LAW OFFICES MCCALL, PARKHURST & HORTON L.L.P. 717 NORTH HARWOOD 700 N. ST. MARY'S STREET 600 CONGRESS AVENUE SUITE 900 SUITE 1525 SUITE 1800 DALLAS, TEXAS 75201 -6587 SAN ANTONIO, TEXAS 78205-3503 AUSTIN, TEXAS 78701 -3248 TELEPHONE: 214 754-9200 TELEPHONE: 210 225 -2200 TELEPHONE: 512 479 -3905 FACSIMILE: 214 754 -9250 FACSIMILE. 210 225-2964 FACSIMILE: 512 472 -0671 June 8, 2010 Ms. Paula J. Hargis County Auditor Kerr County, Texas 700 Main, Room 103 Kerrville, Texas 78028 RE: $4,350,000 KERR COUNTY, TEXAS TAX NOTES, SERIES 2010 Dear Paula: In connection with the above captioned financing, enclosed for your records is a copy of the Transcript of Proceedings on CD. Thank you for your help in bringing this transaction to a successful conclusion. Please call me should you have any questions. Cordially yours, S Kathy S. 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MARY'S SUITE 1525 SAN ANTONIO, TEXAS 78205 -3503 Oil $4,350,000 KERR COUNTY, TEXAS TAX NOTES, SERIES 2010 TABLE OF CONTENTS PRIMARY FINANCING DOCUMENTS AND AGREEMENTS Note Order 1 Note Purchase Agreement 2 Final Official Statement 3 Paying Agent/Registrar Agreement 4 Specimen Note 5 Blanket Issuer Letter of Representations 6 DOCUMENTS RELATED TO TAX EXEMPTION Federal Tax Certificate 7 Form 8038 -G 8 CERTIFICATES Certificate of County Auditor 9 General Certificate 10 Signature Identification and No- Litigation Certificate 11 Closing Certificate 12 MISCELLANEOUS DOCUMENTS Instruction Letters to Attorney General and Comptroller of Public Accounts 13 Closing Memorandum 14 Receipt for Proceeds 15 Rating Letter 16 OPINIONS Attorney General's Opinion with Comptroller's Registration Certificate 17 r Opinion of Underwriter's Counsel 18 Opinion of Bond Counsel 19 or Supplemental Opinion of Bond Counsel 20 w CERTIFICATE FOR ORDER THE STATE OF TEXAS § COUNTY OF KERR § I, the undersigned County Clerk of Kerr County, Texas (the "County ") hereby certify as follows: 1. The Commissioners Court of the County convened in REGULAR MEETING ON THE 11 OF JANUARY, 2010, at the County Courthouse, and the roll was called of the duly constituted officers and members of said Commissioners Court, to wit: s 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 so and all of said Qfficers and members of said Commissioners Court were present, except the following absentees: , thus constituting a quorum. Whereupon, among other business, the following was transacted at said Meeting: a written ORDER AUTHORIZING THE ISSUANCE OF $4,350,000 IN PRINCIPAL AMOUNT OF KERR COUNTY, TEXAS TAX NOTES, SERIES 2010; IS AUTHORIZING THE LEVYING OF A TAX FOR THE PAYMENT THEREOF; AUTHORIZING EXECUTION OF A PAYING AGENT/REGISTRAR AGREEMENT AND A PURCHASE CONTRACT; it 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 adopted; and, after due discussion, said motion carrying with it the adoption of said Order, prevailed and carried by the following vote: AYES: s NOES: 0 ABSTENTIONS: U 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; said 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 from said Commissioners Court's minutes of said ' Meeting 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 rr 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 Gove ::;' ;,�:,,,,, off ..... Co ' T �1 A /LED the 11 day of January, 2010. • 00 4 e i (S '', °, I I /lo / ty Clerk, Kerr County, Tex. — !,, 96) CO 5 W s o s ORDER AUTHORIZING THE ISSUANCE OF $4,350,000 IN PRINCIPAL AMOUNT OF KERR COUNTY, TEXAS TAX NOTES, SERIES 2010; AUTHORIZING THE LEVYING OF A TAX FOR THE PAYMENT THEREOF; AUTHORIZING EXECUTION OF A PAYING AGENT /REGISTRAR AGREEMENT AND A PURCHASE CONTRACT; AND AUTHORIZING AND APPROVING OTHER INSTRUMENTS AND PROCEDURES RELATED THERETO W DATE OF APPROVAL: JANUARY 11, 2010 Yr as yr or s TABLE OF CONTENTS Recitals 1 Section 1. AMOUNT AND PURPOSE OF THE NOTES. 2 Section 2. DESIGNATION, DATE, DENOMINATIONS, NUMBERS, AND MATURITIES OF NOTES 2 Section 3. INTEREST 3 Section 4. CHARACTERISTICS OF THE NOTES; APPROVAL OF PAYING AGENT /REGISTRAR AGREEMENT 3 rr Section 5. FORM OF NOTE 7 Section 6. INTEREST AND SINKING FUND; TAX LEVY 13 Section 7. CONSTRUCTION FUND 14 Section 8. INVESTMENTS 14 r Section 9. EMPOWERED 14 Section 10. DEFEASANCE OF THE NOTES 14 Section 11. DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED NOTES 16 Section 12. CUSTODY, APPROVAL, AND REGISTRATION OF THE NOTES; BOND COUNSEL'S OPINION, BOND INSURANCE, AND CUSIP NUMBERS 17 Section 13. COVENANTS REGARDING TAX- EXEMPTION OF INTEREST rr ON THE NOTES 17 Section 14. CONTINUING DISCLOSURE UNDERTAKING 20 01 Section 15. SALE AND DELIVERY OF THE NOTES 23 Section 16. APPROVAL OF OFFICIAL STATEMENT 23 Section 17. AUTHORITY FOR OFFICERS TO EXECUTE DOCUMENTS AND APPROVE CHANGES 23 a Section 18. ORDER A CONTRACT; AMENDMENTS 24 Section 19. SECURITY INTEREST 24 INse rr sr Section 20. REMEDIES IN EVENT OF DEFAULT 25 r Section 21. INTERESTED PARTIES 25 Section 22. INCORPORATION OF RECITALS 25 Section 23. SEVERABILITY 25 Section 24. EFFECTIVE DATE 25 SIGNATURES PAYING AGENT /REGISTRAR AGREEMENT Exhibit A rr DESCRIPTION OF ANNUAL FINANCIAL INFORMATION Exhibit B rig FORM OF PURCHASE AGREEMENT Exhibit C it tlr r wr rr Si - -ii- • w r ORDER AUTHORIZING THE ISSUANCE OF $4,350,000 IN PRINCIPAL AMOUNT OF KERR COUNTY, TEXAS TAX NOTES, SERIES 2010; AUTHORIZING THE LEVYING OF A TAX FOR THE PAYMENT THEREOF; AUTHORIZING EXECUTION OF A PAYING AGENT /REGISTRAR AGREEMENT AND A PURCHASE CONTRACT; oar AND AUTHORIZING AND APPROVING OTHER INSTRUMENTS AND PROCEDURES RELATED THERETO or STATE OF TEXAS § COUNTY OF KERR § ° r WHEREAS, KERR COUNTy, TEXAS (the "Issuer" or the "County") 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 (collectively, the "Projects "): ++ (i) construct a new building of approximately 12,000 square feet located at the County jail site for adult probation, sheriff facilities and storage; (ii) construct a water line at the City /County airport and fund a master study for the airport; w, (iii) acquire and equip approximately ten Sheriff patrol cars and other vehicles for the Sheriffs Department, and acquire a van for the Extension Service; so (iv) acquire two trucks for the Building Maintenance Department and the Ag Barn; and (v) acquire various items of equipment including but not limited to computers and re computer software for various county departments, radios and related communication equipment for the Sheriffs Department, the County Constables and the Environmental Health Department, video equipment for the Security Department, heavy equipment (including two front -end loaders) for the Road and Bridge Department, tables and chairs for the Ag Barn, dining tables and projection equipment for the Juvenile Detention Facility, scanners and other equipment for the Election Services Department, projection equipment for the District Attomey's office, safety equipment for the Courthouse, and various items of equipment for the County jail including but not limited to air conditioners, scanners, leg shackles, food cart, passenger van and equipment therefor, and rape prevention cameras; 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 r 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 public 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 s 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 Wr 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 rr was given, all as required by Chapter 551, Texas Govemment Code; NOW, THEREFORE, BE IT ORDAINED BY THE COMMISSIONERS COURT OF THE KERR 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 $4,350,000 to finance the acquisition and construction of the Projects described in the second recital of this Order and to pay costs of issuance. SECTION 2. DESIGNATION, DATE, DENOMINATIONS, NUMBERS AND MATURITIES OF THE NOTES. Each note issued pursuant to and for the purpose described in as Section 1 of this Order shall be designated: KERR COUNTY, TEXAS TAX NOTES, SERIES 2010, and initially there shall be issued, sold and delivered hereunder one fully registered note, without interest coupons, dated January 15, 2010, in the aggregate principal amount of $4,350,000, numbered T -1 (the 'Initial Note "), with notes issued in replacement thereof being in the denomination of $5,000 vor or any integral multiple thereof and numbered consecutively from R -1 upward, all payable to the initial registered owner thereof (with the Initial Note being payable to the initial purchaser designated in Section 15 hereof), or to the registered assignee or assignees of said notes or any portion or portions thereof (in each case, the "Registered Owner "), and the notes shall mature and be payable serially on February 15 in each of the years and in the principal amounts, respectively, r as set forth in the following schedule: r rr r -2- YEAR of PRINCIPAL. YEAR OF PRINCLPAL MATURITY AMOUNT (3) MATURITY AMOUNT ( ee 2011 65,000 2014 1,080,000 e 2012 425,000 2015 1,155,000 2013 410,000 2016 1,215,000 se The term "Notes" as used in this Order shall mean and include the Notes 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 calculated on the basis of a 360 -day year composed of twelve 30 -day months from the dates specified in the FORM OF NOTE set forth in this Order to their respective dates of maturity at the following rates per annum: YEAR OF INTEREST YEAR OF INTEREST MATURITY: RATE ( %) MATURITY RATE ( %) 2011 3.00 2014 4.00 2012 3,00 2015 3.50 2013 3.00 2016 3.50 Said interest shall be payable in the manner provided and on the dates stated in the FORM OF NOTE set forth in this Order. SECTION 4. CHARACTERISTICS OF THE NOTES; APPROVAL OF PAYING AGENT /REGISTRAR AGREEMENT. (a) Registration, Transfer, and Exchange: Authentication. The Issuer shall keep or cause to be kept at the designated corporate trust or commercial banking office (currently located in Austin, Texas) of WELLS FARGO BANK, N.A. (the "Paying Agent/Registrar") books or records for the registration of the transfer and exchange of the Notes (the "Registration Books "), and the Issuer hereby appoints the Paying Agent/Registrar as its registrar and transfer agent to keep such books or records and make such registrations of transfers s" and exchanges under such reasonable regulations as the Issuer and Paying Agent/Registrar may pre- scribe; 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 9 ° 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. -3- r 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 of Notes 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 r Agent/Registrar shall keep the Registration Books confidential and, unless otherwise required by law, shall not permit their inspection by any other entity. The Paying Agent/Registrar'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, transfers and exchanges of Notes 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 r bear a letter and/or number to distinguish it from each other Note. Except as provided in (c) below, an authorized representative of the Paying Agent/Registrar rr 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 goveming 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 Govemment Code, and particularly Subchapter D and Section 1201.067 thereof, the duty of transfer and exchange of Notes as aforesaid is hereby imposed upon the Paying Agent/Registrar, and, upon the execution of said Certificate, the transferred and exchanged Note 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. as (b) Payment of Notes and Interest. The Issuer hereby further appoints the Paying Agent/Registrar to act as the paying agent for paying the principal of and interest on the Notes, all as provided in this Order. The Paying Agent/ Registrar shall keep proper records of all payments made by the Issuer and the Paying Agent/Registrar with respect to the Notes. (c) 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) may be transferred and assigned, (iii) may be exchanged for other Notes, (iv) shall have the characteristics, (v) shall be signed, sealed, executed and authenticated, (vi) shall be payable as to principal and interest, and (vii) shall be administered and the Paying Agent/Registrar 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 -4- w 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's Authentication Certificate described above, the Initial Note W 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 her duly authorized agent, which certificate shall be evidence that the Initial Note has been duly approved by the Attomey 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. (d) Substitute Paying Agent /Registrar. 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 and shall be an entity registered with the Securities and Exchange wi Commission. The Issuer reserves the right to, and may, at its option, change the Paying Agent/Registrar upon not less than 120 days written notice to the Paying Agent/Registrar, to be effective not later than 60 days prior to the next principal or interest payment date after such notice. In the event that the entity at any time acting as Paying Agent/Registrar (or its successor by merger, acquisition, or other method) should resign or otherwise cease to act as such, the Issuer covenants that promptly it will appoint a competent and legally qualified bank, trust company, financial institution, or other agency to act as Paying Agent/Registrar under this 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 tor 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/Registrar 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. (e) Book -Entry Only System for Notes. The Notes issued in exchange for the Notes initially issued to the purchaser specified in Section 15 herein shall be initially issued in the form of a separate single fully registered Note for each of the maturities thereof. Upon initial issuance, the ownership of each such Note shall be registered in the name of Cede & Co., as nominee of The Depository Trust Company of New York ("DTC), and except as provided in subsection (i) hereof, all of the outstanding Notes shall be registered in the name of Cede & Co., as nominee of DTC. With respect to Notes registered in the name of Cede & Co., as nominee of DTC, the Issuer °W and the Paying Agent/Registrar shall have no responsibility or obligation to any securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created ("DTC Participant ") to hold securities to facilitate the clearance and -5- rr settlement of securities transaction among DTC Participants or to any person on behalf of whom such a DTC Participant holds an interest in the Notes. Without limiting the immediately preceding sentence, the Issuer and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Notes, (ii) the delivery to any DTC Participant or any other person, ""' other than a registered owner of the Notes, as shown on the Registration Books, of any notice with respect to the Notes, or (iii) the payment to any DTC Participant or any other person, other than a registered owner of Notes, as shown in the Registration Books of any amount with respect to principal of or interest on the Notes. Notwithstanding any other provision of this Order to the contrary, the Issuer and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Note is registered in the Registration Books as the absolute owner of such Note w for the purpose of payment of principal and interest with respect to such Note, for the purpose of registering transfers with respect to such Note, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of and interest on the Notes only to or upon the order of the rr registered owners, as shown in the Registration Books as provided in this Order, or their respective attomeys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the Issuer's obligations with respect to payment of principal of and interest on rr the Notes to the extent of the sum or sums so paid. No person other than a registered owner, as shown in the Registration Books, shall receive a Note certificate evidencing the obligation of the Issuer to make payments of principal and interest pursuant to this Order. Upon delivery by DTC to the Paying Agent/Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions in this Order with respect to interest checks being mailed to the registered owner at the close of business on the Record Date, the words "Cede & Co." in this Order shall refer to such new nominee of DTC. (f) Successor Securities Depository: Transfers Outside Book -Entry Only Systems. In the event that the Issuer determines that DTC is incapable of discharging its responsibilities described herein and in the representation letter of the Issuer to DTC or that it is in the best interest of the beneficial owners of the Notes that they be able to obtain certificated Notes, the Issuer shall (i) appoint a successor securities depository, qualified to act as such under Section 17(a) of the Securities and Exchange Act of 1934, as amended, notify DTC and DTC Participants of the appointment of such successor securities depository and transfer one or more separate Notes to such successor securities depository or (ii) notify DTC and DTC Participants of the availability through DTC of Notes and transfer one or more separate Notes to DTC Participants having Notes credited to their DTC accounts. In such event, the Notes shall no longer be restricted to being registered in the Registration Books in the name of Cede & Co., as nominee of DTC, but may be registered in the name of the successor securities d osito ep ry, or its nominee, or in whatever name or names registered owners transferring or exchanging Notes shall designate, in accordance with the provisions of this Order. r. (g) Payments to Cede & Co. Notwithstanding any other provision of this Order to the contrary, so long as any Note is registered in the name of Cede & Co., as nominee for DTC, all Y payments with respect to principal of and interest on such Note and all notices with respect to such Note shall be made and given, respectively, in the manner provided in the representation letter of the Issuer to DTC. IN -6- (h) DTC Letter ofRepresentation. The officers of the Issuer are herein authorized for and on behalf of the Issuer and as officers of the Issuer to enter into one or more Letters of Representation with DTC establishing the book -entry only system with respect to the Notes. (i) Delivery of Initial Note. On the closing date, one Initial Note representing the entire principal amount of the respective series of Notes, payable in stated installments to the initial registered owner named in Section 15 of this Order or its designee, executed by manual or facsimile +� signature of the County Judge and County Clerk of the Issuer, approved by the Attomey General of Texas, and registered and manually signed by the Comptroller of Public Accounts of the State of Texas, will be delivered to the initial purchaser or its designee. Upon payment for the Initial Note, the Paying Agent/Registrar shall 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 the Notes, including the form of Paying Agent/Registrar's Authentication Certificate, the form of Assignment, and the form of Registration eer Certificate of the Comptroller of Public Accounts of the State of Texas (to be attached only to the Notes initially issued and delivered pursuant to this Order), shall be, respectively, substantially as follows, with such appropriate variations, omissions, or insertions as are permitted or required by rtr this Order. FORM OF NOTE +rr R- UNITED STATES OF AMERICA PRINCIPAL STATE OF TEXAS AMOUNT KERR COUNTY, TEXAS $ TAX NOTES, SERIES 2010 eer INTEREST RATE MATURITY DATE DATE OF SERIES CUSIP NO. eer % February 15, 20 January 15, 2010 REGISTERED OWNER: er PRINCIPAL AMOUNT: DOLLARS •r ON THE MATURITY DATE specified above, KERR COUNTY, TEXAS (the "Issuer "), being a political subdivision and home -rule municipality of the State of Texas, hereby promises to pay to the Registered Owner specified above, or registered assigns (hereinafter called the "Regis- ,, tered 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 of the series of Notes described above (as shown on the records of the Paying Agent/Registrar described below) at r -7- the Interest Rate per annum specified above, payable on February 15, 2011, and semiannually on each February 15 and August 15 thereafter to the Maturity Date specified above; 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 r 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. w THE PRINCIPAL OF AND 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 at ,., the designated corporate trust or commercial banking office (currently located in Austin, Texas) of WELLS FARGO BANK, N.A., which is the "PayingAgent/Registrar" for this Note. The payment of interest on this Note shall be made by the Paying Agent/Registrar to the Registered Owner hereof tir 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 authorizing the issuance of this Note (the "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, on each such interest payment date, to the Registered Owner hereof, at its address as it appeared on the last business 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 or interest payment date for this Note it will make available to the Paying Agent/Registrar, from the "Interest and Sinking Fund" created by the 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 Paying Agent/Registrar is located 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 rr 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. ur -8 - s s yr THE NOTES ARE NOT SUBJECT TO OPTIONAL OR MANDATORY REDEMPTION PRIOR TO STATED MATURITY. THIS NOTE is one of a series of Notes dated as of January 15, 2010, authorized in 011 accordance with the Constitution and laws of the State of Texas in the aggregate principal amount of $4,350,000 FOR THE PURPOSE OF PAYING COSTS OF ISSUANCE AND CONSTRUCTING AND ACQUIRING VARIOUS "PROJECTS" AS DEFINED AND MORE FULLY DESCRIBED IN THE ORDER, WHICH PROJECTS ARE GENERALLYDESCRIBED AS FOLLOWS: CONSTRUCTING AND EQUIPPING ANEW BUILDING PRIMARILY FOR USE BY THE SHERIFF'S DEPARTMENT AND FOR ADULT PROBATION; CONSTRUCTING A WATER LINE AT THE CITY /COUNTY AIRPORT AND FUNDING A MASTER STUDY FOR THE AIRPORT; CONSTRUCTING REPAIRS AND IMPROVEMENTS TO CERTAIN DAMS; ACQUIRING AND EQUIPPING SHERIFF PATROL CARS; AND me ACQUIRING OTHER VEHICLES AND VARIOUS ITEMS OF EQUIPMENT AND OTHER PERSONAL PROPERTY FOR VARIOUS COUNTY DEPARTMENTS. ALL NOTES OF THIS SERIES are issuable solely as fully registered Notes, without interest coupons, in the denomination of any integral multiple of' $5,000. As provided in the Order, this Note, 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 denomination or denominations in any integral multiple of $5,000 as requested in writing by the appropriate Registered Owner, assignee or assignees, as the case may be, upon surrender of this Note to the Paying Agent/Registrar for cancellation, all in accordance with the form and procedures set forth in the Order. Among other requirements for such assignment and transfer, this Note must be presented and surrendered to the Paying Agent/Registrar, together with proper instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment of this Note or any portion or portions hereof in any integral multiple of $5,000 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 may be executed by the Registered Owner to evidence the assignment hereof, but such method is not exclusive, and other instruments of assignment satisfactory to the Paying Agent/Registrar ma be used to evidence the assignment may gnment of this Note or any portion or portions hereof from time to time by the Registered Owner. The Paying Agent/Registrar's reasonable standard or customary fees and charges for 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 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. WHENEVER THE BENEFICIAL OWNERSHIP of this Note is determined by a book entry at a securities depository for the Notes, the foregoing requirements of holding, delivering or err -9- it 4- sor e transferring this Note shall be modified to require the appropriate person or entity to meet the requirements of the securities depository as to registering or transferring the book entry to produce the same effect. IN THE EVENT' any Paying Agent/Registrarfor the Notes is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the 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. w 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 prescribed by law. THE CITY also has reserved the right to amend the Order as provided therein, and under wY 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. ar BY BECOMING the Registered Owner of this Note, the Registered Owner thereby acknowledges all of the terms and provisions of the Order, agrees to be bound by such terms and provisions, acknowledges that the 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 Order constitute a contract between each Registered Owner hereof and the Issuer. ar 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 the official seal of the Issuer has been duly its impressed, or placed in facsimile, on this Note. Countersigned: (facsimile signature) (facsimile signature) County Clerk, Kerr County, Texas County Judge, Kerr County, Texas (CITY SEAL) r ar -10- FORM OF REGISTRATION CERTIFICATE OF THE COMPTROLLER OF PUBLIC ACCOUNTS: +r COMPTROLLER'S REGISTRATION CERTIFICATE: REGISTER NO. rr 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. +r Witness my signature and seal this (COMPTROLLER'S SEAL) Comptroller of Public Accounts of the State of Texas ■r FORM OF PAYING AGENT /REGISTRAR'S AUTHENTICATION CERTIFICATE PAYING AGENT /REGISTRAR'S AUTHENTICATION 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 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 Attomey General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. y+ Dated WELLS FARGO BANS, N.A. Austin, Texas Paying Agent/Registrar By Wr Authorized Representative ur wr • rr - 11- FORM OF ASSIGNMENT: ASSIGNMENT FOR VALUE RECEIVED, the undersigned Registered Owner of this Note, or duly or authorized representative or attomey thereof, hereby sells, assigns and transfers this Note and all rights hereunder unto (Assignee's Social Security or (Please print or typewrite Assignee's name and address, Taxpayer Identification Number) including zip code) and hereby irrevocably constitutes and appoints attomey to transfer the registration of this Note on the Paying Agent/Registrar's Registration Books irr with full power of substitution in the premises. Dated: Signature Guaranteed: NOTICE: Signature(s) must be guaranteed by NOTICE: The signature above must a member firm of the New York Stock correspond with the name of the Registered Exchange or a commercial bank or trust Owner as it appears upon the front of this company. Note in every particular, without alteration or enlargement or any change whatsoever. INITIAL NOTE INSERTIONS +r The Initial Note shall be in the form set forth above except that: 1. Immediately under the name of the Note, the headings "INTEREST RATE" and a,r "MATURITY DATE" shall be completed with the words "As shown below" and "CUSIP NO. " shall be deleted. 2. The first paragraph shall be deleted and the following shall be inserted: "ON THE RESPECTIVE MATURITY DATES specified below, KERR COUNTY, TEXAS (the "Issuer "), being apolitical subdivision and municipal corporation of the State of Texas, hereby promises to pay to the Registered Owner specified above, or registered assigns (hereinafter called the "Registered Owner "), the respective Principal Installments specified below, and to pay interest thereon (calculated on the basis of a 360 -day year composed of twelve 30 -day months) from the date of initial delivery of the series of Notes described above (as shown on the records of the Paying Agent/Registrar described below) at the respective Interest Rates per annum specified below, Yr -12- ms payable on February 15, 2011, and semiannually on each February 15 and August 15 thereafter to the respective Maturity Dates specified below. The respective Maturity Dates, Principal ,W Installments and Interest Rates for this Note are set forth in the following schedule: IyIATtftit'i`Y IVIhTIS�I7"Y +w+ , TE Pklrrc rn l �r D I aINCIeAI It I`rE u s [Insert principal and interest information from Sections 2 and 3 above]" (C) The Initial Note shall be numbered "T -1." 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 ktio 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 expended 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 .W 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 deposited to the credit of the aforesaid Interest and Sinking Fund. Said ad valorem taxes dr 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. -13- yr 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 2010) Construction Fund (herein called the "Construction Fund'). Proceeds from the sale and delivery of the Notes (other than proceeds representing accrued interest on the Notes and any premium on the Notes that is not used by the Issuer to pay costs of issuance in accordance with the provisions of Section I201.042(d), Texas Government Code, as amended, which shall be deposited in the Interest and Sinking Fund) shall be deposited in 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, including but not limited to costs for construction, engineering, architecture, financing, financial consultants and legal services related to the project being financed with proceeds of the Notes and the issuance of the Notes. All funds remaining on deposit in the Construction Fund upon completion of the projects being financed with the proceeds from the Notes, if any, 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 by applicable law, including but not limited to the Public Funds Investment Act (Chapter 2256, Texas Government Code), and 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 r later than the next principal or interest payment date for which such funds are required, 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 of the 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 ,r 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 13 hereof in order to r prevent the Notes from being arbitrage bonds shall be so rebated and not considered as interest earnings for the purposes of this Section. SECTION 9. EMPOWERED. The County Clerk is hereby ordered to do any and all things necessary to accomplish the transfer of monies to the Interest and Sinking Fund of this issue in ample time to pay such items of principal and interest. rr SECTION 10. DEFEASANCE OF THE NOTES. (a) Defeasance. Any Note and the interest thereon shall be deemed to be paid, retired and no longer outstanding (a "Defeased Note ") 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 in accordance with an escrow agreement or other instrument (the "Future Escrow Agreement ") for such payment mr - 14- (1) lawful money of the United States of America sufficient to make such payment or (2) Defeasance Securities that mature as to principal and interest in such amounts and at such times as will insure the availability, without reinvestment, of sufficient money to provide for such payment, and when proper arrangements have been made by the Issuer with the Paying Agent/Registrar for the payment of its services until 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) JnvestmentofFunds in Defeasance Securities. Any moneys so deposited with the Paying Agent/Registrar may at the written direction of the Issuer be invested in Defeasance Securities, maturing in the amounts and times as hereinbefore set forth, and all income from such Defeasance Securities received by the Paying Agent/Registrar 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 tamed 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) of this Section. All income from such Defeasance Securities received by the Paying Agent/Registrar 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) Definition ofDefeasance Securities. The term "Defeasance Securities" means (i) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (ii) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date of the purchase thereof are rated as to investment quality by anationally 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 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. er (d) Duties of Paving Agent /Registrar. 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 to be Defeased. 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 of Notes by such random method as it deems fair and appropriate. -15- w SECTION 11. DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED r 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, a new note of the 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. (b) 4vplicationfor 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 allote, 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 allote, the registered owner shall fumish 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. Not 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 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 Issuing Replacement 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 es 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 1201, Texas Government Code, as amended, this Section of this Order shall constitute authority for the issuance of any such replacement note without necessity of further action by the goveming body of the Issuer or any other body or person, and the duty of the replacement of such notes is hereby authorized and imposed upon the Paying Agent/Registrar, and the Paying Agent/Registrar shall 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. rr Yr r -16- W r SECTION 12. CUSTODY, APPROVAL, AND REGISTRATION OF THE NOTES; BOND COUNSEL'S OPINION, BOND INSURANCE, AND CUSIP NUMBERS. The County Judge 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 (with an appropriate certificate pertaining thereto executed by facsimile signature of the County Clerk of the Issuer), a statement regarding the issuance of a municipal bond insurance policy to secure payment of debt service on the Notes, if any, and the assigned CUSIP numbers 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 as the convenience and information of the registered owners of the Notes. SECTION 13. COVENANTS REGARDING TAX - EXEMPTION OF INTEREST ON THE NOTES. (a) Covenants. The Issuer covenants to take any action necessary to assure, or 110 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 of the Notes or the projects financed therewith are so used, such amounts, whether or not received by the Issuer, with respect to such private business use, do not, under the terms of this Order or any underlying arrangement, directly or indirectly, secure or provide for the payment of more than 10 percent of the debt service sr 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" r 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 for a "private business use" which is "related" and not "disproportionate," within the meaning of section 141(b)(3) of Code, to the governmental use; (3) to take any action to assure that no amount which is greater than the lesser of $5,000,000, or 5 percent of the proceeds of the 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 govemmental units, in contravention of section 141(c) of the Code; rr -17- rr (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 I41(b) of the Code; rr (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 -- se (A) proceeds of the Notes invested for a reasonable temporary period of three years or less until such proceeds are needed for the purpose for which the Notes are issued, (B) amounts invested in a bona fide debt service fund, within the meaning s of section 1.148 -1(b) of the Treasury Regulations, and (C) amounts deposited in any reasonably required reserve or replacement fund to the extent such amounts do not exceed 10 percent of the proceeds of the Notes; (7) to otherwise restrict the use of the proceeds of the Notes or amounts treated as r r proceeds of the Notes, as may be 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); rr (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(0 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 Eamings under section r 148(0 of the Code; and (9) to assure that the proceeds of the Notes will be used solely for new money e s projects. (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 bondholders. The Rebate Fund is established for the additional purpose of compliance with section 148 of the Code. or -18- �+r WO (c) Proceeds. The Issuer understands that the term "proceeds" includes "dispositi',on proceeds" as defined in the Treasury Regulations and, in the case of refunding bonds, transferred proceeds Of 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 to 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 County Judge, the County Clerk, the County Treasurer and the County Auditor of the Issuer 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. wu (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 (collectively referred to herein as the "Projects ") 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) 'Lite expenditure is made, or (2) the Projects are completed; but in no event later than three years after the date on which the original expenditure is paid. The foregoing notwithstanding, the Issuer w+ 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 (I) the fifth anniversary of the delivery of the Notes, or (2) the date the Notes are retired. The Issuer agrees Wr 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 ft rr obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. (e) Disposition ofProiects. The Issuer covenants that the property constituting the Projects financed or refinanced with the proceeds of the Notes 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 SW 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 is 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 -19- rr .r to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. f Designation as Qualified Tax - Exempt Obligations. The Issuer hereby designates the Notes as "qualified tax- exempt bonds" as defined in section 265(b)(3) of the Code. In furtherance of such designation, the Issuer represents, covenants and warrants the following: (i) that during the calendar year in which the Notes are issued, the Issuer (including any subordinate entities) has not designated nor will designate bonds, which when aggregated with the Notes, will result in more than $30,000,000 of "qualified tax - exempt bonds" being issued; (ii) that the Issuer reasonably anticipates that the amount of tax - exempt obligations issued, during the calendar year in which the Notes are issued, by the Issuer (or any subordinate entities) will not exceed $30,000,000; and (iii) 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. f " SECTION 14. CONTINUING DISCLOSURE UNDERTAKING. (a) Definitions. As used in this Section, the following terms have the meanings ascribed to such terms below: "EMMA" means the Electronic Municipal Market Access system being established by the MSRB. "MSRB" means the Municipal Securities Rulemaking Board. r "Rule" means SEC Rule 15c2 -12, as amended from time to time. • "SEC' means the United States Securities and Exchange Commission. (b) Annual Reports. The Issuer shall provide annually to the MSRB through EMMA within Wr six months after the end of each fiscal year ending in or after 2009, financial information and operating data with respect to the Issuer of the general type included in the final Official Statement authorized by this Order being the information described in Exhibit B hereto. Any financial «r statements so to be provided shall be (1) prepared in accordance with the accounting principles described in Exhibit B hereto, or such other accounting principles as the Issuer may be required to employ from time to time pursuant to state law or regulation, and (2) audited, if the Issuer commissions an audit of such statements and the audit is completed within the period during which they must be provided. If the audit of such financial statements is not complete within such period, then the Issuer shall provide (1) unaudited financial statements for such fiscal year within such six month period, and (2) audited financial statements for the applicable fiscal year to the MSRB through EMMA when and if the audit report on such statements become available. If the Issuer changes its fiscal year, it will notify the MSRB through EMMA of the date of mut the new fiscal year end prior to the next date by which the Issuer otherwise would be required to provide financial information and operating data pursuant to this paragraph (b). -20- 4r it The financial information and operating data to be provided pursuant to this paragraph (b) may be set forth in full in one or more documents or may be included by specific reference to any WO document (including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to the MSRB through EMMA or filed with the SEC. (c) Material Event Notices, The Issuer shall notify the MSRB through EMMA in a timely manner, of any of the following events with respect to the Notes, if such event is material within the meaning of the federal securities laws: rr A. Principal and interest payment delinquencies; B. Non - payment related defaults; tar C. Unscheduled draws on debt service reserves reflecting financial difficulties; °1M D. Unscheduled draws on credit enhancements reflecting financial difficulties; E. Substitution of credit or liquidity providers, or their failure to perform; tr F. Adverse tax opinions or events affecting the tax- exempt status of the Notes; 1101 G. Modifications to rights of holders of the Notes; H. Redemption calls; sr I, Defeasances; wr J. Release, substitution, or sale of property securing repayment of the Notes; and rr K. Rating changes. The Issuer shall notify the MSRB through EMMA, in a timely manner, of any failure by the yr Issuer to provide financial information or operating data in accordance with paragraph (b) of this Section by the time required by such paragraph. r (d) Limitations, Disclaimers, andAmendments. The Issuer shall be obligated to observe and perform the covenants specified in this Section for so long as, but only for so long as, the Issuer remains an 'obligated person" with respect to the Notes within the meaning of the Rule, except that the Issuer in any event will give notice of any deposit made in accordance with Section 10 of this Order that causes Notes no longer to be outstanding. The provisions of this Section are for the sole benefit of the holders and beneficial owners of the Notes, and nothing in this Section, express or implied, shall g p p give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The Issuer undertakes to provide -21- as s only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Section and does not hereby undertake to provide any ,r other information that may be relevant or material to a complete presentation of the Issuer's financial results, condition, or prospects or hereby undertake to update any information provided in accordance with this Section or otherwise, except as expressly provided herein. The Issuer does not se make any representation or warranty conceming such information or its usefulness to a decision 3o invest in or sell Notes at any future date. w UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY NOTE OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS SECTION, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH ini SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. No default by the Issuer in observing or performing its obligations under this Section shall r comprise a breach of or default under this Order for purposes of any other provision of this Order. Nothing in this Section is intended or shall act to disclaim, waive, or otherwise limit the duties of the Issuer under federal and state securities laws. The provisions of this Section may be amended by the Issuer from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change sr in the identity, nature, status, or type of operations of the Issuer, but only if (1) the provisions of this Section, as so amended, would have permitted an underwriter to purchase or sell Notes in the primary offering of the Notes in compliance with the Rule, taking into account any amendments or interpretations of the Rule since such offering as well as such changed circumstances and (2) either (a) the holders of a majority in aggregate principal amount (or any greater amount required by any other provision of this Order that authorizes such an amendment) of the Outstanding Notes consent to such amendment or (b) a person that is unaffiliated with the Issuer (such as nationally recognized bond counsel) determined that such amendment will not materially impair the interest of the holders and beneficial owners of the Notes. The Issuer may also amend or repeal the provisions of this `r continuing disclosure agreement if the SEC amends or repeals the applicable provision of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from Yr lawfully purchasing or selling Notes in the primary offering of the Notes. If the Issuer so amends the provisions of this Section, it shall include with any amended financial information or operating data next provided in accordance with paragraph (b) of this Section an explanation, in narrative form, of the reason for the amendment and of the impact of any change in the type of financial information or operating data so provided. Oki SECTION 15. SALE AND DELIVERY OF THE NOTES. The Notes are hereby initially sold and shall be delivered to SOUTHWEST SECURITIES, INC. (the "Underwriter "), at a price of 54,572,304.30 (which amount is equal to par, plus anet original issue premium of5251,449.30, and -22- rr wr t less Underwriter's discount of 529,145.00), and no accrued interest, all pursuant to the terms and provisions of a Purchase Agreement in substantially the form attached hereto as Exhibit C which the r County Judge of the Issuer is hereby authorized to execute and deliver, and which the County Clerk is hereby authorized to attest. The Issuer will deliver to the Underwriters an Initial Note in the aggregate principal amount of $4,350,000 payable in principal installments on the dates and in the ar principal amounts shown in Section 2 hereof, and bearing interest at the rates for each respective maturity as shown in Section 3 hereof. The Initial Note shall be registered in the name of SOUTHWEST SECURITIES, INC. SECTION 16. APPROVAL OF OFFICIAL STATEMENT. The Issuer hereby approves the form and content of the Official Statement relating to the Notes and any addenda, supplement, or amendment thereto, and approves the distribution of the Official Statement in the reoffering !of the Notes by the Underwriter in final form, with such changes therein or additions thereto as the officer executing the same may deem advisable, such determination to be conclusively evidenced by his execution thereof. The distribution and use of the Preliminary Official Statement for the Notes, dated January 5, 2010, prior to the date hereof is hereby ratified and confirmed. The Commissioners Court finds and determines that the Preliminary Official Statement and the Official Statement were and are "deemed final" as of each of their respective dates within the meaning, and for the purpose, of Rule 15c2 -12 promulgated under authority granted by the Federal Securities and Exchange Act of 1934. SECTION 17. AUTHORITY FOR OFFICERS TO EXECUTE DOCUMENTS AND APPROVE CHANGES. The County Judge, County Clerk, County Auditor, and County Treasurer 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 may be necessary or desirable in order to carry out the terms and provisions of this Order, the Notes, the sale of the Notes, the Official Statement, and the Paying Agent/Registrar Agreement. In addition, prior to the initial delivery of the Notes, the County Judge, County Clerk, as and 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 ur contemplated and approved by this Order and as described in the Official Statement, (ii) obtain', a rating from any of the national bond rating agencies or satisfy any requirements of the provider of a municipal bond insurance policy, if any, or (iii) obtain the approval of the Notes by the Attomey as General's office. 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. The County at Treasurer and the County Auditor 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. -23- sir • W SECTION 18. 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, amend, change, or modify this Order as may be required (1) by the provisions hereof, (ii.) for the purpose of curing any ambiguity, inconsistency, or formal defect or omission herein, or (iii) in connection with any 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, (iii) extend any waiver of default to subsequent defaults, or (iv) reduce the aggregate principal amount ofNotes 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, postage prepaid, to the Registered Owners at the respective YIN 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 of the 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 19. SECURITY INTEREST. Chapter 1208, Texas Government Code, applies to the issuance of the Notes and the pledge of the ad valorem taxes and Surplus Revenues granted by the Issuer under Section 6 of this Order, and is therefore valid, effective, and perfected. If Texas w law is amended at any time while the Notes are outstanding and unpaid such that the pledge of the ad valorem taxes or Surplus Revenues 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 +rr 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 20. REMEDIES IN EVENT OF DEFAULT. In addition to all the rights and remedies provided by the laws of the State of Texas, it is specifically covenanted and agreed particularly that in the event the Issuer (i) defaults in the payment of the principal, premium, if any, or interest on the Notes, (ii) defaults in the deposits and credits required to be made to the Interest • and Sinking Fund, or (iii) defaults in the observance or performance of any other of the covenant, conditions or obligations set forth in this Order and the continuation thereof for 30 days after the Issuer has received written notice of such defaults, the Holders of any of the Notes shall be entitled to seek a writ of mandamus issued by a court of proper jurisdiction compelling and requiring the goveming body of the Issuer and other officers of the Issuer to observe and perform any covenant, condition or obligation prescribed in this Order. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or acquiescence therein, and every such right and power may be exercised from time to time and as often as may be deemed expedient. The specific remedy herein provided shall be cumulative of all other existing remedies, and the specification of such remedy shall not be deemed to be exclusive. SECTION 21. 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, the Underwriter 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 W` be for the sole and exclusive benefit of the Issuer, the Underwriter and the registered owners of the Notes. SECTION 22. 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 2 3. SEVERABILITY. If any provision of this Order or the application thereof to any circumstance shall be held to be invalid, the remainder of this Order and the application thereof to other circumstances shall nevertheless be valid, and this goveming body hereby declares that this Order would have been enacted without such invalid provision. SECTION 24. EFFECTIVE DATE. Pursuant to the provisions of Section 1201.028, Texas Government Code, this Order shall become effective immediately after its adoption by the Commissioners Court. r [The remainder of this page left blank intentionally] rr arY -25- w ■r PASSED AND APPROVED BY THE COMMISSIONERS COURT OFKERR COUNTY, TEXAS AT A REGULAR MEETING ON THE 11 "' DAY OF JANUARY, 2010, AT WHICH MEETING A QUORUM WAS PRESENT. r , udge, Kerr County, Texas ATTEST: ;f Ity Clerk$eir County, Texas Co it, lit L FA (SE10 k 's vim / }Q "+ 9 ooUN'c ** ** ** ** ** r rr s [SIGNATURE PAGE TO NOTE ORDER] lie LYV EXHIBIT A FORM OF PAYING AGENT /REGISTRAR AGREEMENT THE PAYING AGENT /REGISTRAR AGREEMENT IS 0M11 1 ED AT THIS POINT AS IT APPEARS IN EXECUTED FORM ELSEWHERE IN THIS TRANSCRIPT. YW rr tW tYp yy IIW Oil YII 1111 WW EXHIBIT B FORM OF PURCHASE AGREEMENT THE PURCHASE AGREEMENT IS OMITTED AT THIS POINT AS IT APPEARS IN EXECUTED FORM ELSEWHERE IN THIS TRANSCRIPT. rr air sit arr ar it ry s EXHIBIT C it DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Section 14 of this Order. Annual Financial Statements and Operating Data rr The financial information and operating data with respect to the Issuer to be provided annually in accordance with such Section are as specified (and included in the Appendix or under the headings of the Official Statement referred to) below: es 1. The annual audited financial statements of the Issuer or the unaudited financial statements of the Issuer in the event audited financial statements are not completed within six mo months after the end of any fiscal year. 2. All quantitative financial information and operating data with respect to the Issuer of the general type included in the Official Statement under Tables 1 through 7 and 9 through 12. Accounting Principles The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to in paragraph 1 above. W MS ago sib rr rr rr s Kerr County, Texas $4,350,000 Tax Notes, Series 2010 Note Purchase Agreement January 11, 20 )0 THE HONORABLE COUNTY JUDGE AND COMMISSIONERS COURT SS Kerr County 700 Main Street Kerrville, Texas 78028 Wr Ladies and Gentlemen: The undersigned, Southwest Securities, Inc. (the "Underwriter"), acting on its own behalf and W not acting as fiduciary or agent for you, offers to enter into the following agreement (tliis "Agreement") with Kerr County, Texas (the `Issuer ") which, upon the Issuer's written acceptance of this offer, will be binding upon the Issuer and upon the Underwriter. This offer fls 1°6 made subject to the Issuer's written acceptance hereof on or before 11:00 p.m., Kerrville, Texas time, on January 11, 2010, and, if not so accepted, will be subject to withdrawal by the Underwriter upon notice delivered to the Issuer at any time prior to the acceptance hereof by the Issuer. Terms not otherwise defined in this Agreement shall have the same meanings set forth in the Order (as defined herein) or in the Official Statement (as defined herein). +r 1. Purchase and Sale of the Tax Notes. Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein, the Underwriter hereby agrees to purchase from the Issuer, and the Issuer hereby agrees to sell and deliver to the +r+ Underwriter, x11, but not less than all, of the Issuer's $4,350,000 Tax Notes, Series 2010 (ti'e "Notes "). Inasmuch as this purchase and sale represents a negotiated transaction, the Issuer understands, and hereby confirms, that the Underwriter is not acting as a fiduciary of the Issuer, rr but rather is acting solely in its capacity as Underwriter for its own account. The principal amount of the Notes to be issued, the dated date therefor, the maturities, redemption provisions (if any) and interest rates per annum are set forth in Schedule I hereto. The Notes shall be as described in, and shall be issued and secured under and pursuant to the provisions of the Order adopted by the Commissioners Court of the Issuer on January 11, 2010, formally levying an ad valorem tax to secure the Notes (the "Order"), The purchase price for the Notes shall be $4,572,304.30 plus interest accrued on the Notes from the dated date of the Notes to the Closing Date (as hereinafter defined), The premium of $222,304.30 represents an underwriting discount of $29,145.00 and a reoffering premium of $251,449.30. Yr t w Delivered to the Issuer herewith as a good faith deposit is a check payable to the order of the Issuer in clearing house funds in the amount of $45,500.00. In the event you accept this offer, such check shall be held uncashed by you until the time of Closing, at which time such check shall be returned uncashed to the Underwriter. In the event that the Issuer does not accept this Agreement, such check will be immediately returned to the Underwriter. Should the Issuer s„ fail to deliver the Notes at the Closing, or should the Issuer be unable to satisfy the conditions of the obligations of the Underwriter to purchase, accept delivery of and pay for the Notes, as Set forth in this Agreement (unless waived by the Underwriter), or should such obligations of the too Underwriter be terminated for any reason permitted by this Agreement, such check shall immediately be returned to the Underwriter. In the event that the Underwriter fails (other than for a reason permitted hereunder) to purchase, accept delivery of and pay for the Notes at the Closing as herein provided, such check shall be cashed and the amount thereof retained by the Issuer as and for fully liquidated damages for such failure of the Underwriter, and, except as set forth in Sections 8 and 10 hereof, no party shall have any further rights against the other hereunder. The Underwriter and the Issuer understand that in such event the Issuer's actual so damages may be greater or may be less than such amount. Accordingly, the Underwriter hereby waives any right to claim that the Issuer's actual damages are less than such amount, and the Issuer's acceptance of this offer shall constitute a waiver of any right the Issuer may have to additional damages from the Underwriter, 2. Public Offering. The Underwriter agrees to make a bona fide public offering Of all of the Notes at a price not to exceed the public offering price set forth on page ii of the Official Statement and may subsequently change such offering price without any requirement of prior notice. The Underwriter may offer and sell Notes to certain dealers (including dealers { 0 depositing Notes into investment trusts) and others at prices lower than the public offering price stated on the cover of the Official Statement. Wr 3. The Official Statement. (a) Attached hereto as Exhibit A is either a draft of the final Officihl , Statement or a copy of the Preliminary Official Statement (as amended) dated January 5, 2010 (the Preliminary Official Statement "), including the cover page add Appendices thereto, of the Issuer relating to the Notes. Such draft of the final Official Statement or copy of the Preliminary Official Statement, as amended to reflect the es changes marked or otherwise indicated on Exhibit A hereto, is hereinafter called the "Official Statement." (b) The Preliminary Official Statement has been prepared for use in connection with the public offering, sale and distribution of the Notes by the Underwriter. The Issuer hereby represents and warrants that the Preliminary Official Statement was W deemed final by the Issuer as of its date, except for the omission of such information which is dependent upon the final pricing of the Notes for completion, all as permitted to be excluded by Section (b)(1) of Rule 15c2 -12 under the Securities Exchange Act of 1934 (the "Rule"). (c) The Issuer hereby authorizes the Official Statement and the information r++ therein contained to be used by the Underwriter in connection with the public offering 2 it w tas and the sale of the Notes. The Issuer consents to the use by the Underwriter prior to the date hereof of the Preliminary Official Statement in connection with the public offering ar of the Notes. The Issuer shall provide, or cause to be provided, to the Underwriter as soon as practicable after the date of the Issuer's acceptance of this Agreement (but, in any event, not later than within seven business days after the Issuer's acceptance of this o Agreement and in sufficient time to accompany any confirmation that requests payment from any customer) copies of the Official Statement which is complete as of the date of its delivery to the Underwriter in such quantity as the Underwriter shall request in order for the Underwriter to comply with Section (b)(4) of the Rule and the rules of the Municipal Securities Rulemaking Board. (d) If, after the date of this Agreement to and including the date the Underwriter is no longer required to provide an Official Statement to potential customers who request the same pursuant to the Rule (the earlier of (i) 90 days from the "end of the underwriting period" (as defined in the Rule) and (ii) the time when the Official Statement is available to any person from a nationally recognized municipal securities repository, but in no case less than 25 days after the "end of the underwriting period" for the Notes), the Issuer becomes aware of any fact or event which might or would cause the cis Official Statement, as then supplemented or amended, to contain any untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or if it is necessary to amend or supplement the Official Statement to comply with law, the Issuer will notify the Underwriter (and for the purposes of this clause provide the Underwriter with such information as it may from time to time r request), and if in the opinion of the Underwriter, such fact or event requires preparation and publication of a supplement or amendment to the Official Statement, the Issuer will forthwith prepare and furnish, at the Issuer's own expense (in a form and manner approved by the Underwriter), a reasonable number of copies of either amendments or supplements to the Official Statement so that the statements in the Official Statement as so amended and supplemented will not contain any untrue statement of a material fact pr Yr omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, nbt misleading or so that the Official Statement will comply with law. If such notification shall be subsequent to the Closing, the Issuer shall furnish such legal opinions, Notes, instruments and other documents as the Underwriter may deem necessary to evidence the truth and accuracy of such supplement or amendment to the Official Statement. (e) The Underwriter hereby agrees to file the Official Statement with a nationally recognized municipal securities information repository. Unless otherwise notified in writing by the Underwriter, the Issuer can assume that the "end of the underwriting period" for purposes of the Rule is the date of the Closing. 4. Representations, Warranties and Covenants of the Issuer. The Issuer hereby represents and warrants to and covenants with the Underwriter that: (a) The Issuer is a duly organized county and a political subdivision of the State of Texas (the "State"), and has full legal right, power and authority under Chapter -3- we 1431, Texas Government Code (the "Act'), and at the date of the Closing will have foal legal right, power and authority under the Act and the Order (i) to enter into, execute and deliver this Agreement, the Order and all documents required hereunder and thereunder to be executed and delivered by the Issuer (this Agreement, the Order and the other documents referred to in this clause (i) are hereinafter referred to as the Issuer as Documents "), (ii) to sell, issue and deliver the Notes to the Underwriter as provided herein, and (iii) to carry out and consummate the transactions contemplated by the Issuer Documents and the Official Statement and (iv) to utilize the proceeds from the sale of the or Notes for the purposes described in the Official Statement, and the Issuer has complied, and will at the Closing be in compliance in all respects, with the terms of the Act and the Issuer ISocuments as they pertain to such transactions; (b) By all necessary official action of the Issuer prior to or concurrently with the acceptance hereof, the Issuer has duly authorized all necessary action to be taken by it for (i) the adoption of the Order and the issuance and sale of the Notes, (ii) the approval, as execution and delivery of, and the performance by the Issuer of the obligations on it's part, contained in the Notes and the Issuer Documents and (iii) the consummation by it of all other transactions contemplated by the Official Statement, the Issuer Documents and any and all such other agreements and documents as may be required to be executed, delivered and/or received by the Issuer in order to carry out, give effect to, and consummate the transactions contemplated herein and in the Official Statement; r (c) The Issuer Documents constitute legal, valid and binding Notes of the Issuer, enforceable against the Issuer in accordance with their respective terms, subject tq bankruptcy, insolvency, reorganization, moratorium and other similar laws and principles of equity relating to or affecting the enforcement of creditors' rights; the Notes, when issued, delivered and paid for, in accordance with the Order and this Agreement, will w constitute legal, valid and binding obligations of the Issuer entitled to the benefits of tht Order and enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws and principles of equity relating to or rr affecting the enforcement of creditors' rights; upon the issuance, authentication and delivery of the Notes as aforesaid, the Order will provide, for the benefit of the holders, from time to time, of the Notes, the legally valid and binding pledge of and lien Lt purports to create as set forth in the Order; (d) The Issuer is not in breach of or default in any material respect under any applicable constitutional provision, law or administrative regulation of the State or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Issuer is a party or to which the Issuer is otherwise subject, and no event has occurred and is continuing which constitutes or with the passage of time or the giving of notice, or both, would constitute a default or event of default by the Issuer under any of the foregoing; and the execution and delivery of the Notes, the Issuer Documents and the adoption of the Order and compliance with the provisions on the Issuer's part contained therein, will not conflict with or constitute a breach of or default under any constitutional provision, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, sir 4 +ur r e agreement or other instrument to which the Issuer is a party or to which the Issuer is otherwise subject or under the terms of any such law, regulation or instrument, except as ar provided by the Notes and the Order; (e) All authorizations, approvals, licenses, permits, consents and orders of any governmental authority, legislative body, board, agency or commission having jurisdiction of the matter which are required for the due authorization of which would constitute a condition precedent to, or the absence of which would materially adversely affect the due performance by the Issuer of its obligations under the Issuer Documents and the Notes have been duly obtained, except for such approvals, consents and orders as may be required under the Blue Sky or securities laws of any jurisdiction in connection with the offering and sale of the Bonds; (f) The Notes and the Order conform to the descriptions thereof contained in the Official Statement under the captions "Selected Data From the Official Statement" and "The Notes "; and the proceeds of the sale of the Notes will be applied generally as described in the Official Statement under the captions "Selected Data From the Official Statement —Use of Proceeds" and "The Notes — Purpose." (g) There is no legislation, action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, AO pending or, to the best knowledge of the Issuer after due inquiry, threatened against the Issuer, affecting the existence of the Issuer or the titles of its officers to their respective offices, or affecting or seeking to prohibit, restrain or enjoin the sale, issuance or delivery of the Notes, the collection of ad valorem taxes pursuant to the Order or in any way contesting or affecting the validity or enforceability of the Notes, the Issuer Documents, or contesting the exclusion from gross income of interest on the Notes for federal income r tax purposes, or contesting in any way the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto, or contesting the powers of the Issuer or any authority for the issuance of the Notes, the adoption of the Order or the execution and delivery of the Issuer Documents, nor, to the best knowledge of the Issuer, is there any basis therefor, wherein an unfavorable decision, ruling or finding would materially adversely affect the validity or enforceability of the Notes or the Issuer Documents; (h) As of the date thereof, the Preliminary Official Statement did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (i) At the time of the Issuer's acceptance hereof and (unless the Official Statement is amended or supplemented pursuant to paragraph (d) of Section 3 of this Agreement) at all times subsequent thereto during the period up to and including the date of Closing, the Official Statement does not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; -5- (j) If the Official Statement is supplemented or amended pursuant to paragraph (d) of Section 3 of this Agreement, at the time of each supplement or ;W amendment thereto and (unless subsequently again supplemented or amended pursuant to such paragraph) at all times subsequent thereto during the period up to and including the date of Closing the Official Statement as so supplemented or amended will not contain i any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which made, not misleading; +r (k) The Issuer will apply, or cause to be applied, the proceeds from the sale of the Notes as provided in and subject to all of the terms and provisions of the Order and not to take or omit to take any action which action or omission will adversely affect the exclusion from gross income for federal income tax purposes of the interest on the Notes; (1) The Issuer will furnish such information and execute such instruments and "" take such action in cooperation with the Underwriter as the Underwriter may reasonably request (A) to (y) qualify the Notes for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions in the United States as the Underwriter may designate and (z) determine the eligibility of the Notes for investment under the laws of such states and other jurisdictions and (B) to continue such qualifications in effect so long as required for the distribution of the Notes (provided, "r' however, that the Issuer will not be required to qualify as a foreign corporation or to file any general or special consents to service of process under the laws of any jurisdiction) and will advise the Underwriter immediately of receipt by the Issuer of any notification with respect to the suspension of the qualification of the Notes for sale in any jurisdiction or the initiation or threat of any proceeding for that purpose; r (m) The financial statements of, and other financial information regarding the Issuer, in the Official Statement fairly present the financial position and results of the Issuer as of the dates and for the periods therein set forth. Prior to the Closing, the Issuer r will not take any action within or under its control that will cause any adverse change of a material nature in such financial position, results of operations or condition, financial or otherwise, of the Issuer. Except as disclosed in the Official Statement, the Issuer is not a a party to any litigation or other proceeding pending or, to its knowledge, threatened which, if decided adversely to the Issuer, would have a materially adverse effect on the financial condition of the Issuer; rr (n) Prior to the Closing the Issuer will not offer or issue any bonds, notes or other obligations for borrowed money or incur any material liabilities, direct or contingent, payable from or secured by ad valorem taxes, without the prior approval of the Underwriter; (o) Any Note, signed by any official of the Issuer authorized to do so in connection with the transactions contemplated by this Agreement, shall be deemed a representation and warranty by the Issuer to the Underwriter as to the statements made therein; and rr -6- W. (p) The Issuer has complied with all previous undertakings required pursuant to the Rule. ar 5. Closing. (a) At 9:00 a.m. Dallas, Texas time, on February 9, 2010, or at such other or time and date as shall have been mutually agreed upon by the Issuer and the Underwriter (the "Closing "), the Issuer will, subject to the terms and conditions hereof, deliver the Notes to the Underwriter duly executed and authenticated, together with the other documents hereinafter mentioned, and the Underwriter will, subject to the terms and conditions hereof, accept such delivery and pay the purchase price of the Notes as set forth in Section 1 of this Agreement by a certified or bank cashier's check or checks or wire transfer payable in immediately available funds to the order of the Issuer, as shall be determined by the Issuer. Payment for the Notes as aforesaid shall be made at the offices of Paying Agent/Registrar, or such other place as shall have been mutually agreed upon by the Issuer and the Underwriter. (b) Delivery of the Notes shall be made to The Depository Trust Company, New York, New York. The Notes shall be delivered in definitive fully registered form, bearing CUSIP numbers without coupons, with one Note for each maturity of the Notes, registered in the name of Cede & Co., all as provided in the Order. 6. Closing Conditions. The Underwriter has entered into this Agreement in reliance upon the representations, warranties and agreements of the Issuer contained herein, and in reliance upon the representations, warranties and agreements to be contained in the documents and instruments to be delivered at the Closing and upon the performance by the Issuer of its obligations hereunder, both as of the date hereof and as of the date of the Closing. Accordingly, the Underwriter's obligations under this Agreement to purchase, to accept delivery of and to pay for the Notes shall be conditioned upon the performance by the Issuer of its obligations to be performed hereunder and under such documents and instruments at or prior to the Closing, and or shall also be subject to the following additional conditions, including the delivery by the Issuer of such documents as are enumerated herein, in form and substance reasonably satisfactory to the Underwriter: (a) The representations and warranties of the Issuer contained herein shall be true, complete and correct on the date hereof and on and as of the date of the Closing, as if made on the date of the Closing; (b) The Issuer shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing; (c) At the time of the Closing, (1) the Issuer Documents and the Notes shall it be in full force and effect in the form heretofore approved by the Underwriter and shall not have been amended, modified or supplemented, and the Official Statement shall not have been supplemented or amended, except in any such case as may have been agreed to as 7_ ar rtr by the Underwriter; and (ii) all actions of the Issuer required to be taken by the Issuer shall be performed in order for Bond Counsel to deliver its opinions referred to hereafter; r (d) At the time of the Closing, all official action of the Issuer relating to the Notes and the Issuer Documents shall be in full force and effect and shall not have been amended, modified or supplemented; (e) At or prior to the Closing, the Order shall have been duly executed and delivered by the Issuer and the Issuer shall have duly executed and delivered and the Registrar shall have duly authenticated the Notes; (f) At the time of the Closing, there shall not have occurred any change or any development involving a prospective change in the condition, financial or otherwise, or in the revenues or operations of the Issuer, from that set forth in the Official Statement that in the reasonable judgment of the Underwriter, is material and adverse and that - makes it, in the reasonable judgment of the Underwriter, impracticable to market the Bonds on the terms and in the manner contemplated in the Official Statement; (g) The Issuer shall not have failed to pay principal or interest when due on any of its outstanding Notes for borrowed money; .r (h) All steps to be taken and all instruments and other documents to be executed, and all other legal matters in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in legal form and effect to the Underwriter; (i) At or prior to the Closing, the Underwriter shall have received copies of each of the following documents: (1) the Official Statement, and each supplement or amendment thereto, if any, executed on behalf of the Issuer by its County Judge and County Clerk; it (2) the Order with such supplements or amendments as may have been agreed to by the Underwriter; r (3) the approving opinion of Bond Counsel with respect to the Notes, in substantially the form attached to the Official Statement ; (4) a supplemental opinion of Bond Counsel addressed to the Underwriter, substantially to the effect that: rr (i) the Order has been duly adopted and is in full force and effect; (ii) the Notes are exempted securities under the Securities Act of 1933, as amended (the `1933 Act "), and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act ") and it is not necessary, in us connection with the offering and sale of the Notes, to register the Notes • 8- as under the 1933 Act or to qualify the Order under the Trust Indenture Act; and (iii) the statements and information contained in the Official Statement under the captions "THE NOTES" (except for the information under the caption "Defaults and Remedies," as to which no view need be expressed), "REGISTRATION, TRANSFER AND EXCHANGE," "LEGAL MATTERS," "TAX MATTERS," "CONTINUING DISCLOSURE OF INFORMATION" (except for the information under the caption "Compliance with Prior Agreements" as to which no view need be expressed), "OTHER PERTINENT INFORMATION— Registration and Qualification of Notes For Sale," and "OTHER PERTINENT INFORMATION —The Notes as Legal Investments In Texas" fairly and accurately summarized the matters purported to be summarized therein; r (5) Opinions, dated the date of the Closing and addressed to the Underwriter, of counsel for the Underwriter, to the effect that: (i) the Notes are exempt securities under the 1933 Act and the Trust Indenture Act and it is not necessary, in connection with the offering Si and sale of the Notes, to register the Notes under the 1933 Act and the Order need not be qualified under the Trust Indenture Act; and (ii) based upon their participation in the preparation of the Official Statement as counsel for the Underwriter and their participation at conferences at which the Official Statement was discussed, but without having undertaken to determine independently the accuracy, completeness or fairness of the statements contained in the Official Statement, such counsel has no reason to believe that the Official Statement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except for any financial, r forecast, technical and statistical statements and data included in the Official Statement and the information regarding the Depository and its book -entry system, in each case as to which no view need be expressed); r. (6) A certificate, dated the date of Closing, of the County Judge of the Issuer to the effect that (i) the representations and warranties of the Issuer contained herein are true and correct in all material respects on and as of the date W' of Closing as if made on the date of Closing; (ii) no litigation or proceeding against it is pending or, to its knowledge, threatened in any court or administrative body nor is there a basis for litigation which would (a) contest the right of the members or officials of the Issuer to hold and exercise their respective positions, (b) contest the due organization and valid existence of the Issuer, (c) contest the validity, due authorization and execution of the Notes or the Issuer Documents or (d) attempt to limit, enjoin or otherwise restrict or prevent the Issuer from -9- es functioning and collecting revenues, including payments on the Notes, pursuant to the Order, and other income or the levy or collection of the taxes pledged or to be pledged to pay the principal of and interest on the Notes, or the pledge thereof; (iii) the Order has been duly adopted by the Issuer, is in full force and effect and has not been modified, amended or repealed, and (iv) to the best of his Vie knowledge, no event affecting the Issuer has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information , therein, in light of the circumstances under which made, not misleading in any material respect as of the time of Closing, and the information contained in the Official Statement is correct in all material respects and, as of the date of the Official Statement did not, and as of the date of the Closing does not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they sr were made, not misleading; (7) A certificate of the Issuer in form and substance satisfactory to Bond Counsel and counsel to the Underwriter (a) setting forth the facts, estimates and circumstances in existence on the date of the Closing, which establish that it is not expected that the proceeds of the Notes will be used in a manner that would cause the Notes to be "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), and any applicable regulations (whether final, temporary or proposed), issued pursuant to the Code, w and (b) certifying that to the best of the knowledge and belief of the Issuer there are no other facts, estimates or circumstances that would materially change the conclusions, representations and expectations contained in such Note; (8) Any other certificates and opinions required by the Order for the issuance thereunder of the Notes; (9) Evidence satisfactory to the Underwriter that the Notes have been rated "AA-" by Standard & Poor's Ratings Services, a Division of The McGraw- Hill Companies, Inc. and that such rating is in effect as of the date of Closing; and (10) Such additional legal opinions, Notes, instruments and other documents as the Underwriter or counsel to the Underwriter may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the date of the Closing, of the Issuer's representations and warranties contained herein and of the statements and information contained in the Official Statement and the due performance or satisfaction by the Issuer on or prior to the date of the Closing of all the respective agreements then to be performed and conditions then to be satisfied by the Issuer. wr All of the opinions, letters, certificates, instruments and other documents mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof if, but only if, they are in form and substance satisfactory to Bond Counsel and the Underwriter. -10- �ri Wr s If the Issuer shall be unable to satisfy the conditions to the obligations of the Underwriter to purchase, to accept delivery of and to pay for the Notes contained in this Agreement, or if the obligations of the Underwriter to purchase, to accept delivery of and to pay for the Notes shall be terminated for any reason permitted by this Agreement, this Agreement shall terminate and neither the Underwriter nor the Issuer shall be under any further obligation hereunder, except that the respective obligations of the Issuer and the Underwriter set forth in Sections 4 and 8 hereof shall continue in full force and effect. 7. Termination. The Underwriter shall have the right to cancel its obligation to ais purchase the Notes i1; between the date of this Agreement and the Closing, the market price or marketability of the Notes shall be materially adversely affected, in the sole judgment of the Underwriter, reasonably exercised, by the occurrence of any of the following: (a) legislation shall be enacted by or introduced in the Congress of the United States or recommended to the Congress for passage by the President of the United States, or the Treasury Department of the United States or the Internal Revenue Service or any member of the Congress or the State legislature or favorably reported for passage to either House of the Congress by any committee of such House to which such legislation has been referred for consideration, a decision by a court of the United States or of the State or the United States Tax Court shall be rendered, or an order, ruling, regulation (final, temporary or proposed), press release, statement or other form of notice by or on behalf of the Treasury Department of the United States, the Internal Revenue Service or other governmental agency shall be made or proposed, the effect of any or all of which would be to impose, directly or indirectly, federal income taxation upon revenues or other +is income of the general character to be derived by the Issuer pursuant to the Order, or upon interest received on obligations of the general character of the Notes of the interest on the Notes as described in the Official Statement, or other action or events shall have w transpired which may have the purpose or effect, directly or indirectly, of changing the federal income tax consequences of any of the transactions contemplated herein; ;y (b) legislation introduced in or enacted (or resolution passed) by the Congress or an order, decree, or injunction issued by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary, or proposed), press release or other form of notice issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Notes, including any or all underlying arrangements, are not exempt from registration under or other requirements of the 1933 Act, or that the Order is not exempt from qualification under or other requirements of the Trust Indenture Act, or that the issuance, offering, or sale of obligations of the general character of the Notes, including any or all underlying arrangements, as contemplated hereby or by the Official Statement or otherwise, is or would be in violation of the federal securities law as amended and then in effect; (c) any state blue sky or securities commission or other governmental agency or body shall have withheld registration, exemption or clearance of the offering of the Notes as described herein, or issued a stop order or similar ruling relating thereto; -11- rr s (d) a general suspension of trading in securities on the New York Stock Exchange or the American Stock Exchange, the establishment of minimum prices on either such exchange, the establishment of material restrictions (not in force as of the date hereof) upon trading securities generally by any governmental authority or any national securities exchange, a general banking moratorium declared by federal, State of New York, or State officials authorized to do so; (e) the New York Stock Exchange or other national securities exchange or any governmental authority, shall impose, as to the Notes or as to obligations of the general character of the Notes, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of, the Underwriter; (f) any amendment to the federal or state Constitution or action by any federal or state court, legislative body, regulatory body, or other authority materially adversely affecting the tax status of the Issuer, its property, income securities (or interest thereon), or the validity or enforceability of the assessments or the levy of taxes to pay principal of and interest on the Notes; rr (g) any event occurring, or information becoming known which, in the reasonable judgment of the Underwriter, makes untrue in any material respect any statement or information contained in the Official Statement, or has the effect that the Official Statement contains any untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (h) there shall have occurred since the date of this Agreement any materially adverse change in the affairs or financial condition of the Issuer; isio (i) the United States shall have become engaged in hostilities which have resulted in a declaration of war or a national emergency or there shall have occurred any other outbreak or escalation of hostilities or a national or international calamity or crisis, financial or otherwise; rr Q) any fact or event shall exist or have existed that, in the Underwriter's reasonable judgment, requires or has required an amendment of or supplement to the Official Statement; (k) there shall have occurred any downgrading, or any notice shall have been given of (A) any intended or potential downgrading or (B) any review or possible change wr that does not indicate a possible upgrade, in the rating accorded any of the Issuer's obligations (including the rating to be accorded the Notes); (1) the purchase of and payment for the Notes by the Underwriter, or the resale of the Notes by the Underwriter, on the terms and conditions herein provided shall be prohibited by any applicable law, governmental authority, board, agency or commission and such prohibition is not the result of the Underwriter's acts or failures to -12- Wr tap act, which acts or failure to act are not in accordance with the terms of this Agreement; and (m) a material disruption in commercial banking or securities settlement or clearance services shall have occurred. 8. Expenses. (a) The Underwriter shall be under no obligation to pay, and the Issuer shall pay, any expenses incident to the performance of the Issuer' s obligations hereunder, including, but not limited to (i) the cost of preparation and printing of the Notes; (ii) the fees and disbursements of Bond Counsel; (iii) the fees and disbursements of the Financial Advisor to the Issuer; (iv) the fees and disbursements of any other engineers, accountants, and other experts, consultants or advisers retained by the Issuer; and (v) the fees for bond ratings and bond insurance fees or premiums (if any). r (b) The Underwriter shall pay (i) the cost of preparation and printing of this Agreement, the Blue Sky Survey (if any) and Legal Investment Memorandum (if any); es (ii) all advertising expenses in connection with the public offering of the Notes; and (iii) all other expenses incurred by them in connection with the public offering of the Notes, including the fees and disbursements of counsel retained by the Underwriter. to 9. Notices. Any notice or other communication to be given to the Issuer under this Agreement may be given by delivering the same in writing at Kerr County, Texas, 700 Main ,W Street, Kerrville, Texas 78028, Attention: County Judge, and any notice or other communication to be given to the Underwriter under this Agreement may be given by delivering the same in writing to Southwest Securities, Inc., 1201 Elm Street, Suite 3500, Dallas, Texas 75270 Attention: Michael Wadsworth. 10. Parties in Interest. This Agreement as heretofore specified shall constitute the entire agreement between us and is made solely for the benefit of the Issuer and the Underwriter (including successors or assigns of the Underwriter) and no other person shall acquire or have any right hereunder or by virtue hereof. This Agreement may not be assigned by the Issuer. All of the Issuer's representations, warranties and agreements contained in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigations made by or on behalf of the Underwriter; (ii) delivery of and payment for the Notes pursuant to this Agreement; and (iii) any termination of this Agreement. 11. Effectiveness. This Agreement shall become effective upon the acceptance hereof by the Issuer and shall be valid and enforceable at the time of such acceptance. Wr 12. Choice of Law. This Agreement shall be governed by and construed in accordance with the law of the State. 13. Severability. If any provision of this Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any WIN jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provisions of any -13- Constitution, statute, rule of public policy, or any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any Yr other case or circumstance, or of rendering any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatever. Wr 14. Business Day. For purposes of this Agreement, "business day" means any day on which the New York Stock Exchange is open for trading. 15. Section Headings. Section headings have been inserted in this Agreement as a as matter of convenience of reference only, and it is agreed that such section headings are not a part of this Agreement and will not be used in the interpretation of any provisions of this Agreement. 16. Counterparts. This Agreement may be executed in several counterparts each of which shall be regarded as an original (with the same effect as if the signatures thereto and hereto were upon the same document) and all of which shall constitute one and the same a s document. [remainder of page intentionally left blank] as rr or -14- rr If you agree with the foregoing, please sign the enclosed counterpart of this Agreement and return it to the Underwriter. This Agreement shall become a binding agreement between you and the Underwriter when at least the counterpart of this letter shall have been signed by or on behalf of each of the parties hereto. Very truly yours, cur SOUTHWEST SECURITIF C. i t Byflf Cb � / .i ✓ ff Authorized Officer Accepted and agreed to the date first set forth above at a :Sp.m. KERR COUNTY, TEXAS By :a tig • . y udge ar ■r Kerr County, Texas Tax Notes, Series 2010 Signature Page as Schedule I The Notes are dated January 15, 2010 is MATURITY SCHEDULE FOR THE NOTES Feb. 15 of Principal Price or The Year Amount Rate Yield 2011 $ 65,000 3.00% 0.85% 2012 425,000 3.00 1.16 2013 410,000 3.00 1.44 2014 1,080,000 4.00 1.84 2015 1,155,000 3.50 2.24 2016 1,215,000 3.50 2.65 The Notes are not subject to redemption prior to stated maturity. .W s rr wr t. EXHIBIT A [Attach Official Statement] t. The Official Statement is omitted at this point as it appears elsewhere in this Transcript of rt Proceedings. s a it s wr rr w DAL :0587633/00031 1905974v1 vie us NEW ISSUE OFFICIAL STATEMENT Ratings: 300K-ENTRY-ONLY January 11, 2010 S &P: "AA (See "OTHER PERTINENT INFORMATION Ratings" and herein) In the opinion of Bond Counsel, interest on the Notes will be excludable from gross income for federal income tax purposes under statutes, regulations, published rulings and court decisions existing on the date thereof subject to the matters described under "TAX MA TTERS" herein. ltt THE COUNTY HAS DESIGNATED THE NOTES AS "QUALIFIED TAX - EXEMPT OBLIGATIONS" FOR PURPOSES OF THE CALCULATION OF INTEREST EXPENSE BY FINANCIAL INSTITUTIONS WHICH MAY OWN THE NOTES $4,350,000 KERR COUNTY, TEXAS TAX NOTES, SERIES 2010 'Dated Date: January 15, 2010 Due: February 15, as shown on inside cover rincipal of the $4,350,000 Kerr County, Texas Tax Notes, Series 2010 (the "Notes "), is payable to the registered owner upon presentation at maturity at the designated office of the paying agent/registrar (the "Paying Agent/Registrar "), initially Wells Fargo Bank, N.A., Austin, Texas. The Notes will be issued in denominations of $5,000 or integral multiples thereof within a maturity. Interest on the Notes will accrue from the dated late shown above and will be payable February 15 and August 15 of each year, commencing February 15, 2011, calculated on the basis of a 360- *Ray year consisting of twelve 30 -day months, to the registered owner appearing on the registration records of the Paying Agent/Registrar on the "Record Date" (hereinafter defined). Kerr County, Texas (the "County") intends to utilize the Book - Entry-Only System of The Depository Trust Company, New York, New York ( "DTC ") but reserves the right on its behalf or on behalf of DTC to discontinue such system. Such Book -Entry- Dnly System will affect the method and timing of payment and the method of transfer of the Notes (see "BOOK- ENTRY -ONLY SYSTEM "). sY MATURITY SCHEDULE (SEE INSIDE COVER PAGE) * REDEMPTION: The Notes are not subject to redemption prior to stated maturity. AUTHORITY FOR ISSUANCE: The Notes are issued pursuant to the Constitution and general laws of the State of Texas (the "State "), s particularly Chapter 1431, Texas Government Code, as amended, and constitute direct obligations of the County, payable from a continuing direct annual ad valorem tax levied on all taxable property within the County, within the limits prescribed by law, as provided in the order authorizing the Notes (the "Order ") (see "THE NOTES — Authority for Issuance "). PURPOSE: Proceeds from the sale of the Notes will be used to construct and equip a new building primarily for use by the Sheriffs Department and for adult probation; construct a water line at the City/County airport and fund a master study for the airport; construct repairs and improvements to certain dams; acquire and equip Sheriff patrol cars; acquire other vehicles and various items of equipment and other personal property for various County departments; and pay costs of issuance (see "THE NOTES - Purpose "). tW SECURITY FOR PAYMENT: All taxable property within the County is subject to a continuing direct annual ad valorem tax levied by the County sufficient to provide for the payment of principal and interest on the Notes, within the limits prescribed by law, as provided in the Order. The Notes are payable from the County's 50.80 limited ad valorem tax rate authorized under Article VIII, Section 9, of the Texas Constitution. See "AD *VALOREM TAXATION" herein. Administratively, the Attorney General of the State of Texas will permit allocation of $0.40 of the 50.80 constitutional tax rate for debt service on obligations such as the Notes. SThe Notes are offered for delivery when, as and if issued and received by the Underwriter and subject to the approving opinion of the Attorney General of the State of Texas and the approval of certain legal matters by McCall, Parkhurst & Horton L.L.P., Bond Counsel, San Antonio, Texas. (See "LEGAL MATTERS" herein for a discussion of Bond Counsel's opinion) Certain legal matters also will be passed upon for the Underwriter by Locke Lord Bissell & Liddell LLP, Dallas, Texas. It is expected the Notes will be available for delivery through the services of DTC on or about February 9, 2010. r SOUTHWEST SECURITIES it s MATURITY SCHEDULE 2 $4,350,000 1 KERR COUNTY, TEXAS TAX NOTES, SERIES 2010 CUSIP Prefix: 492350 Maturity Date Principal Interest CUSIP No. 1 2/15 Amount Rate Yield Suffix (I) 2011 $ 65,000 3.00% 0.85% CK7 2012 425,000 3.00 1.16 CL5 2013 410,000 3.00 1.44 CM3 2014 1,080,000 4.00 1.84 CN1 2015 1,155,000 3.50 2.24 CP6 2016 1,215,000 3.50 2.65 CQ4 (I) CUSIP cambers have been assigned to the Notes by Standard & Poor's CUSIP Service Bureau, a Division of The McGraw -Hill Companies, Inc, and are included solely for the convenience of owners of the Notes. None of the County, the Financial Advisor, or the Underwriter shall be responsible for the selection or correctness of the CUSIP numbers set forth herein. a IsE's iI Aas 1 sea Ili ri P45 s or 11 KERR COUNTY, TEXAS sr 700 East Main Street Kerrville, Texas 78028 S COMMISSIONERS COURT Pat Tinley County Judge H.A. "Buster" Baldwin Jonathan Letz Commissioner, Precinct I Commissioner, Precinct 3 William `Bill" Williams Bruce Oehler Commissioner, Precinct 2 Commissioner, Precinct 4 fi ADMINISTRATION Jeannie Hargis County Auditor Mindy Williams County Treasurer Jannett Pieper County Clerk Diane Bolin Tax Assessor - Collector Sri CONSULTANTS AND ADVISORS Certified Public Accountants Neffendorf, Knopp, Doss & Company , P.C. Fredericksburg, Texas Bond Counsel McCall, Parkhurst & Horton L.L.P. San Antonio, Texas ter Financial Advisor RBC Capital Markets Corporation San Antonio, Texas FOR MORE INFORMATION CONTACT: Pat Tinley Robert V. Henderson County Judge R. Dustin Traylor Kerr County, Texas RBC Capital Markets Corporation 700 East Main Street 153 Treeline Park, Suite 100 Kerrville, TX 78028 San Antonio, TX 78209 (830) 792 -2211 (210) 805 -1118 i rr s USE OF INFORMATION IN OFFICIAL STATEMENT No dealer, broker, salesman, or other person has been authorized to give any information, or to make any representation other than i those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the County. This Official Statement is not to be used in connection with an offer to sell or the solicitation ... of an offer to buy in any state in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such offer or solicitation. r THE UNDERWRITER HAS PROVIDED THE FOLLOWING SENTENCE FOR INCLUSION IN THIS OFFICIAL STATEMENT. THE UNDERWRITER HAS REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH ITS RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS TRANSACTION, BUT THE UNDERWRITER DOES NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. THE NOTES ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE NOTES IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE .JURISDICTIONS IN WHICH THESE SECURITIES HAVE BEEN REGISTERED, QUALIFIED, OR EXEMPTED SHOULD NOT BE REGARDED AS A s RECOMMENDATION THEREOF. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER -ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A LEVEL ABOVE THAT WHICH MIGHT PREVAIL IN fly THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. Certain information set forth herein has been provided by sources other than the County that the County believes are reliable, but the County makes no representation as to the accuracy of such information. Any information and expressions of opinion herein contained WI are subject to change without notice, and neither the delivery of the Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the County or other matters described herein since the date hereof. See "CONTINUING DISCLOSURE OF INFORMATION" for a description of the County's undertaking to provide certain information on a continuing basis. 116 NEITHER THE COUNTY NOR THE UNDERWRITER MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY ( "DTC ") OR ITS BOOK - ENTRY -ONLY SYSTEM. Ili Ma IIP iv or TABLE OF CONTENTS it MATURITY SCHEDULE ii Proposition 13 — Amendment to the Texas Constitution 9 COMMISSIONERS COURT iii County Application of Tax Code 9 110 ADMINSTRATION iii INVESTMENT POLICIES 9 CONSULTANTS AND ADVISORS iii Investments 9 USE OF INFORMATION IN OFFICIAL STATEMENT iv Legal Investments ...10 TABLE OF CONTENTS v Additional Provisions ;...11 W SELECTED DATA FROM THE OFFICIAL STATEMENT ... vi Current Investments . 11 i INTRODUCTION 1 EMPLOYEE BENEFITS ;...11 THE NOTES 1 LEGAL MATTERS I_. 11 General 1 TAX MATTERS 12 Authority for Issuance 1 Opinion ,... 12 Purpose 1 Federal Income Tax Accounting Treatment of Original Issue Description of the Notes 1 Discount Notes L.. 12 Security for Payment of the Notes 2 Collateral Federal Income Tax Consequences ! 13 Redemption Provisions 2 State, Local and Foreign Taxes 13 Defeasance 2 Qualified Tax - Exempt Obligations For Financial ',.. Amendments to the Order 2 Institutions ... 13 a Defaults and Remedies 2 CONTINUING DISCLOSURE OF INFORMATION ... 14 SOURCES AND USES OF PROCEEDS 3 Annual Reports 1...14 NON APPROPRIATION OF LEASE REVENUE BONDS 3 Material Event Notices 14 REGISTRATION, TRANSFER AND EXCHANGE 4 Availability of Information from NRMSIRs and SIDS j...14 it Paying Agent/Registrar 4 Limitations and Amendments,... 15 Future Registration, Transfer and Exchange 4 Compliance with Prior Undertakings 15 Record Date For Interest Payment 4 OTHER PERTINENT INFORMATION 15 Limitation on Transfer of Notes 5 The Notes as Legal Investments in Texas t... 15 in Replacement Notes 5 Ratings,... 15 BOOK -ENTRY -ONLY SYSTEM 5 Registration and Qualification of Notes for Sale 16 AD VALOREM TAXATION 6 Pending Litigation 16 Property Tax Code and County-Wide Appraisal Districts 6 Authenticity of Financial Information,... 16 S' Property Subject to Taxation 7 Underwriter 16 Tax Rate Limitations and Notice and Hearing Procedures 7 Financial Advisor 16 Levy of Taxes 8 Forward- Looking Statements Collection of Delinquent Taxes 8 Concluding Statement 17 01 County's Rights in the Event of Tax Delinquencies 9 is Financial Information Regarding Kerr County, Texas APPENDIX A General Information Regarding the County and Its Economy APPENDIX B Excerpts from the Kerr County, Texas Annual Financial Report for the Year Ended September 30, 2008. APPENDIX C 10 Form of Legal Opinion of Bond Counsel. APPENDIX D as as is as v r SELECTED DATA FROM THE OFFICIAL STATEMENT The selected data is subject in all respects to the more complete information and definitions contained or incorporated in this Official Statement. The offering of the Notes to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this page from this Official Statement or to otherwise use it without the entire Official Statement. The County Kerr County, Texas (the "County" or "Issuer ") is a central Texas county with an economy based on agriculture, tourism and manufacturing. The County had a 2000 population of 43,653, an increase of 20.24% since 1990. The County is govemed by an elected Commissioners Court, consisting of four County Commissioners and a County as Judge, all of whom are elected officials. The Notes The Notes shall mature serially on February 15 in each of the years 2011 through 2016, and interest thereon is payable on February 15 and August 15 in each year, commencing February 15, 2011. Oil Authority for Issuance The Notes are being issued by the County pursuant to the laws of the State of Texas, including Chapter 1431, Texas Government Code, as amended, and an order (the "Order") adopted by the Commissioners Court. Security for the Notes The Notes constitute direct obligations of the County, payable from the levy and collection of a direct and S continuing ad valorem tax, within the limits prescribed by law, on all taxable property located within the County (see "THE NOTES - Security for Payment" herein). Redemption The Notes are not subject to redemption prior to maturity (see "THE NOTES — Redemption Provisions" herein). Tax Exemption In the opinion of Bond Counsel, the interest on the Notes will be excludable from gross income for federal income tax purposes under existing law, subject to the matters described under the caption "TAX MATTERS" Ali herein. Qualified Tax - Exempt The County has designated the Notes as "Qualified Tax - Exempt Obligations" for financial institutions (see "TAX Obligations MATTERS - Qualified Tax- Exempt Obligations for Financial Institutions "). f Use of Proceeds Proceeds from the sale of the Notes will be used to construct and equip a new building primarily for use by the Sheriffs Department and for adult probation; construct a water line at the City /County airport and fund a master study for the airport; construct repairs and improvements to certain dams; acquire and equip Sheriff patrol cars; Si acquire other vehicles and various items of equipment and other personal property for various County departments; and pay costs of issuance (see "THE NOTES - Purpose ") Ratings The Notes have been assigned a rating of "AA-" by Standard & Poor's Ratings Group, a division of The iii McGraw -Hill Companies, Inc. ( "S &P "). See "OTHER PERTINENT INFORMATION - Ratings" herein. Book -Entry -Only System The definitive Notes will be initially registered and delivered only to Cede & Co., the nominee of DTC pursuant to the Book -Entry -Only System described herein. Beneficial ownership of the Notes may be acquired in amounts s due at maturity of $5,000 or integral multiples thereof. No physical delivery of the Notes will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Notes will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Notes (see `BOOK - ENTRY -ONLY SYSTEM "). s Payment Record The County has never defaulted in the payment of its general obligation tax debt. (See "NON- APPROPRIATION OF LEASE REVENUE BONDS" herein for information regarding the County's decision in 2004 to exercise its contractual rights not to appropriate the payment of lease payments relating to certain lease revenue bonds issued W by a nonprofit corporation created by the County.). Delivery When issued, anticipated on or about February 9, 2010. s vi • ■ • OFFICIAL STATEMENT OM relating to $4,350,000 KERR COUNTY, TEXAS Tax Notes, Series 2010 ais INTRODUCTION This Official Statement provides certain information in connection with the issuance by Kerr County, Texas (the "County"), of its $4,350,000 Tax Notes, Series 2010 (the "Notes "). Sof The County is a political subdivision of the State of Texas and operates under the statutes and the Constitution of the State of Texa$ (the "State). The County is govemed by an elected Commissioners Court, consisting of four County Commissioners and a County Judgq. The Notes are being issued pursuant to the Constitution and general laws of the State, particularly Chapter 1431, Texas Government Code, as ono amended, and an order (the "Order ") adopted by the Commissioners Court on the date of sale of the Notes to the Underwriter. Included in this Official Statement are descriptions of the Notes, and certain information about the County and its finances. All financial and other information presented in this Official Statement has been provided by the County from its records, except for information expressly attributed to other sources. The presentation of information, including tables of receipts from taxes, is intended to show recent historic information, and is not intended to indicate future or continuing trends in the financial position or other affairs of the County. No representation is made that past experience, as is shown by that financial and other information, will necessarily continue or be repeated wt in the future. This Official Statement speaks only as to its date, and the information contained herein is subject to change. Copies of the Final Official Statement pertaining to the Notes will be deposited with the Municipal Securities Rulemaking Board, 1900 Duke, Suite 600, Alex dria, Virginia 22314. See "CONTINUING DISCLOSURE OF INFORMATION" for a description of the County's undertaking to provide certain information on a continuing basis. ALL DESCRIPTIONS OF DOCUMENTS CONTAINED HEREIN ARE SUMMARIES ONLY AND ARE QUALIFIED IN THEIR *II ENTIRETY BY REFERENCE TO EACH SUCH DOCUMENT. Copies of such documents may be obtained from the County and, during the offering period, from the Financial Advisor, upon payment of reasonable copying, handling, and delivery charges. THE NOTES rw General Set forth below is a description of the Notes. The Order authorizes the issuance and prescribes the terms, conditions and provisions for +� payment of the principal of and interest on the Notes by the County. Unless otherwise defined herein, capitalized terms are used as defined in the Order. Such summary is not a complete description of the Order and is qualified by reference to the Order, copies of which are available from the County or the Financial Advisor. Authority for Issuance The Notes are issued pursuant to the Constitution and general laws of the State, particularly Chapter 1431, Texas Government Code, as amended, and constitute direct obligations of the County, payable from a continuing direct annual ad valorem tax levied on all taxable property within the County, within the limits prescribed by law, as provided in the Order (see "THE NOTES - Security for Payment of the Notes "). Purpose Proceeds from the sale of the Notes will be used to construct and equip a new building primarily for use by the Sheriffs Department and for adult probation; construct a water line at the City/County airport and fund a master study for the airport; construct repairs and ry improvements to certain dams; acquire and equip Sheriff patrol cars; acquire other vehicles and various items of equipment and' other personal property for various County departments; and pay costs of issuance. Description of the Notes fr The Notes are dated January 15, 2010, and mature on February 15 in each of the years and in the amounts shown on the inside cover page hereof. Interest on the Notes will accrue from the dated date, will be computed on the basis of a 360 -day year of twelve 30 -day months, and will be payable on February 15 and August 15, commencing February 15, 2011, until maturity. The definitive Notes will be Oat r iff issued only in fully registered form in any integral multiple of' S5,000 for any one maturity and will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ( "DTC ") pursuant to the Book - Entry-Only System described herein. No physical delivery of the Notes will be made to the beneficial owners thereof. Principal of and interest on the Notes will be payable s by the Paying Agent/Registrar, initially Wells Fargo Bank, N.A., Austin, Texas, to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Notes. See "BOOK - ENTRY -ONLY SYSTEM" herein. W Security for Payment of the Notes All taxable property within the County is subject to a continuing direct annual ad valorem tax levied by the County sufficient to provide for the payment of principal of and interest on the Notes, within the limits prescribed by law, as provided in the Order. The Notes are fl payable from the County's $0.80 limited ad valorem tax rate authorized under Article VIII, Section 9, of the Texas Constitution. See "AD VALOREM TAXATION" below. Administratively, the Attorney General of the State will permit allocation of 50.40 of the 50.80 constitutional tax rate for debt service on obligations such as the Notes. fii Redemption Provisions The Notes are not subject to redemption prior to stated maturity. Defeasance The Order provides for the defeasance of the Notes when the payment of the principal of and premium, if any, on the Notes, plus interest thereon to the due date thereof (whether such due date be by reason of maturity or otherwise), is provided by irrevocably depositing with a paying agent or other authorized escrow agent, in trust (1) money sufficient to make such payment or (2) Government Securities, certified by an independent public accounting firm of national reputation to mature as to principal and interest in such amounts and at such times to insure the availability, without reinvestment, of sufficient money to make such payment, and all necessary and proper fees, IYi compensation and expenses of the paying agent for the Notes. The Order provides that "Government Securities" mean (a) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) 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 are rated as to investment quality by a nationally S recognized investment rating firm not less than "AAA" or its equivalent, (c) 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 are rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent, and (d) any other then authorized securities or obligations under applicable state law that may be used to defease obligations such as the Notes. Upon making such deposit in the manner described, such S Notes shall no longer be deemed outstanding obligations of the County under the Order payable from ad valorem taxes or outstanding obligations for any other purpose other than to be payable from the funds and Government Securities deposited in escrow. The County has additionally reserved the right, subject to satisfying the requirements of (1) and (2) above, to substitute other Defeasance Securities (as defined in the Order) for the Defeasance Securities originally deposited, to reinvest the uninvested moneys on deposit for such S defeasance and to withdraw for the benefit of the County moneys in excess of the amount required for such defeasance. After firm banking and financial arrangements for the discharge and final payment of the Notes have been made as described above, all rights of the County to take any other action amending the terms of the Notes are extinguished. ftlf Amendments to the Order The County may amend the Order without the consent of or notice to any registered owners in any manner not detrimental to the interests of the registered owners, including the curing of any ambiguity, inconsistency, or formal defect or omission therein. In addition, the County may, with the written consent of the holders of a majority in aggregate principal amount of the Notes then outstanding affected thereby, amend, add to, or rescind any of the provisions of the Order; except that, without the consent of the registered owners of all of the Notes affected, no such amendment, addition, or rescission may (1) change the date specified as the date on which the principal of or any installment of interest on any Note is due and payable, reduce the principal amount thereof, or the rate of interest thereon, change the place or places at or the coin or currency in which any Note or interest thereon is payable, or in any other way modify the terms of payment of the principal of or interest on the Notes, (2) give any preference to any Note over any other Note, or (3) reduce the aggregate principal amount of Notes required for consent to any amendment, addition, or waiver. S Defaults and Remedies The Order establishes specific events of default with respect to the Notes. If the County defaults in the payment of the principal of or rY interest on the Notes when due, or the County defaults in the observance or performance of any of the covenants, conditions, or obligations of the County, the failure to perform which materially, adversely affects the rights of the owners, including but not limited to, their prospect or ability to be repaid in accordance with the Order, and the continuation thereof for a period of 60 days after notice of such default is given by any owner to the County, the Order provides that any registered owner is entitled to seek a writ of mandamus Wri from a court of proper jurisdiction requiring the County to make such payment or observe and perform such covenants, obligations, or conditions. The issuance of a writ of mandamus may be sought if there is no other available remedy at law to compel performance of the Notes or the Order and the County's obligations are not uncertain or disputed. The remedy of mandamus is controlled by equitable 2 principles, so rests with the discretion of the court, but may not be arbitrarily refused. There is no acceleration of maturity of the Notes in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. The Order does not • provide for the appointment of a trustee to represent the interest of the Noteholders upon any failure of the County to perform in accordance with the terms of the Order, or upon any other condition and accordingly all legal actions to enforce such remedies Would have to be undertaken at the initiative of, and be financed by, the registered owners. The Texas Supreme Court ruled in Tooke v. City of Mexia, 197 S.W.3d 325 (Tex. 2006), that a waiver of sovereign immunity in a contractual dispute must be provided for by statute in S "clear and unambiguous" language. Because it is unclear whether the Texas Legislature has effectively waived the County's sovereign immunity from a suit for money damages, Noteholders may not be able to bring such a suit against the County for breach of the Notes or Order covenants. Even if a judgment against the County could be obtained, it could not be enforced by direct levy and execution against the County's property. Further, the registered owners themselves cannot foreclose on property within the County or sell property *ithin the County to enforce the tax lien on taxable property to pay the principal of and interest on the Notes. Furthermore, the County is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code ( "Chapter 9 "). Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of ad valorem taxes in sripport of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. Chapter 9 also includes • an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or Noteholders of an entity which has sought protection under Chapter 9. Therefore, should the County avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require tliat the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretipnary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Notes are qualified with respect to the customary rights of debtors relative to their creditors and by general principles of equity which permit the exercise of judicial discretion. tut Initially, the only registered owner of the Notes will be Cede & Co. See "BOOK- ENTRY -ONLY SYSTEM" herein. SOURCES AND USES OF PROCEEDS The following table shows the estimated sources and uses of the proceeds of the Notes: Sources: +Yn Principal Amount of the Notes $ 4,350,000.00 Net Original Issue Premium/Discount 251,449.30 Accrued Interest on the Notes 10,210.00 Total Sources of Funds $ 4611,659 10 tit Uses: Deposit to Project Fund $ 4,500,000.00 Costs of Issuance and Underwriter's Discount 101,449.30 Deposit to Interest and Sinking Fund 10,210.00 +r Total Uses of Funds 5 4611,659 10 NON - APPROPRIATION OF LEASE REVENUE BONDS In 2002, the Hill Country Juvenile Facility Corporation, a nonprofit corporation created by the County (the "Corporation "), Issued $5,140,000 in principal amount of lease revenue bonds (the "Lease Revenue Bonds ") to acquire and improve an existing juvenile detention facility in the County (the "Juvenile Facility"). The Juvenile Facility was leased by the Corporation, as lessor, to the County, as lessee, pursuant to a Lease Agreement between the Corporation and the County (the "Lease "). The County simultaneously entered into an Operating Agreement with the Kerr County Juvenile Board (the "Juvenile Board ") pursuant to which the Juvenile Board operated the Juvenile Facility and assumed most obligations of the County under the Lease, including the obligation to make "Lease Payments" under the Lease to pay principal and interest on the Lease Revenue Bonds. Pursuant to the Lease and the Operating Agreement, the tie obligation of the County and the Juvenile Board, respectively, to make Lease Payments was subject to annual appropriation by the governing body of each entity, respectively. Due primarily to fundamental changes in juvenile sentencing patterns of numerous Texas counties that historically sent juveniles to the tut Juvenile Facility, together with increased competition for juvenile residents by operators of other juvenile facilities throughout the State of Texas, the occupancy levels for the Juvenile Facility dropped significantly during fiscal year 2003 -2004. Additionally, in an effort to balance the state budget for the 2004 - 2005 fiscal biennium, the Texas Legislature in 2003 mandated numerous state agencies, including the Texas Juvenile Probation Commission ( "TJPC "), to significantly reduce expenditures. As a result of such mandate, TJPC reduced • state funding for juvenile detention reimbursement for several classes of juvenile detainees. The combined effect of fewer juveniles being sent to the Juvenile Facility coupled with the lower reimbursement payments coming from TJPC for certain classes of juvenile detainees resulted in a reduction in the receipt of gross revenues at the Juvenile Facility. Furthermore, newly mandated staffing requirements imposed by the State resulted in significantly higher expenses to the Juvenile Facility. ill The Juvenile Board projected that revenues of the Juvenile Facility for the 2004 -2005 fiscal year would be insufficient to meet the Juvenile Facility's estimated monthly operating expenses or the average annual debt service requirements on the Lease Revenue Bonds, nor did the Juvenile Board expect income levels to increase significantly in the near future to be able to fully satisfy all operating and it 3 s debt service requirements. Consequently, the Juvenile Board adopted its 2004 -2005 fiscal year budget which did not include budgeting or appropriating any funds to pay debt service on the Lease Revenue Bonds. As a result of such action, the Juvenile Board, in accordance with the provisions of the Operating Agreement, delivered a written Notice of Nonappropriation to the County. Upon receipt s of such Notice of Nonappropriation from the Juvenile Board, the County, as the lessee of the Juvenile Facility, elected to exercise its rights under the Lease to not appropriate funds in its 2004 -2005 budget to pay Lease Payments for such fiscal year. Such action constituted an "Event of Nonappropriation" under the Lease and triggered certain remedies available under the Lease and other related financing documents. Pursuant to the Lease Revenue Bond financing documents, including the Lease and the Operating Agreement, neither the County nor the Juvenile Board was legally or morally obligated to appropriate funds to pay Lease Payments on the Lease Revenue Bonds. Nevertheless, following discussions and negotiations with representatives of the holders of the Lease Revenue Bonds, in 2005 the County issued S certificates of obligation for the purpose of providing $1,900,000 to purchase the Juvenile Facility from the Corporation and provide such amount to the holders of the Lease Revenue Bonds in exchange for a full and complete written release of any claims that could be brought by such holders against the County, the Corporation, the Juvenile Board and their officers and employees. IfY REGISTRATION, TRANSFER AND EXCHANGE Paying Agent/Registrar The initial Paying Agent/Registrar is Wells Fargo Bank, N.A., Austin, Texas. In the Order, the County retains the right to replace the Paying Agent/Registrar. The County covenants to maintain and provide a Paying Agent/Registrar at all times until the Notes are duly paid and any successor Paying Agent/Registrar shall be a commercial bank, trust company or other entity duly qualified and legally s authorized to serve as and perform the duties and services of Paying Agent/Registrar for the Notes. Upon any change in the Paying Agent/Registrar for the Notes, the County agrees to promptly cause a written notice thereof to be sent to each registered owner of the Notes by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying AgentRegistrar. s So long as Cede & Co. is the registered owner of the Notes, payments of principal of and interest on the Notes will be made as described in "BOOK- ENTRY -ONLY SYSTEM" herein. In the event the Book - Entry-Only System is discontinued, the principal of the Notes shall be payable at the stated maturities thereof only upon presentation and surrender of the Notes to the Paying Agent/Registrar, and interest on the Notes shall be paid to the Holder whose name appears in the registration books of the Paying Agent/Registrar at the close of YII business on the "Record Date" (defined below) and shall be paid by the Paying Agent/Registrar (i) by check sent United States mail, first class postage prepaid, to the address of the Holder recorded in its registration books or (ii) by such other method, acceptable to the .. Paying Agent/Registrar, requested by, and at the risk and expense of, the Holder. If the date for the payment of the principal of or interest on the Notes shall be a Saturday, Sunday, a legal holiday, or a day on which banking institutions in the city where the designated office of the Paying Agent/Registrar for the payment of the Notes is located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or day on which banking institutions are authorized to close; and payment on such date shall have the �Y same force and effect as if made on the original date payment was due. Future Registration, Transfer and Exchange In the event the Book - Entry-Only- System is discontinued, printed certificates will be delivered to the registered owners and thereafter the Notes may be transferred, registered and assigned on the registration books only upon presentation and surrender of the printed certificates to the Paying Agent/Registrar, and such registration and transfer shall be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration and transfer. A Note may be assigned by the execution of an assignment form on such Note or by such other instrument of transfer and assignment acceptable to the Paying AgentRegistrar. A new Note or Notes will be delivered by the Paying Agent/Registrar in lieu of the Certificate being transferred or exchanged at the designated office of the Paying Agent/Registrar, or sent by United States registered mail to the new registered owner at the registered owner's request, risk and expense. To the extent possible, new Notes issued in an exchange or transfer of Notes will be delivered to the registered owner or assignee of the Owner in not more than three business days after the receipt of the Notes to be canceled in the exchange or transfer and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Notes registered and delivered in Riff an exchange or transfer shall be in authorized denominations and for a like aggregate principal amount as the Notes surrendered for exchange or transfer. Record Date For Interest Payment The record date ( "Record Date ") for the interest payable on any interest payment date means the close of business on the last business day of the month next preceding such interest payment date, as specified in the Order. 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 County. 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, 4 We first class, postage prepaid, to the address of each registered owner of a Note appearing on the books of the Paying Agent/Registrar ht the close of business on the last business day next preceding the date of mailing of such notice. IMP Limitation on Transfer of Notes ' Neither the County nor the Paying Agent/Registrar shall be required to issue or transfer to an assignee of a registered owner any Note tarring in the period commencing with the close of business on any Record Date and ending with the opening of business on the next folletwing principal or interest payment date i Replacement Notes Si If any Note is mutilated, destroyed, stolen or lost, a new Note in the same principal amount as the Note so mutilated, destroyed, stolen 4r lost will be issued. In the case of a mutilated Note, such new Note will be delivered only upon surrender and cancellation of such mutilated (Note. In the case of any Note issued in lieu of and substitution for a Note which has been destroyed, stolen or lost, such new Note will be delivered St only (a) upon filing with the County and the Paying Agent/Registrar a certificate to the effect that such Note has been destroyed, stolen tkr lost and proof of the ownership thereof, and (b) upon furnishing the County and the Paying Agent/Registrar with indemnity satisfactory to khem. The person requesting the authentication and delivery of a new Note must pay such expenses as the Paying Agent/Registrar may incur in connection therewith. tit BOOK - ENTRY -ONLY SYSTEM i is DTC will act as securities depository for the Notes. The Notes will be issued as fully- registered securities registered in the name ofjCede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One jfully- registered certificate will be issued for each maturity of the Notes, each in the aggregate principal amount of such maturity, and vfill be deposited with DTC. is i DTC, the world's largest securities depository, is a limited - purpose trust company organized under the New York Banking Lbw, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a `blaring corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the S provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million iss es of U.S. and non -U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countrie that DTC's participants ( "Direct Participants ") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Particip is of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges be 'een he Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants induct( both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ( "DTCC "). DTCC is the holding company for DTC, N Tonal Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is Owned us by the users of its regulated industries. Access to the DTC system is also available to others such as both U.S. and non -U.S. sec(tnties brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship With a Direct Participant, either directly or indirectly ( "Indirect Participants "). DTC has Standard & Poor's highest rating: "AAA ". Thd DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be Found to at www.dtcc.com and www.dtc.orv. t Purchases of Notes under the DTC system must be made by or through Direct Participants, which will receive a credit for the Notes on rr DTC's records. The ownership interest of each actual purchaser of each Note ("Beneficial Owner ") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ie ownership interests in the Notes are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Notes, except in the, event that use of the book -entry system for the Notes is discontinued. km To facilitate subsequent transfers, all Notes deposited by Direct Participants with DTC are registered in the name of DTC's parts rship nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Notes with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Notes; DTC's records reflect only the identity of the Direct Participants to Whose ill accounts such Notes are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. •Y Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject 'to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Notes may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Notes, such as redemptions, defaults, and proposed tar amendments to the Note documents. For example, Beneficial Owners of Notes may wish to ascertain that the nominee holding the ;Notes 5 • r s for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the altemative, Beneficial Owners may wish to provide their names and addresses to the Paying Agent/Registrar and request that copies of notices be provided directly to them. 1 Redemption notices shall be sent to DTC. If less than all of the Notes within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Notes unless authorized by a Direct l Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the County as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Notes are credited on the record date (identified in a listing attached to the Omnibus Proxy). s Principal and interest payments on the Notes will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the County or Paying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent/Registrar, or the County, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the County or the Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Notes at any time by giving reasonable notice to the County or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Notes are required to be printed and delivered. The County may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event, Notes will be printed and delivered. The information in this section concerning DTC and DTC's book -entry system has been obtained from sources that the County believes es to be reliable, but the County takes no responsibility for the accuracy thereof. Use of Certain Terms in Other Sections of this Official Statement. In reading this Official Statement it should be understood while the Notes are in the Book -Entry-Only System, references in other sections of this Official Statement to registered owners should be read to Yli include the person for which the Participant acquires an interest in the Notes, but (i) all rights of ownership must be exercised through DTC and the Book -Entry-Only System, and (ii) except as described above, notices that are to be given to registered owners under the Order will be given only to DTC. s AD VALOREM TAXATION Property Tax Code and County -Wide Appraisal Districts Pursuant to a comprehensive Property Tax Code enacted by the Texas Legislature (the "Tax Code "), there has been established for each county in the State of Texas a single appraisal district with responsibility for recording and appraising property for all taxing units within the county and a single appraisal review board with responsibility for reviewing and equalizing the values established by the appraisal district. The appraisal of property within the County is the responsibility of the Kerr County Appraisal District. The Appraisal District is govemed by a board of five directors appointed by the votes of the governing bodies of the various governmental units within the County, with votes weighted by relative tax levy. The Tax Code requires the Appraisal District, by May 15 of each year or as soon thereafter as practicable, to prepare appraisal records listing all property that is taxable in the Appraisal District and stating the appraised value of each parcel or item of taxable property. Property is to be appraised as of January 1 of each year, and the Tax Code generally requires appraisals at 100% of market value. In determining market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. State law further limits the appraised value of a residence homestead • for a tax year to an amount not to exceed the lesser of (1) the market value of the property or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. Land used for agriculture, timber production or open space may qualify for valuation on r productive capacity rather than market value, thereby resulting in a lower taxable value. Appraisals are subject to review by the appraisal review board. Under certain circumstances taxpayers and taxing units (such as the County) may appeal an order of the appraisal review board by filing a petition for review in state district court. In such event, the value of the property in question will be determined by the court, or by a jury if requested by any party. Absent any such appeal, the appraisal roll as prepared by the Appraisal District and approved by the appraisal review board must be used by each taxing jurisdiction in establishing its tax rolls and tax rate. ilif 6 Although the County has the authority to establish tax rates and to levy and collect its taxes each year, the County cannot establish standards for appraisal or determine the frequency of revaluation or reappraisal. The Tax Code requires each appraisal distr ct to implement a plan for periodic reappraisal of property to update appraised values. The plan must provide for reappraisal of a real property in the appraisal district at least once every three years. The County may require annual review at its own expense, nd is entitled to challenge the determination of appraised value of property within the County by petition filed with the Appraisal Review Board. wit Property Subject to Taxation Except for certain exemptions provided by state law, all real and tangible personal property in the County is subject to taxation l;'y the County. However, no effort is made by the County to collect taxes on personal property other than on personal property rendered for taxation, business inventories and the property of privately owned utilities. Principal categories of exempt property include: prdperty owned by the State of Texas or its political subdivisions if the property is used for public purposes; property exempt from ad valorem taxation by federal law; certain households goods, family supplies and personal effects; farm products and implements owned l }y the producer; certain property owned by charitable organizations, youth development associations, religious organizations and qu4lified schools; designated historic sites; solar and wind powered energy devices; and most individually -owned automobiles. For property to be exempt from taxation, a claim for exemption must be filed, except with respect to property owned by the State of Texas or its poeitical subdivisions, property exempt by federal law, household goods and personal effects, family supplies, farm products, implements of farming and ranching and automobiles. The Tax Code also exempts all tangible personal property not producing income, other than manufactured homes, from ad valorem taxes; however, the taxing unit may choose to override this exemption. The County has choaen to override this exemption but does not tax non - business vehicles. Article VIII, Section 1 -j of the Texas Constitution authorizes a property tax exemption for goods, wares, merchandise and other tangible personal property, and ores (other than oil, natural gas and other petroleum products), acquired in or imported into the State of Texfas for assembling, storing, manufacturing, processing or fabricating purposes, provided such property is transported outside of the State within 175 days of the date it was so acquired or imported ( "Article VIII, Section 1 -j Property "). Notwithstanding such exemption, the County may tax Article VIII, Section 1 -j Property provided official action to tax was taken prior to April 1, 1990. The County elected pot to exempt Article VIII, Section 1 -j Property from taxation. In addition, effective for tax years 2008 and thereafter, Article VIII, Section 1 -n of the Texas Constitution provides for an exemption from taxation for "goods -in- transit ", which are defined as personal property e acquired or imported into the State and transported to another location inside or outside the State within 175 days of the date the pr perry was acquired or imported into the State. The exemption excludes oil, natural gas, petroleum products, aircraft and special inventory, including motor vehicle, vessel and out -board motor, heavy equipment and manufactured housing inventory. After holding a rublic hearing, a taxing unit may take action by January 1 of the year preceding a tax year to tax goods -in- transit during the following tax year. W A taxpayer may obtain only a freeport exemption or a goods -in- transit exemption for items of personal property. The Count} took official action on November 26, 2007 to continue its taxation of goods in transit. In addition, owners of agricultural, timber and open space land may, under certain circumstances, request valuation of such ]and on the basis of productive capacity rather than market kalue. ON The County may agree to participate in a tax increment reinvestment zone, under which the tax values on property in the zo¢e are "frozen" at the value of the property at the time of creation of the zone. The County also may enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its prolperty. The County in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of • the agreement. The abatement agreement could last for a period of up to 10 years. The County currently does not provide arty tax abatements and does not participate in a tax increment reinvestment zone. Up to 20% of the value of the residence homestead of a person (with a minimum exemption of $5,000) may be exempt from taxation at ON the option of the governing body of the taxing entity. Additionally, not less than $3,000 of the market value of the residence homestead of a person 65 years of age or older and certain disabled persons may be exempt from taxation, if such exemption is allowed by the governing body of the taxing entity or imposed by referendum election. Property owned by disabled veterans or by the surviving spouse and surviving minor children of disabled veterans is exempted from taxation in amounts ranging from $5,000 to $12,000 depending on the disability rating of the veteran. Effective January 1, 2010, Section 11.131 to the Tax Code provides that a disabled veteran who receives from the United £ States • Department of Veterans Affairs or its successor 100% disability compensation due to a service- connected disability and a rating of ;100% disabled or of individual unemployability is entitled to an exemption from taxation of the total appraised value of the veteran's residence homestead. rr Tax Rate Limitations and Notice and Hearing Procedures Limited Tax Funded Debt Payable From Proceeds of$0.80 Constitutional Tax Rate: The Texas Constitution (Article VIII, Section 9) imposes a tax rate limit of $0.80 per $100 assessed valuation of all taxable property within the County (the "$0.80 Tax Limitation ") for wY general fund, permanent improvement fund, road and bridge fund and jury fund purposes, including debt service of bonds or other debt obligations issued against such funds. By administrative policy, the Attorney General of Texas will permit allocation of $0.40 Of the constitutional $0.80 tax rate calculated at 90% collection for the payment of the debt service requirements on the County's limited tax tet 7 rr general obligation indebtedness. The General Fund, Permanent Improvement Fund, Road and Bridge Fund, and Jury Fund receive operating funds from the 50.80 constitutional tax rate. • The Notes are limited tax obligations payable from the $0.80 constitutional tax rate. Road and Bridge Maintenance: As permitted by Section 256.052, Texas Transportation Code, the County may levy a tax, previously • approved by the voters, of up to $0.15 per $ 100 assessed valuation for road and bridge maintenance, no part of which may be used for • debt service. Farm -to- Market and /or Flood Control: As permitted by Article VIII, Section 1 -a of the Constitution and Section 256.054, Texas • Transportation Code, the County may levy a tax, previously approved by the voters, of up to $0.30 per $100 assessed valuation after (Yii exemption of homesteads up to $3,000. No allocation is prescribed by statute between debt service and maintenance. All or part may be used for either purpose. Unlimited Tax Road Bonds: Article III, Section 52 of the Texas Constitution authorizes the levy of a tax unlimited as to rate or amount for the payment of debt issued for the construction, maintenance, and operation of macadamized, graveled, or paved roads and turnpikes, or in aid thereof, upon a vote of a majority of the voting qualified voters of the County; however, total unlimited tax debt cannot exceed • 25% of the assessed valuation of real property in the County. Optional Sales Tax: The Tax Code provides certain cities and counties the option of assessing a maximum one -half percent ('/ %) sales tax on retail sales of taxable items for the purpose of reducing its ad valorem taxes, if approved by a majority of the voters in a local option election. If the additional tax is approved and levied, the ad valorem property tax levy must be reduced by the amount of the estimated sales tax revenues to be generated in the current year. The County does levy a %% optional sales tax. Effective Tax Rate and Rollback Tax Rate: The Tax Code establishes a procedure for notice to property owners of reappraisals reflecting increased property value, appraisals which are higher than renditions and appraisals of property not previously on an appraisal roll. Article VIII, Section 21 of the Texas Constitution provides that, subject to any exception prescribed by general law, the total amount of property taxes imposed by a political subdivision in any year may not exceed the total amount of property taxes imposed in the preceding year (the "effective tax rate ") unless a notice of intent to consider an increase in taxes is given and a public hearing on the proposed increase is held before the total taxes are increased. Section 26.05 Property Tax Code provides the governing body of a taxing tit unit other than a school district may not adopt a tax rate that exceeds the lower of the rollback tax rate or 103 per cent of the effective tax rate until a public hearing is held on the proposed tax rate following a notice of such public hearing (including the requirement that notice be posted on the taxing unit's website if the taxing unit owns, operates or controls an intemet website and public notice be given by television if the taxing unit has free assess to a television channel) and the goveming body has otherwise complied with the legal flit requirements for the adoption of such tax rate. The "rollback tax rate" means the rate that will produce last year's maintenance and operation tax levy from this year's values multiplied by 1.08 plus a rate that will produce this year's debt service from this year's values divided by the anticipated collection rate. If the adopted tax rate exceeds the rollback tax rate, the qualified voters of the County, by petition, may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the ilY rollback tax rate. Levy of Taxes The Tax Code provides that the governing body of a taxing unit is required to adopt the annual tax rate for the unit before the later of • September 30 or the 60th day after the date the certified appraisal roll is received by the taxing unit, and a failure to adopt a tax rate by such required date will result in the tax rate for the taxing unit for the tax year to be the lower of the effective tax rate calculated for that fib • tax year or the tax rate adopted by the taxing unit for the preceding tax year. Taxes are due October 1 and become delinquent if not paid by January 31 of the following year. The County does not permit split payments of taxes. Discounts for early payment of taxes are allowed: 3% if paid in October, 2% in November and 1% in December. rli Collection of Delinquent Taxes Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Month Penalty Interest Total February 6% 1% 7% - March 7 2 9 April 8 3 11 t7tr May 9 4 13 June 10 5 15 July 12t 6 38 e t1 ' In addition to the penalty and interest collected, the taxing unit may contact with an attorney for the collection of delinquent taxes and the amount of compensation as set forth in such contract may provide for a fee up to 20% of the amount of delinquent tax, penalty, and interest collected j2 ' Interest continues to accrue after July 1 at a rate of I% per month until paid. 8 IS s County's Rights in the Event of Tax Delinquencies • Taxes levied by the Issuer are a personal obligation of the owner of the property as of January 1 of the year for which the tax is impose. On January 1 of each year, a tax lien attaches to property to secure the payment of all state and local taxes, penalties, and interest ultirttately imposed for the year on the property. The lien exists in favor of the State of Texas and each local taxing unit, including the County, having power to tax the property. The County's tax lien is on a parity with tax liens of such other taxing units. A tax lien on real propertyi takes • priority over the claim of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt Or lien existed before the attachment of the tax lien; however, whether a lien of the United States is on a parity with or takes priority over a tT+c lien of the County is determined by applicable federal law. Personal property, under certain circumstances, is subject to seizure and sale For the payment of delinquent taxes, penalty, and interest. At any time after taxes on property become delinquent, the County may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, the County must join other taxing units that have claims for delinquent taxes against all or part of the same property. Collection of delinquent taxes may be adversely affected by the antount of taxes owed to other taxing units, by the effects of market conditions on the foreclosure sale price, by taxpayer redemption rights (a taxpayer may redeem property within two (2) years after the purchasers deed issued at the foreclosure sale is filed in the County recotyis) or by bankruptcy proceedings which restrict the collection of taxpayer debts. Federal bankruptcy law provides that an automatic stay of actions by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post - petition taxes from attaching to properiV and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post - petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. Proposition 13 — Amendment to the Texas Constitution Proposition 13, approved by Texas voters on September 13, 2003, amended the Texas Constitution to allow the governing bodies of counties, cities, towns, and junior college districts to freeze the amount of property taxes that could be imposed on residence homesteads owned by the elderly or disabled. Property taxes could not increase as long as the residences are maintained as homesteads by the owners who are disabled or have reached the age of sixty-five (65) or their spouses who are disabled or are at least sixty-five (65) years of age. 'eie Alternatively, upon receipt of a petition signed by at least five percent (5 %) of the political subdivision's registered voters, a local govlyming body would have to call an election to determine by majority vote whether to freeze taxes for elderly and disabled homeowners. • The amendment allows the transfer of the property tax freeze upon the death of a disabled or 65 years of age or older homeowner to a • surviving spouse who was 55 years of age or older when the owner died, as long as the spouse claimed the property as a residence homgstead. A taxing entity could increase taxes on such homesteads only to the extent that homeowners made improvements, other than governm4ntally required repairs or improvements that increase the property's appraised value. • The County adopted the property tax freeze provisions of Proposition 13 on March 22, 2004. County Application of Tax Code. The County grants an exemption to the market value of the residence homestead of persons 65 years of age or older of $3,000; the disabled are also granted an exemption of $3,000. ry Ad valorem taxes are levied by the County against the value of residence homesteads for payment of the debt. The County does not tax nonbusiness personal property; and the County Tax Assessor - Collector collects taxes for the County. arr The County does not permit split payments, and discounts are allowed. The County does tax freeport property. • The County does collect the additional one -half cent sales tax for reduction of ad valorem taxes. INVESTMENT POLICIES Investments The County invests funds in instruments authorized by the Texas Public Funds Investment Act (Chapter 2256, Texas Government (ode), rr as amended, in accordance with investment policies approved by the Commissioners Court. Both State law and the County's investment policies are subject to change. • 9 Legal Investments Under State law, the County is authorized to invest in (1) obligations, including letters of credit, of the United States or its agencies and t1i instrumentalities; (2) direct obligations of the State or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State or the United States or their respective agencies and instrumentalities; (5) obligations of states, • agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) (a) certificates of deposit and share certificates issued by a depository institution that has its main office or a branch office in the State, that are (i) guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund or their • respective successors, or are secured as to principal by obligations described in clauses (1) through (6) above or in any other manner and amount provided by law for County deposits, and (b) certificates of deposit or share certificates issued by a depository institution that has its main office or a branch office in the State that participate in the Certificate of Deposit Account Registry Service; (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State; (9) certain bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least "A -1" or "P -1" or the equivalent by at least one nationally recognized credit rating agency; (10) commercial paper with a stated maturity ins of 270 days or less that is rated at least "A -1" or "P -1" or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a United States or state bank; (11) no -load money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share; and (12) no -load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than "AAA" or its equivalent. Note proceeds may be additionally invested in guaranteed investment contracts that have a defined termination date and are secured by iW obligations, including letters of credit, of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described below. A political subdivision such as the County may enter into securities lending programs if (i) the securities loaned under the program are i 100% collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than A or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above, clauses (10) through (12) above, or an authorized investment pool; (ii) iW securities held as collateral under a loan are pledged to the County, held in the County's name and deposited at the time the investment is made with the County or a third party designated by the County; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State; and (iv) the agreement to lend securities has a term of one year or less. Yf The County may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than "AAA" or "AAA -m" or an equivalent by at least one nationally recognized rating service. The County may also contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. e Section 806-1 et seq.) or with the State Securities Board to provide for the investment and management of its public funds or other funds under its control for a term up to two years, but the County retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the County must do so by order, ordinance, or resolution. lin The County is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage- backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage- backed security and bears no interest; (3) Irf collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. Under State law, the County is required to invest its funds under written investment policies that primarily emphasize safety of principal • and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that include a list of authorized investments for County funds, the maximum allowable stated maturity of any individual investment and the maximum average dollar - weighted maturity allowed for pooled fund groups. All County funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each fund's investment. Each Investment Strategy Ills Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under State law', the County's investments must be made "with judgment and care, under prevailing circumstances, that a person of (ti prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment considering the probable safety of capital and probable income to be derived." At least quarterly the County's investment officers must submit an investment report to the Commissioners Court detailing: (1) the investment position of the County; (2) that all 10 (Ili ter investment officers jointly prepared and signed the report; (3) the beginning market value, and any additions and changes to n{arket value and the ending value of each pooled fund group; (4) the book value and market value of each separately listed asset at the yr beginning and end of the reporting period and fully accrued interest for the reporting period; (5) the maturity date of each sepately invested asset; (6) the account or fund or pooled fund group for which each individual investment was acquired; and (7) the compllance of the investment portfolio as it relates to: (a) adopted investment strategies and (b) State law. No person may invest County Funds without express written authority from the Commissioners Court. Additional Provisions Under Texas law, the County is additionally required to: (1) annually review its adopted policies and strategies, (2) require any investment officers with personal business relationships or family relationships with firms seeking to sell securities to the County to disclose the relationship and file a statement with the Texas Ethics Commission and the County; (3) require the registered princilpal of firms seeking to sell securities to the County to: (a) receive and review the County's investment policy, (b) acknowledge that reasohable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) in conjunction with its annual financial audit, perform a compliance audit of the management controls on investments and adherence to the County's investment policy; (5) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (6) restrict the investment in non -money market mutual funds in the aggregate to no more than 15% of the County's monthly average fund balance, e excluding bond proceeds and reserves and other funds held for debt service; (7) require local government investment pools to confomm to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements; and (8) provide specific investment training for the Treasurer, the chief financial officer (if not the Treasurer) and the investment officer. rrr Current Investments See Appendix A, "Table 12 — Current Investments." Wtt EMPLOYEE BENEFITS The County has a contributory retirement plan with the Texas County and District Retirement System covering substantially all',of its Y qualifying employees. Such employees, in 2008, contributed 7.00% of their gross wages. The County's contribution is actu rially determined each year, and in 2008 it was 9.08 %. The County's covered payroll for the year ended September 30, 2008 was $9,954,080. For additional information, see Note 3.G In the audited financial statements attached hereto as Appendix C. LEGAL MATTERS ss et The delivery of the Notes is subject to the approval of the Attorney General of Texas to the effect that the Notes are valid and 1@gally binding obligations of the County payable from the proceeds of an annual ad valorem tax levied, within the limitations prescribbd by law, upon all taxable property in the County, and the approving legal opinion of Bond Counsel, to like effect and to the effect thlit the interest on the Notes will be excludable from gross income for federal income tax purposes under Section 103(a) of the Code, sub' ct to the matters described under "TAX MATTERS" herein. The form of Bond Counsel's opinion is attached hereto as Appendix D. Th legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Notes is contingent upon the sale and de ivery of the Notes. The legal opinion of Bond Counsel will accompany the Notes deposited with DTC or will be printed on the deft itive Notes in the event of the discontinuance of the Book- Entry-Only System. Certain legal matters will be passed upon for the Underwriter by Locke Lord Bissell & Liddell LLP, Counsel to the Underwriter. The fee of Counsel to the Underwriter is contingent upon the sale and delivery of the Notes. e Bond Counsel was engaged by, and only represents, the County. Except as noted below, Bond Counsel did not take part in the preparation of this Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained herein except that in its capacity as Bond Counsel, such firm has reviewed the information appearing under captions "THE NOTES" (excluding the information under the subcaption "Defaults and Remedies "), "REGISTRATION, TRANSFER AND EXCHANGE ", "LEGAL MATTERS ", "TAX MATTERS ", "OTHER PERTINENT INFORMATION - The Notes as Legal Investments in Texas" and "- Registration and Qualification of Notes for Sale." and "CONTINUING DISCLOSURE OF INFORMATION" (except under the subcaption "Compliance With Prior Undertakings "), and such firm is of the opinion that the information relating to the Notes and legal matters contained under such captions is an accurate add fair description of the laws and legal issues addressed therein and, with respect to the Notes, such information conforms to the Order. The legal opinions to be delivered concurrently with the delivery of the Notes express the professional judgment of the attgrneys rendering the opinions as to the legal issues expressly addressed therein. In rendering a legal opinion, the attorney does not beco;ne an insurer or guarantor of the expression of professional judgment, of the transaction opined upon, or of the future performance bf the parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise froth the transaction. 11 di TAX MATTERS Opinion efi On the date of initial delivery of the Notes, McCall, Parkhurst & Horton L.L.P., San Antonio, Texas, Bond Counsel, will render its opinion that, in accordance with statutes, regulations, published rulings and court decisions existing on the date thereof ( "Existing Law "), for federal income tax purposes, interest on the Notes (i) will be excludable from the "gross income" of the holders thereof and (ii) will 11Y not be includable in the owner's alternative minimum taxable income under section 55 of the Internal Revenue Code of 1986 (the "Code "). Except as stated above, Bond Counsel will express no opinion as to any other federal, state or local tax consequences of the purchase, ownership or disposition of the Notes. See Appendix D -- Form of Legal Opinion of Bond Counsel. uI In rendering its opinion, Bond Counsel will rely upon (a) certain information and representations of the County, including information and representations contained in the County's federal tax certificate, and (b) covenants of the County contained in the Note documents relating to certain matters, including arbitrage and the use of the proceeds of the Notes and the property financed or refinanced therewith. Failure by the County to observe the aforementioned representations or covenants could cause the interest on the Notes to become taxable retroactively to the date of issuance. The Code and the regulations promulgated thereunder contain a number of requirements that must be satisfied subsequent to the issuance of the Notes in order for interest on the Notes to be, and to remain, excludable from gross income for federal income tax purposes. Failure to comply with such requirements may cause interest on the Notes to be included in gross income retroactively to the date of issuance of the Notes. The opinion of Bond Counsel is conditioned on compliance by the County with such requirements, and Bond Counsel has not been retained to monitor compliance with these requirements subsequent to the issuance of the Notes. Bond Counsel's opinion represents its legal judgement based upon its review of Existing Law and the reliance on the aforementioned information, representations and covenants. Bond Counsel's opinion is not a guarantee of a result. Existing Law is subject to change by the Congress and to subsequent judicial and administrative interpretation by the courts and the Department of the Treasury. There can be s no assurance that Existing Law or the interpretation thereof will not be changed in a manner which would adversely affect the tax treatment of the purchase, ownership or disposition of the Notes. A ruling was not sought from the Internal Revenue Service by the County with respect to the Notes or the property financed or refinanced with proceeds of the Notes. No assurances can be given as to whether the Internal Revenue Service will commence an audit of the Notes, or as to whether the Internal Revenue Service would agree with the opinion of Bond Counsel. If an Internal Revenue Service audit is commenced, under current procedures the Internal Revenue Service is likely to treat the County as the taxpayer and the Noteholders may have no right to participate in such procedure. No additional interest will be paid upon any determination of taxability. Wi Federal Income Tax Accounting Treatment of Original Issue Discount Notes The initial public offering price to be paid for one or more maturities of the Notes may be less than the maturity amount thereof or one or more periods for the payment of interest on the Notes may not be equal to the accrual period or be in excess of one year (the "Original Issue Discount Notes "). In such event, the difference between (i) the "stated redemption price at maturity" of each Original Issue Discount Note, and (ii) the initial offering price to the public of such Original Issue Discount Note would constitute original issue discount. The "stated redemption price at maturity" means the sum of all payments to be made on the Notes less the amount of all periodic interest payments. Periodic interest payments are payments which are made during equal accrual periods (or during any unequal period if it is the initial or final period) and which are made during accrual periods which do not exceed one year. Under Existing Law, any owner who has purchased such Original Issue Discount Note in the initial public offering Y P g p g is entitled to exclude from gross income (as defined in section 61 of the Code) an amount of income with respect to such Original Issue Discount Note equal to that portion of the amount of such original issue discount allocable to the accrual period. For a discussion of certain collateral federal tax consequences, see discussion set forth below. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Note prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Note in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Note was held by such initial owner) is includable in gross income. Under Existing Law, the original issue discount on each Original Issue Discount Note is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six -month period ending on the date before the semiannual anniversary dates of the date t1Y of the Notes and ratably within each such six -month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Note for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the r close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Original Issue Discount Note. s 12 W The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original Issue Discount Notes which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ fromjthose described above. All owners of Original Issue Discount Notes should consult their own tax advisors with respect to the determinatijn for federal, state and local income tax purposes of the treatment of interest accrued upon redemption, sale or other disposition o4 such Original Issue Discount Notes and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Notes. fill Prospective purchasers should be aware that because the first interest payment will be made more than one year after the issue date Of the Notes, the first payment may be treated as original issue discount. While such treatment of the payment will not adversely affekt the excludability of the interest portion of the payment from a holder's gross income, special tax accounting treatment may apply. This tax e accounting treatment would cause a portion of the interest payment to be recognized in the taxable year in which the Not are purchased, rather than the taxable year in which the payment is received by the holder. This treatment may accelerate any alternative minimum tax consequences for corporations, the recognition of any portion of the payment which is treated as market discount arjd any other collateral federal income tax consequences for certain holders. Prospective purchasers should consult their tax advisors for 'S advice regarding such consequences. Collateral Federal Income Tax Consequences The following discussion is a summary of certain collateral federal income tax consequences resulting from the purchase, ownership or disposition of the Notes. This discussion is based on existing statutes, regulations, published rulings and court decisions, all of which are subject to change or modification, retroactively. sr The following discussion is applicable to investors, other than those who are subject to special provisions of the Code, such as financial institutions, property and casualty insurance companies, life insurance companies, individual recipients of Social Security or Railroad Retirement benefits, individuals allowed an earned income credit, certain S corporations with accumulated earnings and profijs and excess passive investment income, foreign corporations subject to the branch profits tax and taxpayers who may be deemed tci have incurred or continued indebtedness to purchase tax- exempt obligations. THE DISCUSSION CONTAINED HEREIN MAY NOT BE EXHAUSTIVE. INVESTORS, INCLUDING THOSE WHO1 ARE tin SUBJECT TO SPECIAL PROVISIONS OF THE CODE, SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM THE PURCHASE, OWNERSHIP AND DISPOSITIOb,' OF TAX - EXEMPT OBLIGATIONS BEFORE DETERMINING WHETHER TO PURCHASE THE NOTES. so Under section 6012 of the Code, holders of tax- exempt obligations, such as the Notes, may be required to disclose interest receited or accrued during each taxable year on their returns of federal income taxation. 4 Section 1276 of the Code provides for ordinary income tax treatment of gain recognized upon the disposition of a tax- exempt obligation, such as the Notes, if such obligation was acquired at a "market discount" and if the fixed maturity of such obligation is equal fto, or exceeds, one year from the date of issue. Such treatment applies to "market discount bonds" to the extent such gain does not exce¢d the accrued market discount of such bonds; although for this purpose, a de minimis amount of market discount is ignored. A "tarket discount bond" is one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturityi or, in ' the case of a bond issued at an original issue discount, the "revised issue price" (i.e., the issue price plus accrued original issue discount). The "accrued market discount" is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the number of days between the acquisition date and the final maturity date. rr State, Local and Foreign Taxes Investors should consult their own tax advisors concerning the tax implications of the purchase, ownership or disposition of the Notes under applicable state or local laws. Foreign investors should also consult their own tax advisors regarding the tax consequences gnique to investors who are not United States persons. Qualified Tax - Exempt Obligations for Financial Institutions i111 Section 265(a) of the Code provides, in pertinent part, that interest paid or incurred by a taxpayer, including a "financial institution," on indebtedness incurred or continued to purchase or carry tax - exempt obligations is not deductible in determining the taxpayers taxable income. Section 265(b) of the Code provides an exception to the disallowance of such deduction for any interest expense paid or au incurred on indebtedness of a taxpayer that is a "financial institution" allocable to tax- exempt obligations, other than "private activity bonds," that are designated by a "qualified small issuer" as "qualified tax- exempt obligations." A "qualified small issuer" is any governmental issuer (together with any "on- behalf of and "subordinate" issuers) who issues no more than $10,000,000 of tax - exempt obligations during the calendar year, except that such amount will be $30,000,000 for taxable years beginning after December 31; 2008 tis and ending prior to January 1, 2011. Section 265(6)(5) of the Code defines the term "financial institution" as any "bank" described in Section 585(a)(2) of the Code, or any person accepting deposits from the public in the ordinary course of such person's trade or business that is subject to federal or state supervision as a financial institution. Notwithstanding the exception to the disallowance of the deduction of interest on indebtedness related to "qualified tax - exempt obligations" provided by section 265(b) of the Code, section 291 of the Code 13 t provides that the allowable deduction to a "bank," as defined in section 585(a)(2) of the Code, for interest on indebtedness incurred or • continued to purchase "qualified tax - exempt obligations" shall be reduced by twenty- percent (20 %) as a "financial institution preference item." The County has designated the Notes as "qualified tax - exempt obligations" within the meaning of section 265(b) of the Code. In furtherance of that designation, the County will covenant to take such action that would assure, or to refrain from such action that would adversely affect, the treatment of the Notes as "qualified tax - exempt obligations." Potential purchasers should be aware that if the • issue price to the public exceeds $10,000,000 ($30,000,000 for taxable years beginning after December 31, 2008 and ending prior to January 1, 2011), there is a reasonable basis to conclude that the payment of a de minimis amount of premium in excess of 510,000,000 ($30,000,000 for taxable years beginning after December 31, 2008 and ending prior to January 1, 2011) is disregarded; however, the Internal Revenue Service could take a contrary view. If the Internal Revenue Service takes the S position that the amount of such premium is not disregarded, then such obligations might fail to satisfy the aforementioned dollar limitation and the Notes would not be "qualified tax - exempt obligations." CONTINUING DISCLOSURE OF INFORMATION In the Order, the County has made the following agreement for the benefit of the holders and beneficial owners of the Notes. The County is required to observe the agreement for so long as it remains obligated to advance funds to pay the Notes. tinder the agreement, the County will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified di material events, to the Municipal Securities Rulemaking Board ( "MSRB ") via the Electronic Municipal Market Access ( "EMMA ") system. This information will be available free of charge from the MSRB at www.emma.msrb.orv. Annual Reports The information to be updated includes the information in this Official Statement under Tables 1 through 7 and 9 through 12 in Appendix A, and in Appendix C. The County will update and provide this information within six months after the end of each fiscal year ending in or after 2009. The County will provide the updated information to the MSRB in an electronic format prescribed by the MSRB. The County may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2 -12 (the `Rule "). The updated information will include audited financial statements, if the County commissions an audit and it is completed by the required time If audited financial statements are not available by the required time, the County will provide unaudited financial statements by the required time, and will provide audited financial statements when and if an audit report becomes available. Any such financial statements will be prepared in accordance with the accounting principles described in YY Appendix C or such other accounting principles as the County may be required to employ from time to time pursuant to State law or regulation. The County's current fiscal year end is September 30. Accordingly, it must provide updated information by the last day of March in IY11 each year, unless the County changes its fiscal year. If the County changes its fiscal year, it will notify the MSRB. Material Event Notices Itr The County will also provide timely notices of certain events to the MSRB. The County will provide notice of any of the following events with respect to the Notes, if such event is material to a decision to purchase or sell the Notes: (1) principal and interest payment delinquencies; (2) non - payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their t� failure to perform; (6) adverse tax opinions or events affecting the tax- exempt status of the Notes; (7) modifications to rights of holders of the Notes; (8) redemption calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Notes; and (11) rating changes. Neither the Notes nor the Order make any provision for debt service reserves, liquidity enhancement or credit enhancement, and the Notes are not subject to redemption. In addition, the County will provide timely notice of any failure by the County to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports ". The County will provide each notice described in this paragraph the MSRB. e Availability of Information from MSRB and SID Effective July 1, 2009 (the "EMMA Effective Date "), the SEC implemented amendments to the Rule which approved the establishment by the MSRB of EMMA, which is now the sole successor to the national municipal securities information repositories with respect to tfi filings made in connection with undertakings made under the Rule after the EMMA Effective Date. Commencing with the EMMA Effective Date, all information and documentation filing required to be made by the County in accordance with its undertaking made for the Notes will be made with the MSRB in electronic format in accordance with MSRB guidelines. Access to such filings will be provided, without charge to the general public, by the MSRB. The County will continue to make information filings, including material i event notices, with the Texas state information repository (the "SID ") for so long as it is required to do so pursuant to the terms of any undertakings made under the Rule prior to the EMMA Effective Date. Y.1 14 11f The Municipal Advisory Council of Texas (the "MAC ") has been designated by the State and approved by the SEC staff as a qudlified SID. The address of the MAC is 600 West 8th Street, P.O. Box 2177, Austin, Texas 78768 -2177, and its telephone number is 512/476 - 6947. Limitations and Amendments g The County has agreed to update information and to provide notices of material events only as described above. The County his not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The County makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell the Notes dt any future date. The County disclaims any contractual or tort liability for damages resulting in whole or in part from any breach iof its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of the Notes may seek a Nrit of mandamus to compel the County to comply with its agreement. No default by the County with respect to its continuing disclosure agreement shall constitute a breach of or default under the Order for purposes of any other provision of the Order. Nothing ip this paragraph is intended or shall act to disclaim, waive, or otherwise limit the duties of the County under federal and state securitiesaws. The County's undertakings and agreements are subject to appropriation of necessary funds and to applicable legal restrictions. The continuing disclosure agreement may be amended by the County from time to time to adapt to changed circumstances that! arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the Count, but only if (1) the provisions, as so amended, would have permitted an underwriter to purchase or sell the Notes in the primary offering of the Notes in compliance with the Rule, taking into account any amendments or interpretations of the Rule since such offering as vlell as such changed circumstances and (2) either (a) the registered owners of a majority in aggregate principal amount (or any greater athount required by any other provision of the Order that authorizes such an amendment) of the outstanding Notes consent to such amendmnnt or (b) a person that is unaffiliated with the County (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interest of the registered owners and beneficial owners of the Notes. The County may also amend or repePI the • provisions of the continuing disclosure agreement if the SEC amends or repeals the applicable provision of the Rule or a court ot final jurisdiction enters judgment that such provisions of the Rule are invalid, but only if and to the extent that the provisions of this se tence would not prevent an underwriter from (awfully purchasing or selling the Notes in the primary offering of the Notes. If the C unty amends its agreement, it must include with the next financial information and operating data provided in accordance with its agre ment /Irt described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact f any change in the type of information and data provided. Compliance with Prior Undertakings it During the last five years, the City has complied in all material respects with all continuing disclosure agreements made by it in accordance with the Rule. tw OTHER PERTINENT INFORMATION The Notes as Legal Investments in Texas ■ l Section 1201.041, Texas Government Code, provides that the Notes are (1) negotiable instruments, (2) investment securities to which Chapter 8, Business & Commerce Code, applies, and (3) legal and authorized investments for insurance companies, fiduciar es or trustees and the sinking funds of a municipality or other political subdivision or public agency of the State. For the Notes to be eligible investments for municipalities, political subdivisions or public agencies of the State, the Public Funds Investment Act, Chapter 256, Texas Government Code, provides a rating of "A" or its equivalent as to investment quality must be assigned by a national ating agency. The Texas Finance Code also contains provisions that, subject to the prudent investor standard, provide for the Notes to be legal investments for state banks, savings banks, trust companies with capital of one million dollars or more, and savings and loan associations. Furthermore, the Notes are eligible to secure the deposits of any public funds of the State, its agencies and its political subdivisions and are legal security for those deposits to the extent of their market value. No review by the County has been made of the laws in other states to determine whether the Notes are legal investments for various institutions in those states. soh Ratings The Notes have been assigned a rating of "AA -" by Standard & Poor's Ratings Group, a division of The McGraw -Hill Companief, Inc. ( "S &P "). See "OTHER PERTINENT INFORMATION - Ratings" herein. ui An explanation of the significance of such rating may be obtained from S &P. The rating of the Notes reflects only the view of said company at the time the rating is given, and the County makes no representations as to the appropriateness of the rating. There; is no assurance that the rating will continue for any given period of time, or that the rating will not be revised downward or withdrawn edtirely • by S &P, if, in the judgment of S &P, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Notes. 15 • •r • Registration and Qualification of Notes for Sale The sale of the Notes has not been registered under the federal Securities Act of 1933, as amended, in reliance upon the exception provided thereunder by Section 3(a)(2); and the Notes have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Notes been qualified under the securities acts of any jurisdiction. The County assumes no responsibility for qualification of the Notes under the securities laws of any jurisdiction in which the Notes may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the IW Notes shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions. Pending Litigation In the opinion of various officials of the County, there is no litigation or other proceedings pending against or, to their knowledge, threatened against the County in any court, agency, or administrative body (either state or federal) wherein an adverse decision would materially adversely affect the financial condition of the County. Authenticity of Financial Information • The financial data and other information contained herein have been obtained from the County's records, audited financial statements r and other sources which are believed to be reliable. All of the summaries of the statutes, documents and orders contained in this Official Statement are made subject to all of the provisions of such statutes, documents and orders. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. Underwriter Pursuant to a purchase agreement between the County and the Underwriter, the Underwriter has agreed, subject to certain conditions, to purchase the Notes from the County at the initial offering prices shown on the inside cover page hereof, less an underwriting discount of $29,145.00. The Underwriter's obligation is subject to certain conditions precedent. The Underwriter will be obligated to purchase all of the Notes if any Notes are purchased. The Notes to be offered to the public may be offered and sold to certain dealers (including the di Underwriter and other dealers depositing the Notes into investment trusts) at prices lower than the public offering prices of such Notes and such public offering prices may be changed, from time to time, by the Underwriter. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the iS information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Financial Advisor RBC Capital Markets Corporation is employed as Financial Advisor to the County in connection with the issuance of the Notes. The fees for the Financial Advisor are contingent upon the issuance, sale and delivery of the Notes. In this capacity, the Financial Advisor has compiled certain data relating to the Notes and has assisted in drafting this Official Statement. The Financial Advisor has not independently verified any of the data contained herein or conducted a detailed investigation of the affairs of the County to determine the accuracy or completeness of this Official Statement. Because of its limited participation, the Financial Advisor assumes no responsibility for the accuracy or completeness of any of the information contained herein. Forward- Looking Statements YtYf The statements contained in this Official Statement, and any other information provided by the County, that are not purely historical, are forward- looking statements, including statements regarding the County's expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward - looking statements. All forward- looking statements included in this Official IVIYi Statement are based on information available to the County on the date hereof, and the County assumes no obligation to update any such forward- looking statements. It is important to note that the County's actual results could differ materially from those in such forward - looking statements. The forward- looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, tit and legislative, judicial, and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the County. Any of such assumptions could be Illi 16 sib u si inaccurate and, therefore, there can be no assurance that the forward- looking statements included in this Official Statement will prove to be accurate. r Concluding Statement The Order will approve the form and content of this Official Statement, and any addenda, supplement or amendment thereto, an{I will • authorize its further use in the reoffering of the Notes by the Underwriter in accordance with the provisions of the Securitie$ and Exchange Commission's rule codified at 17 C.F.R. Section 240.15c2 -12, as amended. iY KERR COUNTY, TEXAS Hon. Pat Tinley nir County Judge ATTEST: Jannett Pieper County Clerk NIP Yit tr r t 17 s s li r f [This page intentionally left blank] MS s ffY YI/ w tit e rr APPENDIX A FINANCIAL INFORMATION or REGARDING THE COUNTY s +r rr it o sal* so s s [This page intentionally left blank] S iYf e so lib 1W rIf rt iYlii FINANCIAL INFORMATION REGARDING ism KERR COUNTY, TEXAS it Table 1- Valuations, Exemptions and Tax Supported Debt 2009/10 Market Valuation Established by Kerr County Appraisal County (excluding totally exempt property) $ 5,810,548 Si Less Exemptions /Reductions at 100% Market Value 10% Lost to Cap Adjustment $ 26,6461435 Homestead Exemption 38,479$95 lr Disabled Veterans 23,018'209 Productivity Loss 1,837,762 42 Value Lost Due to Freeze 750,762/025 to Other 8941678 Total $ 2,677,5631184 s 2009/10 Net Taxable Assessed Valuation $ 3,132,985,438 County Funded Debt Payable from Ad Valorem Taxes (as of October 1, 2009): Outstanding General Obligation Debt S 3,550'000 we The Notes 4,350000 Total Indebtedness Payable from Ad Valorem Taxes $ 7,9001000 Ratio County Funded Debt/2009 /10 Net Taxable Assessed Valuation 0125% to County Interest and Sinking Fund Balance as of September 30, 2009 $ 131 083 (1) 2009 Estimated Population 47,254 Per Capita Taxable Assessed Valuation $ 66,300.96 Per Capita Debt Payable from Ad Valorem Taxes $ 167.18 (I) Unaudited. Table 2 - Other Obligations The City has entered in various capital lease agreements with Security State Bank and Trust, Caterpillar Financial Sertfices WY and Ford Motor Credit Corporation for eqipment purchases. The leases qualify as capital leases for accounting purposds as defined under the Financial Accounting Standards Board Statement No.13, "Accounting for Leases ", and therefore have been recorded at the present value of future minimum lease payments at the date of inception. Lease payments are being made is from the General Fund. Fiscal Year Ending 9/30 Principal 2010 $ 145,089 - 2011 91,348 2012 102,108 2013 45,637 to 2014 45,637 $ 429,819 +r A -1 to Table 3 - Taxable Assessed Valuation by Category m iii Taxable Appraised Value for Fiscal Year Ended September 30, 2010 2009 2008 III %of % of %of Category Value Total Value Total Value Total Real, Residential, Single Family $ 2,150,690,532 37.01% $ 2,106,777,476 37.02% S 1,885,009,339 36.81% Real Residential, Multi- Family 95,036,346 1.64% 81,819,476 1.44% 75,397,716 1.47% Real, VacantLots /Tracts 102,422,120 1.76% 98,908,697 1.74% 95,388,321 1.86% Real, Acreage (Land Only) 2,024,314,855 34.84% 2,019,504,288 35.49% 1,795,833,260 35.07% Real, Farm and Ranch Improvements 703,658,122 12.11% 653,005,850 11.47% 589,688,316 11.52% le Real, Commercial and Industrial 412,919,011 7.11% 403,485,063 7.09% 377,307,668 7.37% Real, Minerals and Oil - 0.00% - 0.00% - 0.00% Real, Tangible Personal, Utilities 76,444,892 1.32% 75,261,230 1.32% 71,388,211 1.39% Ili Tangible Personal, Commercial & Industrial 164,415,774 2.83% 177,125,256 3.11% 157,087,873 3.07% Mobile Homes 56,578,168 0.97% 53,983,867 0.95% 53,322,572 1.04% Tangible Personal, Other 10,000 0.00% 10,000 0.00% - 0.00% Residential Inventory 15,886,319 0.27% 10,866,742 0.19% 10,708,011 0.21% S Special Inventory 8,172,483 0A4% 10,020,792 0.18% 9,495,744 0.19% Total Appraised Value Before Exemptions S 5,810,548,622 100.00% $ 5,690,768,737 100.00% S 5,120,627,031 100.00% Less: Total Exemptions/ Reductions 2,677,563,184 2,664,878,041 2,312,283,677 iiii Net Taxable Assessed Value $ 3,132,985,438 $ 3,025,890,696 S 2,808,343,354 iiii Taxable Appraised Value for Year Ended September 30, 2007 2006 % of % of Category Value Total Value Total t Real, Residential, Single Family $ 1,613,549,203 41.54% $ 1,507,989,909 41.54% Real Residential, Multi- Family 59,232,131 1.53% 55,357,132 1.53% Real, Vacant Lots /Tracts 86,295,508 2.22% 80,650,007 2.22% Real, Acreage (Land Only) 1,061,697,452 27.34% 992,240,609 27.34% Si Real, Farm and Ranch Improvements 453,264,298 11.67% 423,611,493 11.67% Real, Commercial and Industrial 306,276,299 7.89% 286,239,532 7.89% Real, Minerals and Oil - 0.00% - 0.00% to Real, Tangible Personal, Utilities 72,423,506 1.86% 67,685,520 1.86% Tangible Personal, Commercial & Industrial 156,510,685 4.03% 146,271,668 4.03% Mobile Homes 55,633,446 1.43% 51,993,875 1.43% Tangible Personal, Other - 0.00% - 0.00% is Residential Inventory 9,972,430 0.26% 9,320,028 0.26% Special lnventory 9,060,578 0.23% 8,467,830 013% Total Appraised Value Before Exemptions $ 3,883,915,536 100.00% $ 3,629,827,603 100.00% Ili Less: Total Exemptions/ Reductions 1,619,681,910 1,526,713,797 Net Taxable Assessed Value $ 2,264,233,626 $ 2,103,113,806 IS (I) Obtained from property tax reports provided by the Kerr County Appraisal District and the State of Texas Comptroller of Public Accounts. rail NO Illo t A -2 till as Table 4 - Valuation and Tax Supported Debt Histor as Fiscal Net Year Taxable Bonded Ratio of Debt Ended Assessed Debt to Assessed • au 09/30 Valuation History Valuation ` 2000 $ 1,854,480,694 $ 11,970,000 0.65% 2001 1,951,844,134 7,185,000 0.37% 2002 2,114,928,954 6,360,000 0.30% 2003 2,263,630,948 5,500,000 0.24% 2004 2,423,553,240 4,605,000 0.19% 2005 2,560,823,279 5,665,000 0.22% to 2006 2,103,113,806 4,760,000 0.23% 2007 2,264,233,626 3,770,000 0.17% 2008 2,808,343,354 4,515,000 0.16% 2009 3,025,890,696 3,550,000 0.12% r 2010 3,132,985,438 7,900,000 0.25% Table 5 - Tax Rate, Levy and Collection History •r Interest FM and Tax Tax General and Sinking Lateral Tax % Collections Fiscal Year Year Rate Fund Fund Roads Lew Current Total Ended so 1999 $ 0.3513 $ 0.2615 $ 0.0526 S 0.0372 $ 6,502,606 93.70% 101.70% 09/30/2000 2000 0.3513 0.2772 0.0527 0.0214 6,439,133 96.90% 100.30% 09/30/2001 2001 0.3721 0.2950 0.0537 0.0234 7,604,669 97.00% 99.03% 09/10/2002 ai 2002 0.3721 0.2986 0.0501 0.0234 8,019,035 97.50% 100.13% 09/30/2003 2003 0.3721 0.2937 0.0475 0.0309 8,294,863 98.06% 100.82% 09/30/2004 2004 0.3721 0.2946 0.0466 0.0309 9,495,860 97.52% 99.90% 09/30/2005 - 2005 0.3896 0.3162 0.0425 0.0309 8,193,731 98.12% 100.95% 09/30/2006 2006 0.3896 0.3149 0.0438 0.0309 8,821,454 98.16% 99.43% 09/30/2007 2007 0.3896 0.3154 0.0438 0.0304 10,941,306 98.77% 100.59% 09/30/2008 as 2008 0.4293 0.3592 0.0379 0.0322 12,990,149 98.78% 100.06% 09/30/2009 2009 0.4293 0.3592 0.0379 0.0322 13,449,906 In Process of Collection 09/30/2010 Source: County Financial Records and Kerr County Appraisal District in Table 6 - County Sales Tax History so Fiscal % of Equivalent Year Ad Ad Ending Total Valorem Valorem as 9/30 Collected Tax Levy Tax Rate 2000 $ 1,891,533 29.09% $ 0.10200 2001 1,879,498 29.19% 0.09629 2002 1,997,705 26.27% 0.09446 is 2003 2,112,617 26.35% 0.09333 2004 2,234,434 26.94% 0.09220 2005 2,371,268 24.97% 0.09260 •+ 2006 2,586,878 31.57% 0.12300 2007 2,721,948 30.86% 0.12021 2008 2,857,140 26.11% 0.10174 wo 2009t 2,837,402 21.84% 0.09377 Source: Texas Comptroller of Public Accounts and Kerr County Appraisal District r (I) Unaudited. A -3 • s Table 7 - Ten Largest Taxpayers ns 2009/10 Taxable Percent Name of Taxpavei Nature of Property Assessed Valuation of Total Windstream Conununication Kerrville LP Telephone Utility $ 35,078,947 1.12% la James Avery Craftsmen, Inc. Jewelry Manufacturer 16,538,726 0.53% Wal -Mart Stores Retail Superstore 14,933,241 0.48% LCRA Transmission Services Corp. Electric Utility 11,015,262 0.35% illi Comanche Trace Ranch & Golf Club Golf Club 10,583,671 0.34% Sunwest Management Inc Assisted Living Facility 9,374,696 0.30% Hill Country Telephone Co -op Telephone Utility 8,851,504 0.28% Si Mooney Aircraft Corp. Aircraft Manufacturer 8,387,778 0.27% Home Depot USA, Inc. Retail Superstore 7,040,852 0.22% Fatjo, Thomas J h Real Estate 6,661,492 0.21% Nit $ 128,466,169 4.10% Sources: Kerr County Appraisal District ii Table 8 - Estimated Overlapping Debt Statement et Percentage Amount Taxing Both Amount As of Overlayine Overlaying Center Point ISD $ 1,660,000 12/31/2009 100.00% $ 1,660,000 lin Comfort ISD 21,282,989 12/31/2009 25.71% 5,471,856 Harper ISD - 12/31/2009 8.61% - Hunt ISD - 12/31/2009 100.00% - Ili Ingram ISD 3,980,000 12/31/2009 100.00% 3,980,000 Kerrville ISD 28,725,000 12/31/2009 100.00% 28,725,000 Kerrville, City of 12,522,648 12/31/2009 100.00% 12,522,648 Lake Ingram Estates Road District 208,000 12/31/2009 100.00% 208,000 all Medina ISD - 12/31/2009 5.63% - Total Overlapping Debi $ 52,567,504 ES Kerr County (including the Notes) $ 7,900,000 12/31/2009 100.00% $ 7,900,000 Total Direct and Overlapping Debt $ 60,467,504 s Ratio Overlapping Debt to Taxable Assessed Valuation 1.93% Ratio Overlapping Debt to Total Assessed Valuation 1.04% 4 Per Capita Overlapping Debt $ 1,279.63 Note: Expenditures of the various taxing bodies also containing the territory of the County are paid out of ad valorem taxes levied la by these taxing bodies on properties within the County. These political taxing bodies are independent of the County and may incur borrowings to finance their expenditures. The statement of direct and estimated overlapping ad valorem tax debt was developed from information contained in "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. Ylli Except for the amounts relating to the County, the County has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities iii may have issued additional debt since the date stated in the table, and such entities may have programs requiring the issuance of substantial amounts of additional debt, the amount of which cannot be determined. The table reflects the estimated share of overlapping net debt of the various taxing bodies. iYi A-4 0 Table 9 - Proforma Outstanding Limited Tax General Obligation Debt Service Requirements Fiscal Total f ' Year Outstanding Outstanding Ended Debt Tax Notes, Series 2010 Debt 09/30 Service Pri Interest Total Service 2010 $ 1,181,510 $ 1,181,510 2011 856,404 $ 65,000 $ 241,513 (I) $ 306,513 (0 1,162,916 (1) 2012 865,088 425,000 144,825 569,825 1,434,913 2013 894,520 410,000 132,300 542,300 1,436,820 2014 - 1,080,000 104,550 1,184,550 1,184,550 2015 - 1,155,000 62,738 1,217,738 1,217,738 2016 - 1,215,000 21,263 1,236,263 1,236,263 TOTAL $ 3,797,521 $ 4,350,000 $ 707,188 $ 5,057,188 $ 8,854,709 (1) Includes accrued interest of $10,210.00. Authorized but Unissued General Obligation Bonds: The County has no authorized but unissued bonds. However, the County intends to issue additional tax secured debt in the next 12 -18 months. Table 10 - Tax Adequacy for Limited Tax Bonds County's Interest and Sinking Fund Balance as of September 30, 2009 $ 131,083 2009 /10 Taxable Assessed Valuation 3,132,985,438 Estimated Maximum Debt Service for the Fiscal Year Ending September 30, 2013 1,436,820 Indicated Interest and Sinking Fund Tax Rate 0.0459 Indicated Interest and Sinking Fund Tax Levy 1,438,040 Estimated 96% Tax Collections 1,380,519 Yr A -5 a Table 11 - General Fund Revenues and Expenditures Fiscal Years Ended September 30, A 2008 2007 2006 2005 2004 Revenues: Pa Ad Valorem Taxes $ 8,241,673 $ 7,113,744 5 7,072,027 $ 6,409,144 $ 5,976,364 Other Taxes, Licenses and Permits 2,980,794 2,936,460 2,777,594 2,408,708 2,287,290 Automobile Registration - - - - - Intergovemmental 336,034 194,397 575,822 210,565 411,318 iiii Fines and Forfeitures 397,420 321,367 325,696 706,389 769,519 Fee of Office 2,009,973 1,892,035 1,851,156 1,295,385 1,107,202 Interest 166,132 197,523 197,768 147,078 66,917 Miscellaneous 335,236 336,851 368,802 587,983 421,013 Itii Total Revenues $ 14,467,262 $ 12,992,377 $ 13,168,865 $ 11,765,252 $ 11,039,623 Expenditures: iiiii Current: General Government $ 3,274,644 $ 3,015,335 $ 3,285,613 $ 2,026,214 $ 1,758,172 Administration of Justice 9,493,530 8,972,080 8,934,335 8,249,155 7,556,408 Health and Welfare Services 556,566 532,365 457,636 959,755 923,116 iii Community and Economic Development 512,174 434,534 - - - Infrastructure and Environmental 240,483 195,900 - - - Tax Administration - - 542,448 506,095 505,592 Debt Service S Principal 87,237 90,059 91,876 153,361 168,818 Interest and Fees 4,480 2,506 6,776 9,528 8,593 Capital Outlay 249,973 139,898 25,398 224,404 224,929 IS Total Expenditures $ 14,419,087 $ 13,382,677 $ 13,344,082 $ 12,128,512 $ 11,145,628 Excess /(Deficiency) of Revenues Over Expenditures $ 48,175 $ (390,300) $ (175,217) $ (363,260) $ (106,005) flit Other Financing Sources 182,441 105,206 244,211 67,549 174,007 Other Financing (Uses) - - (487,941) (985,787) (28,388) Beginning Fund Balance 2,343,974 2,629,068 3,048,015 4,329,512 4,289,898 Prior Year Adjustment - - - - - IS Ending Fund Balance - September 30 $ 2,574,590 $ 2,343,974 $ 2,629,068 $ 3,048,014 $ 4,329,512 (1) The County estimates the Ending Fund Balance for the Fiscal Year Ended September 30, 2009 will be approximately $3,010,050. S Source: County's Audited Financial Statements for the Fiscal Years Ended September 30, 2004 - September 30, 2008. Table 12 - Current Investments (as of December 31, 2009) Ilf(f Investment Description Total Invested Percent Texas Security Bank $ 246,936 6.82% ril Certificates of Deposit 1,737,513 47.97% Texpool 1,637,563 45.21% Total $ 3,622,012 100.00% Yii t iii A -6 Ili all as APPENDIX B KERR COUNTY, TEXAS ECONOMIC AND DEMOGRAPHIC INFORMATION r r r rr di Mai s SO s [This page intentionally left blank] s r ilY s Si "" KERR COUNTY, TEXAS ECONOMIC AND DEMOGRAPHIC INFORMATION no Overview Kerr County is a central Texas county with an economy based on agriculture, tourism, and manufacturing. The Texas Almanac designates cattle, sheep and goats as the principal source of agricultural income. l Economy r Kerr County's economy is based on a combination of manufacturing, agri- business and tourism. There are 10 manufacturing plants in Kerr County employing over 20 employers each and producing products ranging from aircraft, boats, jewelry, parts and high tech plastics to pre- fabricated buildings and building components. Much of the resources from agribusiness involve cattle, sheep, goats, cedar posts, hay, oats, milo, wheat, and pecans. There are three major hospitals located in Kerrville, employing approximately 1,750 people. These a hospitals include Kerrville State Hospital, the Veterans Administration Hospital and Sid Peterson Memorial Hospital. The City's location along the Guadalupe River in the heart of the beautiful Texas Hill Country, together with many vacation resorts and r numerous summer camps for young people, make Kerrville a haven for tourists and conventions as well as a popular retirement area. Within the City are 19 hotels with approximately 1200 rooms, including the rooms at the famous Inn of Hills River Resort and Y.O. Hilton. The Hill Country Arts Foundation was founded in 1958 to provide are classes and summer theatre for professionals and amateurs, plus a special children's program. These three major aspects of the economy are supported by a strong retail, wholesale and service trade. sr Population Trend 2004 -2008 law 2008 2007 2006 2005 2004 Kerr County 47,254 46,912 46,571 46,230 45,800 State of Texas 24,326,974 23,843,432 23,367,534 22,811,128 22,405,900 au Source: Labor Market Information Department, Texas Workforce Commission. in KERR COUNTY LABOR FORCE STATISTICS Labor Force History it 2009 2008 2007 2006 2095 Labor Force 23,785 23,330 22,622 22,531 22,674 Percent IncreaseA(Decrease) 1.9% 3.1% 0.4% (0.6 %) 4.5% f Employed 22,509 22,400 21,820 21,611 21,749 Percent Increase \(Decrease) 0.5% 2.7% 1.0% (0.6 %) 5,2% vs Unemployed 1,277 930 802 920 925 Percent Increase \(Decrease) 37.3% 16.0% (12.8 %) (0.5 %) (9.9 %) or Percent of Labor Force Unemployed 5.0% 4.0% 3.5% 4.1% 4.1% (A) As of August 2009. Source: Labor Market Information Department, Texas Workforce Commission. se Comparative Unemployment Rates is 2009 2008 2007 2006 2005 Kerr County 5.0% 4.0% 3.5% 4.1% 4.1% State of Texas 7.2 4.9 4.4 4.9 5.4 United States of America 9.1 5.8 4.6 4.6 5.1 fa (A) As of August 2009. Source: Labor Market Information Department, Texas Workforce Commission. MS 8 -1 r 1 s s [This page intentionally left blank] is ft i 1111 s IW no r r APPENDIX C AUDITED FINANCIAL STATEMENT r FOR THE YEAR ENDED SEPTEMBER 30, 2008 rr 1 s s s s w a [This page intentionally left blank] IS YIY flri IS 1 s s no BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION COUNTY OF KERR, At TEXAS Kerrville, Texas For the Year Ended September 30, 2008 out as crr in 4 1 s .r w e t KERR COUNTY, TEXAS sr BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION rr SEPTEMBER 30, 2008 Nit r s e ,. KERR COUNTY, TEXAS ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED SEPTEMBER 30, 2008 wr TABLE OF CONTENTS Exhibit Page Independent Auditors' Report 1 Management's Discussion and Analysis 2 Basic Financial Statements Government Wide Statements: A -1 Statement of Net Assets 9 B -1 Statement of Activities 10 W Governmental Fund Financial Statements: C -1 Balance Sheet 11 C -2 Reconciliation for C -1 13 C -3 Statement of Revenues, Expenditures and Changes in Fund Balance 14 C-4 Reconciliation for C-3 16 W Fiduciary Funds: E-1 Statement of Fiduciary Net Assets 17 Notes to the Financial Statements 18 ar Regui_ed Supplementary Information C -5 Budgetary Comparison Schedule - General Fund 34 C -6 Budgetary Comparison Schedule - Road and Bridge Fund 35 e W r NEFFENDORF, KNOPP, DOSS & COMPANY, P.C. Certified Public Accountants P.O. BOX 874 • 736 S. WASHINGTON ST. FREDERICKSBURG, TEXAS 78624-0874 (830) 997 -3348 MEMBER FAX: (830) 997 -3333 MEMBER AMERICAN INSTITUTE OF Email: nkhd @austin.rr.com TEXAS SOCIETY OF t CERTIFIED PUBLIC ACCOUNTANTS CERTIFIED PUBLIC ACCOUNTANTS f INDEPENDENT AUDITOR'S REPORT Honorable Judge and County Commissioners Kerr County, Texas Kerrville, TX 78028 We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Kerr County, Texas, as of and for the year ended September 30, 2008, which collectively comprise the County's basic financial statements as listed in the table of contents. These financial statements are the responsibility of Kerr County, Texas's management. Our responsibility is to express opinions on these financial statements based on our audit. rrfi We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. e In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Kerr County, Texas, as of September 30, 2008, and the respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. The management's discussion and analysis (pages 2 through 8) and budgetary comparison. information (pages 34 and i► 35) are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and sol presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. In accordance with Government Auditing Standards, we have also issued our report dated April 24, 2009 on our it consideration of the County's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering tits the results of our audit. 11.4►IateA , aopp, Cana 4 eanpairtio P e. NEFFENDORF, KNOPP, DOSS & COMPANY, P.C. a Fredericksburg, Texas April 24, 2009 1 tYii KERR COUNTY, TEXAS MANAGEMENTS DISCUSSION AND ANALYSIS (UNAUDITED) i, FOR THE YEAR ENDED SEPTEMBER 30, 2008 MANAGEMENTS DISCUSSION AND ANALYSIS As management of Kerr County, Texas, we offer readers of the County's financial statements this narrative overview and analysis of the financial statements of the County for the year ended September 30, 208. Please read it in conjunction with the independent auditors' report on page 1, and County's Basic Financ al Statements which begin on page 9. FINANCIAL HIGHLIGHTS ON ➢ The assets of the County exceeded its liabilities at the close of the most recent fiscal year by $47,704,943 (net assets). Of this amount, $4,531,929 (unrestricted net assets) may be used to met the County's ongoing obligations to citizen's and creditors. INN ➢ The County's net assets decreased by $282,353; $176,357 as a result of this year's operations abd $105,996 as a result of prior period adjustments. r j ➢ At September 30, 2008, the County's governmental funds reported combined ending fund balances of $5,377,509, an increase of $819,353 in comparison with the prior year. ➢ At September 30, 2008, the unreserved fund balance of the general fund was $2,574,590, or 14.9 percent of total general fund expenditures. ➢ The County issued Tax Anticipation Notes — Series 2008 ($1,780,000) in January 2008 to cover long term capital items such as renovations to the Kerr County Courthouse and the Hill Country Yo{ith * Exhibit Center and vehicles and equipment for the Road and. Bridge Department, Environmental Health Department and Animal Control Department. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The government -wide financial statements w include the Statement of Net Assets and the Statement of Activities (on pages 9 and 10). These provide information about the activities of the County as a whole and present a longer -term view of the County's property and debt obligations and other financial matters. They reflect the flow of total economic resources r in a manner similar to the financial reports of a business enterprise. Fund financial statements (on pages 11 & 14) report the County's operations in more detail than the government -wide statements by providing information about the County's most significant funds. For governmental activities, these statements tell how services were financed in the short term as well as what resources remain for future spending. They reflect the flow of current financial resources, and supply the basis for tax levies and the appropriations budget. r The notes to the financial statements (starting on page 18) provide narrative explanations or additional data needed for full disclosure in the govemment -wide statements or the fund financial statements. ■r 2 r The Budgetary Comparison Schedules (operating fund) are presented as required supplementary information on pages 34 and 35. t Reporting the County as a Whole The Statement of Net Assets and the Statement of Activities The analysis of the County's overall financial condition and operations begins on page 9. Its primary purpose is to show whether the County is better off or worse off as a result of the year's activities. The Statement of Net Assets includes all the County's assets and liabilities at the end of the year while the Statement of Activities includes all the revenues and expenses generated by the County's operations during the year. These apply the accrual basis of accounting which is the basis used by private sector companies. Ail of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. All the County's assets are reported whether they serve the current year or future years. Liabilities are considered regardless of whether they must be paid in the current or future years. These two statements report the County's net assets and changes in them. The County's net assets (the difference between assets and liabilities) provide one measure of the County's financial health, or financial r position. Over time, increases or decreases in the County's net assets are one indicator of whether its financial health is improving or deteriorating. To fully assess the overall health of the County, however, you should consider other factors as well, such as changes in the County's customers or its property tax base tiW and the condition of the County's facilities. In the Statement of Net Assets and the Statement of Activities, the County has one kind of activity: ➢ Governmental activity - Most of the County's basic services are reported here, including the public safety, streets and highways, justice system, juvenile services, health and human services, culture and recreation conservation and development and administration. Property taxes, grants, fees of office, automobile registration, sales tax and other taxes finance most of these activities. tit Reporting the County's Most Significant Funds Fund Financial Statements The fund financial statements on pages 11 & 14 provide detailed information about the most significant funds - not the County as a whole. ➢ Governmental funds - All of the County's basic services are reported in governmental funds. These use modified accrual accounting (a method that measures the receipt and disbursement of cash and all other financial assets that can be readily converted to cash) and report balances that are available for future Wr spending. The governmental fund statements provide a detailed short-term view of the County's general operations and the basic services it provides. We describe the differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds in Note 2 S to the financial statements. Yti e 3 i GOVERNMENT -WIDE FINANCIAL ANALYSIS Net assets of the County's governmental activities decreased from $47,987,293 to $47,704,941. Unrestricted net assets - the part of net assets that can be used to finance day -to -day operations withojit constraints established by debt covenants, enabling legislation, or other legal requirements - was $4,531,929 at September 30, 2008. This decrease in governmental net assets was the result of five factors. First, the County's expenditures exceeded the revenues by $176,357. Second, the County acquired capital assets in the amount of $1,295,578. Third, the County issued long -term debt in the amount of $1,962,441 and paid principal on long -term debt of $1,431,833. Fourth, the County recorded depreciation in the amounts of $1,738,112. Fifth, the County recorded a prior period adjustment of($105,996) to Machinery & Equipment assets. es Table I KERR COUNTY, TEXAS NET ASSETS in thousands Governmental Activities 2008 2007 Current and Other Assets $ 5,826 $ 5,916 Receivables 2,674 2,263 Other Noncurrent Assets 86 30 Capital Assets 46,107 46,680 Total Assets $ 54,693 $ 54,889 Long -Term Liabilities Accounts Payable $ 872 $ 1,234 Other Liabilities and Deferred Revenue 105 516 wr Long -term Debt 6,011 5,152 Total Liabilities $ 6,988 $ 6,902 Net Assets: rr Invested in Capital Assets Net of Related Debt $ 40,370 $ 41,473 Restricted 2,803 2,214 +� Unrestricted 4,532 4,300 Total Net Assets $ 47,705 $ 47,987 Wr 4 Table II KERR COUNTY, TEXAS tit CHANGES IN NET ASSETS in thousands sii Governmental sti Activities 2008 2007 Revenues: Program Revenue Charges for Services $ 4,086 $ 3,244 Operating Grants and Contributions 162 156 Capital Grants and Contributions - 445 General Revenues Property Taxes 12,778 11,687 i► Other Taxes 2,981 2,902 Grants and Contributions 644 - Investment Earnings 238 371 Other General Revenues 1,287 1,627 Total Revenue $ 22,176 $ 20,432 Expenses: General Government $ 4,026 $ 3,287 fati Administration of Justice 4,103 3,930 Public Safety 4,476 4,069 Corrections 3,531 3,048 Health and Human Services 1,647 1,425 Community & Economic Development 1,107 1,022 Infrastructure & Environmental Services 3,198 3,342 �r Long -term Debt Expenditures 264 248 Total Expenses $ 22,352 $ 20,371 e Increase (Decrease) in Net Assets $ (176) $ 61 Net Assets - Beginning 47,987 12,740 Prior Period Adjustment (106) 35,186 • Net Assets - Ending $ 47,705 $ 47,987 W Eli 5 its 4 4* The cost of all governmental activities this year was $22,351,999. However, the amount that our taxpayetis ultimately financed for these activities through County taxes was only $12,778,127 because the other cons were paid by other taxes ($2,980,794), operating grants and contributions ($806,188), user charges ($4, 085, 822) investment earnings ($237,507) and other miscellaneous ($1,287,204). THE COUNTY'S FUNDS As the County completed the year, its governmental funds (as presented in the balance sheet on page 1 }) reported a combined fund balance of $5,377,509, which is less than last year's total of $4,558,156. Included so in this year's total change in fund balance is an increase of $230,616 in the County's General Fund. The primary reason for the General Fund's increase is because expenditures were less than budgeted amounts. The Commissioner's Court adopted the General Fund and Road and Bridge Fund budgets. In the General Fund, actual revenues and expenditures were less than the budgeted amounts, resulting in a net positive variance of $724,068. In the Road and Bridge Fund, actual revenues and expenditures were more than the budgeted amounts, resulting in a net positive variance of $96,053. CAPITAL ASSET AND DEBT ADMINISTRATION fir At September 30, 2008, the County had the following amounts invested in capital assets, net of depreciation: ow CAPITAL ASSETS 4* in thousands 2008 2007 Land $ 497 $ 497 Buildings & Improvements 15,131 15,081 ar Machinery & Equipment 9,373 8,313 Infrastructure 38,680 38,680 Total Capital Assets $ 63,681 $ 62,571 es Accumulated Depreciation 17,574 15,891 Capital Assets, Net $ 46,107 $ 46,680 4 err 6 This year's major additions included: Improvements — oil Youth Exhibit Center $ 41,093 Courthouse — Sidewalk 8,850 Software 21,925 Teleconferencing System 39,800 Security Equipment 196,529 (3) 2008 Chevrolet Tahoes 124,242 S (2) 2008 Ford Crown Victorias 56,678 (5) 2008 Ford F150 Crew Cabs 92,756 (2) 2008 Ford F350 Crew Cabs 55,706 ' (2) John Deere Tractors 70,103 Gradall XL3100 206,530 Vermeer Brush Chipper 40,642 Case Motor Grader 133,360 2002 GMC C -7500 Cab with Altec is Model LRV56 71,545 2007 Chevrolet Dump Truck 64,929 2008 Dodge Ram 3500 28,509 ems Other Equipment & Furniture 42,381 TOTALS $ 1,295,578 r More detailed information about the County's capital assets is presented in Note 3.D. to the financial statements. it DEBT At September 30, 2008, the County had the following outstanding debt: OUTSTANDING DEBT in thousands us 2008 2007 rw Certificates of Obligation $ 4,515 $ 3,770 Notes Payable 642 786 Capital Leases 525 596 tes Total Outstanding Debt $ 5,682 $ 5,152 For governmental activities, the County had $5,682,574 in certificates of obligation and other long -term 0 debt outstanding, an increase of 10.3 percent. The County paid $1,431,833 in principal on the outstanding long -term debt, and issued $1,780,000 in Tax Note Certificates of Obligation and $182,441 in capital lease obligations. s More detailed information about the County's Tong -term liabilities is presented in Note 3.F. to the financial statements. y(� Ili 7 • ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES irr The County's elected and appointed officials considered many factors when setting the fiscal -year 2009 budget and tax rates. The major factors are the economy, population growth, and assessed property valuation. These indicators were taken into account when adopting the General Fund budget for 2004. Amounts available for appropriation in the General Fund budget are $17,171,503 and expenditures ate estimated to be $16,979,339. If these estimates are realized, the County's budgetary General fund balance is expected to increase $192,164 by the close of 2009. 011 The total budget for capital expenditures is $163,651 for fiscal -year 2009. The expenditures include equipment for the IT Department, air conditioners for the County Jail, and renovations and vehicles for the Hill Country Youth Exhibit Center. OS CONTACTING THE COUNTY'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditoirs with a general overview of the County's finances and to show the County's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Orr County Auditor or Commissioners' Court at the Kerr County offices in Kerrville, Texas. rr 0r .r rr 10 aun rr rr w 8 ur s [This page intentionally left blank] s Yfl 111Y fill tli VW 1* W WY 1* LW BASIC FINANCIAL STATEMENTS tist • ar u. 4. rr ar KERR COUNTY EXHIBIT A -1 S STATEMENT OF NET ASSETS SEPTEMBER 30, 2008 Primary Government Governmental Activities ASSETS Yfi Cash and Cash Equivalents $ 5,825,359 Receivables (net of allowance for uncollectibles) 823,497 Court Fines and Fees Receivable 1,825,590 Due from Others 25,000 Prepaid Items 46,824 Capitalized Debt Issuance Costs 39,363 Capital Assets: irs Land 497,457 Infrastructure, net 34,282,464 Buildings, net 9,253,856 Machinery and Equipment, net 2,073,530 Total Assets 54,692,940 LIABILITIES Accounts Payable 872,605 Accrued Interest Payable 104,194 Deferred Revenues 537 S Noncurrent Liabilities Due Within One Year 1,310,093 Due in More Than One Year 4,700,568 Total Liabilities 6,987,997 NET ASSETS Invested in Capital Assets, Net of Related Debt 40,370,095 Restricted for: Restricted for Special Revenue 1,651,753 Restricted for Debt Service 96,320 Restricted for Capital Projects 1,051,846 Unrestricted Net Assets 4,531,929 Total Net Assets $ :7,704,943 rr sat The notes to the Financial Statements are an integral part of this statement. S 9 tit to KERR COUNTY EXHIBIT B -1 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2008 • Net (Expdnse) UN Revenuejand Changes ij Net Program Revenues Ansel$ St i Operating Primary b ov. Charges for Grants and Oovemmcntal Expenses Services Contributions Activities Primary Government: GOVERNMENTAL ACTIVITIES: General Goverment $ 4,025,604 $ 1,170,485 $ 235 $ (2,8534,884) it Administration ofJustice 4,103,271 2,148,832 86,700 (1,81,739) Public Safety 4,475,732 222,028 45,852 (4,20(7,852) Convections 3,530,730 414,000 - (3,1116,730) oti Health and Human Services 1,646,725 28,783 252 (1,617',690) Community and Economic Development 1,107,461 - - (147,461) Infrastructure and Environmental 3,198,049 101,694 28,805 (3,067,550) Debt Interest 241,565 - (240,565) so Fiscal Agent's Fees 3,181 - - 0,181) Issuance Costs 19,681 - - (1b,681) TOTAL PRIMARY GOVERNMENT: $ 22,351,999 $ 4,085,822 $ 161,844 (18,10)4,333) General Revenues: • Taxes: us Property Taxes, Levied for General Purposes 11,6¢ 1,031 Property Taxes, Levied for Debt Service 1,1)7,096 Other Taxes 2,980,794 Grants and Contributions Not Restricted 644,344 SI Miscellaneous Revenue 1,2$7,204 Investment Earnings 2$7,507 Total General Revenues 17,91 7,976 is - -- Change in Net Assets (17[;,357) Net Assets -- Beginning 47,937,296 SO Prior Period Adjustment (10,996) Net Assets -- Ending S 47,7 64,943 us , as W so W The notes to the Financial Statements are an integral part of this statement. 10 t. r KERR COUNTY BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2008 Road and Capital General Bridge Projects Fund Fund Fund ASSETS Cash and Cash Equivalents S 2,945,721 $ 533,977 $ 1,025,344 Taxes Receivable 316,614 43,776 - for Uncollectible Taxes (credit) (15,831) (2,189) - Intergovernmental Receivables 333,862 - - Due from Others 25,000 - fr - Prepaid Items 46,424 - - Total Assets $ 3,651,790 $ 575,564 $ 1,025,344 LIABILITIES AND FUND BALANCES rir Liabilities: Accounts Payable $ 775,880 $ 36,414 $ - Deferred Revenues 301,320 41,587 - Total Liabilities 1,077,200 78,001 - - - - -- ----- - - - - -- -- - - - -- Fund Balances: Reserved For: • Prepaid Items 46,424 - - Unreserved and Undesignated: Reported in the General Fund 2,528,166 - - rio Reported in the Special Revenue Fund - 497,563 - Reported in the Debt Service Fund - - Reported in the Capital Projects Fund - - 1,025,344 - W Total Fund Balances 2,574,590 497,563 1,025,344 rat Total Liabilities and Fund Balances $ 3,651,790 $ 575,564 - $ 1,025,344 YIY • The notes to the Financial Statements are an integral part of this statement. S 11 s 01 EXHIB)T C -1 i11P Nonmajor Total Governmental Governmental Funds Funds s S 1,320,317 $ 5,825,359 134,378 494,768 (6,719) (24,739) 19,606 353,468 25,000 400 46,824 $ 1,467,982 $ 6,720,680 $ 60,311 $ 872,605 127,659 470,566 187,970 1,343,171 s 400 46,824 2,528,166 1,153,790 1,651,353 96,320 96,320 29,502 1,054,846 1,280,012 5,377,509 $ 1,467,982 $ 6,720,680 ur it 1S 12 ur tie e [This page intentionally left blank] iG e r Y11� 11111 1 a • us EXHIBIT C-2 KERR COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2008 quit - - -- -- -- - - - -- -- - -- Total Fund Balances - Governmental Funds $ 5,377;509 Capital assets used in governmental activities are not financial resources and 41,397;078 SO therefore are not reported in governmental funds, At the beginning of the year, the cost of these assets was $62,571,298 and the accumulated depreciation was $15,891,385. In addition, long -term liabilities, including bonds payable, are not due and payable in the current period, and, therefore are not reported as liabilities in the funds. The net effect of including the beginning balances for capital assets (net of depreciation) and long -term debt in the governmental activities is to increase rr (decrease) net assets. Current year capital outlays and long -tern debt principal payments are expenditures 794;249 in the fund financial statements,but they should be shown as increases in capital assets and reductions in long -term debt in the government -wide financial statements. The net effect of including the 2008 capital outlays and debt principal payments is to increase (decrease) net assets. The 2008 depreciation expense increases accumulated depreciation. The net effect (1,73012) of the current year's depreciation is to decrease net assets. Various other reclassifications and eliminations are necessary to convert from the 1,874419 +r+ modified accrual basis of accounting to accrual basis of accounting. These include recognizing deferred revenue as revenue, eliminating interfund transactions, reclassifying the proceeds of bond sales as an increase in bonds payable, and rr recognizing the liabilities associated with maturing long -term debt and interest. The net effect of these reclassifications and recognitions is to increase (decrease) net assets. Net Assets of Governmental Activities $ 47,704 1 943 tiW ur fur r The notes to the Financial Statements are an integral part of this statement. 13 KERR COUNTY ' STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2008 S Road and Capital General Bridge Projects Sit Fund Fund Fund REVENUES: Si Taxes: Property Taxes $ 8,241,673 $ 1,004,904 $ - Other Taxes, Licenses, Permits 2,980,794 - - Autotnobile Registration - 1,041,286 - si Intergovernmental Revenue and Grants 336,034 28,805 - Fees of Office 2,009,973 359,964 - Fines and Forfeitures 397,420 3,515 - Investment Earnings 166,132 13,660 17,862 . to Other Revenue 335,236 6,329 - Total Revenues 14,467,262 2,458,463 17,862 EXPENDITURES: se Current: General Government 3,274,644 - - Administration of Justice 3,621,507 - - si Public Safety 3,472,944 - - Con'ections 2,399,079 - - Health and Human Services 556,566 - - Community and Economic Development 512,174 - - s Infrastructure and Environmental 240,483 2,200,628 - Debt Service: ' Debt Principal 87,237 165,552 - Debt Interest 4,480 23,787 - Mb Fiscal Agent's Fees - - - Capital Outlay: General Government 7,875 - 272,921 Administration ofJustice 8,579 - - rr Public Safety 182,441 - Community and Economic Development 7,200 - 37,399 Infrastructure and Environmental - 127,218 387,863 Corrections 38,628 - - r Health and Human Services 5,250 - 45,055 Total Expenditures 14,419,087 2,517,185 743,238 se Excess (Deficiency) of Revenues Over (Under) 48,175 2 Expenditures {58,722) (725,376) OTHER FINANCING SOURCES (USES): us Capital - related Debt Issued (Regular Bonds) - - 1,780,000 Proceeds from Capital Leases 182,441 - - Debt Issue Costs - - (29,280) Total Other Financing Sources (Uses) 182,441 - 1,750,720 Of Net Change in Fund Balances 230,616 (58,722) 1,025,344 Fund Balance - October 1 (Beginning) 2,343,974 556,285 - r Fund Balance - September 30 (Ending) $ 2,574,590 $ 497,563 $ 1,025,344 Si VIII The notes to the Financial Statements are an integral part of this statement. 14 rr EXHIBIT C -3 ■r Nonmajor Total Governmental Governmental Funds Funds Ole $ 3,505,463 5 12,752,040 2,980,794 1,041,286 S ' 908,638 1,273,477 416,812 2,786,749 400,935 • 39,853 237,507 15,812 357,377 4,886,578 21,830,165 • rr 178,751 3,453,395 as 457,610 4,079,117 437,275 3,910,219 875,826 3,274,905 1,067,296 1,623,862 518,547 1,030,721 18,846 2 ,459,957 1,179,043 1,431,832 +rn 163,742 192,009 3,181 3,181 15,089 295,885 8,579 142,431 324,872 44,599 206,826 721,907 itat 38,628 - 50,305 5,264,463 22,943,973 (377,885) (1,113,808) - 1,780,000 182,441 (29,280) - 1,933,161 (377,885) 819,353 1,657,897 4,558,156 YYI — $ 1,280,012 $ 5,377,509 as 15 EXHIBIT C-4 Y KERR COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2008 Total Net Change in Fund Balances - Governmental Funds $ 819,353 r Current year capital outlays and long -term debt principal payments are expenditures in 794,249 the fund financial statements, but they should be shown as increases in capital assets and reductions in long -term debt in the govemment -wide financial statements. The net effect of removing the 2008 capital outlays and debt principal payments is to increase (decrease) net assets. Depreciation is not recognized as an expense in governmental funds since it does not (1,738,112) require the use of current financial resources. The net effect of the current year's depreciation is to decrease net assets. ri Various other reclassifications and eliminations are necessary to convert from the (51,847) modified accrual basis of accounting to accrual basis of accounting. These include recognizing deferred revenue as revenue, adjusting current year revenue to show the revenue earned from the current year's tax levy, eliminating interfund transactions, reclassifying the proceeds of bond sales, and recognizing the liabilities associated with maturing long -term debt and interest. The net effect of these reclassifications and recognitions is to increase (decrease) net assets. _ W Change in Net Assets of Governmental Activities $ (176,357) e ilr s ■i The notes to the Financial Statements are an integral part of this statement. it 16 EXHIBIT E -1 KERR COUNTY STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS SEPTEMBER 30, 2008 ui Agency Funds ASSETS Cash and Cash Equivalents $ 551,726 Total Assets $ 551,726 LIABILITIES Due to Other Govennnental Units $ 551,726 Total Liabilities $ 551,726 rw W s ur s 1 i The accompanying notes are an integral part of this statement. 17 rr KERR COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2008 s NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ss The financial statements of Kerr County have been prepared in conformity with Generally Accepted Accounting Principles (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard- setting body for establishing governmental accounting and financial reporting principles. The more significant of the government's accounting policies are described below: 1.A. REPORTING ENTITY The County has developed criteria to determine if the activities of any outside agencies or organizations should be included within its financial statements. The criteria includes the amount of aii oversight responsibility exercised by the County over the activities of an agency or organization, the scope of public service of an agency or organization, and the nature of any special financing relationships which may exist between the County and an agency or organization. Oversight responsibility includes financial interdependency, selection of the governing authority, designation rs of management, the ability to significantly influence operations, and accountability for fiscal matters. The County's financial statements include all funds over which the County exercises oversight responsibility. Also, the County is not included as a part of any other reporting entity. 1.B. BASIS OF PRESENTATION s Government -wide Financial Statements: The Statement of Net Assets and Statement. of Activities display information about the reporting sw government as a whole. They include all funds of the reporting entity except for fiduciary funds. Che staterents distinguish between governmental and business -type activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange revenues. Business -type activities are financed in whole or in part by fees charged to external parties for goods or services. Fund Financial Statements: as Fund financial statements of the reporting entity are organized into funds, each of which is considered to be separate accounting entities. Each fund is accounted for by providing a separate set of self - balancing accounts that constitute its assets, liabilities, fund equity, revenues, and expenditure/expenses. Funds are organized into three major categories: governmental, proprietary, and fiduciary. An emphasis is placed on major funds within the governmental and proprietary air categories. A fund is considered major if it is the primary operating fund of the County or meets the following criteria. r a. Total assets, liabilities, revenues, or expenditures /expenses of that individual governmental or enterprise fund are at least 10 percent of the corresponding total for all funds of that category or type; and b. Total assets, liabilities, revenues, or expenditure /expenses of the individual governmental fund or enterprise fund are at least 5 percent of the corresponding total for all governmental and enterprise funds cornbined. (1 18 sr The funds of the financial reporting entity are described below: Governmental Funds General Fund The General Fund, the primary operating fund of the County, is always classified as a major fund. It is the basic fund of the County and covers all activities for which a separate fund has not been established. Special Revenue Funds Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specific purposes. ar Debt Service Funds The Debt Service Fund accounts for the accumulation of financial resources for and the payment of principal and interest on general long -term debt of the County other than debt service payments made by enterprise funds. Ad valorem taxes are used for the payment of principal and interest on the County's debt. Capital Projects Fund The Capital Projects Fund is used to account for proceeds of general long -term debt and other revenues. Expenditures are restricted to the construction and acquisition of major capital facilities. Fiduciary Funds (Not included in government -wide statements) Agency Funds fig Agency funds account for assets held by the County in a purely custodial capacity. Since Agency funds are custodial in nature (i.e., assets equal liabilities), they do not involve the measurement of results of operations. Major and Nonmajor Funds The funds are further classified as major or nonmajor. The major funds are as follows: Major Fund Brief Description r General See above for description. r Special Revenue Fund: Accounts for all road and bridge construction and Road and Bridge maintenance activity. Capital Projects Fund: Accounts for all Capital Projects activity. Nonmajor funds consist of special revenue funds, debt service funds, and capital project funds. iWi WO ar 19 it 1.C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING Measurement focus is a term used to describe "which" transactions are recorded within the various financial statements. Basis of accounting refers to "when" transactions are recorded regardless of the measurement focus applied. Measurement Focus r� On the government -wide Statement of Net Assets and the Statement of Activities, both governmental and business -like activities are presented using the economic resources measurement S focus as defined below. In the fund financial statements, the "current financial resources" measurement focus or the S "economic resources" measurement focus is used as appropriate: a. All governmental funds utilize a "current financial resources" measurement focus. Only current financial assets and liabilities are generally included on their balance sheets, Their operating statements present sources and uses of available spendable financial resources during a given period. These funds use fund balance as their measure of available spendable f financial resources at the end of the period. b. Agency and Permanent Trust Funds are not involved in the measurement of results of operations; therefore, measurement focus is not applicable to them. Basis of Accounting rig In the government-wide Statement of Net Assets and Statement of Activities, governmental activities are presented using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability p y is incurred or economic asset used. Revenues, expense, gains, losses, assets, and liabilities resulting from exchange and exchange -like transactions are recognized when the exchange takes place. In the find financial statement, governmental funds and agency funds are presented on the modified accrual basis of accounting. Under this modified accrual basis of accounting, revenues are recognized revenues when both "measurable and available." Measurable means knowing or being able to reasonably estimate the amount. Available means collectable within the current period or within 60 days after year end. Also under the modified accrual basis of accounting, expenditures (including capital outlay) are recorded when the related fiend liability is incurred, except for general obligation bond principal and interest which are reported as expenditures in the year due. 1.D. ASSETS, LIABILITIF,S AND EQUITY u y Cash and Cash Investments For the purpose of the Statement of Net Assets, "Cash and Cash Equivalents" includes demand deposit accounts and government investment pools. All amounts are considered available upon demand and are considered to be "cash equivalents." Several fiends may be invested in an investment account and each fund has an equity interest therein. Interest earned on the Investment of these monies is allocated based upon relative equity at month end. 20 s Receivables and Payables to Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to /from other funds" (i.e., the current portion of interfund loans) or "advances to /from other funds" (i.e., the noncurrent portion of interfund loans). All other outstanding balances between funds are reported as "due to /from other funds." All trade and property tax receivables are shown net of an allowance for uncollectibles. Trade accounts receivable in excess of 60 days comprise the trade accounts receivable allowance for uncollectibles. Ad valorem property taxes attach as enforceable liens as of January 1. Taxes are levied prior to September 30, payable on October 1, and are delinquent on February I. The majority of the County's property tax collections occur during December and early January each year. To the exterat that County property tax revenue results in current receivables as defined by the Governmental Accounting Standards Board (GASB), they are recognized when levied. - Capital Assets Government -wide Statements it Capital assets, which include property, plant, equipment and infrastructure assets (e.g. roads, bridges, sidewalks and similar items) are reported in the governmental activities column in the government -wide financial statements. The County defines capital assets as assets with an initial, individual cost of more than $1,000 (amount not rounded) and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased ar constructed. Donated capital assets are recorded at estimated fair market value at the date cif donation. to The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Property, plant and equipment is depreciated using the straight -line method over the following estimated useful lives: Assets Years Buildings and Improvements 25 - 50 Improvements 10 - 50 Furniture and Equipment 3 - 20 Infrastructure 25 - 50 Fund Financial Statements In the fund financial statements, fixed assets used in governmental fund operations are accounted for as capital outlay expenditures of the governmental fund upon acquisition. uW ar 21 a Compensated Absences Full time and regular part time employees who work 20 hours per week or more are granted vacation benefits in varying amounts to specified maximums depending on tenure with the County. Sick leave accrues to full time and regular part time employees to specified maximums. Accumulated vacation time may be taken in pay upon termination or retirement up to a maximum of twenty (20) days; however, this policy does not apply to accumulated sick leave. Sick leave accrues to full time employees to specified maximums; however neither the vacation or comp time accrual policy applies to accumulated sick leave. The liability for accrued compensated absences is not accrued in governmental funds using the modified accrual basis of accounting, but is reflected in the Government -Wide Statement of Net Assets. S Long -term Obligations i In the government -wide financial statements, long -term debt and other long -term obligations are reported as liabilities. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds. Bonds payable are reported net of the applicable bond premium sit or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, i whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. i Equity Classifications Government -wide Statements ME Equity is classified as net assets and displayed in three components: a. Invested in capital assets, net of related debt — Consists of capital assets including restricted 11 capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. b. Restricted net assets — Consists of net assets with constraints placed on the use either by (1) external groups such as creditors, grantors, or laws or regulations of other governments; or (2) to law through constitutional provisions or enabling legislation. c. Unrestricted net assets — All other net assets that do not meet the definition of "restricted" or tel "invested in capital assets, net of related debt." Fund Statements • Governmental fund equity is classified as fund balance. Fund balance is further classified as reserved and unreserved, with unreserved further split between designated and undesignated. Use of Estimates rr The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual amounts could differ from those estimates. Oil 22 s us 1.E. REVENUES, EXPENDITURES AND EXPENSES Property Taxes Property taxes are levied by October 1, in conformity with Subtitle E, Texas Property Tax Code: Taxes are due on receipt of the tax bill and are delinquent if not paid before February 1, of the yearn following the year in which irnposed. On January 1, of each year, a tax lien attaches to property to us secure the payment of all taxes, penalties, and interest ultimately imposed. For the 2007 tax roll, the total assessed valuation was $3,461,972,469 and the taxes assessed amounted to $13,487,845. The total tax rate was $.3896 per $100 valuation and allocated $.3154 to the General Fund and $.0438 to the Debt Service Funds and .0304 to the Road and Bridge Fund. The maximum tax levy allowed by State law for the above purposes is $.80 per $100 valuation, sir In the fund financial statements, property taxes are recorded as revenue in the period levied to thq extent they are collected within 60 days of year -end. Due to the immaterial amount of additional property taxes receivable after the 60 -day period, no additional accrual is made in the government, rr wide financial statements. E xpenditu res/Expenses on In the government -wide financial statements, expenses are classified by function for governmental activities. us In the fund financial statements, expenditures are classified as follows: Governmental Funds - by Character: Current (further classified by function) Debt Service Capital Outlay In the hind financial statements, governmental funds report expenditures of financial resources. Interfund Transfers rW Permanent reallocation of resources between funds of the reporting entity are classified as interfund transfers, For the purposes of the Statement of Activities, all interfimd transfers between individual governmental funds have been eliminated. rr NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY di Budgetary Information The County Judge and staff prepare the proposed budget, using revenue estimates furnished by the "ill County Auditor. The proposed budget is then submitted to Commissioners Court for a public hearing. Before determining the final budget, Commissioners Court may increase or decrease the amounts requested by the various departments. In the final budget, which is usually adopted in at September, expenditures for current operating funds cannot exceed the estimated available cash balances in such funds on October 1, plus the estimate of revenues for the ensuing year. At any time during the year, Commissioners Court may increase the budget for unexpected revenues. Commissioners Court may transfer amounts among individual budget line items within major expenditure categories during the year, but no such transfer may increase the overall total of the budget. Formal budgetary integration is employed for the General, Special Revenue, Debt Service and Capital Projects Funds. Budgets for these funds are prepared on a cash basis. Unused appropriations lapse at the end of each year. rr 23 rr NOTE 3 - DETAILED NOTES ON ALL FUNDS S 3.A. DEPOSITS AND INVESTMENTS i The funds of the County must be deposited and invested under the tenns of a contract, contents of which are set out in the Depository Contract Law. The depository bank places approved pledged securities for safekeeping and trust with the County's agent bank in an amount sufficient to protect lib County funds on a day -to -day basis during the period of the contract. The pledge of approved securities is waived only to the extent of the depository bank's dollar amount of Federal Deposit Insurance Corporation ("FDIC") insurance. r At September 30, 2008, the carrying amount of the County's deposits was $996,429 and the bank balance was $1,747,156. The County's cash deposits held at Security State Bank and Trust at September 30, 2008 and during the year ended September 30, 2008 were entirely covered by FDIC insurance or by pledged collateral held by the County's agent bank in the County's name. The Public Funds hwestment Act (Government Code Chapter 2256) contains specific provisions in the areas of investment practices, management reports and establishment of appropriate policies. Among other things, it requires the County to adopt, implement, and publicize an investment policy. IS That policy must address the following areas: (1) safety of principal and liquidity, (2) portfolio diversification, (3) allowable investments, (4) acceptable risk levels, (5) expected rates of return, (6) maximum allowable stated maturity of portfolio investments, (7) maximum average dollar- weighted maturity allowed based on the stated maturity date for the portfolio, (8) investment staff quality and capabilities, (9) and bid solicitation preferences for certificates of deposit. Statutes authorize the County to invest in (1) obligations of the U.S. Treasury, certain U.S. agencies, and the State of Texas, (2) certificates of deposit, (3) certain municipal securities, (4) money market savings accounts, (5) repurchase agreements, (6) bankers acceptances, (7) Mutual funds, (8) Investment pools and guaranteed investment contracts. The Act also requires the County to have independent auditors perform test procedures related to investment practices as provided by the Act. w The County's deposits and temporary investments at September 30, 2008 are shown below: s Carrying Market FDIC Pledged Fiduciary /Type of Deposit _ Amount Value Coverage Securities Security State Bank & Trust Depository Bank Demand Deposit Accounts $ 996,429 $ 996,429 $ 200,000 $ 12,698,906 IS TEXPOOL Liquid Asset Portfolio 4,828,930 4,828,930 - - Total Governmental Activities $ 5,825,359 $ 5,825,359 $ 200,000 $ 12,698,906 * The investment in Texpool is considered a government pool investment. Government pool investments are not categorized in accordance with GASB Statement No. 3, because they are not itrf evidenced by securities that exist in physical or book entry form. Also, investments in government investment pools are not required to disclose custodial credit risk, concentration of credit risk and interest rate risk in accordance with GASB Statement No. 40. to s 24 Policies Governing Deposits and Investments In compliance with the Public Funds Investment Act, the County has adopted a deposit and investment policy. That policy does address the following risks: Custodial Credit Risk - Deposits: This is the risk that in the event of bank failure, the County's deposits may not be returned to it. The County was not exposed to custodial credit risk since its deposits at year -end were covered by depository insurance or by pledged collateral held by the County's agent bank in the County's name. tat Custodial Credit Risk - Investments: This is the risk that, in the event of the failure of the counterparty, the County will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The County's investments (certificates of deposit) were secured by FDIC insurance and pledged securities. Other Credit Risk: There is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. At September 30, 2008, the County was not exposed to concentration of credit risk, interest rate risk or foreign currency risk. rrr For the year ended September 30, 2008, the County complied in all material respects with the requirements of the Public Funds Investment Act and with local policies. iuw 3.B. RECEIVABLES Receivables as of year -end for the government's individual major funds and nonmajor finds in the aggregate, including the applicable allowances for uncollectible accounts, are as follows: - Governmental Funds Road Other and Governmental General Bridge Funds TOTAL ur+ Receivables: Property Taxes $ 316,614 $ 43,776 $ 134,378 $ 494,768 ur Other 358,862 - 19,606 378,468 Gross Receivables $ 675,476 $ 43,776 $ 153,984 $ 873,236 Less: Allowance for Uncollectibles 15,831 _ 2,189 _ 6,719 24,739 Net Total Receivables $ 659,645 $ 41,587 $ 147,265 $ 848,497 dr Os 25 r Governmental funds report deferred revenue in connection with receivables for revenue that is not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, deferred revenues reported in the governmental funds were as S follows: General Fund - mf(1 Delinquent Property Taxes Receivable $ 300,783 Other Receivables 537 Special Road and Bridge Fund - Delinquent Property Taxes Receivable 41,587 r11 Other Governmental Funds - Delinquent Property Taxes Receivable 127,659 • YYi TOTAL DEFERRED REVENUES $ 470,566 3.C. COURT FINES AND FEES RECEIVABLE (rt The County has determined the amount of court fines and fees receivable at September 30, 2008 to be $1,825,590 which represents amounts owed and outstanding for the last 10 years, This receivable is included on the government wide statement of net assets and is net of an allowance for uncollectible court fines and fees based on historical collection rates for the various courts. ID. CAPITAL ASSETS 1r1 Capital asset activity for the year ended September 30, 2008, was as follows: Primary Government Balance Prior Period Balance 10/1/07 increases Decreases Adjustments 9/30/08 Governmental Activities: Capital Assets, Not Being Depreciated: Land $ 497,457 $ - $ - $ $ 497,457 Y Capital Assets, Being Depreciated: Buildings and Improvements 15,081,321 49,943 - - 15,131,264 Furniture and Equipment 8,313,187 1,245,635 79,066 (105,996) 9,373,760 Infrastructure 38,679,333 - - - 38,679,333 Total Capital Assets Being Depreciated 62,073,841 1,295,578 79,066 (105,996) 63,184,357 Less Accumulated Depreciation: Buildings and Improvements (5,506,847) (370,561) - - (5,877,408) Furniture and Equipment (6,450,684) (904,536) 54,990 - (7,300,230) Infrastructure (3,933,854) (463,015) - - (4,396,869) ati Total Accumulated Depreciation (15,891,385) (1,738,112) 54,990 - (17,574,507) Total Capital Assets Being Depreciated, Net 46,182,456 (442,534) 24,076 (105,996) 45,609,850 Governmental Activities Capital Assets, Net $ 46,679,913 $ (442,534) $ 24,076 $ P ) (105,996) $ 46,107,307 The County recorded a prior period adjustment of $105,996 for the retroactive reduction of rr furniture and equipment assets. tilt 26 Depreciation expense was charged to functions /programs of the County as follows: Governmental Activities: General Government $ 424,154 Public Safety 320,983 Administration of Justice 20,373 Community & Economic Development 23,432 Health and Human Services 13,675 Corrections 208,049 Infrastructure & Environmental 727,446 Total Depreciation Expense - Governmental Activities $ 1,738,112 3.E. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS Transfers are used to 1) move revenues from the fund with collection authorization to the debt service fund as debt service principal and interest payments become due, 2) move restricted amounts from borrowings to the debt service fund to establish mandatory reserve accounts, 3) move unrestricted general fund revenues to finance various programs that the government must account for in other funds in accordance with budgetary authorizations, including amounts provided as subsidies or matching funds for various grant programs. wr There were no interfund balances as of September 30, 2008. 3.F. LONG -TERM LIABILITIES rr The following is a summary of the long -term liability transactions of the County !Or the year ended September 30, 2008. Yr Balance Balance Due Within Type of Debt 10/01/07 Issued Retired 9/30/08 One it car yr Governmental Activities: Limited Tax General $ 2,405,000 $ - $ 435,000 $ 1,970,000 $ 455,000 Obligation Series 1994 r Public Property Finance 160,000 - 160,000 - - Contractual Obligation 2001 Certificates of Obligation 1,205,000 - 440,000 765,000 375,000 Series 2005 ea Tax Notes Series 2008 - 1,780,000 - 1,780,000 135,000 Bank of America Note Payable 786,192 - 144,043 642,149 205,681 tir Capital Lease Obligations 595,774 182,441 252,790 525,425 139,412 SUBTOTAL $ 5,151,966 $ 1,962,441 $ 1,431,833 $ 5,682,574 $ 1,310,093 to Compensated Absences 328,087 328,087 TOTAL $ 5,151,966 $ 2,290,528 $ 1,431,833 $ 6,010,661 $ 1,310,093 27 r Balance at Due Within Certificates of Obligation and Notes Payable 9/30/08 One Year Limited Tax General Obligation Bonds, Series 1994 Original issue amount $5,900,000, interest rates of 4.25% to 625 %, with final maturity February 15, 2012 $ 1,970,000 $ 455,000 Certificates of Obligation, Series 2005 S Original issue amount $2,000,000, interest rates of 3.25% to 3.50 %, with final maturity date February 15, 2010 765,000 375,000 Bank of America Note for purchase of computer software dated May 1, 2006, principal and interest payment of $231,463, interest rate is 4.015 %, final maturity date of March 16, 2011 642,149 205,681 Tax Notes, Series 2008 Original issue amount $1,780,000, interest rates of 3.30 %, rtii With final maturity date February 15, 2013 1,780,000 135,000 TOTAL CERTIFICATES OF OBLIGATION AND NOTES PAYABLE $ 5,157,149 $ 1,170,681 s The annual requirements for principal and interest on the outstanding certificates of obligation and notes payable are as follows: Year Ending Annual September 30, Principal Interest Requirements 2009 $ 1,170,681 $ 189,433 $ 1,360,114 2010 1,283,939 129,035 1,412,974 ry 2011 1,002,529 85,339 1,087,568 2012 820,000 45,087 865,087 2013 880,000 14,520 894,520 +� TOTAL $ 5,157,149 $ 463,414 $ 5,620,563 e tW 28 iY • Balance at Due Within Capital Lease Obligations 9/30/08 One Year } Security State Bank & Trust: Capital lease obligation for (2) Motor Graders and (1) Wheel Loader dated December 27, 2006, principal and interest of $45,637 paid yearly, interest rate of 4.82 %, final maturity date December 27, 2013. $ 231,132 $ 34,055 Caterpillar Financial Services: Capital lease obligation for a Caterpillar Backhoe Loader dated June 15, 2004, principal and interest of $786 paid monthly, interest rate of 4.73 %, final payment August I, 2009. 27,204 5,504 Capital ]ease obligation for (2) Caterpillar 420D Backhoe Loaders dated April • 28, 2006, annual principal and interest payments of $23,368, interest rate of 5.35 %, final maturity April, 2011. 104,012 18,259 +r Ford Motor Credit Corporation: Capital lease obligation for four (4) 2007 Crown Victoria Police Sedans dated March 9, 2007, annual principal and interest payments of $37,332, interest rate • of 6.60 %, final maturity date March 9, 2009. 35,021 35,021 Capital lease obligation for three (3) 2008 Chevrolet Tahoes Sheriff Vehicles dated January 24, 2008, annual principal and interest payments of $34,027, interest rate of 6.10 %, final maturity date January 24, 2011. 90,786 28,489 Capital lease obligation for two (2) 2008 Crown Victoria Police Sedans dated February 5, 2008, annual principal and interest payments of $23,357, interest rate of 6.10 %, final maturity date February 5, 2010. 37,270 18,084 TOTAL CAPITAL LEASE OBLIGATIONS $ 525,425 $ 139,412 ' A summary of the future minimum lease payments under the lease along with the present value of the minimum lease payments as of September 30, 2008 follows: • Year Ended September 30 2009 $ 167,009 2010 145,089 2011 91,348 2012 102,108 2013 45,637 2014 45,637 Total Minimum Lease Payments $ 596,828 Less Amount Representing Interest 71,403 Present Value of Lease Payments $ 525,425 29 rr 3.G. EMPLOYEE RETIREMENT PLAN Si Plan Description s Kerr County provides retirement, disability, and death benefits for all of its full -time employees through a nontraditional defined benefit pension plan in the statewide Texas County and District Retirement System (TCDRS). The Board of Trustees of TCDRS is responsible for the administration of the statewide agent multiple - employer public employee retirement system consisting of 574 nontraditional defined benefit pension plans. TCDRS in the aggregate issues a comprehensive annual financial report (CAFR) on a calendar year basis. The CAFR is available upon written request from the TCDRS Board of Trustees at P.O. Box 2034, Austin, Texas 78768- 2034. The lan provisions are adopted by the governing body of the employer, within the options available P P P Y g g Y P in the Texas state statutes governing TCDRS (TCDRS Act). Members can retire at ages 60 and above with 8 or more years of service, with 30 years of service regardless of age, or when the sum of their age and years of service equals 75 or more. Members are vested alter 8 years of service but must leave their accumulated contributions in the plan to receive any employer-financed benefit. Members who withdraw their personal contributions in a lump sum prior to retirement are not entitled to any amounts contributed by their employer. Partial lump sum distributions are allowed at retirement. Benefit amounts are determined by the sum of the employee's contributions to the plan, with interest, and employer- financed monetary credits. The level of these monetary credits is adopted by the governing body of the employer within the actuarial constraints imposed by the TCDRS Act so that the resulting benefits can be expected to be adequately financed by the employees commitment to contribute. At retirement, death, or disability, the benefit is calculated by converting the sum of the - employee's accumulated contributions and the employer- financed monetary credits to a monthly annuity using annuity purchase rates prescribed by the "1 C:DRS Act. e Funding Policy The County has elected the annually determined contribution rate (variable rate) plan provisions of s the TCDRS Act. The plan is funded by monthly contributions from both employee members and the employer based on the covered payroll of employee members. Under the TCDRS Act, the contribution rate of the employer is actuarially determined annually. The County contributed using ss the actuarially determined rate of 9.08% for the months of the accounting year in 2008 and 8.51% for the months of the accounting year in 2007. The contribution rate payable by the employee members for calendar year 2008 is the rate of 7 %, as adopted by the County. For calendar year 2007, the employee contribution rate was also 7 %. The employee and the employer contribution rate may be changed by the governing body of the County within the options available in the TCDRS Act. Annual Pension Cost fir For the County's accounting year ended September 30, 2008, the annual pension cost for the TCDRS plan for its employees was $821,096, and the actual contributions were $821,096. The annual required contributions were actuarially determined as a percent of the covered payroll of the participating employees, and was in compliance with the GASB Statement No. 27 parameters based on the actuarial valuation as of December 31, 2005 and December 31, 2006, the basis for determining the contribution rate for calendar years 2007 & 2008. The December 31, 2007 actuarial valuation is the most recent valuation. fir 30 et r ACTUARIAL VALUATION INFORMATION Actuarial valuation date 12/31/07 12/31/06 12/31/05 us Actuarial cost method entry age entry age entry age MI Amortization method level percentage level percentage level percentage of payroll, closed of payroll, closed of payroll, open to Amortization period 15 15 20 Asset valuation method SAF: 10 -yr SAF: 10 -yr long -term smoothed value smoothed value appreciation arr ESF: Fund value ESF: Fund value with adjustment or Actuarial Assumptions: Investment return' 8% 8% 8% Projected salary increases' 5.3% 5.3% 5.3% it Inflation 3.5% 3.5% 3.5% Cost -of- living adjustments 0.0% 0.0% 0.0% or 'Includes inflation at the stated rate TREND INFORMATION FOR THE RETIREMENT PLAN FOR THE EMPLOYEES OF KERR COUNTY sr Accounting Annual Percentage Net Year Pension of APC Pension Ending Cost (APC) Contributed Obligation '� 9/30/06 $ 741,520 100% — 0 - 9/30/07 800,621 100% -0- 9/30/08 821,096 100% -O- rr SCHEDULE OF FUNDING PROGRESS FOR THE RETIREMENT PLAN Wt FOR THE EMPLOYEES OF KERR COUNTY Actuarial IJAAL as a WI Actuarial Value Accrued Annual Covered Percentage of Actuarial of Assets Liability (AAL) Unfunded AAL Funded Ratio Payroll' Covered Payroll Valuation Date (a) (b) (UAAL) (Ir -a) (alb) (e) lib -a)/c] 12/31/03 $ 13,000,396 $ 15,187,317 $ 2,186,921 85,60% $ 8,020,926 27.27% we 12/31/04 14,260,964 16,668,166 2,407,202 85.56% 8,870,350 27.14% 12/31/05 16,152,206 18,786,439 2,634,233 85.98% 9,247,537 28.49% 12/31/06 18,402,681 20,642,315 2,239,639 89.15% 9,320,152 24.03% a 12/31/07 19,612,015 21,996,008 2,383,993 89.16% 9,954,080 2395% The annual covered payroll is based on the employee contributions received by TCDRS for the year ending to with the valuation date. 2 Revised economic and demographic assumptions due to an experience review were reflected in this umt valuation. 3 es 3.H. INVESTMENT IN JOINT VENTURE 0 The County and the City of Kerrville (the "participants ") operate a municipal airport under a joint venture agreement. Each participant provides financial support and is entitled to an undivided 50% interest in the physical property. Separate financial statements of the joint ti ii venture are not available. Following is a financial summary for the airport as of and for the year ended September 30, 2008: ASSETS REVENUES tiff Cash $ 133,785 Charges for Services $ 570,901 Investments 182,707 Capital Grants & Contributions 1,435,043 Prepaid Expenses 505,598 Total Revenues 2,005,944 ii Nondepreciable Property Land 2,849,809 EXPENSES Construction in Progress 1,217,548 Airport Operations 484,158 Depreciable Property (Net) Terminal 19,362 Si Buildings 1,339,256 Depreciation 76,405 Improvements 221,703 Total Expenses 579,925 Vehicles 19,941 Si Machinery & Equipment 7,962 OPERATING INCOME 1,426,019 Total Assets 6,478,309 GENERAL REVENUES LIABILITIES Unrestricted Investment Earnings 6,404 itii Accounts Payable 9,887 1,432,423 Customer Deposits 4,200 Unearned Revenue 17,530 Net Assets — Beginning (Restated) 5,348,353 SI Total Liabilities 31,617 Net Assets - Ending $ 6,780,776 NET ASSETS Invested in Capital Assets 5,656,219 rtit Restricted for Capital Projects 912,637 Unrestricted 211,920 Total Net Assets S 6,780,776 Ili 3.I. RISK MANAGEMENT Workers Compensation, Unemployment, and Property and Liability Coverage w The County is exposed to various risks of loss related to torts; damage to and theft or destruction of assets; errors and omissions; injuries to employees; automobile liability and natural disasters. nu To reduce the risk of exposure in these areas, the County contracts in the form of interlocal agreements with risk pools created by the Texas Association of Counties (TAC). The County is a member of workers compensation, unemployment, and property and liability risk pools. Si The pools are public entity risk pools and were created based on the general objectives of formulating, developing and administering a program of self - insurance for the membership and obtaining lower costs for coverage. The pools have the power to establish fees, contributions and as methods for establishing rates. Under contract with the pools, the TAC provides for such services as claims administration and management, underwriting, loss control services and training, and financial reporting for its members. The pools are governed by a board of directors is made up of employees or officials of counties which are members of the pool. Member counties make contributions to the pools, and the pools provide insurance coverage and applicable reinsurance or stop loss coverage. Contributions are set annually and the interlocal agreements carry various deductibles and aggregate maximum loss totals. Liability by the County is al generally limited to the amounts calculated by the County interlocal agreements. The by -laws and audited financial statements of the pools are detailed in separate documents and is can be obtained from the Texas Association of Counties, 1210 San Antonio Street, Austin, TX 78701. The County has had no significant reduction in insurance coverage from prior years and the County has had no settlements which exceeded insurance coverage in the current or prior years. so 32 IS Self Insured Group Medical Insurance ,S The County has elected to provide group medical benefits to their employees on a partially self - funded basis. They have contracted with an outside plan supervisor to administer all claims payments. The County sets a specific amount of money aside each month and as claims at submitted to the plan supervisor the County reimburses them when notified. Under this plan, the County is limited to $50,000 per employee per calendar year with an aggregate amount of $2,000,000 per year. After the deductible and aggregate amount, the balance is paid by a third party carrier. 3.J. COMMITMENTS AND CONTINGENCIES Operating Leases The reporting entity has entered into a number of operating leases, which contain cancellation provisions and are subject to annual appropriations. For the year ended September 30, 2008, rent expenditures approximated $73,714 for all types of operating leases. These expenditures were made primarily from the General Fund. IMO Commitments under operating (non - capitalized) lease agreements for equipment provide for minimum future rental payments as of September 30, 2008, as follows: +ir Year Ended September 30 2009 $ 59,896 2010 47,077 2011 39,319 2012 27,114 ur 2013 11,342 Total Minimum Rentals $ 184,748 +r Grant Program Involvement In the normal course of operations, the County participates in various federal or state grant programs. The grant programs are often subject to additional audits by agents of the granting or funding agency, the purpose of which is to ensure compliance with the specific conditions of the grant. Any liability for reimbursement that may arise as a result of these audits cannot be reasonably determined at this time, although it is believed the amount, if any, would not be material. 3.K. RESTRICTED NET ASSETS Net assets restricted for debt service include the excess of assets over certain liabilities restricted r for the debt service on revenue bonds. Net assets of governmental funds restricted by enabling legislation for the specific purpose of debt service total $96,320 at September 30, 2008. e 3.L. PRIOR PERIOD ADJUSTMENT The Government Wide Statement of Net Assets and the Government Wide Statement of Activities shows a net prior period adjustment of $105,996. This decrease in Net Assets was due to a prior period adjustment made to furniture, machinery and equipment for $105,996 in order to reclassify assets to expendable inventory. 33 r s s s s [This page intentionally left blank] 116 1Y ills e IW KS lal tie se S APPENDIX D FORM OF BOND COUNSEL'S LEGAL OPINION rr sr wr %r IS ur ow ur 0 w 0 r 10 0 [This page intentionally left blank] r e 111Y W s 0 IIY 0 LAW OFFICES M -CALL, PARKHURST & HORTON L.L.P. 717 NORTH HARWOOD 700 N. ST. MARY'S STREET 600 CONGRESS AVENUE NINTH FLOOR 1525 ONE RIVERWALK PLACE 1800 ONE AMERICAN CENTER DALLAS, TEXAS 75201 -6587 SAN ANTONIO, TEXAS 78205 -3503 AUSTIN, TEXAS 78701 -3248 TELEPHONE'. 214754 -9200 TELEPHONE: 210225 -2800 TELEPHONE: 512478 -3805 FACSIMILE'. 214 754 -9250 FACSIMILE'. 210 225 -2984 FACSIMILE. 512472 -0871 February , 2010 KERR COUNTY, TEXAS TAX NOTES, SERIES 2010 DATED AS OF JANUARY 15, 2010 IN THE AGGREGATE PRINCIPAL AMOUNT OF $4,350.000 • +rw AS BOND COUNSEL FOR KERR COUNTY, TEXAS (the "County ") in connection with the issuance of the obligations described above (the "Tax Notes "), we have examined into the legality and validity of the Tax Notes, which bear interest from the dates specified in the text of the Tax Notes until stated maturity at the rates, and payable on the dates, as stated in the text of the Tax Notes, all in accordance with the terms and conditions stated in the text of the Tax Notes. WE HAVE EXAMINED the applicable and pertinent provisions of the Constitution and laws of the State of Texas and a transcript of certified proceedings of the County, and other pertinent "• instruments authorizing and relating to the issuance of the Tax Notes including (i) the order authorizing the issuance of the Tax Notes (the "Order "), (ii) one of the executed Tax Notes (Note uir No. T -1), and (iii) the County's Federal Tax Certificate of even date herewith. BASED ON SAID EXAMINATION, IT 15 OUR OPINION that the Tax Notes have beep authorized, issued and delivered in accordance with law; that the Tax Notes constitute valid and legally binding general obligations of the County in accordance with their terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratoriuni, liquidation and other similar laws now or hereafter enacted relating to creditors' rights generally or by general principles of equity which permit the exercise of judicial discretion; that the County has the legal authority to issue the Tax Notes and to repay the Tax Notes; and that ad valorem taxes sufficient to provide for the payment of the principal of and interest on the Tax Notes, as such principal and interest comes due, have been levied and ordered to be levied against all taxable property in the County, and have been pledged for such payment, within the limits prescribed by rr law. IT IS FURTHER OUR OPINION, except as discussed below, under the statutes, rr regulations, published rulings and court decisions existing on the date of this opinion, for federal income tax purposes, the interest on the Tax Notes (i) is excludable from the gross income of the owners thereof, and (ii) is not includable in an owner's alternative minimum taxable income under +r+ section 55 of the Internal Revenue Code of 1986 (the "Code "). In expressing the aforementioned opinions, we have relied on and assumed compliance by the County with, certain representations and covenants regarding the use and investment of the proceeds of the Tax Notes. We call your attention to the fact that failure by the County to comply with such representations and covenants may cause the interest on the Tax Notes to become includable in gross income retroactively to the date of issuance of the Tax Notes. rr Kerr County, Texas Tax Notes, Series 2010 February , 2010 Page 2 ust EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state or local sr tax consequences of acquiring, carrying, owning or disposing of the Tax Notes. In particular, but not by way of limitation, we express no opinion with respect to the federal, state or local tax sit consequences arising from the enactment of any pending or future legislation. WE EXPRESS NO OPINION as to insurance policies issued with respect to the payments due for the principal of and interest on the Tax Notes, if any, nor as to any such insurance policies issued in the future. OUR SOLE ENGAGEMENT in connection with the issuance of the Tax Notes is as Bond S Counsel for the County, and, in that capacity, we have been engaged by the County for the sole purpose of rendering an opinion with respect to the legality and validity of the Tax Notes under the Constitution and laws of the State of Texas, and with respect to the exclusion from gross income of the interest on the Tax Notes, if any, for federal income tax purposes, and for no other reason or purpose. The foregoing opinions represent our legal judgment based upon a review of existing legal authorities that we deem relevant to render such opinions and are not a guarantee of a result. We have not been requested to investigate or verify, and have not independently investigated or verified, any records, data, or other material relating to the financial condition or capabilities of the County, or the disclosure thereof in connection with the sale of the Tax Notes, and have not assumed any responsibility with respect thereto. We express no opinion and make no comment with respect to the marketability of the Tax Notes and we have relied solely on certificates executed by officials of w, the County as to the current outstanding indebtedness of, and assessed valuation of taxable property within, the County. Our role in connection with the County's Official Statement prepared for use in connection with the sale of the Tax Notes has been limited as described therein. 1. OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of a result and are not binding on the Internal Revenue 10 Service (the "Service "); rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Tax Notes. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the County as the taxpayer. We observe that the County has covenanted not to take any action, or omit to take any action within its control, that if sr taken or omitted, respectively, may result in the treatment of interest on the Tax Notes, if any, as includable in gross income for federal income tax purposes. Respectfully, t PAYING AGENT /REGISTRAR AGREEMENT THIS PAYING AGENT /REGISTRARAGREEMENT, dated as of January 15, 2010 (this "Agreement'), by and between KERR CouNTY, TEXAS (the "Issuer") and WELLS FARGO BANK, N.A. (the "Bank "), a national bank duly organized and operating under the laws of the United States of America. sis WHEREAS, the Issuer has duly authorized and provided for the issuance of its KERR! COUNTY, TEXAS TAX NOTES, SERIES 2010 (the "Securities "), 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 onl. Yr or about February 9, 2010; and WHEREAS, the Issuer has selected the Bank to serve as Paying Agent/Registrar in rr connection with the payment of the principal of, premium, if any, and interest on the 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 rr 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 the office of the Bank located in the State of Texas or shall be available to be accessed from such office iss 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. • 0 SECTION 1.02. COMPENSATION. As compensation for the Bank's services as Paying or Agent/Registrar, the Issuer hereby agrees to pay the Bank the fees and amounts set forth in Schedule A attached hereto for the first year of this Agreement and thereafter the fees and amounts set forth in the Bank's current fee schedule then in effect for services as Paying Agent/Registrar for municipalities, which shall be supplied to the Issuer on or before 90 days prior to the close of the Fiscal Year of the Issuer, and shall be effective upon the first day of the following Fiscal Year. In addition, the Issuer agrees to reimburse the Bank upon its request for all reasonable expenses, disbursements and advances incurred or made by the Bank in accordance with any of the provisions hereof (including the reasonable compensation and the expenses and disbursements of its agents and counsel). ARTICLE TWO DEFINITIONS r SECTION 2.01. DEFINITIONS. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: sat "Acceleration Date" on any Security means, if applicable, the date on and after which the principal or any or all installments of interest, or both, are due and payable on any Security which • has become accelerated pursuant to the terms of the Security. "Bank Office" means the corporate trust or commercial banking office of the Bank as r indicated on the signature page hereof. The Bank will notify the Issuer in writing of any change in location of the Bank Office. r "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 rr registered in the Security Register. "Legal Holiday" means a day on which the Bank is required or authorized to be closed. .r "Order" means the resolutions, orders or ordinances of the goveming body of the Issuer pursuant to which the Securities are issued, certified by the Secretary or any other officer of the Issuer and delivered to the Bank, together with any pricing certificate executed pursuant thereto. "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 govemment. "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 purposes of this definition, any mutilated, lost, destroyed, or stolen Security for which a 0 2 r 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- Chairman of the Board of Directors, the Chairman or Vice - chairman of the Executive Committee of the Board of Directors, the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant Cashier, any Trust Officer or Assistant Trust Officer, or any other officer of the Bank customarily performing functions similar rr to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. r "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 THREE PAYING AGENT SECTION 3.01. DUTTESOF PAYING AGENT. (a) Principal Payments. As Paying Agent, the Bank shall, provided adequate collected funds have been provided to it for such purpose by or on behalf of the Issuer, pay on behalf of the Issuer the principal of each 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. (b) Interest Payments. 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. 3 (c) Federal Tax Information Reporting To the extent required by the Code and the Regulations it shall be the duty of the Bank to report to the owners of the Securities and the Internal' or Revenue Service (i) the amount of "reportable payments," if any, subject to back up withholding during each year and the amount of tax withheld, if any, with respect to the payments on the Securities, and (ii) the amount of interest or amount treated as interest, such as original issue W discount, on the Securities required to be included in the gross income of the owners thereof for federal income tax purposes. Mil SECTION 3.02. 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. 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 ") for recording the names and addresses of the r 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 ar and the Bank may prescribe. If the Bank Office is located outside the State of Texas, a copy of the Security Register shall be kept in the State of Texas. 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 he accompanied by a written instrument of transfer, the signature on which has been guaranteed by an to officer of a federal or state bank or a member of the Financial Industry Regulatory Authority, in form satisfactory to the Bank, duly executed by the Holder thereof or his agent duly authorized in writing. to 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 business days after the receipt of the Securities to be cancelled 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. IMO 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 Mill 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 rr 4 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 utilizes 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 Issuer, 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. rr Unless required by law, 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. RETURN OF CANCELLED SECURITIES. The Bank will, at such reasonable rr intervals as it determines, surrender Securities to the Issuer in lieu of which or in exchange for which other Securities have been issued, or which have been paid, or will provide a certificate of destruction relating thereto. wr 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 over issuance. WO In case 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 ill/ substitution for such mutilated Security, or in lieu of and in substitution for such destroyed, lost, or stolen Security, only after CO 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 5 Yr w and with the preparation, execution, and delivery of a replacement Security shall be borne by the w 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. NM The Bank is also authorized to transfer funds relating to the closing and initial delivery of the Securities in the manner disclosed in the closing memorandum as prepared by the Issuer's financial advisor, bond counsel or other agent. The Bank may act on a facsimile or e-mail transmission of the closing memorandum acknowledged by the financial advisor or the Issuer as the final closing memorandum. The Bank shall not be liable for any losses, costs or expenses arising °1Y directly or indirectly from the Bank's reliance upon and compliance with such instructions. 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. NIP (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 r 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. rr (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 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, 6 r statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, security, y r or other paper or document supplied by the 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. (0 The Bank may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attomeys 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. MAY 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. r SECTION 5.05. MONEY HELD BY BANK. The Bank shall deposit any moneys received from the Issuer into a Trust account 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 and to the extent practicable under the laws of the United States of �+ America to secure and be pledged as collateral for trust accounts until the principal and interest on such securities have been presented for payment and paid to the owner thereof. Payments made from such trust account shall be make by check drawn on such trust account unless the owner of such Securities shall, at its own expense and risk, request such other medium of payment. Funds held by the Bank hereunder need not be segregated from any other funds provided r appropriate accounts are maintained in the name and for the benefit of the Issuer. The Bank shall be under no liability for interest on any money received by it hereunder. Any money deposited with the Bank for the payment on any Security and remaining unclaimed for three years after final maturity of the Security has become due and payable will be held by the Bank and disposed of only in accordance with Title 6 of the Property Code (Unclaimed Property). The Bank will comply with the reporting provisions of Chapter 74 of the Property Code with respect to property that is presumed abandoned under Chapter 72 or Chapter 75 of the Property Code or inactive under Chapter 73 of the Property Code. ar 7 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 of its duties hereunder, including the cost and expense against any claim or liability wie 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 w 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 either the Bank maintains an office or the administrative offices of the Issuer is located, and agree that service of process by certified or registered mail, return receipt requested, to the address referred `w 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 State of Texas to determine the rights of any Person claiming any interest herein. SECTION 5.08. DEPOSITORY TRUST COMPANY SERVICES. It is hereby represented and i1p 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, the Bank has the capability and, to the extent within its control, will comply with the "Operational Arrangements," effective 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. 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. w SECTION 6.03. NOTICES. Any request, demand, authorization, direction, notice, consent, waiver, or other document provided or permitted hereby to be given or furnished to the Issuer or the , Bank shall be mailed or delivered to the Issuer or the Bank, respectively, at the addresses shown on the signature page of this Agreement. SECTION 6.04. EFFECT OF HEADINGS. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. as 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. 8 Y111 Yt1 SECTION 6.06. SEVERABILITY. In case any provision herein shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 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. r 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 govem. rr 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 on the date of final payment " of the principal of and interest on the Securities to the Holders thereof or may be earlier terminated by either party upon 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 r 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. rr (The remainder of this page intentionally left blank] * 9 r r e IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. WELLS F t GO BANK, N.A. B • r Title: VICE PRESIDENT Address: 400 W. 15' Street, l' Floor Austin, Texas 78701 Attest: or /191 L. Title: V E PRESIDENT rr KERR COUNTY, TEXAS r By: Title: County Judge Address: 700 Main Street Kerrville, Texas 78028 Attest: Title: County Clerk rr r ter [SIGNATURE PAGE TO PAYING AGENT /REGISTRAR AGREEMENT] mw Yr r OM IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. r WELLS FARGO BANK, N.A. By: Title: Address: 400 W. 15`" Street, 1 Floor Austin, Texas 78701 s Attest: Title: rff KERR COUNTY, TEXAS ,. B Title: County Judge rr Address: 700 Main Street Kerrville, Texas 78028 Attest: Wil / e: County Clerk tr tiff [SIGNATURE PAGE TO PAYING AGENT/REGISTRAR AGREEMENT] Wr w es e4' SCHEDULE A Greg Stites Wells Fargo Bank Corporate Trust Services w 400 W. 15th Street, Ste.t50 Austin, Texas 78701 Tel: 512.344.8640 SCHEDULE OF FEES $4,330,000 Kerr County Tax Notes, Series 2010 r To act as PayingAgent & Registrar Wr Accentance Fee: $o.00 Initial Fees as they relate to Wells Fargo Bank acting in the capacity of Paying Agent /Registrar - includes creation and examination of the Paying Agent /Registrar Agreement; acceptance of the appointment; r setting up of Paying Agent /Registrar records and accounting records; and coordination of closing. The acceptance fee is payable at time of Paying Agent /Registrar Agreement execution. Annual Administration Fee: $400.Oo For ordinary administration services by Paying Agent/Registrar - includes daily routine account management; investment transactions; cash transaction processing in accordance with the agreement; rM and mailing of trust account statements to all applicable parties. Float credit received by the bank for receiving funds that remain un- invested are deemed part of the Paying Agent's compensation. The Anneal Administration fees are payable in advance, with the first installment due at closing. SIP Out of Pocket Expenses: We only charge for out of pocket expenses in response to specific tasks assigned by the client. Therefore, we cannot anticipate what specific out of pocket items will be needed or what corresponding expenses will be incurred. Possible expenses would be, but are hot limited to, express mail and messenger charges, travel expenses to attend closing or other meetings. There are no charges for indirect out of pocket expenses. This fee schedule is based upon the assumptions listed above which pertain to the responsibilities and risks involved in Wells Fargo undertaking the role of Paying Agent / Registrar. These assumptions are based on information provided to us as of the rr date of this fee schedule. Our fee schedule is subject to review and acceptance of the final documents. Should any of the assumptions, duties or responsibilities change, we reserve the right to qffirm, modify or rescind ourfee schedule. Submitted by: Greg Stites Yr February 3, 2010 P: 72687 rr rr Mr SPECIMEN tip R -1 UNITED STATES OF AMERICA PRINCIPAL STATE OF TEXAS AMOUNT KERR COUNTY, TEXAS $65,000 TAX NOTES, SERIES 2010 INTEREST RATE MATURITY DATE DATE OF SERIES CUSIP NO. •' 3.000% February 15, 2011 January 15, 2010 492350 CK7 REGISTERED OWNER: CEDE & CO. rr PRINCIPAL AMOUNT: SIXTY FIVE THOUSAND DOLLARS ON THE MATURITY DATE specified above, KERR COUNTY, TEXAS (the "Issuer "), being a political subdivision and home -rule municipality 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 of the series of Notes described above (as shown on the records of the Paying Agent/Registrar described below) at the Interest Rate per annum specified above, payable on February 15, 2011, and semiannually on each February 15 and August 15 thereafter to the Maturity Date specified above; 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 rr 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. THE PRINCIPAL OF AND 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 at the designated corporate trust or commercial banking office (currently located in Austin, Texas) of WELLS FARGO BANK, N.A., which is the "PayingAgent/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 r Agent/Registrar on, and payable solely from, funds of the Issuer required by the Order authorizing the issuance of this Note (the "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, on each such interest payment date, to the Registered Owner hereof, at its address as it appeared on the last business day of the month next preceding each such date (the "Record Date ") on the Registration Books kept by the Paying Agent/Registrar, as r• hereinafter described. In the event of a non - payment of interest on a scheduled payment date, and Page 1 of 5 as .. SPECIMEN R -2 UNITED STATES OF AMERICA PRINCIPAL STATE OF TEXAS AMOUNT KERR COUNTY, TEXAS $425,000 TAX NOTES, SERIES 2010 INTEREST RATE MATURITY DATE DATE OF SERIES CUSIP NO. rr 3.000% February 15, 2012 January 15, 2010 492350 CL5 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: FOUR HUNDRED TWENTY FIVE THOUSAND DOLLARS ON THE MATURITY DATE specified above, KERR COUNTY, TEXAS (the "Issuer "), being a political subdivision and home -rule municipality of the State of Texas, hereby promises to pay to the Registered Owner specified above, or registered assigns (hereinafter called the "Registered two 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 of the series of Notes described above (as shown on the records of the Paying Agent/Registrar described below) at the '■" Interest Rate per annum specified above, payable on February 15, 2011, and semiannually on each February 15 and August 15 thereafter to the Maturity Date specified above; 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. THE PRINCIPAL OF AND INTEREST ONthis 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 at the designated corporate trust or commercial banking office (currently located in Austin, Texas) of WELLS FARGO BANK, N.A., which is the "PayingAgent/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 authorizing the issuance of this Note (the "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, on each such interest payment date, to the Registered Owner hereof, at its address as it appeared on the last business 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 Page 1 of 5 SPECIMEN R -3 UNITED STATES OF AMERICA PRINCIPAL STATE OF TEXAS AMOUNT KERR COUNTY, TEXAS 5410,000 TAX NOTES, SERIES 2010 rr INTEREST RATE MATURITY DATE DATE OF SERIES CUSIP NO. ` 3.000% February 15, 2013 January 15, 2010 492350 CM3 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: FOUR HUNDRED TEN THOUSAND DOLLARS 91 ON THE MATURITY DATE specified above, KERR COUNTY, TEXAS (the "Issuer "), being a political subdivision and home -rule municipality 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 of the series of Notes described above (as shown on the records of the Paying Agent/Registrar described below) at the .r Interest Rate per annum specified above, payable on February 15, 2011, and semiannually on each February 15 and August 15 thereafter to the Maturity Date specified above; except that if this Note is required to be authenticated and the date of its authentication is later than the first Record Date sr (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 orr 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. THE PRINCIPAL OF AND INTEREST ONthis Note are payable in lawful money of the rr 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 at the designated corporate trust or commercial banking office (currently located in Austin, Texas) of W WELLS FARGO BANK, N.A., which is the "Paying AgenURegistrar" 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 authorizing the issuance of this Note (the "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, on each such interest payment date, to the Registered Owner hereof, at its address as it appeared on the last business 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 Page 1 of 5 SPECIMEN r R -4 UNITED STATES OF AMERICA PRINCIPAL ry STATE OF TEXAS AMOUNT KERR COUNTY, TEXAS $1,080,000 TAX NOTES, SERIES 2010 Yr INTEREST RATE MATURITY DATE DATE OF SERIES CUSIP NO. +.r 4.000% February 15, 2014 January 15, 2010 492350 CN1 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: ONE MILLION EIGHTY THOUSAND DOLLARS ON THE MATURITY DATE specified above, KERR COUNTY, TEXAS (the "Issuer "), being a political subdivision and home -rule municipality of the State of Texas, hereby promises to pay to the Registered Owner specified above, or registered assigns (hereinafter called the "Registered at 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 of the series of Notes described above (as shown on the records of the Paying Agent/Registrar described below) at the Interest Rate per annum specified above, payable on February 15, 2011, and semiannually on each February 15 and August 15 thereafter to the Maturity Date specified above; 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. THE PRINCIPAL OF AND INTEREST ONthis 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 at the designated corporate trust or commercial banking office (currently located in Austin, Texas) of ++� WELLS FARGO BANK, N.A., 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 authorizing the issuance of this Note (the "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, on each such interest payment date, to the Registered Owner hereof, at its address as it appeared on the last business day of the month next preceding each such date (the "Record Date ") on the Registration Books kept by the Paying Agent/Registrar, as W+ hereinafter described. In the event of a non - payment of interest on a scheduled payment date, and Page 1 of 5 tis SPECIMEN , R -5 UNITED STATES OF AMERICA PRINCIPAL STATE OF TEXAS AMOUNT t KERR COUNTY, TEXAS $1,155,000 TAX NOTES, SERIES 2010 INTEREST RATE MATURITY DATE DATE OF SERIES CUSIP NO. 3.500% February 15, 2015 January 15, 2010 492350 CP6 r REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: ONE MILLION ONE HUNDRED FIFTY FIVE THOUSAND DOLLARS se ON THE MATURITY DATE specified above, KERR COUNTY, TEXAS (the "Issuer "), being a political subdivision and home -rule municipality 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 of the series of Notes described above (as shown on the records of the Paying Agent/Registrar described below) at the Interest Rate per annum specified above, payable on February 15, 2011, and semiannually on each February 15 and August 15 thereafter to the Maturity Date specified above; except that if this Note is required to be authenticated and the date of its authentication is later than the first Record Date )> Principal payment defined), such Princi al Amount shall bear interest from the interest date next a 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 ws interest has been paid in full. THE PRINCIPAL OF AND 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 at the designated corporate trust or commercial banking office (currently located in Austin, Texas) of WELLS FARGO BANK, N.A., 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 authorizing the issuance of this Note (the "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, on each such interest payment date, to the Registered Owner hereof, at its address as it appeared on the last business 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 Page 1 of 5 ilAI SPECIMEN 14-6 UNITED STATES OF AMERICA PRINCIPAL STATE OF TEXAS AMOUNT KERR COUNTY, TEXAS 51,215,000 TAX NOTES, SERIES 2010 OS INTEREST RATE MATURITY DATE DATE OF SERIES CUSIP NO. 3.500% February 15, 2016 January 15, 2010 492350 CQ4 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: ONE MILLION TWO HUNDRED FIFTEEN THOUSAND DOLLARS ON THE MATURITY DATE specified above, KERR COUNTY, TEXAS (the "Issuer "), being a political subdivision and home -rule municipality of the State of Texas, hereby promises to r 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 of the series of Notes described above (as shown on the records of the Paying Agent/Registrar described below) at the ~' Interest Rate per annum specified above, payable on February 15, 2011, and semiannually on each February 15 and August 15 thereafter to the Maturity Date specified above; 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 datejnext preceding the date of authentication, unless such date of authentication is after any Record Data= 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. THE PRINCIPAL OF AND INTEREST ONthis 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 at the designated corporate trust or commercial banking office (currently located in Austin, Texas) of WELLS FARGO BANK, N.A., 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 authorizing the issuance of this Note (the "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, on each such interest payment date, to the Registered Owner hereof, at its address as it appeared on the last business day of the month next preceding each such date (the "Record Date ") on the Registration Books kept by the Paying Agent/Registrar, as S hereinafter described. In the event of a non - payment of interest on a scheduled payment date, and Page 1 of 5 SPECIMEN ' 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 r ` of the past due interest (the "Special PaymentDate" 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'¢nail, 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 precd'ding the date of mailing of such notice. The Issuer covenants with the Registered Owner of this Note that on or before each principal or interest payment date for this Note it will make available to the Paying Agent/Registrar, from the "Interest and Sinking Fund" created by the 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 iso Saturday, Sunday, legal holiday, or day on which banking institutions in the city where the Pitying Agent/Registrar is located 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 succedding day which is not such a Saturday, Sunday, legal holiday, or day on which banking institutions are W " 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. rr THE NOTES ARE NOT SUBJECT TO OPTIONAL OR MANDATORY REDEMPTION PRIOR TO STATED MA TURITY. THIS NOTE is one of a series of Notes dated as of January 15, 2010, authorized in accordance with the Constitution and laws of the State of Texas in the aggregate principal amount of $4,350,000 FOR THE PURPOSE OF PAYING COSTS OF ISSUANCE AND CONSTRUCTING AND ACQUIRING VARIOUS "PROJECTS" AS DEFINED AND MORE FULLY DESCRIBED IN THE ORDER, WHICH PROJECTS ARE GENERALLYDESCRIBED AS FOLLOWS: CONSTRUCTING AND EQUIPPING ANEW BUILDING PRIMARILY SOR USE BY THE SHERIFF'S DEPARTMENT AND FOR ADULT PROBATION; CONSTRUCTING A WATER LINE AT THE CITY /COUNTY AIRPORT AND FUNDING A MASTER STUDY FOR THE AIRPORT; CONSTRUCTING REPAIRS AND IMPROVEMENTS r+ TO CERTAIN DAMS; ACQUIRING AND EQUIPPING SHERIFF PATROL CARS; AND ACQUIRING OTHER VEHICLES AND VARIOUS ITEMS OF EQUIPMENT AND OTHER PERSONAL PROPERTY FOR VARIOUS COUNTY DEPARTMENTS. ALLNOTES OFTHISSERIES are issuable solely as fully registered Notes, without interest coupons, in the denomination of any integral multiple of $5,000. As provided in the Order, this Wr Note, 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 r, be, having the same denomination or denominations in any integral multiple of $5,000 as requested in writing by the appropriate Registered Owner, assignee or assignees, as the case may be, upon surrender of this Note to the Paying Agent/Registrar for cancellation, all in accordance with the form rr and procedures set forth in the Order. Among other requirements for such assignment and transfer, Page 2 of 5 W SPECIMEN this Note must be presented and surrendered to the Paying Agent/Registrar, together with proper instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying W Agent/Registrar, evidencing assignment of this Note or any portion or portions hereof in any integral multiple of $5,000 to the assignee or assignees in whose name or names this Note or any such portion or portions hereof is or are to be registered. The form of Assignment printed or endorsed on this Note may be executed by the Registered Owner to evidence the assignment hereof, but such method is not exclusive, and other instruments of assignment satisfactory to the Paying Agent/Registrar may be used to evidence the assignment of this Note or any portion or portions hereof from time to time by the Registered Owner. The Paying Agent/Registrar's reasonable standard or customary fees and charges for transferring and exchanging any Note or portion thereof shall be paid by the Issuer, but any taxes or governmental charges required to be paid with re$pect 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 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. • WHENEVER THE BENEFICIAL OWNERSHIP of this Note is determined by a book entry at a securities depository for the Notes, the foregoing requirements of holding, delivering or transferring this Note shall be modified to require the appropriate person or entity to meet the rr requirements of the securities depository as to registering or transferring the book entry to produce the same effect. IN THE EVENT any Paying Agent/Registrar for the Notes is changed by the Issuer, resigns, or otherwise ceases to act as such, the Issuer has covenanted in the 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 tin 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 prescribed by law. THE CITY also has reserved the right to amend the 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. BY BECOMING the Registered Owner of this Note, the Registered Owner thereby acknowledges all of the terms and provisions of the Order, agrees to be bound by such terms and provisions, acknowledges that the 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 ,,, Page 3 of 5 of this Note and the 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 ofthe Issuer, and countersigned with the manual or facsimile signature of the County Clerk of the Issuer, and the official seal of' the Issuer has been duly impressed, or placed in facsimile, on this Note. Countersigned: Wr /tot" /V 700 AU P ��1ER - C " County,' tas u ge, Kea County, Tex 5 �' 'a , o Yet * cj) 9' COUN �= as 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 SPECIMEN (COMPTROLLERS SEAL) Comptroller of Public Accounts of the State of Texas Page 4 of 5 PAYING AGENT/REGISTRAR'S AUTHENTICATION 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 Order r 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. r�. Dated WELLS FARGO BANK, N.A. Austin, Texas r Paying Agent/Registrar By Aut hor pECI tati WS ASSIGNMENT is FOR VALUE RECEIVED, the undersigned Registered Owner of this Note, or duly authorized representative or attorney thereof, hereby sells, assigns and transfers this Note and all rights hereunder unto / (Assignee's Social Security or (Please print or typewrite Assignee's name and address, Taxpayer Identification Number) including zip code) and hereby irrevocably constitutes and appoints attorney to transfer the registration of this Note on the Paying Agent/Registrar's Registration Books with full power of substitution in the premises. rr Dated: Signature Guaranteed: SPECIMEN NOTICE: Signature(s) must be guaranteed by NOTICE: The signature above must a member firm of the New York Stock correspond with the name of the Registered Exchange or a commercial bank or trust Owner as it appears upon the front of this company. Note in every particular, without alteration or enlargement or any change whatsoever. W„ Page 5 of 5 1 1 Blanket Issuer Letter of Representations (To be Completed by Issuer) 1 KERR COUNTY, TEXAS no (Name of Issuer( 1 es December 17, 1998 1 [Dace: Nil Attention: Underwriting Department — Eligibility The Depository Trust Company 1 55 Water Street; 50th Floor New York, NY 10041 -0099 1 Ladies and Gentlemen: _ de This letter sets forth our understanding with respect to all issues (the "Securities ") that Issuer 1 shall request be made eligible for deposit.by The Depository Trust Company ( "DTC "). t W To induce DTC to accept the Securities as eligible for deposit at DTC, and to act in accordance 1 with DTC's Rules with respect to the Securities, Issuer represents to DTC that Issuer will comply with the requirements stated in DTC's Operational Arrangements, as they may be amended from time to time. 1 so Note: Very truly yours, 1 Schedule A contains statements that DTC believes accurately describe DTC, the method of effects book- er entry transfers of securities distibuted through DTC, and COUNTY , TEXAS certain related matters. 1 Issuer us 13r lAn, • if Signature) 1 Recei - • - • • Accepted: Ro rt A. Denson, County Judge (Typewrite Name et Tide) 1 ! ' -• EPO ORY r: STCOM 700 Main (, LW Jn. 1 (Street Address) ttr � V 1 By ) Kerrville TX 78028 (Gtr) (Stare) (Zp) Ns (830) 792 - 2211 y (Phone Number) iY 1 it .,r II so 1 1 SCHEDULE A sis SAMPLE OFFERING DOCUMENT LANGUAGE 1 DESCRIBING BOOK - ENTRY- -ONLY ISSUANCE as (Prepared by DTC— bracketed material may be applicable only to certain issues) 1 1. The Depository Trust Company ( "DTC "), New York, NY. will act as securities depository for the securities (the "Securities'). The Securities will be issued as fully - registered securities registered in the 1 name of Cede & Co. ( DTC's partnership nominee). One fully - registered Security certificate will be issued for [each issue of] the Securities, (each] in the aggregate principal amount of such issue. and will "a be deposited with DTC. (If, however. the aggregate principal amount of [any] issue exceeds 3200 1 million, one certificate will be issued with respect to each 3200 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount of such issue.] 'o 2. DTC is a limited- purpose trust company organized under the New York Banking Law, a "banking I organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a to. "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1 1934. DTC holds securities that its participants ("Participants ") deposit with DTC. DTC also facilitates . the settlement among Participants of securities transactions, such as transfers and pledges, in deposited it securities through electronic computerized book -entry changes in Participants' accounts, thereby 1 eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other as organizations. DTC is owned by a number of its Direct Participants and by the New York Stock 1 Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, al and trust companies that clear through or maintain a custodial relationship with a Direct Participant, 1 either directly or indirectly ( "Indirect Participants'). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. as 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, 1 which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ( "Beneficial Owner ") is in turn to be recorded on the Direct and Indirect as Participants' records. Beneficial Owners will not receive written confirmation from DTC of their II purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant so through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book -entry system for the Securities is discontinued. II 4. To facilitate subsequent transfers, all Securities deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Securities with DTC and their r registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no II knowledge of the actual Beneficial Owners of the Securities: DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited. which may or may not be the is Beneficial Owners. The Participants will remain responsible for keeping account of their holdings an behalf of their customers. 1 .r 1 W 1 so 1 so 1 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants. and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. tit [6. Redemption notices shall be sent to Cede & Co. If fess than all of the Securities within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct 1 Participant in such issue to be redeemed.] is 7. Neither DTC nor Cede dt Co. will consent or vote with respect to Securities. Under its usual 1 procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede dr Co.'s consenting or voting rights to those Direct Participants to whose r accounts the Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 1 8. Principal and'interest payments on the Securities will be made to DTC. DTC's practice is to credit as Direct Participants' accounts on payable date in accordance with their respective holdings shown on i DTC's records unless DTC has reason to believe that it will not receive payment on payable date.' Payments by Participants to Beneficial Owners will be governed by standing instructions and customary ON practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC. the Agent, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. of Payment of principal and interest to DTC is the responsibility of the Issuer or the Agent, disbursement 1 of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants, wo [9. A Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through 1 its Participant, to the (Tender/Remarketing] Agent, and shall effect delivery of such Securities by causing the Direct Participant to transfer the Partiapant's interest in the Securities, on DTC's records, to the is (Tender/Remarketing] Agent. The requirement for physical delivery of Securities in connection with a demand for purchase or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC's records.] ' so 10. DTC may discontinue providing its services as securities depository with respect to the Securities 1 at any time by giving reasonable notice to the Issuer or the Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Security certificates are required to be r printed and delivered 1 11. The Issuer may deride to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered. di 1 12. The information in this section concerning DTC and DTC's book -entry system has been obtained from sources that the Issuer believes to be reliable, but the Issuer takes no responsibility for the accuracy thereof. i so 1 is 1 a FEDERAL TAX CERTIFICATE 1. In General. 1.1. The undersigned is the County Judge of I(ERR COUNTY, TEXAS (the "Issuer"). 1.2. This Certificate is executed for the purpose of establishing the reasonable expectations of the Issuer as to future events regarding the Issuer's TAX NOTES, SERIES 2010 (the "Notes "). The Notes are being issued pursuant to an order of the Issuer (the "Order ") adopted on the date of sale of the Notes. The Order is incorporated herein by reference. 1.3. To the best of the undersigned's knowledge, information and belief, the expectations contained in this Federal Tax Certificate are reasonable. 1.4. The undersigned is an officer of the Issuer delegated with the responsibility of issuing and delivering the Notes. 1.5. The undersigned is not aware of any facts or circumstances that would cause him to question the accuracy of the representations made by Southwest Securities, Inc.( the "Underwriter ") in Subsection 5.1 of this Certificate. 2. The Purpose of the Notes and Useful Lives of Proiects. rr 2.1. The Notes are being issued pursuant to the Order to finance the acquisition and construction of the following improvements: (a) construct a new building of approximately 12,000 square feet located at the County jail site for adult probation, sheriff facilities and storage; (b)construct a water line at the City/County airport and fund a master study for the airport; (c)acquire and equip approximately ten Sheriff w patrol cars and other vehicles for the Sheriffs Department, and acquire a van for the Extension Service; (d) acquire two trucks for the Building Maintenance Department and the Ag Barn; and (e)acquire various items of equipment including but not limited to computers and computer software for various county departments, radios and related communication equipment for the Sheriffs Department, the County Constables and the Environmental Health Department, video equipment for the Security Department, heavy equipment (including two front -end loaders) for the Road and Bridge Department, tables and chairs for the Ag Barn, dining tables and projection equipment for the Juvenile Detention Facility, scanners and other equipment for the Election Services Department, projection equipment for the District Attorney's office, safety equipment for the Courthouse, and various items of equipment for the County jail including but not limited to air conditioners, scanners, leg shackles, food cart, passenger van and equipment therefor, and rape prevention cameras (collectively the "Projects ") and to pay the related expenses of issuing the Bonds. tWr 2.2. The Issuer expects that the aggregate useful lives of the Projects exceed 15 years from the later of the date the Projects are placed in service or the date on which the Notes are issued. w 2.3. All earnings, such as interest and dividends, received from the investment of the proceeds of the Notes during the period of acquisition and construction of the Projects and not used to pay interest on the Notes, will be used to pay the costs of the Projects, unless required to be rebated and paid to the United States in accordance with section 148(I) of the Internal Revenue Code of 1986 (the "Code "). The proceeds W' of the Notes, together with any investment earnings thereon, are expected not to exceed the amount necessary for the governmental purpose of the Notes. The Issuer expects that no disposition proceeds will arise in connection with the Projects or the Notes. 3. Expenditure of Note Proceeds and Use of Proiects. 3.1. The Issuer will incur, within six months after the date of issue of the Notes, a binding obligation to commence the Projects, either by entering into contracts for the construction of the Projects or by entering into contracts for architectural or engineering services for such Projects, or contracts for the development, purchase of construction materials, or purchase of equipment, for the Projects, with the amount to be paid under such contracts to be in excess of five percent of the proceeds which are estimated to be used W, for the cost of the Projects. W WO 3.2. After entering into binding obligations, work on such Projects will proceed promptly with due diligence to completion. 3.3. All original proceeds derived from the sale of the Notes to be applied to the Projects and all investment earnings thereon (other than any amounts required to be rebated to the United States pursuant to section 148(0 of the Code) will be expended for the Projects no later than a date which is three years after the date of issue of the Notes. rr 3.4. The Order provides that allocations of proceeds to expenditures for the Projects are expected not to be later than 18 months after the later of the date of the expenditure or the date that the Projects are placed in service, but, in any event, not longer than 60 days after the earlier of five years of the date hereof or the date the Notes are retired. it 3.5. The Issuer will not invest the proceeds prior to such expenditure in any guaranteed investment contract or other non - purpose investment with a substantially guaranteed yield for a period equal to or greater than four years. as 3.6. Other than members of the general public, the Issuer expects that throughout the lesser of the term of the Notes, or the useful lives of the Projects, the only user of the Projects will be the Issuer or the Issuer's employees and agents. The Issuer will be the manager of the Projects. In no event will the proceeds of the Notes in an amount greater than $15 million or facilities financed therewith be used for private business use. 3.7. Except as stated below, the Issuer expects not to sell or otherwise dispose of property constituting the Projects prior to the earlier of the end of such property's useful life or the final maturity of the Notes. The Order provides that the Issuer will not sell or otherwise dispose of the Projects unless the Issuer receives an opinion of nationally- recognized bond counsel that such sale or other disposition will not adversely affect the tax- exempt status of the Notes. 3.8. For purposes of Section 3.7 hereof, the Issuer has not included the portion of the Projects comprised of personal property that is disposed in the ordinary course at a price that is expected to be less than 25 percent of the original purchase price. The Issuer, upon any disposition of such property, will transfer S the receipts from the disposition of such property to the general operating fund and expend such receipts within six months for other governmental programs. 4. Interest and Sinking Fund. 4.1. A separate and special Interest and Sinking Fund has been created and established, other than as described herein, solely to pay the principal of and interest on the Notes (the "Bona Fide Debt Service Portion "). The Bona Fide Debt Service Portion constitutes a fund that is used primarily to achieve a proper matching of revenues and debt service within each bond year. Such portion will be completely depleted at least once each year except for an amount not in excess of the greater of (a) one twelfth of the debt service on the Notes for the previous year, or (b) the previous year's earnings on such portion of the Interest and Sinking Fund. Amounts deposited in the Interest and Sinking Fund constituting the Bona Fide Debt Service Portion will be spent within a thirteen -month period beginning on the date of deposit, and any amount received from the investment of money held in the Interest and Sinking Fund will be spent within a one -year period beginning on the date of receipt. 4.2. Any money deposited in the Interest and Sinking Fund and any amounts received from the investment thereof that accumulate and remain on hand therein after thirteen months from the date of deposit of any such money or one year after the receipt of any such amounts from the investment thereof shall constitute a separate portion of the Interest and Sinking Fund. The yield on any investments allocable to the portion of the Interest and Sinking Fund exceeding the sum of (a) the Bona Fide Debt Service Portion and (b) an amount equal to the lesser of five percent of the sale and investment proceeds of the Notes or $100,000 wr will be restricted to a yield that does not exceed the yield on the Notes. 5. Yield. ar 2 a. 5.1. All of the Notes were offered to members of the public in a bona fide initial offering. For r purposes of this certificate, the term "public" does not include any bondhouses, brokers, dealers, and similar persons or organizations acting in the capacity of underwriters or wholesalers (including the Underwriter or members of the Underwriter and selling group or persons that are related to, or controlled by, or are acting on behalf of or as agents for the undersigned or members of the selling group). Each maturity of the Notes was offered to the public at a price which, on the date of such offering, was reasonably expected by the Underwriter to be equal to the fair market value of such maturity. The Official Statement is included in the transcript for the Notes and is incorporated herein by reference. we 5.2. The Issuer has not entered into any qualified guarantee or qualified hedge with respect to the Notes. The yield on the Notes will not be affected by subsequent unexpected events, except to the extent provided in section 1.148- 4(h)(3) of the Treasury Regulations when and if the Issuer enters into a qualified hedge or into any transaction transferring, waiving or modifying any right that is part of the terms of any r Bond. The Issuer will consult with nationally recognized bond counsel prior to entering into any of the foregoing transactions. 6. Invested Sinking Fund Proceeds, Replacement Proceeds. 6.1. The Issuer has, in addition to the moneys received from the sale of the Notes, certain other moneys that are invested in various funds which are pledged for various purposes. These other funds are not available to accomplish the purposes described in Section 2 of this Certificate. 6.2. Other than the Interest and Sinking Fund, there are, and will be, no other funds or accounts established, or to be established, by or on behalf of the Issuer (a) which are reasonably expected to be used, r or to generate earnings to be used, to pay debt service on the Notes, or (b) which are reserved or pledged as collateral for payment of debt service on the Notes and for which there is reasonable assurance that amounts therein will be available to pay such debt service if the Issuer encounters financial difficulties. Accordingly, there are no other amounts constituting "gross proceeds" of the Notes, within the meaning of section 148 of the Code. 7. Other Obligations. There are no other obligations of the Issuer that (a) are sold at substantially the same time as the Notes, i.e., within 15 days of the date of sale of the Notes, (b) are sold pursuant to a common plan of financing with the Notes, and (c) will be payable from the same source of funds as the Notes. 8. Federal Tax Audit Responsibilities. The Issuer acknowledges that in the event of an examination by the Internal Revenue Service (the sa "Service ") to determine compliance of the Notes with the provisions of the Code as they relate to tax- exempt obligations, the Issuer will respond, and will direct its agents and assigns to respond, in a commercially reasonable manner to any inquiries from the Service in connection with such an examination. The Issuer understands and agrees that the examination may be subject to public disclosure under applicable Texas law. 9. Record Retention. The Issuer has covenanted in the Order that it will comply with the requirements of the Code relating to the exclusion of the interest on the Notes under section 103 of the Code. The Service has determined that certain materials, records and information should be retained by the issuers of tax- exempt obligations for the purpose of enabling the Service to confirm the exclusion of the interest on such obligations under section 103 of the Code. ACCORDINGLY, THE ISSUER SHALL TAKE STEPS TO ENSURE THAT ALL 6 MATERIALS, RECORDS AND INFORMATION NECESSARY TO CONFIRM THE EXCLUSION OF THE INTEREST ON THE NOTES UNDER SECTION 103 OF THE CODE ARE RETAINED FOR THE PERIOD BEGINNING ON THE ISSUE DATE OF THE NOTES AND ENDING THREE YEARS AFTER THE DATE THE NOTES ARE RETIRED. The Issuer acknowledges receipt of the letter attached hereto as Exhibit "B" which, in part, discusses specific guidance by the Service with respect to the retention of records relating to tax- exempt bond transaction. The Issuer also acknowledges that the r 3 rr letter does not constitute an opinion of Bond Counsel as to the proper record retention policy applicable to any specific transaction. 10. Rebate to United States. The Issuer has covenanted in the Order that it will comply with the requirements of the Code, including section 148(0 of the Code, relating to the required rebate to the United States. Specifically, the Issuer will take steps to ensure that all earnings on gross proceeds of the Notes in excess of the yield on the Notes required to be rebated to the United States will be timely paid to the United States. The Issuer Ir acknowledges receipt of the memorandum attached hereto as Exhibit "A" which discusses regulations promulgated pursuant to section 148(0 of the Code. This memorandum does not constitute an opinion of Bond Counsel as to the proper federal tax or accounting treatment of any specific transaction. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] W s VIII ■II till YW WI vs DATED: February 9, 2010 KERR COUNTY, TEXAS ty: • as N s s [ISSUER'S SIGNATURE PAGE TO FEDERAL TAX CERTIFICATE RELATING TO KERR COUNTY, TEXAS TAX NOTES, SERIES 2010] tiY WII ilk The undersigned represents that, to the best of the undersigned's knowledge, information and belief, the representations contained in Subsection 5.1 of this Federal Tax Certificate are, as of February 9,2010, accurate and complete. SOUTHWEST SECURITIES, INC. By: Y vs Name: Michael G. Wadsworth Title: Senior Vice President +ir s ONO W+ ry rrr [UNDERWRITER'S SIGNATURE PAGE TO FEDERAL. TAX CERTIFICATE RELATING TO KERR COUNTY, TEXAS TAX NOTES, SERIES 20101 a Exhibit "A" 6n LAW OFFICES McCALL, PARKHURST & HORTON L.L.P. 600 CONGRESS AVENUE 717 NORTH HARWDOD 700 N. ST. MARYS STREET 1800 ONE AMERICAN CENTER NINTH FLOOR 1525 ONE RNERWALK PLACE AUSTIN, TEXAS 78701424/ DALLAS, TEXAS 752014587 SAN ANTONIO, TEXAS 782064503 TELEPHONE: (512) 478-3805 TELEPHONE 214) 754-9200 TELEPHONE:(210) 225-2800 FACSIMILE(512) 472 -0871 FACSIMILE: (214)754-0250 FACSIMILE. (21 0) 225.29114 January 1, 2006 r ARBITRAGE REBATE REGULATIONS® e The arbitrage rebate requirements set forth in section 148(f) of the Internal Revenue Code of 1986 (the "Code ") generally provide that in order for interest on any issue of bonds' to be excluded from gross income (i.e., tax- exempt) the issuer must rebate to the United States the sum of, (1) the excess of the amount earned on all "nonpurpose investments" acquired with "gross proceeds" of the issue over the amount which would have been earned if such investments had been invested at a yield equal to the yield on the issue, and (2) the earnings on such excess earnings. soi On June 18, 1993, the U.S. Treasury Department promulgated regulations relating to the computation of arbitrage rebate and the rebate exceptions. These regulations, which replace the previously - published regulations promulgated on May 15, 1989, and on May 18, 1992, are effective for bonds issued after June 30, 1993. This memorandum was prepared by McCall, Parkhurst & Horton L.L.P. and provides a general discussion of these arbitrage rebate regulations. This memorandum does not otherwise discuss the general arbitrage regulations, other than as they may incidentally relate to rebate. This memorandum also does not attempt to provide an exhaustive discussion of the arbitrage rebate regulations and should not be considered advice with respect to the arbitrage rebate requirements as applied to any individual or governmental unit or any specific transaction. Any tax advice contained in this memorandum is of a general nature and is not intended to be used, and should not be used, by any person to avoid penalties under the Code. McCall, Parkhurst & Horton L.L.P. remains available to provide legal advice to issuers with respect to the provisions of these tax regulations but recommends that issuers seek competent financial and accounting assistance in calculating the amount of such issuer's rebate liability under section 148(f) of the Code and in making elections to apply the rebate exceptions. Effective Dates The regulations promulgated on June 18, 1993, generally apply to bonds delivered after June 30, 1993, although they do permit an issuer to elect to apply the rules to bonds issued prior to that date. The temporary regulations adopted by the U.S. Treasury Department in 1989 and 1992 incorporated the same effective dates which generally apply for purposes of section 148(f) of the Code. As such, the previous versions of the rebate regulations generally applied to bonds issued between August 1986 and June 30, 1993 (or, with an election, to bonds issued prior to August 15, 1993). The statutory provisions of section 148(f) of the Code, other than the exception for construction issues, apply to all bonds issued after August 15, 1986, (for private activity bonds) and August 31, 1986, (for governmental public purpose bonds). The statutory exception to rebate applicable for construction issues generally applies if such issue is delivered after December 19, 1989. i1r In this memorandum the word "bond" is defined to include any bond, note, certificate, financing lease or other obligation of an issuer. 61Y Copyright 2006 by Harold T. Flanagan, McCall, Parkhurst & Horton L.L.P. All rights reserved. .66 41141 doi The regulations provide numerous transitional rules for bonds sold prior to July 1, 1993. Moreover, +� since, under prior law, rules were previously published with respect to industrial development bonds and mortgage revenue bonds, the transitional rules contained in these regulations permit an issuer to elect to apply certain of these rules for computing rebate on pre -1986 bonds. The regulations provide for numerous elections which would permit an issuer to apply the rules (other than 18 -month spending exception) to bonds r which were issued prior to July 1, 1993 and remain outstanding on June 30, 1993. Due to the complexity of the regulations, it is impossible to discuss in this memorandum all circumstances for which specific elections are provided. If an issuer prefers to use these final version of rebate regulations in lieu of the computational method stated under prior law (e.g., due to prior redemption) or the regulations, please contact McCall, Parkhurst & Horton L.L.P. for advice as to the availability of such options. Future Value Computation Method The regulations employ an actuarial method for computing the rebate amount based on the future value of the investment receipts (i.e., earnings) and payments. The rebate method employs a two -step computation to determine the amount of the rebate payment. First, the issuer determines the bond yield. Second, the issuer determines the arbitrage rebate amount. The regulations require that the computations be made at the end of each five -year period and upon final maturity of the issue (the "computation dates "). THE FINAL MATURITY DATE WILL ACCELERATE IN CIRCUMSTANCES IN WHICH THE BONDS ARE OPTIONALLY REDEEMED PRIOR TO MATURITY. AS SUCH, IF BONDS ARE REFUNDED OR OTHERWISE REDEEMED, THE REBATE MAY BE DUE EARLIER THAN INITIALLY PROJECTED. In order to accommodate accurate record - keeping and to assure that sufficient amounts will be available for the we payment of arbitrage rebate liability, however, we recommend that the computations be performed at least annually. Please refer to other materials provided by McCall, Parkhurst & Horton L.L.P. relating to federal tax rules regarding record retention. Yr Under the future value method, the amount of rebate is determined by compounding the aggregate earnings on all the investments from the date of receipt by the issuer to the computation date. Similarly, a payment for an investment is future valued from the date that the payment is made to the computation date. The receipts and payments are future valued at a discount rate equal to the yield on the bonds. The rebatable arbitrage, as of any computation date, is equal to the excess of the (1) future value of all receipts from investments (i.e., earnings), over (2) the future value of all payments. The following example is provided in the regulations to illustrate how arbitrage rebate is computed under the future value method for a fixed -yield bond: tie "On January 1, 1994, City A issues a fixed yield issue and invests all the sale proceeds of the issue ($49 million). There are no other gross proceeds. The issue has a yield of 7.0000 percent per year compounded semiannually (computed on a 30 day month /360 day year a basis). City A receives amounts from the investment and immediately expends them for the governmental purpose of the issue as follows: Date Amount 2/1/1994 $ 3,000,000 4/1/1994 5,000,000 6/1/1994 14,000,000 yr 9/1/1994 20,000,000 7/1/1995 10,000,000 City A selects a bond year ending on January 1, and thus the first required computation date is January 1, 1999. The rebate amount as of this date is computed by determining the future value of the receipts and the payments for the investment. The compounding interval is each 6 -month (or shorter) period and the 30 day month/360 day year basis is used because these conventions were used to compute yield on the issue. The future value of these amounts, plus the computation credit, as of January 1, 1999, is: ea McCall, Parkhurst & Horton L.L.P. - Page 2 ■r Date Receipts (Payments) FY (7.0000 percent) 01/1/1994 ($49,000,000) ($69,119,339) 02/1/1994 3,000,000 4,207,602 04/1/1994 5,000,000 6,932,715 06/1/1994 14,00Q 000 19,190,277 09/1/1994 20,000,000 26,947,162 01/1/1995 (1,000) (1,317 ) 07/1/1995 10,000,000 12,722,793 01/1/1996 (1,000) (1.229) Rebate amount (01/01/1999) $878,664" General Method for Computing Yield on Bonds In general, the term "yield," with respect to a bond, means the discount rate that when used in computing the present value of all unconditionally due payments of principal and interest and all of the payments for a qualified guarantee produces an amount equal to the issue price of the bond. The term "issue e price" has the same meaning as provided in sections 1273 and 1274 of the Code. That is, if bonds are publicly offered (i.e., sold by the issuer to a bond house, broker or similar person acting in the capacity of underwriter or wholesaler), the issue price of each bond is determined on the basis of the initial offering price to the public (not to the aforementioned intermediaries) at which price a substantial amount of such bond was sold to the public (not to the aforementioned intermediaries). The "issue price" is separately determined for each bond (i.e., maturity) comprising an issue. The regulations also provide varying periods for computing yield on the bonds depending on the lir method by which the interest payment is determined. Thus, for example, yield on an issue of bonds sold with variable interest rates (i.e., interest rates which are reset periodically based on changes in market) is computed separately for each annual period ending on the first anniversary of the delivery date that the issue is outstanding. In effect, yield on a variable yield issue is determined on each computation date by "looking • back" at the interest payments for such period. The regulations, however, permit an issuer of a variable -yield issue to elect to compute the yield for annual periods ending on any date in order to permit a matching of such yield to the expenditure of the proceeds. Any such election must be made in writing, is irrevocable, and must be made no later than the earlier of (1) the fifth anniversary date, or (2) the final maturity date. Yield on a fixed interest rate issue (i.e., an issue of bonds the interest rate on which is determined as of the date of the issue) is computed over the entire term of the issue. Issuers of fixed -yield issues generally use the yield computed as of the date of issue for all rebate computations. Such yield on foxed -yield issues generally is recomputed only if (1) the issue is sold at a substantial premium, may be retired within five +� years of the date of delivery, and such date is earlier than its scheduled maturity date, or (2) the issue is a stepped - coupon bond. In such cases, the regulations require the issuer to recompute the yield on such issues by taking into account the early retirement value of the bonds. Similarly, recomputation may occur in circumstances in which the issuer or bondholder modify or waive certain terms of, or rights with respect to, the issue or in sophisticated hedging transactions. IN SUCH CIRCUMSTANCES, ISSUERS ARE ADVISED TO CONSULT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. iW For purposes of determining the principal or redemption payments on a bond, different rules are used for fixed -rate and variable -rate bonds. The payment is computed separately on each maturity of bonds rather than on the issue as a whole. In certain circumstances, the yield on the bond is determined by assuming that principal on the bond is paid as scheduled and that the bond is retired on the final maturity date for the stated retirement price. For bonds subject to early redemption or stepped- coupon bonds, described above, or for bonds subject to mandatory early redemption, the yield is computed assuming the bonds are paid on the early redemption date for an amount equal to their value. Premiums paid to guarantee the payment of debt service on bonds are taken into account in computing the yield on the bond. Payments for guarantees are taken into account by treating such premiums as the payment of interest on the bonds. This treatment, in effect, raises the yield on the bond, thereby permitting the issuer to recover such fee with excess earnings. r McCall, Parkhurst & Horton L.L.P. - Page 3 t The guarantee must be an unconditional obligation of the guarantor enforceable by the bondholder for the payment of principal or interest on the bond or the tender price of a tender bond. The guarantee may be in the form of an insurance policy, surety bond, irrevocable letter or line of credit, or standby purchase agreement. Importantly, the guarantor must be legally entitled to full reimbursement for any payment made on the guarantee either immediately or upon commercially reasonable repayment terms. The guarantor may not be a co- obligor of the bonds or a user of more than 10 percent of the proceeds of the bonds. Yr Payments for the guarantee may not exceed a reasonable charge for the transfer of credit risk. This reasonable charge requirement is not satisfied unless it is reasonably expected that the guarantee will result in a net present value savings on the bond (i.e., the premium does not exceed the present value of the interest savings resulting by virtue of the guarantee). If the guarantee is entered into after June 14, 1989, then any fees charged for the nonguarantee services must be separately stated or the guarantee fee is not recoverable. The regulations also treat certain "hedging" transactions in a manner similar to qualified guarantees. "Hedges" are contracts, e.g., interest rate swaps, futures contracts or options, which are intended to reduce the risk of interest rate fluctuations. Hedges and other financial derivatives are sophisticated and ever - evolving financial products with which a memorandum, such as this, can not readily deal. IN SUCH CIRCUMSTANCES. ISSUERS ARE ADVISED TO CONSULT McCALL. PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSAC77ONS. Earnings on Nonpurpose Investments The arbitrage rebate provisions apply only to the receipts from the investment of "gross proceeds" in "nonpurpose investments." Forth is purpose, nonpurpose investments are stock, bonds or other obligations acquired with the gross proceeds of the bonds for the period prior to the expenditure of the gross proceeds for the ultimate purpose. For example, investments deposited to construction funds, reserve funds (including surplus taxes or revenues deposited to sinking funds) or other similar funds are nonpurpose investments. Such investments include only those which are acquired with "gross proceeds." For this purpose, the term "gross proceeds" includes original proceeds received from the sale of the bonds, investment earnings from the investment of such original proceeds, amounts pledged to the payment of debt service on the bonds or amounts actually used to pay debt service on the bonds. The regulations do not provide a sufficient amount r of guidance to include an exhaustive list of "gross proceeds" for this purpose; however, it can be assumed that "gross proceeds" represent all amounts received from the sale of bonds, amounts earned as a result of such sale or amounts (including taxes and revenues) which are used to pay, or secure the payment of, debt service for the bonds. The total amount of "gross proceeds" allocated to a bond generally can not exceed the outstanding principal amount of the bonds. The regulations provide that an investment is allocated to an issue for the period (1) that begins on the date gross proceeds are used to acquire the investment, and (2) that ends on the date such investment ceases to be allocated to the issue. In general, proceeds are allocated to a bond issue until expended for the ultimate purpose for which the bond was issued or for which such proceeds are received (e.g., construction of a bond-financed facility or payment of debt service on the bonds). Deposit of gross proceeds to the general fund of the issuer (or other fund in which they are commingled with revenues or taxes) does not eliminate or ameliorate the Issuer's obligation to compute rebate in most cases. As such, proceeds commingled with the general revenues of the issuer are not "freed-u p" from the rebate obligation. An exception to this commingling limitation for bonds, other than private activity bonds, permits "investment earnings" (but not sale proceeds or other types of gross proceeds) to be considered spent when deposited to a commingled fund if those amounts are reasonably expected to be spent within six months. Other than for these amounts, issuers may are consider segregating investments in order to more easily compute the amount of such arbitrage earnings by not having to allocate investments. Special rules are provided for purposes of advance refundings. These rules are too complex to ,y discuss in this memorandum. Essentially, the rules relating to refundings, however, do not require that amounts deposited to the escrow fund to defease the prior obligations of the issuer be subject to arbitrage rebate to the extent that the investments deposited to the escrow fund do not have a yield in excess of the yield on the bonds. Any loss resulting from the investment of proceeds in an escrow fund below the yield on the bonds, however, may be recovered by combining those investments with investments deposited to other funds, e.g., reserve or construction funds. The arbitrage regulations also provide an exception to the arbitrage limitations for the investment of bond proceeds in tax - exempt obligations. As such, investment of proceeds in tax exempt bonds eliminates 1P the Issuer's rebate obligation. A caveat; this exception does not apply to gross proceeds derived allocable McCall, Parkhurst 8 Horton L.L.P. - Page 4 •• to a bond, which is not subject to the alternative minimum tax under section 57(a)(5) of the Code, if invested in tax - exempt bonds subject to the alternative minimum tax, i.e., "private activity bonds." Such "AMT - subject" SO investment is treated as a taxable investment and must comply with the arbitrage rules, including rebate. Earnings from these tax - exempt investments are subject to arbitrage restrictions, including rebate. Similarly, the investment of gross proceeds in certain tax - exempt mutual funds are treated as a direct w investment in the tax - exempt obligations deposited in such fund. While issuers may invest in such funds for purposes of avoiding arbitrage rebate, they should be aware that if "private activity bonds" are included in the fund then a portion of the earnings will be subject to arbitrage rebate. Issuers should be prudent in assuring that the funds do not contain private activity bonds. er The arbitrage regulations provide a number of instances in which earnings will be imputed to nonpurpose investments. Receipts generally will be imputed to investments that do not bear interest at an arm's- length (i.e., market) interest rate. As such, the regulations adopt a "market price" rule. In effect, this rule prohibits an issuer from investing bond proceeds in investments at a price which is higher than the market price of comparable obligations, in order to reduce the yield. Special rules are included for determining the market price for investment contracts, certificates of deposit and certain U.S. Treasury obligations. For example, to establish the fair market value of investment contracts a bidding process between three qualified bidders must be used. The fair market value of certificates of deposit which bear a fixed interest rate and are subject to an early withdrawal penalty is its purchase price if that price is not less than the yield on comparable U.S. Treasury obligations and is the highest yield available from the institution. In any event, a basic "common sense" rule -of -thumb that can be used to determine whether a fair market value has been paid is to ask whether the general funds of the issuer would be invested at the same yield or at a higher yield. An exception to this market price rule is available for United States Treasury Obligations - State or Local Government Series in which case the purchase price is always the market price. Reimbursement and Working Capital The regulations provide rules for purposes of determining whether gross proceeds are used for working capital and, if so, at what times those proceeds are considered spent. In general, working capital financings are subject to many of the same rules that have existed since the mid- 1970s. For example, the regulations generally continue the 13 -month temporary period. By adopting a "proceeds- spent -last" rule, the regulations also generally require that an issuer actually incur a deficit (i.e., expenditures must exceed receipts) for the computation period (which generally corresponds to the issuers fiscal year). Also, the regulations continue to permit an operating reserve, but unlike prior regulations the amount of such reserve may not exceed five percent of the issuers actual working capital expenditures for the prior fiscal year. si Another change made by the regulations is that the issuer may not finance the operating reserve with proceeds of a tax - exempt obligation. Importantly, the regulations contain rules for determining whether proceeds used to reimburse an de issuer for costs paid prior to the date of issue of the obligation, in fact, are considered spent at the time of reimbursement. These rules apply to an issuer who uses general revenues for the payment of all or a portion of the costs of a project then uses the proceeds of the bonds to reimburse those general revenues. Failure to comply with these rules would result in the proceeds continuing to be subject to federal income tax yr restrictions, including rebate. To qualify for reimbursement, a cost must be described in an expression (e.g., resolution, legislative authorization) evidencing the issuer's intent to reimburse which is made no later than 60 days after the aWt payment of the cost. Reimbursement must occur no later than 16 months after the later of (1) the date the cost is paid or (2) the date the project is placed in service. Except for projects requiring an extended construction period or small issuers, in no event can a cost be reimbursed more than three years after the cost is paid. wr Reimbursement generally is not permitted for working capital; only capital costs, grants and loans may be reimbursed. Moreover, certain anti -abuse rules apply to prevent issuers from avoiding the limitations on refundings. IN CASES INVOLVING WORKING CAPITAL OR REIMBURSEMENT, ISSUERS ARE ADVISED TO CONTACT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION. rr McCall, Parkhurst & Horton L.L.P. - Page 5 t Rebate Payments r+r Rebate payments generally are due 60 days after each installment computation date. The interim computation dates occur each fifth anniversary of the issue date. The final computation date is on the latest of (1) the date 60 days after the date the issue of bonds is no longer outstanding, (2) the date eight months after the date of issue for certain short-term obligations (Le., obligations retired within three years), or (3) the iir date the issuer no longer reasonably expects any spending exception, discussed below, to apply to the issue. On such payment dates, other than the final payment date, an issuer is required to pay 90 percent of the rebatable arbitrage to the United States. On the final payment date, an issuer is required to pay 100 percent of the remaining rebate liability. Wr Failure to timely pay rebate does not necessarily result in the loss of tax- exemption. Late payments, however, are subject to the payment of interest, and unless waived, a penalty of 50 percent (or, in the case of private activity bonds, other than qualified 501(c)(3) bonds, 100 percent) of the rebate amount which is due. IN SUCH CIRCUMSTANCES, ISSUERS ARE ADVISED TO CONSULT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. Rebate payments are refundable. The issuer, however, must establish to the satisfaction of the Commissioner of the Internal Revenue Service that the issuer paid an amount in excess of the rebate and that the recovery of the overpayment on that date would not result in additional rebatable arbitrage. An overpayment of less than $5,000 may not be recovered before the final computation date. Alternative Penalty Amount In certain cases, an issuer of a bond the proceeds of which are to be used for construction may elect to pay a penalty, in lieu of rebate. The penalty may be elected in circumstances in which the issuer expects to satisfy the two -year spending exception which is more fully described under the heading "Exceptions to r Rebate." The penalty is payable, if at all, within 60 days after the end of each six-month period. This is more often than rebate. The election of the alternative penalty amount would subject an issuer, which fails the two - year spend -out requirements, to the payment of a penalty equal to one and one -half of the excess of the amount of proceeds which was required to be spent during that period over the amount which was actually spent during the period. The penalty has characteristics which distinguish it from arbitrage rebate. First, the penalty would be payable without regard to whether any arbitrage profit is actually earned. Second, the penalty continues to accrue until either (1) the appropriate amount is expended or (2) the issuer elects to terminate the penalty. To be able to terminate the penalty, the issuer must meet specific requirements and, in some instances, must pay an additional penalty equal to three percent of the unexpended proceeds. rrr Exceptions to Rebate The Code and regulations provide certain exceptions to the requirement that the excess investment earnings be rebated to the United States. a. Small Issuers. The first exception provides that if an issuer (together with all subordinate issuers) during a calendar year does not issue tax - exempt bonds' in an aggregate face amount exceeding $5 million, then the obligations are not subject to rebate. Only issuers with general taxing powers may take advantage of this exception. Subordinate issuers are those issuers which derive their authority to issue bonds from the YIt same issuer, e.g., a city and a health facilities development corporation, or which are controlled by the same issuer, e.g., a state and the board of a public university. In the case of bonds issued for public school capital expenditures, the $5 million cap may be increased to as much as $15 million. For purposes of measuring whether bonds in the calendar year exceed these dollar limits, current refunding bonds can be disregarded if they meet certain structural requirements. Please contact McCall, Parkhurst & Horton L.L.P. for further information. b. Spending Exceptions. +r+ 2 For this purpose, "private activity bonds" neither are afforded the benefit of this exception nor are taken into account for purposes of determining the amount of bonds issued. irk McCall, Parkhurst & Horton L.L.P. - Page 6 rs s Six -Month Exception. The second exception to the rebate requirement is available to all tax- exempt bonds, all of the gross proceeds of which are expended during six months. The six month rule is available rW to bonds issued after the effective date of the Tax Reform Act of 1986. See the discussion of effective dates on page two. For this purpose, proceeds used for the redemption of bonds {other than proceeds of a refunding bond deposited to an escrow fund to discharge refunded bonds) can not be taken into account as expended. As such, bonds with excess gross proceeds generally can not satisfy the second exception unless ■+ the amount does not exceed the lesser of five percent or $100,000 and such de minimis amount must be expended within one year. Certain gross proceeds are not subject to the spend -out requirement, including amounts deposited to a bona fide debt service fund, to a reserve fund and amounts which become gross proceeds received from purpose investments. These amounts themselves, however, may be subject to rebate even though the originally expended proceeds were not. The Code provides a special rule for tax and revenue anticipation notes (i.e., obligations issued to pay operating expenses in anticipation of the receipt of taxes and other revenues). Such notes are referred to as TRANs. To determine the timely expenditure of the proceeds of a TRAN, the computation of the "cumulative cash flow deficit' is important. If the "cumulative cash flow deficit' (i.e., the point at which the operating expenditures of the issuer on a cumulative basis exceed the revenues of the issuer during the fiscal year) occurs within the first six months of the date of issue and must be equal to at least 90 percent of the proceeds of the TRAN, then the notes are deemed to satisfy the exception. This special rule requires, however, that the deficit actually occur, not that the issuer merely have an expectation that the deficit will occur. In lieu of the statutory exception for TRANs, the regulations also provide a second exception. Under this exception, 100 percent of the proceeds must be spent within six months, but before note proceeds can be considered spent, all other available amounts of the issuer must be spent first W ( "proceeds- spent -last" rule). In determining whether all available amounts are spent, a reasonable working capital reserve equal to five percent of the prior year's expenditures may be set aside and treated as unavailable. 18 -Month Exception. The regulations also establish a non - statutory exception to arbitrage rebate if all of the gross proceeds (including investment earnings) are expended within 18 months after the date of issue. Under this exception, 15 percent of the gross proceeds must be expended within a six -month spending period, 60 percent within a 12 -month spending period and 100 percent within an 18 -month spending period. are The rule permits an issuer to rely on its reasonable expectations for computing investment earnings which are included as gross proceeds during the first and second spending period. A reasonable retainage not to exceed five percent of the sale proceeds of the issue is not required to be spent within the 18 -month period but must be expended within 30 months. Rules similar to the six -month exception relate to the definition of ar gross proceeds. Two Year Exception. Bonds issued after December 19, 1989 (i.e., the effective date of the Omnibus Reconciliation Act of 1989), at least 75 percent of the net proceeds of which are to be used for construction, may be exempted from rebate if the gross proceeds are spent within two years. Bonds more than 25 percent of the proceeds of which are used for acquisition or working capital may not take advantage of this exception. The exception applies only to governmental bonds, qualified 501(c)(3) bonds and private activity bonds for governmentally -owned airports and docks and wharves. The two -year exception requires that at least 10 percent of the available construction proceeds must be expended within six months after the date of issue, 45 percent within 12 months, 75 percent within 18 months and 100 percent within 24 months. The term "available construction proceeds" generally means sale proceeds of the bonds together with investment earnings less amounts deposited to a qualified reserve fund or used to pay costs of issuance. Under this rule, a reasonable retainage not to exceed five percent need not be spent within 24 months but must be spent ++� within 36 months. The two-year rule also provides for numerous elections which must be made not later than the date of issuance of the bonds. Once made, the elections are irrevocable. Certain elections permit an issuer to tir bifurcate bond issues, thereby treating only a portion of the issue as a qualified construction bond; and, permit an issuer to disregard earnings from reserve funds for purposes of determining "available construction proceeds." Another election permits an issuer to pay the alternative penalty amount discussed above in lieu of rebate if the issuer ultimately fails to satisfy the two -year rule. Issuers should discuss these elections with their financial advisors prior to issuance of the bonds. Of course, McCall, Parkhurst & Horton L.L.P. remains available to assist you by providing legal interpretations thereof. Debt Service Funds, Additionally, an exception to the rebate requirement, whether or not any of the previously discussed exceptions are available, applies for earnings on "bona fide debt service funds." A "bona fide debt service fund" is one in which the amounts are expended within 13 months of the accumulation of such amounts by the issuer. In general, most interest and sinking funds (other than any excess taxes or McCall, Parkhurst & Horton L.L.P. - Page 7 kek e revenues accumulated therein) satisfy these requirements. For private activity bonds, short term bonds (i.e., have a term of less than five years) or variable rate bonds, the exclusion is available only if the gross earnings lil+ in such fund does not exceed $100,000, for the bond year. For other bonds issued after November 11, 1988, no limitation is applied to the gross earnings on such funds for purposes of this exception. Therefore, subject to the foregoing discussion, the issuer is not required to take such amounts into account for purposes of the computation. FOR BONDS ISSUED AFTER THE EFFECTIVE DATE OF THE TAX REFORM ACT OF 1986 WHICH WERE OUTSTANDING AS OF NOVEMBER 11,1988, OTHER THAN PRIVATE ACTIVITY BONDS, SHORT TERM BONDS OR VARIABLE RATE BONDS, A ONE -TIME ELECTION MAY BE MADE TO EXCLUDE • EARNINGS ON "BONA FIDE DEBT SERVICE FUNDS" WITHOUT REGARD TO THE $100,000, LIMITATION. THE ELECTION MUST BE MADE IN WRITING (AND MAINTAINED AS PART OF THE ISSUER'S BOOKS AND RECORDS) NO LATER THAN THE LATER OF MARCH 21,1990, OR THE FIRST DATE A REBATE PAYMENT IS REQUIRED. s Conclusion McCall, Parkhurst & Horton LL.P. hopes that this memorandum will prove to be useful as a general guide to the arbitrage rebate requirements. Again, this memorandum is not intended as an exhaustive discussion nor as specific advice with respect to any specific transaction. We advise our clients to seek competent financial and accounting assistance. Of course, we remain available to provide legal advice regarding all federal income tax matters, including arbitrage rebate. If you have any questions, please feel free to contact either Harold T. Flanagan or Stefano Taverna at (214) 754 -9200. r ow Wit iM it ur McCall, Parkhurst & Horton L.L.P. - Page 8 4r • Exhibit "B" Ir LAW OFFICES M .CALL, PARKHURST & HORTON L.L.P. 600 CONGRESS AVENUE 717 NORTH HARWOCO 700 N. ST. MARYS STREET SUITE 1800 SUITE 1525 AUSTIN, TEXAS 7/7014240 DALLAS, T 7 520146/7 SAN ANTONIO, TEXAS 702064506 TELEPHONE: (512) 47 &]805 TELEPHONE: (214)7541200 TELEPHONE: (210) 452800 FACSIMILE: (512) 472-0071 FACSIMILE' (214) 7541250 FACSIMILE'. (210) 225-2984 rr January 11, 2010 The Honorable Pat Tinley County Judge 700 E. Main Street Kerrville, Texas 78028 Re: Kerr County, Texas Tax Notes, Series 2010 Dear Judge Tinley: As you know, the Kerr County, Texas (the "Issuer ") will issue the captioned Notes in order to provide for the acquisition and construction of the project. As a result of that issuance, the federal income tax laws impose certain restrictions on the investment and expenditure of amounts to be used for the project or to be deposited to the interest and sinking fund and the reserve fund for the captioned bonds. The purpose of this letter is to set forth, in somewhat less technical language, those provisions of the tax law which require the timely use of bond proceeds and that investment of these amounts be at a yield which is not higher than the yield on the captioned bonds. For this purpose, please refer to line 21(e) of the Form 8038 -G included in the r transcript of proceedings for the yield on the captioned bonds. Please note that the Form 8038 -G has been prepared based on the information provided by or on your behalf by either your financial advisor. Accordingly, while we believe that the information is correct you may wish to have the yield confirmed before your rebate consultant or the paying agent attempt to rely on it. rr Generally, the federal tax laws provide that, unless excepted, amounts to be used for the project or to be deposited to the interest and sinking fund and the reserve fund must be invested in obligations the combined yield on which does not exceed the yield on the bonds. Importantly, for purposes of administrative convenience, the bonds, however, have been structured in such a way as to avoid, for the most part, this restriction on investment yield. They also contain certain covenants relating to expenditures of proceeds designed to alert you to unintentional failures to comply with the laws affecting expenditures of proceeds and dispositions of property. IMPORTANTLY, THE PROCEEDS OF THE NOTES MAY NOT BE USED TO FINANCE EMPLOYEE COMPENSATION, INCLUDING SALARIES OR RETIREMENT PAYMENTS, OR TO PAY SERVICE CONTRACT EXPENSES WITHOUT SUBJECTING THE NOTES TO ADDITIONAL FEDERAL INCOME TAX REQUIREMENTS. rr First, the sale and investment proceeds to be used for the project may be invested for up to three years without regard to yield. (Such amounts, however, may be subject to rebate.) Thereafter, they must be invested at or below the bond yield. Importantly, expenditure of these proceeds must be accounted in your books and records. Allocations of these expenditures must occur within 18 months of the later of the date paid or the date the project is completed. The foregoing notwithstanding, the allocation should not occur later than 60 days after the earlier of (1) of five years after the delivery date of the notes or (2) the date the notes are retired unless you obtain an opinion of bond counsel. Second, the interest and sinking fund is made up of amounts which are received annually for the payment of current debt service on all the Issuer's outstanding notes. Any taxes or revenues deposited to the interest and sinking fund which are to be used for the payment of current debt service on the captioned notes, or any other outstanding notes, are not subject to yield restriction. By definition, current debt service refers only to debt service to be paid within one year of the date of receipt of these amounts. For the most part, this would be debt service in the current fiscal year. These amounts deposited to the account for current debt as service may be invested without regard to any constraint imposed by the federal income tax laws. 1�r s Third, a portion of the interest and sinking fund is permitted to be invested without regard to yield ' restriction as a "minor portion." The "minor portion" exception is available for de minimis amounts of taxes or revenues deposited to the interest and sinking fund. The maximum amount that may be invested as part of this account may not exceed the lesser of five percent of the principal amount of the notes or $100,000. Accordingly, you should review the current balance in the interest and sinking fund in order to determine if such balance exceeds the aggregate amounts discussed above. Additionally, in the future it is important that you be aware of these restrictions as additional amounts are deposited to the interest and W sinking fund. The amounts in this fund which are subject to yield restriction would only be the amounts which are in excess of the sum of (1) the current debt service account and (2) the "minor portion" account. Moreover, to the extent that additional notes are issued by the Issuer, whether for new money projects or for refunding, these amounts will change in their proportion. The Order contains covenants that require the Issuer to comply with the requirements of the federal tax laws relating to the tax- exempt obligations. The Internal Revenue Service (the "Service ") has determined that certain materials, records and information should be retained by the issuers of tax - exempt obligations for the purpose of enabling the Service to confirm the exclusion of the interest on such obligations under the Internal Revenue Code. Accordingly, the Issuer should retain such materials, records and information for the period beginning on the issue date of the captioned notes and ending three years after the date the captioned notes are retired. Please note this federal tax law standard may vary from state law standards. The material, records and information required to be retained will generally be contained in the transcript of proceedings for the captioned notes, however, the Issuer should collect and retain additional materials, records and information to ensure the continued compliance with federal tax law requirements. For example, beyond the transcript of proceedings for the notes, the Issuer should keep schedules evidencing the expenditure of note proceeds, documents relating to the use of bond- financed property by governmental and any private parties (e.g., leases and management contracts, if any) and schedules pertaining to the investment of note proceeds. In the event that you have questions relating to record retention, please contact to us. Finally, you should notice that the order contains a covenant that limits the ability of the Issuer to sell or otherwise dispose of note - financed property for compensation. Beginning for obligations issued after May 15, 1997 (including certain refunding notes), or in cases in which an issuer elects to apply new private activity bond regulations, such sale or disposition causes the creation of a class of proceeds referred to as "disposition proceeds." Disposition proceeds, like sale proceeds and investment earnings, are tax- restricted funds. Failure to appropriately account, invest or expend such disposition proceeds would adversely affect the tax- exempt status of the notes. In the event that you anticipate selling property, even in the ordinary course, please contact us. Obviously, this letter only presents a fundamental discussion of the yield restriction rules as applied to amounts deposited to the interest and sinking fund. Moreover, this letter does not address the rebate consequences with respect to the interest and sinking fund and you should review the memorandum attached to the Federal Tax Certificate as Exhibit "A" for this purpose. If you have certain concerns with respect to ow the matters discussed in this letter or wish to ask additional questions with regards to certain limitations imposed, please feel free to contact our firm. Thank you for your consideration and we look forward to our continued relationship. sr Very truly yours, McCALL, PARKHURST & HORTON L.L.P. rr cc: Mr. Thomas K. Spurgeon rr tail a Exhibit "C" CERTIFICATE OF ELECTION PURSUANT TO SECTION 148(f)(4)(C) es OF THE INTERNAL REVENUE CODE OF 1986 I, the undersigned, being the duly authorized representative of Kerr County, Texas (the "Issuer ") hereby state that the Issuer elects the provisions of section 148(f)(4)(C) of the Internal Revenue Code of 1986 (the to "Code "), relating to the exception to arbitrage rebate for temporary investments, as more specifically designated below, with respect to the Issuer's Tax Notes, Series 2010 (the "Notes ") which are being issued on the date of delivery of the Notes in a face amount equal to $4,350,000. The CUSIP Number for the Notes is stated on the Form 8038 -G filed in connection with the Notes. The Issuer intends to take action iib to comply with the two -year temporary investments exception to rebate afforded construction bonds under section 148(0(4)(C) of the Code. Capitalized terms have the same meaning as defined in the Federal Tax Certificate. yy 1. PENALTY ELECTION. In the event that the Issuer should fail to expend the "available construction proceeds" of the Notes in accordance with the provisions of section 148(f)(4)(C) of the Code, the Issuer elects, in lieu of rebate, the penalty provisions of section 148(0(4)(C)(vii)(0 of the Code. yy ® 2. RESERVE FUND ELECTION. The Issuer elects to exclude from "available construction proceeds, "within the meaning of section 148(0(4)(C)(vi) of the Code, of the Notes, earnings on the Reserve Fund in accordance with section 148(0(4)(C)(vi)(IV) of the Code. IS El 3. MULTIPURPOSE ELECTION. The Issuer elects to treat that portion of the Notes the proceeds of which are to be used for the payment of expenditures for construction, reconstruction or rehabilitation of the Projects, as defined in the instrument authorizing the issuance of the Notes, in an amount which is currently expected to be equal to $ , as a separate issue in accordance with the provisions of section 148(f)(4)(C)(v)(II) of the Code. (Note: This election is not necessary unless, less IS than 75 percent ofthe proceeds of the Notes will be usedfor construction, reconstruction or renovation.) 4. ACTUAL FACTS. For purposes of determining compliance with section 148(0(c) of t e ode (other than qualification of the Notes as a qualified construction issue), the Issuer elects to use r actual facts rather than reasonable expectations. 4;1 5. NO ELECTION. ssuer understands that the elections which are adopted as evidenced by the check in the box adjacent SI to the applicable provision are irrevocable. Further, the Issuer understands that qualification of the Notes for eligibility for the exclusion from the rebate requirement set forth in section 148(0 of the Code is based on subsequent events and is unaffected by the Issuer's expectations of such events as of the date of delivery of the Notes. Accordingly, while failure to execute this certificate and to designate the intended election Si does not preclude qualification, it would preclude the Issuer from the relief afforded by such election. DATED: FEB 0 9 2010 ` is Kerr County, Texas 700 E. Main Street * Kerrville, Texas 78028 Employer I.D. Number: 74- 6001494 iii SO * aW ise So Form 8038 -G Information Return for Tax - Exempt Governmental Obligations (Rev. November 2000) ► Under Internal Revenue Code section 149(e) OMB No. 1545 - 0720 • See separate Instructions. Department of the Treasury Internal Revenue Service Caution: If the issue price is under $100,000, use Form 8038 -GC. Part 1 Reporting Authority If Amended Return, check here ► ❑ W 1 Issuer's name 2 Issuer's employer identification number KERR COUNTY, TEXAS 74 ! 6001494 3 Number and street (or P.O. box if mail is not delivered to street address) Room /suite 4 Report number ais 700 E. MAIN STREET 3 01 5 City, town, or post office, state, and ZIP code KERRVILLE, TEXAS 78028 6 Date of issue 7 Name of issue 02/09/2010 8 CUSIP number ilia TAX NOTES, SERIES 2010 492350 CQ4 9 Name and title of officer or legal representative whom the IRS may call for more information 10 Telephone number of officer or legal representative PAT TINLEY, COUNTY JUDGE ( 830 ) 792 - 2211 SO Part 11 Type of Issue (check applicable box(es) and enter the issue price) See instructions and attach schedule • 11 ❑ Education 11 12 ❑ Health and hospital 12 13 ❑ Transportation 13 OS 14 ❑ Public safety 14 15 ❑ Environment (including sewage bonds) 15 16 ❑ Housing 16 17 ❑ Utilities . 17 r 18 12I Other. Describe • VARIOUS MUNICIPAL PROJECTS - - 18 4,601,449 19 If obligations are TANs or RANs, check box O. ❑ If obligations are BANs, check box • ❑ V 20 If obligations are in the form of a lease or installment sale, check box • ❑ ������ it Part PI Description of Obligations. Complete for the entire issue for which this form is being filed. la) Final maturity date (b) Issue price (0 Stated redemption (d) Wei hted price at maturity average maturity (e) Yield 21 02/15/2016 $ 4,601,449 $ 4,350,000 4.507 years 2.1897 is Part IV Uses of Proceeds of Bond Issue (including underwriters' discount) 22 Proceeds used for accrued interest 22 10,210 23 Issue price of entire issue (enter amount from line 21, column (b)) 23 4,601,449 24 Proceeds used for bond issuance costs (including underwriters' discount) . 24 101,449 % %// lit / 25 Proceeds used for credit enhancement 25 - - 26 Proceeds allocated to reasonably required reserve or replacement fund . 26 27 Proceeds used to currently refund prior issues 27 is 28 Proceeds used to advance refund prior issues 28 -0- j 29 Total (add lines 24 through 28) 29 101,449 30 Nonrefundinq proceeds of the issue (subtract line 29 from line 23 and enter amount here) . 30 4,500,000 Part V Description of Refunded Bonds (Complete this part only for refunding bonds.) N/A to 31 Enter the remaining weighted average maturity of the bonds to be currently refunded . . • years 32 Enter the remaining weighted average maturity of the bonds to be advance refunded - • years 33 Enter the last date on which the refunded bonds will be called • 34 Enter the date(s) the refunded bonds were issued • is Part VI Miscellaneous 35 Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) 35 - 36a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract (see instructions) 36a - W b Enter the final maturity date of the guaranteed investment contract • ��j 37 Pooled financings: a Proceeds of this issue that are to be used to make loans to other governmental units 37a •0- b If this issue is a loan made from the proceeds of another tax - exempt issue, check box • ❑ and enter the name of the iii issuer ■ and the date of the issue • NA 38 If the issuer has designated the issue under section 265(b)(3)(13)(i)(III) (small issuer exception), check box . . • 39 If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box • ❑ 40 If the issuer has identified a hedge, check box ► ❑ Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. Sign iss Here 1 z \ 2 -9 -2010 PAT TINLEY, COUNTY JUDGE aried representative \ pate , Type or print name and title For Paperwork Reduction Act Notice, see page 2 of the Instlrlctions. Cat No. 63773S Form 8038 -G (Rev. 11 -2000) r aii LAW OFFICES MCCALL, PARKHURST & HORTON L.L.P. r 600 CONGRESS AVENUE 717 NORTH HARWOOD 700 N. ST. MARY'S STREET SUITE 1800 SUITE 900 SUITE 1525 1W AUSTIN, TEXAS 7 8701 -3 248 DALLAS, TEXAS 75201 -6587 SAN ANTONIO, TEXAS 78205-3503 TELEPHONE: 512 478 -3805 TELEPHONE: 214 754 -9200 TELEPHONE: 210 225 -2800 FACSIMILE: 512 472 -0871 FACSIMILE: 214 754 -9250 FACSIMILE: 210 225 - 2984 May 10, 2010 CERTIFIED MAIL RRR: 7009 3410 0000 5668 6474 Ir Internal Revenue Service Center Ogden, Utah 84201 Re: Information Reporting - Tax - Exempt Bonds Kerr County, Texas Tax Notes, Series 2010 +r Ladies and Gentlemen: Pursuant to the requirements of Section 149(e) of the Internal Revenue Code of 1986, +r enclosed please find an original and a photocopy of Form 8038 -G which is hereby submitted to you for the above - captioned bonds issued February 9, 2010. 1 Please file the original and return the receipted copy of Form 8038 -G to the undersigned in the enclosed self - addressed, postage paid envelope. Sincerely, r McCALL, PARKHURST & HORTON L.L.P. T wr Harold T. Flanagan HTF: ved +r Enclosures cc: Mr. Thomas K. Spurgeon r. U.S. Postal Service, CERTIFIED MAIL RECEIPT M1 (Domestic Mail Only; No Insurance Coverage Provided) eI1P S For delivery information visit our website at www .usps.comt. eO O F gp S l C l �- r .. ` E Postage firlikrelk ';;Pj . Certified Fee W .1! O Return Receipt Fee II �� PO a :Q3 CI (Endorsement dcted RegyNe MEM 1 1 o 2O�{J • , ndo Delivery Fee (End(Endorsement Required) ' , ^ Y .1 Total Postage 8 Fese o 3 w ' ent ° r Internal Revenue Service Center arrest, E Ufa'Ei'g42Oi C/4 State, Z,P+4 PS Farm 3807. Augast 2C0E See Reverse tarinstr ctions Wi • • VW ♦✓w er i r CERTIFICATE OF COUNTY AUDITOR STATE OF TEXAS § r COUNTY OF KERR § I, Jeannie Hargis, County Auditor of KERB COUNTY, TEXAS, hereby certify in connection "r with the issuance of $4,350,000 in principal amount ofK COUNTY, TEXAS TAX NOTES, SERIES 2010 (the "Notes ") that in my capacity as County Auditor, and in compliance 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 January 11, 2010. Executed this 11` day of January, 2010. Je a Hargis +r County Auditor Kerr County, Texas +r+ it rr yr GENERAL CERTIFICATE THE STATE OF TEXAS § COUNTY OF KERR § i ' We, the undersigned, hereby officially certify that we are the County Judge and County Clerk, respectively, of KERB COUNTY, TEXAS (the "County "), and we further certify as follows: to 1. This Certificate is given for the benefit of the Attorney General of the State of Texas and all parties interested in KERR COUNTY, TEXAS TAX NOTES, SERIES 2010 (the "Notes "), dated as of January 15, 2010, and authorized by an order passed by the Commissioners Court of the County on January 11, 2010. 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. to 3. No litigation of any nature has ever been filed pertaining to, affecting, questioning, or contesting: (a) the order which authorized the Notes; (b) the issuance, execution, delivery, rr payment, security or validity of the Notes, (c) the authority of the Commissioners Court and the officers of the County to issue, execute and deliver the Notes, (d) the validity of the corporate existence of the County, or (e) the current tax rolls of the County; and no litigation is pending pertaining, affecting, questioning, or contesting the current boundaries of the County. 4. The currently effective ad valorem tax appraisal roll of the County (the "Tax Roll ") "" is the Tax Roll prepared and approved during the calendar year 2009, being the most recently approved Tax Roll of the County; that the taxable property in the County has been appraised, assessed, and valued as required and provided by the Texas Constitution and Property Tax Code (collectively, "Texas law "); that the Tax Roll for said year has been submitted to the Commissioners Court of the County as required by Texas law, and has been approved and recorded by the SO Commissioners Court; and according to the Tax Roll for said year the net aggregate taxable value of taxable property in the County (after deducting the amount of all applicable exemptions required or authorized under Texas law), upon which the annual ad valorem tax of the County has been or will be imposed and levied, is $3,132,985,438. 5. Attached hereto as Exhibit A is a true, full and correct schedule and statement of the to aforesaid proposed Notes, and all presently outstanding tax indebtedness of the County, and attached hereto as Exhibit B is a combined debt service schedule for all outstanding tax indebtedness of the County (including the aforesaid proposed Notes). • e yr W. 6. The following persons are the duly elected members of the Commissioners Court of the County as of the date hereof: Pat Tinley County Judge H.A. "Buster" Baldwin Commissioner, Precinct 1 William "Bill" Williams Commissioner, Precinct 2 os Jonathan Letz Commissioner, Precinct 3 Bruce Oehler Commissioner, Precinct 4 7. The following persons are the duly appointed or elected County Clerk, County Auditor and County Treasurer of the County as of the date hereof: Jannett Pieper County Clerk r Jeannie Hargis County Auditor Mindy Williams County Treasurer rr' [The remainder of this page intentionally left blank] aill rr rr 2 SIGNED AND SEALED THIS 11' DAY OF JANUARY, 2010. r oun Ju ge Kerr County, Texas r• O4'unty Clerk r r y �s� s c , Kerr County, Texas p � .9 (SEAL) i> ; , / co / /.6 %L CCiN 4 R :, 1' [SIGNATURE PAGE TO THE GENERAL CERTIFICATE] EXHIBIT A SCHEDULE OF ALL OUTSTANDING GENERAL OBLIGATION INDEBTEDNESS wis OF KERR COUNTY, TEXAS THE PROPOSED TAX NOTES rr TAX NoTEs, SERIES 2010, dated January 15, 2010, to be outstanding in the aggregate principal amount of $4,350,000, bearing interest and maturing as set forth in the Order authorizing Yr such Notes. ALL PRESENTLY OUTSTANDING TAX INDEBTEDNESS: w TITLE OF DATED CURRENT OUTSTANDING OUTSTANDING OBLIGATIONS DATE PRINCIPAL AMOUNT Limited Tax General Obligation Bonds, Series 1994 02/01/1994 $1,515,000 Certificates of Obligation, Series 2005 01/15/2005 390,000 Tax Notes, Series 2008 03/01/2008 so 1,645.000 w rr rr Yr s es A -1 s EXHIBIT B Fiscal Total Year Outstanding Outstanding y y Ended Debt Tax Notes, Series 2010 Debt 09/30 Service Principal Interest Total Service 2010 $ 1,181,510 $ 1,181,510 2011 856,404 $ 65,000 $ 241,513 (I) $ 306,513 (l) 1,162,916 (I) 2012 865,088 425,000 144,825 569,825 1,434,913 2013 894,520 410,000 132,300 542,300 1,436,820 2014 - 1,080,000 104,550 1,184,550 1,184,550 iiir 2015 - 1,155,000 62,738 1,217,738 1,217,738 2016 - 1,215,000 21,263 1,236,263 1,236,263 TOTAL $ 3,797,521 $ 4,350,000 $ 707,188 $ 5,057,188 $ 8,854,709 (1) Includes accrued interest of $10,210.00. • w Yir it s It NW SIGNATURE IDENTIFICATION AND NO- LITIGATION CERTIFICATE We, the undersigned County Judge and County Clerk, respectively, of KERR COUNTY, rr TEXAS (the "County "), hereby certify as follows: (a) This Certificate is executed and delivered with reference to the KERR COUNTY, TEXAS TAX NOTES, SERIES 2010, dated January 15, 2010, authorized by an order passed by the Commissioners Court of the County on January 11, 2010 (the "Notes "). wr (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 r our signatures 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 order 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. it (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 es 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 County 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 County 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. vis (g) We have caused the official seal of the County 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 County. r rY EXECUTED and delivered this FEB 0 9 2G10 r MANUAL SIGNATURES OFFICIAL TITLES rr Pat Tinley, County Judge Jannett Pieper, County Clerk iYll 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 JAN 1 1 2010 yard* e r Notary Public Typed Name (My Commission Expires ) rs (Notary Seal) A THOMAS K. SPURGEON *: `` , � *, NOTARYPUBLICSTATEOFTEMAS { COMMISSION EXPIRES: Y�E l�`` r t" MAY 17, 2010 eh EIY [SIGNATURE PAGE TO THE SIGNATURE IDENTIFICATION AND NO- LITIGATION CERTIFICATE] WY " CLOSING CERTIFICATE (as required by Paragraph 6(0(6) of the Note Purchase Agreement) THE STATE OF TEXAS § COUNTY OF KERR § it I am the County Judge of KERR COUNTY, TEXAS (the "Issuer "), and hereby certifies as follows: B1Y 1. This Certificate is executed and delivered for and on behalf of the Issuer with reference to the issuance of the Issuer's TAX NOTES, SERIES 2010 (the "Notes "), as required by and in satisfaction of the requirements set forth in paragraph 6(0(6) of the Note Purchase Agreement, dated January 11, 2010 (the "Purchase Agreement "), by and between the Issuer and the Underwriter of the Notes. Capitalized terms used and not defined in this certificate shall have the meanings assigned to them in the Purchase Agreement. es 2. The representations and warranties of the Issuer contained in the Purchase Agreement are true and correct in all material respects on and as of the date of Closing as if made on the date of Closing. 3. No litigation or proceeding against it is pending or, to my knowledge, threatened in rr any court or administrative body nor is there a basis for litigation which would (a) contest the right of the members or officials of the Issuer to hold and exercise their respective positions, (b) contest the due organization and valid existence of the Issuer, (c) contest the validity, due authorization and execution of the Notes or the Issuer Documents or (d) attempt to limit, enjoin or otherwise restrict or prevent the Issuer from functioning and collecting revenues, including payments on the Notes, pursuant to the Order, and other income or the levy or collection of the taxes pledged or to be pledged to pay the principal of and interest on the Notes, or the pledge thereof. 4. The Order has been duly adopted by the Issuer, is in full force and effect and has not been modified, amended or repealed 5. To the best of my knowledge, no event affecting the Issuer has occurred since the date (r of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein, in light of the circumstances under which made, not misleading in any material es respect as of the time of Closing, and the information contained in the Official Statement is correct in all material respects and, as of the date of the Official Statement did not, and as of the date of the Closing does not, contain any untrue statement of a material fact or omit to state a material fact ' required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. EXECUTED this FEB 0 9 2010 sun J dge, Kerr County, Texa.3 so e t ilk January 11, 2010 s The Attorney General of Texas Public Finance Division 300 W. 15 Street, 7 Floor Austin, Texas 78701 isi RE: KERR COUNTY, TEXAS TAX NOTES, SERIES 2010 Ladies and Gentlemen: It is requested that you examine the above issues of obligations and the proceedings authorizing their issuance. We enclose herewith one signed but undated copy of the Signature Identification and No- Litigation Certificate. Upon approval of the obligations, you are authorized to insert the date of approval in said Signature Certificate. If any litigation should develop before you have approved the obligations, we will notify you at once both by telephone and telecopy. With this assurance you can rely upon the absence of any such litigation at the time you approve the obligations unless we advise you otherwise. After you have examined the obligations, kindly deliver them to the Office of the °0Y Comptroller of Public Accounts of the State of Texas. The Comptroller has received instructions as to disposition of such obligations following their registration. r Sincerely yours, KERR COUNTY, TEXAS ' III t ur cc: Comptroller of Public Accounts ire rr ri January 11, 2010 Texas State Comptroller of Public Accounts Cash and Securities Management Division Thomas Jefferson Rusk Building 208 East 10th Street, 4th Floor, Room 448 Austin, Texas 78701 -2407 Attn: Melissa Mora RE: KERR COUNTY, TEXAS TAX NOTES, SERIES 2010 Ladies and Gentlemen: r The Attorney General will deliver to you the above - described issues of obligations. At such time as you have registered such obligations, this will be your authority to deliver them to an authorized representative of McCall, Parkhurst & Horton L.L.P. who will deliver said obligations s to the Paying Agent/Registrar named in the obligations for delivery to the purchasers thereof. At the time you have registered the obligations, please deliver three copies of the Attorney General's opinion and the Comptroller's Signature Certificate covering said issue of obligations to a representative of McCall, Parkhurst & Horton L.L.P., or send such documents by overnight courier to Thomas K. Spurgeon, McCall, Parkhurst & Horton L.L.P., 700 N. St. Mary's, Suite 1525, San SO Antonio, Texas 78205. Sincerely yours, KERR COUNTY, TEXAS County Judge cc: Attorney General of Texas Wr as r. RBC Capital Markets RBC FINAL DELIVERY, SETTLEMENT & CLOSING PROCEDURES for Kerr County, Texas littl 54,350,000 Tax Notes, Series 2010 ail Bonds Dated: January 15, 2010 Yfa Cloning Date: Tuesday, February 9, 2010 Closing: The closing on the above - referenced Notes (the "Notes ") will be held on Tuesday, February, 9, 2010, at 11:00 A.M., CST (the "Closing ") via teleconference at the offices of McCall, Parkhurst & Horton, L.L.P. 1525 One Riverwalk Place, San Antonio, Texas 78205, Attn: Tom Spurgeon. Those parties expected to participate include: S p Title/Role Com Phone Judge Pat Tinley County Judge Kerr County (830) 792 -2212 Ms. Mindy Williams County Treasurer Kerr County (830) 792 -2275 Ms. Jeannie Hargis County Auditor Kerr County (830) 792 -2235 YIr Mr. Robert Henderson Financial Advisor RBC Capital Markets (210) 805 -1118 Mr. Dusty Traylor Financial Advisor RBC Capital Markets (210) 805 -1117 Mr. Tom Spurgeon Bond Counsel McCall, Parkhurst & Horton L.L.P. (210) 225 -2800 Mr. Noel Valdez Bond Counsel McCall, Parkhurst & Horton L.L.P. (210) 225 -2800 Mr. Leon Johnson Underwriter Southwest Securities (214) 859 -9450 Mr. Mike Wadsworth Underwriter Southwest Securities (214) 859 -9460 Mr. Michael Schulman Underwriter's Counsel Locke Lord Bissell & Liddell LLP (214) 740 -8612 Mr. Jose Gaytan Paying Agent/Regisbar Wells Fargo Bank (713) 278 -4321 Ms. Ava Jones Depository Bank Security State Bank & Trust (830) 895 -2000 Sources and IJses of Funds Tax Notes Sources of Funds Serifs 2010 Principal Amount of the Notes $4,350,000.00 Original Issue Premium 251,449.30 Accrued Interest 10,210.00 .tr Total Sources 54,611,659.30 Uses of Funds Deposit to Project Fund 14,500,000.00 Underwriter's Discount $29,145.00 Costs of Issuance 72,304.30 Deposit to Interest & Sinking Fund 10,210.00 Total Uses $4,611,659.30 iaY ar aae Kerr County, Texas Page 2 RECEIPT OF FUNDS I. On Tuesday, February 9, 2010, Southwest Securities (the "Underwriter ") will wire transfer to Wells Fargo Bank, N.A., Austin, Texas (the "Paying Agent "), ABA* 121000248, Credit A/C No.: 000- 1038377, FFC: 99990909, Ref: Kerr County, Texas, Tax Notes, Series 2010, Atm: Jose Gaytan (512) 344 -7306, the amount listed below. The Underwriter will call the closing room with a Federal Wire Reference Number and time of such wire as soon as possible on Tuesday, February 9, 2010. Proceeds of the Notes $ 4,601,449.30 Plus: Accrued Interest of the Notes 10,210.00 aa0 Less: Underwriter's Discount for the Notes (29,145.00) Total Wire Amount from Underwriter: $ 4,582,514.30 DISBURSEMENT OF FUNDS L The Paying Agent will wire transfer $4,500,000.00 as a deposit to the Issuer's Project Fund to Security State Bank & Trust, ABA: 114 921 949, Acct No.: 1013531, Ref: Kerr County Treasurer's Account. IUD Total Deposit to Project $ 4,500,000.00 2. The Paying Agent will wire transfer 510,210.00 representing accrued interest as a deposit to Issuer's Interest and Sinking Fund to Security State Bank & Trust , ABA: 114 921 949, Acct No.: 1013531, Ref: Kerr County Treasurer's Account. Deposit to Interest & Sinking Fund: $ 10,210.00 3. The Paying Agent/Registrar will retain $400.00 for the payment of fees listed below. ryy Paying Agent/Registrar Fee: $ 400.00 4. The Paying Agent/Registrar will transfer to RBC Capital Markets the amount listed below representing Co- Financial Advisor Fees & Expenses to U.S. Bank, Minneapolis, MN, ABA: 091 000 022, Account*: 1 -602- 3009 -7208, FFC: 2178- 271550 FN00017182. W Financial Advisory Fees and Expenses: $ 41,701.88 s 5. The Paying Agent will transfer to McCall, Parkhurst & Horton, L.L.P., San Antonio, Texas the amounts listed below representing Bond Counsel fees and expenses and Attorney General Fees to Colonial Bank (Wire Transfer Name: Colonial BHAM), ABA 0620 - 0131 -9, Account No: 0000001529, For Credit To: McCall, Parkhurst & Horton L.L.P., Operating Account, Reference Number 3348.011. S Bond Counsel and Attorney General Fees $ 14,650.00 6. The Paying Agent will wire transfer the amount listed below representing rating agency fee to Standard & Poor's to Bank of America, San Francisco, CA, ABA*: 0260-0959-3, Account *: 12334- 02500, SWIFT Code: BOFAUS3N, Reference Invoice * 10234018, Account Number: 101 1000045882. Contact: Jennifer Garza (214) 871 -1422. Rating Agency Fees and Expenses: $ 6,800.00 iW 7. The Paying Agent will wire transfer $8,752.42 representing estimated remaining costs of issuance as a deposit to Issuer's Project Fund to Security State Bank & Trust , ABA: 114 921 949, Acct No.: 1013531, Ref: Kerr County Treasurer's Account. VIII Cost of Issuance Fund and Excess Proceeds 8,752.42 Total Disbursement of Funds 4,582,514.30 or 8. Upon direction from the authorized representative of the Issuer, the Paying Agent and Bond Counsel, the Notes will be released to Southwest Securities. 9. Upon closing, the authorized representative of the Issuer will immediately return the Good Faith Deposit in its possession to Southwest Securities via Overnight Mail to Ms. Zula Turknett, Southwest Securities, 1201 Elm Street, Suite 3500, Dallas, Texas 75270. Telephone (214) 859 -9460. fart • es RECEIPT FOR PROCEEDS r The undersigned hereby certifies as follows: (a) This Receipt is executed and delivered with reference to the KERR COUNTY, TEXAS TAX Naas, SERIES 2010 (the "Notes "), dated January 15, 2010, in the aggregate principal amount of $4,350,000, authorized by an order passed by the Commissioners Court of KERR COUNTY, TEXAS (the "County ") on January 11, 2010. (b) The undersigned is the duly chosen, qualified, and acting County Treasurer of the County. (c) The Notes have been duly delivered to the initial purchaser thereof, namely SOUTHWEST SECURITIES, INC. rr (d) The Notes have been paid for in full by said purchaser concurrently with the delivery of this Receipt, and the County has received, and hereby acknowledges receipt of, the agreed purchase price for the Notes, being $4,572,304.30 (which amount is equal to par, plus/less a net original issue premium of 5251,449.30, and less Underwriters' discount of 529,145.00), plus accrued interest. EXECUTED and delivered this FEB 0 2E10 rr KERR COUNTY, TEXAS Y Ps 41 its U rr Mindy niams, County Treasurer two it rr t • �r PC)(r�;S PUBLIC FINANCE'', yd ^. Kerr County, Texas a 'Credit Anelys Credo Profile Sarah Smaardyk lJSM55mi, Tax Notes Series 2010 dated 01/15/2014 dueO2/15/2015 Dallas (1) 214 Long Term Rating AA /Stable New sarah_smaardyk@ starwiardandpocrs.com Secondary Rationale ry James Breeding Standard & Poor's Ratings Services assigned its 'AA-' long -term rating to Kerr County, Texas' Dallas (1) 214 - 871 -1407 series 2010 tax notes. The outlook is stable. james_breeding@ We believe that the rating reflects the county's: +r+' standardandpoors.com • Consistent tax base expansion; • Very strong reserve levels; and • Limited capital needs, coupled with rapid amortization. In our opinion, factors that preclude a higher rating include the county's: • Limited local service economy, which is reflected in its adequate, but below average wealth 5/r and income levels; and • Lack of formalized management policies. The county's unlimited ad valorem property tax pledge secures the bonds. Officials will use 1111 bond proceeds to construct and equip a county facility, construct a water line, construct and repair various dams, and acquire and equip vehicles and equipment. Kerr County, with a population of 47,254, is located in central Texas, 62 miles northwest of San Antonio, along Interstate Highway 10. Kerrville ('AA -' general obligation rating) is Kerr County's county seat and serves the surrounding communities' as the principal retail and health care service center. Kerrville's ('AA -' general obligation rating) economy is centered on Wlr medical services, retirement living, tourism, and light industry. Health care and related services RPaUogsDireci are the city's primary source of employment. Kerrville State Hospital, South Texas Veterans' Publication Date Healthcare System, and Sid Peterson Memorial Hospital employ roughly 1,750 combined. Jan. 8, 2010 Additional local employers include the city and the school district, as well as several light nn Kerr County, Texas wn manufacturing firms. We believe wealth and income levels are adequate: Median household income ON indicators are at just 89% and 87% of state and national levels, respectively. The county has experienced AV growth during the past several years: AV increased 3.5% to $3.1 billion in fiscal 2010 from fiscal 2009. In our opinion, the county's property tax base is diverse, with dr the top 10 taxpayers accounting for a very diverse 4.1% of fiscal 2010 total assessed value (AV). We feel that Kerr County's financial position remains strong. Fiscal 2008 ended with an $184,000 operating surplus, which increased the unreserved general fund balance to $2.5 million, or what we believe is a very strong 17 .5% of expenditures. Unaudited figures for fiscal 2009 reflect a draw down of roughly $479,000 due to increased indigent health care costs, resulting In an unreserved general fund balance of $2.05 million, or what we consider a strong 14.2% of expenditures. The fiscal 2010 budget includes a $500,000 general fund balance reduction for operating expenditures; however, the budget is structurally balanced. The expansion in the county's property tax base has favored the stability in the tax rate, which remains competitive at 43 cents per $100 of AV for fiscal 2010. Standard & Poor's deems Kerr County's management practices 'standard' under its Financial Management Assessment (FMA) methodology, indicating the finance department maintains adequate +tr policies in most, but not all, key areas. Management provides monthly updates to the commissioner's court, along with an investment update. Management has adopted an investment policy in accordance with state guidelines. The county lacks formalized policies in some areas, including long -term financial and capital planning, and debt management. The county also lacks a formal or informal unreserved general fund balance policy. In our opinion, Kerr County's overall net debt burden remains low at $1,272 per capita and 1.9% of Wti market value. For fiscal 2008, we believe that the county's debt service carrying charges were low at 7.6% of expenditures. Debt amortization is rapid, with 100% of principal due to be retired within the next five years. Currently, management has conveyed to us that they have no plans to issue additional 'W' debt in the next 12 to 24 months. Outlook so The stable outlook reflects our expectation that the county will continue to run structurally balanced financial operations and maintain good reserves. Given the county's limited additional capital needs, we expect debt levels to remain low. Additional formalized financial management policies would YW provide more financial oversight and credit support. Related Research fie USPF Criteria: GO Debt, Oct. 12, 2006 Standard & Poor's I ANALYSIS 2 s 4Y 410 a Published by Standard & Poor's, a Division of The McGraw -Hill Companies. Inc. Executive offices: Avenue of the Americas, New York, NY 10020. Editorial offices: 55 Water Street, New Yak, NY 10041. Subscriber services: (1) 212.43B -7280. Copyright 2010 by The McGraw -Hill Companies, Inc. Reproduction in whole or in part prohibited erupt by permission. At rights reserved. Information has been obtained by Standard & Poor's from sources believed to be reliable. However, because of the possibility of human or mechanical error by or sources, Standard & Poor's or others, Standard & Poses does not guarantee the accuracy, adequacy, or completeness of any information and is rot responsible for any errors or omissions or the result obtained from the use of such information. 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Analytic services provided by Standard & Poor's Ratings Services ('Ratings Services) are the result of separate activities designed to preserve the independence and objectivity of ratings opinions. Credit ratings issued by Ratings Services are solely statements of opinion and not statements of fact or recommendations to purchase, hold, or sell any securities or make any other investment decisions. S Accordingly, any user of credit ratings issued by Ratings Services should not rely on any such ratings or other opinion issued by Ratings Services in making any investment decision. Ratings are based on information received by Ratings Services. Other divisions of Standard & Poor's may have information that is not available to Ratings Services. Standard & Poor's has established policies and procedures to maintain the confidentiality of ran- public information received during the ratings process. Ratings Services receives compensation for its ratings. Such compensation is normally paid either by the issuers of such securities or by the underwriters participating in the distribution thereof. The fees generally vary from US$2,000 to over USS1,500,000. While Standard & Poor's reserves the right to disseminate the rating, it receives no payment for doing so, except for subscriptions to its publications. Permissions: To reprint. translate, or quote Standard & Poor's publications. contact: Client Services, 55 Water Street, New York, NY 10041; (1) 212- 438 -7280; or by e-mail to: research _request @standardandpoors.com. The McGraw'Hilieompames ir1 s cur �rV e �q A N T.Q r-� ATTORNEY GENERAL OF TEXAS GREG ABBOTT wig February 4, 2010 THIS IS TO CERTIFY that Kerr County, Texas (the "Issuer "), has submitted to me Kerr County, Texas Tax Note, Series 2010 (the "Note "), in the principal `" amount of $4,350,000, for approval. The Note is dated January 15, 2010, numbered T -1, and was authorized by an Order passed by the Issuer on January 11, 2010. I have examined the law and such certified proceedings and other papers as I deem necessary to render this opinion. As to questions of fact material to my opinion, I have relied upon representations of the Issuer contained in the certified proceedings and other certifications of public officials furnished to W , me without undertaking to verify the same by independent investigation. I express no opinion relating to any official statement or any other offering material relating to the Note. Based on my examination, I am of the opinion, as of the date hereof and under existing law, o' as follows: (1) The Note has been issued in accordance with law and is a valid and binding obligation of the Issuer. (2) The Note is payable from the proceeds of an ad valorem tax levied, within the limits prescribed by law, against all taxable property in the Issuer. Therefore, the Note is approved. r Attorney ral of the State of Texas No. 50086 Book No. 2010 -A MA tiY POST OFFICE Box 12548, AUSTIN, TEXAS 78711 -2548 TEL:(512)463 -2100 WWW.OA(i. STAT E.TX.US An Equal Employment Opportuniry Employer Printed en Recycled Paper ,r, OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, Susan Combs, Comptroller of Public Accounts of the State of Texas, do hereby certify that the attachment is a true and correct copy of the opinion of the Attorney General approving the: �. Kerr County, Texas Tax Note, Series 2010 numbered T-1, of the denomination of $ 4,350,000, dated January 15, 2010, as authorized by issuer, interest various percent, under and by authority of which said note was registered in the office of the Comptroller, on the 4th day of February 2010, under Registration Number 76520. Given under my hand and seal of office, at Austin, Texas, the 4th day of February 2010. AWL Sam-- rr SUSAN COMBS Comptroller of Public Accounts of the State of Texas ar rr or rM OFFICE OF COMPTROLLER OF THE STATE OF TEXAS r 1, Melissa Mora, ❑ Bond Clerk © Assistant Bond Clerk in the office of the Comptroller of the State of Texas, do hereby certify that, acting under the direction and authority of the Comptroller on the 4th day of February 2010, I signed the name of the Comptroller to the certificate of registration endorsed upon the: Kerr County, Texas Tax Note, Series 2010, numbered T-1, dated January 15. 2010, and that in signing the certificate of registration 1 used the following signature: 4 7jje IN WITNESS WHE i executed this certificate thi • th d of February 2010. ri a 1, Susan Combs, Comptroller of Public Accounts of the State of Texas, certify that the person who has signed the above certificate was duly designated and appointed by me under authority vested in me by Chapter 403, Subchapter H, Government Code, with authority to sign my name to all certificates of registration, and /or cancellation of bonds required by law to be registered and /or cancelled by me, and was acting as such on the date first mentioned in this certificate, and that the bonds described in this certificate have been duly registered in the office of the Comptroller, under Registration Number 76520. GIVEN under my hand and seal of office at Austin, Texas, this the 4th day of February 2010. se diaVt. COViass■ SUSAN COMBS Comptroller of Public Accounts `r of the State of Texas r. 2200 Ross Avenue, Suite 2200 Dallas, Texas 75201 Telephone: 214 - 740 -8000 Fax: 214- 740 -8800 v✓ww.lockelord.com Locke Lord Bissell &Liddell«P Direct Telepho e: 214740 -8612 Direct Fax: 214- 756 -8612 W Attorneys & Counselors mschulman @lockelord.com r February 9, 2010 Southwest Securities, Inc. 1201 Elm Street, Suite 4300 Dallas, TX 75270 rrl Re: $4,350,000 Kerr County, Texas Tax Notes, Series 2010 Ladies and Gentlemen: rr We have acted as counsel to you as the underwriter (the "Underwriter ") of the referenced Notes (the "Notes "), pursuant to the Note Purchase Agreement dated January 11, 2010 (the "Agreement "), between you and the Kerr County, Texas (the "Issuer "). Unless otherwise r expressly provided herein, capitalized terms used herein have the respective meanings assigned to them in the Agreement. isw In such capacity, we have examined the originals or copies, certified or otherwise identified to our satisfaction, of such records, corporate and other, of the Issuer and certificates of public officials and representatives of the Issuer, and such other documents as we have deemed necessary or advisable as a basis for the opinions hereinafter expressed. We have not examined the Notes and we have relied upon certificates of the Issuer as to the execution thereof. +r Based on the foregoing, we are of the opinion that the offer and sale of the Notes to the public is exempt from registration under the Securities Act of 1933, as amended, and the Trust Indenture Act of 1939, as amended, and the Order need not be qualified under the Trust all Indenture Act of 1939, as amended. Because the primary purpose of our professional engagement was not to establish factual matters and because of the wholly or partially non -legal character of many determinations involved in the preparation of the Official Statement dated January 11, 2010 (the "Official Statement "), we have not conducted any independent investigation with regard to the information set forth in the Official Statement, and we are not passing upon and do not assume any responsibility for the accuracy, completeness, or fairness of the statements contained in the Official Statement. We have, however, participated in the preparation of the Official Statement as counsel to you and have participated in conferences at which the Official Statement was discussed. On the basis of the foregoing and in reliance thereon and on the certificates, opinions and other documents herein mentioned (relying as to materiality to a large extent upon the officials and other representatives of the Issuer), we advise you that no facts have come to our attention that lead us to believe that the Official Statement (except as to (i) any financial, forecast, technical and statistical statements and data included in the Official Statement and (ii) us DAL:0587633/00031:1910139v1 i�r s o,. the information regarding the DTC and its book -entry system, as to all of which we are not called upon to express any opinion or belief) contains any untrue statement of a material fact or omits to state any material fact necessary to make the statement therein, in light of the circumstances r under which they were made, not misleading. In addition, (a) based upon: (i) our understanding of Rule 15c2 -12 of the Securities and rr Exchange Commission (the "Rule ") (and interpretive guidance published by the Securities and Exchange Commission relating thereto); (ii) our review of the continuing disclosure undertaking of the Issuer contained in the Order; and (iii) the inclusion in the Official Statement of a description of the specifics of such undertakings and in reliance on the opinion of Bond Counsel that the Order has been duly adopted by the Issuer and is a valid and binding obligation of the Issuer, we advise you that such undertaking provides a suitable basis for you, the Underwriter, and any other broker, dealer, or municipal securities dealer acting as a Participating Underwriter (as defined in the Rule) in connection with the offering of the Notes, to make a reasonable determination that the Issuer has met the qualifications of paragraph (b)(5)(i) of the Rule. rr This opinion is issued to you and for your sole benefit and is issued for the sole purpose of the transaction specifically referred to herein. No person other than you may rely upon this 1° " opinion without our express written consent. This opinion may not be utilized by you for any other purpose whatsoever and may not be quoted by you without our express prior written consent. We assume no obligation to review or supplement this opinion subsequent to its date, "' whether by reason of a change in the current laws, by legislative or regulatory action (including, without limitation, publication by the Securities and Exchange Commission of further interpretive guidance relating to the Rule), by judicial decision, or by any other action. The opinions expressed herein are limited to the matters specifically set forth herein, and no other opinions should be inferred beyond the matters expressly stated. Respectfully submitted, r e - 2 - DAL:0587633/00031:1910139v1 LAW OFFICES MCCALL, PARKHURST & HORTON L.L.P. W 717 NORTH HARWOOD 700 N. ST. MARY'S STREET 600 CONGRESS AVENUE SUITE 900 SUITE 1525 SUITE 1800 DALLAS, TEXAS 75201-6587 SAN ANTONIO, TEXAS 78205-3503 AUSTI N, TEXAS 7 8701 -3 248 TELEPHONE: 214 754-9200 TELEPHONE: 210 225 -2800 TELEPHONE: 512 478 -3805 FACSIMILE: 214 754 -9250 FACSIMILE: 210 225 -2984 FACSIMILE: 512 472-0871 t February 9, 2010 KERR COUNTY, TEXAS TAX NOTES, SERIES 2010 DATED AS OF JANUARY 15, 2010 IN THE AGGREGATE PRINCIPAL AMOUNT OF $4350,000 so AS BOND COUNSEL FOR KERR COUNTY, TEXAS (the "County") in connection with the issuance of the obligations described above (the "Tax Notes "), we have examined into the to legality and validity of the Tax Notes, which bear interest from the dates specified in the text of the Tax Notes until stated maturity at the rates, and payable on the dates, as stated in the text of the Tax Notes, all in accordance with the terms and conditions stated in the text of the Tax Notes. WE HAVE EXAMINED the applicable and pertinent provisions of the Constitution and laws of the State of Texas and a transcript of certified proceedings of the County, and other pertinent ES instruments authorizing and relating to the issuance of the Tax Notes including (i) the order authorizing the issuance of the Tax Notes (the "Order "), (ii) one of the executed Tax Notes (Note No. T -1), and (iii) the County's Federal Tax Certificate of even date herewith. to BASED ON SAID EXAMINATION, IT IS OUR OPINION that the Tax Notes have been authorized, issued and delivered in accordance with law; that the Tax Notes constitute valid and legally binding general obligations of the County in accordance with their terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws now or hereafter enacted relating to creditors' rights generally or by general principles of equity which permit the exercise of judicial discretion; that the County has 11 the legal authority to issue the Tax Notes and to repay the Tax Notes; and that ad valorem taxes sufficient to provide for the payment of the principal of and interest on the Tax Notes, as such principal and interest comes due, have been levied and ordered to be levied against all taxable r property in the County, and have been pledged for such payment, within the limits prescribed by law. IT IS FURTHER OUR OPINION, except as discussed below, under the statutes, regulations, published rulings and court decisions existing on the date of this opinion, for federal income tax purposes, the interest on the Tax Notes (i) is excludable from the gross income of the owners thereof, and (ii) is not includable in an owner's alternative minimum taxable income under to section 55 of the Internal Revenue Code of 1986 (the "Code "). In expressing the aforementioned opinions, we have relied on and assumed compliance by the County with, certain representations and covenants regarding the use and investment of the proceeds of the Tax Notes. We call your attention to the fact that failure by the County to comply with such representations and covenants may cause the interest on the Tax Notes to become includable in gross income retroactively to the date of issuance of the Tax Notes. Kerr County, Texas Tax Notes, Series 2010 February 9, 2010 Page 2 EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state or local tax consequences of acquiring, carrying, owning or disposing of the Tax Notes. In particular, but not by way of limitation, we express no opinion with respect to the federal, state or local tax consequences arising from the enactment of any pending or future legislation. WE EXPRESS NO OPINION as to insurance policies issued with respect to the payments due for the principal of and interest on the Tax Notes, if any, nor as to any such insurance policies issued in the future. OUR SOLE ENGAGEMENT in connection with the issuance of the Tax Notes is as Bond Counsel for the County, and, in that capacity, we have been engaged by the County for the sole purpose of rendering an opinion with respect to the legality and validity of the Tax Notes under the Constitution and laws of the State of Texas, and with respect to the exclusion from gross income of the interest on the Tax Notes, if any, for federal income tax purposes, and for no other reason or ,�. purpose. The foregoing opinions represent our legal judgment based upon a review of existing legal authorities that we deem relevant to render such opinions and are not a guarantee of a result. We have not been requested to investigate or verify, and have not independently investigated or verified, any records, data, or other material relating to the financial condition or capabilities of the County, or the disclosure thereof in connection with the sale of the Tax Notes, and have not assumed any responsibility with respect thereto. We express no opinion and make no comment with respect to the marketability of the Tax Notes and we have relied solely on certificates executed by officials of the County as to the current outstanding indebtedness of, and assessed valuation of taxable property within, the County. Our role in connection with the County's Official Statement prepared for use in connection with the sale of the Tax Notes has been limited as described therein. OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to +� update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of a result and are not binding on the Internal Revenue +r Service (the "Service "); rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Tax Notes. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the County as the taxpayer. We observe that the tie County has covenanted not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, may result in the treatment of interest on the Tax Notes, if any, as includable in gross income for federal income tax purposes. Respectfully, '2C¢r_G. -t1, LAW OFFICES MCCALL, PARKHURST & HORTON L.L.P. aY 717 NORTH HARWOOD 700 N. 5T. MARY'S STREET 600 CONGRESS AVENUE SUITE 900 SUITE 1525 SUITE 1800 DALLAS, TEXAS 75201-6587 SAN ANTONIO, TEXAS 78205-3503 AUSTIN, TEXAS 7 8701 -3 248 it TELEPHONE: 214 754-9200 TELEPHONE: 210 225-2800 TELEPHONE: 512 478 3805 FACSIMILE: 214 754 -9250 FACSIMILE: 210 225-2984 FACSIMILE: 512 472 -0871 w s February 9, 2010 rr Kerr County, Texas 700 East Main Street Kerrville, Texas 78028 es Southwest Securities, Inc. 1201 Elm Street, Suite 3500 Dallas, Texas 75270 RE: $4,350,000 KERR COUNTY, TEXAS TAX NOTES, SERIES 2010 rr Ladies and Gentlemen: rir We have served as bond counsel to the Kerr County, Texas (the 'Issuer ") in connection with the issuance of an aggregate of $4,350,000 Kerr County, Texas Tax Notes, Series 2020 (the "Notes "). ru The Notes are issued pursuant to an Order relating to the Notes (the "Order ") adopted by the Commissioners Court of the Issuer on January 11, 2010. Capitalized terms not otherwise defined in this opinion shall have the meanings assigned in the hereinafter defined Note Purchase Agreement. The opinions expressed below are qualified to the extent that the enforceability of any provisions in any of the agreements or documents listed may be subject to and affected by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally. w We have examined such documents and satisfied ourselves as to such matters as we have deemed necessary in order to enable us to express the opinions set forth below. As to various ea questions of fact material to these opinions, we have relied upon representations of the Issuer relating to the Notes. r X11 Kerr County, Texas Tax Notes, Series 2010 February 9, 2010 Page 2 r Based upon our examination, we are of the opinion, that: 1. The Order has been duly adopted and is in full force and effect. .r 2. The Notes are exempted securities within the meaning of Section 3(a)(2) of the Securities Act of 1933, as amended, and Section 304(a)(4) of the Trust Indenture Act of 1939, as amended, and it is not necessary in connection with the offer and sale of the Notes to the public to register the Notes under the Securities Act of 1933, as amended, or to qualify the Order under the Trust Indenture Act of 1939, as amended. 3. Except as otherwise specified herein, we have not verified, are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the ■r statements contained in the Official Statement. In our capacity as Bond Counsel for the Issuer, however, we have reviewed the information contained in the Official Statement under the captions or subcaptions "THE NOTES" (except for the information under the caption "Default and Remedies" as to which no view is expressed), "REGISTRATION, TRANSFER AND EXCHANGE," "LEGAL MATTERS," "TAX MATTERS," "CONTINUING DISCLOSURE OF INFORMATION" (except for the information under the caption "Compliance with Prior Agreements" as to which no view is expressed), "OTHER PERTINENT .r INFORMATION - Registration and Qualification of Notes for Sale," and "OTHER PERTINENT INFORMATION - The Notes as Legal Investments in Texas", and we are of the opinion that such information fairly and accurately summarize the matters so purported to be summarized therein. This opinion is furnished solely for your benefit and may be relied upon only by the addressees hereof or anyone to whom specific permission is given in writing by us. Respectfully, 1 144.1 " A ti4