ORDER NO. 30751 ISSUANCE OF TAX NOTES Came to be heard this the 25th day of February, 2008, with a motion made by Commissioner Letz, seconded by Commissioner Williams. The Court unanimously approved by vote of 4-0-0 to: Authorize the issuance of the Tax Notes, and authorize the County Judge to execute any necessary, appropriate documents in connection therewith, including providing payment to the Attorney General of Texas, its fee in the amount of $1,780.00. (~ ~'~ ~ 67S1 COMMISSIONERS' COi~RT AGENDA REQUEST PLEASE FURNISH ONE ORIGINAL AND TEN (10) COPIES OF THIS REQUEST AND DOCUMENTS TO BE REVIEWED BY THE COURT MADE BY: Jeannie Hargis MEETING DA'Z'E: February 25, 2008 OFFICE: County Auditor TIME PREFERRED: 11:30 AM SUBJECT: Consider, discuss, and take appropriate action regarding an order to authorize the issuance of tax notes. EXECUTIVE SESSION REQUESTED: (PLEASE STATE REASON) NAME OF PERSON ADDRESSING THE COURT: Jeannie Hargis/Bob Henderson ESTIMATED LENGTH OF PRESENTATION: IF PERSONNEL MATTER -NAME OF EMPLOYEE: Time for submitting this request for Court to assure that the matter is posted in accordance with Title 5, Chapter 551 and 552, Government Code, is as follows: Meeting scheduled for Mondays: THIS REQUEST RECEIVED BY: THIS RQUEST RECEIVED ON: 5:00 PM previous Tuesday @ .M. All Agenda Requests will be screened by the County Judge's Office to determine if adequate information has been prepared for the Court's formal consideration and action at time of Court Meetings. Your cooperation will be appreciated and contribute towards your request being addressed at the earliest opportunity. See Agenda Request Rules Adopted by Commissioners' Court. ,. Kerr County, Texas Capital Loan Program Estimated Sources & Uses 5-Feh-08 Sources• Par Value of Tax Notes: $ 1,780,000 Estimated Premium on Notes: - Total Sources: $ 1,780,000 Uses: IT Projects Desktop /computers $ 95,355 Miscellaneous Purchases Assoc w/Desktop computers 24,000 Legacy Server Replacement 14,300 Video Teleconferencing for the Jail 30,000 Camera/Digital System for the Juvenille Detention Center 50,000 Upgrade of Camera System in Jail 15,000 Software for Human Resources & Payroll 30,000 Software Reconfiguration both Odessey & Incode 50,000 AG Barn Capital Expansion of the Ag Barn along w/grant funds 454,057 Courthouse Repair of windows and doors in old part of Court House 300,000 Repair & refurbushing of the Court House Grounds 100,000 (including sprinkler replacement, concrete replacement and landscaping of grounds) Road & Bridge Maintainer to replace Leased 12-h 120,000 Radios to replace old units 10,000 F750 Truck with Mounted Box for Brush Chipping 90,000 Brush Chipper 1800 XL 42,000 Two (2) 8 yard Dump Trucks 130,000 Two (2) Mowing Tractors w/buckets 75,288 Enviromental Health Two Trucks to replace existing vehicles 60,000 Animal Control Two Trucks to replace existing vehicles 60,000 Projects Subtotal: $ 1,750,000 Cost of Issuance Financial Advisor $ 19,750 Bond Counsel 5,780 Bond Counsel Expenses 1,250 Attorney General Fee 1,800 Travel 150 Rounding/Miscellaneous 1,270 $ 30,000 Total Tax Note Issue Size: $ 1,780,000 Page 1 d 'O . 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'^ QUO ~ E a> a> a~ a~ 7 N L L L L ~ ~ ~ F Q ~- N M rt Y Kerr County, Texas $1,780,000 Tax Notes, Series 2008 Maturity Bond Dates Maturities 2/18/2009 $ 135,000 2/18/2010 200,000 2/1 S/2011 275,000 2/18/2012 290,000 2/18/2013 880,000 $ 1,780,000 Coupon Rate 3.30 3.30 3.30 3.30 3.30 Interest Total Yield Amount Debt Service 3.30 $ 79,356 $ 214,356 3.30 50,985 250,985 3.30 43,148 318,148 3.30 33,825 323,825 3.30 14,520 894,520 $ 221,834 $ 2,001,834 Page 3 CERTIFICATE OF COUNTY AUDITOR STATE OF TEXAS COUNTY OF KERB I, Jeannie Hargis, County Auditor of KERB CouivTY, TEXAS, hereby certify in connection with the issuance of $1,780,000 in principal amount ofKERR COUNTY, TEXAS TAX NOTES, SERIES 2008 (the "Notes") that in my capacity as County Auditor, and incompliance with Section 1431.002, Texas Government Code (which provides that the Commissioners Court may authorize the issuance of the Notes "on the recommendation of the county auditor"), I recommended to the Commissioners Court the issuance of the Notes on the financial terms, and for the purpose of financing the "Projects", set forth in the Order authorizing the issuance of the Notes approved by the Commissioners Court on February 25, 2008. Executed this 25`" day of February, 2008 J annie Hargis County Auditor Kerr County, Texas RECEIPT FOR PROCEEDS STATE OF TEXAS § COUNTY OF KERB § The undersigned hereby certifies as follows: (a) This certificate is executed and delivered with reference to KERB COUNTY, TEXAS TAIX NOTES, SERIES 2008, dated March 1, 2008, in the principal amount of $1,780,000 (the "Notes"). (b) The undersigned is duly authorized to execute this receipt for proceeds of the Notes. (c) All of the Notes have been duly delivered to the purchaser thereof, namely: THE FROST NATIONAL BANK (d) All of the Notes have been paid for in full by said purchaser concurrently with the delivery of this certificate, and the issuer of the Notes has received, and hereby acknowledges receipt of, the agreed purchase price for the Notes, being $1, 780, 000 (which amount is equal to the principal amount of the Notes and no accrued interest). EXECUTED and delivered this < .~ County Tre urer CERTIFICATE FOR ORDER THE STATE OF TEXAS § COUNTY OF KERB § I, the undersigned County Clerk of KERIt CouNTY, TEXAS (the "Issuer"), hereby certify as follows: 1. The Commissioners Court of the Issuer convened in REGULAR MEETING ON THE 25~ DAY OF FEBRUARY, 2008 at the Kerr County Courthouse, and the roll was called ofthe duly constituted officers and members of said Commissioners Court, to wit: Pat Tinley, County Judge H.A. "Buster" Baldwin, Commissioner Precinct 1 William "Bill" Williams, Commissioner Precinct 2 Jonathan Letz, Commissioner Precinct 3 Bruce Oehler, Commissioner Precinct 4 and all of said officers and members of said Commissioners Court were present, except the following absentees: .Whereupon, among other business, the following was transacted at said Meeting: a written ORDER AUTHORIZING THE ISSUANCE OF KERB COUNTY, TEXAS TAX NOTES, SERIES 2008 IN THE AMOUNT OF $1,780,000; AUTHORIZING THE LEVYING OF A TAX FOR THE PAYMENT THEREOF; AUTHORIZING EXECUTION OF A PAYING AGENT/REGISTRAR AGREEMENT; AND AUTHORIZING AND APPROVING OTHER INSTRUMENTS AND PROCEDURES RELATED THERETO was duly introduced for the consideration of said Commissioners Court. It was then duly moved and seconded that said Order be passed and, after due discussion, said motion carrying with it the adoption of said Order, prevailed and carried by the following vote: AYES: ~ NOES: ~ ABSTENTIONS: 2. A true, full and correct copy of the aforesaid Order adopted at the Meeting described in the above and foregoing paragraph is attached to and follows this Certificate; the Order has been duly recorded in said Commissioners Court's minutes of said Meeting; the above and foregoing paragraph is a true, full and correct excerpt fron-i said Commissioners Court's minutes of said IVieeting pertaining to the passage of said Order; the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of said Commissioners Court as indicated therein; each of the officers and members of said Commissioners Court was duly and sufficiently notified officially and personally, in advance, of the time, place and purpose of the aforesaid Meeting, and that said Order would be introduced and considered for passage at said Meeting, and each of said officers and members consented, in advance, to the holding of said Meeting for such purpose, and that said Meeting was open to the public and public notice of the time, place and purpose of said meeting was given, all as required by Chapter 551, Texas Government Code. SIGNED A,,~ED THE 25~ DAY OF FEBRUARY, 2008. ~~~gSIONFAS ~eM~s~~ (SEAL) O ~ ~~''~~O V .G ~g i~ Z ~ ~ dUN J TY, ~~ R unty Clerk ADOPTED BY THE COMMISSIONERS COURT OF KERB COUNTY, TEXAS AT A REGULAR MEETING HELD ON THE 25"i DAY OF FEBRUARY, 2008. APPROVED: ount Judge, Kerr County, Texas ATTEST: unty Clerk Kerr County, Tee ~Q~ ........~, oS'~,®G 'f';r^ (SEAL) ~ ~~ ~ ~~ ~4~s-~n~~~~~ [SIGNATURE PAGE TO NOTE ORDER] ORDER AUTHORIZING THE ISSUANCE OF KERB COUNTY, TEXAS TAX NOTES, SERIES 2008 IN THE AMOUNT OF $1,780,000; AUTHORIZING THE LEVYING OF A TAX FOR THE PAYMENT THEREOF; AUTHORIZING EXECUTION OF A PAYING AGENT/REGISTRAR AGREEMENT; AND AUTHORIZING AND APPROVING OTHER INSTRUMENTS AND PROCEDURES RELATED THERETO DATE OF APPROVAL: FEBRUARY 25, 2008 TABLE OF CONTENTS RECITALS .......................................................... Section L AMOUNT AND PURPOSE OF THE NOTES . ..................... . Section 2. DESIGNATION, DATE, DENOMINATIONS, NUMBERS, AND MATURITIES OF NOTES .................................... . Section 3. INTEREST ................................................. Section 4. CHARACTERISTICS OF THE NOTES .......................... . Section 5. FORM OF NOTE ............................................ . Section 6. INTEREST AND SINKING FUND; TAX LEVY ................... . Section 7. CONSTRUCTION FUND ..................................... . Section 8. INVESTMENTS ............................................ . Section 9 DEFEASANCE OF NOTES Section 10. DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED NOTES Section 11. CUSTODY, APPROVAL, AND REGISTRATION OF NOTES; BOND COUNSEL'S OPINION, INSURANCE, AND CUSIP NUMBERS . Section 12. COVENANTS REGARDING TAX-EXEMPTION OF INTEREST ON THE NOTES ............................................. Section 13. SALE OF NOTES ........................................... . Section 14. NO RULE 1502-12 UNDERTAKING; ANNUAL FINANCIAL STATEMENTS ............................................. Section 15. FURTHER PROCEDURES .................................... . Section 16. ORDER A CONTRACT; AMENDMENTS ........................ . Section 17. SECURITY INTEREST ...................................... . Section 18. DEFAULTS AND REMEDIES ................................. . Section 19. INTERESTED PARTIES ..................................... . Section 20. INCORPORATION OF RECITALS ............................. . Section 21. SEVERABILITY ............................................ . Section 22. EFFECTIVE DATE .......................................... . SIGNATURES .......................................................... Exhibit A PAYING AGENT/REGISTRAR AGREEMENT 1 2 2 2 3 4 11 12 12 12 13 14 15 17 17 18 18 19 19 20 20 20 21 -i- ORDER AUTHORIZING THE ISSUANCE OF KERB COUNTY, TEXAS TAX NOTES, SERIES 2008 IN THE AMOUNT OF $1,780,000; AUTHORIZING THE LEVYING OF A TAX FOR THE PAYMENT THEREOF; AUTHORIZING EXECUTION OF A PAYING AGENT/REGISTRAR AGREEMENT; AUTHORIZING AND APPROVING OTHER INSTRUMENTS AND PROCEDURES RELATED THERETO; AND DECLARING AN EFFECTIVE DATE STATE OF TEXAS COUNTY OF KERB WHEREAS, KEtt1t COUNTY, TEXAS (the "Issuer") is a political subdivision, and is operating and existing under the Constitution and laws, of the State of Texas; and WHEREAS, the Commissioners Court now deems it necessary to borrow funds to finance the acquisition and construction of the following improvements: (i) acquire information technology equipment including computers, servers and related software and accessories, video teleconferencing equipment and upgrading the camera system for the County Jail, camera/digital system for the Juvenile Detention Center, and additional computer software for human resources and payroll and other software improvements; (ii) expand the Agricultural Barn; (iii) construct improvements to the Courthouse including repairing windows and doors; repairing and refurbushing Courthouse grounds, (including sprinkler replacement, concrete replacement and landscaping of grounds); (iv) acquisition of equipment primarily for use by the Road and Bridge Department including a Maintainer to replace a leased vehicle, radios to replace old units, a F-750 truck with mounted box for brush chipping, brush chipper 1800 XL, two 8-yard dump trucks, and two mowing tractors with buckets; (v) acquisition of equipment primarily for use by the Environmental Health Department including two trucks to replace existing vehicles; and (vi) acquisition of equipment primarily for use by the Animal Control Department including two trucks to replace existing vehicles (collectively, the "Projects"); and WHEREAS, pursuant to Chapter 1431, Texas Government Code, as amended (the "Act"), particularly Section 1431.002 thereof, the Commissioners Court of the Issuer, on the recommendation of the County Auditor, is authorized and empowered to issue anticipation notes to pay contractual obligations incurred or to be incurred (i) for the construction of any pr~blic work, and (ii) for the purchase of materials, supplies, equipment, machinery, buildings, lands and rights-of--way for the Issuer's authorized needs and purposes; and WHEREAS, in compliance with Section 1431.002 of the Act, the County Auditor of the County has recommended the issuance of the notes authorized in this Order to finance the Projects; and WHEREAS, in accordance with the provisions of the Act, the Commissioners Court hereby finds and determines that anticipation notes should be issued and sold at this time to finance the Projects and to pay costs of issuance of such notes; and . WHEREAS, the governing body of the Issuer deems it appropriate to adopt this Order and issue the notes herein authorized as permitted by the Act; and WHEREAS, it is hereby officially found and determined that the meeting at which this Order was adopted was open to the public and public notice of the time, place, and purpose of said meeting was given, all as required by Chapter 551, Texas Government Code; NOW, THEREFORE, BE IT ORDAINED BY THE COMMISSIONERS COURT OF THE KERB COUNTY, TEXAS: SECTION 1. AMOUNT AND PURPOSE OF THE NOTES. The Notes of the Issuer are hereby authorized to be issued and delivered in the aggregate principal amount of $1, 780, 000 to finance the acquisition and construction of the following improvements: (i) acquire information technology equipment including computers, servers and related software and accessories, video teleconferencing equipment and upgrading the camera system for the County Jail, cameraldigital system for the Juvenile Detention Center, and additional computer software for human resources and payroll and other software improvements; (ii) expand the Agricultural Barn; (iii) construct improvements to the Courthouse including repairing windows and doors; repairing and refurbushing Courthouse grounds, (including sprinkler replacement, concrete replacement and landscaping of grounds); (iv) acquisition of equipment primarily for use by the Road and Bridge Department including a Maintainer to replace a leased vehicle, radios to replace old units, a F-750 truck with mounted box for brush chipping, brush chipper 1800 XL, two 8-yard dump trucks, and two mowing tractors with buckets; (v) acquisition of equipment primarily for use by the Environmental Health Department including two trucks to replace existing vehicles; and (vi) acquisition of equipment primarily for use by the Animal Control Department including two trucks to replace existing vehicles; and to pay costs of issuance. SECTION 2. DESIGNATION, DATE, DENOMINATIONS, NUMBERS, AND MATURITIES OF NOTES. Each note issued pursuant to this Order shall be designated: "KERB COUNTY, TEXAS TAX NOTE, SERIES 2008 ", and initially there shall be issued, sold, and delivered hereunder one fully registered note, without interest coupons, dated March 1, 2008, in the principal amount stated in Section 1 above, numbered T-1 (the "Initial Note"), with notes issued in replacement thereofbeing in denominations of $100,000 and any integral multiple of $5,000 in excess thereof and numbered consecutively from R-1 upward, payable to the initial registered owner thereof (with the Initial Note being payable to the initial purchaser designated in Section 13 hereof), or to the registered assignee or assignees of said Notes or any portion or portions thereof (in each case, the "Registered Owner"), and said Notes shall mature and be payable on February 1 S, ZOI3 (subject to mandatory sinking fund redemption on February 1 S in each of the years 2009 through 2012 in the respective principal amounts set forth in the FORM OF NOTE contained in Section 6 hereof). The term "Notes" as used in this Order shall mean and include collectively the Initial Note initially issued and delivered pursuant to this Order and all substitute notes exchanged therefor, as well as all other substitute notes and replacement notes issued pursuant. hereto, and the term "Note" shall mean any of the Notes. SECTION 3. INTEREST. The Notes shall bear interest from the dates specified in the FORM OF NOTE set forth in this Order to their respective dates of maturity or mandatory sinking fund redemption prior to maturity at the rate of 3.30% per annum. -2- SECTION 4, CHARACTERISTICS OF THE NOTES. (a) Registration, Trans er, and Exchange; Authentication. The Issuer shall keep or cause to be kept at the designated corporate trust or commercial banking office of TxE FROST NATIONAL BaNx, San Antonio, Texas (the "Paying Agent/Registrar")books orrecords for the registration ofthe transfer and exchange of the Notes (the "Registration Books"), and the Issuer hereby appoints the Paying AgentlRegistrar asits registrar and transfer agent to keep such books or records and make such registrations of transfers and exchanges under such reasonable regulations as the Issuer and Paying Agent/Registrar may prescribe; and the Paying Agent/Registrar shall make such registrations, transfers and exchanges as herein provided. Attached hereto as Exhibit A is a copy of the Paying Agent/Registrar Agreement between the Issuer and the Paying Agent/Registrar which is hereby approved in substantially final form, and the County Judge and County Clerk of the Issuer are hereby authorized to execute the Paying Agent/Registrar Agreement and approve any changes in the final form thereof. The Paying Agent/Registrar shall obtain and record in the Registration Books the address of the Registered Owner of each Note to which payments with respect to the Notes shall be mailed, as herein provided; but it shall be the duty of .each Registered Owner to notify the Paying Agent/Registrar in writing of the address to which payments shall be mailed, and such interest payments shall not be mailed unless such notice has been given. To the extent possible and under reasonable circumstances, all transfers ofNotes shall be made within three business days after request and presentation thereof. The Issuer shall have the right to inspect the Registration Books during regular business hours of the Paying Agent/Registrar, but otherwise the Paying AgentlRegistrar shall keep the Registration Books confidential and, unless otherwise required by law, shall not permit their inspection by any other entity. The Paying Agent/Registrar's standard or customary fees and charges for making such registration, transfer, exchange and' delivery of a substitute Note or Notes shall be paid as provided in the FORM OF NOTE set forth in this Order. Registration of assignments, trans- fers and exchanges ofNotes shall be made in the manner provided and with the effect stated in the FORM OF NOTE set forth in this Order. Each substitute Note shall bear a letter and/or number to distinguish it from each other Note. Except as provided in (d) below, an authorized representative of the Paying Agent/Registrar shall, before the delivery of any such Note, date and manually sign the Paying Agent/Registrar's Authentication Certificate, and no such Note shall be deemed to be issued or outstanding unless such Certificate is so executed. The Paying Agent/Registrar promptly shall cancel all paid Notes and Notes surrendered for transfer and exchange. No additional ordinances, orders; or resolutions need be passed or adopted by the governing body of the Issuer or any other body or person so as to accomplish the foregoing transfer and exchange of any Note or portion thereof, and the Paying Agent/Registrar shall provide for the printing, execution, and delivery of the substitute Notes in the manner prescribed herein, and said Notes shall be of type composition printed on paper with lithographed or steel engraved borders of customary weight and strength. Pursuant to Chapter 1201, Texas Government Code, and particularly Subchapter D and Section 1201.067 thereof, the duty of transfer and exchange ofNotes as aforesaid is hereby imposed upon the Paying Agent/Registrar, and, upon the execution of such Notes, the transferred and exchanged Notes shall be valid, incontestable, and enforceable in the same manner and with the same effect as the Notes which initially were issued and delivered pursuant to this Order, approved by the Attorney General, and registered by the Comptroller of Public Accounts. -3- (b) In General. The Notes (i) shall be issued in fully registered form, without interest coupons, with the principal of and interest on such Notes to be payable only to the Registered Owners thereof, (ii) shall be mandatorily redeemed prior to their scheduled maturities, (iii) may be transferred and assigned, (iv) maybe exchanged for other Notes, (v) shall have the characteristics, (vi) shall be signed, sealed, executed and authenticated, (vii) the principal of and interest on the Notes shall be payable, and (viii) shall be administered and the Paying AgentlRegistrar and the Issuer shall have certain duties and responsibilities with respect to the Notes, all as provided, and in the manner and to the effect as required or indicated, in the FORM OF NOTE set forth in this Order. The Initial Note is not required to be, and shall not be, authenticated by the Paying Agent/ Registrar, but on each substitute Note issued in exchange for the Initial Note issued under this Order the Paying Agent/Registrar shall execute the PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE, in the form set forth in the FORM OF NOTE. In lieu of the executed Paying Agent/Registrar'sRuthentication Certificate described above, the Initial Note delivered on the closing date (as further described in subparagraph (i) below) shall have attached thereto the Comptroller's Registration Certificate substantially in the form set forth in the FORM OF NOTE below, manually executed by the Comptroller of Public Accounts of the State of Texas or by his duly authorized agent, which certificate shall be evidence that the Initial Note has been duly approved by the Attorney General of the State of Texas and that it is a valid and binding obligation of the Issuer, and has been registered by the Comptroller. (c) Substitute Paving A eg nt/Re is~ trar. The Issuer covenants with the Registered Owners of the Notes that at all times while the Notes are outstanding the Issuer will provide a competent and legally qualified bank, trust company, financial institution, or other entity to act as and perform the services of Paying Agent/Registrar for the Notes under this Order, and that the Paying Agent/Registrar will be one entity. The Issuer reserves the right to, and may, at its option, change the Paying Agent/Registrarupnn not less than 120 days written notice to the Paying Agent/Registrar, to be effective not later than 60 days prior to the next principal or interest payment date after such notice. In the event that the entity at any time acting as Paying Agent/Registrar (or its successor by merger, acquisition, or other method) should resign or otherwise cease to act as such, the Issuer covenants that promptly it will appoint a competent and legally qualified bank, trust company, financial institution, or other agency to act as Paying Agent/Registrar under this Order. Upon any change in the Paying Agent/Registrar, the previous Paying Agent/Registrar promptly shall transfer and deliver the Registration Books (or a copy thereof), along with all other pertinent books and records relating to the Notes, to the new Paying Agent/Registrar designated and appointed by the Issuer. Upon any change in the Paying Agent/Registrar, the Issuer promptly will cause a written notice thereof to be sent by the new Paying Agent/Registrar to each Registered Owner of the Notes, by United States mail, first-class postage prepaid, which notice also shall give the address of the new Paying Agent/Registrar. By accepting the position and performing as such, each Paying Agent/Regis- trar shall be deemed to have agreed to the provisions of this Order, and a certified copy of this Order shall be delivered to each Paying Agent/Registrar. (d) Delivery of Initial Note. On the closing date, one Initial Note representing the entire principal amount of the Notes, payable to the initial Registered Owner named in Section 13 of this Order or its designee, executed by manual or facsimile signature of the County Judge and County Clerk of the Issuer, on behalf of the Issuer, approved by the Attorney General of Texas, and registered and manually signed by the Comptroller of Public Accounts of the State of Texas, will be -4- delivered to the initial purchaser or its designee. Upon payment for the Notes, the Paying Agent/Registrarshall cancel the Initial Note and deliver to the initial Registered Owner or its designee one registered definitive Note for each year of maturity of the Notes, in the aggregate principal amount of all of the Notes for such maturity. SECTION 5, FORM OF NOTE. The form of Note, including the form of Paying Agent/Registrar's Authentication Certificate, the form of Assignment and the form of Registration Certificate of the Comptroller of Public Accounts of the State of Texas (to be attached only to the Initial Note shall be, respectively, substantially as follows, with such appropriate variations, omissions, or insertions as are permitted or required by this Order. FORM OF NOTE R- UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF KERR TAX NOTES, SERIES 2008 INTEREST RATE 3.30 MATURITY DATE February 15, 2013 REGISTERED OWNER: PRINCIPAL AMOUNT: PRINCIPAL AMOUNT DATE OF SERIES March 1, 2008 DOLLARS ON THE MATURITY DATE specified above, KERR COUNTY, TEXAS (the "Issuer"), being a political subdivision of the State of Texas, hereby promises to pay to the Registered Owner specified above, or registered assigns (hereinafter called the "Registered Owner"), the Principal Amount specified above, and to pay interest thereon (calculated on the basis of a 360-day year of twelve 30-day months) from the date of initial delivery (as shown in the records of the Paying Agent/Registrar) at the Interest Rate per annum specified above, payable on February 15, 2009, and semiannually on each February 15 and August 1 S thereafter to the Maturity Date specified above, or the date of mandatory sinking fund redemption prior to maturity; except that if this Note is required to be authenticated and the date of its authentication is later than the first Record Date (hereinafter defined), such Principal Amount shall bear interest from the interest payment date next preceding the date of authentication, unless such date of authentication is after any Record Date but on or before the next following interest payment date, in which case such Principal Amount shall bear interest from such next following interest payment date; provided, however, that if on the date of authentication hereof the interest on the Note or Notes, if any, for which this Note is being exchanged is due but has not been paid, then this Note shall bear interest from the date to which such interest has been paid in full. -5- THE PRINCIPAL OFAND INTEREST ON THIS NOTE are payable in lawful money of the United States of America, without exchange or collection charges. The principal of this Note shall be paid to the Registered Owner hereof upon presentation and surrender of this Note at maturity or upon the date fixed for its mandatory sinking fund redemption prior to maturity at the designated corporate trust or commercial banking office (the "Designated Office") of The Frost National Bank, San Antonio, Texas, which is the "Paying Agent/Registrar" for this Note. The payment of interest on this Note shall be made by the Paying Agent/Registrar to the Registered Owner hereof on each interest payment date by check, dated as of such interest payment date, drawn by the Paying Agent/Registrar on, and payable solely from, funds of the Issuer required by the order adopted by the Issuer authorizing the issuance of this Note and the series of which it is a part (the "Note Order") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided; and such check shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid (or by such other method requested by the Registered Owner hereof and acceptable to the Paying Agent/Registrar), on each such interest payment date, to the Registered Owner hereof, at its address as it appeared on the 15"' day of the month next preceding each such date (the "Record Date") on the Registration Books kept by the Paying Agent/Registrar, as hereinafter described. In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar if and when funds for the payment of such interest have been received from the Issuer. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the "Special Payment Date" which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of each Registered Owner appearing on the Registration Books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. The Issuer covenants with the Registered Owner of this Note that on or before each principal payment date and interest payment date for this Note it will make available to the Paying Agent/Registrar, from the "Interest and Sinking Fund" created by the Note Order, the amounts required to provide for the payment, in immediately available funds, of all principal of and interest on the Notes, when due. IF THE DATE FOR THE PAYMENT of the principal of or interest on this Note shall be a Saturday, Sunday, legal holiday, or day on which banking institutions in the city where the Designated Office of the Paying Agent/Registrar islocated are authorized by law or executive order to close, or the United States Postal Service is not open for business, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or day on which banking institutions are authorized to close, or the United States Postal Service is not open for business; and payment on such date shall have the same force and effect as if made on the original date payment was due. THIS NOTE IS ONE OF A SERIES OF NOTES, dated March 1, 2008, authorized and issued in accordance with the Constitution and laws of the State of Texas, including Chapter 1431, Texas Government Code, as amended, in the principal amount of $1,780,000 to finance the acquisition and construction of the following improvements: (i) acquire information technology equipment including computers, servers and related software and accessories, video teleconferencing equipment and upgrading the camera system for the County Jail, camera/digital system for the Juvenile Detention Center, and additional computer software for human resources and payroll and -6- other software improvements; (ii) expand the Agricultural Barn; (iii) construct improvements to the Courthouse including repairing windows and doors; repairing and refurbushing Courthouse grounds, (including sprinkler replacement, concrete replacement and landscaping of grounds); (iv) acquisition of equipment primarily for use by the Road and Bridge Department including a Maintainer to replace a leased vehicle, radios to replace old units, a F-750 truck with mounted box for brush chipping, brush chipper 1800 XI,, two 8-yard dump trucks, and two mowing tractors with buckets; (v) acquisition of equipment primarily for use by the Environmental Health Department including two trucks to replace existing vehicles; and (vi) acquisition of equipment primarily for use by the Animal Control Department including two trucks to replace existing vehicles; and to pay costs of issuance. THE NOTES ARE SUBJECT TO mandatory sinking fund redemption prior to maturity in part by lot, at a price equal to the principal amount thereof plus accrued interest to the date of redemption in the respective principal amounts shown below: MANDATORY REDEMPTION REDEMPTION DATE AMOUNT February 15, 2009 $135,000 February 15, 2010 200,000 February 15, 2011 275,000 February 15, 2012 290,000 February 15, 2013 (maturity) 880,000 The principal amount of the Notes required to be redeemed pursuant to the operation of such mandatory redemption requirements may be reduced, at the option of the Issuer, by the principal amount of any such Notes which, prior to the date of the mailing of notice of such mandatory redemption, (i) shall have been acquired by the Issuer and delivered to the Paying Agent/Registrar for cancellation, (ii) shall have been purchased and canceled by the Paying Agent/Registrar at the request ofthe Issuer, or (iii) shall have been redeemed pursuant to the optional redemption provisions described in the preceding paragraph and not theretofore credited against a mandatory redemption _requirement. AT LEAST 30 DAYS PRIOR to the date fixed for any redemption of Notes or portions thereof prior to maturity (and in the case of an optional redemption, only after the Issuer gives written notice to the Paying Agent/Registrar of its exercise of such optional redemption not later than the 45th day prior to the optional redemption date), a written notice of such redemption shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, to the Registered Owner of each Note to be redeemed at its address as it appeared on the Registration Books maintained by the Paying Agent/Registrar on the business day next preceding the day such notice of redemption is mailed. Notwithstanding the preceding sentence, as long as The Frost National Bank is the registered owner of all of the Notes, no notice of a mandatory sinking fund redemption shall be required to be given in advance of a mandatory sinking fund redemption date. Any notice of redemption so mailed shall be conclusively presumed to have been duly given irrespective of whether -7- received by the Registered Owner. By the date fixed for any such redemption, due provision shall be made with the Paying AgentlRegistrar for the payment of the required redemption price for the Notes or portions thereof which are to be so redeemed. If such written notice of redemption is sent and if due provision for such payment is made, all as provided above, the Notes or portions thereof which are to be so redeemed thereby automatically shall be treated as redeemed prior to their scheduled maturities, and they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the right of the Registered Owner to receive the redemption price from the Paying Agent/Registrar out of the funds provided for such payment. If a portion of any Note shall be redeemed a substitute Note or Notes having the same maturity date, bearing interest at the same rate, in any denomination or denominations of $100,000 of any integral multiple of $5,000 in excess thereof, at the written request of the Registered Owner, and in an aggregate principal amount equal to the unredeemed portion thereof, will be issued to the Registered Owner upon the surrender thereof for cancellation, at the expense of the Issuer, all as provided in the Note Order. ALL NOTES OF THISSERIES are issuable solely as fully registered Notes, without interest coupons, in the denomination of $100,000 and any integral multiple of $5,000 in excess thereof (an "Authorized Denomination"). As provided in the Note Order, this Note, or any unredeemed portion hereof, may, at the request of the Registered Owner or the assignee or assignees hereof, be assigned, transferred and exchanged for a like aggregate principal amount of fully registered Notes, without interest coupons, payable to the appropriate Registered Owner, assignee or assignees, as the case may be, having the same Authorized Denomination of Authorized Denominations as requested in writing by the appropriate Registered Owner, assignee or assignees, as the case maybe, upon surrender of this Note to the Paying Agent/Registrar for cancellation, all in accordance with the form and procedures set forth in the Note Order. Among other requirements for such assignment and transfer, the Registered Owner must provide the Issuer and the Paying Agent/Registrar with an investment letter, executed by the transferee, similar in content and effect to the original investment letter provided by The Frost National Bank (as the original purchaser of this Note), and this Note must be presented and surrendered to the Paying Agent/Registrar at the Designated Office, together with proper instruments. of assignment, inform and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment of this Note or any portion or portions hereof in an Authorized Denomination to the assignee or assignees in whose name or names this Note or any such portion or portions hereof is or are to be registered. The form of Assignment printed or endorsed on this Note maybe executed by the Registered Owner to evidence the assignment hereof, but such method is not exclusive, and other instruments of assignment satisfactory to the Paying Agent/Registrar may be used to evidence the assignment of this Note or any portion or portions hereof from time to time by the Registered Owner. The Paying Agent/Registrar'sreasonab1e standard or customary fees and charges for transferring and exchanging any Note or portion thereof shall be paid by the Issuer, but any taxes or governmental charges required to be paid with respect thereto shall be paid by the one requesting such assignment, transfer or exchange as a condition precedent to the exercise of such privilege. The Paying Agent/Registrar shall not be required to make any such transfer or exchange (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or, (ii) with respect to any Note or any portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date; provided, however, such limitation of transfer shall not be -8- applicable to an exchange by the Registered Owner of an unredeemed balance of a Note called for redemption in part. IN THE EVENT any Paying Agent/Registrarfnr the Notes is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the Note Order that it promptly will appoint a competent and legally qualified substitute therefor, and cause written notice thereof to be mailed to the Registered Owners of the Notes. IT IS HEREBY CERTIFIED, RECITED, AND COVENANTED that this Note has been duly and validly authorized, issued, and delivered; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Note have been performed, existed, and been done in accordance with law; that this Note is a general obligation of the Issuer, issued on the full faith and credit thereof; and that ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Note, as such interest comes due, and as such principal matures, have been levied and ordered to be levied against all taxable property in the Issuer, and have been pledged for such payment within the limits provided by law. THEISSUERALSOHASRESERVED THERIGHTto amend theNote Order as provided therein, and under some (but not all) circumstances amendments thereto must be approved by the Registered Owners of a majority in aggregate principal amount of the outstanding Notes. BYBECOMING THEREGISTERED OWNER ofthis Note, the Registered Owner thereby acknowledges all of the terms and provisions of the Note Order, agrees to be bound by such terms and provisions, acknowledges that the Note Order 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 Note and the Note Order constitute a contract between each Registered Owner hereof and the Issuer. IN WITNESS WHEREOF, the Issuer has caused this Note to be signed with the manual or facsimile signature of the County Judge of the Issuer and countersigned with the manual or facsimile signature of the County Clerk of the Issuer, and has caused the official seal of the Issuer to be duly impressed, or placed in facsimile, on this Note. (facsimile signature) (facsimile si nature) County Clerk County Judge Kerr County, Texas Kerr County, Texas (SEAL) -9- FORM OF REGISTRATION CERTIFICATE OF THE COMPTROLLER OF PUBLIC ACCOUNTS COMPTROLLER'S REGISTRATION CERTIFICATE: REGISTER NO. I hereby certify that this Note has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Note 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 FORM OF PAYING AGENT/REGISTRAR'S AUTHENTKATION CERTIFICATE PAYING AGENT/REGISTRAR'SAUTHENTKATION CERTIFICATE (To be executed if this Note is not accompanied by an executed Registration Certificate of the Comptroller of Public Accounts of the State of Texas) It is hereby certified that this Note has been issued under the provisions of the Note Order described in the text of this Note; and that this Note has been issued in exchange for a note or notes, or a portion of a note or notes of a series which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. Dated: THE FROST NATIONAL BANK San Antonio, Texas Paying Agent/Registrar By Authorized Representative -10- FORM OF ASSIGNMENT: ASSIGNMENT FOR VALUE RECEIVED, the undersigned Registered Owner of this Note, or duly authorized representative or attorney thereof, hereby assigns this Note to (Assignee's Social Security or (Print or typewrite Assignee's name and address, Taxpayer Identification Number) including zip code) and hereby irrevocably constitutes and appoints attorney to register the transfer of the within Note on the books kept for registration thereof, full power of substitution in the premises. Dated: Signature Guaranteed: NOTICE: Signature(s) must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. with NOTICE: The signature above must correspond with the name of the Registered Owner as it appears upon the front of this Note in every particular, without alteration or enlargement or any change whatsoever. SECTION 6. INTEREST AND SINKING FUND; TAX LEVY. A special Interest and Sinking Fund (the "Interest and Sinking Fund") is hereby created solely for the benefit of the Notes, and the Interest and Sinking Fund shall be established and maintained by the Issuer at an official depository bank of the Issuer for so long as the Notes or interest thereon are outstanding and unpaid. The Interest and Sinking Fund shall be kept separate and apart from all other funds and accounts of the Issuer, and shall be used only for paying the interest on and principal of the Notes. Until ex- pended for the purposes set forth in Section 1 hereof, the proceeds derived from the sale of the Notes shall be held as further security for the timely payment of the principal and interest on the Notes. All ad valorem taxes levied and collected for and on account of the Notes and all accrued interest and premium on the Notes received by the Issuer from the initial purchaser of the Notes shall be deposited, as collected, to the credit of the Interest and Sinking Fund. During each year while any of the Notes or interest thereon are outstanding and unpaid, the Issuer shall compute and ascertain a rate and amount of ad valorem tax which will be sufficient, together with other moneys deposited to the credit of the Interest and Sinking Fund, to raise and produce the money required to pay the interest on the Notes as such interest comes due, and to provide and maintain a sinking fund adequate to pay the principal of its Notes as such principal matures (but never less than 2% of the original principal amount of the Notes as a sinking fund each year); and said tax shall be based on the latest approved tax rolls of the Issuer, with full allowance being made for tax delinquencies and the cost of tax collection. Said rate and amount of ad valorem tax is hereby levied, and is hereby ordered to be levied, against all taxable property in the Issuer for each year while any of the Notes or interest thereon are outstanding and unpaid; and said tax shall be assessed and collected each such year and -11- deposited to the credit of the aforesaid Interest and Sinking Fund. Said ad valorem taxes sufficient to provide for the payment of the interest on and principal of the Notes, as such interest comes due and such principal matures, are hereby pledged for such payment, within the limits provided by law. SECTION 7. CONSTRUCTION FUND. There is hereby created and established in the depository of the Issuer a fund to be called the Kerr County, Texas Tax Notes (Series 2008) Construction Fund (herein called the "Construction Fund"). All proceeds from the sale and delivery of any Note (excluding accrued interest and premium on such Note, if any, which shall be deposited into the Interest and Sinking Fund) shall be deposited into the Construction Fund. Money in the Construction Fund shall be subject to disbursements by the Issuer for payment of all costs incurred in carrying out the purpose for which the Notes are issued and for paying costs of issuance of the Notes. All funds remaining on deposit in the Construction Fund upon completion of purposes for which the Notes were issued shall be transferred to the Interest and Sinking Fund. SECTION 8. INVESTMENTS. Funds on deposit in the Interest and Sinking Fund and the Construction Fund shall be secured by the depository bank of the Issuer in the manner and to the extent required by law to secure other public funds of the Issuer and may be invested from time to time in any investment authorized in the Public Funds Investment Act (Chapter 2256, Texas Government Code) and in compliance with the Issuer's investment policy adopted in accordance with the provisions of the Public Funds Investment Act; provided, however, that investments purchased for and held in the Interest and Sinking Fund shall have a final maturity no later than the date the funds from such investments will be required to pay principal and interest next coming due, and investments purchased for and held in the Construction Fund shall have a final maturity of not later than the date the Issuer reasonably expects the funds from such investments will be required to pay costs ofthe projects for which the Notes were issued. Income and profits from such investments shall be deposited in the respective Fund which holds such investments; however, any such income and profits from investments in the Construction Fund may be withdrawn by the Issuer and deposited in the Interest and Sinking Fund to pay all or a portion of the interest next coming due on the Notes. It is further provided, however, that any interest earnings on Note proceeds which are required to be rebated to the United States of America pursuant to Section 12 hereof in order to prevent the Notes from being arbitrage bonds shall be so rebated and not considered as interest earnings for the purposes of this Section. SECTIONS. DEFEASANCE OF NOTES. (a) Defeased Notes. Any Note and the interest thereon shall be deemed to be paid, retired and no longer outstanding (a "DEfeased 1~'ote") within the meaning of this Order, except to the extent provided in subsection (d) of this Section, when payment of the principal of such Note, plus interest thereon to the due date (whether such due date be by reason of maturity or otherwise) either (i) shall have been made or caused to be made in accordance with the terms thereof, or (ii) shall have been provided for on or before such due date by irrevocably depositing with or making available to the Paying Agent/Registrar (or another entity permitted by Section 1207.061, Texas Government Code, as amended, or other applicable law, which entity, together with the Paying Agent/Registrar, is referred to collectively in this Section as the "Defeasance Agent"), in accordance with an escrow agreement or other instrument (the "Future Escrow Agreement")for such payment (1) lawful money of the United States of America sufficient to make such payment or (2) Defeasance Securities that mature as to principal and interest in such amounts and at such times as will insure the availability, without reinvestment, of sufficient money to provide for such payment, and when proper arrangements have been made by the Issuer with the -12- Defeasance Agent for the payment of its services until all Defeased Notes shall have become due and payable. At such time as a Note shall be deemed to be a Defeased Note hereunder, as aforesaid, such Note and the interest thereon shall no longer be secured by, payable from, or entitled to the benefits of, the ad valorem taxes or revenues herein levied and pledged as provided in this Order, and such principal and interest shall be payable solely from such money or Defeasance Securities. (b) Investment in Defeasance Securities. Any moneys so deposited with the Defeasance Agent may at the written direction of the Issuer be invested in Defeasance Securities, maturing in the amounts and times as hereinbefore set forth, and all income from such Defeasance Securities received by the Defeasance Agent that is not required for the payment of the Notes and interest thereon, with respect to which such money has been so deposited, shall be turned over to the Issuer, or deposited as directed in writing by the Issuer. Any Future Escrow Agreement pursuant to which the money and/or Defeasance Securities are held for the payment of Defeased Notes may contain provisions permitting the investment or reinvestment of such moneys in Defeasance Securities or the substitution of other Defeasance Securities upon the satisfaction of the requirements specified in subsection (a)(i) or (ii) ofthis Section. All income from such Defeasance Securities received by the Defeasance Agent which is not required for the payment of the Defeased Notes, with respect to which such money has been so deposited, shall be remitted to the Issuer or deposited as directed in writing by the Issuer. (c) Defeasance Securities. The term "Defeasance Securities" means (i) direct, noncallable obligations ofthe United States of America, including obligations that are unconditionally guaranteed by the United States of America., (ii) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date of the purchase thereof are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, (iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the Issuer adopts or approves the proceedings authorizing the financial arrangements are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (iv) any other then authorized securities or obligations under applicable state law that may be used to defease obligations such as the Notes. (d) Pa iy n~A eg nt/Registrar Services. Until all Defeased Notes shall have become due and payable, the Paying Agent/Registrar shall perform the services of Paying Agent/Registrar for such Defeased Notes the same as if they had not been defeased, and the Issuer shall make proper arrangements to provide and pay for such services as required by this Order. (e) Selection of Notes for Defeasance. In the event that the Issuer elects to defease less than all of the principal amount of Notes of a maturity, the Paying Agent/Registrar shall select, or cause to be selected, such amount ofNotes by such random method as it deems fair and appropriate. SECTION 10. DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED NOTES. (a) Replacement Notes. In the event any outstanding Note is damaged, mutilated, lost, stolen, or destroyed, the Paying Agent/Registrar shall cause to be printed, executed, and delivered, anew Note ofthe same principal amount, maturity, and interest rate, as the damaged, mutilated, lost, stolen, or destroyed Note, in replacement for such Note in the manner hereinafter provided. -13- (b) Application for Replacement Notes. Application for replacement of damaged, mutilated, lost, stolen, or destroyed Notes shall be made by the Registered Owner thereof to the Paying Agent/Registrar. In every case of loss, theft, or destruction of a Note, the Registered Owner applying for a replacement Note shall furnish to the Issuer and to the Paying Agent/Registrar such security or indemnity as may be required by them to save each of them harmless from any loss or damage with respect thereto. Also, in every case of loss, theft, or destruction of a Note, the Registered Owner shall furnish to the Issuer and to the Paying Agent/Registrar evidence to their satisfaction of the loss, theft, or destruction of such Note, as the case may be. In every case of damage or mutilation of a Note, the Registered Owner shall surrender to the Paying Agent/Registrar for cancellation the Note so damaged or mutilated. (c) No Default Occurred. Notwithstanding the foregoing provisions of this Section, in the event any such Note shall have matured, and no default has occurred which is then continuing in the payment of the principal of, redemption premium, if any, or interest on the Note, the Issuer may authorize the payment of the same (without surrender thereof except in the case of a damaged or mutilated Note) instead of issuing a replacement Note, provided security or indemnity is furnished as above provided in this Section. (d) Charge for IssuingReplacement Notes. Prior to the issuance of any replacement Note, the Paying Agent/Registrar shall charge the Registered Owner of such Note with all legal, printing, and other expenses in connection therewith. Every replacement Note issued pursuant to the provisions of this Section by virtue of the fact that any Note is lost, stolen, or destroyed shall constitute a contractual obligation of the Issuer whether or not the lost, stolen, or destroyed Note shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Order equally and proportionately with any and all other Notes duly issued under this Order. (e) Authority for Issuing Replacement Notes. In accordance with Chapter 1206, Texas Government Code, this Section of this Order shall constitute authority for the issuance of any such replacement Note without necessity of further action by the governing body of the Issuer or any other body or person, anal the duty of the replacement of such Notes is hereby authorized and imposed upon the Paying Agent/Registrar, and the Paying Agent/Registrarshah authenticate and deliver such Notes in the form and manner and with the effect, as provided in Section 4(a) of this Order for Notes issued in exchange for other Notes. SE~'TION 11. CUSTODY, APPROVAL, AND REGISTRATION OF NOTES; BOND COUNSEL'S OPINION, INSURANCE, AND CUSIP NUMBERS. The County Judge of the Issuer, on behalf of the Issuer, is hereby authorized to have control of the Notes initially issued and delivered hereunder and all necessary records and proceedings pertaining to the Notes pending their delivery and their investigation, examination, and approval by the Attorney General of the State of Texas, and their registration by the Comptroller of Public Accounts of the State of Texas. Upon registration of the Notes said Comptroller of Public Accounts (or a deputy designated in writing to act for said Comptroller) shall manually sign the Comptroller's Registration Certificate attached to such Notes, and the seal of said Comptroller shall be impressed, or placed in facsimile, on such Certificate. The approving legal opinion of the Issuer's Bond Counsel and the assigned CUSIP numbers, if any, may, at the option of the Issuer, be printed on the Notes issued and delivered under this Order, but neither shall have any legal effect, and shall be solely for the convenience and informa- tion of the Registered Owners of the Notes. -14- SECTION 12. COVENANTS REGARDING TAX-EXEMPTION OF INTEREST ON THE NOTES. (a) Covenants. The Issuer covenants to take any action necessary to assure, or refrain from any action which would adversely affect, the treatment of the Notes as obligations described in section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), the interest on which is not includable in the "gross income" of the holder for purposes of federal income taxation. In furtherance thereof, the Issuer covenants as follows: (1) to take any action to assure that no more than 10 percent of the proceeds of the Notes or the projects financed therewith (less amounts deposited to a reserve fund, if any) are used for any "private business use," as defined in section 141(b)(6) of the Code or, if more than 10 percent of the proceeds or the projects financed therewith are soused, such amounts, whether or not received by the Issuer, with respect to such private business use, do not, under the terms of this Order or any underlying arrangement, directly or indirectly, secure or provide for the payment of more than 10 percent of the debt service on the Notes, 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 Notes or the projects financed therewith (less amounts deposited into a reserve fund, if any) then the amount in excess of 5 percent is used fora "private business use" which is "related" and not "disproportionate," within the meaning of section 141(b)(3) of the Code, to the governmental use; (3) to take any action to assure that no amount which is greater than the lesser of $5,000,000, or 5 percent of the proceeds ofthe Notes (less amounts deposited into a reserve fund, if any) is directly or indirectly used to finance loans to persons, other than state or local governmental units, in contravention of section 141(c) of the Code; (4) to refrain from taking any action which would otherwise result in the Notes being treated as "private activity bonds" within the meaning of section 141(b) of the Code; (5) to refrain from taking any action that would result in the Notes 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 Notes, directly or indirectly, to acquire or to replace funds which were used, directly or indirectly, to acquire investment property (as defined in section 148(b)(2) of the Code) which produces a materially higher yield over the term of the Notes, other than investment property acquired with -- (A) proceeds of the Notes invested for a reasonable temporary period of 3 years or less or, in the case of a refunding bond, for a period of 30 days or less until such proceeds are needed for the purpose for which the bonds are issued, (B) amounts invested in a bona fide debt service fund, within the meaning of section 1.148-1(b) of the Treasury Regulations, and -15- (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 Notes; (7) to otherwise restrict the use of the proceeds of the Notes or amounts treated as proceeds of the Notes, as maybe necessary, so that the Notes do 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 Notes) 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 Notes have 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 (8), a "Rebate Fund" is hereby established by the Issuer for the sole benefit of the United States of America, and such fund shall not be subject to the claim of any other person, including without limitation the Registered Owners. The Rebate Fund is established for the additional purpose of compliance with section 148 of the Code. (c) Proceeds. The Issuer understands that the term "proceeds" includes "disposition proceeds" as defined in the Treasury Regulations and, in the case of refunding bonds, "transferred proceeds" (if any) and proceeds of the refunded bonds expended prior to the date of issuance of the Notes. It is the understanding of the Issuer that the covenants contained herein are intended to assure compliance with the Code and any regulations or rulings promulgated by the U. S. Department of the Treasury pursuant thereto. In the event that regulations or rulings are hereafter promulgated which modify or expand provisions of the Code, as applicable to the Notes, 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 Notes under section 103 of the Code. In the event that regulations or rulings are hereafter promulgated which impose additional requirements which are applicable to the Notes, 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 Notes under section 103 of the Code. In furtherance of such intention, the Issuer hereby authorizes and directs the Director of Finance to execute any documents, certificates or reports required by the Code and to make such elections, on behalf of the Issuer, which may be permitted by the Code as are consistent with the purpose for the issuance of the Notes. (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 Order (as used in this Section, the "Project") on its books and records in accordance with the requirements of the Internal Revenue 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 -16- original expenditure is paid. The foregoing notwithstanding, the Issuer recognizes that in order for proceeds to be expended under the Internal Revenue 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 Notes, or (2) the date the Notes are 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 Notes. 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 of the interest on the Notes from gross income of the Registered Owners. (e) Disposition of Project. The Issuer covenants that the property constituting the Project 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 Notes. 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 an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. (f) Qualified Tax-Exempt Obli atg ions. The Issuer hereby designates the Notes as "qualified tax-exempt obligations" as defined in section 265(b)(3) of the Code. In furtherance of such designation, the Issuer represents, covenants and warrants the following: (a) that during the calendar year in which the Notes are issued, the Issuer (including any subordinate entities) has not designated nor will designate bonds or other obligations, which when aggregated with the Notes, will result in more than $10,000,000 of "qualified tax-exempt obligations" being issued; (b) that the Issuer reasonably anticipates that the amount oftax-exempt obligations issued during the calendar year in which the Notes are issued by the Issuer (or any subordinate entities) will not exceed $10,000,000; and, (c) that the Issuer will take such action or refrain from such action as necessary, and as more particularly set forth in this Section, in order that the Notes will not be considered "private activity bonds" within the meaning of section 141 of the Code. SECTION 13. SALE OF NOTES. The Notes are hereby initially sold and shall be delivered to THE FROST NATIONAL BANK, San Antonio, Texas (the "Purchaser"), for cash for the par value thereof and no accn:ed interest. It is hereby officially found, determined and declared that the terms of this sale are the most advantageous reasonably obtainable. The Notes initially shall be registered in the name of THE FROST NATIONAL BANK. SECTION 14. NO RULE 15c2-12 UNDERTAKING; ANNUAL FINANCIAL STATEMENTS. The Issuer has not made an undertaking in accordance with Rule 15c2-12 of the Securities and Exchange Commission (the "Rule") in connection with the issuance of the Notes inasmuch as the Purchaser is not acting as an "underwriter in a primary offering of municipal securities" within the meaning of the Rule. The Issuer is not, therefore, obligated pursuant to the Rule to provide any on-going disclosure relating to the Issuer or the Notes; however, so long as the Purchaser or its assignee is the sole Registered Owner of the Notes, unless waived by the Purchaser, the Issuer shall provide the following to the Purchaser: -17- (a) Audited financial statements, to be provided within 270 days after the close of each Issuer fiscal year ending on and after September 30, 2008; and (b) Such other financial information regarding the Issuer as the Purchaser shall reasonably request. SECTION 15. FURTHER PROCEDURES. The County Judge, County Clerk, County Treasurer and County Auditor of the Issuer and all other officers, employees, and agents of the Issuer, and each of them, shall be and they are hereby expressly authorized, empowered, and directed from time to time and at any time to do and perform all such acts and things and to execute, acknowledge, and deliver in the name and under the corporate seal and on behalf of the Issuer all such instruments, whether or not herein mentioned, as maybe necessary or desirable in order to carry out the terms and provisions of this Order and the Notes. In addition, prior to the initial delivery of the Notes, the County Judge and County Clerk of the Issuer, and the Issuer's Bond Counsel are hereby authorized and directed to approve any technical changes or correction to this Order or to any of the instruments authorized and approved by this Order necessary in order to (i) correct any ambiguity or mistake or properly or more completely document the transactions contemplated and approved by this Order, (ii) to conform this Order and the Notes in a manner deemed necessary and appropriate to comply with the terms and payment procedures requested by the Purchaser, or (iii) obtain the approval of the Notes by the Attorney General of the State of Texas. In case any officer whose signature shall appear on any Note shall cease to be such officer before the delivery of such Note, such signature shall nevertheless be valid and sufficient for all purposes the same as if such officer had remained in office until such delivery. Additionally, the County Auditor and County Treasurer are further authorized to pay to the Attorney General of Texas prior to the delivery of the Notes, for the Attorney General's review of the transcript of proceedings related to the Notes, the amount required pursuant to Section 1202.004, Texas Government Code, as amended. SECTION 16. ORDER A CONTRACT; AMENDMENTS. This Order shall constitute a contract with the Registered Owners of the Notes, binding on the Issuer and its successors and assigns, and shall not be amended or repealed by the Issuer as long as any Note remains outstanding except as permitted in this Section. The Issuer may, without the consent of or notice to any Registered Owners (other than the Purchaser as long as the Purchaser is a Registered Owner, in which case the Issuer must receive the Purchaser's prior written consent to), amend, change, or modify this Order as may be required (i) by the provisions hereof, (ii) for the purpose of curing any ambiguity, inconsistency, or formal defect or omission herein, or (iii) in connection with airy other change which is not to the prejudice of the Registered Owners. The Issuer may, with the written consent of the Registered Owners of a majority in aggregate principal amount of the Notes then outstanding affected thereby, amend, change, modify, or rescind any provisions of this Order; provided that without the consent of all of the Registered Owners affected, no such amendment, change, modification, or rescission shall (i) extend the time or times of payment of the principal of and interest on the Notes, reduce the principal amount thereof or the rate of interest thereon, (ii) give any preference to any Note over any other Note, (ii) extend any waiver of default to subsequent defaults, or (iv) reduce the aggregate principal amount of Notes required for consent to any such amendment, change, modification, or rescission. Whenever the Issuer shall desire to make any amendment or addition to or rescission of this Order requiring consent of the Registered Owners, the Issuer shall cause notice of the amendment, addition, or rescission to be sent by first class mail, -18- postage prepaid, to the Registered Owners at the respective addresses shown on the Registration Books. Whenever at any time within one year after the date of the giving of such notice, the Issuer shall receive an instrument or instruments in writing executed by the Registered Owners of a majority in aggregate principal amount of the Notes then outstanding affected by any such amendment, addition, or rescission requiring the consent of the Registered Owners, which instrument or instruments shall refer to the proposed amendment, addition, or rescission described in such notice and shall specifically consent to and approve the adoption thereof in substantially the form ofthe copy thereof referred to in such notice, thereupon, but not otherwise, the Issuer may adopt such amendment, addition, or rescission in substantially such form, except as herein provided. No Registered Owner may thereafter object to the adoption of such amendment, addition, or rescission, or to any of the provisions thereof, and such amendment, addition, or rescission shall be fully effective for all purposes. SECTION 17. SECURITY INTEREST. Chapter 1208, Texas Government Code, applies to the issuance of the Notes and the pledge of the ad valorem taxes granted by the Issuer under Section 6 of this Order, and is therefore valid, effective, and perfected. If Texas law is amended at any time while the Notes are outstanding and unpaid such that the pledge of the ad valorem taxes granted by the Issuer under Section 6 of this Order is to be subject to the filing requirements of Chapter 9, Texas Business & Commerce Code, then in order to preserve to the Registered Owners of the Notes the perfection of the security interest in said pledge, the Issuer agrees to take such measures as it determines are reasonable and necessary under Texas law to comply with the applicable provisions of Chapter 9, Texas Business & Commerce Code, and enable a filing to perfect the security interest in said pledge to occur. SECTION 18. DEFAULTS AND REMEDIES. (a) Events of Default. Each of the following occurrences or events for the purpose of this Order is hereby declared to be an "Event of Default": (i) the failure to make payment of the principal of or interest on any of the Notes when the same becomes due and payable; or (ii) default in the performance or observance of any other covenant, agreement or obligation of the Issuer, the failure to perform which materially, adversely affects the rights of the Registered Owners of the Notes, including, but not limited to, their prospect or ability to be repaid in accordance with this Order, and the continuation thereof for a period of 60 days after notice of such default is given by any Registered Owner to the Issuer. (b) Remedies for Default. (i) Upon the happening of any Event of Default, then and in every case, any Registered Owner or an authorized representative thereof, including, but not limited to, a trustee or trustees therefor, may proceed against the Issuer, or any official, officer or employee of the Issuer in their official capacity, for the purpose of protecting and enforcing the rights of the Registered Owners under this Order, by mandamus or other suit, action or special proceeding in equity or at law, in any court of competent jurisdiction, for any relief permitted by law, including the specific performance of any covenant or agreement contained -19- herein, or thereby to enjoin any act or thing that may be unlawful or in violation of any right of the Registered Owners hereunder or any combination of such remedies. (ii) It is provided that all such proceedings shall be instituted and maintained for the equal benefit of all Registered Owners of Notes then outstanding. (c) Remedies Not Exclusive. (i) No remedy herein conferred or reserved is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or under the Notes or now or hereafter existing at law or in equity; provided, however, that notwithstanding any other provision of this Order, the right to accelerate the debt evidenced by the Notes shall not be available as a remedy under this Order. (ii) The exercise of any remedy herein conferred or reserved shall not be deemed a waiver of any other available remedy. (iii) By accepting the delivery of a Note authorized under this Order, such Registered Owner agrees that the certifications required to effectuate any covenants or representations contained in this Order do not and shall never constitute or give rise to a personal or pecuniary liability or charge against the officers or employees of the Issuer or the Commissioners Court. (iv) None of the members of the Commissioners Court, nor any other official or officer, agent, or employee of the Issuer, shall be charged personally by the Registered Owners with any liability, or be held personally liable to the Registered Owners under any term or provision of this Order, or because of any Event of Default or alleged Event of Default under this Order. SECTION 19. INTERESTED PARTIES. Nothing in this Order expressed or implied is intended or shall be construed to confer upon, or to give to, any person or entity, other than the Issuer and the Registered Owners of the Notes, any right, remedy or claim under or by reason of this Order or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in this Order contained by and on behalf of the Issuer shall be for the sole and exclusive benefit of the Issuer and the Registered Owners of the Notes. SECTION 20. INCORPORATION OF RECITALS. The Issuer hereby finds that the statements set forth in the recitals of this Order are true and correct, and the Issuer hereby incorporates such recitals as a part of this Order. SECTION 21. SEVERABILITY. The provisions of this Order are severable and if any provision or the applicability thereof to any person or circumstance is ever held by a court of competent jurisdiction to be invalid or unconstitutional for any reason, the remainder of this Order and the application of such provisions to other persons or circumstances shall not be affected thereby. -20- SECTION 22. EFFECTIVE DATE. This Order shall become effective immediately after being adopted on second and final reading. [The remainder of this page intentionally left blank. J -21- EXHIBIT A THE PAYING AGENT/REGISTRAR AGREEMENT IS OMITTED AT THIS POINT AS IT APPEARS IN EXECUTED FORM ELSEWI-IERE IN THIS TRANSCRIPT. [LETTERHEAD OF PURCHASER] The Frost National Bank INVESTOR ACKNOWLEDGMENT LETTER February 25, 2008 Kerr County, Texas c/o County Judge Kerr County Courthouse 700 Main Street Kerrville, Texas 78028 RBC Capital Markets 153 Treeline, Suite 100 San Antonio, Texas 78209 McCall, Parkhurst & Horton L.L.P. 700 N. St. Mary's St., Suite 1525 San Antonio, Texas 78205 RE: $1,780,000 KERB COUNTY, TEXAS TAX NOTES, SERIES 2008 Ladies and Gentlei~~eri: The undersigned (the "Purchaser"), as purchaser of $1, 780, 000 in aggregate principal amount of the captioned obligations (the "Notes"), hereby acknowledges and confirms that it has been furnished such financial, statistical and other information with respect to KERR COUNTY, TEXAS (the "Issuer") and the Notes, including a certified copy of the Order of the Commissioners Court of the Issuer which authorized the issuance of the Notes (the "Order"), as the Purchaser deems necessary to enable it to make an informed investment decision with respect to the purchase of the Notes. The Purchaser acknowledges that: 1. The Notes are general obligations of the Issuer, issued on the full faith and credit thereof; and ad valorem taxes sufficient to provide for the payment of interest on and principal of the Notes, as such interest comes due, and such principal matures, have been levied and ordered to be levied, Kerr County, 'Texas Tax Notes, Series 2008 February 25, 2008 Page 2 within the limits prescribed by law, against all taxable property in the Issuer, and have been pledged for such payment, all as provided in the Order. 2. The Purchaser, as a financial institution, has sufficient knowledge and experience in financial and business matters, including purchase and ownership of municipal and other tax-exempt obligations of a nature similar to the Notes to be able to evaluate the risks and merits of the investment represented by the purchase of the Notes. 3. The Purchaser is acquiring the Notes for its own account as evidence of a loan or for the account of institutions which meet the representations set forth herein, and not with a view to, or for sale in connection with, any further distribution of the Notes or any part thereof. The Purchaser has not offered to sell, solicited offers to buy, or agreed to sell the Notes or any part thereof, and the Purchaser has no present intention of reselling or otherwise disposing of the Notes except to persons who are able to and do confirm in writing to the Purchaser and to the Issuer the representations contained in Paragraph 1 through 4 hereof to the same extent as if such paragraph referred to such persons. 4. As a sophisticated investor, the Purchaser has made its own credit inquiry and analysis with respect to the Issuer and the Notes, and has made an independent credit decision based upon such inquiry and analysis. The Issuer has furnished to the Purchaser all the information which the Purchaser as a reasonable investor has requested of the Issuer, and the Purchaser has had the opportunity to ask questions of and receive answers from knowledgeable individuals concerning the Issuer and the Notes. The Purchaser is able and willing to bear the economic risk of the purchase and ownership of the Notes. 5. RBC Capital Markets (the Issuer's financial advisor) and McCall, Parkhurst & Hoy°ton L.L.P. (the Issuer's bond counsel) have not undertaken steps to ascertain the accuracy or completeness of information fi,rt?icherl to the P„rchaser Zvi±h respect to the Issuer, and the Purchaser has not looked to either of those firms or entities for, nor have either of them made, any representations to the Purchaser with respect to that information. 6. The Purchaser understands that the Notes have not been rated by any rating agency or registered with any federal or state securities agency or commission. 7. It is understood and agreed that the Purchaser is buying the Notes in a private placement by the Issuer to the Purchaser. The Notes are exempt from any federal securities registration requirements by virtue of Section 3(a)(2) ofthe Securities Act of 1933. The private placement of the Notes is exempt from the provisions of Rule 15c2-12 of the Securities and Exchange Commission (the "Rule")because the Notes are being sold to the Purchaser pursuant to a private placement and the Purchaser is not acting as a "Participating Underwriter" within the meaning of the Rule; Kerr County, Texas Tax Notes, Series 2008 February 25, 2008 consequently the Issuer has not undertaken to make any on-going disclosures for the benefit of the registered owner of the Notes in accordance with the Rule. 8. The Issuer will provide the Purchaser or an assignee thereof, with its (i) audited annual financial statements within 270 days after each fiscal year end, (ii) annual budget reports in a form reasonably acceptable to the Purchaser, to be provided within 120 days after approval thereof by the City Council of the City, and (iii) any other financial information regarding the Issuer that the Purchaser may reasonably request from time to time. [Signatures to Follow] Kerr County, Texas Tax Notes, Series 2008 February 25, 2008 Page 4 Very truly yours, The Frost National Bank By: _ Title: [PURCHASER'S SIGNATURE PAGE TO INVESTOR ACKNOWLEDGMENT LETTER] Kerr County, Texas Tax Notes, Series 2008 February 25, 2008 Page S ACCEPTANCE ACCEPTED pursuant to the Order adopted by the Commissioners Court of Kerr County, Texas on the 25`h day of February, 2008. ounty udge, Kerr County, Texas [ISSUER'S SIGNATURE PAGE TO INVESTOR ACKNOWLEDGMENT LETTER] PAYING AGENT/REGISTRARRGREEMENT THISAGREEMENT entered into as of March 1, 2008 (this"Agreement"), by and between KERB COUNTY, ISLAND, TEXAS (the"Issuer"), and THE FROST NATIONAL BANK (the"Bank"), a national banking association, with a commercial banking office located in San Antonio, Texas. RECITALS WHEREAS, the Issuer has duly authorized and provided for the issuance of its KERB COUNTY, TEXAS TAX NOTES, SERIES 2008 (the"Securities") in the aggregate principal amount of $1, 780, 000, such Securities to be issued in fully registered form only as to the payment of principal and interest thereon; and WHEREAS, the Securities are scheduled to be delivered to the initial purchasers thereof on or about March 18, 2008; and WHEREAS, the Issuer has selected the Bank to serve as Paying Agent/Registrar in connection with the payment of the principal of, premium, if any, and interest on said Securities and with respect to the registration, transfer and exchange thereof by the registered owners thereof; and WHEREAS, the Bank has agreed to serve in such capacities for and on behalf of the Issuer and has full power and authority to perform and serve as Paying Agent/Registrar for the Securities; NOW, THEREFORE, it is mutually agreed as follows: ARTICLE ONE APPOINTMENT OF BANK AS PAYING AGENT AND REGISTRAR Section 1.01. Appointment. The Issuer hereby appoints the Bank to serve as Paying Agent with respect to the Securities. As Paying Agent for the Securities, the Bank shall be responsible for paying on behalf of the Issuer the principal, premium (if any), and interest on the Securities as the same become due and payable to the registered owners thereof, all in accordance with this Agreement and the"Order" (hereinafter defined). The Issuer hereby appoints the Bank as Registrar with respect to the Securities. As Registrar for the Securities, the Bank shall keep and maintain for and on behalf of the Issuer books and records as to the ownership of said Securities and with respect to the transfer and exchange thereof as provided herein and in the Order, a copy of which books and records shall be maintained at an office of the Bank located in the State of Texas or shall be available to be accessed from such office located in the State of Texas. The Bank hereby accepts its appointment, and agrees to serve as the Paying Agent and Registrar for the Securities. Section 1.02. Compensation. In consideration of the sale of the Securities to the Bank by the Issuer, no compensation will be owing to the Bank for its services hereunder. The Issuer agrees to reimburse the Bank upon its request for all reasonable expenses, disbursements and advances incurred or made by the Bank in accordance with any of the provisions hereof. ARTICLE TWO DEFINITIONS Section 2.01. Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: "Acceleration Date" on any Security means the date on and after which the principal or any or all installments of interest, or both, are due and payable on any Security which has become accelerated pursuant to the terms of the Security. "Bank Office" means the designated corporate trust or commercial banking office of the Bank as indicated on the signature page hereof. The Bank will notify the Issuer in writing of any change in location of the Bank Office. "Fiscal Year" means the fiscal year of the Issuer, ending September 30. "Holder" and "Security Holder" each means the Person in whose name a Security is registered in the Security Register. "Issuer Request" and "Issuer Order" means a written request or order signed in the name of the Issuer by the County Judge, the County Treasurer, or the County Auditor of the Issuer, any one or more of said officials, delivered to the Bank. "Legal Holiday" means a day on which the Bank is required or authorized to be closed. "Order" means the resolution, order, or ordinance of the governing body of the Issuer pursuant to which the Securities are issued, certified by the City Secretary or any other officer of the Issuer and delivered to the Bank. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision of a government. "Predecessor Securities" of any particular Security means every previous Security evidencing all or a portion of the same obligation as that evidenced by such particular Security (and, for the 2 purposes of this definition, any mutilated, lost, destroyed, or stolen Security for which a replacement Security has been registered and delivered in lieu thereof pursuant to Section 4.06 hereof and the Order). "Redemption Date" when used with respect to any Security to be redeemed means the date fixed for such redemption pursuant to the terms of the Order. "Responsible Officer" when used with respect to the Bank means the Chairman or Vice- Chairmari of the Board of Directors, the Chairman or Vice-Chairman of the Executive Committee of the Board of Directors, the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant Cashier, or any other officer of the Bank customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Security Register" means a register maintained by the Bank on behalf of the Issuer providing for the registration and transfer of the Securities. "Stated Maturity" means the date specified in the Order the principal of a Security is scheduled to be due and payable. Section 2.02. Other Definitions. The terms "Bank;" "Issuer," and "Securities" (Security) have the meanings assigned to them in the recital paragraphs of this Agreement. The term"Paying Agent/Registrar" refers to the Bank in the performance of the duties and functions of this Agreement. ARTICLE TT-TREE PAYING AGENT Section 3.01. Duties of Pang Agent. As Paying Agent, the Bank shall, provided adeq>ate collected funds have been provided to it for such purpose by or on behalf of the Issuer, pay on behalf of the Issuer the principal of each Security at its Stated Maturity, Redemption Date, or Acceleration Date, to the Holder upon surrender of the Security to the Bank at the Bank Office. As Paying Agent, the Bank shall, provided adequate collected funds have been provided to it for such purpose by or on behalf of the Issuer, pay on behalf of the Issuer the interest on each Security when due, by computing the amount of interest to be paid each Holder and preparing and sending checks by United States Mail, first class postage prepaid, on each payment date, to the Holders of the Securities (or their Predecessor Securities) on the respective Record Date, to the address appearing on the Security Register or by such other method, acceptable to the Bank, requested in writing by the Holder at the Holder's risk and expense. Section 3.02. Reporting Requirements. To the extent required by the Code or the Treasury Regulations, the Bank shall report to the Holders and the Internal Revenue Service the amount of interest paid or the amount treated as interest accrued on the Securities which is required to be reported by the Holders on their returns of federal income tax. Section 3.03. Payment Dates. The Issuer hereby instructs the Bank to pay the principal of and interest on the Securities on the dates specified in the Order. The Issuer agrees to transfer or to cause to be transferred, in immediately available funds, to the Bank to pay principal and/or interest, either or both, by no later than 12:00 noon on the respective payment dates. ARTICLE FOUR REGISTRAR Section 4.01. Security Register -Transfers and Exchanges. The Bank agrees to keep and maintain for and on behalf of the Issuer at the Bank Office books and records (herein sometimes referred to as the"Security Register") and, if the Bank Office is located outside the State of Texas, a copy of such books and records shall be kept in the State of Texas, for recording the names and addresses of the Holders of the Securities, the transfer, exchange and replacement of the Securities and the payment of the principal of and interest on the Securities to the Holders and containing such other information as may be reasonably required by the Issuer and subject to such reasonable regulations as the Issuer and the Bank may prescribe. All transfers, exchanges and replacement of Securities shall be noted in the Security Register. Every Security surrendered for transfer or exchange shall be duly endorsed or be accompanied by a written instrument of transfer, the signature on which has been guaranteed by an officer of a federal or state bank or a member of the National Association of Securities Dealers, in form satisfactory to the Bank, duly executed by the Holder thereof or his agent duly authorized in writing. The Bank may request any supporting documentation it feels necessary to effect a re- registration; transfer or exchange of the Securities. To the extent possible and under reasonable circumstances, the Bank agrees that, in relation to an exchange or transfer of Securities, the exchange or transfer by the Holders thereof will be completed and new Securities delivered to the Holder or the assignee of the Holder in not more than three (3) business days after the receipt ofthe Securities to be canceled in an exchange or transfer and the written instrument of transfer or request for exchange duly executed by the Holder, or his duly authorized agent, in form and manner satisfactory to the Paying Agent/Registrar. 4 Section 4.02. Securities. The Issuer shall provide an adequate inventory of printed Securities to facilitate transfers or exchanges thereof. The Bank covenants that the inventory of printed Securities will be kept in safekeeping pending their use, and reasonable care will be exercised by the Bank in maintaining such Securities in safekeeping, which shall be not less than the care maintained by the Bank for debt securities of other political subdivisions or corporations for which it serves as registrar, or that is maintained for its own securities. Section 4.03. Form of Security Register. The Bank, as Registrar, will maintain the Security Register relating to the registration, payment, transfer and exchange of the Securities in accordance with the Bank's general practices and procedures in effect from time to time. The Bank shall not be obligated to maintain such Security Register in any form other than those which the Bank has currently available and currently utilities at the time. The Security Register may be maintained in written form or in any other form capable of being converted into written form within a reasonable time. Section 4.04. List of Security Holders. The Bank will provide the Issuer at any time requested by the lssuer, upon payment of the required fee, a copy of the information contained in the Security Register. The Issuer may also inspect the information contained in the Security Register at any time the Bank is customarily open for business, provided that reasonable time is allowed the Bank to provide an up-to-date listing or to convert the information into written form. The Bank will not release or disclose the contents of the Security Register to any person other than to, or at the written request of, an authorized officer or employee of the Issuer, except upon receipt of a court order or as otherwise required by law. Upon receipt of a court order and prior to the release or disclosure of the contents of the Security Register, the Bank will notify the Issuer so that the Issuer may contest the court order or such release or disclosure of the contents of the Security Register. Section 4.05. Cancellation of Securities. All Securities surrendered to the Bank, at the designated Bank Office, for payment, redemption, transfer or replacement, shall be promptly canceled by the Bank. Section 4.06. Mutilated, Destroyed, Lost or Stolen Securities. The Issuer hereby instructs the Bank, subject to the applicable provisions of the Order, to deliver and issue Securities in exchange for or in lieu of mutilated, destroyed, lost, or stolen Securities as long as the same does not result in an overissuance. Incase any Security shall be mutilated, or destroyed, lost or stolen, the Bank, in its discretion, may execute and deliver a replacement Security of like form and tenor, and in the same denomination and bearing a number not contemporaneously outstanding, in exchange and substitution for such mutilated Security, or in lieu of and in substitution for such destroyed lost or stolen Security, only after (i) the filing by the Holder thereof with the Bank of evidence satisfactory to the Bank of the destruction, loss or theft of such Security, and of the authenticity of the ownership thereof and (ii) the furnishing to the Bank of indemnification in an amount satisfactory to hold the Issuer and the Bank harmless. All expenses and charges associated with such indemnity and with the preparation, execution and delivery of a replacement Security shall be borne by the Holder of the Security mutilated, or destroyed, lost or stolen. Section 4.07. Transaction Information to Issuer. The Bank will, within a reasonable time after receipt of written request from the Issuer, furnish the Issuer information as to the Securities it has paid pursuant to Section 3.01, Securities it has delivered upon the transfer or exchange of any Securities pursuant to Section 4.01, and Securities it has delivered in exchange for or in lieu of mutilated, destroyed, lost, or stolen Securities pursuant to Section 4.06. ARTICLE FIVE THE BANK Section 5.01. Duties of Bank. The Bank undertakes to perform the duties set forth herein and in the Order and agrees to use reasonable care in the performance thereof. Section 5.02. Reliance on Documents. Etc. (a) The Bank may conclusively rely, as to the truth of the statements and correctness of the opinions expressed therein, on certificates or opinions furnished to the Bank. (b) The Bank shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Bank was negligent in ascertaining the pertinent facts. (c) No provisions of this Agreement shall require the Bank to expend or risk its own funds or otherwise incur any financial liability for performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity satisfactory to it against such risks or liability is not assured to it. (d) The Bank may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, security, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. Without limiting the generality of the foregoing statement, the Bank need not examine the ownership of any Securities, but is protected in acting upon 6 receipt of Securities containing an endorsement or instruction of transfer or power of transfer which appears on its face to be signed by the Holder or an agent of the Holder. The Bank shall not be bound to make any investigation into the facts or matters stated in a resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, security, or other paper or document supplied by Issuer. (e) The Bank may consult with counsel, and the written advice of such counsel or any opinion of counsel shall be full and complete authorization and protection with respect to any action taken, suffered, or omitted by it hereunder in good faith and in reliance thereon. (f) The Bank may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attorneys of the Bank. Section 5.03. Recitals of Issuer. The recitals contained herein with respect to the Issuer and in the Securities shall be taken as the statements of the Issuer, and the Bank assumes no responsibility for their correctness. The Bank shall in no event be liable to the Issuer, any Holder or Holders of any Security, or any other Person for any amount due on any Security from its own funds. Section 5.04. Mav Hold Securities. The Bank, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Issuer with the same rights it would have if it were not the Paying Agent/Registrar, or any other agent. Section 5.05. Moneys Held by Bank. If the Bank is not the holder of all of the Securities, the Bank shall deposit any moneys received from the Issuer into an account to be held in a fiduciary capacity for the payment of the Securities, with such moneys in the account that exceed the deposit insurance, available to the Issuer, provided by the Federal Deposit Insurance Corporation to be fully collateralized with securities or obligations that are eligible under the laws of the State of Texas to secure and be pledged as collateral for such accounts until the principal and interest nn s~,ch ge~.iiritie.g Kaye been presented for payment and paid to the owner thereof. Payments made from such account shall be made by check drawn on such account unless the owner of such Securities shall, at its own expense and risk, request such other medium of payment. All funds at any time and from time to time provided to or held by the Bank hereunder shall be deemed, construed and considered for all purposes as being provided to or held by the Bank for the benefit of the Security Holders. The Bank acknowledges, covenants and represents that it is acting herein in a fiduciary capacity in relation to such funds, and is not accepting, holding, administering, or applying such funds as a banking depository, but solely as fiduciary for and on behalf of the Security Holders. The Security Holders shall be entitled to the same preferred claim and first lien on the funds so provided as are enjoyed by the beneficiaries of trust funds generally. The funds provided to the Bank hereunder shall not be subject to warrants, drafts or checks drawn by the 7 Issuer and, except as expressly provided herein, shall not be subject to compromise, setoff, or other charge or diminution by the Bank. The Bank shall be under no liability for interest on any money received by it hereunder. Subject to the unclaimed property laws of the State of Texas and any provisions in the Order to the contrary, any money deposited with the Bank for the payment of the principal, premium (if any), or interest on any Security and remaining unclaimed for four years after final maturity of the Security has become due and payable will be paid by the Bank to the Issuer, and the Holder of such Security shall thereafter look only to the Issuer for payment thereof, and all liability of the Bank with respect to such moneys shall thereupon cease. Section 5.06. Indemnification. To the extent permitted by law, the Issuer agrees to indemnify the Bank for, and hold it harmless against, any loss, liability, or expense incurred without negligence or bad faith on its part, arising out of or in connection with its acceptance or administration ofits duties hereunder, including the cost and expense against any claim or liability in connection with the exercise or performance of any of its powers or duties under this Agreement. Section 5.07. Interpleader. The Issuer and the Bank agree that the Bank may seek adjudication of any adverse claim, demand, or controversy over its person as well as funds on deposit, in either a Federal or State District Court located in the county in the State of Texas where the administrative offices of the Issuer is located, and agree that service of process by certified or registered mail, return receipt requested, to the address referred to in Section 6.03 of this Agreement shall constitute adequate service. The Issuer and the Bank further agree that the Bank has the right to file a Bill of Interpleader in any court of competent jurisdiction located in the county in the State of Texas where the administrative offices of the Issuer is located to determine the rights of any Person claiming any interest herein. Section 5.08. Depository Trust Company Services. It is hereby represented and warranted that; in the event the Securities are otherwise qualified and accepted for"Depository Trust Company" services or equivalent depository trust services by other organizations, and if the Bank has the capability, the Bank will, to the extent within its control, comply with the"Operational Arrangements," in effect from time to time, which establishes requirements for securities to be eligible for such type depository trust services, including, but not limited to, requirements for the timeliness of payments and funds availability, transfer turnaround time, and notification of redemptions and calls. 8 ARTICLE SIX MISCELLANEOUS PROVISIONS Section 6.01. Amendment. This Agreement may be amended only by an agreement in writing signed by both of the parties hereto. Section 6.02. Assignment. This Agreement may not be assigned by either party without the prior written consent of the other. Section 6.03. Notices. Any request, demand, authorization, direction, notice, consent, waiver, or other document provided or permitted hereby to be given or furnished to the Issuer or the Bank shall be mailed or delivered to the Issuer or the Bank, respectively, at the addresses shown on the signature page of this Agreement. Section G.04. Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 6.05. Successors and Assigns. All covenants and agreements herein by the Issuer shall bind its successors and assigns, whether so expressed or not. Any corporation or association into which the Bank may be converted or merged, or with which it may be consolidated, or to which it may sell, lease, or transfer its assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation, or transfer to which it is a party, ipso facto, shall be and become successor Paying Agent/Registrar hereunder and vested with all of the powers, rights, obligations, duties, remedies, discretions, immunities, privileges, and all other matters as was its predecessor, without the execution or filing of any instruments or any further act, deed, or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section G.06. Severability. Incase any provision herein shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 9 Section 6.07. Benefits of Agreement. Nothing herein, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any benefit or any legal or equitable right, remedy, or claim hereunder. Section 6.08. Entire Agreement. This Agreement and the Order constitute the entire agreement between the parties hereto relative to the Bank acting as Paying Agent/Registrar and if any conflict exists between this Agreement and the Order, the Order shall govern. Section 6.09. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement. Section 6.10. Termination. This Agreement will terminate (i) on the date of final payment of the principal of and interest on the Securities to the Holders thereof or (ii) may be earlier terminated by either party upon sixty (60) days written notice; provided, however, an early termination of this Agreement by either party shall not be effective until (a) a successor Paying Agent/Registrar has been appointed by the Issuer and such appointment accepted and (b) notice has been given to the Holders of the Securities of the appointment of a successor Paying Agent/Registrar. Furthermore, the Bank and Issuer mutually agree that the effective date of an early termination of this Agreement shall not occur at any time which would disrupt, delay or otherwise adversely affect the payment of the Securities. Upon an early termination of this Agreement, the Bank agrees to promptly transfer and deliver the Security Register (or a copy thereof), together with other pertinent books and records relating to the Securities, to the successor Paying Agent/Registrar designated and appointed by the Issuer. The provisions of Section 1.02 and of Article Five shall survive and remain in full force and effect following the termination of this Agreement. Section 6.11. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Texas. [The remainder of this page intentionally left blank) 10 IN WITNESS WIIEREOF, the parties hereto have executed this Agreement as of the day and year first above written. THE FROST NATIONAL BANK By: _ Title: Address: 100 W. Houston San Antonio, Texas 78205 Attest: ~.____ unty Clerk KERB COUNTY, TEXAS By f---- C Address: Kerr County Courthouse 700 Main Street Kerrville, Texas 78028 [SIGNATURE PAGE TO PAYING AGENT/REGISTRAR AGREEMENT] GENERAL CERTIFICATE THE STATE OF TEXAS COUNTY OF KERR We, the undersigned officers of KERx Country, TEXAS (the "Issuer"), hereby certify as follows: I . This certificate is executed for and on behalf of the Issuer with reference to the issuance of the proposed KERB COUNTY, TEXAS TAX NOTES, SERIES 2008, dated March 1, 2008, in the principal amount of $1,780,000 (the "Notes"). 2. All meetings of the Commissioners Court of the County at which action was taken in preparation for or in connection with the issuance of the Notes occurred at the usual designated meeting place, being the Kerr County Courthouse. 3. No litigation of any nature has ever been filed pertaining to, affecting, questioning, or contesting: (a) the ordinance which authorized the Notes; (b) the issuance, execution, delivery, payment, security or validity of the Notes, (c) the authority of the Commissioners Court and the officers of the Issuer to issue, execute and deliver the Notes, (d) the validity of the corporate existence of the Issuer, or (e) the current tax rolls of the Issuer; and no litigation is pending pertaining, affecting, questioning, or contesting the current boundaries of the Issuer. 4. Attached to this certificate and marked Exhibit A is a true, full and correct schedule and statement of the proposed Notes, and of all presently outstanding tax indebtedness of the Issuer, and attached hereto as Exhibit B is a combined debt service schedule for all outstanding tax bond indebtedness of the Issuer. 5. The currently effective ad valorem tax appraisal roll of the Issuer (the "Tax Roll") is the Tax Roll prepared and approved during the calendar year 2008, being the most recently approved Tax Roll of the Issuer; the taxable property in the Issuer has been appraised, assessed, and valued as required and provided by the Texas Constitution and Property Tax Code (collectively, ".Texas law"); the Tax Roll for said year has been submitted to the Commissioners Court of the Issuer as required by Texas law, and has been approved and recorded by the Commissioners Court; and according to the Tax Roll for said year the net aggregate taxable value of taxable property in the Issuer (after deducting the amount of all applicable exemptions required or authorized under Texas law), upon which the annual ad valorem tax of the Issuer has been or will be imposed and levied, is EXHIBIT A THE PROPOSED OBLIGATIONS: Tax Notes, Series 2008, dated March 1, 2008, to be outstanding in the principal amount of $1,780,000, bearing interest and maturing as set forth in the Order authorizing said Notes. ALL PRESENTLY OUTSTANDING TAX INDEBTEDNESS: TITLE OF OUTSTANDING OBLIGATIONS DATED DATE CURRENT OUTSTANDING PRLNCIPAL AMOUNT Limited Tax General Obligation Bonds, Series 1994 02/01/1994 $1,970,000 Certificates of Obligation, Series 2005 01/15/2005 765,000 EXHIBIT B COMBINED DEBT SERVICE SCHEDULE SIGNED AND SEALED this the 25"' day of February, 2008. ~ ~/>~ ounty Clerk Kerr County, Te ~gSl®fV~,~ `` (SEAL) ~ udge Kerr County, Texas ~0~....aeo.~,oS~® ®~ ~ ~ s --~ ~~ ~~ ~ ~~~~.®a,a..~~""P~~c~r ~~IV7Yo ~~` [SIGNATURE PAGE TO GENERAL CERTIFICATE] February 25, 2008 Attorney General of the State of Texas Public Finance Division 300 W. 15 Street, 9`f' Floor Austin, Texas 78701 RE: $1,780,000 KERB COUNTY, TEXAS TAX NOTES, SERIES 2008 Ladies and Gentlemen: The captioned Notes are being sent to your office, and it is requested that you examine and approve the Notes in accordance with law. After such approval, please deliver the Notes to the Comptroller of Public Accounts for registration. Enclosed herewith is a signed but undated copy of the SIGNATURE IDENTIFICATION AND NO-LITIGATION CERTIFICATE for said Notes. You are hereby authorized and directed to date said CERTIFICATE concurrently with the date of approval of the Notes. If any litigation or contest should develop pertaining to the Notes or any other matters covered by said CERTIFICATE, the undersigned will notify you thereof immediately by telephone. With this assurance you can rely on the absence of any such litigation or contest, and on the veracity and currency of said CERTIFICATE, at the time you approve the Notes, unless you are notified otherwise as aforesaid. Sincerely yours, KERB COUNTY, TEXAS By ounty Judge SIGNATURE IDENTIFICATION AND NO-LITIGATION CERTIFICATE We, the undersigned County Judge and County Clerk, respectively, of KERR COUNTY, TEXAS (the "Issuer"), hereby certify as follows: (a) This certificate is executed and delivered with reference to the KERR CouwTY, TEXAS Tax NOTES, SERIES 2008, dated March 1, 2008, in the aggregate principal amount of $1, 780, 000, authorized by an order passed by the Commissioners Court of the Issuer on February 25, 2008 (the "Notes"). (b) Each of us signed the Notes by manually executing or causing facsimiles of our manual signatures to be printed or lithographed on each of the Notes, and we hereby adopt said facsimile signatures as our own, respectively, and declare that said facsimile signatures constitute our signa- tures the same as if we had manually signed each of the Notes. (c) The Notes are substantially in the form, and each of them has been duly executed and signed in the manner, prescribed in the ordinance authorizing the issuance thereof. (d) At the time we so executed and signed the Notes we were, and at the time of executing this certificate we are, the duly chosen, qualified, and acting officers indicated therein, and authorized to execute and sign the same. (e} No litigation of any nature has been filed or is now pending or, to our knowledge, threatened, to restrain or enjoin the issuance or delivery of any of the Notes, or which would affect the provision made for their payment or security, or in any manner questioning the proceedings or authority concerning the issuance of the Notes, and that so far as we know and believe no such litigation is threatened. (f) Neither the corporate existence nor boundaries of the Issuer is being contested; no litigation has been filed or is now pending or, to our knowledge, threatened, which would affect the authority of the officers of the Issuer to issue, execute, sign, and deliver any of the Notes; and no authority or proceedings for the issuance of any of the Notes have been repealed, revoked, or rescinded. (g) We have caused the official seal of the Issuer to be impressed, or printed, or lithographed on each of the Notes; and said seal on each of the Notes has been duly adopted as, and is hereby declared to be, the official seal of the Issuer. EXECUTED and delivered this MANUAL SIGNATURES -~ ~~ L ~ OFFICIAL TITLES Pat Tinley, County Judge Jannett Pieper, County Clerk Before me, on this day personally appeared the foregoing individuals, known to me to be the officers whose true and genuine signatures were subscribed to the foregoing instrument in my presence. Given under my hand and seal of office this o'~~ ~~ ~ CJ . Notary Public ,.~e•~.^•Y~~. ; ELSA TREYINO Typed Name ~ ' °.' ' `"y Notary Public, State bf Texas ' My Commission Ex fires ~ r ~ ~~ /~ '•~,;;;;,.~~ July 15, 2008 (My Commission Expires (Notary Seal) [SIGNATURE PAGE TO SIGNATURE IDENTIFICATION AND NO-LITIGATION CERTIFICATE]