeased Debt"), and particularly this Article 12, when payment of the principal of, premium, if any, on such Defeased Debt, plus interest thereon to the due date thereof (whether such due date be by reason of maturity, upon redemption, or otherwise), either (i) shall have been made in accordance with the terms thereof, or (ii) shall have been provided by irrevocably depositing with the Trustee, in trust, and irrevocably set aside exclusively for such payment, (1) money sufficient to make such payment or (2) Government Obligations, as defined hereinafter in this Article 12, certified by an independent public accounting firm of national reputation to mature as to principal and interest in such amount 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 the Trustee pertaining to the Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for to the satisfaction of the Trustee. At such time as a Defeased Debt shall be deemed to be paid hereunder, as aforesaid, it shall 48

125 no longer be secured by or entitled to the benefits of this Trust Indenture except for the purposes of any such payment from such money or Government Obligations. (c) Any money so deposited with the Trustee may at the written direction of the Issuer 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 Trustee pursuant to this Article 12 which is not required for the payment of the Bonds, the premium, if any, and interest thereon, with respect to which such money has been so deposited, shall be turned over to the Issuer. (d) The Issuer and the Trustee hereby covenant that no deposit will be made or accepted under clause (ii) of Section 12.1(b) and no use made of any such deposit which would cause the Bonds to be treated as arbitrage bonds within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended. (e) For the purpose of this Article 12, the term "Government Obligations" shall mean (i) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (ii) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date of the purchase thereof are rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent, and (iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date purchased are rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent. (f) Any determination not to redeem Defeased Debt that is made in conjunction with the payment arrangements specified above in (b)(i) or (ii) shall not be irrevocable, provided that: (1) in the proceedings providing for such defeasance, the Issuer expressly reserves the right to call the Defeased Debt for redemption; (2) the Issuer gives notice of the reservation of that right to the Owners of the Defeased Debt immediately following the defeasance; (3) the Issuer directs that notice of the reservation be included in any defeasance or redemption notices that it authorizes; and (4) at or prior to the time of the redemption, the Issuer satisfies the conditions of clause (b) of this Section 12.1 with respect to such Defeased Debt as though it was being defeased at the time of the exercise of the option to redeem the Defeased Debt, after taking the redemption into account in determining the sufficiency of the provisions made for the payment of the Defeased Debt. 49

126 ARTICLE 13 COVENANTS REGARDING TAX EXEMPTION OF INTEREST ON THE SERIES 2011 BONDS Section Covenants Regarding Tax Exemption Of Interest On The Series 2011 Bonds. (a) Covenants. The Issuer covenants to take any action necessary to assure, or refrain from any action that would adversely affect, the treatment of the Series 2011 Bonds as an obligation described in section 103 of the Code, the interest on which is not includable in the "gross income" of the holder for purposes of federal income taxation. In furtherance thereof, the Issuer covenants as follows: (1) to take any action to assure that no more than 10 percent of the proceeds of the Series 2011 Bonds (less amounts deposited to a reserve fund, if any) are used for any "private business use," as defined in section 141(b)(6) of the Code or, if more than 10 percent of the proceeds or the projects financed therewith are so used, such amounts, whether or not received by the Issuer, with respect to such private business use, do not, under the terms of this Article or any underlying arrangement, directly or indirectly, secure or provide for the payment of more than 10 percent of the debt service on the Series 2011 Bonds, in contravention of section 141(b)(2) of the Code; (2) to take any action to assure that in the event that the "private business use" described in subsection (1) hereof exceeds 5 percent of the proceeds of the Series 2011 Bonds or the projects financed therewith (less amounts deposited into a reserve fund, if any) then the amount in excess of 5 percent is used for a "private business use" that is "related" and not "disproportionate," within the meaning of section 141(b)(3) of the Code, to the governmental use; (3) to take any action to assure that no amount that is greater than the lesser of $5,000,000, or 5 percent of the proceeds of the Series 2011 Bonds (less amounts deposited into a reserve fund, if any) is directly or indirectly used to finance loans to persons, other than state or local governmental units, in contravention of section 141(c) of the Code; (4) to refrain from taking any action that would otherwise result in the Series 2011 Bonds being treated as a "private activity bond" within the meaning of section 141(b) of the Code; (5) to refrain from taking any action that would result in the Series 2011 Bonds being "federally guaranteed" within the meaning of section 149(b) of the Code; (6) to refrain from using any portion of the proceeds of the Series 2011 Bonds, directly or indirectly, to acquire or to replace funds that were used, directly or indirectly, to 50

127 acquire investment property (as defined in section 148(b)(2) of the Code) that produces a materially higher yield over the term of the Series 2011 Bonds, other than investment property acquired with (A) proceeds of the Series 2011 Bonds invested for a reasonable temporary period of 3 years or less or, in the case of an advance refunding bond, for a period of 30 days or less until such proceeds are needed for the purpose for which the Series 2011 Bonds is issued, and in the case of a current refunding bond, for a period of 90 days or less, (B) amounts invested in a bona fide debt service fund, within the meaning of section (b) of the Treasury Regulations, and (C) amounts deposited in any reasonably required reserve or replacement fund to the extent such amounts do not exceed 10 percent of the proceeds of the Series 2011 Bonds; (7) to otherwise restrict the use of the proceeds of the Series 2011 Bonds or amounts treated as proceeds of the Series 2011 Bonds, as may be necessary, so that the Series 2011 Bonds does not otherwise contravene the requirements of section 148 of the Code (relating to arbitrage) and, to the extent applicable, section 149(d) of the Code (relating to advance refundings); and (8) to pay to the United States of America at least once during each five-year period (beginning on the date of delivery of the Series 2011 Bonds) an amount that is at least equal to 90 percent of the "Excess Earnings," within the meaning of section 148(f) of the Code and to pay to the United States of America, not later than 60 days after the Series 2011 Bonds has been paid in full, 100 percent of the amount then required to be paid as a result of Excess Earnings under section 148(f) of the Code. (b) Rebate Fund. In order to facilitate compliance with the above covenant (a)(8), the Rebate Fund is established by the Issuer pursuant to Section 4.9 for the sole benefit of the United States of America, and such Rebate Fund shall not be subject to the claim of any other person, including without limitation the Registered Owner. The Rebate Fund is established for the additional purpose of compliance with section 148 of the Code. (c) Use of Proceeds. The Issuer understands that the term "proceeds" includes "disposition proceeds" as defined in the Treasury Regulations (hereinafter defined) and, in the case of refunding bonds, transferred proceeds (if any) and proceeds of the refunded bonds expended prior to the date of issuance of the Series 2011 Bonds. It is the understanding of the Issuer that the covenants contained herein are intended to assure compliance with the Code and any regulations or rulings promulgated by the U.S. Department of the Treasury pursuant thereto (the "Treasury Regulations"). In the event that regulations or rulings are hereafter promulgated that modify or 51

128 expand provisions of the Code, as applicable to the Series 2011 Bonds, the Issuer will not be required to comply with any covenant contained herein to the extent that such failure to comply, in the opinion of nationally recognized bond counsel, will not adversely affect the exemption from federal income taxation of interest on the Series 2011 Bonds under section 103 of the Code. In the event that regulations or rulings are hereafter promulgated that impose additional requirements applicable to the Series 2011 Bonds, the Issuer agrees to comply with the additional requirements to the extent necessary, in the opinion of nationally recognized bond counsel, to preserve the exemption from federal income taxation of interest on the Series 2011 Bonds under section 103 of the Code. In furtherance of such intention, the Issuer hereby authorizes and directs the Mayor to execute any documents, certificates or reports required by the Code and to make such elections, on behalf of the Issuer, that may be permitted by the Code as are consistent with the purpose for the issuance of the Series 2011 Bonds. (d) Allocation of, and Limitation on, Expenditures for the Project. The Issuer covenants to account for the expenditure of sale proceeds and investment earnings to be used for the purposes described in Section 1 of this Article (the "Project") on its books and records in accordance with the requirements of the Code. The Issuer recognizes that in order for the proceeds to be considered used for the reimbursement of costs, the proceeds must be allocated to expenditures within 18 months of the later of the date that (1) the expenditure is made, or (2) the Project is completed; but in no event later than three years after the date on which the original expenditure is paid. The foregoing notwithstanding, the Issuer recognizes that in order for proceeds to be expended under the Code, the sale proceeds or investment earnings must be expended no more than 60 days after the earlier of (1) the fifth anniversary of the delivery of the Series 2011 Bonds, or (2) the date the Series 2011 Bonds is retired. The Issuer agrees to obtain the advice of nationally-recognized bond counsel if such expenditure fails to comply with the foregoing to assure that such expenditure will not adversely affect the tax-exempt status of the Series 2011 Bonds. For purposes hereof, the Issuer shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. (e) Disposition of Projects. The Issuer covenants that the projects funded with the proceeds of the Series 2011 Bonds will not be sold or otherwise disposed in a transaction resulting in the receipt by the Issuer of cash or other compensation, unless the Issuer obtains an opinion of nationally-recognized bond counsel that such sale or other disposition will not adversely affect the tax-exempt status of the Series 2011 Bonds. For purposes of the foregoing, the portion of the property comprising personal property and disposed in the ordinary course shall not be treated as a transaction resulting in the receipt of cash or other compensation. For purposes hereof, the Issuer shall not be obligated to comply with this covenant if it obtains a legal opinion that such failure to comply will not adversely affect the excludability for federal income tax proposes from gross income of the interest. 52

129 ARTICLE 14 COLLECTION PROCEDURES AND MISCELLANEOUS PROVISIONS So long as any of the Bonds issued hereunder are Outstanding, the City makes the following covenants with the Owners of the Bonds under the provisions of the Act and this Trust Indenture (to be performed by the City or its proper officers, agents or employees), which covenants are necessary, convenient and desirable to secure the Bonds and to make them more marketable; provided, however, that said covenants do not require the City to expend any funds or monies other than the Special Assessment Revenues collected. Section 14.1 Issuer to Pursue Collections. The Issuer will implement the procedures for billing and collecting the Special Assessments, or engage some other Person to perform these duties. In such capacity the Issuer will: (a) prepare and mail in the name of the Issuer, at the time and in the manner required by the provisions of this Trust Indenture, the Assessment Ordinance and the Act, statements for the collection of all Special Assessments levied by the Assessment Ordinance, this Trust Indenture and any other ordinances supplemental hereto levying supplemental assessments (collectively, the "Assessment Instruments"); (b) prepare and mail statements of delinquent Special Assessments at the time and manner required by the Assessment Instruments, the Act or as may be deemed advisable by the Issuer; (c) receive and collect Special Assessments and the penalties and interest thereon or any proceeds from a judicial sale of assessed property as required by the Assessment Instruments and the Act and deposit the same in accordance with this Trust Indenture; (d) engage such attorneys and other consultants as the Issuer deems appropriate to act on its behalf upon such terms and conditions and at the rate the Issuer deems appropriate and to pay for same from monies in the Administrative Fund; (e) bring legal actions in the name of the Issuer to collect delinquent Special Assessments and to proceed to sell any assessed property in a judicial foreclosure proceeding, if necessary; (f) with the consent of the City, buy any assessed property at a judicial foreclosure proceeding and thereafter sell such property purchased on behalf of the Issuer upon such terms and conditions as the Issuer deems desirable; and (g) do any and all further acts as the Issuer deems desirable to protect the interest of the Owners of the Bonds and/or collect the Special Assessments. 53

130 The Issuer shall pursue any remedy available to the Issuer to collect the delinquent installment (or balance of a delinquent installment) against the Person who owned any assessed property sold at a judicial foreclosure sale. Section 14.2 Foreclosure Covenant. The Issuer hereby covenants with and for the benefit of the Owners that it will determine or cause to be determined, no later than March 1 of each year, whether or not any installment or installments of Special Assessments are delinquent and, if such delinquencies exist, the Issuer will order and cause to be commenced, on or before March 1 or immediately thereafter, action to collect such outstanding Special Assessments and may thereafter diligently prosecute an action in State district court to foreclose the lien for the amount of any delinquent installment or installments of Special Assessments. To the extent it may legally do so, and taking into account the prior liens on taxable property for ad valorem taxes, the Issuer covenants that assessed property will not be sold in a judicial foreclosure for less than the amount of the delinquent Special Assessment installment due on the property, including delinquent penalties, interest, and attorney fees, without the consent of a majority in principal amount of the Owners of the Outstanding Bonds. Any sale of property for nonpayment of an installment or installments of a Special Assessment shall be subject to the lien established for the remaining unpaid installments of the Special Assessment against such property and such property may again be sold at a judicial foreclosure sale if the purchaser thereof fails to make timely payment of the nondelinquent installments of Special Assessment against such property as they become due and payable pursuant to the terms of the Assessment Ordinance and this Trust Indenture. Section 14.3 Issuer Covenants Concerning Billing and Collection of Special Assessments. The Issuer agrees to take the following action concerning collection of Special Assessments: (a) (b) (c) (d) (e) approve annual Special Assessment bills promptly; approve and implement collection procedures in a timely manner; direct that the Special Assessments shall be collected in the same manner and by the same entity contracted to collect the ad valorem taxes of the Issuer, and that the Special Assessments be included in the same statement as the ad valorem taxes of the Issuer; promptly engage attorneys and consultants to assist in the billing and collection of Special Assessments; and authorize and pursue foreclosure proceedings on property liable for delinquent Special Assessments. 54

131 Section 14.4 Good Faith Covenant. The Issuer will proceed in good faith to complete the acquisition or construction of the Phase I Improvements in a timely manner, reserving the right to make changes and modifications as permitted by law. Section 14.5 Further Assurances. The Issuer will adopt, make, execute and deliver any and all such further orders, resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Trust Indenture, to aid in collection efforts, and for the better assuring and confirming to the Owners of the Bonds the rights and benefits provided by this Trust Indenture. Section 14.6 Punctual Payment. The Issuer covenants that it will duly and punctually pay or cause to be paid the Principal Installments of and interest on every Bond at maturity or earlier scheduled Mandatory Sinking Fund Redemption Date, together with the premium thereon, if any be payable, and in accordance with this Trust Indenture, and that the payments into the various Funds created hereunder will be made, all in strict conformity with the terms of this Trust Indenture, and that it will faithfully observe and perform all of the conditions, covenants and requirements of this Trust Indenture and all amendments supplemental hereto and of the Bonds issued hereunder, and that time of such payment and performance is of the essence of the Issuer's contract with the Owners of the Bonds. Section 14.7 Reassessments. If any Special Assessment heretofore or hereafter issued is void or unenforceable, for any cause, or if the Issuer made a mistake in a Special Assessment relating to the cost of the Phase I Improvements, then a supplemental assessment or reassessment shall be made in the manner as provided by Sections and of the Act. Section 14.8 Severability. If any Section, paragraph, clause or provision of this Trust Indenture shall for any reason be held to be invalid or unenforceable, the invalidity or unenforceability of such Section, paragraph, clause or provision shall not affect any of the remaining provisions of this Trust Indenture. Section Notices. Any notices required under this Indenture shall be deemed received five (5) calendar days after date deposited in the United States Postal Service, postage paid, addressed in the manner set forth in this Section If to the Issuer or Waxahachie Public Improvement District No. 1: City of Waxahachie 401 S. Roger Street Waxahachie, Texas Attn: City Manager Phone: (972)

132 If to the Trustee: The Bank Of New York Mellon Trust Company, National Association 2001 Bryan Street, 11 th Floor Dallas, Texas Attn: Corporate Trust Department Section Effect of Covenants, Etc. All covenants, stipulations, obligations and agreements of the City contained in this Trust Indenture shall be deemed to be covenants, stipulations, obligations and agreements of the City to the full extent authorized by the Act and other applicable laws and permitted by the Constitution of Texas. No covenant, stipulation, obligation or agreement contained herein shall be deemed to be a covenant, stipulation, obligation or agreement of any present or future council member, agent or employee of the City in his or her individual capacity, and neither the members of the City nor any official executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof. [From here to end of page intentionally left blank.] 56

133 EXECUTED as of the 1st day of January, 2011, in multiple counterparts. ATTEST: CITY OF WAXAHACHIE, TEXAS By: By:, City Secretary, Mayor [CITY SEAL] THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION By: Name: Michael K. Herberger Title: Vice President

134 EXHIBIT "A" FORM OF BONDS

135 NUMBER R- FORM OF SERIES 2011 BONDS A. FORM OF DEFINITIVE BONDS UNITED STATES OF AMERICA STATE OF TEXAS CITY OF WAXAHACHIE, TEXAS SPECIAL ASSESSMENT BONDS, SERIES 2011 (WAXAHACHIE PUBLIC IMPROVEMENT DISTRICT NO. 1 PHASE I PROJECT) PRINCIPAL AMOUNT $ INTEREST RATE: MATURITY DATE: ISSUE DATE: CUSIP: REGISTERED OWNER: PRINCIPAL AMOUNT: THE CITY OF WAXAHACHIE, TEXAS (the "Issuer") for value received, promises to pay, but solely from sources hereafter described, to the registered owner identified above or registered assigns, on the date specified above, unless redeemed prior thereto as hereinafter provided, upon presentation and surrender of this Bond to The Bank of New York Mellon Trust Company, National Association (the "Trustee") at its corporate trust office in Dallas, Texas, the principal amount identified above, in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due the United States of America, and to pay interest thereon at the rate shown above, calculated on the basis of a 360-day year of twelve 30-day months, from the later of the Issue Date (as defined in the Trust Indenture), or the most recent interest payment date to which interest has been paid or duly provided for. Interest on this Bond is payable by check on August 15, 2011, and each February 15 and August 15 (each an "Interest Payment Date") thereafter until maturity or prior redemption, mailed to the registered owner of record as shown on the books of registration kept by the Trustee as of the last Business Day of the month next preceding each Interest Payment Date. THE PRINCIPAL OF, REDEMPTION PREMIUM, IF ANY, AND INTEREST ON THIS BOND ARE PAYABLE FROM AND SECURED BY A LIEN ON AND PLEDGE OF THE SPECIAL ASSESSMENT REVENUES FROM PHASE I IMPROVEMENT ASSESSMENTS, AS DEFINED IN, AND SUBJECT TO THE TERMS OF, THAT CERTAIN TRUST INDENTURE (THE "TRUST INDENTURE") AMONG THE ISSUER AND THE TRUSTEE, AS OF THE 1ST DAY OF JANUARY, CAPITALIZED TERMS NOT OTHERWISE DEFINED HEREIN HAVE THE SAME MEANING AS IN THE TRUST INDENTURE. THE ISSUER HAS ADOPTED an Ordinance levying annual special assessments against each eligible parcel of land within the boundaries of Phase I of the Waxahachie Public Improvement District No. 1. The Special Assessments, together with interest, penalties and expense of collection and reasonable attorney's fees are a first and prior lien against the property assessed, superior to all other liens and claims, except liens or claims for ad valorem taxes. Reference is made to the Trust Indenture for a more complete description of the Funds charged with and pledged to the payment of this Bond, and the Series of which it is a part. THIS BOND IS NOT A GENERAL OBLIGATION OF THE ISSUER, DOES NOT GIVE RISE TO A CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWERS OF THE ISSUER, AND IS NOT PAYABLE FROM ANY SOURCE EXCEPT SPECIAL ASSESSMENT REVENUES AS PROVIDED HEREUNDER AND IN ACCORDANCE WITH CHAPTER 372, TEXAS LOCAL GOVERNMENT CODE, AS AMENDED (THE "ACT"). THE OWNER OF THIS BOND SHALL NEVER HAVE THE RIGHT TO DEMAND PAYMENT OF THIS

136 OBLIGATION OUT OF ANY FUNDS OF THE ISSUER OTHER THAN THE SPECIAL ASSESSMENT REVENUES FROM PHASE I IMPROVEMENT ASSESSMENTS AND THE ISSUER SHALL HAVE NO LEGAL OR MORAL OBLIGATION TO PAY THIS OBLIGATION FROM ANY MUNICIPAL FUNDS OTHER THAN SPECIAL ASSESSMENT REVENUES. THIS BOND IS ONE OF A DULY AUTHORIZED ISSUE OF BONDS aggregating $1,340,000 City of Waxahachie, Texas Special Assessment Bonds, Series 2011 (Waxahachie Public Improvement District No. 1 Phase I Project) (the "Series 2011 Bonds"), issued pursuant to an ordinance (the "Bond Ordinance") adopted by the governing body of the Issuer and the Trust Indenture, for the purposes of providing for the payment of capitalized interest, costs of issuance of the Series 2011 Bonds and costs of construction, acquisition or purchase of the Phase I Improvements, and establishing the Debt Service Reserve Fund and the Prepayment Reserve Fund as authorized by the laws of the State of Texas, including, but not limited to, the Act. THIS BOND AND THE SERIES OF WHICH IT IS A PART are special obligations of the Issuer and are payable as to both principal and interest solely from and equally and ratably secured by a lien on and pledge of the sources described above. Reference is hereby made to the Trust Indenture for a more complete statement of the covenants and provisions securing the payment of this Bond and the Series 2011 Bonds of which it is a part. By becoming the Registered Owner of this Bond, the Registered Owner thereby acknowledges all of the terms and provisions of the Trust Indenture, agrees to be bound by such terms and provisions, acknowledges that the Trust Indenture 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, the Bond Ordinance and the Trust Indenture constitute a contract between each Registered Owner hereof and the Issuer. THE ISSUER HAS RESERVED THE RIGHT, subject to the restrictions stated in the Trust Indenture, to issue Refunding Bonds payable from and secured by a lien on and pledge of the sources described above on a parity with this Bond and Series of which it is a part. THIS BOND is transferable only upon presentation and surrender at the designated corporate trust office of the Trustee, duly endorsed for transfer or accompanied by an assignment duly executed by the registered owner or his authorized representative, subject to the terms and conditions of the Bond Ordinance. Notwithstanding the foregoing, if this Bond is registered in the name of a Securities Depository, as defined in the Trust Indenture, this Bond may not be so transferred except as provided in the Trust Indenture, to an alternate nominee thereof, or to a successor Securities Depository or a nominee thereof. THIS BONDS is subject to redemption and payment prior to scheduled maturity at the option of the Issuer, in whole or in part, on February 15, 2021, or on any date thereafter at a redemption price equal to the principal amount thereof, plus interest to the date of redemption, from funds transferred from the Pledged Revenue Fund, Bond Redemption Fund or from other Available Money provided by the Issuer. If less than all of the Series 2011 Bonds are optionally redeemed at any time, the particular amounts of the Bonds to be redeemed shall be designated by the Issuer and the particular Bonds shall be selected by the Trustee by lot or other customary random method. THIS BOND is subject to extraordinary mandatory redemption prior to maturity, on any date, at a price equal to the principal amount of the Bond, or portions thereof, to be redeemed plus accrued interest thereon, to the date fixed for redemption from Special Assessment Revenues resulting from Prepayments of Phase I Improvement Assessments and certain other funds pursuant to, and as described in, Section 6.3 of the Trust Indenture. The particular Series 2011 Bonds to be so redeemed shall be selected by the Trustee by lot or other customary random method.

137 THE SERIES 2011 BONDS are also subject to mandatory sinking fund redemption by lot by the Issuer prior to maturity on February 15 of the years and in the amounts set forth below at a redemption price equal to one hundred percent (100%) of the principal amount redeemed plus accrued interest to the redemption date: Mandatory Redemption Date Mandatory Sinking Fund Payment (Insert schedule from Section 6.2 of Trust Indenture) *Final Maturity Each year in which there are mandatory sinking fund redemption requirements on the Series 2011 Bonds the Trustee shall (i) determine the principal amount of Series 2011 Bonds that must be mandatorily redeemed and the date on which such Series 2011 Bonds are to be redeemed ("Mandatory Sinking Fund Redemption Date"), (ii) after taking into account deliveries for cancellation and redemptions (other than by mandatory sinking fund redemptions), select the Series 2011 Bonds or portions of Series 2011 Bonds to be mandatorily redeemed on such Mandatory Sinking Fund Redemption Date, and (iii) give notice of such redemption as provided below. The principal amount of the Series 2011 Bonds required to be prepaid on each Mandatory Sinking Fund Redemption Date shall be reduced, at the option of the Issuer, by the principal amount of any Series 2011 Bonds which, at least forty-five (45) days prior to the Mandatory Sinking Fund Redemption Date, have been acquired by the Issuer and delivered to the Trustee for cancellation or have been redeemed (otherwise than through mandatory sinking fund redemption) and canceled by the Trustee and not theretofore credited against a scheduled mandatory sinking fund redemption. Each such Series 2011 Bond so delivered or previously purchased or redeemed shall be credited by the Trustee at one hundred percent (100%) of the principal amount thereof on the obligation of the Issuer on such Mandatory Sinking Fund Redemption Date, and the principal amount of such Series 2011 Bonds to be redeemed by operation of mandatory prepayment shall be reduced accordingly. SERIES 2011 BONDS MAY BE REDEEMED IN PART only in integral multiples of $5,000. Upon surrender of any Series 2011 Bond for redemption in part, the Trustee shall authenticate and deliver in exchange therefor a Series 2011 Bond or Series 2011 Bonds of like maturity and interest rate in an aggregate principal amount of the unredeemed portion of the Series 2011 Bond so surrendered. NOTICE OF REDEMPTION shall be given by the Trustee at least (30) days prior to the redemption date by written notice to the registered owner of each Series 2011 Bond to be redeemed in whole or in part at the address shown on the Register by first-class mail, postage prepaid. Any notice mailed as provided in the Trust Indenture shall be conclusively presumed to have been duly given, whether or not the registered owner receives such notice. By the redemption date, due provision shall be made with the Trustee for the payment of the redemption price of the Series 2011 Bonds to be redeemed, plus accrued interest thereon to the redemption date. When such Series 2011 Bonds have been called for redemption, in whole or in part, as provided above and due provision has been made to redeem same, such Series 2011 Bonds, or portions thereof, shall no longer be regarded as outstanding except for the purpose of receiving payment from the funds provided for redemption, and the right of the registered owners to collect interest on such Series 2011 Bonds or portions thereof which would otherwise accrue after the redemption date shall be terminated. IF AT THE TIME OF MAILING of notice of optional redemption there shall not have either been deposited with the Trustee or legally authorized escrow agent immediately available funds sufficient to redeem all the Series 2011 Bonds called for redemption, such notice may state that it is conditional, and is subject to the deposit of the redemption moneys with the Trustee or legally authorized escrow agent at or prior to the redemption date. If such redemption is not effectuated, the Trustee shall, within five days thereafter, give notice in the manner in which the notice of redemption was given that such moneys were not so received and shall rescind the redemption.

138 THIS BOND is exchangeable at the designated corporate trust office of the Trustee for Bonds in the principal amount of $5,000 or a greater amount evenly divisible by $5,000; provided, however, that in the event of a redemption of a portion of this Bond then outstanding, the Trustee may authenticate and deliver an exchange bond in a denomination of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Trust Indenture. EXCEPT FOR BONDS INITIALLY DELIVERED, THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Bond Ordinance or the Trust Indenture unless this Bond is authenticated by the Trustee by due execution of the authentication certificate endorsed hereon. THE ISSUER HAS APPOINTED the Trustee to act as Trustee for the Bondholders as provided in the Trust Indenture. Reference is made to the Trust Indenture for a complete description of the powers and duties of the Trustee. THE REGISTERED OWNER of this Bond, by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Trust Indenture. THE ISSUER has covenanted in the Trust Indenture that it will at all times provide a legally qualified entity to maintain a Register of the Owners of the Bonds and will cause notice of any change of registrar to be mailed to each registered owner. IT IS HEREBY CERTIFIED, RECITED, AND REPRESENTED that this Bond has been duly and validly issued and delivered; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the issuance and delivery of this Bond have been performed, exist, and been done in accordance with law; that the Bonds do not exceed any statutory limitation; and that provision has been made for the principal installment payment of and interest on this Bond and all of the Bonds by the creation of the aforesaid lien on and pledge of the Special Assessment Revenues. IN WITNESS HEREOF, this Bond has been signed with the manual or facsimile signature of the Mayor of the Issuer and countersigned with the manual or facsimile signature of the City Secretary, and the official seal of the City has been duly impressed, or placed in facsimile, on this Bond. (SEAL) CITY OF WAXAHACHIE, TEXAS Mayor COUNTERSIGNED: City Secretary

139 B. FORM OF COMPTROLLER'S REGISTRATION CERTIFICATE COMPTROLLER S REGISTRATION CERTIFICATE REGISTER NO. I hereby certify that this Bond has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Bond has been registered by the Comptroller of Public Accounts of the State of Texas. Witness my signature and seal this (COMPTROLLER'S SEAL) Comptroller of Public Accounts of the State of Texas C. FORM OF TRUSTEE'S AUTHENTICATION CERTIFICATE AUTHENTICATION CERTIFICATE It is hereby certified that this Bond has been delivered pursuant to the Bond Ordinance and Trust Indenture described in the text of this Bond; in exchange for or in replacement of a Bond, Bonds, or a portion of a Bond or Bonds of a Series which was originally approved by the Attorney General of Texas and registered by the Comptroller of Public Accounts of the State of Texas. THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION, Trustee By Authorized Signature Date of Authentication;

140 D. 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 (PLEASE PRINT) (PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE) (NAME) (ADDRESS) (CITY, STATE, ZIP CODE) and does hereby irrevocably constitute and appoint The Bank of New York Mellon Trust Company, National Association or its successor as Trustee to transfer the said Bond on the books kept for registration thereof with full power of substitution in the premises. Dated: Signature Guaranteed: (Signature guarantee should be made by a guarantor institution participating in the securities transfer agents medallion program or in such other guarantee program ) Registered Owner NOTICE: This signature must correspond with the name of the Registered Owner appearing on the face of this Bond. E. FORM OF INITIAL BOND (i) The initial Bond shall be in the form set forth in section A of this Exhibit, except that: A. immediately under the name of the Bond, the heading "CUSIP No. " shall be deleted. B. The Initial Bond shall be numbered "T-1."

141 EXHIBIT "B" DESCRIPTION OF THE PROPERTY WITHIN PHASE I OF WAXHACHIE PUBLIC IMPROVEMENT DISTRICT NO. 1

142 EXHIBIT "C" BOND ORDINANCE

143 EXHIBIT "D" (FORM OF) REQUISITION REQUESTING DISBURSEMENT FROM IMPROVEMENT FUND

144 REQUISITION REQUESTING DISBURSEMENT FROM IMPROVEMENT FUND In accordance with the terms of that certain Trust Indenture dated January 1, 2011 by and between the City of Waxahachie, Texas (the "Issuer") and The Bank of New York Mellon Trust Company, National Association (the "Trustee"), relating to the $1,340,000 City of Waxahachie, Texas Special Assessment Bonds, Series 2011 (Waxahachie Public Improvement District No. 1 Phase I Project), the Issuer hereby requests disbursement from the Improvement Fund established under the Trust Indenture and designated under the Trust Indenture for certain Phase I Improvements pursuant to the Trust Indenture. The undersigned represent and warrant for all purposes that: 1. The amount to be disbursed is $. 2. Payments, for the purposes and amounts set forth in Exhibit A and entitled " " shall be made to the respective payees named thereon. 3. The amount to be disbursed, which constitutes payments from the Improvement Fund for Phase I Improvements, was necessarily or reasonably incurred and said amount is being paid in a timely fashion, if any, fixed for such payment. 4. If applicable to such disbursement, the construction related to such acquisition or reimbursement has been completed. 5. The amount to be disbursed for acquisition, reimbursement or construction of facilities has been approved by the City Engineer of the Issuer. 6. No amount set forth in this Requisition was included in any Requisition Requesting Disbursement From Improvement Fund previously filed with the Trustee for which payment has previously been disbursed by the Trustee. 7. The amount disbursed under this Requisition constitutes payment of costs of Phase I Improvements permitted under the terms of the Trust Indenture. The Trustee shall wire such amounts as requested in this Requisition pursuant to the terms of Exhibit A attached hereto.

145 CITY OF WAXAHACHIE, TEXAS (the "Issuer") ATTEST: By:, City Secretary By: The Hon., Mayor [CITY SEAL]

146 EXHIBIT "E" (FORM OF) REQUISITION REQUESTING DISBURSEMENT FROM ADMINISTRATIVE FUND

147 REQUISITION REQUESTING DISBURSEMENT FROM ADMINISTRATIVE FUND In accordance with the terms of that certain Trust Indenture dated January 1, 2011 by and between the City of Waxahachie, Texas (the "Issuer") and The Bank of New York Mellon Trust Company, National Association (the "Trustee"), relating to the $1,340,000 City of Waxahachie, Texas Special Assessment Bonds, Series 2011 (Waxahachie Public Improvement District No. 1 Phase I Project), the Issuer hereby requests disbursement from the Adminsistrative Fund established under the Trust Indenture and designated under the Trust Indenture for payment of "Administrative Expenses" as defined in the Trust Indenture. The undersigned represent and warrant for all purposes that: 1. The amount to be disbursed is $. 2. Payments, for the purposes and amounts set forth in Exhibit A and entitled " " shall be made to the respective payees named thereon. 3. The amount to be disbursed, which constitutes payments from the Administrative Fund for Administrative Expenses, was necessarily or reasonably incurred and said amount is being paid in a timely fashion, if any, fixed for such payment. 4. No amount set forth in this Requisition was included in any Requisition Requesting Disbursement From Administrative Fund previously filed with the Trustee for which payment has previously been disbursed by the Trustee. 5. The amount disbursed under this Requisition constitutes payment of Administrative Expenses permitted under the terms of the Trust Indenture. The Trustee shall pay such amounts as requested in this Requisition pursuant to the terms of Exhibit A attached hereto.

148 CITY OF WAXAHACHIE, TEXAS (the "Issuer") ATTEST: By:, City Secretary By: The Hon., Mayor [CITY SEAL]

149 EXHIBIT "F" DEVELOPER PARCELS

150 (THIS PAGE IS INTENTIONALLY LEFT BLANK)

151 APPENDIX B SERVICE AND ASSESSMENT PLAN

152 (THIS PAGE IS INTENTIONALLY LEFT BLANK)

153 WAXAHACHIE PUBLIC IMPROVEMENT DISTRICT NO. 1 CITY OF WAXAHACHIE, TEXAS SERVICE AND ASSESSMENT PLAN PLATTED LOTS June 18, 2007 Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

154 TABLE OF CONTENTS Section I Introduction and Definitions 3 Section II Property Included Within the PID 7 Section III District Improvements 8 Section IV Service Plan 8 Section V Assessment Plan 10 Section VI Determination of Assessment 14 Section VII Assessment Roll 15 Section VIII Miscellaneous Provisions 16 LIST OF EXHIBITS Exhibit A Exhibit B Exhibit C Descriptions of the PID Property District Improvements Assessment Roll Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

155 SECTION I INTRODUCTION AND DEFINITIONS A. Introduction 1. Chapter 372, Texas Local Government Code, as amended (the Act ), governs the creation of public improvement districts in Texas. On April 16, 2007, pursuant to and in accordance with the petition, notice, and public hearing requirements of the Act and the other applicable laws of the State of Texas, the City Council of the City of Waxahachie, Ellis County, Texas (the City ) approved and adopted Resolution No approving and authorizing the creation of Waxahachie Public Improvement District No. 1 (the PID ). The purpose of the PID is to undertake public improvement projects that will confer a special benefit on property within the boundaries of the PID. 2. Prior to the levy by the City of any special assessments on property within the boundaries of the PID, the Act requires the preparation of a service plan for the PID covering a period of at least five years and defining the annual indebtedness and the projected costs for the improvement projects (which plan shall be reviewed and updated annually). The required service plan for the PID is contained in Section IV of this Service and Assessment Plan. 3. The Act requires that an assessment plan be included in the service plan for the PID. As part of the assessment plan, the Act requires that the City Council of the City shall apportion the costs of the improvement projects to be assessed against property in the PID. The apportionment shall be made on the basis of special benefits accruing to the property within the boundaries of the PID because of the improvement projects. The required assessment plan for the PID is contained in Section V of this Service and Assessment Plan. 4. The Act requires that after the total costs of the improvement projects are determined, the City Council of the City shall prepare a proposed assessment roll that states the assessment against each parcel of land in the PID, as determined by the method of assessment chosen by the City. The Assessment Roll for the PID is included as Exhibit C attached to this Service and Assessment Plan. B. Definitions Terms used in this Service and Assessment Plan shall have the following meanings: Administrator means a person or entity that contracts with, or that is an employee, representative, or agent of, the City that performs the responsibilities provided for in this Service and Assessment Plan, in the Bond Indenture, or in any other agreement approved by the City Council and related to the administration of the PID. Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

156 Annual Collection Costs mean the following actual or anticipated costs related to the annual collection of outstanding Assessments (whether paid in full or in Annual Installments), including, but not limited to, the actual or anticipated costs of: (i) (ii) (iii) (iv) (v) (vi) (vii) preparing this Service and Assessment Plan, each Annual Service Plan Update, and each Assessment Roll; computing, preparing, levying, collecting, and transmitting Assessments; remitting Assessments to the Trustee; the City, the Administrator, and the Trustee (and their respective legal counsel) in the discharge of their duties under this Service and Assessment Plan; complying with arbitrage rebate requirements; complying with annual securities disclosure requirements; and the City, the Administrator, and the Trustee in any way related to computing, preparing, levying, collecting, and transmitting the Assessments (including, but not limited to, the administration of the PID, maintaining a record of installments, payments, reallocations, and/or cancellations of Assessments, repayment of Bonds, any associated legal expenses, reasonable costs of other consultants and advisors, and contingencies and reserves for all of the foregoing costs as deemed appropriate by the City Council). Annual Installment means, with respect to each Parcel, each annual installment payment of the Assessment for the Parcel as shown on the Assessment Roll, which includes, without limitation, debt service and transaction costs related to any Bonds (other than costs payable from Bond proceeds), and Annual Collection Costs. Annual Service Plan Update means the annual update to Section V of this Service and Assessment Plan as required by the Act. Assessed Property means, collectively, all the Parcels (excluding Non-Benefited Property) described on the Assessment Roll attached as Exhibit C to this Service and Assessment Plan. Assessment means, with respect to each Parcel, the assessment levied against the Parcel in accordance with the Assessment Ordinance and this Service and Assessment Plan. Assessment Ordinance means the Assessment Ordinance approved by the City Council that approves this Service and Assessment Plan and levies and imposes the Assessments, as shown on the Assessment Roll, subject to reallocation, from time to time, as provided by this Service and Assessment Plan. Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

157 Assessment Revenues mean the revenues actually received by the City from Assessments including, but not limited to, revenues from Annual Installments, revenues that result from the payment, in full, of any Assessment, and including revenues from prepayments of Assessments as provided by this Service and Assessment Plan. Assessment Roll means a list of and description of all Parcels and the Assessment and Annual Installment for each Parcel attached as Exhibit C to this Service and Assessment Plan, and including any updates thereto prepared from time to time including, but not limited to, updates prepared in connection with any issuance of Bonds or in connection with any Annual Service Plan Update. Bond Indenture means any indenture, ordinance, or similar document setting forth the terms and other provisions relating to any series of Bonds, as modified, amended, or supplemented from time to time. Bonds mean any bonds (including refunding bonds) or other debt secured by Assessment Revenues, whether in one or more series, issued by the City with respect to the PID. City means the City of Waxahachie, Texas. City Council means the duly elected governing body of the City. Collection Costs mean the sum of Annual Collection Costs and Delinquent Collection Costs. Cost mean actual or budgeted costs, as applicable, to acquire, design, construct, install, or improve District Improvements including, but not limited to, all costs paid or incurred in connection with the issuance, from time to time, of multiple series of Bonds, and including all costs otherwise paid or incurred in connection with the transaction that results in the issuance of Bonds (whether such costs are characterized as interest, costs of issuance, reserve fund, or other costs of the transaction). Delinquent Collection Costs mean interest, penalties, and expenses incurred or imposed with respect to any delinquent installments of the Assessments in accordance with the Act. Developer means either Waxahachie 287, LP or Ellis County CTR Development, Ltd, and their respective successors and assigns. District Improvements mean the public improvement projects authorized by the Act that confer a special benefit on the Assessed Property and that are described in Exhibit B attached to this Service and Assessment Plan. Equivalent Units mean, for each Parcel, (i) the number of residential dwelling units built or expected to be built within the Parcel for each Lot Type shown below multiplied times (ii) the equivalency factor shown below. Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

158 LOT TYPE EQUIVALENCY FACTOR Lot Type 1 (single-family residential) 1.00 per dwelling Lot Type 2 (single-family residential) 0.84 per dwelling unit Lot Type 3 (single-family residential) 0.75 per dwelling unit Lot Type 1 means a single-family lot designated SF-1 in the Planned Development Ordinance. Lot Type 2 means a single-family lot designated as SF-2 in the Planned Development Ordinance. Lot Type 3 means a single-family lot designated as SF-3 in the Planned Development Ordinance. Non-Benefited Property means Parcels within the boundaries of the PID that have been determined by the City Council to receive no measurable special benefit from the District Improvements, including, but not limited to, Owner Association Property, Public Property, and right-of-way and easements for use by a public or private utility providers. Owner Association Property means property within the boundaries of the PID that is owned by or offered for dedication to, whether in fee simple or through an exclusive use easement, a non-profit property owners association established for the benefit of a group of homeowners or property owners within the PID. Parcel means a parcel of land within the PID identified (i) by a tax map identification number assigned by the Ellis County Central Appraisal District for real property tax purposes, (ii) by lot and block number in a final subdivision plat recorded in the real property records of Ellis County, (iii) by metes and bounds description, or (iv) by any other means determined by the City. PID means the Waxahachie Public Improvement District No. 1. Act means Chapter 372, Texas Local Government Code, as amended. PID Property means the property depicted and described on Exhibit A attached to this Service and Assessment Plan identifying the total property included within the boundaries of the PID. Planned Development Ordinance means Ordinance No adopted by the City Council of the City on April 18, 2005, which ordinance establishes the zoning that is applicable to the PID Property. Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

159 Public Property means property within the boundaries of the PID that is owned by or offered for dedication to the federal government, the State of Texas, a county, the City, a school district, a public utility provider, or any other political subdivision or public agency, whether in fee simple or through an easement. Service and Assessment Plan means this Service and Assessment Plan prepared for the PID pursuant to the Act, as amended and updated from time to time. Trustee means the fiscal agent or trustee as specified in any Bond Indenture, including a substitute fiscal agent or trustee. SECTION II PROPERTY INCLUDED WITHIN THE PID The PID Property is depicted and described by metes and bounds on Exhibit A attached to this Service and Assessment Plan. The PID Property consists of approximately 1,965 acres of land located within the corporate limits of the City, Ellis County, Texas. The PID Property is zoned as a planned development zoning district in accordance with the Planned Development Ordinance. The projected residential and commercial development at build out of the PID Property is shown in Table II-A below for each of the six Lot Types that will be developed. The PID Property includes approximately 227 acres of land that is platted (which platted land is covered by this Service and Assessment Plan and is referred to herein as the Assessed Property) and approximately 1,739 acres of land that is undeveloped (which undeveloped land is covered by a separate Assessment Ordinance and a separate Service and Assessment Plan). TABLE II-A LOT TYPE PROJECTED DEVELOPMENT AT BUILD OUT Lot Type 1 Single-Family 684 units Lot Type 2 Single-Family 2,546 units Lot Type 3 Single-Family 1,369 units Lot Type 4 - Duplex 200 units Lot Type 5 Multi-Family 749 units Lot Type 6 - Commercial 169 acres Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

160 SECTION III DISTRICT IMPROVEMENTS The Act provides that if the governing body of a municipality determines that it promotes the interests of the municipality, the governing body may undertake public improvement projects authorized by the Act that confer a special benefit on a definable part of the municipality. The City Council has determined that the District Improvements described on Exhibit B to this Service and Assessment Plan are authorized by the Act, promote the interests of the City, and confer a special benefit on the Assessed Property. The individual line items described on Exhibit B may be updated with each update of this Service and Assessment Plan. Individual line items may be adjusted upward or downward, however, the total cost of all line items cannot exceed the total shown on Exhibit B. SECTION IV SERVICE PLAN The Act requires a service plan covering a period of at least five years. The service plan is required to define the annual projected costs and indebtedness for the improvement projects undertaken within the public improvement district. The projected Cost for the District Improvements is estimated to be $3,559,307. An estimate of how the Cost will be undertaken is set forth in Table IV-A. An estimate of how indebtedness to pay for the District Improvements will be undertaken is set forth in Table IV-B. Table IV-C and Table IV-D set forth, respectively, the anticipated sources and uses of Bond proceeds. Tables IV-A through D will be updated as part of each Annual Service Plan Update and upon the issuance of Bonds. TABLE IV-A YEAR WHICH COST EXPENDED PROJECTED COST OF IMPROVEMENTS Year 1 $ 3,559,307 Year 2 $ 0 Year 3 $ 0 Year 4 $ 0 Year 5 $ 0 Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

161 Table IV-B YEAR INDEBTEDNESS UNDERTAKEN PROJECTED INDEBTEDNESS Year 1 $ 3,559,307 Year 2 $ 0 Year 3 $ 0 Year 4 $ 0 Year 5 $ 0 TABLE IV C SOURCES OF FUNDS TOTAL TOTAL SOURCES OF FUNDS $ 3,559,307 Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

162 TABLE IV D USES OF FUNDS TOTAL Debt Service Reserve Funds $248,552 Capitalized Interest $309,362 Bond Counsel $45,990 Underwriters Counsel $35,566 Developers Financial Advisor $26,675 City Financial Advisor $26,675 Underwriters Fee $71,132 Interest from Dev. Fund $(30,865) Developer s Counsel $7,154 Assessment Consultant $7,154 Other Administrative Costs $8,892 SUB-TOTAL $756,287 PAR AMOUNT OF BONDS $3,559,307 DEPOSIT TO PROJECT FUND $2,803,020 SECTION V ASSESSMENT PLAN A. Introduction The Act requires the governing body of a municipality to apportion the cost of improvement projects to be assessed against property in a public improvement district on the basis of special benefits conferred upon the property because of the projects. The Act provides that the cost of improvement projects may be assessed: (i) equally per front foot or square foot; (ii) according to Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

163 the value of the property as determined by the governing body, with or without regard to improvements on the property; or (iii) in any other manner that results in imposing equal shares of the cost on property similarly benefited. The Act further provides that the governing body may establish by ordinance or order reasonable classifications and formulas for the apportionment of the cost between the municipality and the area to be assessed and the methods of assessing the special benefits for various classes of improvements. This Section V of this Service and Assessment Plan describes the special benefit received by each Parcel of the Assessed Property as a result of the District Improvements, provides the basis and justification for the determination that this special benefit exceeds the costs of the Assessments, and establishes the methodology by which the City Council allocates the special benefit of the District Improvements to Parcels in a manner that results in equal shares of the Cost of the District Improvements being apportioned to Parcels similarly benefited. The determination by the City Council of the assessment methodology set forth below is the result of the discretionary exercise by the City Council of its legislative authority and governmental powers and is conclusive and binding on the Developer and all future owners and developers of the PID Property. B. Special Benefit The Assessed Property will receive a direct and special benefit from the District Improvements, and this benefit will be equal to or greater than the cost of the Assessments. The District Improvements are provided specifically for the benefit of the Assessed Property. The District Improvements (more particularly described in line-item format on Exhibit B to this Service and Assessment Plan) include the following categories of public improvement projects authorized by the Act: (i) streets (including paving, landscaping, sidewalks, street lights, and screening walls), recreational facilities, entry features, parks, hike and bike trails, open space improvements, common area improvements, pond improvements, water improvements, wastewater improvements, and storm water improvements; (ii) engineering, contract administration, and contingencies associated with the foregoing; and (iii) various issuance and transaction costs related to the issuance of one or more series of Bonds. The owners of the Assessed Property have acknowledged that the District Improvements confer a special benefit on the Assessed Property and have consented to the imposition of the Assessments to pay for the District Improvements. The owners are acting in their interest in consenting to this imposition because the special benefit conferred upon the Assessed Property by the District Improvements exceeds the amount of the Assessments. The owners of the Assessed Property have represented: (i) that, based on their evaluation of the potential development of the Assessed Property, the highest and best use is the use described in this Service and Assessment Plan and otherwise required by the Planned Development Ordinance; and (ii) that it is in the interest of the owners of the Assessed Property to maximize the value of such property. Use of the Assessed Property as described in this Service and Assessment Plan and as required by the Planned Development Ordinance will require that District Improvements be acquired, constructed, installed, and improved. Funding the cost of the District Improvements through the PID is determined to be the most beneficial means of doing Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

164 so. In summary, the Assessments result in a special benefit to the Assessed Property, and this special benefit exceeds the amount of the Assessments based on the evidence, information, and testimony provided to the City Council. C. Assessment Methodology 1. The Cost of the District Improvements may be assessed by the City Council against the Assessed Property so long as the special benefit conferred upon the Assessed Property by the District Improvements equals or exceeds the Assessments on the Assessed Property. The Cost may be assessed by using any methodology that results in the imposition of equal shares of the Cost on Assessed Property similarly benefited. 2. For purposes of this Service and Assessment Plan, the City Council has determined that the Cost of the District Improvements shall be allocated to the Assessed Property on the basis of the relative value of Parcels after undertaking the District Improvements and that such method of allocation will result in the imposition of equal shares of the Cost on Parcels similarly situated. In determining the relative value of Parcels, the City Council has taken into consideration (i) the type of residential development (i.e., single-family, duplex, or multi-family); (ii) single-family lot size; (iii) current and projected land values; (iv) current and projected home prices; (v) current and projected market demands for single-family residential development within the City and within the region; and (vi) the high-quality, master-planned community development standards created by the Planned Development Ordinance. In determining the relative value of Parcels, the City Council has also taken into consideration independent studies supporting the conclusion that larger residential lots with full municipal services (including police, fire, and other emergency services), with access to concrete streets with curb and gutter storm drainage facilities, and with municipal water and wastewater service will be developed with larger, more expensive homes; and that such larger, more expensive homes, on average, will create more vehicle trips and greater demands for water and wastewater consumption. 3. Having taken into consideration the matters described above, the City Council has determined that allocating the Cost of the District Improvements among Parcels based on value after undertaking the District Improvements is best accomplished (and most easily illustrated) by creating a hierarchy of benefited Parcels based on the Lot Types defined in Section I.B of this Service and Assessment Plan. This hierarchy of value (from Lot Type 1 representing the highest value to Lot Type 3 representing the lowest value) is set forth in Table V-A below. This table illustrates that the City Council has determined: (i) that a Lot Type 1 dwelling unit receives the greatest benefit from the District Improvements, which benefit is given an Equivalent Unit value of 1.0 per dwelling unit; (ii) that a Lot Type 2 dwelling unit receives a smaller benefit; namely, 84% of the benefit received by a Type 1 Lot dwelling unit (hence the Equivalent Unit value of 0.84 per dwelling unit); and (iii) that a Lot Type 3 dwelling unit receives an even smaller benefit; namely, 75% of the benefit received by a Type 1 dwelling unit (hence the Equivalent Unit value of 0.75 per dwelling unit). Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

165 TABLE V-A LOT TYPE EQUIVALENT UNIT VALUE TOTAL NUMBER OF DWELLING UNITS TOTAL EQUIVALENT UNITS FOR PURPOSES OF CALCULATING ASSESSMENTS Lot Type 1 (single-family residential) 1.00 per dwelling 171 dwelling units 171 Lot Type 2 (single-family residential) 0.84 per dwelling unit 163 dwelling units 137 Lot Type 3 (single-family residential) 0.75 per dwelling unit 209 dwelling units 157 TOTAL EQUIVALENT UNITS = 465 AUTHORIZED IMPROVEMENT COST PER EQUIVALENT UNIT = $7, The Cost of the District Improvements is allocated among 465 Equivalent Units resulting in a cost per Equivalent Unit of $7,660. The Assessment per dwelling unit is calculated as the product of (i) $7,660 multiplied times (ii) the applicable Equivalent Unit value for each Lot Type. Table V-B sets forth the Assessment per dwelling unit. TABLE V-B LOT TYPE EQUIVALENT UNIT VALUE ASSESSMENT PER DWELLING UNIT AND PER ACRE Lot Type per dwelling unit $7,660 per dwelling unit Lot Type per dwelling unit $6,434 per dwelling unit Lot Type per dwelling unit $5,745 per dwelling unit 5. It has been represented to the City Council by the owners of the Assessed Property that the District Improvements for the Assessed Property will be completed in accordance with the Planned Development Ordinance and the City s Subdivision Ordinance, as amended. When the City has determined that the District Improvements have been completed in accordance with the Planned Development Ordinance and the City s Subdivision Ordinance or when financial security (including, but not limited to, proceeds from the issuance of Bonds) to complete the Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

166 District Improvements in accordance with the Planned Development Ordinance and Subdivision Ordinance has been provided in a manner approved by the City; then the Assessed Property shall be deemed to have received a special benefit from the District Improvements. When the Assessed Property is deemed to have received a special benefit from District Improvements, the City shall collect Assessments and Annual Installments to pay for such District Improvements and shall issue Bonds for such purpose. A. Amount of Assessments SECTION VI DETERMINATION OF ASSESSMENT The total Assessments for all Assessed Property shall not exceed the total Cost of the District Improvements. The Assessment for each Parcel shall be as shown on the Assessment Roll, and no Assessment shall be changed except as authorized by this Service and Assessment Plan or the Act. B. Reduction of Assessments If after all District Improvements have been completed the actual Cost of the District Improvements is less than the Cost used to calculate the Assessments, then the Assessment for each Parcel shall be reduced by an equal percentage such that the sum of the resulting reduced Assessments for all Parcels equals the actual reduced Cost of the District Improvements (but never less than an amount equal to the principal amount of outstanding Bonds). To the extent permitted by law and as provided by any Bond Indenture, the trustee under the Bond Indenture shall (with the consent of the City Council) refund the amount of such reduction to any owner of a Parcel who has already paid in full the Assessment for such owner s Parcel. C. Payment of Assessments 1. Payment in Full (a) The Assessment for any Parcel may be paid in full at any time. Payment shall include interest through the date of payment to the extent such interest is not included in any Annual Installment paid or to be paid. If payment in full will result in a redemption of Bonds, the payment amount shall be reduced by the amount, if any, of reserve funds applied to the redemption under the Bond Indenture. (b) If an Annual Installment has been billed prior to payment in full of an Assessment, the Annual Installment shall be due and payable and shall be credited against the payment-in-full amount. (c) Upon payment in full of an Assessment, the City shall deposit the payment in accordance with the applicable Bond Indenture; whereupon, the Assessment shall be reduced to zero, and the Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

167 owner s obligation to pay the Assessment and Annual Installments thereof shall automatically terminate. 2. Payment in Annual Installments The Act provides that an Assessment for a Parcel may be paid in full at any time. If not paid in full, the Act authorizes the City to collect interest and collection costs on the outstanding Assessment. An Assessment for a Parcel that is not paid in full will be collected in Annual Installments, including interest and Annual Collection Costs, beginning on the date the City determines that a phase of development of the PID Property has received a special benefit from District Improvements completed or to be completed in connection with such phase of development as provided by Section V.C.5 of this Service and Assessment Plan. Each Assessment shall bear interest at one-half of one percent above than the actual interest rate paid on the public debt used to finance the District Improvements. The Assessment Roll sets forth for each year the Annual Installment for each Parcel. D. Collection of Annual Installments No less frequently than annually, the Administrator shall prepare, and the City Council shall approve, an Annual Service Plan Update to allow for the billing and collection of Annual Installments. Each Annual Service Plan Update shall include an updated Assessment Roll and a calculation of the Annual Installment for each Parcel. Annual Collection Costs shall be allocated among Parcels in proportion to the amount of the Annual Installments for the Parcels. Each Annual Installment shall be reduced by any credits applied under the applicable Bond Indenture, such as capitalized interest, interest earnings on any account balances, and any other funds available to the Trustee for such purpose. Annual Installments shall be collected by the City in the same manner and at the same time as ad valorem taxes and shall be subject to the same penalties, procedures, and foreclosure sale in case of delinquencies as are provided for ad valorem taxes of the City. The Assessments shall have lien priority as specified in the Act. SECTION VII ASSESSMENT ROLL A. Each Parcel has been evaluated by the City Council (based on the Planned Development Ordinance, developable area, proposed Owner Association Property and Public Property, the District Improvements, best and highest use of land, and other development factors deemed relevant by the City Council) to determine the Lot Type that is anticipated to be developed within such Parcel. The Assessment for each Parcel is then determined based on the last column of Table V-B of this Service and Assessment Plan, all of which Assessments are set forth on the Assessment Roll attached as Exhibit C to this Service and Assessment Plan. The Assessment Roll shall be updated upon the issuance of each series Bonds, upon the preparation of each Annual Service Plan Update, and to reflect, for each Parcel, prepayments and reductions authorized by this Service and Assessment Plan. Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

168 B. The Administrator shall prepare, and the City Council shall review and approve, updates (no less frequently than annually) to the Assessment Roll to reflect the following matters, together with any other changes helpful to the Administrator and permitted by the Act: (i) the identification of each Parcel (including, if available, the tax parcel identification number for each Parcel); (ii) the Assessment for each Parcel, including any adjustments authorized by this Service and Assessment Plan or in the Act; (iii) the Annual Installment for the Parcel for the year (if the Assessment is payable in installments); and (iv) payments of the Assessment, if any, as provided by Section VI.C of this Service and Assessment Plan. A. Administrative Review SECTION VIII MISCELLANEOUS PROVISIONS An owner of a Parcel claiming that an error has been made in calculating the Assessment Roll (including the Annual Installment) shall (prior to pursuing any other remedy) give written notice describing the alleged error to the City within thirty (30) days after the owner receives the purportedly erroneous calculation. If an owner fails to give such notice, such owner shall be deemed to have accepted the calculation of the Assessment Roll (including the Annual Installment) and to have waived any objections to the calculation. The Administrator shall promptly review all notices alleging calculation errors and decide whether an error has been made. Any overpayment of a prior Annual Installment shall be credited against future Annual Installments, and no cash refunds shall be made except for the final year during which the Annual Installment is collected. The decision of the Administrator regarding a calculation error relating to the Assessment Roll may be appealed to the City Council for determination. Any amendments made to the Assessment Roll pursuant to calculation errors shall be made pursuant to the Act. B. Termination of Assessments Each Assessment shall terminate on the date the Assessment is paid in full, including unpaid Annual Installments, if any, and including Delinquent Collection Costs. After termination of an Assessment, the City shall provide to the owner of the affected Parcel a recordable Notice of the PID Assessment Termination. C. Amendments Supplemental Assessments may be made by the City Council in accordance with the Act to correct omissions or mistakes relating to the total Cost of the District Improvements. The City Council reserves the right to amend this Service and Assessment Plan without notice under the Act and without notice to owners of Parcels: (i) to correct minor mistakes and clerical errors; (ii) to clarify minor ambiguities; and (iii) to provide procedures for the collection and enforcement of Assessments, Collection Costs, and other charges imposed by this Service and Assessment Plan. The City Council further reserves the right to amend this Service and Assessment Plan (after notice and public hearing as required by the Act) to conform this Service and Assessment Plan to Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

169 the requirements of the Act, including requirements arising from interpretations of the Act by the Attorney General of the State of Texas. D. Interpretations and Determinations The City Council shall make all interpretations and determinations related to the application of this Service and Assessment Plan, which determinations and interpretations are governmental actions involving legislative discretion. Ministerial and administrative acts may be delegated pursuant to the this Service and Assessment Plan and the Bond Indenture. E. Severability If any provision of this Service and Assessment Plan is held to be unenforceable by final judgment of any court having jurisdiction, such unenforceable provision shall be deleted and severed from this Service and Assessment Plan, and this Service and Assessment Plan, and all remaining provisions, shall remain in full force and effect and be interpreted to give effect to the intent of the parties as evidenced by this Service and Assessment Plan as a whole. To the extent required to give maximum effect to the intent of the parties, the remaining provisions of this Service and Assessment Plan shall be reformed or rewritten. All provisions of this Service and Assessment Plan are deemed to be severable. Exhibit B to Assessment Ordinance Service and Assessment Plan PLATTED LOTS Page :

170 Exhibit A to Service and Assessment Plan DEPICTION OF THE PID PROPERTY WAXAHACHIE PUBLIC IMPROVEMENT DISTRICT NO. 1 Exhibit A to Service and Assessment Plan Description of PID Property Page :

171 Exhibit A to Service and Assessment Plan (Continued) METES AND BOUNDS DESCRIPTION OF THE PID PROPERTY WAXAHACHIE PUBLIC IMPROVEMENT DISTRICT NO ACRES BEING A ACRE TRACT OF LAND SITUATED IN THE C. BEDWELL SURVEY, ABSTRACT NO. 94, R.M. BERRY SURVEY, ABSTRACT NO. 96, R.M. BERRY SURVEY, ABSTRACT NO. 97, G. CARPENTER SURVEY, ABSTRACT NO. 190, W.C. COLEMAN SURVEY, ABSTRACT NO. 204, B. COLLIER SURVEY, ABSTRACT NO. 216, S.M. DURRITT SURVEY, ABSTRACT NO. 272, G. GARCIA SURVEY, ABSTRACT NO. 418, T. HAVENS SURVEY, ABSTRACT NO. 492, J. JOHNSON SURVEY, ABSTRACT NO. 557, W.H. JAMES SURVEY, ABSTRACT NO. 562, McKINNEY & WILLIAMS SURVEY, ABSTRACT NO. 750 AND M. RAFFERTY SURVEY, ABSTRACT NO. 898, CITY OF WAXAHACHIE, ELLIS COUNTY, TEXAS, AND BEING ALL OF A CALLED ACRE TRACT OF LAND, CONVEYED TO ENNIS AUCTION COMPANY, INC. BY DEED RECORDED IN VOLUME 1047, PAGE 533, DEED RECORDS, ELLIS COUNTY, TEXAS, BEING ALL OF A CALLED ACRE TRACT OF LAND, CONVEYED TO ENNIS AUCTION COMPANY, INC. BY DEED RECORDED IN VOLUME 1047, PAGE 525, DEED RECORDS, ELLIS COUNTY, TEXAS, BEING ALL OF A CALLED ACRE TRACT OF LAND, CONVEYED TO ENNIS AUCTION COMPANY, INC. BY DEED RECORDED IN VOLUME 1043, PAGE 371, DEED RECORDS, ELLIS COUNTY, TEXAS, BEING ALL OF A CALLED ACRE TRACT OF LAND, CONVEYED TO GREG LOFTIS BY DEED RECORDED IN VOLUME 1061, PAGE 145, DEED RECORDS, ELLIS COUNTY, TEXAS, BEING PART OF A TRACT OF LAND, CONVEYED TO ELLIS COUNTY LIVESTOCK, INC. BY DEED RECORDED IN VOLUME 758, PAGE 207, DEED RECORDS, ELLIS COUNTY, TEXAS, BEING ALL OF A CALLED ACRE TRACT OF LAND, CONVEYED TO GREG LOFTIS BY DEED RECORDED IN VOLUME 1061, PAGE 145, DEED RECORDS, ELLIS COUNTY, TEXAS, BEING ALL OF A CALLED ACRE TRACT OF LAND, CONVEYED TO ENNIS AUCTION COMPANY, INC. BY DEED RECORDED IN VOLUME 1047, PAGE 525, DEED RECORDS, ELLIS COUNTY, TEXAS, BEING ALL OF A CALLED ACRE TRACT OF LAND, CONVEYED TO ELLIS COUNTY CTR DEVELOPMENT, LTD. BY DEED RECORDED IN VOLUME 1985, PAGE 1495, DEED RECORDS, ELLIS COUNTY, TEXAS, BEING PART OF A CALLED ACRE TRACT OF LAND, CONVEYED TO ENNIS AUCTION COMPANY, INC. BY DEED RECORDED IN VOLUME 1047, PAGE 525, DEED RECORDS, ELLIS COUNTY, TEXAS. SAID ACRE TRACT, HAVING A BEARING BASIS OF GRID NORTH, STATE PLANE COORDINATES, TEXAS NORTH CENTRAL ZONE, NAD 83 DATUM (CORS), BEING MORE PARTICULARLY DESCRIBED BY METES AND BOUNDS AS FOLLOWS: Exhibit A to Service and Assessment Plan Description of PID Property Page :

172 BEGINNING AT THE NORTHWEST CORNER OF AFORESAID ACRE TRACT; THENCE NORTH 88 DEGREES 56 MINUTES 16 SECONDS EAST, ALONG A NORTH LINE OF AFORESAID ACRE TRACT, A DISTANCE OF FEET TO A POINT FOR CORNER; THENCE NORTH 01 DEGREES 35 MINUTES 54 SECONDS WEST, ALONG A WEST LINE OF AFORESAID ACRE TRACT, A DISTANCE OF FEET TO A POINT FOR CORNER; THENCE NORTH 89 DEGREES 19 MINUTES 47 SECONDS EAST, ALONG A NORTH LINE OF AFORESAID ACRE TRACT, A DISTANCE OF FEET TO A POINT FOR CORNER; THENCE SOUTH 40 DEGREES 28 MINUTES 00 SECONDS EAST, ALONG A EAST LINE OF AFORESAID ACRE TRACT, A DISTANCE OF FEET TO A POINT FOR CORNER; THENCE SOUTH 01 DEGREES 03 MINUTES 50 SECONDS EAST, ALONG A EAST LINE OF AFORESAID ACRE TRACT, A DISTANCE OF FEET TO A POINT FOR CORNER; THENCE ALONG A NORTH LINE OF AFORESAID ACRE TRACT THE FOLLOWING COURSES AND DISTANCES: NORTH 88 DEGREES 52 MINUTES 47 SECONDS EAST, A DISTANCE OF FEET TO A POINT FOR CORNER; SOUTH 60 DEGREES 17 MINUTES 43 SECONDS EAST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 62 DEGREES 17 MINUTES 11 SECONDS EAST, A DISTANCE OF FEET TO A POINT FOR CORNER; SOUTH 57 DEGREES 39 MINUTES 13 SECONDS EAST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 59 DEGREES 31 MINUTES 44 SECONDS EAST, A DISTANCE OF FEET TO A POINT FOR CORNER; THENCE ALONG A EAST LINE OF AFORESAID ACRE TRACT THE FOLLOWING COURSES AND DISTANCES: Exhibit A to Service and Assessment Plan Description of PID Property Page :

173 SOUTH 20 DEGREES 32 MINUTES 39 SECONDS EAST, A DISTANCE OF FEET TO A POINT FOR CORNER; SOUTH 49 DEGREES 42 MINUTES 53 SECONDS EAST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 59 DEGREES 01 MINUTES 39 SECONDS EAST, A DISTANCE OF FEET TO A POINT FOR CORNER; SOUTH 31 DEGREES 41 MINUTES 03 SECONDS EAST, A DISTANCE OF FEET TO A POINT FOR CORNER; SOUTH 01 DEGREES 17 MINUTES 41 SECONDS EAST, A DISTANCE OF FEET TO A POINT FOR CORNER; SOUTH 00 DEGREES 34 MINUTES 53 SECONDS EAST, A DISTANCE OF FEET TO THE EAST CORNER OF AFORESAID ACRE TRACT; THENCE ALONG THE SOUTH LINE OF AFORESAID ACRE TRACT THE FOLLOWING COURSES AND DISTANCES: SOUTH 60 DEGREES 05 MINUTES 45 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; SOUTH 59 DEGREES 59 MINUTES 15 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; SOUTH 49 DEGREES 31 MINUTES 18 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; SOUTH 47 DEGREES 40 MINUTES 43 SECONDS EAST, A DISTANCE OF FEET TO A POINT FOR CORNER; SOUTH 59 DEGREES 09 MINUTES 11 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; SOUTH 58 DEGREES 58 MINUTES 21 SECONDS WEST, A DISTANCE OF FEET TO THE NORTH CORNER OF AFORESAID ACRE TRACT; THENCE SOUTH 24 DEGREES 19 MINUTES 22 SECONDS EAST, ALONG THE EAST LINE OF AFORESAID ACRE TRACT, A DISTANCE OF FEET TO THE Exhibit A to Service and Assessment Plan Description of PID Property Page :

174 EAST CORNER OF SAID ACRE TRACT AND THE NORTH CORNER OF AFORESAID ACRE TRACT; THENCE SOUTH 22 DEGREES 39 MINUTES 36 SECONDS EAST, ALONG THE EAST LINE OF AFORESAID ACRE TRACT, A DISTANCE OF FEET TO THE EAST CORNER OF SAID ACRE TRACT AND THE NORTH CORNER OF AFORESAID ELLIS COUNTY LIVESTOCK, INC. TRACT; THENCE ALONG THE EAST LINE OF AFORESAID ELLIS COUNTY LIVESTOCK, INC. TRACT THE FOLLOWING COURSES AND DISTANCES: SOUTH 22 DEGREES 43 MINUTES 40 SECONDS EAST, A DISTANCE OF FEET TO A POINT FOR CORNER; SOUTH 23 DEGREES 51 MINUTES 01 SECONDS EAST, A DISTANCE OF FEET TO A POINT FOR CORNER; THENCE SOUTH 74 DEGREES 23 MINUTES 36 SECONDS WEST, OVER AND ACROSS AFORESAID ELLIS COUNTY LIVESTOCK, INC TRACT, A DISTANCE OF FEET TO THE EAST CORNER OF AFORESAID ACRE TRACT; THENCE ALONG THE EAST LINE OF AFORESAID ACRE TRACT THE FOLLOWING COURSES AND DISTANCES: SOUTH 08 DEGREES 01 MINUTES 17 SECONDS EAST, A DISTANCE OF FEET TO A POINT FOR CORNER; SOUTH 04 DEGREES 24 MINUTES 42 SECONDS WEST, A DISTANCE OF FEET TO THE SOUTHEAST CORNER OF AFORESAID ACRE TRACT AND BEING ON THE NORTHEAST RIGHT-OF-WAY OF U.S. HIGHWAY 287 (A VARIABLE WIDTH RIGHT-OF-WAY; THENCE ALONG THE NORTHEAST RIGHT-OF-WAY LINE OF AFORESAID U.S. HIGHWAY 287 AND THE COMMON SOUTHWEST LINES OF AFORESAID ACRE TRACT, ACRE TRACT, ACRE TRACT, AND ACRE TRACT THE FOLLOWING COURSES AND DISTANCES: NORTH 58 DEGREES 23 MINUTES 26 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 61 DEGREES 15 MINUTES 11 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; Exhibit A to Service and Assessment Plan Description of PID Property Page :

175 NORTH 58 DEGREES 23 MINUTES 26 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 00 DEGREES 26 MINUTES 16 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 58 DEGREES 25 MINUTES 41 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 44 DEGREES 19 MINUTES 42 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 58 DEGREES 23 MINUTES 09 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 72 DEGREES 35 MINUTES 27 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 58 DEGREES 24 MINUTES 44 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 39 DEGREES 48 MINUTES 54 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 58 DEGREES 17 MINUTES 27 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 77 DEGREES 09 MINUTES 31 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 58 DEGREES 29 MINUTES 18 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 58 DEGREES 15 MINUTES 31 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 39 DEGREES 03 MINUTES 02 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 58 DEGREES 31 MINUTES 08 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 77 DEGREES 21 MINUTES 47 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; Exhibit A to Service and Assessment Plan Description of PID Property Page :

176 NORTH 48 DEGREES 44 MINUTES 14 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 38 DEGREES 38 MINUTES 24 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 27 DEGREES 01 MINUTES 24 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 15 DEGREES 20 MINUTES 42 SECONDS WEST, A DISTANCE OF FEET TO THE WEST CORNER OF AFORESAID ACRE TRACT; THENCE NORTH 58 DEGREES 50 MINUTES 18 SECONDS EAST, ALONG THE NORTHWEST LINE OF AFORESAID ACRE TRACT, A DISTANCE OF FEET TO THE SOUTH CORNER OF AFORESAID ACRE TRACT; THENCE NORTH 30 DEGREES 04 MINUTES 07 SECONDS WEST, ALONG A SOUTHWEST LINE OF AFORESAID ACRE TRACT, A DISTANCE OF FEET TO THE INSIDE ELL CORNER OF SAID ACRE TRACT; THENCE SOUTH 59 DEGREES 54 MINUTES 53 SECONDS WEST, A DISTANCE OF FEET TO A WEST CORNER OF AFORESAID ACRE TRACT AND ON THE EAST LINE OF AFORESAID U.S. HIGHWAY 287; THENCE ALONG THE WEST LINE OF AFORESAID ACRE TRACT AND THE COMMON EAST RIGHT-OF-WAY OF AFORESAID U.S. HIGHWAY 287 THE FOLLOWING COURSES AND DISTANCES: NORTH 26 DEGREES 36 MINUTES 51 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 81 DEGREES 47 MINUTES 50 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 30 DEGREES 00 MINUTES 58 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 23 DEGREES 12 MINUTES 25 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 15 DEGREES 50 MINUTES 53 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; Exhibit A to Service and Assessment Plan Description of PID Property Page :

177 NORTH 17 DEGREES 40 MINUTES 00 SECONDS WEST, A DISTANCE OF FEET TO A POINT FOR CORNER; NORTH 15 DEGREES 19 MINUTES 41 SECONDS WEST, A DISTANCE OF FEET TO THE WEST CORNER OF AFORESAID ACRE TRACT; THENCE NORTH 59 DEGREES 24 MINUTES 03 SECONDS EAST, ALONG THE NORTHWEST LINE OF AFORESAID ACRE TRACT A DISTANCE OF FEET TO THE NORTH CORNER OF SAID ACRE TRACT AND BEING ON A SOUTHWEST LINE OF AFORESAID ACRE TRACT; THENCE NORTH 31 DEGREES 24 MINUTES 42 SECONDS WEST, ALONG A SOUTHWEST LINE OF AFORESAID ACRE TRACT, A DISTANCE OF FEET TO THE POINT OF BEGINNING, AND CONTAINING ACRES OF LAND, MORE OR LESS. THIS DOCUMENT WAS PREPARED UNDER 22 TAC , DOES NOT REFLECT THE RESULTS OF AN ON THE GROUND SURVEY, AND IS NOT TO BE USED TO CONVEY OR ESTABLISH INTERESTS IN REAL PROPERTY EXCEPT THOSE RIGHTS AND INTERESTS IMPLIED OR ESTABLISHED BY THE CREATION OR RECONFIGURATION OF THE POLITICAL SUBDIVISION FOR WHICH IT WAS PREPARED. Exhibit A to Service and Assessment Plan Description of PID Property Page :

178 Exhibit B to Service and Assessment Plan DISTRICT IMPROVEMENTS PUBLIC IMPROVEMENT PROJECTS COST Thoroughfare Paving Median Landscaping 6' Concrete Sidewalk Landscape Buffer Thin Screening Wall Engineering / Survey Contingency Recreational Facilities $700,000 Main Entry $250,000 Secondary Entry $100,000 Public Neighborhood Park $100,000 Pocket Park $100,000 Hike & Bike Trail $52,500 Open Space Improvements $75,000 Pond Improvements $100,000 6' Concrete Sidewalk (Collectors) $184,800 Landscape Buffer (Collectors) $211,200 Thin Screening Wall (Collectors) $277,500 Engineering / Survey $196,339 Contingency $97,362 Water $32,020 Sewer $53,298 Drainage $61,380 Roads $60,050 Public Right of Way $5,115 Related Appurtenances $1,535 Street Lighting $3,582 Storm Water Control Improvements $12,378 Common Area Fencing, Landscaping $13,197 Common Area Improvements $5,831 Other Park Items $2,148 Other Recreational Facilities $5,729 Other Trail Improvements $4,194 Engineering $2,864 Contract Administration $35,805 Master Common Utility Improvements $24,654 Contingencies $34,539 SUB-TOTAL $2,803,020 Exhibit B to Service and Assessment Plan District Improvements Page :

179 Debt Service Reserve Fund $248,552 Capitalized Interest $309,362 Bond Counsel $45,990 Underwriters Counsel $35,566 Developers Financial Advisor $26,675 City Financial Advisor $26,675 Underwriters Fee $71,132 Interest from Dev. Fund $(30,865) Developer s Counsel $7,154 Assessment Consultant $7,154 Other Administrative Costs $8,892 SUB-TOTAL $756,287 PAR AMOUNT OF BONDS $3,559,307 DEPOSIT TO PROJECT FUND $2,803,020 Exhibit B to Service and Assessment Plan District Improvements Page :

180 Exhibit C to Service and Assessment Plan ASSESSMENT ROLL PARCEL DESCRIPTIONS LOT TYPE ASSESSMENT PER LOT/PARCEL Block K, Lots 1-6, 8-44 Block L, Lots 1-19 Block M, Lots 1-17 Block N, Lots 1-13 Block O, Lots 1-10 Block P, Lots 1-10 Block Q, Lots 1-8** Block Q, Lots 9-15 Block R, Lots 1-13** Block S, Lots 1-4, 6-15** Block S, Lots Block T, Lots 19-28** Type 1 - (SF 1) (171 total lots) $7,660 *Block G, Lots 1-11, Block G, Lots Block H, Lots 1-28* Block I, Lots 1-17* Block J, Lots 1-11* Block J, Lots Block T, Lots 1-18 Block V, Lots 1-8 Block W, Lots 1-18 Type 2 (SF 2) (163 total lots) $6,434 Block A, Lots 1-29 Block B, Lots 1-18 Block C, Lots 1-11 Block D, Lots 1, 2, 4-30, * Block D, Lots 31-56, Block E, Lots 1, 26* Block E, Lots 2-25 Block F, Lots 1-14* Block X, Lots 1-6* Type 3 - (SF 3) (209 total lots) $5,745 *As shown on final plat of Saddle Brook Estates, Phase 1A, formerly platted as Villages of Mustang Creek Tract 1, prepared by Carter & Burgess, Inc., File No , dated April 2007, as recorded in Cabinet A, Slide , P.R.E.C.T., Ellis County, Texas, May 21, **As shown on final plat of Saddle Brook Estates, Phase 1B, formerly platted as Villages of Mustang Creek Tract 1, prepared by Carter & Burgess, Inc., File No , dated April 2007, as recorded in Cabinet A, Slide 398, P.R.E.C.T., Ellis County, Texas, May 21, All other lots are as shown on preliminary plat of Villages of Mustang Creek Tract 1, prepared by Carter & Burgess, Inc., File No , dated January Exhibit C to Service and Assessment Plan Assessment Roll Page :

181 Annual Installments Per Lot/Parcel All Lot Type 1 (S/F 1) Lots/Parcels Assessment per Lot/Parcel = $7,660 Year Principal and Interest Collection Costs Total 1 $ $11.01 $ $ $11.18 $ $ $11.34 $ $ $11.51 $ $ $11.69 $ $ $11.86 $ $ $12.04 $ $ $12.22 $ $ $12.40 $ $ $12.59 $ $ $12.78 $ $ $12.97 $ $ $13.16 $ $ $13.36 $ $ $13.56 $ $ $13.77 $ $ $13.97 $ $ $14.18 $ $ $14.39 $ $ $14.61 $ $ $14.83 $ $ $15.05 $ $ $15.28 $ $ $15.51 $ $ $15.74 $ $ $15.97 $ $ $16.21 $ $ $16.46 $ $ $16.70 $ $ $16.96 $ Total $17, $ $18, Exhibit C to Service and Assessment Plan Assessment Roll Page :

182 Annual Installments Per Lot/Parcel All Lot Type 2 (S/F 2) Lots/Parcels Assessment per Lot/Parcel = $6,434 Year Principal and Interest Collection Costs Total 1 $ $9.25 $ $ $9.39 $ $ $9.53 $ $ $9.67 $ $ $9.82 $ $ $9.96 $ $ $10.11 $ $ $10.27 $ $ $10.42 $ $ $10.58 $ $ $10.74 $ $ $10.90 $ $ $11.06 $ $ $11.23 $ $ $11.39 $ $ $11.56 $ $ $11.74 $ $ $11.91 $ $ $12.09 $ $ $12.27 $ $ $12.46 $ $ $12.65 $ $ $12.83 $ $ $13.03 $ $ $13.22 $ $ $13.42 $ $ $13.62 $ $ $13.83 $ $ $14.03 $ $ $14.24 $ Total $14, $ $15, Exhibit C to Service and Assessment Plan Assessment Roll Page :

183 Annual Installments Per Lot/Parcel All Lot Type 3 (S/F 3) Lots/Parcels Assessment per Lot/Parcel = $5,745 Year Principal and Interest Collection Costs Total 1 $ $8.26 $ $ $8.38 $ $ $8.51 $ $ $8.64 $ $ $8.77 $ $ $8.90 $ $ $9.03 $ $ $9.17 $ $ $9.30 $ $ $9.44 $ $ $9.59 $ $ $9.73 $ $ $9.88 $ $ $10.02 $ $ $10.17 $ $ $10.33 $ $ $10.48 $ $ $10.64 $ $ $10.80 $ $ $10.96 $ $ $11.13 $ $ $11.29 $ $ $11.46 $ $ $11.63 $ $ $11.81 $ $ $11.98 $ $ $12.16 $ $ $12.35 $ $ $12.53 $ $ $12.72 $ Total $13, $ $13, Exhibit C to Service and Assessment Plan Assessment Roll Page :

184 Aggregate Annual Installments All Lots/Parcels Total Assessments = $3,559,307 Year Principal and Interest Collection Costs Total 1 $219, $5, $225, $223, $5, $228, $226, $5, $231, $230, $5, $235, $233, $5, $238, $236, $5, $242, $240, $5, $246, $244, $5, $249, $247, $5, $253, $251, $5, $257, $255, $5, $261, $259, $6, $265, $262, $6, $269, $266, $6, $273, $270, $6, $277, $274, $6, $281, $279, $6, $285, $283, $6, $289, $287, $6, $294, $291, $6, $298, $296, $6, $303, $300, $6, $307, $305, $7, $312, $309, $7, $316, $314, $7, $321, $319, $7, $326, $323, $7, $331, $328, $7, $336, $333, $7, $341, $338, $7, $346, Total $8,256, $192, $8,448, Exhibit C to Service and Assessment Plan Assessment Roll Page :

185 WAXAHACHIE PUBLIC IMPROVEMENT DISTRICT NO. 1 CITY OF WAXAHACHIE, TEXAS ANNUAL SERVICE PLAN UPDATE December 27, 2010

186 WAXAHACHIE PUBLIC IMPROVEMENT DISTRICT NO. 1 WAXAHACHIE, TEXAS ANNUAL SERVICE PLAN UPDATE AND AMENDMENT TO THE SERVICE AND ASSESSMENT PLAN A. Introduction The Waxahachie Township Public Improvement District (the PID ) was created pursuant to the petition, notice, and public hearing requirements of the Act and Resolution No approved and adopted by the City Council of the City of Waxahachie, Ellis County, Texas (the City ) on April 16, 2007 to finance certain public improvement projects for the benefit of the property in the PID. A service and assessment plan for platted lots (the Service and Assessment Plan ) was approved by the City Council pursuant to Ordinance No approved and adopted on June 18, 2007 identifying the public improvements (defined in the Service and Assessment Plan as the District Improvements ) to be provided by the PID, the costs of the District Improvements, the indebtedness to be incurred for the District Improvements, and the manner of assessing the property in the PID for the costs of the District Improvements. The Service and Assessment Plan is to be reviewed and updated annually. Section of the Act states that the governing body of the municipality shall apportion the cost of an improvement to be assessed against property in an improvement district, and the apportionment shall be made on the basis of special benefits accruing to the property because of the improvement. Section (d) provides that the amount of assessment for each property owner may be adjusted following the annual review of the service plan. This document is the update of the Service and Assessment Plan for The City had an assessment roll (defined in the Service and Assessment Plan as the Assessment Roll ) prepared identifying the assessments on each Parcel, based on the method of assessment identified in the Service and Assessment Plan. This Annual Service Plan Update also explains the update of the Assessment Roll. The City Council intends for the obligations, covenants and burdens on the owner of the Assessed Property, including without limitation such owner s obligations related to the payment of the Assessments, to constitute a covenant running with the land. The Assessments are binding upon the owners of Assessed Property, and their respective transferees, legal representatives, heirs, devisees, successors and assigns. The Assessments have lien priority as specified in the Act. Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Service and Assessment Plan 1

187 B. Update of the Service Plan Property Included within Phase One of the PID The City has determined it is necessary to identify a portion of the PID property as Phase One in order to issue bonds to finance Costs of the District Improvements benefiting Parcels within Phase One. The PID Property is depicted and described by metes and bounds on Exhibit A attached to the Service and Assessment Plan. The PID Property consists of approximately 1,965 acres of land located within the corporate limits of the City. The PID Property is zoned as a planned development zoning district in accordance with the Planned Development Ordinance. This Annual Service Plan Update is prepared for Phase One of the development. Phase One of the PID property is the portion identified as Phase One on the maps included in Appendix A, which will include upon full development approximately 209 residential dwelling units. Phase One is a portion of the Assessed Property. The Parcels in Phase One of the development are shown on the Assessment Roll summary included as Appendix D and the maps included in Appendix A. For purposes of allocating the Assessments, the Assessed Property has been classified in one of three lot types. The following table shows the proposed residential lot types for Phase One. The Phase One PID Property includes approximately acres of land that is platted. Table A Property Included within Phase One of the PID LOT TYPE Lot Type 1 Single-Family Lot Type 2 Single-Family Lot Type 3 Single-Family Total PROJECTED DEVELOPMENT 43 units 88 units 78 units 209 units The estimated number of lots and the classification of each lot are based on the subdivision of the lots in Phase One, the allowable use the property pursuant to City land use regulations, and the Developer s estimated highest and best use of the property within Phase One of the PID. District Improvements Section of the Act defines the improvements that may be undertaken by a municipality or county through the establishment of a public improvement district, as follows: 2

188 Authorized Improvements (a) If the governing body of a municipality or county finds that it promotes the interests of the municipality or county, the governing body may undertake an improvement project that confers a special benefit on a definable part of the municipality or county or the municipality s extraterritorial jurisdiction. A project may be undertaken in the municipality or county or the municipality s extraterritorial jurisdiction. (b) A public improvement may include: (i) (ii) landscaping; erection of fountains, distinctive lighting, and signs; (iii) acquiring, constructing, improving, widening, narrowing, closing, or rerouting of sidewalks or of streets, any other roadways, or their rights-of way; (iv) construction or improvement of pedestrian malls; (v) acquisition and installation of pieces of art; (vi) acquisition, construction, or improvement of libraries; (vii) acquisition, construction, or improvement of off-street parking facilities; (viii) acquisition, construction, improvement, or rerouting of mass transportation facilities; (ix) acquisition, construction, or improvement of water, wastewater, or drainage facilities or improvements; (x) the establishment or improvement of parks; (xi) projects similar to those listed in Subdivisions (i)-(x); (xii) acquisition, by purchase or otherwise, of real property in connection with an authorized improvement; (xiii) special supplemental services for improvement and promotion of the district, including services relating to advertising, promotion, health and sanitation, water and wastewater, public safety, security, business recruitment, development, recreation, and cultural enhancement; and 3

189 (xiv) payment of expenses incurred in the establishment, administration and operation of the district. The portions of the District Improvements benefiting the property within Phase One of the PID are identified below (the Phase One District Improvements ). These improvements include street grading and paving improvements, water distribution system improvements, wastewater collection system improvements and storm drainage system improvements. The Phase One District Improvements are shown in the maps included as Appendix C to this Annual Service Plan Update. The Phase One street grading and paving improvements include the construction of the residential streets that provide access to the Phase One lots. The construction consists of the excavation of the streets and rights-of-way, lime stabilized subgrade and 6 reinforced concrete pavement. The streets are curb and gutter construction and measure 30 feet back of curb to back of curb. The curb and gutter design conveys storm water to the storm drainage system. The Phase One water distribution system improvements include the construction of 8 PVC water lines, valves, fire hydrants and service lines to the Phase One lots. The water infrastructure constructed is connected to the City water distribution system. The Phase One wastewater distribution system improvements include the construction of 8 PVC sewer lines, manholes and service lines to the Phase One lots and a sewer trunk line that runs through Phase One. The wastewater infrastructure constructed is connected to the City wastewater collection system. The Phase One storm drainage system improvements include curb inlets and reinforced concrete pipe to convey storm water through the developed area. The storm drainage system discharges into water courses adjacent to the development and includes headwalls, rock rip rap and erosion control items. The total projected Costs of the District Improvements is estimated to be $3,559,307, which remains the same as the budget for estimated Costs of the District Improvements included in the Service and Assessment Plan. There are some budget line item amount revisions for the Costs of the District Improvements as reported by the Developer. The original budget for the Costs of the District Improvements, the revised budget for the estimated Costs of the District Improvements and the budget for the Phase One District Improvements provided by the developer are shown in Appendix B attached to this Annual Service Plan Update. The estimated budget of the Costs of the District Improvements for the Assessed Property other than the Phase One Assessed Property is also shown in Appendix B attached hereto as calculated by subtracting the estimated Costs of the Phase One District Improvements from the revised budget for the estimated Costs of the District Improvements. Budget for the Phase One District Improvements After analyzing the public improvement projects authorized by the Act, the City has determined that the Phase One District Improvements as described in Appendix B should be 4

190 undertaken by the City for the benefit of the property within Phase One of PID. A summary of the estimated Costs of the Phase One District Improvement is shown in Table B. Table B Phase One District Improvements Phase One District Improvement Estimated Cost Phase 1 - Street Grading and Paving $328,742 Phase 1 - Onsite Water Distribution System $132,078 Phase 1 - Onsite Wastewater Management System $120,149 Phase 1 - Storm Drainage Management System $147,931 Phase 1 - Engineering $106,916 Phase 1 - Bond Financing Costs $504,183 Total Phase One Costs of District Improvements $1,340,000 As shown by Table C, the City intends to incur indebtedness in the total amount of $1,340,000 in the form of its Special Assessment Bonds, Series 2011 (Waxahachie Public Improvement District No. 1 Phase One Project) (the Series 2011 Bonds ), which are to be repaid from Assessments levied against the Parcels in Phase One, and the Developer is to fund the balance of the Costs of the Phase One District Improvements as shown below. Table C Sources and Uses of Funds Phase One District Improvements Sources of Funds: Total Bond proceeds $1,340,000 Other private funds $50,000 Total Sources of Funds $1,390,000 Uses of Funds: Phase One District Improvements: $835,817 Capitalized Interest Account $54,558 Costs of Issuance $297,095 Reserve Account $131,093 Prepayment Reserve Account $1,437 Developer's Reserve Account $50,000 Collection Costs Account $20,000 Total Uses of Funds $1,390,000 5

191 A service plan must cover a period of five years. All of the Phase One District Improvements are expected to be provided within a period of five years. An estimate of how the Cost of the Phase One District Improvements will be undertaken is set forth in Table D. Table D Phase One District Improvements Year which Cost Expended Projected Cost of Improvements 2010 $1,340, $ $ $ $0 An estimate of how indebtedness to pay for the District Improvements will be undertaken is set forth in Table E. Table E Phase One Indebtedness Year Indebtedness Undertaken Projected Indebtedness 2010 $1,340, $ $ $ $0 Table F and Table G set forth, respectively, the anticipated sources and uses of Bond proceeds for the Phase One District Improvements. Table F Sources of Funds (Phase One) Sources of Funds Total Total Sources of Funds $1,340,000 6

192 Assessment Methodology Table G Uses of Funds (Phase One) Uses of Funds Total Debt Service Reserve Fund $131,093 Capitalized Interest $54,558 Bond Counsel $26,860 Underwriters Counsel $5,000 Developers Financial Advisor $28,430 City Financial Advisor $13,430 Underwriters Fee $26,800 Interest from Dev. Fund $0 Developers Counsel $25,000 Assessment Consultant $6,715 Other Administrative Costs $186,297 Subtotal $504,183 Par Amount of Bonds $1,340,000 Deposit To Project Fund $835,817 Pursuant to the Service and Assessment Plan, the Cost of the District Improvements may be assessed by the City Council against the Assessed Property so long as the special benefit conferred upon the Assessed Property by the District Improvements equals or exceeds the Assessments on the Assessed Property. The Cost may be assessed by using any methodology that results in the imposition of equal shares of the Cost on Assessed Property similarly benefited. The City Council has determined that the Cost of the District Improvements shall be allocated to the Assessed Property on the basis of the relative value of Parcels after undertaking the District Improvements and that such method of allocation will result in the imposition of equal shares of the Cost on Parcels similarly situated. The City Council has determined that allocating the Cost of the District Improvements among Parcels based on value after undertaking the District Improvements is best accomplished (and most easily illustrated) by creating a hierarchy of benefited Parcels based on the Lot Types defined in Section I.B of the Service and Assessment Plan. This hierarchy of value (from Lot Type 1 representing the highest value to Lot Type 3 representing the lowest value) is set forth in Table E below for the Phase One lots. This table illustrates that the City Council has determined: (i) that a Lot Type 1 dwelling unit receives the greatest benefit from the District Improvements, which benefit is given an Equivalent Unit value of 1.0 per dwelling unit; (ii) that a Lot Type 2 dwelling unit receives a smaller benefit; namely, 84% of the benefit received by a Type 1 Lot dwelling unit (hence the Equivalent Unit value of 0.84 per dwelling unit); and (iii) that a Lot Type 3 dwelling unit receives an even smaller benefit; namely, 75% 7

193 of the benefit received by a Type 1 dwelling unit (hence the Equivalent Unit value of 0.75 per dwelling unit). Table H Equivalent Unit Factor Lot Type Equivalent Units Total Number of Dwelling Units Total Equivalent Units Lot Type 1 (90 foot Lots) 1.00 per dwelling unit 43 dwelling units Lot Type 2 (70 foot Lots) 0.84 per dwelling unit 88 dwelling units Lot Type 3 (60 foot Lots) 0.75 per dwelling unit 78 dwelling units Total Equivalent Units Total Assessments $1,340,000 Assessment Per Equivalent Unit $7,639 The total Assessments for the Phase one Parcels are allocated among Equivalent Units resulting in a cost per Equivalent Unit of $7,639. The Assessment per dwelling unit is calculated as the product of (i) $7,639 multiplied times (ii) the applicable Equivalent Unit value for each Lot Type. Table I sets forth the Assessment per dwelling unit. Table I Estimated Assessment per Lot Type Lot Type Equivalent Units Assessment per Dwelling Unit Lot Type 1 (90 foot Lots) 1.00 per dwelling unit $7,639 per dwelling unit Lot Type 2 (70 foot Lots) 0.84 per dwelling unit $6,417 per dwelling unit Lot Type 3 (60 foot Lots) 0.75 per dwelling unit $5,729 per dwelling unit Debt Service and Collection Costs The Phase One Annual Installments The Assessment imposed on any Phase One Parcel may be paid in full at any time. If not paid in full, such Assessment shall be payable in twenty eight annual installments of principal and interest beginning with the tax year following the issuance of the Series 2011 Bonds. Pursuant to the Service and Assessment Plan, each Assessment shall bear interest at one-half of one percent above than the actual interest rate paid on the public debt used to finance the District Improvements. The interest rate on the Bonds is 7.15 percent per annum. Accordingly, the interest rate of 7.65 percent per annum is used as the interest on the 8

194 Assessments for the Phase One Parcels. These payments, the Annual Installments of the Assessments, shall be billed by the City in 2011 and will be delinquent on February 1, Pursuant to the Service and Assessment Plan, the Annual Service Plan Update shall show the remaining balance of the Assessments, the Annual Installment and the Annual Collection Costs to be collected from each Parcel. Annual Collection Costs shall be allocated to each Parcel pro rata based upon the amount the Annual Installment on a Parcel bears to the amount of Annual Installments in the PID as a whole that are payable at the time of such allocation. Each Annual Installment shall be reduced by any credits applied under an applicable Bond Indenture, such as capitalized interest and interest earnings on any account balances and by any other funds available to the Trustee. Annual Budget for the Repayment of Indebtedness Debt service is to be paid on the Series 2011 Bonds from the collection of the Annual Installments. The interest rate to be calculated on the Assessments for the Phase One Parcels is estimated as 7.65 percent per annum. In addition, Collection Costs are to be collected with the Annual Installments to pay expenses related to the collection of the Annual Installments. The budget for Phase One of the PID to be paid from the collection of Phase One Annual Installments for 2011 is shown in Table J. Table J Budget for the Phase One Annual Installments To be collected for 2011 Total Interest payment on February 15, 2011 $0 Principal payment on February 15, 2011 $0 Interest payment on August 15, 2011 $58,374 Subtotal Debt Service on Bonds $58,374 Annual Collection Costs $16,185 Subtotal Expenses $74,558 Available Capitalized Interest Account $54,558 Available Collection Costs Account $20,000 Subtotal Funds Available $74,558 Annual Installment to be Collected $0 As shown in Table G above, the interest due on August 15, 2011 for the Series 2011 Bonds and Annual Collection Costs for 2011 are pre-funded with Bond proceeds and will be paid from the Capitalized Interest Fund and Collection Costs Account. Accordingly, there are no Annual Installments to be collected from the Phase One Parcels for

195 C. Update of the Assessment Plan The Service and Assessment Plan provided for the Assessed Property to be classified into one of three categories for purpose of allocating the Assessments, as follows: (i) Lot Type 1, (ii) Lot Type 2, and (iii) Lot Type 3. Lot Type 1 consists of 90 foot residential dwelling units. Lot Type 2 consists of 70 foot residential dwelling units. Lot Type 3 consists of 60 foot residential dwelling. The Service and Assessment Plan identified Equivalent Units for each lot in each Lot Type as follows: Lot Type 1 Lots Lot Type 2 Lots Lot Type 2 Lots 1.00 per dwelling unit 0.84 per dwelling unit 0.75 per dwelling unit The equivalent unit factors are the ratio of the Assessments as allocated to each lot in each property class. These equivalent unit factors were based on the relative value of the average unit in each class. This method of assessing property has not been changed and Assessed Property will continue to be assessed as provided for in the Service and Assessment Plan. D. Update of the Assessment Roll The Assessment Roll is to be updated each year to reflect: The identification of each Assessed Parcel in the PID (including, if available, the tax parcel identification number for such Parcel), (ii) the Assessments, including any adjustments as provided for in this Service and Assessment Plan; (iii) the Annual Installment for the relevant year (if such Assessment is payable) for each Parcel; (iv) prepayments of the Assessments as provided for in this Service and Assessment Plan and (B) any other changes helpful to the administration of the PID and permitted by law. The Assessment Roll and a summary of the Assessment Roll for the Parcels in Phase One are shown in Appendix D. Each Parcel in Phase One of the PID is identified, along with the Assessment on each Parcel and the Annual Installment to be collected from each Parcel. Assessments are to be reallocated for the subdivision of any Parcels. The complete Assessment Roll updated as described herein is available at the City of Waxahachie, 401 S. Rogers Street, Waxahachie, Texas E. Updates of Miscellaneous Provisions There are no additional updates to be included in the Annual Service Plan update for

196 Appendix A PID No. 1 and Phase One Boundary Maps 11

197 ACRES HW WAXAHACHIE, L.P. Vol. 2323, Pg D.R.R.C.T. LOT TABLE ACRES CANAAN LAND PARTNERS ACRES 287 WAXAHACHIE, L.P. Vol. 2024, Pg BLOCK S 2 OMAHA COURT 4 3 PARK & DRAINAGE EASEMENT BLOCK S 5R BLOCK LOT TYPE BLOCK D 1-2,4-30, SF-3 BLOCK E 1,26 SF-3 BLOCK F 1-14 SF-3 BLOCK G 1-11, SF-2 BLOCK H 1-28 SF-2 BLOCK I 1-17 SF-2 BLOCK J 1-11 SF-2 BLOCK Q 1-8 SF-1 BLOCK R 1-13 SF-1 BLOCK S 1-4,8-15 SF-1 BLOCK T SF-1 BLOCK X 1-6 SF ACRES SF 23 BLOCK T BLOCK S BLOCK D AFFIRMED ROAD CITATION LANE BLOCK R CITATION LANE BLOCK D ARABIAN ROAD BLOCK D BLOCK D ARABIAN ROAD BLOCK D 1 BLOCK X BLOCK D BLOCK F CLYDESDALE STREET THOROUGHBRED STREET 3 SHETLAND STREET ARABIAN ROAD BLOCK G BLOCK I 3 10 THOROUGHBRED STREET PIMLICO DRIVE PIMLICO DRIVE SARATOGA DRIVE AMENITY CENTER BLOCK G 2.78 ACRES S.F CHESTNUT ROAD STALLION STREET BLOCK J SECRETARIAT STREET WHIRLAWAY STREET BLOCK Q MANOR LANE BLOCK H 48 7 LAND INFORMATION CANAAN LAND PARTNERS, LTD ACRES HW WAXAHACHIE, L.P ACRES (VARIABLE WIDTH RIGHT-OF-WAY) US HWY TRAVELLER STREET BLOCK G BLOCK G CHESTNUT ROAD ACRES 287 WAXAHACHIE, L.P. Vol. 2024, Pg WAXAHACHIE, L.P. TOTAL FINAL PLATTED LOTS - SF-1 FINAL PLATTED LOTS - SF-2 FINAL PLATTED LOTS - SF ACRES ACRES 43 LOTS 88 LOTS 78 LOTS Owner Information Waxahachie PID No. 1 Waxahachie, Texas May 30, 2008 Drawing name: I:PLAMustang Creekexhibitsownership OWNERSHIP.dwg Plotted on: May 30, :46am Carter Burgess 0 300' 600' 1200' 2400' NOTE: This plan is diagrammatic only and is intended to show potential configuration. This plan is only conceptual and is not based upon a detailed survey of existing site conditions such as property limits, subsurface conditions, limits of trees, topography, utilities, easements, etc. May 30, 2008

198 BLOCK T BLOCK S BLOCK S BLOCK S 5R PARK & DRAINAGE EASEMENT OMAHA COURT CITATION LANE BLOCK R CITATION LANE AFFIRMED ROAD SECRETARIAT STREET BLOCK Q 19 SHETLAND STREET 1 2 CHESTNUT ROAD LOT TABLE ACRES SF BLOCK LOT TYPE BLOCK D 1-2,4-30, SF-2 BLOCK E 1,26 SF-2 BLOCK F 1-14 SF-2 BLOCK G 1-11, SF-3 BLOCK H 1-28 SF-3 BLOCK I 1-17 SF-3 BLOCK J 1-11 SF-3 BLOCK Q 1-8 SF-1 BLOCK R 1-13 SF-1 BLOCK S 1-4,8-15 SF-1 BLOCK T SF-1 BLOCK X 1-6 SF-1 PLATTED LOTS - SF-1 PLATTED LOTS - SF-2 PLATTED LOTS - SF BLOCK D ARABIAN ROAD ARABIAN ROAD BLOCK D BLOCK D BLOCK D BLOCK F 4 3 BLOCK D BLOCK D ARABIAN ROAD CLYDESDALE STREET THOROUGHBRED STREET SARATOGA DRIVE BLOCK X 1 1 PIMLICO DRIVE PIMLICO DRIVE 11 7 BLOCK G AMENITY CENTER 9 BLOCK G BLOCK I ACRES S.F CHESTNUT ROAD THOROUGHBRED STREET STREET WHIRLAWAY 9 STALLION STREET BLOCK H MANOR LANE TRAVELLER STREET BLOCK J BLOCK G BLOCK G Phase 1 Development Waxahachie PID No. 1 Waxahachie, Texas November 15, 2010 Drawing name: I:\PLA\Mustang Creek\exhibits\ownership\ \OWNERSHIP.dwg Plotted on: Nov 15, :31pm 0 50' 100' 200' 400' NOTE: This plan is diagrammatic only and is intended to show potential configuration. This plan is only conceptual and is not based upon a detailed survey of existing site conditions such as property limits, subsurface conditions, limits of trees, topography, utilities, easements, etc. November 15, 2010