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Home My WebLink AboutPARITY BOND RESOLUTION SUPPLEMENTAL BOND RESOLUTION 2004 ~ AUGUSTA-RICHMOND COUNTY COMMISSION WM. "WILLIE" H. MAyS, III Interim Mayor STAFF ATTORNEYS Vanessa Flournoy Harry B. James, III Betty Beard Marion Williams Barbara Sims Richard Colclough Bobby G Hankerson Andy Cheek Tommy Boyles Jimmy Smith Don A. Grantham County Attorney Augusta Law Department Marion Williams Mayor Pro Tern July 16, 2005 Frederick L. Russell Administrator The Honorable Lena Bonner Clerk of Commission Augusta, Georgia 800 Municipal Building Augusta, Georgia 30911 Please Reply to: 701 Greene Street, Suite 104 Augusta, Georgia 30901 Re: Parity Bond Resolution Adopted May 4, 2004 Parity Bond Resolution Adopted June 1, 2004 Supplemental Bond Resolution Adopted June 15,2004 Dear Lena: You have asked me to write a memo which will serve as a roadmap between the above captioned resolutions passed by the Augusta Commission on the dates shown and the $160,000,000 Water and Sewer Revenue Bond issue which was closed in December 2004. The short answer to your question is that the above-referenced "parity bond" resolutions and the "supplemental" resolution were re-named in the final bond resolution which was passed by the Augusta Commission in meeting of November 23, 2004 a copy of which is of rec<?rd in your office I call your attention to Page 5 of the November 23rd resolution found in the book known as "$160,000.00 Augusta, Georgia Water and Sewage Revenue Bonds Series 2004". In the first full paragraph on Page 5 the May 4, 2004 Resolution is referred to as the "2004 Refunding Resolution"; in the second full paragraph on Page 5 the Parity Bond Resolution adopted June 1, 2004 is referred to as the "2004 New Money Resolution." and the June 15th resolution is also referred to on that same page in the fifth "whereas" paragraph. as the "Amending Resolution". The May 4, 2004 Resolution was not issued as part of the authorization for the $160,000,000 Water and Sewer Revenue Bond issue which closed in December 2004. That resolution actually relates to the proposed Series 2006 Bonds, which will refinance the Augusta's Series 1996 and 1997 water and sewer revenue bonds, and which will not close until October 2006. Augusta Law Department 501 Greene Street, Suite 302. Augusta, Georgia 30901 (706) 842-5550 - Fax (706) 842-5556 County Attorney 701 Greene Street, Suite 104, Augusta, Georgia 30901 (706)724-6597 - Fax (706) 722-4817 You will note that the November 23rd Resolution states that the Series 2004 Bonds were not issued after the June 1, 2004 resolutions, but were issued under authority of the amended June 1 ,2004 Resolution, the June 15,2004 Resolution and the November 23,2004 Resolution. There is language in this document which reconciles all of these resolutions and it clearly provides that it (the November 23 resolution) restates and amends the previous resolutions passed on June 1 and June 15, so as to authorize the issuance of the Series 2004 Water and Sewer Revenue Bonds under the authority of the Georgia Revenue Bond Law and the Augusta Commission Resolution passed November 23rd. Please preserve these documents. I am enclosing herewith a copy of the Water and Sewer Resolution passed on November 23,2004 and have ordered you a book which contains all the documentation passed by the Commission which was authored by bond counsel and approved by underwriter's counsel and my office as issuer's counsel. Should you have any further questions about these documents, please do not hesitate to give me a call. SES:cs/lmb cc: Matt Nichols, Esquire F: I Users ISShepardlSTE VEl CITY\city. 2005. doc Enclosure: Supplemental Bond Resolution Adopted November 23, 2004 SUPPLEMENTAL BOND RESOLUTION .--- ARESOLUTION TO PROVIDE FOR THE ISSUANCE OF WATER AND SEWERAGE . REVENUE BONDS, SERIES 2004, PURSUANT TO AND IN COl'l'"FORIv1ITY WITH A '{;/:~3 BOND RESOLUTION ADOPTED OCTOBER 21, 1996, AS SUPPLEMENTED, TO .c;'ih,:.:;PROVIDE FUNDS TO FINANCE, IN WHOLE OR IN PART, THE COST OF ADDING "'~;:':'TO:;EXTENDING, IMPROVING AND EQUIPPING THE. WATER AND SEWERAGE icLsy:stEM OF AUGUSTA, GEORGIA, AND TO PAY EXPENSES NECESSARY TO ~~~GCDMPLISH: THE FOREGOING; TO SUPPLEMENT, AMENf) AND RESTATE THE . Ji>ROVISIONS OF A BOND RESOLlJTION i\.DOPTED nJNE 1~ 2004; TO RATIFY, :~i~LREAEFIRM AND ADOPT ALL APPLICABLE TERMS, PROVISIONS, COVENANTS ~t;~/A.ND'.~CONDmONS OF THE BOND RESOLUTION; TO PROVIDE FOR THE '.JJfT!ON OF RATES AND THE COLLECTION OF FEES AND CHARGES FOR -~~S;Ij1RVICES, FACILITIES AND COMMODITIES TO BE FURNISHED BY THE ~~~:rER AND SEWERAGE SYSTEM; TO PROVIDE FOR THE ISSUANCE UNDER - ; ~'rArN' =TERMS AND -CONDITIONS OF ADDITIONAL PARITY BONDS; TO :'~~OVIDE FOR THE CREATION AND MAINTENANCE OF CERTAIN FUNDS; TO ;:~:~~ AND AUTHORIZE THE PREPARATION, USE AND DISTRIBUTION OF A ,~L:rM:tNARY OFFICIAL STATEMENT AND A FINAL OFFICIAL STATEMENT IN ;~9NNECTION WITH THE OFFER, AND SALE OF THE SERIES 2004 BONDS; TO "1.Ff~ORlZE THE EXECUTION AND DELIVERY OF A BOND PURCHASE ;::REEMENT RELATING TO THE SERIES 2004 BONDS; TO PROVIDE FOR THE ..~:-:AL SUBMISSION OF CERTAIN FINANCIAL ~!!~!!9~__ AND ;r~RATING DATA PURSUANT TO RULE 15c2-12 OF THE SECURITIES AND' ;~CHANGE COMMISSION; AND FOR OTHER PURPOSES: ;'(,:,;:;: WHEREAS, under the provisions of Article IX, Section III, Paragraph ll( a) of the oristitution of the State of Georgia and an act of the General Assembly of the State of Georgia 'eorgia Laws 1995, p. 3648 et seq., as amended - the "Act"), and pursuant to referenda, as ~uthonzed and required by said act, which were held within the City of Augusta (the "City") and ::Rjchmond County (the "County"), the City and the County (excluding the area within the City of ,gephzibah and the Town 'of Blythe, Georgia) were consolidated into a consolidated goverriment :c~I~:::~?\vn as "August::! , Georgia" (the "Consolidated Government"); and WHEREAS, the Act was amended by subsequent acts, including Georgia Laws 1997, et seq., which provides: Said county-wide government shall be a new political entity, a body politic and corporate, and a political subdivision of the state to be known as "Augusta, Georgia," at times in this Act called the "consolidated government" or "Augusta-Richmond County," having all the governmental and corporate powers, duties, and functions heretofore held by and vested in the City of Augusta and Richmond County: and also the powers, duties, and functions provided in this charter; and _ 11.0 1127325.4 , WHEREAS, pursuant to the Act, ,the Consolidated Government now constitutes a county ~ci a municipality under the laws and the Constitution of the State of , Georgia, and is a political subdivision of the State of Georgia in the exercise of the respective powers of a municipality and ';:,,_:~;~il cQU?tY;:,and , ' - ......,,~"~.-.,...;-"""".-... "......... , . ...,-",Vr:t l!:REAS, pursuant to Article IX, Section II, Paragraph II of the Constitution of the ,':','::State'ofGeorgia, the Municipal Home Rille Act of 1965 (codified, as amended, at O.C.G.A S 36- i~~f:~~'3_5,:J:-~E!~q.) and an ordInance adopted by the Augusta-Richmond County Commission-Council 'of the conSolidated Government on October 1, 1996 (Georgia Laws 1997, p. 4690 et seq.), the ".':.~Coi;pn:p.ssio~-Counci1 amended the designation of its governing body from the "Augusta- '" ;'Richmond County Commission-Council" to the "Augusta-Richmond County Commission" (the ~_ _:L~}~C<:lInmission"); and ;~i~ ..'. WHEREAS, pursuant to the Act, the water and sewerage systems of the City and the !~;~~~1G'Ci>iinty are, now owned and opera~d by the Consolidated Government and pursuant to the 1996 c='~~cResoltition (hereinafter defined) have been combined into one revenue producing undertaking; :"~-:H'an:d WHEREAS, the Consolidated Government acting by and through the Commission, by '\ ;;,'.;yirtue of the authority of the Constitution of the State of Georgia, the Act and Title 36, ,,;2t/j~apter.82, Article 3 of the Official Code of Georgia Annotated, as amended (the "Revenue .L+C~;~ond Law"), is authorized to is~~ revenue bonds, to fund in part a reasonably required debt , . "os'ervice reserve and to acqUife additional water and sewerage facilities by the addition thereto of :-~-~:~iJI1pfovements to the Consolidated Government's water and. sewerage system, as now eXistent ~':~'":~and"as hereafter added to, extended, improved and equipped (the "System"), and to construct i:sIich additions, and to operate and maintain the System for its own use; and for the use of the , ,'public and to prescribe and revise rates, and to collect fees and charges for the services, facilities C"~:and commodities furnished by the System, and in anticipation of the collection of revenues from '--~~~e- System, to issue revenue bonds to fund in part a reasonably required debt service reserve and .:finance the cost of such additions, extensions and improvements to the System and to pay all , expenses necessary to accomplish the foregoing and to issue refunding bonds to refund bonds , _. "issued to finance any such undertaking; and 1 WHEREAS, pursuant to a resolution adopted on October 21, 1996, as supplemented on ,;:;i '''',:~ p~cember 3 and 17, 1996 (the "1996 Resolution"), the Consolidated Government issued ~I ,,' $62,880,000 aggregate principal amount of Richmond County Water and Sewerage Revenue ~1 ,,' Refunding and Improvement Bonds, Series 1996A (the '"Series 1996 Bonds"), dated ~';::";;: December 1, 1996, bearing interest from date at the rates per annum'set forth below, all interest .~ payable semiannually on April 1 and October 1 in each year, commencing on April 1, 1997, and -i:- '. maturing on October 1 in the following years and principal amounts: C'''' .'it ''-il ]' .:=::) 'it -.:c --~ .:~ '1 ~ ~ i AO lln,?.'i 4 -2- : Year Amount Rate Year Amount Rate 1997 $ 265,000 3.60% 2006 $ 1,260,000 6.00 % 1998 350,000 3.80 2007 '1,335,000 6.00 1999 365,000 4.00 2008 1,415,000 4.90 2000 375,000 4.10 2009 1,485,000 5.00 2001 395,000 4.20 2010 1,560,000 5.10 2002 410,000 4.30 2012 3,355,000 5.00 ___.,::20U3 1,100,000 4.40 2017 10,000,000 5.125 2004 1,155,000 4.50 2022 13,305,000 5.25 ,2005 1,205,000 4.60 2028 23,545,000 5.25 di91~~'~eries 1996A Bonds there is now outstanding $58,465,000 aggregate principal amount iyof, Demg bonds maturing 'in the years 2005 and thereafter, and'the Series 1996A Bonds are m~<:i~.by~a lien en the Pledged Revenues (as defined in the 1996 Resolution) in accordance theJ99()Resolution; ana:~' "" WHEREAS, pursUant to the 1996 Resolution, the Consolidated Government also issued ~~",Q;OOO aggregate principal amount of Richmond County Taxable Water and Sewerage ~nueRefunding Bonds, Series 1996B, which have all been paid; and ~"~,__ ~~~~"pursuant to_the 1996 ResoltIti(}Il,j:he G~oli~ted Government also issued, ;?,J,O,OOO aggregate principal aIno-Urit of Ricnmoiid County' Water and Sew~rage-:- Revenue .-l'J#r~ing Bonds, Series 1997 (the ~'Series 1997 Bonds"), dated January 1, 1997, bearing interest _,":,.~,'~=qate at'the-rates per annum set forth,be1ow, all interest payable semiannually on April 1 and ~_~~qber 1 in .each year, commencing on Apri11, 1997, and maturing on October 1 in the ',' "p;wmg years and principal amounts: Amount Rate Year Amount Rate 1997 $100,000 3.60% 2006 $ 190,000 4.70 % 1998 140,000 3.80 2007 200,000 4.80 ' ,"-'~--1999 ' 145,000 4.00 2008 1"'\ 1 nAnn 4.90 L.IU,UUU 2000 150,000 4.10 2009 220,000 ' 5.00 155,000 4.20 ')(\1(\ 230,000 5.10 LV.lV 2002 160,000 4.3'0 2012 , 500,000 5.00 2003 170,000 4.40 2017 1,490,000 5.125 , 2004 175,000 4.50 2021 1,490,000 5.25 2005 185,000 4.60 ,of the Series 1997 Bonds there is now outstanding $4,715,000 aggregate principal amount being bonds maturing in the years 2005 and thereafter, and the Series 1997 Bonds are secured on a parity with the Series 1996 Bonds as to lien on the Pledged Revenues in accordance 'with.the 1996 Resolution; and ~_.---------.~-- -- .-.---'"'- . ~>~---..' - --------- ~'''-'---'''''-=--,"-. . ~~...-.--- -3- AO 1127325.4 ::~tjLL" , WHEREAS, pursuant to a resolution adopted on August 22, 2000, as supplemented on ~~jg':;2-~-'September 15,2000 (the "2000 Resolution"), the Consolidated Government issued $97,080,000 t~~fr:'-~' , aggregate principal amount of Augusta, Georgia Water and Sewerage Revenue Bonds, Series - 2000 (the .'Series 2000 Bonds"), dated September 1, 2000, bearing interest from date at the rates per annum set forth below, all mterest payable semiannually on April 1 and October 1 in each :i;j;.~,year, commencing on April 1, 2000, and maturing on October 1 in $e following years and :\\;('3~pril1cipa1 amounts:, Year Amount Rate Year Aniount Rate 2006 $ 355,000 4.40% 2014 $ 2,740,000 5.00% 2007 1,405,000 4.50 2015 2,875,000 5.15 2008 1,775,000 4.55 2016 3,020,000 ,5.25 2009 2,165,000 4.60 2017 3,180,000 5.25 2010 2,265,000 4.65 2018 3,345,000 5.25 ",2011 2,375,.000 4.80 2022 15,240,000 5.25 - '2012 2,485,000 4.90 2026 18,705,000 5.25 2013 2,605,000 5.00 2030 32,545,000 5.25 l~f:~d the entir~ $97,080,000 aggregate principal amount of the Series 2000 Bonds is now ,:~()l:rtstanding, secured on a parity with the Series 1996 Bonds and the Series' 1997 Bonds :/QIWctively, the "Series 199611997 Bonds") as to lien on the Pledged Revenues; and ; , WHEREAS, pursuant to a resolution adopted May 30, 2002, as supplemented June 21, ;2fi02,. (the "2002 Resolution"), the Consolidated Government issued $149,400,000 aggregate .llllcipal amount of Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2002 (the ,:S:~es 2002 Bonds"), dated June 1, 2002, bearing interest from date at the rates per annum set Prth below, all interest payable semiannually on April 1 and October 1 in each year, :Jnmencing on October 1, 2002, and maturing on October 1 in the following years and principal am-ounts: 'I'--i;:i:-;;:;::l~~:;~i~~;.: ' - --,--"-'c- ..-...._ --.. ~. '-.-~"-.,-' .-.- . .,.-,-,.....-.. .. - -. -.. - ~ .. _.., _,.<,' __ ......, _.. .. c _ :.' "-'-''''',-, "'.""-.... _,_'--<.....,,_,............. _..n .._ .. ~,' 0:.-:;=.0.,"'",,-" ",:..'.,.~_... .. .. .. ,~;.:-.; -', : .." - ~. ,. .. : ' .. . ,"".-".. ....,--,',-.. :d ~/:...;.~.;'-.,_,;;:'<..c__..::::::: __' .. .. .. --,.. .. .- .,"",",~ .. '. .." :_-~_'_-'P'-" - t'; ~'?/"~~S.':"'-'" _7. ..'_ ,'.'-- _" " ,-.,.... ....;... '- ,"'''-'--'--'-",",~: . ..." ~ '--," - , '.. .., _,'".,',"'."'."."',.,"_','".... .,"...'.:___.h..~'_,-'.."". , ---. -.'-'--'--=~._'-",...~..>- -~-----~._~.-., -,-. '-'" ;". ... . . ~"~-.-.'- " ~" .-- ,.-. .." -=--...,."........-",,-,-~,--~.- .- - ".-=,,,-,.,, -.-,,.,.-...~.. '.-.. . _ AO ni7325.4 ''f':d__' ------- Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Amount $ 235,000 905,000 925,000 950,000 980,000 1,010,000 1,425,000 1,705,000 2,365,000 3,015,000 3,135,000 3,260,000 Rate Year 2.50 % 2.50 2014 2015 2016 2017 2018 2019 2020 2021 2022 2027 2D32 2.50 3.00 3.00 3.00 3.30 3.50 3.75 3.875 4.00 5.25 -4- A.'TIount $ 3,430,000 3,615,000 3,795,000 3,980,000 4,180,000 4,370,000 4,605,000 4,850,000 5,105,000 29,695,000 61,865,000 Rate c,.,c n/ J.~J 70 5.00 5.00 5.00 4.50 5.375 5.375 5.25 5.25 5.00 5.00 -- . . and of the Series 2002 Bonds there is noW outstanding $147,335,000 aggregate principal amount . thereof, being bonds maturing in the year.; 2005 and thereafter, and the Series 2002 Bonds are secured on a parity with the Series 1996 Bonds, the Series 1997 Bonds and the Series 2000 'Bonds as to lien on the Pledged Revenues in accordance with the 1996 Resolution; and WHE)lEAS, pursuant to a resolution adopted May 4, 2004 (the. "2004 Refunrling esolution"), the . Consolidated Government has authorized the issoance of not to exceed .#:,E~;;:$65,OOO,ddO aggregate principal amount of Water and Sewerage Revenue Refunding Bonds, fi'$i>f'-Uction Rate Series 2006 (the "Auedoll Rate Bondl;") for the purpose of providing funds to pay ~t'~'."',",to be applied toward the cost of refunding by redemption and payment the Richmonll County ~~'Jf\~~warer and Sewerage Revenue Refunding Bonds, Series 1996A, maturing on and after October 1, ;;'1'''~~~7''inthe aggregate principal amount of $56,000,000 and the Richmond County Water and ~;j[~~~ Revenue ReJimding Bonds, Series 1997, maturing on and after October 1,2007 in the .. gregate principal amount of $4 ,340,000 (collectively, the "Refunded Bonds"), to fund a """"naDIy required debt service reserve and to pay all expenses necessary to accomplish the aregoing, which Auction Rate Bonds, although authorized. have not yet been issued; and . WHEREAS, pursoant to a resolution adopted on June 1,2004 (the "2004 New Money j,5i>lution"); the Consolidated Government authorized the issuance of its Water and Sewerage eyenue Bonds, Series 2004 (the "Previously Authorized Series 2004 Bonds''), to be issued in an '~egate principal amount not to exceed $160,000,000, to bear interest from date at such rate or "i per annum not exceeding 7.5 percent in any year, all interest payable semiannually on ill 1 and October 1 in eadi year, commencing on October 1, 2004, and the principal to mature 'etober 1 in such year or years not later than 2038; and WHEREAS, the Series 2004 Bonds have not been issued; and .... WHEREAS, pursuant to Section 27 of the 2004 New Money Resolution, in order to take """iriJtage of tken-favorable long-term interest rates, and in anticipation of the issuance of the '~.~es 2004 Bonds,1he Consolidated Government entered into an interest rate swap tranSaction (the' "2004 Rate Lock'') with Menill Lynch Capital services, Inc. (the "Rate Lock '"".,,','.'~,,.,',_,_"_,"..,".",'_~, ......""".,€,.,.,".',-,0""ui1t,..erp,."arty") pursuant t,o which the Consolidated Government hedged against fluctuations in {;0.~S~iitr.ttkefinterest rates prior to the issuance of the Series 2004 Bonds; and .-.,.'--:-.'..;.......... ,-.. ' ' . ~_. -"" l.l~~~Z;"':.:,:~REAS, pursuant to a resolution adopted June 15, 2004 (the ''2004 Amending Ijj~~~;l;:"),:e ~~n~:~~~:=en~=;:;: c:"~~o:~;~o~ns ~f ~~1:~~ ~~~~ ,cS~;;e.S1JI;~~yments (as defined therem) m the rates, fees and charges to be assessed and collected for the . i'#c:;~~f7,~t~ties, services and facilities provided by the System; and ....",.. . WHEREAS, the Consolidated Government has determined that it is necessary and J;.~~..;;~,'o.:'.:~s~~alto add to, extend, improve and equip the System and has further determined that by the i;i{~.;i;,;; 'expenc1iture on its part of approximately $160,000,000, the System can be added to, extended, ,,,.')Tiplproved and equipped in accordance with, or substantially in accordance with, the "Engineer's :.=..2"~-S;Report,' .water and Sewerage Revenue Bonds, Series 2004," dated November 2004 (the ..,'L=..::,~.~..~.gineering-Report'') and prepared by cH2M Hill (the "Consulting Engineers''); and =T':=~~,;;?.:t~':~:C. -- ' -5- 1\ 1\ 1 1TT'7:,C; .d. ~ CC '" 1: I' i ' 1,,1 \~I I' Ii it 11 1 ( {, \.S ~! \~ '0 / r f .~' ",' WHEREAS, based on present market conditions and after a thorough and detailed .r~:;;_;;~-,,':~~Vi'e~;the Consolidated Government has determined that the Previously Authorized Series 2004 10.~{t}':'Bb;Crs,should not be issued, and that in lieu thereof the Series 2004 Bonds hereinafter authorized :O'!:i-~~:_;$b,9cld be issued, maturing in one or more years not later than October 1,2039; and ' ~;o:::::,.,:.~-:;.",:~,,----- ~. ~y.~.::. ....:~"" . ";ie'':'" WHEREAS, it has been determined that the most feasible method of raising the funds &r;.ff~!eqi$:ed,to financ~ the capital improvements to the System now contemplated as well as in the ::f;'{;;S;futu.re; arid to provide for payments, if any, to be made by the Consolidated Government in _,. ,,.,,......_jj#e~tion:with the 2004 Rate Lock is for the Consolidated Government to issue the Series 2004 '~;;"''''C1?$'~-'~additional' parity bonds under the 1996 Resolution, as ratified, reaffirmed, broadened "'ci:~t~nded by the 2000 Resolution, the 2002 Resolution, the 2004 Refunding Resolution and e:76Q~-Amending Resolution (together with the 1996 Resolution, the 2000 Resolution, the ~on2Re'solution and the 2004 Refunding Resolution, the "Prior Resolutions") and the 2004 New '"]~~!~~ResOlUtiori, as supplemented, amended and, restated by this Supplemental Bond ,~~~u:tIOh;~and _, , ' WIlERJ:J:AS, the Consolidated Government has determined that it is advisable, feasible -3!.~~.tl:l:e best interests of the Consolidated Government and of the owners of the bonds issued "ffe:r.,thePrior Resolutions, as supplemented and amended by the 2004 New Money Re~olution ",.Jtliis,:,Supplemental Bond Resolution (collectively, the "2004 Resolution" and, together with ",,:~~~#(I[.Resolutions, the "Bond E,esolution"), to provide in this Supplemental Bond Resolution ":t,Rf.I:~eng; in lieu of taxes and payments in lieu of franchise fees, to the extent such payments :!ittrte:Expenses of Operation and Maintenance (as defined in the 1996 Resolution), shall not ""~g: ;from the Revenue Fund created pursuant to the 1996 Resolution but shall be payable -irO:Ql.~eJJ1ility General Fund created pursuant to the 1996 Resolution; and ' ,~~,'''-WHEREAS, the Consolidated Government has determined that the foregoing change -:.~~mcrease the Pledged Revenues (as defined in the 1996 Resolution) available to pay. debt ,~~tij.~~ 9!!the Bonds (as defined in the 1996 Resolution), and will add to the security for the onds' and >,"<.,.~~_c~..=-",--",-,,::;o":,",,_.. " , 'WHEREAS, it was provided in ip.e i 996 Resolution that supplemental resolutions may ~-\b.~'adopted without the consent of the Bondholders (as defined in the 1996 Resolution) for the ^,_~',i'.2s'(~!; fu'TIOng other tbi.'1gs, adiling adriit1on::ll security that may be granted to or conferred pan the owners of the Bonds; and 'I'r,:,~,~,..,.".,..,~,$,~.'~,.~,.~e.'"nmn" .~,d th~;;20~4 ~:i~::~n R~:O;::O:o:~;~~te ::~::::~~~~:;"';'::::rr;;~ : ~g,;;~~'f;:-~~:~f? explICIt exceptIon of SectIon 27 thereof authonzmg the executIOn, dehvery and j "-:il~.p~Eformance of the 2004 Rate Lock, which Section 27 shall remain in full force and effect after :~~::E)!=~~~~?P~~l:l of this Supplemental Bond Resolution; and ' ~~~'"~, _c__ WHEREAS, Merrill Lynch & Co. (the "Representative") and A.G. Edwards & :=:~.:::-~' -~Sd:i:1S; Incorporated (collectively with the Representative, the "Underwriter") have ~,'"" , offered to purchase the Series 2004 Bonds in the aggregate principal amount of l=::.-=-~_.;. ~)__~g,op_O,OO.~ pursuant to a Bond Purchase Agreeme?-t, dated th,e date hereof, by and between ~ the Consoh~a.-~ed Government and the Underwnter (the "Purchase Agreement") at a -6- AO'U27323A l' ,';;,. .~iL"purfhase price of $166,174,796.14, which is equal to par less underwriter's discount of ~j::~<j;",,$827;784.36 and plus original issue premium of $7,002,580.50, with no accrued interest, and the k;~ri.,T sale of the Series 2004 Bonds at such prices will provide the Consolidated Government with r ~n/l",-~'E;'sufficient funds to finance the cost of the overall undertaking' now cOIitemplated by the :- /J'<'Consolidated Government as set forth herein; and WHEREAS, the Series 2004 Bonds should now be executed, issued and delivered; and , ' WHEREAS, in order to enhance the Consolidated Govemrn:ent's credit by assuring 'owners of the Series 2004 Bonds that the principal of and interest on the Series 2004 Bonds v.ill :be"hPaid promptly when due, the Consolidated Government will obtain a municipal bond ,Insurance policy for the Series 2004 Bonds from Financial Security Assurance Inc. (the "2004 'OIidJnslll"er"); and ~,..,;, '" WHEREAS, the Consolidated Government has determined to purchase a debt service serve, surety bond from the~ 2004 Bond Insurer in order to satisfy a portion of the debt service erve-Tequirement applicable to the Series 2004 Bonds and the Consolidated Government's ,utstanding water and sewerage revenue bonds; and . WHEREAS, it was provided in Section 9 of Article V of the 1996 Resolution, as ratified, reaffirmed, broadened and extended in Section 25 of the 2000 Resolution, Section 25 of the 2002 'R:~,solution and Section 23 of the 2004 Refunding Resolution, that additional revenue bonds or bligations could be issued, from time to time, payable frQm t4e Pleciged Revenues of the -'Ystem on a parity with the olitstailding Series 1996/1997 Bonds, the Series 2b06~Boiids and the '. ~ri,es 2002 Bonds (the "Prior Bonds"), upon meeting certai:O. terms and conditions, as set forth '-erein, which are as follows: ~~_h~_'h (a) The payments covenanted to be made into the Sinking Fund, as the same may have been enlarged and extended in any proceedings authorizing the issuance of any Additional Bonds, must be currently being made in full amount as required arid the Debt Service Account and Reserve Account held within the Sinking Fund must be at their proper respective balances. (b) Except in the case of i~,...ddit:ion~ 1 Bonds issued for refunding purposes pursuant to Article V, Section 8 of the 1996 Resolution, there shall have been procured and filed with the Consolidated Govern..Tfient (i) a report by Independent Certified Public Accountants to the effect that the Pledged Revenues (excluding Investment Earnings, if any, on construction fuIids) for a period of 12 consecutive months out of the most recent 18 consecutive months preceding the month of adoption, of the proceedings authorizing the issuance of such Additional Bonds must have been equal to at least 1.25 times the maximum Debt Service Requirement for any succeeding Sinking Fund Year on the Prior Bonds and any other issue or issues of Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued, or in lieu of the foregoing formula, if a new schedule of rates and charges for the services, facilities and commodities furnished by the System shall have been adopted and shall be in , -effect--and Independent Certified Public Accountants shall certify that had this -7- AO 1127325.4 :' ..- ---- -'- new rate schedule been in effect ,during the period described above, the Pledged Revenues of the System would have equaled th~ requirements of the above formula; or (ii) (x) a report by Independent Certified Public Accountants to the effect that the historical Pledged Revenues (excluding Investment Ea..'"1lings, if any, on construction funds) for a period of 12 consecutive months out of the most recent 18 consecutive months preceding the month of adoption of the proceedings authorizing the issuance of the proposed Additional Bonds were equal to at least ,1.10 times the historical Debt Service Requirement on all Bonds (other' than [Subordinate Bonds]) which were outstanding during such 12-month period, and (y) a report by the Consulting Engineers to the effect that the forecasted Pledged Revenues (excluding Investment Earnings, if any, on construction funds) for each Fiscal Year in the Forecast Period are expected to equal at least 1.25 times the maximum ,annual Debt Service Requirement on all Bonds (other than [Subordinate Bonds]) which will be outStanding immediately after the issuance of " the proposed Additional Bpnds, in the then current or any succeeding Sinking Fund Year. -""ii <~I i ~! !f.i J ! ~: jl~' I~ I~ I~,. ~ 1(, I~ If i; 'j I, ):" l~ n The reports by the Independent Certified Public Accountant that are requiTed by this paragraph (b) may contain' pro forma adjustments to historical Pledged Revenues equal to 100 percent of the increased annual amount attributable to any revision in the schedule of rates, fees and charges for the services, facilities and commodities furnished by the System, imposed prior to, the date of delivery of the proposed' Additional Bonds and not fully reflected in th~, historical Pledged Revenues actwilly received during such 12-month, period; Such pro forma adjustments shall be based upon a report of the Consulting Engineers as to the amount of Operating Revenues which would have been received during such 12-month period had the new rate schedule been in effect throughout such 12-month period. For the purpose of calculating the maximum Debt Service Requirements under this' subparagraph (b), the maximum annual Debt Service Requirements shall be reduced by an amount equal to any capitalized interest funded from the proceeds of the Additional Bonds proposed to be issued in each succeeding , Sinking Fund Year for the period for which said interest has been capitalized. ( c) An Independent Certified Public Accountant shall certify m triplicate to the Consolidated Government that the requirements of subparagraph (a) above are being complied with and that the requirements of subparagraph (b) above have been met. A copy of such certificate shall be' furnished to the Designated Representative of the original purchasers of the Prior Bonds. (d) Except when Bonds are being issued solely for the purpose' of refunding outstanding Bonds, the Consulting Engineers for the Consolidated Government shall provide the Consolidated Government with a written report recommending the additions, extensions and improvements to be'made to the System and stating that same are feasible, designating in reasonable detail the -8- AO 1127325.4 . ~.'-'" "", , work ,and installation - proposed to be done and the estimated cost of aCcomplishing the undertaking. The Consulting Engineers shall set forth in said report the forecasted Pledged Revenues to'be derived from the System which will be available for debt service payments in each of the next 10 years and shall indicate the projected coverage of such debt service payments in each succeeding Sinking Fund Year. An executed duplicate original of such report of the Consulting Engineers as required by, this provision shall be furnislaed to the Designated Representative of the original purchasers of the Prior Bonds issued hereunder not less, than 10 days before any proceedings are taken to actually issue such Additional Bonds. (e) The Consolidated Government shall pass proper proceedings reciting that all of the above requirements have been met, shall authorize the issuance of the Additional Bonds and shall provide in such proceedings, among other things, the date such Additional Bonds shall bear, the rate or rates of interest and maturity dates, as well as the registration and redemption provisions. Except for Additional Bonds that bear interest at a Variable Rate, the interest on the Additional Bonds of any such issUe shall fall due on April 1 and OctQber 1 of each year, and the Additional Bonds shall mature in installments on October 1, but, as to principal, not necessarily in each year or in equal installments. Any such proceeding or proceedings shall require the Consolidated Government to increase the monthly payments then being made into the _ Sinl9P:g F}l!ld t() th~ extent necessary to pay the prinCipal of and the interest on the Prior Bonds- and on all such Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued as same become due and payable, either at maturity or by proceedings for, mandatory redemption, in the then current Sinking Fund Year, and to create upon the issuance of the proposed Additional Bonds to be issued a reserve in the Reserve Account at least equal to the Reserve Requirement on the Prior Bonds and any Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued and to maintain said reserve in an amount sufficient for that purpose; provided, however, the Consolidated Government may satisfy funding of the reqn;red reserve through the purchase of a 'Reserve Account Surety Bond meeting the requirements of the Bond Resolution. Any such proceeding or proceedings shall restate and reaffirm, by reference, all of the applicable terms, conditions and provisions of the Bond Resolution. If any Additional Bonds would bear interest at a Variable Rate, the resolution under which such Additional Bonds are issued shall provide a maximum rate of interest per annum which such Additional Bonds may bear. In connection with the issuance of any Additional Bonds under the Bond Resolution, the Consolidated Government may obtain or cause to be obtained one or more Credit Facilities providing for payment of all or a portion of the principal of, premium, if any, or interest due or to become due on such Additional Bonds, providing for the purchase of such Additional Bonds by the Credit Issuer, or providing funds for the purchase of such Additional Bonds by the Consolidated Government. In connection therewith the Consolidated Government shall enter into Credit Facility --Agreements With such Credit Issuers providing for, among other things, {i) the __ AO 1127325.4 ~ -:-..--.. - - -9- payment of fees and expenses to such Credit Issuer for the issuance of such Credit Facility; (ii) the terms and conditions of such Credit Facility and the Additional Bonds affected thereby; and (iii) the security, if any, to be provided for the issuance of such Credit Facility. The Consolidated Government may in a Credit Facility Agreement agree to directly reimburse such Credit Issuer for amounts paid under the terms of such Credit Facility, together with interest thereon; provided, however, that no Reimbursement Obligation shall be created, for purposes of the Bond Resolution, until amounts are paid UIJ.der such Credit Facility. Aiiy such Reimbursement Obligation shall be deemed to be a part of the Additional Bonds to which the Credit Facility relates which gave rise to such Reimbursement Obligation, and references to principal and interest payments with respect to such Additional Bonds shall include principal and interest (except for Additional Interest) due on the Reimbursement Obligation incurred as a result of payment of such Additional Bonds with the Credit Facility. All other amounts payable 'under the Credit Facility Agreement (including any Additional Interest) shall be fully subordinate to the payment of debt service on Bonds (other than [Subordinate Bonds]). Any such Credit Facility shall be for the benefit of and secure such Additional Bonds or portion thereof as specified in the applicable bond resolution authorizing such Additional Bonds. ' .t ; ; J :( ,j ;1 " :[, I :"1 I II I ,I 'j I I I 1 ! , (f) Such Additional Bonds Dr obligations and all proceedings relative thereto, and the security therefor, shall be validated as prescribed by law. __ WHEREAS, as required by the Prior Resolutions" the Consolidated Government has I~!8IDed a certificate of an Independent Certified Public Accountant (as defined in the' 1996 esolution) certifying to the Commission that the Consolidated Government has complied and is bw complying with the requirements of Paragraph (a) and that the Consolidated Government ~,met the requirements of Paragraph (b ) (ii) (x) as set forth above and a copy of said certificate 'sll8JJ.be furnished to the Designated Representative of the' original purchasers of the Prior Bonds; ;;~d:'- , WHEREAS, as required by the Prior Resolutions, the Consolidated Government has ,o.7fained the Engineering Report recommending the specific additions, extension~ and i~iIDprovements to be made to the System and that same are feasible, describing in reasonable @~gril the undertaking and the estimated cost thereof, setting forth the forecasted Pledged ';::~:,:~},:I=;-Revenues to be derived from the System which will be available for debt serVice payments on 'th~ Prior Bonds and the proposed Additional Bonds hereinafter authorized to be issued in each of :th:~:;next 10 years and the projected coverage of such debt service payments in each succeeding l?#iking Fund Year and that the requirements of Paragraph (b )(ii)(y) as set forth above have been :c~,.,tC",:,:,~..;::met; and I I I I I , , I i I ';~~~0~:0T~;j;:~' ~::'~'''''''''''''"7'':''''';.''--'-'';-' '~S;):}?<:';;t:_- "'BEREAS, prior to the actual issuance and delivery of the Series 2004 Bonds, the ti~~~~,,~:~i,~'-c::cins6lidated Government will enter into a contract with SunTrust Bank (the "Paying Agent"), i;'\:'~*~718:":pursuant to which the Paying Agent will agree to act as Paying Agent and as Bond Registrar for :~~~~';T!Z~_____tlie _Series 2004 Bonds and to perform various functions with respect to the Series 2004 Bonds, ~~;;~;;,';;,-~(C -iiicluding, but not limited to, the authentication of the Series 2004 Bonds by the manual signature ?~~~i_;~f.a--dll1Y authorized officer of the Paying Agent, as Bond Registrar, the registration, transfer, !~rsJ\~~!.~~,~--- ;::~:=:'~:=-':~:-.~:'.::~-~: . '::':';";'-~2:?_~~~ --_".-':-:' =-:-=~~~~~-~~;-~-~ AOlI27315.4 -10- exchange and related mechanical and clerical functions, as well as the preparation, signing and 'issuance of checks and drafts in payment of the principal of and interest on the Series 2004 Bonds as same become due and payable; and WHEREAS, the Prior Bonds are the only revenue obligations of the Consolidated ,Government now outstanding having as security for the payment thereqf and interest thereon a fust or prior lien on the Pledged Revenues of the System and the Consolidated Gove~nt has , been and is now complying and will continue to comply in all respects with the applicable terms, ~' 9,ovenants and provisions of the Prior Resolutions., , NOW, THEREFORE, BE IT RESOL VEn by the Augusta-Richmond County Commission and it is hereby resolved by the authority of same, that, effective upon the issuance . ~_~~ delivery of the Series 2004 Bonds as authorized by this Supplemental Bond Resolution, ~~";'Sections 1 through 26 and 28 through 35 of the 2004 New Money Resolution shall be amended o,..:fuia restated by Sections 1 through 42 of this Supplemental Bond Resolution, as hereinafter set ",;r6rth. Notwithstanding the foregoing, Section 27 of the 2004 New Money Resolution shall C~temain in full force and effect following the adoption of this Supplemental Bond Resolution, whether or not the Series 2004 Bonds authorized herein shall be issued. , BE IT FURTHER RESOL VEn by the authority aforesaid, and it is hereby resolved by ,",authority of same, as follows: Section 1. Definitions. Capitalized terms used herein and not defined shallhave:the meanings set forth in the Prior Resolutions. For the purpose of this Supplemental Bond '. .~Resolution the definitions set forth in the Prior Resolutions shall be and are hereby amended and ,,"added to, effective as of the date of the issuance and delivery of the Series 2004 Bonds herein ',ap,thorized to be issued, as follows: "Additional Bonds" shall mean any revenue bonds of the Consolidated Government ..ranking on a parity with the Prior Bonds which may hereafter be issued pursuant to Article V, Section 9 of the 1'996 Resolution, Section 25 of the 2000 Resolution, Section 25 of the 2002 "Resolution, Section 23 of the 2004 Refunding Resolution and Section 26 of this Supplemental .,Bond Resolution. "Beneficial Owner" shall mean, with respect to any bonds issued in Book-Entry Form, ,the owners of a beneficial interest in such bonds. "Bond Resolution" means collectively the 1996 Resolution, the 2000 Resolution, the Resolution, the 2004 Refunding Resolution, the 2004 Amending Resolution and the 2004 Resolution, and as same may be supplemented from time to time. "Book-Entry Form" or "Book-Entry System" shall mean, with respect to the Series .~~,__:.._~~Q04 Bonds, a form or system, as applicable, under which (i) the ownership of beneficial interests in bonds and bond service charges may be transferred only through book-entry and (ii) physical bonds in fully registered, certificated form are registered only in the name of a Securities Depository or its nominee as holder; \'lith physical bond certificates immobilized in .~~custody of a Securities Depository. -11- AO 1127325.4 h-::-,-..- .. '~:~~:i''::':''~;; ;rt:;:;~;~ . ':'_.,::,~~;e,..~ ::. ......- .~:-:-:':'~~;_m ::,c;.::.;::=:~~.:...,. ~ 7~":--~'"'''""",-~--' . '~~~:-':~ ." "'~-~:-' ""~ . '. """'_""~':' "Debt Service Requiremenf' means the amounts required in each Sinking Fund Year to c:,c' '. P"'y the principal of md interest on the Prior Bonds, the Series 2004 Bonds and my Additional " 'Bonds as same become due and payable; provided, however, with respect to any term obligation ;-:',~,,': ' which is required to be repaid prior to its stated maturity through the operation of a mandatory ;j;iFf" . . 'sinking fond, the amount of principal coming due in my Sinking Fund Year with respect to sucli #s,f;i:c'-C'obligation shall be the amount required to be deposited into the sinking fund for the retirement of .~';:;;P;\1h~ principal amount of such obligation rather tbm the entire principal amount of such debt '~~Df.~~~# '~cbIning due at the stated maturity. If any Bonds outstanding or proposed to be issued bear ~;;:~\t~t:i::[::'.:";ilitetest at a Variable Rate, the interest rate per annum on such Bonds for purposes of calculating '''';, the Debt Service Requirement shall be the lesser of (a) the 30-year Revenue Bond Index, (b) the, ';;~InaXiliium interest rate for such Bonds permitted by the supplemental bond resolution authorizing <the issuance thereof or (c) the "cap" rate, if any, established with respect to such bonds in a '~".~l3ied Hedge Agreement. With respect to any Bonds secured by a Credit Facility, Debt Service equirement shall include (a) any commission or commitment fee obligations with respect to ucliCredit Facility, (b) the outstanding amount of any Reimbursement Obligation owed to the felevant'Credit Issuer and the interest thereon, ( c) any Additional Interest owned on Bank Bonds '<to a Credit Issuer and (d) any remarketing agent fees. With respect to Bonds for which there '...,~psts a related Hedge AgreeIp.ent, Debt Service Requirement shall, include the net amounts paid '~ respect to such Hedge Agreement. . , "Investment' Earnings" means all interest received on and profits derived from Jnvestm~nts made with ;Pledge~ Revenues or any moneys in the funds and accounts established ~~9:er Article IV and Article V or tlle 1996 Resolution, as such accounts may be redes~gnated ~,,"cder this Supplemental Bond Resolution. ,: , "Prior Bonds" shall mean the outstanding Series 1996 Bonds, Series 1997 Bonds, Series ;2'000 Bonds and Series 2002 Bonds. "Prior Resolutions" means collectively the 1996 Resolution, the 2000 Resolution, the 200.2 Resolution, the 2004 Refunding Resolution and the 2004 Amending Resolution. "Reserve Requirement" mc;:ans the least of (i) the highest Debt Servi,ce Requirement in .':Th:e then current or any succeeding Sinking Fund Y e~T; (ii) 10 percent of the aggregate principal , amount of the Prior Bonds, the Series 2004 Bonds and Additional Bonds outs"L8Ilding, or -(iii) 125 percent of the average annual Debt Service Requirement in the current or any Sinking Fund Year. "Series 2004 Bond Insurance Policy" shall mean the insurance policy issued by the Series 2004 Bond Insurer guaranteeing the scheduled payment of principal of and interest on the Series 2004 Bonds when due. "Series 2004 Bond Insurer" shall mean Financial Security Assurance Inc., a New York insurance company, or any successor thereto or assignee thereof. "Series 2004 Bonds" means the Consolidated Government's Water and Sewerage Revenue Bonds, Series 2004, in the aggregate principal amount not to exceed $160,000,000 -;;E_::ff:~i-"'auThori:ied to be issued pursuant to Section 2 of this Supplemental Bond Resolution. -12- AO 1127325.4 :1;111 l ~~ i.,:"II;',.!1 :~ !I , ,! in!, 'RH; ", i~ l' ;Ill \~ ;tI ~. ~I:\ ;l\~, it .W; I~ j~ ~ .'''i\ ,:)1'" 1~1 Al!5, ""r.,.' i41F ;~~i :~~i ~~! ,.)\i " ~~: ;'i,~! ~l~! m:', !.<Ii ~~'i ml' ~! ~j ~'I. ~i ,j"l ~ ~ ~~ ~ ~ ~ ~ ai <<"." "Series 2004 Reserve Account Surety Bond" shall mean the municipal bond debt E;~":V~{f'f:service reserve insurance policy issued by the Series 2004 Reserve Account Surety Bond :j:'!,~;.);'Provider in connection with funding the Reserve Requirement in connection with the issuance of '-"-'c7'the Series 2004 Bonds. ;., .___. '~s.eries 2004 Reserve Account Surety Bond Provider" shall p:lean Financial Security ~~suraD.ce Inc., aNew York stock insurance company, or any successor thereto or assignee 1her~gf~ ',~ :. _ "'Supplemental Bond Resolution" means this Supplemental Bond Resolu1ion of the Au~.::J~.J,_~hmond County Commission adopted November 23, 2004, supplementing, amending :and restating the 2004 New Money Resolution. ',d~.~'''2004 New Money Resolution" means the Parity Bond Resolution of the Augusta- bIDond County Commission adopted June 1,2004, authorizing the issuance of the Previously c ~()rized Series 2004 ~onds. " ' , , "2004 Resolution" means the 2004 New Money Resolution, as supplemented, amended @d.rystated by this Supplemental Bond Resolution, ratifying, reaffirming, broadening and '~3c1~~p.ing the Prior Resolutions and authorizing the issuance of the Series 2004 Bonds, as same .~ybesupplemented from time to time. .:.\,"- ~,.:. '; ":Whenever used in this 2004 'Resolution, the singular shall include the plural and the, lunilshall include the singular, unless the context otherwisemdlcates. '&~..~t::,c Section 2. Authorization. All the terms, provisions and conditions contaiIied in 'Section 9 of Article V of the 1996 Resolution, as ratified, reaffirmed, broadened and extended in Secti()n 25 of the 2000 Resolution, Section 25 of the 2002 Resolution and Section 23 of the 2004 'j~~ding Resolution having been met and complied with, there be and there is hereby 'uthoriZed to be issued, pursuant to and in conformity with the Prior Resolutions, the ',Constitution of tire State of Georgia, the Revenue Bond Law and the Act, revenue bonds in the ;-~ggiegate principal amount 'of $160,000,000 for the purpose of providing funds to finance, in ,.:ivhole or in part, the cost of adding to, extending; improving and equipping the System, ,:,acquiring the necessary property or rights in property therefor, both real and pe!'son~i, to pay a ..'~.poI1ion of the interest accruing on the Series 2004 Bonds during the estimated period of -Z~~~~.lction or additions, extensions and improvements to the System, to 'pay termination '" payments, if any, on the 2004 Rate Lock, to fund a reasonably required debt service reserve and ,:-:to pay all expenses necessary to accomplish the foregoing. ,., The revenue bonds shall be designated "Augusta, Georgia Water and Sewerage Revenue ~~.....u::-='.Bo:rids, Series 2004," shall be dated the date of issuance and delivery thereof, shall be initially issued as book-entry only bonds in fully registered form without coupons, shall be in the of $5,000 or any integral multiple thereof, shall be numbered R-1 upward, shall be transferable to subsequent owners as hereinafter provided, shall bear mterest from date at the rate or rates per annum set forth below opposite each principal maturity, all interest payable ..::c..___ s~miannually on April 1 and October 1 in each year, commencing on April 1, 2005, and the :~,':_~~~'Principal shall mature on October 1 in the follo'Wing years and principal amounts: -13- AO 1127325.4 Year Amount Rate 2034 2039 $ 40,025,000 119,975,000 5.25% 5.25 :,~_____.The principal amount of the Series 2004 Bonds shall be payable at maturity, unless "c,iredeemed,prior thereto as hereinafter provided, upon presentation and surrender thereof at the :fiPri.Pcipal corporate trust office of the Paying Agent in Atlanta, Georgia" and payments of interest 8-onJp~LS~P~~2004 Bonds sball be made By check or draft payable to tb:e registered owner as ",shoWn on the bond registration book kept by the Bond Registrar at the close of business on the, , ee~:th_g.ay of the calendar month next preceding the April 1 and October 1 interest payment ':.'aates and such payments of interest shall be mailed to the registered owner at the address shown "':on-th~-hond registration book. Notwithstanding the foregoing, so long as the Series 2004 Bonds ~~:~J3pok:-Entry Form, principal and interest shall be payable to the Securities Depository or its ,millee, all as set forth in Section 7 hereof. Both the principal of and interest on the Series , "~7Bonds shall be payable in lawful money of the United States of America. " , '_ Section 3. ExecutioD~Form of Series 2004 Bonds. The Series 2004 Bonds shall be fe' ~xecuted on behalf of the Consolidated Government by use of the manual or facsimile signature ,', ~,f!he Mayor of the Commission and attested by the manual or facsimile signature of the Clerk ~Lthe Commission"and the official seal of the Consolidated Government shall be impressed '@e~e~~ or a facsimile thereof imprinted thereon, and the Series 2004 Bonds shall be, authentic_ated D.y-tlie-ni~lla1-signatilie of a' d11lY authorized-signatory ofthe-B6fid -Registrar.-The afidation certificate to be printed on the Series 2004 Bonds shall be executed by use of the _anual or facsimile signature of the Clerk of the Superior Court of Richmond County and the official seal of said Court shall be impressed thereon or a facsimile thereof shall be imprinted )b.ereon. There shall be printed on the Series 2004 Bonds a Statement of Insurance prepared by ,thl? Credit Issuer. In case any officer whose signature shall appear on the Series 2004 Bonds :Sliall cease to be such officer before delivery of such Series 2004 Bonds, such signature shall :neveitbeless be vaUd ,and sufficient for all purposes the same -as if such officer had remained in ." Office until such delivery. The Series 2b04 Bonds, the certificate of authentication and :;' ,registration, form of assignment and the certificate of validation to be endorsed upon the Series ';;'2.004' 'Bonds shall be in substantially the following form, with such variations, omissions CL."1d ~""'iITsertions as are required or permitted by this Supplemental Bond Resolution, to wit: -14- AO 1127325.4 ~ '~~-<i:';"",'" -: 2,tt;::.~'.:':'!.i!:;'!C--, . ~f~i~ ~ , $ ~;,ii~"f:'~~:~,:': ,:::"~:;. ".". ""- ... ~~~~r~~O{~~ UNITED STATES OF AMERICA STATE OF GEORGIA AUGUSTA, GEORGIA W A.TER AND SEWERAGE REVENUE BOND SERIES 2()04 , , INTEREST RATE: lViATURlTY DATE: CUSIP: '1;~_ Y ALUE RECEIVED, AUGUSTA, GEORGIA (the "Consolidated criw;>c;nr')' a political subdivision of the State of Georgia, hereby promises to pay solely 'W~'special fon<i,provided therefor, as hereinafter set forth, to CEDE & CO., or registered -;llie pnncipal sam of DOLLARS in :'oney of the United States of America on the matority date specified above, unless plj;dpriorthereto as hereinafter provided, npon presentation and snrrender hereof at the -'11-# !,orporate trust office of SunTrust Bank, Atlanta, Georgia, Paying Agent aDd Bond .~~,and to pay to the registered owner hereof, solely from said special fond, interest on __,j~9p!lLarnmmt)!om the date hereof or from the most recent interest payment date to ,","9'~Sihas1>een paid, at the rate per mmumspecified above,semiann'~1y on April 1 imd ;,~~J:. ill. , each year (each an "Interest Paymei1'! Dote~), commencing. April!, 2005, i,rriliI <_.---,,~.\!>t\he principal amount bereof. payments of interest on this Bond sba!l be made by \'lFianrt'! payable to the registered owner as shown on the bond registration book kept by '9i!~..Regi~ at the close of business on the fjfteenth day of the calendar month next il!iig. each Interest Payment Date and snch interest payments shall be mailed to the ". ~~.cFowner at the address shown on the bond regiStration book. t~:,[.ii;;;;gus, Bond IS 'one of a duly anthorized issue in the aggregate principal amount of ~~~.~i~j)(),/ilOO (the "Series 2004 Bonds'') of like tenor, except as to numbers, denominations, i::.:~4I":tes and dates of matority and rede.lnpuon provisions, issued by 'the Consolidated -ofeiilir19't for the purpose of providing fonds to finance, in whole or in port, the cost of adding ;i;i\l~n9iI!g, i)nproving and equipping the water and sewerage system (the "System''), acquiring ~<;C(;S~ai-y property or rights in property therefor, both real and personal, to pay a portion of _,.",jj!!<iesl accroing on the Series 2004 Bonds during the estimated period of construction of i'ilfl~2..n,.,extensions and improvements to the System. to pay termination payments, if any, due ;~<I\fairiD.'t&esi rate hedge agreement, to fond a reasonably required debt service reserve and to ",CC",,,.;c'jJaj'JlLexp,,nses necessary to accomplish the foregoing. The Series 2004 Bonds are issued under ~"Y;bB"..il@iQi!'lfOf the Revenue Bond Law of the State of Georgia (Title 36, Chapter 82, Article 3 of the !~i;i;.';'Lc.g~~\liI,Code of Georgia Annotated, as amended), and an act of the General Assembly 'of the . ~~",'i;'3.:;~~te;iilf}'fuQrgi'--(Georgia Laws 1995, p. 3648 et seq., as amended), and were duly authorized by ~t;,:i3c:~j]~.;~9gusta-Richmond County Commission (the "Commission") by a resolntion adopted on ~~;g.:':" October 21, 1996, as supplemented on December 3 and 17, 1996 (the" 1996 ResolutiOli''), a ~-,,!'0,:.":-1fs61ution adopted on August 22, 2000, as supplemented September 15, 2000 (the ":2000 ~;j;'E;S,!1;"s!"-!.'atiorr');'aieso]ution adopted on May 30, 2002, as supplemented June 21,2002 (the "2002 -15- il~r I ' iJ1I 111\11',',1, , ~ J \ II ,1,1 l'ln Th!", ~~ 1\', !~\ t/ iit, .'~111' ~\it .r~! ',; ~~i1 ~~\( ""I' il~ \,1 ~".,.~i f, iiill ~!i : "~Il 'f~' ~ ~Ij ~~~!~l .& t ~;l !,;~[ :'I" , ~,~ :t ".1\1',,\1 _i!ill ~~, 1.1 WJlI '\ij ~{'li.~,:I' ~! ;1,!1 !~. l'Jl ~ il! \Ii ~; 4:li ?:t ~ 11 ~~ ~~ ~l ",'~b'(Resoiution"), a resolution adopted on ,May 4, 2004 (the "2004 Refunding Resolution"), a If('''~';:'!c\SorutiOJiadopted on June 15, 2004 (the "2004 Amending Resolution") and a resolution adOpted ;:;(i,L;'i{.ttme' L' 2004, as supplemented, amended and restated on November 23, 2004 (the "2004 ~Rgsohitioi1" and together with the 1996 Resolution, the 2000 Resolution, the 2002 Resolution" -1:li~C:2004; Refunding' Resolution and the 2004 Amending 'Resolution, the "Bond Resolution"). 'TffetSSeries ~2004 Bonds rank on a parity as to lien on the Pledged Revenues (as hereinafter _d~fu1edY6f. the System with the Consolidated Governnient's outstanding Water and Sewerage ':-~vehue' Refunding and Improvement Bonds, Series 1996A, Taxabl~ Water and Sewerage -":6ji'eri.ue ~Refunding BOlids, Series 1996B, Water and Sewerage Revenue Refunding Bonds, , -~ries 1997, Water and Sewerage Revenue Bonds, Series 2000 and Water and Sewerage ~;"?~etiue'i3onds, Series 2002 (collectively, the "Prior Bonds"). In addition to the Prior Bonds 'iffia(ib.~.,Series 2004 Bonds (collectively, the "Bonds"), the Consolidated Government may issue, "'~~E~ln- terms and conditions as provided in the Bond Resolution, additional revenue { - 'd if issued, such bonds will rank on a parity as to lien on the Pledged Revenues of the >'-"'nii-mth_,~e Bonds. Reference to the Bond Resolution is hereby made for a complete scription of the funds charged with, and pledged to, the payment of the principal of and the tetest on the Bonds or any other issue of bonds issued on a parity therewith, the nature and -?-~nt of ' the security, a statement of rights, duties and obligations of the Consolidated 'a\lemment, the rights of the owners of the Series 2004 Bonds and the terms and conditions t:'\;Vhich additional bonds may be issued, to all the provisions of which the owner hereof, by ~cceptance of this Bond, assents. ' 1t1' !g :i- ;L if iI !~ :i :f \t :1' ;j, ~ ;; I; .Hl n: I:' ;" '; " I: .t " , ' ;t,;,:" ,'"" The person in whose name this Bond is registered on the registration books kept by tlie ,,;~~~R~gistrar shall be deemed to be the owner of this Bond for all purposes. The Series' 2004 :'2nas~'aJ:e being issued by means of a book-entry system, With actual Series 2004 Bonds ".~~, 6bilized at, The Depository Trust Company, New York, New York (the "Securities _:&po.sJtory"), or its successor as Securities Depository, evidencing ownership of the Series,2004 9nds ,in principal amounts of $5,000 or integral multiples thereof, and with transfers of _ ""till:efidal ownership effected on the records of the Securities Depository and its participants ;';'P1lI'suantto the rules and procedures establi,shed by the Securities Depository. Actual Series ;f,~9:04 Bonds are not available for distribution to the owners of beneficial interests in the Series _~20~Q~l Bonds n:igistered in book-entry form (the "Beneficial Owners"), except under the limited ,-i'~iIcumstances set fom in the 2004 Resolution. The pr..ncip~l, redemption premium (if any) and :,'E:t~~est on the Series 2004 Bonds are payable by the Paying Agent to Cede & Co., as nominee of ~'747!]te:?i'urities Depository. Transfers of principal, redemption premiwu (if any) and interest J;~~:~,:;,~;~~r="-paymentS- to participants of the Securitie~ Depository is the responsibility of the Securities *ij3i1~".' . Depository; transfers of principal, redemption premium (if any). and interest to Beneficial ::':';":G;'","":O~1;O.wriers of the Series 2004 Bonds by participants of the Securities Depository will be the __n' . _..:r~_~o!1Sibi1ity of such participants and other nominees of Beneficial Owners. Neither the _:;~~::::Cbnsolidated Government nor the Paying Agent is responsible or liable for maintaining, ;:~:~f;";~'f:~' supervising Qr reviewing the records maintained by the Securities Depository, its participants or ===:::=~".pe~sons acting through such participants. If the Series 2004 Bonds are no longer registered to a ,~~::~~~;:~=; , Secillities Depository or its nominee, this Bond may be registered as transferred only upon the ~_y'~;"'__ registration books kept for that purpose at the principal corporate trust office of the Bond '.:::':c=:.':.'~-- , R~gistrar by the registered owner hereof in person, or by his or her attorney duly authorized in ~'-",' <'writing, upon presentation and surrender to the Bond Registrar of this BDnd duly endorsed for registration of transfer or accompanied by an assignment duly executed by the registered owner -16- Ik:o"~ ~~Z:,;~;::_~_ - ~~~is~~t::..'. , '%t\ti~ir~2~~, , -. ~~t~f~zt~::::':... 'li;!il"'~: <lI his or her attorney duly authorized in writing, and thereupon a new registered bond certificate, ~ jY"j;,the sune aggregate principal amoUnt and of the same maturity shall be issued to the tranSferee in exc]ulnge therefor. in addition, if the Series 2004 Bonds are no longer registered to a , ':Securities Depository, this Bond may be exchanged by the registered owner hereof or his or her :6"iiUly a;nthorized attorney upon presentation at the principal corporate trust office of the Bond ,Jl,,,g;srrarfor an equal aggregate principal amount of Series 2004 Bonds of tbe same maturity and ;)rianrauthorized denominations in the manner, subject to the conditions'and upon payment of ~tt*'ht;;;i1{c1iarges, if any, provided in the Bond Resolution. . _...,:...r._~~_,~.,~.., .~- This Bond is transferable only upon the bond registration book kept for that purpose at .:i!ie:;prIDcipa}-corpmale trust office of the Bond Registrar by the registered owner hereof in erson,or by attorney duly authorized in writing, upon the surrender and presentation to ,the '."II ,.,egistraI of this Bond duly endorsed for transfer or accompanied by an assignment dUly 'ectited by the registered owner orattomey du1y authorized in writing, and thereupon a new 'jjistJ:rCd bond. in the same aggregate principal amount and of the same maturity shall be issued , ~_~-theotransferee in exchange therefor. The Series 2004 Bonds are issuable in the form of registered bonds in the denomination if$5;000 or any integral multiple thereof and are exchangeable at the principal corporate trust Office of the Bond Registrar in the manner, subject to the conditions and upon payment of s~~ges, if any, provided in the Bond Resolution. The Bonds and such revenue bonds of the Consolidated Government as may in the future ;issued on a parity therewith, are equally and ratably secured by a pledge of and a lien on the J~dged Revenues," which are defined in the Bond Resolution to include net operating revenues of the System (gross operating revenues of the System after provision for payment of all reasonable expenses of operation and maintenance) and earnings on investments made with oneys and securities from time to time on deposit in the funds and accounts established in the t ,ODd Resolution. The Bond Resolution provide, among other things, for prescribing and revising rates and tE(ji1ecting fees and charges for the s~ces, facilities and commodities furnished by the System, C-,as ,now exis",ut and as herein,jter added to, extended, improved and equipped to the extent .... necessary to produce revenues sufficient (i) to pay the reasonable and necessary costs of j::operating and maintaining the System, including any contract:ual obligations incurred pertaining 5'1h"'i;;;t"' t5'CU1e operation of the System, (ii) to produce Pledged Revenues (excluding earnings on "'".' investments made with moneys and securities from time to time on. deposit in the construction i.0.J\lII<ls) in each Fiscal Y ear (as defined in the 1996 Resolution) equal to at least 110 percent of the i,)"SlDIl of (x) the amount required to discharge the payment of the Bonds and any bonds issued on a ',="'c~::::jJ'iI:i!Y therewith then outstanding as the same become due and payable and (y) the scheduled . payments of net interest amounts paid or payable to certain "Hedge Providers" (as defined in the Bond Resolution), (iii) to pay into the special fund designated "Augusta, Georgia Water and Sewerage System Sinking Fund" the amounts required to pay the principal of and the interest on the Bonds and any other bonds hereafter issued on a parity therewith as the same become due payable, either at maturity or by proceedings for mandatory redemption, and to create and ,"~...,.~iinrinlain a reserve therein for that purpose, and (iv) to create and maintain a reserve for ---' extensions and improvements to the System. -17- -,.-- . "--, This Bond shall not be deemed to constitute a debt of the State of Georgia or the Consolidated Government nor a pledge of the faith and credit of said State or Consolidated Government, nor shall the State or Consolidated Government be subject to any pecuniary liability hereon. This Bond shall not be payable from, nor be a charge upon, any funds other ,_ ,'than the Pledged Revenues, and is payable solely from the special fund provided therefor from ,}f;0'tIie Pledged Revenues, including all future additions thereto and any other moneys deposited ;.::~~::~~;::therein. No owner of this Bond shall ever have the right to enforce payment hereof against any Piblliet property of the State of Georgia or the Consolidated Gov~ent, nor shall this Bond {~"&()nstitute a charge, 'lien or encumbrance, legal ,or. equitable, upon any other property of the .:C~nsolidated Government other than the Pledged Revenues pledged to the payment hereof. The ,,;ssli3nce of this Bond shall not directly, indirectly or contingently obligate the State or the onsolidated Government to levy or to pledge any form of taxation whatever therefor or to make .y-appropriation for its payment. The Series 2004 Bonds may be redeemed prior to their respective maturities, either in hole-at any time or in part on any Interest Payment Date not earlier than October 1, 2014 from any moneys available for such purpose as provided in the 2004 Resolution by payment of the ~,;mcipal amount thereof and accrued interest thereon to date of redemption, with no pwmum. In addition, the Series 2004 Bonds maturing October 1, 2034 are subject to mandatory .redemption prior to maturity in accordance with the provisions of the 2004 Resolution, in part, 1iylotin; such manner as may be designated by the Bond Registrar at par plus accrued interest to, th~ redemption date, in the following principal amounts on October 1 in the following year: Year Amount 2033 $19,500,000 $20,525,000 principal amount of Series 2004 Bonds maturing October 1, 2034 shall be .'aid at maturity. ~ ,:,.:.,_ In addition, the Series 2004 Bonds maturing October 1, 2039 are subject to mandatory :i~4~ption prior to matu.Lrity in accordance with the provisions of the 2004 Resolution, in pa..'i:, b.ylotin such manner as may be designated by the Bond Registrar at par plus accrued interest to 0~~redemption date, in the foliowing principal fuilOunts on October 1 in the following years: Year Amount 2035 $21,605,000 2036 22,740,000 2037 23,930,000 2038 25,190,000 $26,510,000 principal amount of Series 2004 Bonds maturing October 1, 2039 shall be at maturity. -18- ~'^~ . Notice designatiJlg 1he Bonds (or the portion of the principal amount of the Series 2004 ''''Q3onds in multiples of $5,000) to be acquired by redemption, as aforesaid, sbalI be mailed, wosmge prepaid, not less than 30 days nor more than 60 days prior to the redemption date to all' J~tstered owners of Series 2004 Bonds to be redeemed in whole orin part at 1he addresses "jiich appear in the bond registration book, but failure so to mail any such notice sbalI not affect :5i;\tiv-.;Iidity of the pr.oceedings for such redemption or cause the interest to accrue on the JiP" 1 amount of 1he Series 2004 Bonds so desigoated for ,.eili:mption after the redemption Ie: To the extent and in the manner permitted by the Bond Resolution, modifications, . ..'ollS; amendmentS, additions and recisions of the provisions of the Bond Resolution, or of ,~Iution supplemental thereto or of the Series 2004 Bonds, may be made by the 'iiS"li~ted Government with the consent of the owners of at least 65 percent in aggregate '....JpabamQunl of the .series 2004 Bonds then outsllmding, including any parity obligations > With then outstanding, and without the necessity for notation hereon of reference thereto. This Bond is issued with the intent that the laws of the State of Georgia sbalI govern its etion. 4,'~ caseofdefanll; the owner of this Ilond sbalI be entitled to 1he remedies provided in the a',~eSolutibn authorizing its issoance and in saldRevenue Bond'Law and any amendments ~t(i '"lUs hereby recited and certified that all acts, conditions and things required to be done <ient to and in the issoance of this Bond have been done, have happened and have been '. . ed in due and legal form as required by Jaw, and that provision has been made for 1he IiOil from the anticipated revenues of the System, as noW existent ""d as hereafter added to, ,~iinProve<l. and equipped, of amounts sufficient to pay the principal of and the interest ,p.'llie.;Series 2004 Bonds as the same mature, or are acquired by mandatory redemption, and to ~i&iji.and maintrin a reserve for that purpose, and that said revenues are irrevocably allocated p~~~~~d to the payment of the Series 2004 Bonds and the interest thereon. ,',.c,This Bond sbalI not be valid or become obligatory for any pUIJ'ose or be entitled to any ~t)'or benefit under the Bond Resolution 'mtil this Bond sbaJl have been authenticated and :;t~g;,~ed upon the bond registration book kept for that pUIJ'ose by the Bond Registrar, which '~ii)i~!1!ication and registration sball be evidenced by the execution by the manual signature of a :~ ~y}i.uthorized signatory of the Bond Registrar of the certificate hereon. ~~~ii]l!tr-n ~ :~~ff~;~~'-~~~~:_- :-=-:"""':':=~-'_"~,:=-,_'-;;-_":"c:..._ -19- ~lll~ III In ffi ~" 11;1 iff 'f1il~ 'EI' i\l I~ ijlJ t~ In\i~ .~~ ~~ ~!u't 11\ ,,\,., l;: ,1:..- tj"( ~l ~;. ~ll\l 'It ~iJf "'I" "r 1~!~~: ~H~ "I".' i'I[11/ JI[i~K1 ,~15~ ~iit' "I'" ~" t~ .':"',. i!i!i' ~! !~i~ ii";' ",11Th, 1ji'j] ii'" :! .ll~ TIlm ~Iilt '1lqf ~ I'" '1'1 !~ ,',,' \\111 nl!~ Ilnl ;'111 ~;Il\ r l~ ti! 1111' ~;.\i' 11 :i~I,,'lil '. r :\' 1\ :.,\'1 'I ;11 :11 "!r ~! 1 :1 ~, W,-'- p- l:;:-;i~.-- [:2:":' '. IN WITNESS WHEREOF, Augusta, Georgia has caused this Bond to be executed by . use of the [mam13l][ facsimile] signature of the Mayor of the Commission of the Consolidated 'Government and [its official seal to be impressed hereon] (a facsimile of its official seal to be imprinted hereon] and attested by use of the [manual][facsimile] signature of the Clerk of the connnission of the Consolidated Government, this December _, 2004. AIJ~TTsrr A f:l?ORGIA, ' ~\.J. ..I...r1, _.LJ -- By: Mayor "~.___,..;.;:.~:;.-~.==':;::;L . -~_o-,.....,..,....- _."_~_-"C- ~-;:-~~~~:~=~:'~'~~-. . ---:-.:~----- ___-~_'O......""...;;,;;:,:~_:;"~~ .-: ~ -::~~:::-f_':::S :;"'-><;":/c' ~'. ':: -r :t'~:~~k:2.~.:~_;_~~~:~ ~~~L~~~:S;~~:;- ~~~ . . .... - - --- -20- H1: " Date of Authentication and Registration: :i \,\ H i" ii P I': " h; CERTIFICATE OF AUTHENTICATION AND REGISTRATION ;.! This Bond is one of the Series 2004 Bonds described in the Supplemental Bond Resolution , adopted November 23~ 2004 ;1 ~. ! ; Ii 1:\ '1 I; ~! SWT'fRUST BANK, as Bond Registrar ~ l :1 ii f ~ 'I ''I 1:1 "By: ,~~::;ftuthorized Signatory ,'i ********** :1 ;i i ;1 VALIDATION CERTIFICATE ,', STATE OF GEORGIA ) ) ;:'~OUNTY OF RICHMOND) The undersigned Clerk of the Superior Court of Richmond County, State of Georgia, HEREBY CERTIFIES that this Bond was validated and confirmed by judgment of the "Buperior Court of Richmond County, Georgia, on December _, 2004 and that no intervention or , objection was'filed in the proceedings validating same and that no appeal from said judgment of , ' validation has been taken. , WITNESS my [facsimile] signature and seal of the Superior Cou..rt of Richmond COllnty. " 0eo--:a " ~ 19l. (S E A L) Clerk, Superior Court Richmond County, Georgia ********** -21- AO 1127325.4 ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto .~ ,[please print or typewrite n,ame and address including postal zip code of assignee.] [please insert Social Security or Tax Identification Number.] the within bond and all rights thereunder, hereby constituting and appomtmg attorney to transfer this Bond on -:ihe'oohd registration book kept for such purpose by the Bond Registrar, with full power of ;L~~!?,~tution in the premises. '"-;---ss,i~ture Guaranteed) ~,"-,~C?tice: _ Signature(s) must be guaranteed by <an>eligible -guarantor institution (such as :"~~, stockbrokers, savings and Joan JissQ~iations and credit unions) with nlembership in an approved Signature ,Guarantee Medallion Program pursuant to '--S.E: C. Ru1e 17 Ad-15. Registered Owner Notice: The signature(s) on this assi~~nt must correspond with the name as it appears on the face of the within bond in every particular without alterations, enlargement or any change whatsoever. ********** STATEMENT OF INSLTIV;NCE ********** An 117",7<; A. -22- Section 4. , ReQuired Authentication; Proof of Ownership. Only those Series 2004 which shall have endorsed thereon a certificate of authentication and registration substantially in the form hereinbefore set forth, duly executed by the manual signature of an authorized signatory of the Bond Registrar shall be entitled to any benefit or security under this 'supj>lemental Bond Resolution 'and such certificate upon any of the Series 2004 Bonds when 'dUly executed shall be conclusive evidence that such Series 2004 _ Bond has been duly :authenticated, registered and delivered. It shall not be necessary that the same signatory of the :"~ B()nd Registrar sign the certificate of authentication and registration on all of the' Series 2004 ",{_::Borids that may be issued hereunder at anyone time. The person in whose name any Series 2004 , Bond shall be registered shall be deemed and regarded as the absolute owner thereof for' all _; _ _ _purposes and the payment of the principal amount, interest and premium, if any, shall be made ~__ _ only to or upon the order of the registered owner thereof. All such payments shall be valid and :",-::~ffectual to satisfy and discharge the liability upon such Series 2004 Bond, including redemption ,i_~~~pr~I:l1ium, if any, and the interest thereon to the extent of the sums so paid. Section 5. Bond Retristrar; Transfer and Exchane;e. The Bond Registrar shall " keep 'the bond registration book for the registration of the Series 2004 Bonds and for the , ,registration of transfers of the Series 2004 Bonds as herem provided. The transfer of any Series "2004 Bond shall be registered upon the bond registration book upon the surrender and , "presentation of the Series 2004 Bond to the Bond Registrar duly endorsed for transfer or 'aCcompanied by an assignment duly executed, by the registered owner or attorney authorized in L~~g in such form as shall be satisfactory to the Bond Registrar. Upon any such registration of ':', -'transfer; the Bond Re-gistrar sbaJr authenticate and deliver in exchange for such Series ,2004 Bond, 'or Series 2004 Bonds so surrendered, a new Series 2004 Bond or Series 2004 Bonds registered in ~~)the name of the transferee, of the' same series and maturity, in any denomination or ,aenominations authorized by this Supplemental Bond Resolution, and in an aggregate principal amount equal to the aggregate principal amount of the Series 2004 Bonds so surrendered., Any Series 2004 Bond, upon presentation and surrender thereof to the Bond Registrar, together with " , an assignment duly executed by the registered owner or duly authorized attorney, in such form as ---may be. satisfactory to the Bond Registrar, may be exchanged, at the option of the registered :" owner, for an aggregate principal amount of Series 2004 Bonds of the same series and maturity ;,,-,, equal to the principal amount of the Series 2004 Bond so surrendered and of any authorized ":_'";'c:::c"it-~~'denomination or denominations. The Bond Registrar lllay make a charge for every exchange or I~KEf::-- --registration of transfer of.the Series 2.004.Bonds sufficient to reimburse it ~r, cu:y tax or other ii:::::::its,,; governmental charge reqUITed to be p31d With respect to such exchange or regIstration of transfer, ",' , ' but no other charge shall be made to the owner for the privilege of tr".Jlsferring or exchanging the _~~ries 2004 Bonds under this Supplemental Bond Resolution. ~:t"~'~~- I~~':,c:,: " ~,' .:","-'.'"."-,,,"",.,-,,'e' . ~-----_._-~ ~ ---,~,':"".,--:-:-::-::~ ~. ..;:-";~,.~';.<:,~."'-~,=.- -. ~i~=?::. I~'- i' -,-,,:-,_:. _,--.,_ ,_, __.~.c: -----_..- .' ,....,.',.-'.,.."-.-,.,.,'.'-,,.-.-... -----'.--. --,..---..----. , .-c._.__.,_:~h :: ~~:.- ;~.~: '- ! --- -. ~--' Section 6. Lost, Destroved, Mutilated Bonds. If any Series 2004 Bond shall become mutilated, the Bond Registrar in its discretion and at the expense of the owner of such Series 2004 Bond shall authenticate and deliver a new Series 2004 Bond of like tenor and series registered in the name or the owner in exchange and substitution for such mutilated Series 2004 Bond. If any Series 2004 Bond shall become lost, destroyed or wrongfully taken, evidence or such loss, destruction or wrongful taking within a reasonable time thereafter may be submitted to the Consolidated Government and if such evidence shall be satisfactory and indemnity of a character and in an amount satisfactory shall be given, then the Consolidated Government at the expense or the oWner shall cause a new Series 2004 Bond of like tenor and series registered in -23- AO 1127325.4 Section 7. Global Form; Securities Deuositorv~ Ownershiu oi Series 2004 Bonds. name of the owner to be authenticated by the Bond Registrar and delivered to the registered ,owner. , (a) Upon the initial issuance, the ownership of each Series 2004 Bond shall be ,:",g;s=d in the name of the Securities Depository or the Securities Depository Nominee, and "'oi.vI1ersmp thereof shall be maintained in Book-Entry Form by the Securities Depository for the '-~ccouri.t of the Agent Members thereof. Initially, each maturity of the Series 2004 Bonds shall be qd'ir~gistered in the name of Cede & Co., as the nominee of The Depository Trust Company. , }~--;';':Beneficial Owners will not receive Series 2004 Bonds from the Bond Registrar evidencing their i;f:'~ownersbip interests. Except as provided in subsection (c) of this Section, the Series 2004 Bonds ", ':', y-lJ~ ,transferred, in whole but not in part, only to the Securities Depository or the Securities -:eposttory Nominee, or to a successor Securities Depository selected or approved by the CQp.5olidated Government or to a nomiriee of such successor Securities Depository. (5) With respect to Series 2004 Bonds registered in the name of the Securities Depository or the Securities Depository Nominee, neither the Consolidated Government, the :E'ond Registrar nor the Paying Agent shall have any responsibilitY or obligation to any Agent ~\,::Member or Beneficial Owner. Without limiting the foregoing, neither the Consolidated t,'q:o'Vemment, the Bond Registrar nor the Paying Agent shall have any responsibility or obligation ::':th:respect to: (i) the accuracy of the records of the Securities Depository, the Securities Depository Nominee or any Agent Member with respect to any Beneficial Ownership , interest in the Series 2004 Bonds; (ii) the delivery to any Agent Member, any Beneficial Owner or any' other person, other than the Securities Depository or the Securities Depository Nominee, of any notice with respect to the Series 2004 Bonds; or (ill) the payment to any Agent' Member, any Beneficial Owner or any other "__person, other than the Securities Depository or the Secu..'"ihes Depository Nominee, of any , amount with respect to the principal, premium, if any, or interest on the Series 2004 Bonds. So long as any Series 2004 Bonds are registered in Book-Entry Form, the Consolidated Government, the Bond Registrar and the Paying Agent may treat the Securities Depository, as, deem the Securities Depository to be, the absolute owner of such Series 2004 Bonds for all purposes whatsoever, including without limitation: (i) the payment of principal, premium, if any, and interest on such series of Series 2004 Bonds; (ii) giving notices of redemption and other matters with respect to such Series , 2004 Bonds; (iii) registering transfers with respect to such Series 2004 Bonds; -24- (v) voting and obtaining consents under the Bond Resolution. (iv) the selection of Series 2004 Bonds for redemption; and So long as any Series 2004 Bonds are registered in Book-Entry Form"the Payfug Agent' shall pay all principal of, premium, if any, and interest on the Series 2004 Bonds only to the Securities Depository or the Securities Depository Nominee as shown in the Bond Register, and all such payments shall be valid and effective to fully discharge the Consolidated Government's obligatioIiS with respect to payment of principal' qf" premium, if any, atld interest on the Series 2004 Bonds to the extent so paid. ( c) If at any time (i) the Consolidated Government determines that the Securities , Depository is incapable of discharging its responsibilities described herein, (ii) the Securities ""._ Depository notifies the Consolidated Government or the Paying Agent that it is unwilling or ~-'~iiri.able to continue as Securities Depository with respect to the Series 2004 Bonds, or (ill) the Depository shall no longer be registered or in good standing under the Securities Act of 1934, as amended, or other applicable statute or regulation and a successor Securities Depository is not appointed by the Consolidated Government within 90 days after the Consolidated 'Government rec,eives notice or becomes, aware of such condition, as the case may be, 'then this Section shall no 10nger be applicable and the Consolidated Government shall execute and the Bond Registrar shall authenticate and deliver Series 2004 Bond certificates .:!'~!e~~?ting the Series 2004 Bonds to the bondholders. Series 2004 Bonds issued pursuant to __thissubsectton (c) shall be registered in such names and authorized denomin~tio~,~ _Q1e_ ' Securities Depository, pursuant to instructions from the Agent Member or otherwise, shall instruct the Bond Registrar. Upon exchange, the Bond Registrar shall authenticate and deliver such Series 2004 Bond certificates representiJig the Series 2004 Bonds to the persons in whose names such Series 2004 Bonds are so registered on the Business Day immediately preceding the date of such exchange. ' Section 8. Optional Redemption of Series 2004 Bonds. The Series 2004 Bonds may be redeemed" prior to their respective' maturities at the option of the Consolidated Government either in whole at any time or in pa..rt on any Interest Payment Date, at par without a ,~premium, in any year not earlier than October 1, 2014 from any moneys available for such ' purpose and deposited with the Paying Agent on or before the date fLx.ed for redemption by payment of the principal amount thereof and accrued interest thereon to date of redemption. Section 9. Mandatory Redemption of Series 2004 Bonds. Tne Series 2004 Bonds maturing October 1, 2034 are subject to mandatory redemption prior to maturity in part, by l6t in _ such manner as may be designated by the Bond Registrar at par plus accrued interest to the redemption date, in the following principal amounts on October 1 in the following year: ' Year Amount 2033 $19,500,000 $20,525,000 principal amount or Series 2004 Bonds maturing October 1, 2034 shall be paid at maturity. -25- AO 1127325.4 [.i..~,..., H;::~'-~,~~'" ir' " ~C.'.' .,... .. !{'-"':'" ~.,:''''.-''~~: ' 1----,--, ".1 ,a.;',."i ~-; il" L---.. !:--.-:~~-- --- .1't" ~_., e The Series 2004 Bonds maturing October 1, 2039 are subject to mandatory redemption prio~ to maturity in part, by lot in such manner as may be designated. by the Bond Registrar at par plus acc~ed interest to the redemption date, in the following principal amounts on October I in the following years: ' Year Amount ; 2035 $21,605,000 2036 22,740,000 2037 23,930,000 2038 25,190,000 $26,510,000 principal amount of Series 2004 Bonds maturing October 1, 2039 shall be paid at maturity. ,.___ Section 10. Procedure' for and Notice of Redemption. The Consolidated Government 'shall select the maturities of Series 2004 Bonds to be optionally redeemed in part. If'less than all of the Series 2004 Bonds of a single maturity are to be redeemed, the Bond Registrar shall treat any Series, 2004 Bond of such maturity outstanding in a denomination of greater than $5,000 as two or more separate Series 2004 Bonds in the denomination of $5,000 each and shall assign separate numbers to each for the purpose of determining the Series 2004 Ho:I,!~ or the principal amount of such Series 2004 Bonds in a denomination greater than $5,000 to be redeemed by lot. With respect to. any Series 2004 Bond called.for partial redemption, the ' registered owner thereof shall surrender such Senes 2D04 Bond to the' Bond Registrar ill exchange for one or more Series 2004 Bonds in any authorized denomination in the aggregate principal amount equal to the unredeemed principal amount of such Series 2004 Bond so surrendered. The Bond Registrar shall furnish the Consolidated Government on or before the 45th day next preceding each mandatory redemption date (or optional redemption date if such 'option is - ' exercised) with its certificate setting forth the Series 2004 Bonds that have been selected for mandatory redemption (or optional redemption) either in whole or in pa..'i: on such date. , Not less than 30 days nor more than 60 days before any date upon '\vmch any such optional redemption or mandatory redemption is to be made a notice of such redemption signed by a duly authoriZed signata!"'; of the Bond Registrar designating the Series 2004 Bonds to be redeemed (in whole or in part) shall be filed at the place at which the principal of and interest on the, Series 2004 Bonds shall be payable and shall be mailed, postage prepaid, to all registered owners of Series 2004 Bonds to be redeemed (in whole or in part) at addresses which appear upon the bond registration book. It is expressly provided, however, that the failure so to mail any such notice of the optional redemption or mandatory redemption of the Series 2004 Bonds shall not affect the validity of the proceedings for such redemption or cause the interest to continue to accrue on the principal amount of such Series 2004 Bonds so designated for redemption after the redemption date. -26- AO 1127325.4 -r..",:c'.-'.".-.""- '''';''---''''''-'';'--' . ~f:~E' ' ~"--~~" ~~~~,~: S~'- "-.';<-' ~ "-'.' .. ~"€.~~.:-;:::"~:' ''11::;::--'~-'.' ,-.:;;_,.::;..i"...:-..," :;',-.;.~'-":~ .:" ,- '... ~____ _ , Rowever, it is expressly understood and agreed that should the Consolidated Government " ':'hereaftet elect to issue any Additional Bonds, as herein authorized; it shall have the right to exerCise any optional redemption provision to redeem the Bonds of any such future issue or issues before it redeems the Series 2004 Bonds, or it may redeem the Series 2004 Bonds before it redeems the Bonds of any such future issue or issues, or it may redeem some of the Series 2004 ,Bonds and some of the Bonds of any such future issue or issues at the sam~ time. If less than a full maturity within an issue of Bonds is redeemed, then such redemption shall be by lot in such as may be desigmited by the Bond Registrar. Section 11.' Purchase in Open Market. Notbing herein contained shall be construed to limit the right of the Consolidated Government to purchase with any excess moneys, as hereinabove defined, in the Sinking Fund and for sinking fund purposes, the Series 2004 Bonds , ' open market at a price not exceeding the callable price hereinabove set forth. Any such ,Series 2004 Bonds so purchased cannot be reissued and same shall be disposed of as is provided in this Supplemental Bond Resolution. Section 12. Effect of Call for Redemption. Notice having been given in the manner and under the conditions hereinabove provided, the Series 2004 Bonds so designated for redemption or the portion of the Series 2004 Bonds so designated for partial redemption shall, on the redemption date designated in such notice, become and be due and payable at the redemption price nereinabove specified, and from and after the date of redemption so designated, rmless defaultsh?ll be made m the payment of the Series 2004 Bonds so designated for redemption or -the p'ortion of the Series 2004- BondS so designated for partial redemption, interest .on the principal amount of said Series 2004 Bonds so designated for redemption shall cease to accrue oil the redemption date. Section 13. Cancellation of Bonds. All Bonds paid, purchased or redeemed shall be canceled or otherWise destroyed upon their payment and a record of such destruction shall be made and preserved in the permanent records of the Consolidated Government and in the records , of the Bond Registrar pertaining to the Series 2004 Bonds. Section 14. Pled2e of Revenues~ Parity Bonds. The Series 2004 Bonds shall stand on a parity and shaH be of equal dibl.J.ty with the Prior Bonds and shall be secured by the lien created pursuant to the provisions of the Prior Resoiutions, as the same is ratified, reaffi..rmed, broadened and extended by this Supplemental Bond Resolution, just as if the Prior Bonds and the Series 2004 Bonds had been issued simultaneously under the same resolution. The Consolidated Government hereby represents, warrants and covenants in favor of the owners of the Prior Bonds and the Series 2004 Bonds that the Bond Resolution create a valid and binding pledge of and lien on the Pledged Revenues as security for the payment of the Prior Bonds and the Series 2004 Bonds, enforceable in accordance with the terms of the Bond Resolution and the terms of the Prior Bonds and the Series 2004 Bonds. Such pledge and lien shall be a first or prior lien, superior to any that may ever hereafter be made, including judicial liens, and subject only to the right or the Consolidated Government to issue Additional Parity Bonds in accordance with the provisions or the Bond Resolution. No filing or recording of the Bond Resolution or of any other document aT instrument (including financing statements under the Uniform Commercial Code) is necessary OT required in connection with the creation, enforceability or priority or the lien and pl~dge-ofthe Bond Resolution. The Consolidated Government shall not hereafter make or suffer -27- AO 1127325.4 to exist any pledge or assignment of or lien on the Pledged Revenues ranking prior to or on a parity with the Prior Bonds and the Series 2004 Bonds; provided, however, the Consolidated . GoveII1IJlent reserves the right to issue Additional Parity Bonds and subordinate bonds in accordance with the terms and subject to the conditions contained in the Bond Resolution. Section 15. Approval of System Improvements. The additions, extensions and , improvements to the System and equipment therefor shall be accomplished substantially in . " with the Engineering Report. The Engineering Report and the additions; extensions ana'iirijlrovements set forth therein are hereby authorized and approved and the Engineering Report, by this reference thereto, is incorporated herein and made a pat-t hereof. ;r~t~:2" , ::::~:: -..... ~J27>~::~:.~. , ,,~'~"';:':-:' Section 16. Application of the Series 2004 Bond Proceeds. From the proceeds from .the sale. of the Series 2004 Bonds, the following payments shall be made, simultaneously with - ,. jhe issuance and delivery of the Series 2004 Bonds, to the extent and in the manner set forth ul1erein: . The sum of $814,965.66, representing the premium on the Series 2004 Bond Insurance Policy insuring the Series 2004 Bonds, and the sum of $126,000, representing the "premium on the Series 2004 Reserve Account Surety Bond, shall be paid to the Series' 2D04 Bond Insurer and Series 2004 Reserve Account Surety Bond Provider, respectively; (b) The sum of $10,173,333.33, representing capitalized interest, shall be deposited into the 2004 Capitalized Interest FUlld and used and applied toward the payment of the interest ' on the Series 2004B6f1ds coming due; (c) The sum of $141,529,402.43 shall be deposited into the 2004 Construction Fund and used and applied toward the cost of the additions, extensions and improvements to the System now contemplated; (d) The sum of $12,420,000 shall be used to pay termination fees associated with the 2004 Rate Lock; and" =_ .n _ _., (e) The sum of $1,111,094.72 shall be used and applied by me Consolidated , Govewment to the payment of the costs and expenses IDclli'"Ted in connection with the issuance and delivery of the Series 2004 Bonds. Section 17. Construction Fund. There is hereby created a special fund designated the "Augusta,. Georgia Water and Sewerage System Construction Fund-2004" (the "2004 COlistruction Fund"). The moneys so deposited into the 2004 Construction Fund as aforesaid and as more specifically set forth in the 2004 Supplemental Resolution, and any other funds acquired for this purpose by gift, donation, grant or otherwise, shall be held by the 2004 Construction Fund Depository in trust for the owners of the Series 2004 Bonds and shall be applied toward the payment of the cost of adding to, extending, improving and equipping the System, in accordance, or substantially in accordance, with the Engineering Report and in accordance \vith and subject to the provisions and restrictions set forth in this Supplemental Bond Resolution and the applicable provisions and restrictions set forth in the Prior Resolutions, and the Consolidated Government covenants that it will not cause or permit to be paid from the 2004 Construction Fund any sums represented as aforesaid, except in accordance, or -28- AO 1127325.4 substantially in accordance, with the Engineering Report and the provisions and restrictions set forth in the Prior Resolutions and in this Supplemental Bond Resolution. The moneys so deposited into the 2004 Construction Fund shall be used for the purposes herein and for the applicable purposes provided in Section 3 of Article IV of the 1996 Resolution arid moneys therein shall be held, invested and expended in the manner and by the procedure established, under the provisions of said Article IV, Section 3, of the 1996 Resolution. Said Article and each ,and every appropriate provision thereof be and they are hereby declared ~pplicable to the Series 2004 Bonds, the 2004 CC,>llstruction Fund and the 2004 Construction Fund Depository a:ild for the purpose of making same applicable to the Series 20Q4 Bonds, t.lJ.e 2094 Construction Fund, and the 2004 Construction Fund Depository, the Consolidated Government does. hereby reaffirm and adopt the same verbatim herein, except that said Article is broadened and extended to provide for the additions, extensions and improvements to the System _ fu:-accordance with the Engineering Report as herein contemplated. ~~: ~ r When the additions and iinprovements to the System shall have been completed, such shall be evidenced by a certificate from the Consulting Engineers stating the date of completion, and should there then be any balance in the 2004 Construction Fund, such balance, unless otherwise provided, shall be paid into the special account designated as the Debt Service Account held within the Sinking Fund. In the event of a default in payment of the Series 2004 Bonds, the Paying Agent shall notify the 2004 Construction Fund Depository thereof and the 2004 Construction Fund Depository shall, without further authorization or direction, transfer the remaining funds in the 200A Construction Fund to the Pa)'llg Agent or Sinking Fund Custodian to be used to pay principal and interest on the Series 2004-BbIids. . ;~ " q ,I i' Section 18. Creation of 2004 Capitalized Interest Fund~ Use of Monevs in 2004 Capitalized Interest Fund. There is hereby created by the Consolidated Government a fund designated "Augusta, Georgia Water and Sewerage System Capitalized Interest Fund-2004." There shall be paid into the 2004 Capitalized Interest Fund such amount,from the proceeds of the sale of the Series 2004 Bonds allocable to capitalized interest. Such moneys shall be transferred to the Debt Service Account held within the Sinking Fund on each Interest Payment Date until the balance in the 2004 Capitalized Interest Fund has been reduced to zero., The amounts so tr>t..nsferred shall be used to pay interest coming due on the Series 2004 Bonds. w-- I L " .,...,..--,. I l r--"-- Section 19. Flow of Funds~ Sinkin~ Fund. The Consolidated Government is now operating and will continue to operate the System on a :fiscal year basis connnencing on January 1 in each year and extending through December 31 in such year, but it reserves the right by the adoption of proper proceedirigs to change its fiscal year as provided in the 1996 Resolution. The Consolidated Government covenants that all revenues arising from the ownership or operation of the System and properties in connection therewith as now existent and as hereafter added to, extended and improved shall be collected by the Consolidated Government or by its agents or employees and deposited promptly with the depository to the credit of a special fund heretofore created and designated in Section 2 of Article III of the 1996 Resolution as the "Richmond County Water and Sewerage System Revenue Fund-1996" and redesignated pursuant to the 2000 Resolution as'the "Augusta, Georgia Water and Sewerage System Revenue Fund" (the '~evenue Fund"). The moneys deposited into the Revenue Fund shall be used and disbursed from the Revenue Fund as hereinafter provided. -29- AO 1127325.4 There, shall first be paid from the Revenue Flll1d the Expenses of Operation and Maintenance other than payments in lieu of taxes and payments in lieu of franchise fees. , 'Payments in lieu of taxes and payments in lieu of franchise fees shall not be payable from the , Revenue Fund, but shall be payable solely from the General Utility Fund as hereinafter provided: The Consolidated Government covenants that it will continue to ~aintain the sinking , fund created and designated in Article V, Section 2, Paragraphs 2 and 4 of the 1996 Resolution the "Richmond County Water and Sewerage System Sinking Fund" and redesignated pursuant 'the 2000 Resollltion as the "Augusta, Georgia Water ahd Sewerage System Sinking Fund" (the "sinking Fund"), which Sinking Fund now consists of two accounts which are to be held p',' " therein, created and designated as "Debt Service Account" and ''Debt Service Reserve Account." '''7'~~':';. The payments to be made into the Sinking Fund must be adjusted so as to provide sufficient !!l';;';;';:";"':moneys with which to pay the principal of and the interest on the Prior Bonds and the Series .2004 Bonds as the same become due and payable, either at maturity or by proceedings for ". mandatory redemption, in the' then current Sinking Fund Year and to create and maintain a "',r:e'~~~ the Sinking Fund equal to the Reserve Requirement on the Prior Bonds and the Series , 2004 Bonds. After there have been paid from the Revenue Fund the sums required or permitted Lto be paid for Expenses of Operation and Maintenance pursuant to the provisions of this Section, .;;there shall next be paid from the Revenue Fund into the Sinking Fund the following amoUnts: (a) There shall be deposited into the Debt Service Account for the purpose of paying :'.theIJr!ncipal of and interest on the Prior Bonds and the Series 2004 Bonds as same become due ind'payable, either at maturity or by proceedings for mandatory redemption, in the then curre!).!. Sinking Fund Year, each month after taking into account moneys on deposit therein, (i) an ';~ount sufficient to pay the interest on the Auction Rate Bonds corning due on the first day of the next succeeding month; (ii) an amount equal to one sixth of the interest on the Prior Bonds ~and the Series 2004 Bonds coming due on the next Interest Payment Date for the Prior Bonds and the Series 2004 Bonds; and (ii) an amount equal to one-twelfth of the principal on the Prior ~onds, the Auction Rate Bonds and the Series 2004 Bonds coming due on the next ensuing October 1, such aggregate monthly payments to continue from month to month until sufficient funds are on hand in the Sinking Fund to pay all of the Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds as same mature or are acquired by mandatory redemption and the interest w'i.ll become due and payable thereon. (b) Upon the issuance of the Series 2004 Bonds, the Reserve Account shall be funded by a combination of cash and one or more Reserve Account Surety Bonds held ror the credit of the Reserve Account. Simultaneously with the issuance of the Series 2004 Bonds, there shall be .on deposit in the Reserve Account, taking into account moneys on deposit therein and amounts _ , being provided by the Consolidated Government from lawfully available funds, such amount, if any, as may be required to create in the Reserve Account a reserve equal to the Reserve Requirement upon the date of issuance of the Series 2004 Bonds. The Reserve Account shall be maintained for the purpose of paying the principal of and interest on the Prior Bonds and the Series 2004 Bonds falling due in any year as to which there would otherwise be a default and if money is taken from the Reserve Account for the payment of such principal and interest, the money so taken shall be replaced in the Reserve Account from the first moneys in the Revenue available and not required to be used for Expenses of Operation and Maintenance -30- AO 1127325.4 ~~~~~-:~~;',-,:-. ~.-:~;',,..--.,. ~~.>:::':':'- ~~Yg;, ",n"; ,,:.~,'::;.,.-.~.., ; J-~::':;':.L ;;~f,iC,: of the system and not reqnired to be paid into the Debt Service Acconnt as provided in '::" 'subparagraph 19(a) above. if!i4,~;:' (c) All sums required to be paid to comply with the provisions of subparagraphs (a) ~~?": " and (b) above shall be paid on or before the 25"' day of the month in which the payment is due, >~,,; and if, in any month, for any reason, the full amount herein required to be. paid in such month ~;,. shall not be paid irito the Sinking Fund, any deficiency shall be added to and shall become a part ~~:L~~~ of the amount required to be paid into the Sinking Fund in the next succeeding month; provided, tt",::'.':~,:.:- however,' the Consolidated Government covenants and agrees that in the event it hereafter elects ;'ice;:,,' to issue Additional Bonds, pursuant to the provisions of this Supplemental Bond Resoiution, the :;:_:_~;~-,;~.---:-- :, ':"":: 'above stated payments into the Sinking Fnnd will be increased to the extent necessary to pay the ''P: ' , principal of and interest on the Prior Bonds, the Series 2004 BOnds and on any Additional Bonds ~,s:,,:-:'therewith then outstanding and on the proposed Additional Bonds to be issued coming due, ~~\~;_ either .tmaturity or by proceedings for mandatory redemption, in the then current Sinking Fnnd ~&i+ ',...~xe:~and to create upon the issuance of the bonds to be issued and thereafter maintain a reserve ;E~~,~~~,='=,=ibr:thaf~pillP-o~e in an amount at least equal to the Reserve Requirement on the Prior Bonds, the ~~>;.; ~;;" Series 2004 Bonds, the Additional Bonds therewith then outstanding and on the proposed t~;;; Additional Bonds to be issued. ~ :;,." ~:' ~ .;."Section 20. Debt Service Reserve Account. In the event a withdrawal of moneys is E:.! made from the Reserve AccoUnt or any draw is made upon any Reserve Account Surety Bond ;:"L':~i:l:1~ld-within the Reserv,e Ac~()unt for the payment of principal of or interest on the Prior Bonds or - .the-Series- 2004 Bonds, the first moneys availaole in ,~e~evenue Fund and-notsequired to pay , Expenses of Operation and Maintenance or to make the montiiiy payments into'me-Debt Service ',-- " ~ _ as hereinabove provided, shall be immediately paid into the Reserve Account or paid to Account Surety Bond Providers as hereinafter described until the amount on deposit in the Reserve Account after payments of any amounts payable under the succeeding sentence . equals the Reserve Requirement; provided, however, such payments will in any event be at least , .~.suffici,~pt to restore the Reserve Account to its proper balance within 12 months after the date upon which money -is taken from the Reserve Account or the date upon which a draw on any Reserve Account Surety Bond is made. ' In the event of a drawdown on any Reserve Account Sur~~ Bond, the Consolidated Government shall on a pro rata basis make (1) all payments (if ,~y) i:oio the Reserve i\,ccOunt necessary to restore the amount of cash or securities, if any, on deposit, therein immediately prior to such draw and (2) make all payments, to any Reserve Account Surety Bond Providers as a repayment of such drawdown (such payments to be made on a pro rata basis to each Reserve Account Surety Bond Provider based upon the amount drawn and not reimbursed under each Reserve Account Surety Bond), ,and (3) upon making, full .repayment to any Reserve Account Surety Bond Provider, shall thereafter make payments into the Reserve Account, to the extent that the then applicable Reserve Requirement exceeds the ___._____ _. aggregate of the amount available to be drawn on a Reserve Account Surety Bond and the amount of cash or securities, if any, on d,eposit therein immediately prior to such draw. Repayment or any drawdovm on the Reserve Account Surety Bond (other than repayments which reinstate the Reserve Account Surety Bond) and any interest or fees due the Reserve , Account Surety Bond Provider under such Reserve Account Surety Bond shall be secured by a :::::==='0'::. lien:, on the Pledged Revenues subordinate to payments into the Debt Service Account, the =-c=--_.___ReserveAccount and payments to any Credit Issuer securing the Prior Bonds, the Series 2004 Bonds and any Additional Bonds. -31- AO 1127325.4 .Any such Reserve Account Surety Bond shall be pledged to the benefit of the owners of --"all of the prior Bonds, the Series 2004 Bonds and any Additional Bonds. The Consolidated 'Government reserves the right, if it deems it necessary in order to acquire such a Reserve Account Surety Bond, to amend the Bond Resolution without the consent of any of the owners or the prior Bonds, the Series 2004 Bonds and any Additional Bonds in order to grant the Reserve Account Surety Bond Provider such additional rights as it may demand,. provided that such a:rnendment shall not, in the written opinion of Bond Counsel filed with the Consolidated 'Goverornent, impair or reduce the security granted to the owners of th,e Prior Bonds, the Series ""2604 Bonds and any Additional Bonds or any of them. It is ~xpressly provided, however, that if on October 2 in any year there are on deposit in the Debt Service Account of the Sinking Fund any money and secUrities, same shall be Withdrawn therefrom and immediately deposited into the Revenue Fund. It is expressly provided however, that if on October 2 in any year there are on deposit in the Reserve Account of Sinking Fund moneys and securities (such securities to be valued at their market value pIus thereon to October 2) the aggregate amount of which, together with the amounts available under any Reserve Account Surety Bond, is in excess of the then required Reserve , Requirement, such excess moneys shall be withdrawn, from the Sinking Fund and immediately deposited mto the Revenue FUIid. The calculation and determination of such excess amount in accordance with this provision shall be the responsibility of the chief financial officer of the 'utilities department of the Consolidated Government and such financial officer shall notify the Sinking Fund Custodian and make or cause to be made any transfer of funds required pursuant to - the provisions of this subparagraph. The Consolidated Government may at any time fulfill any portion of its obligation to ftuid the Reserve Account by depositing in the Reserve Account a Reserve Account Surety Bond payable on any interest and/or principal payment date in an amount equal to any portion ,of the reserve requirement then required to be maintained within the Reserve Account. Before any such Reserve Account Surety Bond is substituted for cash or deposited in lieu of cash within the Reserve Account, (A) there shall be filed with the Consolidated Government and the Sinking Fund Custodian (i) an opinion of nationally recognized bond counsel to the effect that such substitution will not adversely affect the exclusion of interest on the Bonds from gross income for federal income t2u~ pu.rposes; (ii) a certificate of Moody's or Standard & Poor's, whichever rating agency maintains a rating on the outstanding Bonds, to the effect that ( a) if the issuer( s) or the Reserve Account Surety Bond were insuri.-ng payment of principal and interest on the Bonds to which the Reserve Account relates, such Bonds would receive the highest rating available from such rating agency (or any similar rating agency then in existence) and (b) that, the _. substitution of such Reserve Account Surety Bond for cash within the Reserve Account will not, in and of itself, result in a reduction of the ratings issued for the Bonds outstanding, and (iii) a copy of the Reserve Account Surety Bond issued to fulfill the Consolidated Government's obligation to fund the Reserve Account together with an opinion of counsel satisfactory to the Sinking Fund Custodian to the effect that the Reserve Account Surety Bond is valid and enforceable in accordance with its terms, (B) the Consolidated Government shall not secure any obligation to the Reserve Account Surety Bond Provider by a lien equal to or superior to the lien granted to the Bonds; (C) the Reserve Account Surety Bond shall permit a drawing by the Consolidated Government for the full stated amount in the event (i) the Reserve Account Surety Bond expires or terminates for any reason prior to the final maturity of the Bonds, and (ii) the -32- AO 1127325.4 Consolidated Government fails to satisfy the Reserve Requirement by the deposit to the Reserve . Acc01mt of cash, obligations, a substitute Reserve Account Surety Bond, or any combination thereof, on or before the date of such expiration or termination; CD) if the rating issued by the Raiing Agency to the Reserve Account Surety Bond Provider is withdrawn or reduced below the rating assigned to that of the Bonds immediately prior to such action by the Rating Agency, the Consolidated Government shall provide a substitute Reserve Account Surety Bond within 60 days after such rating change, and, if no substitute Reserve Account Surety Bond is obtained by such date, shall fund the Reserve Requirement in not more than 24 equal monthly payments . commencing not later than the first day of the month immediately succeeding the date representing the end of such 60 day period; and (E) if the Reserve Account Surety Bond Provider commences any insolvency proceedings or is determined to be insolvent or fails to make 'payments when due on its obligations, the Consolidated Government shall provide a substitute Reserve Account Surety Bond within 60 days thereafter, and, if no substitute Reserve Account 0t'Stuety Bond is obtained by such date, shall fund the Reserve Requirement in not more than , 24 e'qual monthly payments commencing not later than the first day of the month immediately ,,..;Succeeding the date representing the end of such 60 day period. If the events described in either tflauses (D) or (E) above occur, the Consolidated Government shall not relinquish the Reserve '"Account Surety Bond at issue until after the Reserve Requirement is fully satisfied by the cJ?.fovision of cash, obligations, or a substitute Reserve Account Surety Bond or any combination :; thereof. Each such Reserve Account Surety Bond shall be unconditional and irrevocable and ,shall provide liquidity for the life of the Bonds with respect to which the Reserve Account Surety \Bond is purchased and, if the Reserve Account Surety Bond is purchased with respect to more ' et1l,an: one issue of Bonds hereunder, then for the life of the issue with the longest term. So long as "the balance of the Reserve Account equals the Reserve Account Requirement on the Prior j.J30nds, the Series 2004 Bonds and any Additional.Bonds, any reimbursement agreement entered 'i1:1t() between the Consolidated Government and any such Reserve Account Surety Bond Provider may provide that the Consolidated Government will be obligated to repay such provider an ClIIlount equal to any drawdown on the Reserve Account Surety Bond plus a market rate of ,'.'. mterest over a specified period of time not to exceed three years but such obligation shall be 'junior and subord~ate in right of payment to all outstanding Bonds. Section 21. Hedge Payments Fund. Tne Consolidated Government has heretofore ,:.created and established with the Sinking Fund Custodian a separate, segregated fund designated c' as the "Augusta, Georgia Hedge Payments Fund" and, within the Hedge Payments Fund, a , separate account desigriated as the "2004 Hedge Payments Account." After there have been paid fm".m the 'Re""'nl1P: Pnnr1 in par.h 'T'onth <:>11 qTT\onntc: ,.".<111;,.".,1 ..,. T'\PTTn;tt~d to hp. nq;d purSl'::mt to ---- .A...... y_~__...... ~_ ~ _ _....... .L..i..I._....l.i-i...L U4 ~ ~...~ ....-"1.~_....... -.... .t"''wo'........~......- .......... --- r-- !...L!.!..!._... - Sections 19 and 20 of this Supplemental Bond Resolution, there shall be paid from the Revenue Fu:i1d to the 2004 Hedge Payments Account an amount sufficient, taking into account amounts on . deposit therein, to pay the amounts due the 2004 Hedge Provider under the 2004 Hedge Agreement (other than payments upon early termination thereof). The Consolidated Government shall notify the Custodian in writing of the amounts required to be deposited to the 2004 Hedge Payments Account. The obligation of the Consolidated Government to make the deposits to the Hedge Payments Fund, as well as to make any other payments under the Hedge Agreements, is and shall always be junior and subordinate in all respects to the obligation of the Consolidated Government 'with respect to payments to the Sinking Fund as provided in Sections 19 and 20 of .-thjs Supplemental Bond Resolution. ...,..., - :J:)- AO 1127325.4 Section 22. Utility General Fund. After there have been paid from the Revenue ,,_ Fulidin each month all amounts required or permitted to be paid'as provided herein, all moneys , remaining in the Revenue Fund shall be paid at the end of each month into the special fund , created and designated in Article V, Section 2, Paragraph 6 of the 1996 Resolution as the ','Richmond County Water and Sewerage System Utility General Fund" and redesignated . " pursuant to the 2002 Resolution as the "Augusta, Georgia Water and Sewerage System Utility , General Fund" (the "Utility General Fund"). Except as set forth below; expenditures shall be _ma4e from the Utility General Fund only for the purpose of: (a) p,!-ying principal of and/or ~~~,inferest on the Prior Bonds, the Auction Rate Bonds, the Series 2004 Bonds and any Additional Bonds then outstanding and falling due at any time for the payment of which money is not _i~. available in the Sinking Fund securing the payment of same; (b) making payments into the _ Sinking Fund in the amounts required in order to accumulate and maintain the Reserve Account =-created therein at its proper balance; ( c) paying such expenses as may be necessary to alleviate or iemO:ye the effects of an emergency having a major impact on the System caused by some u . extraordinary occurrence which makes it necessary to use the funds of the System, to the extent ;Jif~oneys on deposit in the Revenue Fund are insufficient to meet such emergencies; (d)pay:illg-Expenses of Operation and Maintenance for which moneys are not available in the . -- Revenue Fund, including without limitation payments in lieu of taxes and payments 4I lieu of fnmchise fees; (e) making replacements, additions, extensions and improvements and acquiring , equipment and paying the cost of any engineering studies, surveys or plans and specifications pertaining to the future development or expansion of the System deemed to be reasonable ,and in ,,,,th_e b~st interest of the Consolidated Government and the holders of the Bonds; (f) payment of ':;>the,charges of the Utility General Fund Depository :tor investment services; (g) paymg to ani "Reserve Account Surety Bond Provider interest on amounts drawn under such Reserve AccoUnt Surety Bond; and (h) payments to the Hedge Providers under Hedge Agreements for which moneys are not available in the Hedge Payments Fund, including without limitation payments upon the early termination of any Hedge Agreement. The Consolidated Government shall ,maintain at all times a minimum balance in the Utility General Fund equal to the lesser of ",:.$2,500,000 or 5 percent of the Operating Revenues bfthe' System for the immediately preceding , ~~ FIscal Year. It is expressly provided, however, that should bonds be hereafter issued ranking as to lien on the Pledged Revenues junior and subordinate to the lien securing the payment of the Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds authorized to be issued hereunder, including any issue or issues of Additional Bonds hereafter issued, then such payments into the Utiiity General Fund as provided in this Section may be suspended and such moneys shall be available to the extent necessary to pay the principal of and interest on such junior lien bonds and to create and maintain a reasonable reserve therefor and such moneys may be allocated and pledged for that purpose. Section 23. Pled~ed Revenues. As provided in the Prior Resolution and as hereby ratified and reaffirmed, all Pledged Revenues immediately shall become subject to a lien to secure the payment by the Consolidated Government of the amounts therein agreed to be paid. The Consolidated Government hereby pledges such Pledged Revenues and hereby covenants and ~gr~e~ that the Pledged Revenues are hereby pledged to the extent necessary to secure the P.~~~~t by the Consolidated Government of the amounts herein agreed to be paid with respect to the Prior Bonds, the Auction Rate Bonds, the Series 2004 Bonds and any Additional Bonds, ~;~ -34- AO 1 ]27325.4 and on a junior and subordinate basis, to the payments (other than termination payments) under the Hedge Agreements, and such pledge shall be valid and binding against the Consolidated Government and against all other parties and against all claims of any kind against the Consolidated Government, whether arising in tort, contract or otherwise, irrespective of whether or not such parties have notice thereof. Section 24. Rate Covenant. The Consolidated Government covenants and agrees that it has heretofore placed into effect a schedule of rates, fees and charges for the services, facilities and 'commodities :fili:nished by the System and, as 'often as it shall appear necessary the Consolidated Government shall revise a.TJ.d adjust such schedllie of rates, fees and charges for either water or sewerage services and facilities, or bot.,\ to the extent necessary to produce funds sufficient to operate and maintain the System on a sound business-like basis and to create and maintain the Sinking Fund created by the 1996 Resolution, as same has been ell1arged aild ex)ei:1ded by the 2000 Resolution, the 2002 Resolution, the 2004 Refunding Resolution and this Supplemental Bond Resolution, in accordance with and in compliance with the terms, covenants ., " and provisions of the Bond Resolution and to create and maintain a reserve therefor in the ".an1ount as required by the Bond Resolution or such larger amounts as may be required in any proceedings authorizing any such issue or issues of Additional Bonds, as well as to create and maintain a reserve for extensions and improvements to the System. Such rates, fees and charges, in addition to the foregoing requirements, shall be maintained at such level so as to produce Pledged Revenues (excluding Investment Earnings, if _:any,on the Cons1r!Ictio~ Fund created under this Supplemental Bond Resolution) equal-to L 1 times the sum of (x) the amount required to discharge the payment of the principal of and the interest on the Prior Bonds, the Auction Rate Bonds and any future parity issues, either at maturity or by proceedings for mandatory redemption plus (y) the scheduled payments of net , interest amounts paid or payable to the Hedge Providers under the Hedge Agreements; provided, however, that in no event will said amount be less than that required to create and maintain the Debt'Service Account, the Reserve Account and the Hedge Payments Fund as required by the - Bond Resolution., The provisions of this Section shall be enforceable in an appropriate action by any bondowner or by any affected Hedge Provider. Without limiting the foregoing, the Consolidated Government hereby covenants to take such action as may be necessary to cause the revenues of the System to equal or exceed the forecasted revenues of the System set forth on Table 6-4 of the Engineering Report for the period CP.T f"n.-r+'h ~ko-.Q~"M ...n....~ ..LV.!. ~ L.1~v.1. v.I.J...l.. The rates, fees and charges shall be classified in a reasonable manner to cover users of ", the services and facilities furnished by the System so that as near as practicable such rates, fees I~".;',;,'>'" - and charges shall be uniform in application to all users falling within any reasonable class. No ----... free services shall at any time be furnished from the System and it will undertake within its i~ :,' h,ealth powers or such other applicable powers now or hereafter provided by law, to require the < :.--::'. . .~ owners of all improved property abutting any water line or sewerage line to connect with the ~ _. _ System. No customer shall be connected to the System or served by the Consolidated : . Government without a proper meter having been first installed. i\ll services shall be furnished in g:.:..;~- accordance with rates now or hereafter established, including services furnished to any county, t:,_c_;c~;--- municipal corporation or other public board or body. ,"'n -35- AO 1127325.4 f~~::- ~ t' , In the event the Consolidated Government shall fail to adopt a schedule or schedules of c,~~. tates, fees and charges, or to revise its schedule or schedules of rates, fees and charges, in accordance with the provisions of this Section, any Bondholder without regard to whether any Event of Default, as defined in Article VIII of the 1996 Resolution, shall have occurred, may institute and prosecute in any court of competent jurisdiction, an appropriate action to compel the , , consolidated Government to adopt a schedule or schedules of rates,' fees and charges, or to revise its schedule or schedules of rates, fees and charges in accordance with the requirements of , Section and the applicable requirements of Section 3 of Article V of the 1996 Resolution. Section 25.' SinkinE: Fund Disbursements. Subject to the terms and ~onditions set forth in the Bond Resolution, moneys in the Sinking Fund shall be disbursed for (a) the payment of the interest on the Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds as such interest becomes due and payable; (b) the payment of the principal of the Prior' Bonds, the ,':Auction Rate Bonds and the Series 2004 Bonds as same becomes due and payable, either at ,,' iiuifurity or by proceedings for mandatory redemption; ( c) the optional redemption of the Prior ,;;;'~.Bonds, the Auction Rate Bonds and the Series 2004 Bonds before maturity at the price and, under '-~~:~nt11e'--conditions provided therefor in the Bond Resolution; (d) the purchase of the Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds in the open market; provided, however, the pnce , shall not exceed the authorized call price; (e) the transfer of excess moneys, if any, in,the ,Sinking Fund (as described in Section 5 of Article V of the 1996 Resolution, Section 20 of the 2000 Resolution, Section 20 of the 2002 Resolution and Section 20 of this Supplemental Bond 'Resolution) to the Revenue Fund; (f) the payment of charges for paying the Prior Bonds, the ,1 Auction -Rate Bonds and the Series 20D4.Bonds ,and interest. ~eJ~Qn ~~j:b.e cl~~es JQr !he registration of the Prior Bonds, the Auction Rate Bonds and the Series '2004 Bonds and their .,transfer or exchange in accordance with the terms thereof; and (g) the payment of any charges 'forinvestment services. Section 26. Additional Bonds. The Consolidated Government further covenants and agrees that it will not exercise the privilege as provided in Section 9 of Article V of the 1996 ,:.~Resolution, as ratified, reaffIrmed, broadened and extended in Section 25 of the 2000 Resolution, . Section 25 of the 2002 Resolution and Section 23 of the 2004 Refuncling Resolution, of issuing t additional bonds or obligations ranking as to lien on the Pledged Revenues of the System on a , ::~~ pa..rity with the Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds, unless or until It~, ~~_ :, ill the f~110wing conditions are met: .' . 0:....... "~;"~.. (. a) The payments covenanted to be made mto the SmJ..c1ng Fund, as the sa."11e may i"3 '--::.,..- have been enlarged and extended in any proceedings authorizing the issuance of any Additional ~ :.~.~-_. Bonds, must be currently being made in the full amount as required and the Debt Service ;; ~~~.:.._.-~-;= .Account and Reserve Account held within the Sinking Fund must be at their proper respective F:::::: balanCe~) Except in the case of Additional Bonds issued for refunding purposes pursuant to 1'= _n .A.rtic1e V, Section 8 of the 1996 Resolution, there shall have been procured and filed '^lith the 0" .n. -. - Consolidated Government (i) a report by Independent Certified Public Accountants to the effect that the Pledged Revenues (excluding Investment Earnings, if any, on construction funds) for a ;:-:______' period of 12 consecutive months out of the most recent 18 consecutive months preceding the ~:: :~:' ~-month of adoption of the proceedings authorizing the issuance of such Additional Bonds must :';,t --- . -36- AO 1127325.4 :.}"' 'ha~e been equal to at least 1.25 times the maximum Debt Service Requirement for any succeeding Sinking Fund Year on the Prior Bonds, the Auction Rate Bonds, the Series 2004 'Bonds and any other issue or issues of Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued, or in lieu of the foregoing formula, if a new schedule of rates and charges for the services, facilities and commodities furnished by the System shall have been adopted and shall be in effect and Independent Certified Public Accountants shall certify that had this new rate schedule been in effect during the period described above, the Pledged , ,Revenues of the System would have equaled the requirements of the above formula; or (ii) (x) a , report by Independent Certified Public Accountants to the effect that the historical Pledged Revenues (excludii1g Investment Earnings, if any, on construction funds) for. a period of 12 consecutive months out of the most recent 18 consecutive months preceding the month of Uadcption of the proceedings authorizing the issuance of the proposed Additional Bonds were eqllal to at least 1.10 times the historical Debt Service Requirement on all Bonds (other than Bonds) which were outstanding during such 12-month period, and (y) a report by Consulting Engineers to the effect that the forecasted Pledged Revenues (excluding ""Investment Earnings, if any, on construction funds) for each Fiscal Year in the Forecast Period ~'areexpected to equal at least 1.25 times the maximum annual Debt Service Requirement on all "Bonds (other than Subordinate Bonds) which will be outstanding immediately after the issuance ,.'cpfthe proposed Additional Bonds, in the then current or any succeeding Sinking Fund Year. The reports by the lridependent Certified Public Accountant that are required by this ,paragraph (b) may contain pro forma adjustments to historical Pledged Revenues equal to J~LI00'percent of the increased annual amount attributable to any revision in the schedule of rates; ,fees and charges for the services, facilities and commodities furnished by the System, imposed c;;:;~prior to the date of delivery of the proposed Additional Bonds and not fully reflected in the 'historical Pledged Revenues actually received during such 12-month period. Such pro forma !':,adjustments shall be based upon a report of the Consulting Engineers as to the amount of ":'Operating Revenues which would have been received during such 12-month period had the new ,1;:,:rate'schedule been in effect throughout such 12-month period. For the pirrpose of calculating the maximum Debt Service Requirements under this subparagraph (b), the maximum annual Debt Service Requirements shall be reduced by an equal to any capitalized interest funded from the proceeds of the Additional Bonds to be issued in each succeeding Sinking Fund Year for the period for which said interest has been capitalized. (c) An Independent Certified Public Accountant shall certify in triplicate to the Government that the requirements of subparagraph (a) above are being complied "with and that the requirements of subparagraph (b) above have been met. A copy of such , certificate shall be furnished to the Designated Representative of the original purchasers of the Prior Bonds and the Series 2004 Bonds. (d) Except when Bonds are being issued solely for ,the purpose of refunding outstanding Bonds, the Consulting Engineers for the Consolidated Government shall provide the ,~onsolidated Government with a written report recommending the additions, extensions and lTIlprovements to be made to the System and stating that same are feasible, designating in U reasonable detail the work and installation proposed to be done and the estimated cost of -37- AO 1127325-4 I' I ----1- - i I accomplishing the undertaking. The Consulting Engineers shall set forth in said report the forecasted Pledged Revenues to be derived from the System which will be available for debt 'senice payments in each of the next 10 years and shall indicate the projected coverage of such , debt service payments in each succeeding Sinking Fund Year. An executed duplicate original of such report of the Consulting ~ngineers as required by this provision shall be furnished to the Designated Representative of the original purchasers of the Prior Bonds and the Series 2004 Bonds issued hereunder not less than 10 days before any proceedings are taken to actually issue such Additional Bonds. (e) The Consolidated Government shall pass proper proceedings reciting that all of the above requirements have been met, shall authorize the issuance of the Additional Bonds and sha11 provide in such proceedings, among other things, the date such Additional Bonds shall bear, the rate or rates of interest and maturity dates, as well as the registration and redemption 'provisions. Except for Additional Bonds that bear interest at a Variable Rate, the interest on the ,. ,~~,Additional Bonds of any such issue shall fall due on April 1 and October 1 of each year, and the Bonds shall mature in installments on October 1, but, as to principal, not necessarily in each year or in equal installments. Any such proceeding or proceedings shall require the Consolidated Government to increase the monthly 'payments then being made into the Sinking Fund to the extent necessary to pay the principal of and the interest on the Prior Bonds, the Series 2004 Bonds and on all such Additional Bonds therewith then outstanding and on the proposed - Additional Bonds to be' issued as same become due and payable, either atID{l.t:pIi!y_or_ by proceedings for mandatory redemption, in the then current Sinking Fund Year, and to create upon the issuance of the proposed Additional Bonds to be issued a reserve in the Reserve ,Account at least equal to the Reserve Requirement on the Prior Bonds, the Series 2004 Bonds 'and any Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued and to maintain said reserve in an amount sufficient for that purpose; provided, however, the Consolidated Government may satisfy funding of the required reserve through the purchase of a Reserve Account Surety Bond meeting the requirements of the Bond Resolution. Any such proceeding or proceedings s..lIall restate and reaffirm,'by reference, all of the applicable terms, conditions and provisions of the Bond Resolution. If any Additional Bonds would bear interest at a Variable Rate, the resolution under \vltich such Additional Bonds are issued shall provide a maximum rate of L."1terest per annu.."Il which such Adnitional Bonds may bear. In connection with the issuance of any Additional Bonds under the Bond, Resolution, the Consolidated Government may obtain or cause to 'be obtained one or more Credit Facilities providing for payment of all or a portion of the principal of, premium, if any, or interest due or to become due on such Additional Bonds, providing for the purchase of such Additional Bonds by the' Credit Issuer, or providing funds for the purchase of such Additional Bonds by the Consolidated Government. In connection therewith the Consolidated Government shall enter into Credit Facility Agreements with such Credit Issuers providing for, among other things, (i) the payment of fees and expenses to such Credit Issuer for the issuance of such Credit Facility; (ii) the terms and conditions of such Credit Facility and the Additional Bonds affected thereby; and (iii) the security, if any, to be provided for the issuance of such Credit Facility. The Consolidated Government may in a Credit Facility Agreement agree to directly reimburse such Credit Issuer for amounts paid under the terms of such Credit Facilir)', together with interest thereon; provided, however, that no Reimbursement Obligation shall be created, for purposes of the' Bond-Resolution, until amounts are paid under such Credit Facility. Any such -38- Reirnbursemynt Obligation shall be deemed to be a part of the Additional Bonds to which the Credit Facility relates which gave rise to such Reimbursement Obligation, and references to pri.:ncipal and interest payments with respect to such Additional Bonds shall include principal and interest (except for Additional Interest) due on the Reimbursement Obligation incurred as a -result of payment of such Additional Bonds with the Credit Facility. All other amounts payable under the Credit Facility Agreement (including any Additional Interest) shall be fully subordinate to the payment of debt service on Bonds (other than Subordinate Bonds). Any such Credit Facility shall be for the benefit of and secure such Additional Bonds or portion thereof as in the applicable bond resolution authorizing such Additional Bonds. (f) Such Additional Bonds or obligations and all proceedings relative thereto, and the seCurity therefor, shall be validated as ,prescribed by law. The Issuer expressly reserves the right to issue Subordinate Bonds. Notwithstanding the , preceding sentence, however, the Issuer hereby covenants and agrees for the benefit of the Hedge rToviders that, so 10ng as any Hedge Agreement is in effect, no Subordinate Bonds shall be ~~I~sued or other obligations incurred which are secured by a lien on Pledged Revenues that is both junior to the payments to be made to the Debt Service Account and the Reserve Account and :. . senior to the payments to be made to the Hedge PaYments Fund. , The provisions of this Section . shall be enforceable in an appropriate action by any bondowner or by any affected Hedge Provider. Section '27. Ratific~tion of 1996 Resolution. Ail o{the applicable terriis, covenantS', : conditions and provisions of Article V, Artide VI, Article VII, Article vm, Article IX and Article X and each Section thereof of the 1996 Resolution not herein specifically referred to are 'hereby declared applicable and are broadened and extended so as to cover the bonds issued hereunder and, hereby ratified and reaffirmed as so extended and said terms, covenants, conditions and provisions shall apply for all purposes to the Series 2004 Bonds. Section 28. Authorization of Investment Agreements. Amounts on deposit in the 2004 Construction Fund and the 2004 Capitalized Interest Fund shall be invested pending their use to pay the costs of the Project as provided in Article N, Section 3(c) of the 1996 Resolution and to pay capitalized interest as provided in Section 18. The appropriate financial officers of , the Consolidated Government and of the System, in consultation with the Administrator of the Consolidated GoveITill1ent, are hereby authorized and directed, if they deem the same to be eCOTIOlr,jcal a..'1d in the best interest of t..lJ.e System, to solicit bids for :m investment agreement pertaining to the 2004 Construction Fund and the 2004 Capitalized Interest Fund, in the form of a flexible repurchase agreement or otherwise, and to select the best bid. The Mayor of the Consolidated Government is hereby authorized and directed to execute' and deliver such repurchase agreement in the name of and on behalf of the Consolidated Government, with such execution by the Mayor to be conclusive evidence that such agreement has been approved by the Commission pursuant to this Resolution. The Administrator shall deliver a copy of this Resolution to the Custodian of the Construction Fund as evidence of the approval of the Commission required by Article N, Section 3 (c) of the 1996 Resolution. -39- AO 1127325.4 Reirnburseme:nt Obligation shall be deemed to be a part of the Additional Bonds to which the Credit Facility relates which gave rise to such Reimbursement Obligation, and references to , principal and interest payments with respect to such Additional Bonds shall include principal and interest (except for Additional Interest) due on the Reimbursement Obligation incurred as a , result of payment of such Additional Bonds With the Credit Facility. All other amounts payable under the Credit Facility Agreement (including any Additional Interest) shall be fully , subordinate to the payment of debt service on Bonds (other than Subordinate Bonds). Any such Credit Facility shall be for the benefit of and secure such Additional Bonds or portion thereof as , specified in the applicable bond resolution authorizing such Additional Bonds. (f) Such Additional Bonds or obligations and all proceedings relative thereto, and the security therefor, shall be validated as prescribed by law. The Issuer expressly reserves the right to issue Subordinate Bonds. Notwithstanding the ;-" preceding sentence, however, the Issuer hereby covenants and agrees for the benefit of the Hedge ..=_____Rr~viders that, so long as any Hedge Agreement is in effect, no Subordinate Bonds shall be ,d?"'''''=~-issued or other obligations incurred which are secured by a lien on Pledged Revenues that is both junior to the payments to be made to the Debt Service Account and the Reserve Account and senior to the payments to be made to the Hedge PaYments Fund. , The provisions of this Section shall be enforceable in an appropriate action by any bondowner or by any affected Hedge Provider. ,Section'27. ~a_~fi~~t!o~ of 1996 Resolution. All of the applicable terms, covenants,,' conditions and provisions of .Article V, Artrae VI, ArtiCle' Vl1, Arilcle vrrr, ArtiCle IXandu Article X and each Section thereof of the 1996 Resolution not herein specifically referred to are 'hereby declared applicable and are broadened and extended so as to cover the bonds issued hereunder and, hereby ratified and reaffirmed as so extended and said terms, covenants, conditions and provisions shall apply for all purposes to the Series 2004 Bonds. Section 28. Authorization of Investment Agreements. AInounts on deposit in the 2004 Construction- Fund and the 2004 Capitalized Interest Fund shall be invested pending their c use to pay the costs of the Project as provided in Article IV, Section 3(c) of the 1996 Resolution and to pay capitalized interest as provided in Section 18. The appropriate financial officers of the Consolidated Government and of the System, in consultation with the Administrator of the Consolidated Government, are hereby authorized and directed, if they deem the same to be ecoTIOIPical and in the best interest of the System, to solicit bids for an investment agreement pertaining to the 2004 Construction Fund and the 2004 Capitalized Interest Fund, in the form of a flexible repurchase agreement or otherwise, and to select the best bid. The Mayor of the ,Consolidated Government is hereby authorized and directed to execute' and deliver such repurchase agreement in the name of and on behalf of the Consolidated Government, with such execution by the Mayor to be conclusive evidence that such agreement has been approved by the Commission pursuant to this Resolution. The Administrator shall deliver a copy of this Resolution to the Custodian of the Construction Fund as evidence of the approval of the Commission required by Article IV, Section 3(c) of the 1996 Resolution. -39- AO 1127325.4 Section 29. Bond Insurance Provisions. The following provisions shall apply with --:respect to the Series 2004 Bonds so long as the Series 2004 Bond Insurance Policy is in effect, , notwithstanding anything herein to the contrary as follows: (a) The prior written consent of the Series 2004 Bond Insurer is a condition precedent to the deposit of any credit instrument provided in lieu of a cash deposit into the Debt Service Reserve Account. - (b) The Series 2004 Bond Insurer shall be deemed to be the sole holder of the Series 2004 Bonds for the purpose of exercising any voting right or privilege or giving any consent or . ' , direction or taking any other action that the holders of the Series 2004 Bonds insured by it are entitled to take pursuant to this Supplemental Bond Resolution. (c) No acceleration of the Series 2004 Bonds shall occur without the consent of the -Series 2004 Bond Insurer and in the event the maturity of the Series 2004 Bonds is accelerated, Series 2004 Bond Insurer may elect, in its sole discretion, to pay accelerated principal and on such principal to the date of acceleration (to the extent unpaid by the Consolidated Government). Upon payment of such accelerated principal and interest accrued to the acceleration date as provided above, the Series 2004 Bond Insurer's obligations under the Series 2004 Bond Insurance Policy with respect to such Series 2004 Bonds shall be fully discharged. (d) No grace period for a covenant default shall exceed 30 days, or be extended for more than 60 days, without the written consent of the Series 2004 Bond Insurer. No grace period shall be permitted for payment defaults; (e) The Series 2004 Bond Insurer shall be a third party beneficiary to this Supplemental Bond Resolution. (f) Other than supplemental resolutions providing for the issuance of Additional Bonds or Subordinate,Bonds, no modification, amendment or supplement to this Supplemental Bond Resolution may become effective except upon obtaining the prior written consent of the Series 2004 Bond Insurer. ' , (g) Copies of any modification or amendment to this Supplemental Bond Resolution shall be sent to the Rating Agencies at least 10 days pnor to the effective date thereof. (h) Unless otherwise prohibited by law, upon the occurrence of an Event of Default, amounts on deposit in the 2004 Construction Fund created pursuant to this Supplemental Bond Resolution will not be disbursed but will be used to pay debt service on the Prior Bonds, the 2004 Bonds and any Additional Parity Bonds therewith hereafter issued. (i) The rights granted to the Series 2004 Bond Insurer under this Supplemental Bond Resolution to request, consent to or direct any action are rights granted to the Series 2004 Bond Insurer in consideration of its issuance of the Series 2004 Bond Insurance Policy. Any exercise by the Series 2004 Bond Insurer of such rights is merely an exercise of the Series 2004 Bond Insurer's contractual rights and shall not be construed or deemed to be taken for the benefit or on behalf of the holders of the Series 2004 Bonds nor does such action evidence any position of the -40- AO 1127315.4 In the event the claim to be made is for a mandatory sinking fund redemption installment, upon receipt of the moneys due, the Paying Agent shall authenticate and deliver to affected holders of the Series 2004 Bonds who surrender their Series 2004 Bonds a new Series 2004 :" :'i~i;:..'=' Bond or Series 2004 Bonds in an aggregate principal amount equal to the unredeemed portion of I.,:,.".,;. ..-.,.,.,',;,.,.".":...,:,',.,.".,.,',,,.,.,.,.,.:"',:-,,..,',.,:,'.,.,,'.:-.,",th~ S~ri~s 2004 Bon~' surrendered. Th~ Paying Age:nt shall designate any portion ofpaYI?ent o~ ; ~~;~pnnCIPaJ on the Senes 2004 Bonds paJd by the Senes 2004 Bond Insurer, wbether by VIrtUe or :.:.~ T,,-,7" ~,..- ~: ,'" rt~~<'- ^f"l ".,.".,~. -41- 'c" Series,2004 Bond Insurer, positive or negative, as to whether the consent of any holder of the :5[~:~.~series 2004 Bonds is required in addition to consent of the Series 2004 Bond Insurer. G) To accomplish defeasance the Consolidated Government shall cause to be delivered (i) a report of an independent firm of nationally recognized c,ertified, public accountants , . or such other accountant as shall be acceptable to the Series 2004 Bond ~urer ("Accountant") 'verifying the suffiCiency of the escrow established to pay the Series 2004 Bonds in full on the or redemption date ("Verification"), (ii) an escrow deposit agreement (which shall be .-;;., acceptable in form and substance to the Series, 2004 Bond Insurer)~ and (iii) an opinion of ',,- nationally recogniied bond counsel to the effect that the Series 2004 Bonds are no longer , "ouistanding" under the Bond Resolution; each Verification and defeasance opinion shall be acceptable in form and substance, and addressed, to the Consolidated Government and the Series :",2004 Bond Insurer. The Series 2004 Bond Insurer shall be provided with final drafts of the -~b~:!~,'::i~fereIiced documentation not less than five business days prior to the funding of the escrow. , ' i i " .. -;"(l<J"'c --Amounts paid by the Series 2004 Bond Insurer under the Series 2004 Bond . 'Insurance Policy shall not be deemed paid for purposes of this Supplemental Bond Resolution ":and'shall remain Outstanding (as defined in the Series 2004 Bond Insurance Policy) and continue :,,:~,~o ,be. due and owing until paid by the Consolidated Government in accordance with this ;:(-Supplemental Bond Resolution. a';,,;;:,CL_. (:1)' If on the third business day prior to the related scheduled Interest Payment bate or 2:principal payment date (any such day, a "Payment Date") there is not on deposit with the Pa)'ing :::~gent, after making all transfers and deposits required under'this Supplemental Bond Resolution, :WC>Ileys sufficient to pay the principal of and interest on the Series 2004 Bonds due on such ~aYn.1ent Date, 'the Paying Agent shall give notice to the Series 2004 Bond Insurer and to its :<designated agent (if any) (the "Series 2004 Bond Insurer's Fiscal Agent") by telephone or i;i2:te1ecopy of the amount of such deficiency by 12 noon, New York City time, on such business .-f-'day.cc'If on the second business day prior to the related Payment Date, there continues to be a ),"_"deficiency in the aInount available to pay the principal of and interest on the Series 2004 Bonds c'due,on such Payment Date, the Paying Agent shall IIlake a claim under the Series 2004 Bond .'":'~Insurance"Policy and give notice to the Series 2004'Bond Insurer and the Series 2004 Bond ""Insurer's Fiscal Agent (if any) by telephone of the amount of such deficiency, and the allocation deficiency between the amount required to pay interest on the Series 2004 Bonds and the u required to pay principal of the Series 2004 Bonds, confumed in writing to the Series 2004 Bond Insurer and the Series 2004 Bond Insurer's Fiscal Agent by 12 noon, New York City on such second business day by filling in the form of Notice of Claim and Certificate (as 'such term is defined in the Series 2004 Bond Insurance Policy) delivered with the Series 2004 " Bond Insurance Policy, I i, :1 ..: .:' jj; I :!. mandatory sinking fund redemption, maturity or other advancement of maturity, on its books as a reduction in the principal amount of Series 2004 Bonds registered to the then current holder of such Series 2004 Bond, whether the Securities Depository or the Securities Depository Nominee or otherwise, and shall issue a replacement Series 2004 Bond to the Series 2004 Bond msurer, registered in the name of Financial Security Assurance Inc., in a principal amount equal to the amount of principal so paid (without regard to authorized denominations); provided that the Paying Agent's failure to so designate any payment or issue any replacement Series 2004 Bond sha11 have no effect on the amount of principal or interest payable by the' Consolidated ,Government on any Series 2004 Bond or the subrogation rights of the S~ries 2004 Bond Insurer. The Paying Agent shall keep a complete and accurate record of all funds deposited by the .., Series 2004 Bond Insurer into the Policy Payments Account (hereinafter described) and the __.._ allocation of such funds to payment of interest on and principal paid in respect of any Series , " tt2;:.2004 Bond. The Series 2004 Bond Insurer shall have 'the right to inspect such records at :"i~aSoiiable'tlmes upon reasonable notice to the Paying Agent. " '.'.',::~--c-=.':=Upon payment of a claim under the Series 2004 Bond Insurance Policy, the Paying Agent ,y~,:\ ,shall establish a separate special pmpose trust account for the benefit of holders of the Series, ~:";'~."2004 Bonds referred to herein as the "Policy Payments Account" and over which the Paying ,R,T'Agent shall have exclusive control and sole right of withdrawal. The Paying Agent shall receive '~"p:;any amount paid under the Series 2004 Bond Insurance Policy in trust on behalf of the holders of "jj~:'the Series 2004 Bonds and shall deposit any such amount in the Policy Payments Account and ;.}fistribute'sllch amount only for purposes of making the payments for which a.claim was made.' Such amounts shall be disbursed by the Paying Agent to the holders of the Series 2004 Bonds in ,,"u,e same ,manner as principal and interest payments are to be made with respect to the Series ,'~2004 Bonds tinder the sections hereof and in this Supplemental Bond Resolution regarding "ayIrlent of the 'Series 2004 Bonds. It shall not be necessary for such payments to be made by ,checks or wire transfers separate from the check or wire transfer used to pay debt service with ::other funds available to make such payments. Notwithstanding anything to the' contrary otherwise set forth in the Bond Resolution, and to the extent permitted by law, in the event paid under the Series 2004 Bond Insurance Policy are applied to claims for payment of of or interest on the Series 2004 Bonds, interest on such principal of and interest on ' 2004 Bonds shall accrue and be payable from the date of such payment at the greater (i) the per annum rate of interest, publicly announced from time to time by JPMorgan Chase . or its successor at its principal office in the City of New York, as its prime or base lending rate plus 3%, and (ii) the then applicable rate of interest on the Series 2004 Bonds provided that no event shall such rate exceed the maximum rate permissible under applicable usury or laws limiting interest rates. Funds held in the Policy Payments Account shall not be invested by the Paying Agent may not be applied to satisfy any costs, expenses or liabilities of the Paying Agent. Any funds remaining in the Policy Payments Account following a Series 2004 Bond Payment Date shall promptly be remitted to the Series 2004 Bond Insurer. AO 1127325.4 -42- (a) The Series 2004 Bond Insurer shall, to the extent it makes any payment of of or interest on the Series 2004 Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Series 2004 Bond Insurance Policy. (b) The Consolidated Government shall payor reimburse the Series 2004 Bond Insurer for any and all charges, fees, costs and expenses which the Series 2004 Bond Insurer may re3Sonably payor incur in connection with (i) the administration, enforcement, defense' or . of ::Itly rights or security in this Supplemental Bond Resolution; (ii) the pursuit of , aIlyremedies under tl'1is Supplemental Bond Resolution or otherwise afforded by law or equity, >:-.,. (iii) any amendment, waiver or other action with respect to, or related to, this Supplemental Bond \- ,:--,-,.: ~. . ;:~t::~itt:Resolution whether or not executed or completed, (iv) the violation 'by the Consolidated --;:-;~_;_:_~c,Q():y_emment or the Obligor (as defined in the Series 2004 Bond Insurance Policy) of any law, -- )-f'nlle~i)1:~regulation, or any judgment, order or decree applicable to it or (v) any litigation or other ;~disptite"in connection with this Supplemental Bond Resolution or the transactions contemplated -'.~~ereby,_other than amounts resul1lng from the failure of the Series 2004 Bond Insurer to honor .,,: ~'fs=t5bligations under the Series 2004 Bond Insurance Policy. The Series 2004 Bond Insurer ~~;'reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver ;~{'or consent proposed in respect of this Supplemental Bond Resolution. The amounts' payable i\:;l:pUrsuant to this subparagraph shall only be payable from the Pledged Revenues or from other ~![f-':lawfu1ly available funds. ..;;;' , _ (c) The Series ~094 Bond Insurer shall De entitled to pay principal or interest on ljC]the Series 2004 Bonds that shall become Due for Payment but shan be unpaid DY reason of ~r~:Nonpayment by the Consolidated Government (as such terms are defined in the Series' 2004 '.Bond Insurance Policy) and any amounts: due on the Series 2004 Bonds as a result of :~cceleration of the maturity thereof in accordance with this Supplemental Bond Resolution, .<'c~~hether or not the Series 2004 Bond Insurer has received a Notice of Nonpayment (as such term n.;:is defined in the Series 2004 Bond Insurance Policy) or a claim upon the Series 2004 Bond )f~;--Jnsurance Policy. (d) The notice address or the Series 2004 Bond Insurer is: Finfultial Seclli-ity Inc., 350 Park Avenue, New York, New York 10022-6022, Attention: 1'.1ana~.ng Telephone: (212) 826-0100; Telecopier: (212) 339-3529. All notices s~all reference the Policy Number. In each case in which notice or other communication refers to an Event of Default, t..'I],en a copy of such notice or other coromunication shall also be sent to attention of General Counsel and shall be marked to indicate "URGENT MATERIAL ENCLOSED." (e) information: The Series 2004 Bond Insurer shall be provided with the following (i) (A) Annual audited financial statements, if available, within 180 days after the end of the Consolidated Government's fiscal year and in any event as soon as practicable after the same becomes available, and (B) the Consolidated Government's annual budget for the System \Yithin 30 days after the approval thereof; -43- AD 1127325.4 Section 30. Reserve Account Surety Bond Provisions~- The following provisions shall apply with respect to the Series 2004 Reserve Account Surety Bond Provider so long as the ~'-Series 2004 Reserve Account Surety Bond is ill effect: (a) The Consolidated Government shall repay any draws under the Series 2004 , Reserve Account Surety Bond and pay all related reasonable expenses incurred by the Series ,,_2004 Reserve Account Surety Bond Provider. Interest shall accrue and be payable on such draws and expenses from the date of payment by the Series 2004 Reserve Account Surety Bond Provider at the Late Payment Rate. "Late Payment Rate" means the lesser of (a) the greater of the per annum rate of interest, publicly announced from time to time by JP Morgan Chase Bank at its principal office in the City of New York, as it prime or base lending rate ("Prime _ Rate") (any change in such Prime Rate to be effective on the date such change is announced by JP Morgan Chase Bank) plus 3 percent, and (ii) the then applicable highest rate of interest on the Series 2004 Bonds and (b) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Late Payment Rate shall be computed on the basis of the actual number of days elapsed over the year of 360 days. In the event JP Morgan Chase Bank ceases to __announce its Prime Rate publicly, Prime Rate shall be the publicly announced prime or base lending rate. of such national bank as the Series 2004 Reserve Account Surety Bond Provider shall specify. (ii) Notice of any draw upon the Debt Service Reserve Account within two Business Days after knowledge thereof other than (i) withdrawals of amounts in excess of the Reserve Requirement and (ii) withdrawals in connection with a refunding of the Series 2004 Bonds; Jr' " H: ! ~f i Hi U , ;i; ~L 'oj , ,'n (iii) Notice of any default known to the Paying Agent within five business days after knowledge thereof; H ~} .: :;l/ ; !~ ~ q:; , :'11' ~il! !illj "III;! il:! :111' illl' a~~ iI,'! 'el Iii! iil: jlli ilill ! !i~ j "~l "III:! :jlii !lli1 !Ui '1i.,!'J 11 ~ Ijr~ iili, !lL ii,,! :Ii, !h I ji~ iii, ;u- iii: 'II! i!r (iv) Prior notice of the advance refunding or redemption of any of the Series 2004 BondS, including t.1.e principal amount, maturities and CUSIP numbers thereof; (v) Notice of the resignation or removal of the Paying Agent and Bond Registrar and the appointment of, and acceptance of duties by, any successor thereto; (vi) Notice of the commencement of any proceeding by or against, the Consolidated Government or the Obligor commenced under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an "Insolvency Proceeding"); (vii) Notice of the making of any claim in connection with any Insolvency Proceeding seeking the avoidance as a preferential transfer of any payment of principal of, or interest on, the Series 2004 Bonds; (viii) A :fii116ngmal transcript of all proceedings relating to the execution of any amendment or supplement to the Series 2004 Resolution; and ' ' (ix) All reports, notices and correspondence to be delivered under the terms of this Supplemental Bond Resolution. .Ii Ill" :!;,; " !11 :t! " ifi -44- . Repayment of draws and payment of expenses and accrued interest thereon at the Late Payment Rate (collectively, "Policy Costs") shall commence in the first month following each _draw, and each such monthly payment shall be in an amount at least equal to one-twelfth of the aggregate of Policy Costs related to such draw. Amounts in respect of Policy Costs paid to the Series 2004 Reserve Account Surety Bond ;i:' Provider shall be credited :first to interest due, then to the expenses due -and then to principal due. "j'As and to the extent that payments are made to the Series 2004 Reserve Account Surety Bond '-:'.'provideron account of principal due, the coverage under the Series 2004 Reserve Account -'i ~3'illety Bond Will be increased by a like amount, subj ect to the terms of the Series 2004 Reserve Account Surety Bond. If and to the extent cash or other investments have also been deposited therein, all cash , .:and mvestments in the Debt Service Reserve Account shall be transferred to the Debt Service :'2\tcoUnt and such investments ,liquidated for payment of debt service on the Bonds before any h 'awjgg_J2:!~y be made on the Series 2004 Reserve Account Surety Bond or any other Reserve :ccount;;Smety Bond. Payment of any Policy Costs shall be made prior to replenishment of any ;such cash amounts. Draws on all Reserve Account Surety Bonds (including the Series 2004 !;,Reserve Account Surety Bond) on which there is available coverage shall be made on a pro rata /b.iisis (calculated by reference to the coverage then available thereunder) after applying all ;~vailable cash and investments in the Debt Service Reserve Account. Payment of Policy Costs and. reiinbursement of amounts with respect to other Reserve Account Surety Bonds shall be lliide on a pro rata basis prior to replenishment of any cash drawn from the Debt Service Reserve - ' , ccount. ~_:;:':,'_ ",_ (b) If the Consolidated Government shall fail to pay any Policy Costs in accordance : .ththe requirements of Paragraph (a) of this Section, the Series 2004 Reserve Account Surety ,'" aild Provider shall be entitled to exercise any and all legal and equitable remedies available to ;it;including those provided under the Bond Resolution other than (i) acceleration of the maturity ,_Qf..the Series 2004 Bonds, and any Additional Bonds or (ii) remedies which would adversely ",:-,crffect owners of the Series 2004 Bonds and, any Additional Bonds. (a) The Bond Resolution shall notbe discharged until ~11 Policy Costs owing to the ,!-l!ULf Reserve Account SurelY Bond Provider shall have been paid in full. The Consolidated Government's obligation to pay such amounts shall expressly survive payment in - full of the Bonds. (b) In order to secure the Consolidated Government's payment obligations with ::-,_.r.espect to the Policy Costs there shall be granted and perfected in favor of the Series 2004 .: Reserve Account Surety Bond Provider a security interest (subordinate only to that of the owners - ~f the Series 2004 Bonds and any Additional Bonds and to that of the Hedge Providers) in all revenues and collateral pledged as security for the Bonds. , ( c) The Consolidated Government shall place into effect a schedule of rates, fees and charges sufficient to repay all Policy Costs then due and owing. The Consolidated Government shall not issue Additional Bonds unless the test provided in Section 26 of this Supplemental -45- AO 112732'5.4 ~ ~! ii: 'J,1": ': r~ 'JL: !:. Bond Resolution provides, in addition, to any other requirement therein, at least 1.0 times .. coverage of all Policy Costs then due and owing. , ' 1;; r' (d) The Paying Agent shall ascertain the necessity for a claim upon the Series 2004 Reserve Account Surety Bond and to provide notice to the Series 2004 Reserve Account SuretY Bond Provider in accordance with the terms of the Series 2004 Reserve Account Surety Bond at 'least five business days prior to each date upon which interest or principal is due on the Series '2004 Bonds. The Paying Agent shall give notice to the Series 2004 Reserve Account Surety ':,-::J3ond Provider of any failure of the Consolidated Government to make' timely payment in full of ~:C::'firiy deposit reqnired to be made to the Debt Service Account within two Business Days of the ~date due. 'T i '.r !h' :i , ',- , p'..', Section 31. Insurance A2Teement. The Mayor and Clerk to the Conimission are ereRy~authorized and directed to purchase the Series 2004 Bond Insurance Policy and the Series ; D04'Reserve Account Surety Bond and such Series 2004 Reserve Account Surety Bond shall be --: ~ld,Jo~e credit of the Debt Service Reserve Account. In'connection with the purchase of the ----'----..-.-. , Senes=~004 Reserve Account Surety Bond, the Mayor and Clerk to the Commission are hereby authorized and directed to execute, for and on behalf of the Consolidated Government, the InsUrance Agreement relating to the Series 2004 Bonds, which Insurance Agreement shall be in ~1i1)stiintially the form attached as Exhibit B hereto and incorporated herein, with such changes as iliAYOe authorized by the Mayor. The execution and delivery of the Insurance Agreement shall beLconc1usive evidence of the approval of any such changes. , I: " " ~i 'cO::"; Section 32. ArlJitrai;!e Covenants. The Consolidated Government hereby covenants- Ji~gr~~~ ,that it will not, subsequent to the date of the issuance and delivery of the Series 2004 pnds,-intentionally use any portion of the proceeds of the Series 2004 Bonds to acquire higher 'c'~r~g~investments, or to replace funds which were used directly or indirectly to acquire higher ':el<liligiIl:vestments, except as may otherwise be permitted by the Internal Revenue Code of ,8~~~-amended (the "Code") or the regulations promulgated thereunder, including, but not :J~dJo, complying with the requirements of Section 148(f) of the Code and the regulations ,0iIJ.ulgated thereunder and the payment of rebate, if any, required to be made, and that it will '~~d the proceeds of the Series 2004 Bonds in compliance with the applicable provisions of s~.&Il~J41 to 150, inclusive, of the Code. Anything herein or in the Prior Resolutions ~.J'9~!1h.standing, earnings on amounts in' any fund or account may, and shaH to the extent neces~~, be used to make the payments required under this Section. ;:~F~pj;'Section 33. Certification. The Mayor and Clerk of the Commission are hereby l.lth9rized and directed to execute, for and on behalf of the Consolidated Government, a -R~pcation, based upon facts, estimates and circumstances, as to the reasonable expectations ~garQing the amount, expenditure and use of the proceeds of the Series 2004 Bonds, as well as b':"'",~,.c':"7C,~S1i~1Lother documents (including, without limitation, elections under Section 148 of the Code) as _~y:Qe necessary or advisable in connection with the issuance and delivery of the Series 2004 ,_onds. ,:, ~ i i :;1 ,..,.,,2;'€i~~[t~'-5;.' Section 34. Use of Proceeds and Tax Covenant. The Series 2004 Bonds are being :::...-,~~,:~::~::~:":~~e~_~Y'.the Gonsolidated Government in compliance with the conditions necessary for interest 'c-J;;:;~:~~~,:lll~~:ne oIl_Jhe_Series 2004 Bonds to be excluded from gross income for federal income tax -46- purposes pursu~t to the ~r~~sions of Secti?n 10~(a) o! the Code rela~g to obligations of the :-'State "or any political subdiVlsIon thereof. It IS the mtention of the Consolidated Government that ""the interest on the Series 2004 Bonds be and remain excludable from gross income for federal iilcome tax purposes, and, to that end, the Consolidated Government hereby covenants with-the holders of the Series 2004 BondS as follows: ' " '(a) It will not take any action, or fail to take any action" if any such action Qr failure ',to take action would adversely affect the tax exempt status of interest on the Series 2004 Bonds :':UBcl"er Section 103 (jfthe Code. _ ,', , ' . (b) It will not directly or indirectly use or permit the use of any proceeds of the Series ''::;2004 Bonds' or any other funds of the Consolidated Government or take or omit to take any :,"~ction that would cause the Series 2004 Bonds to be "arbitrage bonds" within tile' meaning of -"~tion 148 of the Code. To that end, the Consolidated Government will comply with all _~l:iireriiei1ts- of Section 148 of the Code to the extent applicable to the Series 2004 Bonds. '-", ....,. ,.;_ . '0. ~ .. ~'~~'-'(c)':-'2-1t ,will not permit any use of the facilities financed or refinanced by the Series 904 Bonds which would cause the Series 2004 Bonds to be "private activity bonds" within the "'_~~ng of Section 141 of the Code. In the event that at any time the Consolidated Government is of the opinion that for .psesof this Section it is necessary to restrict or limit the yield on the investment of any ,.~~~y-s;he1d under this Supplemental Bond Resolution, the Consolidated Government shall take ~9actiofi as may be necessary. 'f~~:'.:,:AnY ~:t1.1J~equent proceeding or proceedings authorizing the issuance of Additional Bonds tiQbligations as permitted under the Bond Resolution shall in nowise conflict with the terms, _gY~:nants and conditions of the Bond Resolution but shall for all legal purposes contain all of the ," plicable covenants, agreements and provisions of said:Resolutions for the equal protection and I!~tlt 9t~!LQqg<li!9lders. ,b' Section 35. Severability. In case anyone or more of the proVlSIOns of this ",;Slipplemental Bond Resolution, or the Series 2004 Bonds issued hereunder, shall for any reason e,'-:-,r,,;~Ii1,1,.'lTp"2"~11."u~~1 '1l'-lV~11'1'Url ~'U'r.hll ~l".o.rrnl~hr "",... ~TI-':'J'.."l~A~hT ~hor:ltl ""'At af'f'Dot""'t r:ln"" nthp-r T'\Tl"\'t.ncinnc: nf't'hic _._,-..,~.--:~.~."'~.""-o- _ .- ,..... - .L. .L."""5~J.L.J VI. ll~Yu..1.~\.L.l'-J .:1..1..U..1..1. J..LV'- ~VVL u.J....J..j V\...LA._..&. .t'..a.VY..a.'-lI"',","'..~...u _..... ~u ,\~upplementaf Bond Resolution or the Series 2004 Bonds, but this Supplemental Bond EB:~s_qlution and the Series 2004 Bonds shall be construed and enforced as if such illegal or c:f~iII."a1id provisions had not been contained therein. AO 1127325.4 -47- Section 36. Contract. The provisions, terms and conditions of this Supplemental Resolution shall constitute a contract by and between the Consolidated Government and theo'wners of the Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds authorized to be Issued hereunder, and after the issuance of the Series 2004 Bonds this Supplemental Bond '):~Y Resollltion shall not be repealed' or amended in any respect which will adversely affect the rights }\~~c'~an(rmterests of the owners of the bonds of said issues, nor shall, th~ governing body of the j{;jc~':' CoIiSolidated Government pass any proceedings in any way adversely affecting the rights of such ~';r",UoWIiers so long as any of the Bonds authorized by the Bond Resolution, or the interest thereon, 'c'--;cshMl-::remain unpaid or until provision shall have been du1y made therefor, provided, however, _,_,3~ili~tt:his - Eovehantshall not be construed as prohibiting modi:fications hereof or amendments !S,t--tt"~,heieto to the extent, and in the manner as provided in Article IX of the 1996 Resolution, as "::"'-'--:~{i:~tified,nieaf:firii:1ed~ broadened and extended by the 2000 Resolution and this Supplemental Bond Li~S,9.l~~~~. ,'.._'}\hy -subsequent proceeding or proceedings authorizing the issuance of Additional Bonds :olilig13J:iQ~ _~:tJ;t the Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds as ltti'itted=-mder-- Section 9 of Article V of the 1996 Resolution, as ratified, reaffirmed, broadened g{eJeiended in Section 25 of the 2000 Resolution, Section 25 of the 2002 Resolution, Section 3-ofthe 2004 Refunding Resolution and Section 26 of this Supplemental Bond Resolution, shall :"--4o.W1se cOnfliCt with the terms, covenants and conditions of the Bond Resolution, but shall for iJ~gli1:pUrpbses contain all the applicable covenants, agreements and provisions of the Bond ~solU:tion' for the equal protection and benefit of all owners of the Prior Bonds, the Auction iiite;B:Oiids~~Series 2004 Bonds and such Additional Bonds. ;(:,Section ;'7. Authorization of Preliminary Official Statement. The use of the ~limiriary,Official Statement dated November 15,2004 with respect to the Series 2004 Bonds ~r~byratifiedand approved. The execution by the Mayor of a certificate "deeming fmal" the :~Ki,!J1in'a!Y Official Statement prior to the date "hereof is hereby authorized, ratified and p.to,ved:The preparation, use, execution and delivery of a fmal Official Statement, to be dated -':C'd.~ie]iereof in substantially the form as the Preliminary Official Statement but including the -".culars with respect to the Series 2004 Bonds as set forth herein, is hereby authorized and , roved., ..]-.~~':.:"\~" ,. ,.- , -:~;-~r'~f::~~SeC!:ti'()1l ~8. Authorization of Bond Purchase Agreement. The Purchase Agreement _~(and -between the Consolidated Government and the Underwriter in substantially the form rirpS~Tltprl a't +1.", ...; ... - 1.' 1. "'1.' n 1 J- 1 n ;! D 1 +' . ;! +;! 1. ;! "'1. ~::;::':>":'~.~~U '" Ui"" meeting at W.ulC.u. LulS ~uppJ.emenia.t nonu ~,"-eso~uu.on IS au.opl.eU l.!e, anU. we ._amejs~authorized and approved and the Mayor of the Consolidated Government is hereby "~;i"t;~~t;~'l!~orized and directed to execute and deliver such Purchase Agreement in the name and on ~J:.;s!?~~~~f<:>fthe Consolidated Government and the Clerk of the Commission is hereby authorized to t~lfij~~~:~~aIrie and to affix the seal of the Consolidated Government thereto, if required. ' =- -- --- - -. . - ~iz;:::::;:,~:~,.07- ~-- - "'<~i;: '. Section 39. Continuing Disclosure. The Consolidated Government hereby covenants c~;:;:;:,;~t;~d ~~ees that it will, to the extent allowed by applicable law, comply with and carry out all ~",~,:s:--~o~slOns of the Continuing Disclosure Certificate to be executed by the Consolidated '~':='"- ,?~ernment and dated as of the date of issuance and delivery of the Series 2004 Bonds, as ?:__2-:~";~~~~xecut~d ClIld.~s it ~ay ~e ame~~ed from time to ~e.in accord~ce with its terms (the '='=,,=C"d' "losur", J:::~ni:ficate'). NotwJ.thstanamg any other prOVISIOn of this Supplemental Bond -48- Resolution or the Prior'Resolutions, failure of the Consolidated Government to comply with the ",,~DiscJosure Certificate shall not be considered a default under the Bond Resolution, and under no ".circumstances shall such failure affect the validity or the security for the payment of the Series 2004 Bonds or the Prior Bonds. It is expressly provided, however, that any beneficial owner of ;:> ,:the Series 2004 Bonds may take such action, to the extent and in such manner as may be allowed .-,by applicable law, as may be necessary and appropriate, including seek:iJ?g mandamus or specific :;:-;perfOmiance by court order, to cause the Consolidated Government to comply with its ';'obligations under this Section. The cost to the Consolidated Government of performing its '.:,.;obligations set forth in this Section shall be paid s<;>lely from funds lawfully available for such }~6se. Nothing contained in this Supplemental Bond Resolution or in the Disclosure" Certificate shall obligate the levy of any tax to comply with the Consolidated Government's '::'~bligations under this Section. '.:.':'~ Section 40. Validation. The Series 2004 Bonds herein authorized to be issued shall e'validated in the manner provided by law, and to that end notice of the adoption of ,this, 1!Pplemental Bond Resolution and a copy thereof shall be served on the District Attorney of the U:~s1i-,)lJdi~ial Circuit, in order that proceedings for the above purpose be instituted in the uperior Court of Richmond County. Section 41. Effectiveness of Restatement of 2004 New Money Resolution. ,..' ptwithstanding any other provision of this Supplemental Bond Resolution, in the event that the Series 2004 Bonds authorized by Section 2 of this Supplemental Bond Resolution are for "iatever reason not issued, then the provisions of this Supplemental Bond Resolution shall be of ~'"effect and the 2004 New Money Resolution and each and every provision thereof shall 'fume unamended, in full force and effect. , Section 42. Repealer. Except as provided in Section 41 of this Supplemental Bond llesolution, any and all resolutions, or parts of resolutions, in conflict with this Supplemental :J:3ond Resolution this day passed be and are hereby repealed, and this Supplemental Bond _,_:~~o_!ution shall be in full force and effect from and after its adoption. " APPROVED on Novemberd32004. . .....--J r.. ... 9,<;~y: (~Sv-I L VI-' Bob Young, Mayor! '-.) /' AO 1127325.4 -49- CLERK'S CERTIFICATE ;c:GEORGIA, RICHMOND COUNTY I, Lena J., Bonner, Clerk of the Augusta-Richmond County Commission (the ,if Commission"), DO HEREBY CERTIFY that the foregoing pages constitute a true and correct 'copy of the resolution adopted by the Commission at an open public meeting duly called and jawfully assembled on November ~ 2004, at which a quorum was present' and acting Jrroughout, authorizing the issuance of $160,000,000 Augusta, Geor,iia Water and Sewerage _, ,'evenue Bonds, Senes 2004, the original of said resolution being du1y recorded in the Ivfinute -Book of said Commission, which Minute Book is in my custody. and control, and that said resolution was duly adopted by a vote of: I i',' ,/ 'I ~! (/' :1 'I 11 'I iI fI :1 ,I, r r 11 H 'I 1/ !. ~. ' 'j i i'l i 1/ i ij 11 ri :1 II II II ~ J ! .1 Ii Ii i! :1 Aye ---8- Nay~ Abstain -D-. Absent 2 WITNESS my hand and the official seal of Augusta, Georgia this'November 23, 2004. , , ~ 2rfft 1 k--,'" ,:.' , ' AO 1127325.4 " .. SUPPLEMENTAL RESOLUTION WHEREAS, pursuant to a resolution adopted May 4, 2004 (the "2004 Refunding Resolution") the Augusta-Richmond County Commission (the "Commission") has heretofore approved the issuance and delivery of not to exceed $65,000,000 aggregate principal amount of Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006 (the "Refunding Bonds") and the entering into of an interest rate hedging transaction (the "2004 Hedge Agreement") in anticipation of the issuance of the Refunding Bonds in order to secure the desired level of interest rate savings; and WHEREAS, pursuant to a resolution adopted June 1, 2004 (the "2004 New Money Resolution") the Commission has heretofore approved the issuance and delivery of not to exceed $160,000,000 aggregate principal amount of Water and Sewerage Revenue Bonds, Series 2004 (the "New Money Bonds") and the entering into of an interest rate lock (the "2004 Rate Lock") in anticipation of the issuance of the New Money Bonds in order to lock in current market interest rates; and WHEREAS, Augusta, Georgia (the "Consolidated Government") has received a favorable proposal for bond insurance on the Refunding Bonds and the 2004 Hedge Agreement from Financial Security Assurance Inc. (the "Bond Insurer"); and WHEREAS, as a condition to the issuance of its policies, the Bond Insurer requires that the Commission make certain covenants for the benefit of the Bond Insurer; and WHEREAS, due to market conditions the Consolidated Government has determined to , comply with the Bond Insurer's request by approving this S;upplemental Resolution, l supplementing and amending the 2004 Refunding Resolution and the 2004 New Money Resolution. AO 1135176.3 NOW THEREFORE, BE IT RESOLVED by the Augusta-Richmond County Commission, as follows: 1. The selection of Financial Security Assurance Inc. as the bond insurer for the Bonds and the 2004 Hedge Agreement is hereby approved. 2. Section 17 of the 2004 Refunding Resolution is hereby amended to substitute the words "Sections 15 and 16" for the words "Sections 16 and 17" each time they appear. 3. Section 20 of the 2004 New Money Resolution is hereby amended to substitute the words "Sections 18 and 19" for the words "Sections 19 and 20" each time they appear. 4. Section 20 of the 2004 Refunding Resolution and Section 23 of the 2004 New Money Resolution are hereby amended by deleting in their entireties the second paragraph of each such Section, which currently reads as follows: Such rates, fees and charges, in addition to the foregoing requirements, shall be maintained at such level so as to produce Pledged Revenues (excluding Investment Earnings, if any, on the Construction Fund created under this 2004 Resolution) equal to 1.1 times the amount required to discharge the payment of the principal of and the interest on the Outstanding Prior Bonds, the Auction Rate Bonds and any future parity issues, either at maturity or by proceedings for mandatory redemption, but in no event, however, will said amount be less than that required to create and maintain the Debt Service Account and the Reserve Account as required by the Resolutions. and to substitute therefor a new paragraph, reading as follows: Such rates, fees and charges, in addition to the foregoing requirements, shall be maintained at such level so as to produce Pledged Revenues (excluding Investment Earnings, if any, on the Construction Fund created under this 2004 Resolution) equal to 1.1 times the sum of (x) the amount required to discharge the payment of the principal of and the interest on the Outstanding Prior Bonds, the Auction Rate Bonds and any future parity issues, either at maturity or by proceedings for mandatory redemption plus (y) the scheduled payments of net interest amounts paid or payable to the Hedge Providers under the Hedge Agreements; provided, however, that in no event will said amount be less than that required to create and maintain the Debt Service Account, the Reserve Account and the Hedge Payments Fund as required by the Resolutions. The provisions of this Section shall be enforceable in an appropriate action by any bondowner or by any affected Hedge Provider. AO 1135176.3 2 5. Section 22 of the 2004 Refunding Resolution and Section 25 of the 2004 New Money Resolution are hereby amended to delete the last paragraph of each such Section, which currently reads as follows: It is expressly provided that nothing contained herein, however, restricts the issuance of Subordinate Bonds. and to substitute therefor a new paragraph, reading as follows: The Issuer expressly reserves the right to issue Subordinate Bonds. Notwithstanding the preceding sentence, however, the Issuer hereby covenants and agrees for the benefit of the Hedge Providers that, so long as any Hedge Agreement is in effect, no Subordinate Bonds shall be issued or other obligations incurred which are secured by a lien on Pledged Revenues that is both junior to the payments to be made to the Debt Service Account and the Reserve Account and senior to the payments to be made to the Hedge Payments Fund. The provisions of this Section shall be enforceable in an appropriate action by any bondowner or by any affected Hedge Provider. 6. Except as specifically modified hereby, the 2004 Refunding Resolution and the 2004 New Money Resolution shall remain unamended and are each hereby ratified and reaffirmed. APPROVED on June I~ 2004. BY:~~ Bob Young, Ma or AO 1135176.3 3 ~ ?J ' PARITY BOND RESOLUTION A RESOLUTION TO PROVIDE FOR THE ISSUANCE OF WATER AND SEWERAGE REVENUE BONDS, SERIES 2004, PURSUANT TO AND IN CONFORMITY WITH A BOND RESOLUTION ADOPTED OCTOBER 21, 1996, AS SUPPLEMENTED, TO PROVIDE FUNDS TO FINANCE, IN WHOLE OR IN PART, THE COST OF ADDING TO, EXTENDING, IMPROVING AND EQUIPPING THE WATER AND SEWERAGE SYSTEM OF AUGUSTA, GEORGIA, AND TO PAY EXPENSES NECESSARY TO ACCOMPLISH THE FOREGOING; TO RATIFY, REAFFIRM AND ADOPT ALL APPLICABLE TERMS, PROVISIONS, COVENANTS AND CONDITIONS OF THE BOND RESOLUTION; TO PROVIDE FOR THE ADOPTION OF RATES AND THE COLLECTION OF FEES AND CHARGES FOR THE SERVICES, FACILITIES AND COMMODITIES TO BE FURNISHED BY THE WATER AND SEWERAGE SYSTEM; TO PROVIDE FOR THE ISSUANCE UNDER CERTAIN TERMS AND CONDITIONS OF ADDITIONAL PARITY BONDS; TO PROVIDE FOR THE CREATION AND MAINTENANCE OF CERTAIN FUNDS; TO RATIFY AND AUTHORIZE THE PREPARATION, USE AND DISTRIBUTION OF A PRELIMINARY OFFICIAL STATEMENT AND A FINAL OFFICIAL STATEMENT IN CONNECTION WITH THE OFFER AND SALE OF THE SERIES 2004 BONDS; TO PROVIDE FOR THE ANNUAL SUBMISSION OF CERTAIN FINANCIAL INFORMATION AND OPERATING DATA PURSUANT TO RULE 15c2-12 OF THE SECURITIES AND EXCHANGE COMMISSION; TO' AUTHORIZE THE EXECUTION OF AN INTEREST RATE HEDGE AGREEMENT; TO PROVIDE FOR THE ADOPTION:OF A SUPPLEMENTAL RESOLUTION. FINALIZING THE TERMS OF THE SERIES 2004 BONDS; AND FOR OTHER PURPOSES: WHEREAS, under the provisions of Article IX, Section III, Paragraph II(a) of the Constitution of the State of Georgia and an act of the General Assembly of the State of Georgia (Georgia Laws 1995, p. 3648 et seq., as amended - the "Act"), and pursuant to referenda, as authorized and required by said act, which were held within the City of Augusta (the "City") and Richmond County (the "County"), the City and the County (excluding the area within the City of Hephzibah and the Town of Blythe, Georgia) were consolidated into a consolidated government now known as "Augusta, Georgia" (the "Consolidated Government"); and -I , WHEREAS, the Act was amended by subsequent acts, including Georgia Laws 1997, p. 4024 etseq., which provides: Said county-wide government shall be a new political entity, a body politic and corporate, and a political subdivision of the state to be known as "Augusta, Georgia," at times in this Act, called the "consolidated government" or "Augusta-Richmond County," having all the governmental and corporate powers, duties, and functions heretofore held by and vested in the City of Augusta and Richmond County, and also the powers, duties, and functions provided in this charter; and WHEREAS, pursuant to the Act, the Consolidated Government now constitutes a county and a municipality under the laws and the Constitution of the State of Georgia, and is a political ~ " I AO 1127325.2 ~ subdivision of the State of Georgia in the exercise of the respective powers of a municipality and a county; and WHEREAS, pursuant to Article IX, Section II, Paragraph II of the Constitution of the State of Georgia, the Municipal Home Rule Act of 1965 (codified, as amended, at O.C.G.A ~ 36- 35-1 et seq.) and an ordinance adopted by the Augusta-Richmond County Commission-Council ofthe Consolidated Government on October 1, 1996 (Georgia Laws 1997, p. 4690et seq.), the Commission-Council amended the designation of its governing body from the "Augusta- Richmond County Commission-Council" to the "Augusta.:.Richmond County Commission" (the "Commission"); and WHEREAS, pursuant to the Act, the water and sewerage systems of the City and the County are now owned and operated by the Consolidated Government and pursuant to the 1996 Resolution (hereinafter defined) have been combined into one revenue producing undertaking; and WHEREAS, the Consolidated Government acting by and through the Commission, by virtue of the authority of the Constitution of the State of Georgia, the Act and Title 36, Chapter 82, Article 3 of the Official Code of Georgia Annotated, as amended (the "Revenue Bond Law"), is authorized to issue revenue bonds, to fund in part a reasonably required debt service reserve and to acquire additional water and sewerage facilities by the addition thereto of improvements to the Consolidated Government's water and sewerage system, as now existent and as hereafter added to, extended, improved and equipped (the "System"), and to, construct such additions, and to operate and maintain the System for its own use, and for the use of the public and to prescribe and revise rates, and to collect fees and charges for the services, facilities and commodities furnished by the System, and in anticipation of the collection of revenues from the System, to issue revenue bonds to fund in part a reasonably required debt service reserve and finance the cost of such additions, extensions and improvements to the, System and to pay all expenses necessary to accomplish the foregoing and to issue refunding bonds to refund bonds issued to finance any such undertaking; and WHEREAS, pursuant to a resolution adopted on October 21, 1996, as supplemented on December 3 and 17, 1996 (the "1996 Resolution"), the Consolidated Government issued $62,880,000 aggregate principal amount of Richmond County Water and Sewerage Revenue Refunding and Improvement Bonds, Series 1996A (the "Series 1996 Bonds"), dated December 1, 1996, bearing interest from date at the rates per annum set forth below, all interest payable semiannually on April 1 and October 1 in each year, commencing on April 1, 1997, and maturing on October 1 in the following years and principal amounts: -2- AO 1127325.2 I " Year Amount Rate Year Amount Rate 1997 $ 265,000 3.60% 2006 $ 1,260,000 6.00% 1998 350,000 3.80 2007 1,335,000 6.00 1999 365,000 4.00 2008 1,415,000 4.90 2000 375,000 4.10 2009 1,485,000 5.00 2001 395,000 4.20 2010 1,560,000 5.10 2002 410,000 4.30 2012 3,355,000 5.00 2003 1,100,000 4.40 2017 10,000,000 5.125 2004 1,155,000 4.50 2022 13,305,000 5.25 2005 1,205,000 4.60 2028 23,545,000 5.25 and of the Series 1996A Bonds there is now outstanding $59,620,000 aggregate principal amount thereof, being bonds maturing in the years 2004 and thereafter, and the Series 1996A Bonds are secured by a lien on the Pledged Revenues (as defined in the 1996 Resolution) in accordance with the 1996 Resolution; and WHEREAS, pursuant to the 1996 Resolution, the Consolidated Government also issued $3,760,000 aggregate principal amount of Richmond County Taxable Water and Sewerage Revenue Refunding Bonds, Series 1996B, which have all been paid; and WHEREAS, pursuant to the 1996 Resolution, the Consolidated Government also issued $5,910,000 aggregate principal amount of Richmond County Water and Sewerage Revenue Refunding Bonds, Series 1997 (the "Series 1997 Bonds"), dated January 1, 1997, bearing interest from date at the rates per annum set forth below, all interest payable semiannually on April 1 and October 1 in each year, commencing on April 1, 1997, and maturing on October 1 in the following years and principal amounts: Year Amount Rate Year Amount Rate 1997 $100,000 3.60% 2006 $ 190,000 4.70 % 1998 140,000 3.80 2007 200,000 4.80 1999 145,000 4.00 2008 210,000 4.90 2000 150,000 4.10 2009 220,000 5.00 2001 155,000 4.20 2010 230,000 5.10 2002 160,000 4.30 2012 500,000 5.00 2003 170,000 4.40 2017 1,490,000 5.125 2004 175,000 4.50 2021 1,490,000 5.25 2005 185,000 4.60 and of the Series 1997 Bonds there is now outstanding $4,890,000 aggregate principal amount thereof, being bonds maturing in the years 2004 and thereafter, and the Series 1997 Bonds are secured on a parity with the Series 1996 Bonds as to lien on the Pledged Revenues in accordance with the 1996 Resolution; and WHEREAS, pursuant to a resolution adopted on August 22, 2000, as supplemented on September 15, 2000 (the "2000 Resolution"), the Consolidated Government issued $97,080,000 -3- AO 1127325.2 ) aggregate principal amount of Augusta, Georgia Water and Sewerage Revenue Bonds, Series ' 2000 (the "Series 2000 Bonds"), dated September 1, 2000, bearing interest from date at the rates, per annum set forth below, all interest payable semiannually on April 1 and October 1 in each year, commencing on April 1, 2000, and maturing on October 1 in the following years and principal amounts: Year Amount Rate Year Amount Rate 2006 $ 355,000 4.40% 2014 $ 2,740,000 5.00% 2007 1,405,000 4.50 2015 2,875,000 5.15 2008 1,775,000 4.55 2016 3,020,000 5.25 2009 2,165,000 4.60 2017 3,180,000 5.25 2010 2,265,000 4.65 2018 3,345,000 5.25 2011 2,375,000 4.80 2022 15,240,000 5.25 2012 2,485,000 4.90 2026 18,705,000 5.25 2013 2,605,000 5.00 2030 32,545,000 5.25 and the entire $97,080,000 aggregate principal amount of the Series 2000 Bonds is now outstanding, secured on a parity with the Series 1996 Bonds and the Series 1997 Bonds (collectively, the "Series 1996/1997 Bonds") as to lien on the Pledged Revenues; and WHEREAS, pursuant to a resolution adopted May 30, 2002, as supplemented June 21, 2002 (the "2002 Resolution"), the Consolidated Government issued $154,070,000 aggregate principal amount of Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2002 (the "Series 2002 Bonds"), dated June 1, 2002, bearing interest from date at the rates per annum set forth below, all interest payable semiannually on April 1 and October 1 in each year, commencing on October 1, 2002, and maturing on October 1 in the following years and principal amounts: Year Amount Rate Year Amount Rate 2002 $ 235,000 2.50 % 2014 $ 3,430,000 5.25 % 2003 905,000 2.50 2015 3,615,000 5.00 2004 925,000 2.50 2016 3,795,000 5.00 2005 950,000 3.00 2017 3,980,000 5.00 2006 980,000 3.00 2018 4,180,000 4.50 2007 1,010,000 3.00 2019 4,370,000 5.375 2008 1,425,000 3.30 2020 4,605,000 5.375 2009 1,705,000 3.50 2021 4,850,000 5.25 2010 2,365,000 3.75 2022 5,105,000 5.25 2011 3,015,000 3.875 2027 29,695,000 5.00 2012 3,135,000 4.00 2032 61,865,000 5.00 2013 3,260,000 5.25 I , !-< and of the Series 2002 Bonds there is now outstanding $148,260,000 aggregate principal amount thereof, being bonds maturing in the years 2004 and thereafter, and the Series 2002 Bonds are -4- AO 1127325.2 ~. secured on a parity with the Series 1996 Bonds, the Series 1997 Bonds and the Series 2000 Bonds as to lien on the Pledged Revenues in accordance with the 1996 Resolution; and WHEREAS, pursuant to a resolution adopted May 4, 2004 (the "2004 Refunding Resolution"), the Consolidated Government has authorized the issuance of not to exceed $65,000,000 aggregate principal amount of Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006 (the "Auction Rate Bonds") for the purpose of providing funds to pay or to be applied toward the cost of refunding by redemption and payment the Richmond County Water and Sewerage Revenue Refunding Bonds, Series 1996A, maturing on and after October 1, 2007, in the aggregate principal amount of $56,000,000 and the Richmond County Water and Sewerage Revenue Refunding Bonds, Series 1997, maturing on and after October 1, 2007 in the aggregate principal amount of $4,340,000 (collectively, the "Refunded Bonds"), to fund a reasonably required debt service reserve and to pay all expenses necessary to accomplish the foregoing, which Auction Rate Bonds, although authorized, have not yet been issued; and WHEREAS, the Consolidated Government has previously caused to be prepared by CH2M Hill (the "Consulting Engineers") a report entitled "Engineer's Report, Water and Sewerage Revenue Bonds, Series 2002" (the "Engineering Report") which, in addition to ' describing the improvements financed with the Series 2002 Bonds, also detailed additional capital improvements to the System to be undertaken in future years; and WHEREAS, the Consolidated Government anticipates acquiring the existing water and sewerage system of the U.S. Army at Fort Gordon; and WHEREAS, it has been determined that the most feasible method of raising the funds required to finance such future capital' improvements to the System now contemplated and to acquire the water and sewerage system at Fort Gordon (collectively, the "Project") is for the Consolidated Government to issue the Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2004 (the "Series 2004 Bonds") hereinafter authorized as additional parity bonds under the 1996 Resolution, as ratified, reaffirmed, broadened and extended by the2000Resolution, the 2002 Resolution and the 2004 Refunding Resolution (collectively, the "Prior Resolutions") and this 2004 Resolution; and WHEREAS, the Consolidated Government may apply to Credit Issuers (as defined in the 1996 Resolution) for the issuance of a Credit Facility (as defined in the 1996 Resolution) to enhance the Consolidated Government's credit by assuring owners of the Series 2004 Bonds that the principal of and interest on the Series 2004 Bonds will be paid promptly when due; and WHEREAS, it is contemplated that the Series 2004 Bonds will be sold in the near future and in finalizing the terms of the Series 2004 Bonds and to accept the offer of the Underwriter to purchase the Series 2004 Bonds, the Consolidated Government will adopt a resolution supplementing this 2004 Resolution and said supplemental resolution will set forth, among other things, the aggregate principal amount of the Series 2004 Bonds to be issued, the interest rate or rates that the Series 2004 Bonds hereinafter authorized to be issued will bear, the principal amount to mature in each year and the maturities of the Series 2004 Bonds which will be designated as term bonds and subject to mandatory redemption and the terms of any Credit Facility (as so described, the "2004 Supplemental Resolution"); and -5- AO 1127325.2 WHEREAS, it was provided in Section 9 of Article V of the 1996 Resolution, as ratified, reaffirmed, broadened and extended in Section 25 of the 2000 Resolution, that additional revenue bonds or obligations could be issued, from time to time, payable from the Pledged Revenues of the System on a parity with the outstanding Series 1996/1997 Bonds, the, Series 2000 Bonds and the Series 2002 Bonds (the "Outstanding Prior Bonds"), upon meeting certain terms and conditions, as set forth therein, which are as follows: (a) The payments covenanted to be made into the Sinking Fund, as the, same may have been enlarged and extended in any proceedings authorizing the issuance of any Additional Bonds, must be currently being made in full amount as required and the Debt Service Account and Reserve Account held within the Sinking Fund must be at their proper respective balances. (b) Except in the case of Additional Bonds issued for refunding purposes pursuant to Article V, Section 8 of the 1996 Resolution, there shall have been procured and filed with the Consolidated Government (i) a report by Independent Certified Public Accountants to the effect that the Pledged Revenues (excluding Investment Earnings, if any, on construction funds) for a period of 12, consecutive months out of the most recent 18 consecutive months preceding the month of adoption of the proceedings authorizing the issuance of such Additional Bonds must have been equal to at least 1.25 times the maximum Debt Service Requirement for any succeeding Sinking Fund Year on the [Outstanding] Prior Bonds and any other issue or issues of Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued, or in lieu' of the foregoing formula, if a new schedule of rates and charges for the services, facilities and commodities furnished by the System shall have been adopted and shall be in effect and Independent Certified Public Accountants shall certify that had this new rate schedule been in effect during the period described above, the Pledged Revenues of the System would have equaled the requirements of the above formula; or (ii) (x) a report by Independent Certified Public Accountants to the effect that.the historical Pledged Revenues (excluding Investment Earnings, if any, on construction funds) for a period of 12 consecutive months out of the most recent 18 consecutive months preceding the month of adoption of the proceedings authorizing the issuance of the proposed Additional Bonds were equal to at least 1.10 times the historical Debt Service Requirement on all Bonds (other than [Subordinate Bonds]}which were outstanding during such 12-month period, and (y) a report by the Consulting Engineers to the effect that the forecasted Pledged Revenues (excluding Investment Earnings, if any, on construction funds) for each Fiscal Year in the Forecast Period are expected to equal at least 1.25 times the maximum annual Debt Service Requirement on all Bonds (other than [Subordinate Bonds]) which will be outstanding immediately after the issuance of the proposed Additional Bonds, in the then current or any succeeding Sinking Fund Year. The reports by the Independent Certified Public Accountant that are required by this paragraph (b) may contain pro forma adjustments to historical Pledged Revenues equal to 100 percent of the increased annual amount -6- AO 1127325.2 ~ attributable to any revision in the schedule of rates, fees and charges for the services, facilities and commodities furnished by the System, imposed prior to the date of delivery of the proposed Additional Bonds and not fully reflected in the historical Pledged Revenues actually received during such 12-month period. Such pro forma adjustments shall be based upon a report of the Consulting Engineers as to the amount of Operating Revenues which would have been received during such l2-month period had the new rate schedule been in effect throughout such 12-month period. For the purpose of calculating the maximum Debt Service Requirements under this subparagraph (b), the maximum annual Debt Service Requirements shall he reduced by an amount equal to any capitalized interest funded from the proceeds of the Additional Bonds proposed to be issued in each succeeding Sinking Fund Year for the period for which said interest has been ~apitalized. (c) An Independent Certified Public Accountant shall certify III triplicate to the Consolidated Government that the requirements of subparagraph (a) above are being complied with and that the requirements of subparagraph (b) above have been met. A copy of such certificate shall be furnished to the Designated Representative of the original purchasers of the [Outstanding] Prior Bonds. (d) Except when Bonds are being issued solely for the purpose of refunding outstanding Bonds, the Consulting Engineers for the Consolidated Government shall provide the Consolidated Government with a written report recommending the additions, extensions and improvements to be made to the System and stating that same are feasible, designating in reasonable detail the work and installation proposed to be done and the estimated cost of accomplishing the undertaking. The Consulting Engineers shall set forth in said report the forecasted Pledged Revenues to be derived from the System which will be available for debt service payments in each of the next 10 years and shall indicate the projected coverage of such debt service payments in each succeeding Sinking Fund Year. An executed duplicate original of such report of the Consulting Engineers as required by this provision shall be furnished to the Designated Representative of the original purchasers of the [Outstanding] Prior Bonds issued hereunder not less than 10 days before any proceedings are taken to actually issue such Additional Bonds. (e) The Consolidated Government shall pass proper proceedings reciting that all of the above requirements have been met, shall authorize the issuance of the Additional Bonds and shall provide in such proceedings, among other things, the date such Additional Bonds shall bear, the rate or rates of interest and maturity dates, as well as the registration and redemption provisions. Except for Additional' Bonds that bear interest at a Variable Rate, the interest on the Additional Bonds of any such issue shall fall due on April 1 and October 1 of -7- AO 1127325.2 each year, and the Additional Bonds shall mature in installments on October 1, but, as to principal, not necessarily in each year or in equal installments. Any such proceeding or proceedings shall require the Consolidated Government to increase the monthly payments then being made into the Sinking Fund to the extent necessary to pay the principal of and the interest on the [Outstanding] Prior Bonds and on all such Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued as same become due and payable, either at maturity or by proceedings for mandatory redemption, in the then current Sinking Fund Year, and to create upon the issuance of the proposed Additional Bonds to be issued a reserve in the Reserve Account at least equal to the Reserve Requirement on the [Outstanding] Prior Bonds and any Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued and to maintain said reserve in an amount sufficient for that purpose; provided, however, the Consolidated Government may satisfy funding of the required reserve through the purchase of a Reserve Account Surety Bond meeting the requirements of the Resolutions. Any such proceeding or proceedings shall restate and reaffirm, by reference, all of the applicable terms, conditions and provisions of the Resolutions. If any Additional Bonds would bear interest at a Variable Rate, the resolution under which such Additional Bonds are issued shall provide a maximum rate of interest per annum which such Additional Bonds may bear. In connection with the issuance of any Additional Bonds under the Resolutions, the Consolidated Government may obtain or cause to be obtained one or more Credit Facilities providing for payment of all or a portion of the principal of, premium, if any, or interest due or to become due on such Additional Bonds, providing for the purchase of such Additional Bonds by the Credit Issuer, or providing funds for the purchase of such Additional Bonds by the Consolidated Government. In connection therewith the Consolidated Government shall enter into Credit Facility Agreements with such Credit Issuers providing for, among other things, (i) the payment of fees and expenses to such Credit Issuer for the issuance of such Credit Facility; (ii) the terms and conditions of such Credit Facility and the Additional Bonds affected thereby; and (iii) the security, if any, to be provided for the issuance I of such Credit Facility. The Consolidated Government may in a Credit Facility Agreement agree to directly reimbUrse such Credit Issuer for amounts paid Jnder the terms of such Credit Facility, together with interest thereon; provided, however, that no Reimbursement Obligation shall be created, for purposes of the Resolutions, until amounts are paid under such Credit Facility. Any such Reimbursement Obligation shall be deemed to be a part of the Additional Bonds to whidh the Credit Facility relates which gave rise to such Reimbursement Obligati6n, and references to principal and interest, payments with respect to such I Additional Bonds shall include principal' and , interest (except for Additional Interest) due on the Reimbursement Obligation incurred as a result of payment of such Additional Bonds with the' Credit Facility. All other amounts payable undet the Credit Facility Agreement (including any Additional Interest) shall be fully subordinate to the payment of debt service on Bonds (other than [Subordinate B'onds]). Any such Credit Facility shall be for the -8- AO 1127325.2 -,;, benefit of and secure such Additional Bonds or portion thereof as specified in the applicable bond resolution authorizing such Additional Bonds. (f) Such Additional Bonds or obligations and all proceedings relative thereto, and the security therefor, shall be validated as prescribed by law. WHEREAS, as required by the Prior Resolutions, prior to the adoption of the 2004 Supplemental Resolution authorizing the actual sale of the Series 2004 Bonds, the Consolidated Government will obtain a certificate of an Independent Certified Public Accountant (as defined in the 1996 Resolution) certifying to the Commission that the Consolidated Government has complied and is now complying with the requirements of Paragraph (a) and that the Consolidated Government has met the requirements of Paragraph (b)(ii)(x) as set forth above and a copy of said certificate shall be furnished to the Designated Representative of the original purchasers of the Outstanding Prior Bonds; and WHEREAS, as required by the 1996 Resolution, prior to the adoption of the 2004 Supplemental Resolution authorizing the actual sale of the Series 2004 Bonds, the Consolidated Government will obtain a supplemental report of the Consulting Engineers or a new report recommending the specific additions, extensions and improvements to be made to the System and that same are feasible, describing in reasonable detail the undertaking and the estimated cost thereof, setting forth the forecasted Pledged Revenues to be derived from the System which will be available for debt service payments on the Outstanding Prior Bonds and the proposed Additional Bonds hereinafter authorized to be issued in each of the next 10 years and the projected coverage of such debt service payments in each succeeding Sinking Fund Year and that the requirements of Paragraph (b)(ii)(y) as set forth above have been met; and WHEREAS, in order to take advantage of currently favorable long-term interest rates, in anticipation of the issuance of the Series 2004 Bonds, the Consolidated Government proposes to enter into an interest rate swap transaction (the "2004 Rate Lock") with Merrill Lynch Capital Services, Inc. (the "Rate Lock Counterparty") pursuant to which the Consolidated Government will effectively hedge against fluctuations in market interest rates prior to the issuance of the Series 2004 Bonds; and WHEREAS, as a result of the execution and delivery of the 2004 Rate Lock, (i) if long- term interest rates decline between the effective date of the 2004 Rate Lock and the date of actual sale of the Series 2004 Bonds, a termination payment will be owing from the Consolidated Government to the Rate Lock Counterparty, will be treated as interest paid on the Series 2004 Bonds, will be offset by rates of interest on the, Series 2004 Bonds lower than that actually anticipated as of this date by the Consolidated Government and will be paid from a portion of the proceeds of the Series 2004 Bonds, or (ii) if long-term interest rates increase between the effective date of the 2004 Rate Lock and the date of actual sale of the Series 2004 Bonds, a termination payment will be owing by the Rate Lock Counterparty, will be treated as proceeds ' received from the sale of the Series 2004 Bonds, and will be applied to the costs of the undertaking now contemplated; and WHEREAS, prior to the actual issuance and delivery of the Series 2004 Bonds, the Consolidated Government will enter into a contract with SunTrust Bank: (the "Paying Agent"), -9- AO 1127325,2 pursuant to which the Paying Agent will agree to act as Paying Agent and as Bond Registrar for the Series 2004 Bonds and to perfonn various functions with respect to the Series 2004 Bonds, including, but not limited to, the authentication of the Series 2004 Bonds by the manual signature of a duly authorized officer of the Paying Agent, as Bond Registrar, the registration, transfer, exchange and related mechanical and clerical functions, as well as the preparation, signing and issuance of checks and drafts in payment of the principal of and interest on the Series 2004 Bonds as same become due and payable; and WHEREAS, the Outstanding Prior Bonds are the only revenue obligations of the Consolidated Government now outstanding having as security for the payment thereof and interest thereon a first or prior lien on the Pledged Revenues of the System and the Consolidated Government has been and is now complying and will continue to comply in all respects with the applicable tenns, covenants and provisions ofthe Prior Resolutions. NOW, THEREFORE, BE IT RESOLVED by the Augusta-Richmond County Commission and it is hereby resolved by the authority of same, as follows: Section 1. Definitions. Capitalized tenns used herein and not defined shall have the meanings set forth in the Prior Resolutions. For the purpose of this 2004 Resolution the definitions set forth in the Prior Resolutions shall be and are hereby amended and added to, effective as of the date of the issuance and delivery of the Series 2004 Bonds herein authorized to be issued, as follows: "Additional Bonds" shall mean any revenue bonds of the Consolidated Government ranking on a parity with the Outstanding Prior Bonds which may hereafter be issued pursuant to Article V, Section 8 ofthe 1996 Resolution, Section 25 of the 2000 Resolution, Section 25 of the 2002 Resolution and Section 23 ofthis 2004 Resolution. "Beneficial Owner" shall mean, with respect to any bonds issued in Book-Entry Fonn, the owners of a beneficial interest in such bonds. "Book-Entry Form" or "Book-Entry System" shall mean, with respect to the Series 2004 Bonds, a fonn or system, as applicable, under which (i) the ownership of beneficial interests in bonds and bond service charges may be transferred only through book-entry and (ii) physical bonds in fully registered, certificated fonn are registered only in the name of a Securities Depository or its nominee as holder, with physical bond certificates immobilized in the custody of a Securities Depository. "Debt Service Requirement" means the amounts required in each Sinking Fund Year to pay the principal of and interest on the Outstanding Prior Bonds, the Series 2004 Bonds and any Additional Bonds as same become due, and payable; provided, however, with respect to any tenn obligation which is required to be repaid prior to its stated maturity through the operation of a mandatory sinking fund, the amount of principal coming due in any Sinking Fund Year with , respect to such obligation shall be the amount required to be deposited into the sinking fund for the retirement of the principal amount of such obligation rather than the entire principal amount of such debt coming due at the stated maturity. If any Bonds outstanding or proposed to be issued bear interest ata Variable Rate, the interest rate per annum on such Bondsfor purposes of -10- AO 1127325.2 calculating the Debt Service Requirement shall be the lesser of (a) the 30-year Revenue Bond Index, (b) the maximum interest rate for such Bonds permitted by the supplemental bond resolution authorizing the issuance thereof or (c) the "cap" rate, if any, established with respect to such bonds in a related Hedge Agreement. ,With respect to any Bonds secured by a Credit Facility, Debt Service Requirement shall include (a) any commission or commitment fee obligations with respect to such Credit Facility, (b) the outstanding amount of any Reimbursement Obligation owed to the relevant Credit Issuer and the interest thereon, (c) any Additional Interest owned on Bank Bonds to a Credit Issuer and (d) any remarketing agent fees. With respect to Bonds for which there exists a' related Hedge Agreement, Debt Service Requirement shall include the net amounts paid with respect to such Hedge Agreement. "Investment Earnings" means all interest received on and profits derived from investments made with Pledged Revenues or any moneys in the funds and accounts established under Article IV and Article V of the 1996 Resolution, as such accounts may be redesignated under this 2004 Resolution. . "Outstanding Prior Bonds" shall mean the outstanding Series 1996 Bonds, Series 1997 Bonds, Series 2000 Bonds and Series 2002 Bonds. "Prior Resolutions" means collectively the 1996' Resolution, the 2000 Resolution, the 2002 Resolution and the 2004 Refunding Resolution. "Reserve Requirement" means the least of (i) the highest Debt Service Requirement in the then current or any succeeding Sinking Fund Year, (ii) 10 percent of the aggregate principal amount of the Prior Bonds, the Series 2004 Bonds and Additional Bonds outstanding, or (iii) 125 percent of the average annual Debt Service Requirement in the current or any succeeding Sinking Fund Year. "Resolutions" means collec::tively the 1996 Resolution, the 2000 Resolution, the 2002 Resolution and this 2004 Resolution, and as same may be supplemented from time to time. "Series 2004 Bonds" means the Consolidated Government's Water and Sewerage Revenue Bonds, Series 2004, in the aggregate principal amount not to exceed $160,000,000 authorized to be issued pursuant to Section 2 of this 2004 Resolution. "2004 Resolution" means this resolution of the Augusta-Richmond County Commission of Augusta, Georgia adopted June 1, 2004, ratifying, reaffirming, broadening and extending the Prior Resolutions and authorizing the issuance of the Series 2004 Bonds, as same may be supplemented from time to time, including by the 2004 Supplemental Resolution. "2004 Supplemental Resolution" means, collectively, the resolution or resolutions to be adopted in connection with the public offering of the Series 2004 Bonds. Whenever used in this 2004 Resolution, the singular shall include the plural and the plural shall include the singular, unless the context otherwise indicates. Section 2. Authorization. All the terms, provisions and conditions contained in Section 9 of Article V of the 1996 Resolution, as ratified, reaffirmed, broadened and extended in -11- AO 1127325.2 Section 25 of the 2000 Resolution, Section 25 of the 2002 Resolution and Section 23 of the 2004. Refunding Resolution having been met and complied with, there be and there is hereby authorized to be issued, pursuant to and in conformity with the Prior Resolutions, the Constitution of the State of Georgia, the Revenue Bond Law and the Act, revenue bonds in the aggregate principal amount not to exceed $160,000,000 for the purpose of providing funds to finance, in whole or in part, the cost of adding to, extending, improving and equipping the System, acquiring the necessary property or rights in property therefor, both real and personal, to pay a portion of the interest accruing on the Series 2004 Bonds during the estimated period of construction of additions, extensions and improvements to the System, to pay termination payments, if any, on the 2004 Rate Lock, to fund a reasonably required debt service reserve and to pay all expenses necessary to accomplish the foregoing. The revenue bonds shall be designated "Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2004," shall be dated not later than the date upon which issued and delivered, shall be initially issued as book-entry only bonds in fully registered form without coupons, shall be in the denomination of $5,000 or any integral multiple thereof, shall be numbered R-l upward, shall be transferable to subsequent owners as hereinafter provided, shall bear interest from date at such rate or rates per annum not exceeding 7.5 percent in any year, all interest payable semiannually on April 1 and October 1 in each year, commencing on October 1, 2004, and the principal shall mature on October 1 in such year or years not later than 2038 in such principal amounts so that the maturing annual debt service in any calendar year on the Series 2004 Bonds will not exceed $35,000,000 and the maturing annual debt service in any calendar year on the, Outstanding Prior Bonds and the Series 2004 Bonds will not exceed $35,000,000~ The principal amount of the Series 2004 Bonds shall be payable at maturity, unless redeemed prior thereto as hereinafter provided, upon presentation and surrender thereof at the principal corporate trust office of the Paying Agent in Atlanta, Georgia, and payments of interest on the ,Series 2004 Bonds shall be made by check or draft payable to the registered owner as shown on the bond registration book kept by the Bond Registrar at the close of business on the fifteenth day of the calendar month next preceding the April 1 and October 1 interest payment dates and such payments of interest shall be mailed to the registered owner at the address shown on the bond registration book. Notwithstanding the foregoing, so long as the Series 2004 Bonds are in Book- Entry Form, principal and interest shall be payable to the Securities Depository or its nominee, all as set forth in Section 7 hereof. Both the principal of and interest on the Series 2004 Bonds shall be payable in lawful money of the United States of America. Section 3. Execution; Form of Series 2004 Bonds. The Series 2004 Bonds shall be executed on behalf of the Consolidated Government by use of the manual or facsimile signature of the Mayor of the Commission and attested by the manual or facsimile signature of the Clerk of the Commission and the official seal of the Consolidated Government shall be impressed thereon or a facsimile thereof imprinted thereon, and the Series 2004 Bonds shall be authenticated by the manual signature of a duly authorized signatory of the Bond Registrar. The validation certificate to be printed on the Series 2004 Bonds shall be executed by use of the manual or facsimile signature of the Clerk of the Superior Court of Richmond County and the official seal of said Court shall be impressed thereon or a facsimile thereof shall be imprinted thereon. If there is a municipal bond insurance policy insuring payment of the Series 2004 Bonds when due, there shall be printed on the Series 2004 Bonds a Statement of Insurance prepared by the Credit Issuer. In case any officer whose signature shall appear on the Series -12- AO 1127325.2 2004 Bonds shall cease to be such officer before delivery of such Series 2004 Bonds, 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 Series 2004 Bonds, the certificate of authentication and registration, form of assignment and the certificate of validation to be endorsed upon the Series 2004 Bonds shall be in substantially the following form, with such variations, omissions and insertions as are required or permitted by this 2004 Resolution, to wit: -13- AO 1127325,2 No.R- $ UNITED STATES OF AMERICA STATE OF GEORGIA - AUGUSTA, GEORGIA WATER AND SEWERAGE REVENUE BOND SERIES 2004 BOND DATE: INTEREST RATE: MATURITY DATE: CUSIP: FOR VALUE RECEIVED, AUGUSTA, GEORGIA (the "Consolidated Government"), a political subdivision of the State of Georgia, hereby promises to pay solely from the special fund provided therefor, as hereinafter set forth, to CEDE & CO., or registered assigns, the principal sum'of DOLLARS in lawful money of the United States of America on the maturity date specified above, unless redeemed prior thereto as hereinafter provided, upon presentation and surrender hereof at the principal corporate trust office of SunTrust Bank, Atlanta, Georgia, Paying Agent and Bond Registrar, and to pay to the registered owner hereof, solely from said special fund, interest on said principal amount from the date hereof or from the most recent interest payment date to which interest has been paid, at the rate per annum specified above, semiannually on April 1 and October 1 in each year (each an "Interest Payment Date"), commencing October 1, 2004, until payment of the principal amount hereof. Payments of interest on this Bond shall be made by check or draft payable to the registered owner as shown on the bond registration book kept by the Bond Registrar at the close of business on the fifteenth day of the calendar month next preceding each Interest Payment Date and such interest payments shall be mailed to the registered owner at the address shown on the bond registration book. This Bond is one of a duly authorized issue in the aggregate principal amount of $ (the "Series 2004 Bonds") of like tenor, except as to numbers, denominations, interest rates and dates of maturity and redemption provisions, issued by the Consolidated Government for the purpose of providing funds to finance, in whole or in part, the cost ,of adding to, extending, improving and equipping the, water and sewerage system (the "System"), acquiring the necessary property or rights in property therefor, both real and personal, to pay a portion of the interest accruing on the Series 2004 Bonds during the estimated period of construction of additions, extensions and improvements to the System, to pay termination payments, if any, due under an interest rate hedge agreement, to fund a reasonably required debt service reserve and to pay all expenses necessary to accomplish the foregoing. The Series 2004 Bonds are issued under authority of the Revenue Bond Law of the State ,of Georgia (Title 36, Chapter 82, Article 3 of the Official Code of Georgia Annotated, as amended), and an act of the General Assembly of the State of Georgia (Georgia Laws 1995, p. 3648 et seq., as amended), and were duly authorized by the Augusta-Richmond County Commission (the "Commission") by a resolution adopted on October 21, 1996, as supplemented on December 3 and 17, 1996 (the "1996 Resolution"), a resolution adopted on August 22, 2000, as supplemented September 15, 2000 (the "2000 Resolution"), a resolution adopted on May 4, 2004 (the "2004 Refunding Resolution") and a AO 1127325,2 -14- resolution adopted June _, 2004, as supplemented on _, 2004 (the "2004 Resolution" and together with the 1996 Resolution and the 2000 Resolution, the "Resolutions"). The Series 2004 Bonds rank on a parity as to lien on the Pledged Revenues (as hereinafter defined) of the System with the Consolidated Government's outstanding Water and Sewerage Revenue Refunding and Improvement Bonds, Series 1996A, Taxable Water and Sewerage Revenue Refunding Bonds, Series 1996B, Water and Sewerage Revenue Refunding Bonds, Series 1997, Water and Sewerage Revenue Bonds, Series 2000 and Water and Sewerage Revenue Bonds, Series 2002 (collectively, the "Outstanding Prior Bonds"). In addition to the Outstanding Prior Bonds and the Series 2004 Bonds (collectively, the "Bonds"), the Consolidated Government may issue, under certain terms and conditions as provided in the Resolutions, additional revenue bonds, and if issued, such bonds will rank on a parity as to lien on the Pledged Revenues of the System with the Bonds. Reference to the Resolutions is hereby made for a complete description of the funds charged with, and pledged to, the payment of the principal of and the interest on the Bonds or any other issue of bo;nds issued on a parity therewith, the nature and extent of the security, a statement of rights, duties and obligations of the Consolidated Government, the rights of the owners of the Series 2004 Bonds and the terms and conditions under which additional bonds may be issued, to all the provisions of which the owner hereof, by the acceptance of this Bond, assents. The person in whose name this Bond is registered on the registration books kept by the Bond Registrar shall be deemed to be the owner of this Bond for all purposes. The Series 2004 Bonds are being issued by means of a book-entry system, with actual Series 2004 Bonds immobilized at The Depository Trust Company, New York, New York (the "Securities Depository"), or its successor as Securities Depository, evidencing ownership of the Series 2004 Bonds in principal amounts of $5,000 or integral multiples thereof, and with transfers of beneficial ownership effected on the records of the Securities Depository and its participants pursuant to the rules and procedures established by the Securities Depository. Actual Series 2004 Bonds are not available for distribution to the owners of beneficial interests' in the Series 2004 Bonds registered in book-entry form (the "Beneficial Owners"), except under the limited circumstances set forth in the 2004 Resolution. The principal, redemption premium (if any) and interest on the Series 2004 Bonds are payable by the Paying Agent to Cede & Co., as nominee, of the Securities Depository. Transfers of principal, redemption premium (if any) and interest payments to participants of the Securities Depository is the responsibility of the Securities Depository; transfers of principal, redemption premium (if any) and interest to Beneficial Owners of the Series 2004 Bonds by participants of the Securities Depository will be the responsibility of such participants and other nominees of Beneficial Owners. Neither the Consolidated Government nor the Paying Agent is responsible or liable for maintaining, supervising or reviewing the records maintained by the Securities Depository, its participants or persons acting through such participants. If the Series 2004 Bonds are no longer registered to a Securities Depository or its nominee, this Bond may be registered as transferred only upon the registration books kept for that purpose at the principal corporate trust office of the Bond Registrar by the registered owner hereof in person, or by his or her attorney duly authorized in writing, upon presentation and surrender to the Bond Registrar of this Bond duly endorsed for registration of transfer or accompanied by an assignment duly executed by the registered owner or his or her attorney duly authorized in writing, and thereupon a new registered bond certificate, in the same aggregate principal amount and of the same maturity shall be issued to the transferee in exchange therefor. In addition, if the Series 2004 Bonds are no longer registered to a AO 1127325.2 -15- Securities Depository, this Bond may be exchanged by the registered owner hereof or his or her duly authorized attorney upon presentation at the principal corporate trust office of the Bond Registrar for an equal aggregate principal amount of Series 2004 Bonds of the same maturity and in any authorized denominations in the manner, subject to the conditions and upon payment of charges, if any, provided in the Resolutions. This Bond is transferable only upon the bond registration book kept for that purpose at the principal corporate trust office of the Bond Registrar by the registered owner hereof in person, or by attorney duly authorized in writing, upon the surrender and presentation to the Bond Registrar ofthis Bond duly endorsed for transfer or accompanied by an assignment duly executed by the registered owner or attorney duly authorized in writing, and thereupon a new registered bond, in the same aggregate principal amount and of the same maturity shall be issued to the transferee in exchange therefor. The Series 2004 Bonds are issuable in the. form of registered bonds in the denomination of $5,000 or any integral multiple thereof and are exchangeable at the principal corporate trust office of the Bond Registrar in the manner, subject to the conditions and upon payment of charges, if any, provided in the Resolutions. The Bonds and such revenue bonds of the Consolidated Government as may in the future be issued on a parity therewith, are equally and ratably secured by a pledge of and a lien on the "Pledged Revenues," which are defined in the Resolutions to include net operating revenues of the System (gross operating revenues of the System after provision for payment of all reasonable expenses of operation and maintenance) and earnings on investments made with moneys and securities from t'ime to time on deposit in the funds and accounts established in the Resolutions. The Resolutions provide, among other things, for prescribing and revising rates and collecting fees and charges for the services, facilities and commodities furnished by the System, as now existent and as hereinafter added to, extended, improved and equipped to the extent necessary to produce revenues sufficient (i) to pay the reasonable and necessary costs of operating and maintaining the System, including any contractual obligations incurred pertaining to the operation of the System, (ii) to produce Pledged Revenues (excluding earnings on investments made with moneys and securities from time to time on deposit in the construction funds) in each Fiscal Year (as defined in the 1996 Resolution) equal to at least 110 percent of the amount required to discharge the payment of the Bonds and any bonds issued on a parity therewith then outstanding as the same become due and payable, (iii) to pay into the special fund designated "Augusta, Georgia Water and Sewerage System Sinking Fund" the amounts required to pay the principal of and the interest on the Bonds and any other bonds hereafter issued on a parity therewith as the same become due payable, either at maturity or by proceedings for mandatory redemption, and to create and maintain a reserve therein for that purpose, and (iv) to create and maintain a reserve for extensions and improvements to the System. This Bond shall not be deemed to constitute a debt of the State of Georgia or the Consolidated Government nor a pledge of the faith and credit of said State or Consolidated Government, nor shall the State or Consolidated Government be subject to any pecuniary liability hereon. This Bond shall not be payable from, nor be a charge upon, any funds other than'the Pledged Revenues, and is payable solely from the special fund provided therefor from AO 1127325.2 -16- ~ the Pledged Revenues, including all future additions thereto and any other moneys deposited therein. No owner of this Bond shall ever have the right to enforce payment hereof against any other property of the State of Georgia or the Consolidated Government, nor shall this Bond constitute a charge, lien or encumbrance, legal or equitable, upon any other property of the Consolidated Government other than the Pledged Revenues pledged to the payment hereof. The issuance of this Bond shall not directly, indirectly or contingently obligate the State or the Consolidated Government to levy or to pledge any form of taxation whatever therefor or to make any appropriation for its payment. The Series 2004 Bonds may be redeemed prior to their respective maturities, either in whole at any time or in part on any date not earlier than October 1, _ from any moneys available for such purpose as provided in the 2004 Resolution by payment of the. principal amount thereof and accrued interest thereon to date of redemption, together with a premium of _ percent of such principal amount if redeemed on or prior to September 30, _, _ percent of such principal amount if redeemed thereafter and on or prior to September 30, _, and at par without a premium if redeemed thereafter and before maturity. In addition, the Series 2004 Bonds maturing October 1, _ are subject to mandatory redemption prior to maturity in accordance with the provisions of the 2004 Resolution, in part, by lot in such manner as may be designated by the Bond Registrar at par plus accrued interest to the redemption date, in the following principal amounts on October 1 in the following years: Year Amount $ maturity. principal amount of Bonds maturing October 1, shall be paid at Notice designating the Bonds (or the portion of the principal amount of the Series 2004 Bonds in multiples of $5,000) to be acquired by redemption, as aforesaid, shall be mailed, postage prepaid, not less than 30 days nor more than 60 days prior to the redemption date to all registered owners of Series 2004 Bonds to be redeemed in whole or in part at the addresses which'appear in the bond registration book, ,but failure so to mail any such notice shall not affect the validity of the proceedings for such redemption or cause the interest to accrue on the principal amount of the Series 2004 Bonds so designated for redemption after the redemption date. To the extent and in the manner permitted by the Resolutions, modifications, alterations, amendments, additions and recisions of the provisions of the Resolutions, or of any resolution supplemental thereto or of the Series 2004 Bonds, may be made by the Consolidated Government with the consent of the owners of at least 65 percent in aggregate principal amount -17- AO 1127325,2 of the Series 2004 Bonds then outstanding, including any parity obligations therewith then , outstanding, and without the necessity for notation hereon of reference thereto. This Bond is issued with the intent that the laws of the State of Georgia shall govern its construction. In case of default, the owner of this Bond shall be entitled to the remedies provided in the Resolutions authorizing its issuance and in said Revenue Bond Law and any amendments thereto. It is hereby recited and certified that all acts, conditions and things required to be done precedent to and in the issuance of this Bond have been done, have happened and have been performed in due and legal form as required by law, and that provision has been made for the allocation from the anticipated revenues of the System, as now existent and as hereafter added to, extended, improved and equipped, of amounts sufficient to pay the principal of and the interest on the Series 2004 Bonds as the same mature, or are acquired by mandatory redemption, and to create and maintain a reserve for that purpose, and that said revenues are irrevocably allocated and pledged to the payment of the Series 2004 Bonds and the interest thereon. This Bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Resolutions until this Bond shall have been authenticated and registered upon the bond registration book kept for that purpose by the Bond Registrar, which ,authentication and registration, shall be evidenced by the execution by the manual signature of a duly authorized signatory of the Bond Registrar of the certificate hereon. IN WITNESS WHEREOF, Augusta, Georgia has caused this Bond to be executed by use of the [manual][facsimile] signature of the Mayor of the Commission of the Consolidated Government and [its official seal to be impressed hereon] [a facsimile of its official seal to be imprinted hereon] and attested by useof the [manual][facsimile] signature of the Clerk of the Commission of the Consolidated Government, as of 1, 2004. (S E A L) AUGUSTA, GEORGIA Attest: By: Mayor Clerk of Commission AO 1127325.2 -18- Date of Authentication and Registration: CERTIFICATE OF AUTHENTICATION AND REGISTRATION This Bond is one of the Series 2004 Bonds described in the resolutions of _, 2004 and _,2004, SUNTRUST BANK, as Bond Registrar By: Authorized Signatory ********** VALIDATION CERTIFICATE STATE OF GEORGIA ) ) COUNTY OF RICHMOND) The undersigned Clerk of the Superior Court of Richmond County, State of Georgia, HEREBY CERTIFIES that this Bond was validated and confinnedby judgment of the Superior Court of Richmond County, Georgia, on _, 2004 and that no intervention or objection was filed in the proceedings validating same and that no appeal from said judgment of validation has been taken. WITNESS my [facsimile] signature and seal of the 'Superior Court of Richmond County, Georgia. (S E A L) Clerk, Superior Court, Richmond' County, Georgia ********** -19- AO 1127325.2 ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto [Please print or typewrite name and address including postal zip code of assignee.] [Please insert Social Security or Tax Identification Number.] the within bond and all rights thereunder, hereby constituting and appointing attorney to transfer this Bond on the bond registration book kept for such purpose by the Bond Registrar, with full power of substitution in the premises. DATED (Signature Guaranteed) Registered Owner Notice: Signature(s) must be guaranteed by an eligible guarantor institution (such as banks, stockbrokers, savings and loan associations and credit unions) with membership in an approved Signature Guarantee Medallion Program pursuant to S.E.C. Rule 17Ad-I5. Notice: The signature(s) on this assignment must correspond with the name as it appears on the face of the within bond in every particular without alterations, enlargement or any change whatsoever. AO 1127325.2 -20- ********** STATEMENT OF INSURANCE ********** , -21- AO 1127325,2 Section 4. ReQuired Authentication: Proof of Ownership. Only those Series 2004 Bonds which shall have endorsed thereon a certificate of authentication and registration substantially in the form hereinbefore set forth, duly executed by the manual signature of an authorized signatory of the Bond Registrar shall be entitled to any benefit or security under this 2004 Resolution and such certificate upon any of the Series 2004 Bonds when duly executed shall be conclusive evidence that such Series 2004 Bond has been duly authenticated, registered and delivered. It shall not be necessary that the same signatory of the Bond Registrar sign the certificate of authentication and registration on all of the Series 2004 Bonds that may be issued hereunder at anyone time. The person in whose name any Series 2004 Bond shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes and the payment of the principal amount, interest and premium, if any, shall be made only to or upon the order of the registered owner thereof. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Series 2004 Bond, including redemption premium, if any, and the interest thereon to the extent of the sums so paid. Section 5. Bond Rel!istrar: Transfer and Exchanl!e. The Bond Registrar shall keep the bond registration book for the registration of the Series 2004 Bonds and for the registration of transfers of the Series 2004 Bonds as herein provided. The transfer of any Series 2004 Bond shall be registered upon the bond registration book upon the surrender and presentation of the Series 2004 Bond to the Bond Registrar duly endorsed for transfer or accompanied by an assignment duly executed by the registered owner or attorney authorized in writing in such form as shall be satisfactory to the Bond Registrar. Upon any such registration of transfer, the Bond Registrar shall authenticate and deliver in exchange for such Series 2004 Bond or Series 2004 Bonds so surrendered, a new Series 2004 Bond or Series 2004 Bonds registered in the name of the transferee, of the same series and maturity, in any denomination or denominations authorized by this 2004 Resolution, and in an aggregate principal amount equal to the aggregate principal amount of the Series 2004 Bonds so surrendered. Any Series 2004 Bond, upon presentation and surrender thereof to the Bond Registrar, together with an assignment duly executed by the registered owner or duly authorized attorney, in such form as may be satisfactory to the Bond Registrar, may be exchanged, at the option of the registered owner, for an aggregate principal amount of Series 2004 Bonds of the same series and maturity equal to the principal amount of the Series 2004 Bond so surrendered and of any authorized denomination or denominations. The Bond Registrar may make a charge for every exchange or registration of transfer of the Series 2004 Bonds sufficient to reimburse it for any tax or other governmental charge required to be paid with respect to such exchange or registration of transfer, but no other charge shall be made to the owner for the privilege of transferring or exchanging the Series 2004 Bonds under this 2004 Resolution. Section 6. Lost. Destroved. Mutilated Bonds. If any Series 2004 Bond shall become mutilated, the Bond Registrar in its discretion and at the expense of the owner of such Series 2004 Bond shall authenticate and deliver a new Series 2004 Bond of like tenor and series registered in the name of the owner in exchange and substitution for such mutilated Series 2004 Bond. If any Series 2004 Bond shall become lost, destroyed or wrongfully taken, evidence of ,such loss, destruction or wrongful taking within a reasonable time thereafter may be submitted to the Consolidated Government and if such evidence shall be satisfactory and indemnity of a character and in an amount satisfactory shall be given, then the Consolidated Government at the expense of the owner shall cause a new Series 2004 Bond of like tenor and series registered in -22- AD 1127325.2 the name of the owner to be authenticated by the Bond Registrar and delivered to the registered owner. Section 7. Global Form: Securities Depository: Ownership of Series 2004 Bonds. (a) Upon the initial issuance, the ownership of each Series 2004 Bond shall be registered in the name of the Securities Depository or the Securities Depository Nominee, and ownership thereof shall be maintained in Book-Entry Form by the Securities Depository for the account of the Agent Members thereof. Initially, each maturity of the Series 2004 Bonds shall be registered in the name of Cede & Co., as the nominee of The Depository Trust Company. Beneficial Owners will not receive Series 2004 Bonds from the Bond Registrar evidencing their ownership interests. Except as provided in subsection (c) of this Section, the Series 2004 Bonds may be transferred, in whole but not in part, only to the Securities Depository or the Securities Depository Nominee, or to a successor Securities Depository selected or approved by the Consolidated Government or to a nominee of such successor Securities Depository. (b) With respect to Series 2004 Bonds registered in the name of the Securities Depository or the Securities Depository Nominee, neither the Consolidated Government, the Bond Registrar nor the Paying Agent shall have any responsibility or obligation to any Agent Member or Beneficial Owner. Without limiting the foregoing, neither the Consolidated Government, the Bond Registrar nor the Paying Agent shall have any responsibility or obligation with respect to: (i) the accuracy of the records of the Securities Depository, the Securities Depository Nominee or any Agent Member with respect to any Beneficial Ownership interest in the Series 2004 Bonds; (ii) the delivery to any Agent Member, any Beneficial Owner or any other person, other than the Securities Depository or the Securities Depository Nominee, of any notice with respect to the Series 2004 Bonds; or (iii) the payment to any Agent Member, any Beneficial Owner or any other person, other than the Securities Depository or the Securities Depository Nominee, of any amount with respect to the principal, premium, if any, or interest on the Series 2004 Bonds. So long as any Series 2004 Bonds are registered in Book-Entry Form, the Consolidated Government, the Bond Registrar and the Paying Agent may treat the Securities Depository as, and deem the Securities Depository to be, the absolute owner of such Series 2004 Bonds for all purposes whatsoever, including without limitation: (i) the payment of principal, premium, if any, and interest on such series of Series 2004 Bonds; (ii) giving notices of redemption and other matters with respect to such Series 2004 Bonds; (iii) registering transfers with respect to such Series 2004 Bonds; -23- AO 1127325.2 (iv) the selection of Series 2004 Bonds for redemption; and (v) voting and obtaining consents under the 2004 Resolution. . So long as any Series 2004 Bonds are registered in Book-Entry Form, the Paying Agent shall pay all principal of, premium, if any, and interest on the Series 2004 Bonds only to the Securities Depository or the Securities Depository Nominee as shown in the Bond Register, and all such payments shall be valid and effective to fully discharge the Consolidated Government's obligations with respect to payment of principal of, premium, if any, and interest on the Series 2004 Bonds to the extent so paid. (c) If at any time (i) the Consolidated Government determines that the Securities Depository is incapable of discharging its responsibilities described herein, (ii) the Securities Depository notifies the Consolidated Government or the Paying Agent that it is unwilling or unable to continue as Securities Depository with respect to the Series 2004 Bonds, or (iii) the Securities Depository shall no longer be registered or in good standing under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation and a successor Securities Depository is not appointed by the Consolidated Governmentwithin 90 days after the Consolidated Government receives notice or becomes aware of such condition, as the case may be, then this Section shall no longer be applicable and the Consolidated Government shall execute and the Bond Registrar shall authenticate and deliver Series 2004 Bond certificates representing the Series 2004 Bonds to the bondholders. Series 2004 Bonds issued pursuant to this subsection (c) shall be registered in such names and authorized denominations as the Securities Depository, pursuant to instructions from the Agent Member or, otherwise, shall instruct the Bond Registrar. Upon exchange, the Bond Registrar shall authenticate and deliver such Series 2004 Bond certificates representing the Series 2004 Bonds to the persons in whose names such Series 2004 Bonds are so registered on the Business Day immediately preceding the date of such exchange. Section 8. Optional Redemption of Series 2004 Bonds. The Series 2004 Bonds shall be subject to redemption on the dates and at the prices set forth in the 2004 Supplemental Resolution. Section 9. Procedure for and Notice of Redemption. The Consolidated Government shall select the maturities of Series 2004 Bonds to be optionally redeemed in part. If less than all of the Series 2004 Bonds of a single maturity are to be redeemed, the Bond Registrar shall treat any Series 2004 Bond of such maturity outstanding in a denomination of greater than $5,000 as two or more separate Series 2004 Bonds in the denomination of $5,000 each and shall assign separate numbers to each for the purpose of determining the Series 2004 Bonds or the principal amount of such Series 2004 Bonds in a denomination greater than $5,000 to be redeemed by lot. With respect to any Series 2004 Bond called for partial redemption, the registered owner thereof shall surrender such Series 2004 Bond to the Bond Registrar in , exchange for one or more Series 2004 Bonds in any authorized denomination in the aggregate ' principal amount equal to the unredeemed principal amount of such Series 2004 Bond so surrendered. -24- AO 1127325,2 The Bond Registrar shall furnish the Consolidated Government on or before the 45th day next preceding each mandatory redemption date (or optional redemption date if such option is exercised) with its certificate setting forth the Series 2004 Bonds that have been selected for mandatory redemption (or optional redemption) either in whole or in part on such date. Not less than 30 days nor more than 60 days before any date upon which any such optional redemption or mandatory redemption is to be made a notice of such redemption signed by a duly authorized signatory of the Bond Registrar designating the Series 2004 Bonds to be redeemed (in whole or in part) shall be filed at the place at which the principal of and interest on the Series 2004 Bonds shall be payable and shall be mailed, postage prepaid, to all registered owners of Series 2004 Bonds to be redeemed (in whole or in part) at addresses which appear upon the bond registration book. It is expressly provided, however, that the failure so to mail any such notice of the optional redemption or mandatory redemption of the Series 2004 Bonds shall not affect the validity of the proceedings for such redemption or cause the interest to continue to accrue on the principal amount of such Series 2004 Bonds so designated for redemption after the redemption date. However, it is expressly understood and agreed that should the Consolidated Government hereafter elect to issue any Additional Bonds, as herein authorized, it shall have' the right to exercise any optional redemption provision to redeem the Bonds of any such future issue or issues before it redeems the Series 2004 Bonds, or it may redeem the Series 2004 Bonds before it redeems the Bonds of any such future issue or issues, or it may redeem some of the Series 2004 Bonds and some of the Bonds of any such future issue or issues at the same time. If less than a full maturity within an issue of Bonds is redeemed, then such redemption shall be by lot in such manneras may be designated by the Bond Registrar. Section 10. Purchase in Open Market. Nothing herein contained shall be construed to limit the right of the Consolidated Government to purchase with any excess moneys, as hereinabove defined, in the Sinking Fund and for sinking fund purposes, the Series 2004 Bonds in the open market at a price not exceeding the callable price hereinabove set forth. Any such Series 2004 Bonds so purchased cannot be reissued and same shall be disposed of as is hereinafter provided in this 2004 Resolution. Section 11. Effect of Call for Redemption. Notice having been given in the manner and under the conditions hereinabove provided, the Series 2004 Bonds so designated for redemption or the portion of the Series 2004 Bonds so designated for partial redemption shall, on the redemption date designated in such notice, become and be due and payable at the redemption price hereinabove specified, and from and after the date of redemption so designated, unless default shall be made in the payment of the Series 2004 Bonds so designated for redemption or the portion of the Series 2004 Bonds so designated for partial redemption" interest on the principal amount of said Series 2004 Bonds so designated for redemption shall cease to accrue on the redemption date. -25- AO 1127325,2 Section 12. Cancellation of Bonds. All Bonds paid, purchased or redeemed shall be canceled or otherwise destroyed upon their payment and a record of such destruction shall be made and preserved in the permanent records of the Consolidated Government and in the records of the Bond Registrar pertaining to the Series 2004 Bonds. Section 13. Pledl!e of Revenues: Parity Bonds. The Series 2004 Bonds shall stand on a parity and shall be of equal dignity with the Outstanding Prior Bonds and shall be secured by'the lien created pursuant to the provisions of the Prior Resolutions, as the same is ratified, reaffirmed, broadened and extended by this 2004 Resolution, just as if the Outstanding Prior Bonds and the Series 2004 Bonds had been issued simultaneously under the same resolution. Section 14. Approval of System Improvements. The additions, extensions and improvements to the System and equipment therefor shall he accomplished substantially in accordance with the Engineering Report. The Engineering Report and the additions, extensions and improvements set forth therein are hereby authorized and approved and., the Engineering Report, by this reference thereto, is incorporated herein and made a part hereof. Section 15. Application of the Series 2004 Bond Proceeds. The estimated application of the proceeds of the sale of the Series 2004 Bonds shall beset forth in the 2004 Supplemental Resolution. Such application will provide for, among other things, the application of accrued interest, the amount of procej::ds allocable to capitalized interest, the deposit to the 2004 Construction Fund, the required deposit to the Debt Service Reserve Account and' the payment of the costs and expenses of the undertaking contemplated hereby. Section i 6. Construction Fund. There is hereby created a special' fund designated the "Augusta, Georgia Water and Sewerage System Construction Fund-2004" (the "2004 Construction Fund"). The moneys so deposited into the 2004 Construction Fund as aforesaid and as more specifically set forth in the 2004 Supplemental Resolution, and any other funds acquired for this purpose by gift, donation, grant or otherwise, shall be held by the 2004 Construction Fund Depository in trust for the owners of the Series 2004 Bonds and shall be applied toward the payment of the cost of adding to, extending, improving and equipping the System, in accordance, or substantially in accordance, with the Engineering Report and in accordance with and subject to the provisions and restrictions set forth in this 2004 Resolution and the applicable" provisions and restrictions set forth in the Prior Resolutions; and the Consolidated Government covenants that it will not cause or permit to be paid from the 2004 Construction Fund any sums represented as aforesaid, except in accordance, or substantially in accordance, with the Engineering Report and the provisions and restrictions set forth in the Prior Resolutions and in this 2004 Resolution. The moneys so deposited into the 2004 Construction Fund shall be used for the purposes herein and for the applicable purposes provided in Section 3 of Article IV of the 1996 Resolution and moneys therein shall be held, invested and expended in the manner and by the procedure established under the provisions of said Article IV, Section 3 of the 1996 Resolution. Said Article and each and every appropriate provision thereof be and they are hereby declared applicable to the Series 2004 Bonds, the 2004 Construction Fund and the 2004 Construction Fund Depository and for the purpose of making same applicable to the Series 2004 Bonds, the 2004 Construction Fund and the 2004 Construction Fund Depository, the Consolidated -26- AO 1127325.2 Government does hereby reaffirm and adopt the same verbatim herein, except that said Article is broadened and extended to provide for the additions, extensions arid improvements to the System in accordance with the Engineering Report as herein contemplated:. I When the additions and improvements to the System shall have been completed, such fact shall be evidenced by a certificate from the Consulting Engineers stating the date of completion, and should there then be any balance in the 2004 COhstruction Fund, such balance, unless otherwise provided, shall be paid into the special account designated as the Debt Service Account held within the Sinking Fund. In the event of a default 'in payment of the Series 2004 Bonds, the Paying Agent shall notify the 2004 Construction Fund Depository thereof and the 2004 Construction Fund Depository shall, without further authorization or direction, transfer the remaining funds in the 2004 Construction Fund to the Paying Agent or Sinking Fund Custodian to be used to pay principal and interest on the Series 2004 Bonds. I Section 17. Creation of 2004 Capitalized Interest Ftind: Use of Monevs in 2004 Capitalized Interest Fund. There is hereby created by the Consolidated Government a fund designated "Augusta, Georgia Water and Sewerage System Capitalized Interest Fund-2004." I There shall be paid into the 2004 Capitalized Interest Fund such amount from the proceeds of the sale of the Series 2004 Bonds allocable to capitalized interest. Such moneys shall be transferred to the Debt Service Account held within the Sinking Fund on each Interest Payment Date until the balance in the 2004 Capitalized Interest Fund has been reduced to zero. The amounts so transferred shall be used to pay interest coming due on the Series 2004 Bonds. I Section 18. Flow of Funds: Sinkin2 Fund. The Consolidated Government is now operating and will continue to operate the System on a fiscal year basis commencing on January 1 in each year and extending through December 31 in such year, but it reserves the right by the adoption of proper proceedings to change its, fiscal year as provided in the 1996 Resolution. The Consolidated Government covenants that all revenues arising from the ownership or operation of the System and properties in connection1therewith as now existent and as hereafter added to, extended and improved shall be collected by 'the Consolidated Government or by its agents or employees and deposited promptly with the: depository to the credit of a special fund heretofore created and designated in Section 2 of Article III of the 1996 Resolution as the "Richmond County Water and Sewerage System Revenue ~und-1996" and redesignated pursuant to the 2000 Resolution as the "Augusta, Georgia Water and Sewerage System Revenue Fund" (the "Revenue Fund"). The moneys deposited into the Re~enue Fund shall be used and disbursed from the Revenue Fund as hereinafter provided. : I There shall first be paid from the Revenue Fund the :Expenses of Operation and Maintenance. I I The Consolidated Government covenants that it will continue to maintain', the sinking fund created and designated in Article V, Section 2, Paragraphs 2 :and 4 of the 1996 Resolution as the "Richmond County Water and Sewerage System Sinking Fund" and redesignated pursuant to the 2004 Resolution as the "Augusta, Georgia Water and Sew'erage System Sinking Fund" (the "Sinking Fund"), which Sinking Fund now consists of two accounts which are to be, held therein, created and designated as "Debt Service Account" and "Debt Service Reserve Account." The payments to be made into the Sinking Fund must be adjusted so as to provide sufficient I -27- AO 1127325.2 moneys with which to pay the principal of and the interest on the Outstanding Prior Bonds and the Series 2004 Bonds as the same become due and payable, either at maturity or by proceedings for mandatory redemption, in the then current Sinking Fund Year and to create and maintain a reserve in the Sinking Fund equal to the Reserve Requirement on the Outstanding Prior Bonds and the Series 2004 Bonds. After there have been paid from the Revenue Fund the sums required or permitted to be paid for Expenses of Operation and Maintenance pursuant to the provisions of this Section, there shall next be paid from the Revenue Fund into the Sinking Fund the'following amounts: (a) There shall be deposited into the Debt Service Account for the purpose of paying the principal of and interest on the Outstanding Prior Bonds and the Series 2004 Bonds as same become due and payable, either at maturity or by proceedings for mandatory redemption, in the then current Sinking Fund Year, each month after taking into account moneys on deposit therein, (i) an amount sufficient to pay the interest on the AuctionRate Bonds coming due on the first day of the next succeeding month; (ii) an amount equal to one sixth of the interest on the Outstanding Prior Bonds and the Series 2004 Bonds coming due on the next Interest Payment Date for the Outstanding Prior Bonds and the Series 2004 Bonds; and' (ii) an amount equal, to one-twelfth of the principal on the Outstanding Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds coming due on the next ensuing October 1, such aggregate monthly payments to continue from month to month until sufficient funds are on hand in the Sinking Fund to pay all of the Outstanding Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds as same mature or are acquired by mandatory redemption and the interest which will become due and payable thereon. , (b) Upon the issuance of the Series 2004 Bonds, the Reserve Account shall be funded by a combination of cash and one or more Reserve Account Surety Bonds held for the credit of the Reserve Account. Simultaneously with the issuance of the Series 2004 Bonds, there shall be on deposit in the Reserve Account, taking into account moneys on deposit therein and amounts being provided by the Consolidated Government from lawfully available funds, such amount, if any, as may be required to create in the Reserve Account a reserve equal to the Reserve Requirement upon the date of issuance of the Series 2004 Bonds. The Reserve Account shall be maintained for the purpose of paying the principal of and interest on the Outstanding Prior Bonds and the Series 2004 Bonds falling due in any year as to which there would otherwise be a default and if money is taken from the Reserve Account for the payment of such principal and interest, the money so taken shall be replaced in the Reserve Account from the first moneys in the Revenue Fund thereafter available and not required to be used for Expenses of Operation and Maintenance of the System and not required to be paid into the Debt Service Account as provided in subparagraph 19( a) above. (c) All sums required to be paid to comply with the prOVISIons of subparagraphs (a) and (b) above shall be paid on or before the 25th day of the month in , which the payment is due, and if, in any month, for any reason, the full amount herein required to be paid in such month shall not be paid into the Sinking Fund, any deficiency shall be added to and shall become a part of the amount required to be paid into the Sinking Fund in the, next succeeding month; provided, however, the Consolidated -28- AO 1127325.2 Government covenants and agrees that in the event it hereafter elects to issue Additional Bonds, pursuant to the provisions of this 2004 Resolution, the above stated payments into the Sinking Fund will be increased to the extent necessary to pay the principal of and interest on the Outstanding Prior Bonds, the Series 2004 Bonds and on any Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued coming due, either at maturity or by proceedings for mandatory redemption, in the then current Sinking Fund Year and to create upon the issuance of the bonds to be issued and thereafter maintain a reserve for that purpose in an amount at least equal to the Reserve Requirement on the Outstanding Prior Bonds, the Series 2004 Bonds, the Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued. Section 19. Debt Service Reserve Account. In the event a withdrawal of moneys is made from the Reserve Account or any draw is made upon any Reserve Account Surety Bond held within the Reserve Account for the payment of principal of or interest on the Outstanding Prior Bonds or the Series 2004 Bonds, the first moneys available in the'Revenue Fund and not required to pay Expenses of Operation and Maintenance or to make the monthly payments into the Debt Service Account as hereinabove provided, shall be immediately paid into the Reserve Account or paid to the Reserve Account Surety Bond Providers as hereinafter described until ,the amount on deposit in the Reserve Account after payments of any amounts payable under the succeeding sentence equals the Reserve Requirement; provided, however, such payments will in any event be at least sufficient to restore the Reserve Account to its proper balance within 12 months after the date upon which money is taken from the Reserve Account or the date upon which a' draw on any Reserve Account Surety Bond is made. In the event of a draw down on any Reserve Account Surety Bond, the Consolidated Government shall on a pro rata basis make (1) all payments (if any) into the Reserve Account necessary to restore the amount of cash or securities, if any, on deposit, therein immediately prior to such draw and (2) make all payments to any Reserve Account Surety Bond Providers as a repayment of such drawdown (such payments to be made on a pro rata basis to each Reserve Account Surety Bond Provider based upon the amount drawn and not reimbursed under each Reserve Account Surety Bond), and (3) upon making full repayment to any Reserve Account Surety Bond Provider, shall thereafter make payments into the Reserve Account, to the extent that the then applicable Reserve Requirement exceeds the aggregate of the amount available to be drawn on a Reserve Account Surety Bond and the amount of cash or securities, if any, on deposit therein immediately prior to such draw. Repayment or any drawdown on the Reserve Account Surety Bond (other than repayments which reinstate the Reserve Account Surety Bond) and any interest or fees due the Reserve Account Surety Bond Provider under such Reserve Account Surety Bond shall be secured by a lien on the Pledged Revenues subordinate to payments into the Debt Service Account, the Reserve Account and payments to any Credit Issuer securing the Outstanding Prior Bonds, the Series 2004 Bonds and any Additional Bonds. Any such Reserve Account Surety Bond shall be pledged to the benefit of the owners of all of the Outstanding Prior Bonds, the Series 2004 Bonds and any Additional Bonds. The Consolidated Government reserves the right, if it deems it necessary in order to acquire such a ' Reserve Account Surety Bond, to amend the Resolutions without the consent of any of the owners of the Outstanding Prior Bonds, the Series 2004 Bonds and any Additional Bonds in order to grant the Reserve Account Surety Bond Provider such additional rights as it may demand, provided that such amendment shall not, in the written opinion of Bond Counsel filed -29- AO 1127325.2 with the Consolidated Government, impair or reduce the security granted to the owners of the , , Outstanding Prior Bonds, the Series 2004 Bonds and any Additional Bonds or any of them. It is expressly provided, however, that if on October 2 in any year there are on deposit in the Debt Service Account of the Sinking Fund any money and securities, same shall be withdrawn therefrom and immediately deposited into the Revenue Fund. It is expressly provided further, however, that if on October 2 in any year there are on deposit in the Reserve Account of the Sinking Fund moneys and securities (such securities to be valued at their market value plus accrued interest thereon to October 2) the aggregate amount of which, together with the amounts available under any Reserve Account Surety Bond, is in excess of the then required Reserve Requirement, such excess moneys shall be withdrawn from the Sinking Fund and immediately deposited into the Revenue Fund. The calculation and determination of such excess amount in accordance with this provision shall be the responsibility of the chief financial officer of the utilities department of the Consolidated Government and such financial officer shall notify the Sinking Fund Custodian and make or cause to be made any transfer of funds required pursuant to the provisions of this subparagraph. The Consolidated Government may at any time fulfill any portion of its obligation ,to fund the Reserve Account by depositing in the Reserve Account a Reserve Account Surety Bond payable on any interest and/or principal payment date in an amount equal to any portion of the reserve requirement then required to be maintained within the Reserve Account. Before any such Reserve Account Surety Bond is substituted for cash or deposited in lieu of cash within the Reserve Account, (A) there shall be filed with the Consolidated Government and the Sinking Fund Custodian (i) an opinion of nationally recognized bond counsel to the effect that such substitution will not adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes; (ii) a certificate of Moody's or Standard & Poor's, whichever rating agency maintains a rating on the outstanding Bonds, to the effect that (a) if the issuer(s) of the Reserve Account Surety Bond were insuring payment of principal and interest on the Bonds to which the Reserve Account relates, such Bonds would receive the highest rating available from such rating agency (or any similar rating agency then in ~xistence) and (b) that the substitution of such Reserve Account Surety Bond for cash within the Reserve Account will not, in and of itself, result in a reduction of the ratings issued for the Bonds outstanding, and (iii) a copy of the Reserve Account Surety Bond issued to fulfill the Consolidated Government's obligation to fund the Reserve Account together with an opinion of counsel satisfactory to the Sinking Fund Custodian to the effect that the Reserve Account Surety Bond is, valid and enforceable in accordance with its terms, (B) the Consolidated Government shall not secure any obligation to the Reserve Account Surety Bond Provider by a lien equal to or superior to the lien granted to the Bonds; (C) the Reserve Account Surety Bond shall permit a drawing by the Consolidated Government for the full stated amount in the event (i) the Reserve Account Surety Bond expires or terminates for any reason prior to the final maturity of the Bonds, and (ii) the Consolidated Government fails to satisfy the Reserve Requirement by the deposit to the Reserve Account of cash, obligations, a substitute Reserve Account Surety Bond, or any combination thereof, on or before the date of such expiration or termination; (D) if the rating issued by the Rating Agency to the Reserve Account Surety Bond Provider is withdrawn or reduced below the rating assigned to that of the Bonds immediately prior to such action by the Rating Agency, the Consolidated Government shall provide a substitute Reserve Account Surety Bond within 60 days after such rating change, and, if no substitute Reserve Account Surety Bond is obtained -30- AO 1127325.2 by such date, shall fund the Reserve Requirement in not more than 24 equal monthly payments commencing not later than the first day of the month immediately succeeding the date representing the end of such 60 day period; and (E) if the Reserve Account Surety Bond Provider commences any insolvency proceedings or is determined to be insolvent or fails to make payments when due on its obligations, the Consolidated Government shall provide a substitute Reserve Account Surety Bond within 60 days thereafter, and, if no substitute Reserve Account Surety Bond is obtained by such date, shall fund the Reserve Requirement in not more than 24 equal monthly payments commencing not later than the first day of the month immediately succeeding the date representing the end of such 60 day period. If the events described in either clauses (D) or (E) above occur, the Consolidated Government shall not relinquish the Reserve Account Surety Bond at issue until after the Reserve Requirement is fully satisfied by the provision of cash, obligations, or a substitute Reserve Account Surety Bond or any combination thereof. Each such Reserve Account Surety Bond shall be unconditional and irrevocable and shall provide liquidity for the life of the Bonds with respect to which the ~eserve Account Surety Bond is purchased and, if the Reserve Account Surety Bond is purchased with respect to more than one issue of Bonds hereunder, then for the life of the issue with the longest term. So long as the balance of the Reserve Account equals the Reserve Account Requirement on the Outstanding Prior Bonds, the Series 2004 Bonds and any Additional Bonds, any reimbursement agreement entered into between the Consolidated Government and any such Reserve Account Surety Bond Provider may provide that the Consolidated Government will be obligated to repay such provider an amount equal to any drawdown on the Reserve Account Surety Bond plus a market rate of interest over a specified period of time not to exceed three years but such obligation shall be junior and subordinate in right of payment to all outstanding Bonds. Section 20. Hed!!e Payments Fund. The Consolidated Govemnient has heretofore created and established with the Sinking Fund Custodian a separate, segregated fund designated as the "Augusta, Georgia Hedge Payments Fund" and, within the Hedge Payments Fund, a separate account designated as the "2004 Hedge Payments'Account." After there have been paid from the Revenue Fund in each month all amounts required or permitted to be paid pursuant to Sections 19 and 20 of this 2004 Resolution, there shall be paid from the Revenue Fund to the 2004 Hedge Payments Account an amount sufficient, taking into account amounts on deposit therein, to pay the amounts due the 2004 Hedge Provider under the 2004 Hedge Agreement (other than payments upon early termination thereof). The Consolidated Government shall notify the Custodian in writing of the amounts required to be deposited to the 2004 Hedge Payments Account. The obligation of the Consolidated Government to make the deposits to the Hedge Payments Fund is and shall always be junior and subordinate in all respects to the obligation of the Consolidated Government with respect to payments to the Sinking Fund as provided in Sections 19 and 20 of this 2004 Resolution. Section 21. Utility General Fund. After there have been paid from the Revenue Fund in each month all amounts required or permitted to be paid as provided herein, all moneys remaining in the Revenue Fund shall be paid at the end of each month into the special fund created and designated in Article V, Section 2, Paragraph 6 of the 1996 Resolution as the "Richmond County Water and Sewerage System Utility General Fund" and redesignated pursuant to the 2002 Resolution as the "Augusta, Georgia Water and Sewerage System Utility General Fund" (the "Utility General Fund"). Except as set forth below, expenditures shall be made from the Utility General Fund only for the purpose of: (a) paying principal of and/or -31- AO 1127325,2 interest on the Outstanding Prior Bonds, the Auction Rate Bonds, the Series 2004 Bonds and any Additional Bonds then outstanding and falling due at any time for the payment of which money is not available in the Sinking Fund securing the payment of same; (b) making payments into the Sinking Fund in the amounts required in order to accumulate and maintain the Reserve Account created therein at its proper balance; (c) paying such expenses as may be necessary to alleviate or remove the effects of an emergency having a major impact on the System caused by some extraordinary occurrence which makes it necessary to use the funds of the System, to the extent that moneys on deposit in the Revenue Fund are insufficient to meet such emergencies; (d) paying Expenses of Operation and Maintenance for which moneys are not available in the Revenue Fund; (e) making replacements, additions, extensions and improvements and acquiring equipment and paying the cost of any engineering studies, surveys or plans and specifications pertaining to the future development or expansion of the System deemed to be reasonable and in the best interest of the Consolidated Government and the holders of the Bonds; (f) payment of the charges of the Utility General Fund Depository for investment services; and (g) paying to any Reserve Account Surety Bond Provider interest on amounts drawn under such Reserve Account Surety Bond. The Consolidated Government shall maintain at all times a minimum balance in the Utility General Fund equal to the lesser of $2,500,000 or 5 percent, of the Operating Revenues of the System for the immediately preceding Fiscal Year. It is expressly provided, however, that should bonds be hereafter issued ranking as to lien on the Pledged Revenues junior and subordinate to the lien securing the payment of the Outstanding Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds authorized to be issued hereunder, including any issue or issues of Additional Bonds hereafter issued, then such payments into the Utility General Fund as provided in this Section may be suspended and such moneys shall be available to the extent necessary to pay the principal of and interest on such junior lien bonds and to create and maintain a reasonable reserve therefor and such moneys may be allocated and pledged for that purpose. Section 22. Pled2ed Revenues. As provided in the Prior Resolution and as hereby ratified and reaffirmed, all Pledged Revenues immediately shall become subject to a lien to secure the payment by the Consolidated Government of the amounts therein agreed to be paid. The Consolidated Government hereby pledges such Pledged Revenues and hereby covenants and agrees that the Pledged Revenues are hereby pledged to the extent necessary to secure the payment by the Consolidated Government of the amounts herein agreed to be paid with respect to the Outstanding Prior Bonds, the Auction Rate Bonds, the Series 2004 Bonds and any Additional Bonds, and on a junior and subordinate basis, to the payments (other than termination payments) under the Hedge Agreements, and such pledge shall be valid and binding against the Consolidated Government and against all other parties and against all claims of any kind against the Consolidated Government, whether arising in tort, contract or otherwise, irrespective of whether or not such parties have notice thereof. Section 23. Rate Covenant. The Consolidated Government covenants and agrees that it has heretofore placed into effect a schedule of rates, fees and charges for the services, facilities and commodities furnished by the System and as often as it shall appear necessary the Consolidated Government shall revise and adjust such schedule of rates, fees and charges for either water or sewerage services and facilities, or both, to the extent necessary to produce funds sufficient to operate and maintain the System on a sound business-like basis and to create and -32- AO 1127325.2 maintain the Sinking Fund created by the 1996 Resolution, as same has been enlarged and extended by the 2000 Resolution, the 2002 Resolution; the 2004 Refunding Resolution and this 2004 Resolution, in accordance with and in compliance with the terms, covenants and provisions of the Resolutions and to create and maintain a reserve therefor in the amount as required by the Resolutions or such larger amounts as may be required in any proceedings authorizing any such issue or issues of Additional Bonds, as well as to create and maintain a reserve for extensions and improvements to the System. Such rates, fees and charges, in addition to the foregoing requirements, shall be maintained at such level so as to produce Pledged Revenues (excluding Investment Earnings, if any, on the Construction Fund created under this 2004 Resolution) equal to 1.1 times the amount required to discharge the payment of the principal of and the interest on the Outstanding Prior Bonds, the Auction Rate Bonds, the Series 2004 Bonds and any future parity issues, either at maturity or by proceedings for mandatory redemption, but in, no event, however, will said amount be less than that required to create and maintain the Debt SerVice Account and the Reserve Account as required by the Resolutions. The rates, fees and charges shall be classified in a reasonable manner to cover users of the services and facilities furnished by the System so that as near as practicable such rates, fees and charges shall be uniform in application to all users falling within any reasonable class. No free services shall at any time be furnished from the System and it will undertake within its health powers or such other applicable powers now or hereafter provided by law, to require the owners of all improved property abutting any water line or sewerage line to connect with the System. No ,customer shall be connected to the System or served by the Consolidated Government without a proper meter having been first installed. All services shall be furnished in accordance with rates now or hereafter established, including services furnished to any county, municipal corporation or other public board or body. In the event the Consolidated Government shall fail to adopt aschedule or schedules of rates, fees and charges, or to revise its schedule or schedules of rates, fees and charges, in accordance with the provisions of this Section, any Bondholder without regard to whether any Event of Default, as defined in Article VIII of the 1996 Resolution, shall have occurred, may institute and prosecute in any court of competent jurisdiction, an appropriate action to compel the Consolidated Government to adopt a schedule or schedules of rates, fees and charges, or to revise its schedule or schedules of rates, feesand charges in accordance with the requirements of this Section and the applicable requirements of Section 3 of Article V of the 1996 Resolution. Section 24. Sin kin!! Fund Disbursements. Subject to the terms and conditions set forth in the Resolutions, moneys in the Sinking Fund shall be disbursed for (a) the payment of the interest on the Outstanding Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds as such interest becomes due and payable; (b) the payment of the principal of the Outstanding Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds as same becomes due and payable, either at maturity or by proceedings for mandatory redemption; (c) the optional redemption of the Outstanding Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds before maturity at the price and under the conditions provided therefor in the Resolutions; (d) the purchase of the Outstanding Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds in the open market; provided, however, the price paid shall not exceed the authorized call price; -33- AO 1127325.2 (e) the transfer of excess moneys, if any, in the Sinking Fund (as described in Section 5 of Article V of the 1996 Resolution, Section 20 of the 2000 Resolution, Section 20 of the 2002 Resolution and Section 17 of this 2004 Resolution) to the Revenue Fund; (f) the payment of charges for paying the Outstanding Prior Bonds, the Auction Rate Bonds' and the Series 2004 Bonds and interest thereon and the charges for the registration of the Outstanding Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds and their transfer or exchange in accordance with the terms thereof; and (g) the payment of any charges for investment services. Section 25. Additional Bonds. The Consolidated Government further covenants and agrees that it will not exercise the privilege as provided in Section 9 of Article V of the 1996 Resolution, as ratified, reaffirmed, broadened and extended in Section 25 of the ,2000 Resolution and Section 25 of the 2002 Resolution), of issuing additional bonds or obligations ranking as to lien on the Pledged Revenues of the System on a parity with the Outstanding Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds, unless or until all the following conditions are met: (a) The payments covenanted to be made into the Sinking Fund, as the same may have been enlarged and extended in any proceedings authorizing the issuance of any Additional Bonds, must be currently being made in the full amount as required and the Debt Service Account and Reserve Account held within the Sinking Fund must be at their proper respective balances. (b) Except in the case of Additional Bonds issued for refunding purposes pursuant to Article V, Section 8 of the 1996 Resolution, there shall have been procured and filed with the Consolidated Government (i) a report by Independent Certified Public Accountants to the effect that the Pledged Revenues (excluding Investment Earnings, if any, on construction funds) for a period of 12 consecutive months out of the most recent 18 consecutive months preceding the month of adoption of the proceedings authorizing' the issuance of such Additional Bonds must have been equal to at least '1.25 times the maximum Debt Service Requirement for any succeeding Sinking Fund Year on the Outstanding Prior Bonds, the Auction Rate Bonds, the Series 2004 Bonds and any other issue or issues of Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued, or in lieu of the foregoing formula, if a new schedule of rates and charges for the services, facilities and commodities furnished by the System shall have been adopted and shall be in effect and Independent, Certified Public Accountants shall certify that had this new rate schedule been in effect during the period described above, the Pledged Revenues of the System would have equaled the requirements of the above formula; or (ii) (x) a report by Independent Certified Public Accountants to the effect that the historical Pledged Revenues (excluding Investment Earnings, if any, on construction funds) for a period of12 consecutive months out of the most recent 18 consecutive months preceding the month of adoption of the proceedings authorizing the issuance of the proposed Additional Bonds were equal to at least 1.10 times the historical Debt Service Requirement on all Bonds (other.than Subordinate Bonds) which were outstanding during such 12-month period, and (y) a report by the Consulting Engineers to the effect that the forecasted Pledged Revenues (excluding Investment Earnings, if any, on construction funds) for each Fiscal Year in the Forecast Period are expected to equal at least 1.25 times the maximum annual Debt Service -34- AO 1127325.2 Requirement on all Bonds (other than Subordinate Bonds) which will be outstanding immediately after the issuance of the proposed Additional Bonds, in the then current or any succeeding Sinking Fund Year. The reports by the Independent Certified Public Accountant that are required by this paragraph (b) may contain pro forma adjustments to historical Pledged Revenues equal to 100 percent of the increased annual amount attributable to any revision in the schedule of rates, fees and charges for the services, facilities and commodities furnished by the System, imposed prior to the date of delivery of the proposed Additional Bonds and not fully reflected in the historical Pledged Revenues actually received during such 12-month period. Such pro forma adjustments shall be based upon a report of the Consulting Engineers as to the, amount of Operating Revenues which would have been received during such 12-month period had the new rate schedule been in effect throughout such 12-month period. For the purpose of calculating the maximum Debt Service Requirements under this subparagraph (b), the maximum annual Debt Service. Requirements shall be reduced by an amount equal to any capitalized interest funded from the proceeds of the Additional Bonds proposed to be issued in each succeeding Sinking Fund Year for the period for which said interest has been capitalized. (c) An Independent Certified Public Accountant shall certify in triplicate to the Consolidated Government that the requirements of subparagraph (a) above are being complied with and that the requirements of subparagraph (b) above have been met. A copy of ,such certificate shall be furnished to the Designated Representative of the original purchasers of the Prior Bonds and the Series 2004 Bonds. (d) Except when Bonds are being issued solely for the purpose of refunding outstanding Bonds, the Consulting Engineers for the Consolidated Government shall provide the Consolidated Government with a written report recommending the additions, extensions and improvements to be made to the System and stating that same are feasible, designating in reasonable detail the work and installation proposed to be done and the estimated cost of accomplishing the undertaking. The Consulting Engineers shall set forth in said report the forecasted Pledged Revenues to be derived from the System which will be available for debt service payments in each of the next 10 years and shall indicate the projected coverage of such debt service payments in each succeeding Sinking Fund Year. An executed duplicate original of such report of the Consulting Engineers as required by this provision shall be furnished to the Designated Representative of the original purchasers of the Prior Bonds and the Series 2004 Bonds issued hereunder not less than 10 days before any proceedings are taken to actually issue such Additional Bonds. ( e) The Consolidated Government shall pass proper proceedings reciting that all of the above requirements have been met, shall authorize the issuance of the Additional Bonds and shall provide in such proceedings, among other things, the date such Additional Bonds shall bear, the rate or rates of interest and maturity dates, as well as the registration and redemption provisions. Except for Additional Bonds that bear -35- AO 1127325.2 " interest at a Variable Rate, the interest on the Additional Bonds of any such issue shall fall due on April 1 and October 1 of each year, and the Additional Bonds shall mature in , installments on October 1, but, as to principal, not necessarily in each year or in equal installments. Any such proceeding or proceedings shall require the Consolidated Government to increase the monthly payments then being made into the Sinking Fund to the extent necessary to pay the principal of and the interest on the Prior Bonds, the Series 2004 Bonds and on all such Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued as same become due and payable, either at maturity or by proceedings for mandatory redemption, in the then current Sinking Fund Year, and to create upon the issuance of the proposed Additional Bonds to be issued a reserve in the Reserve Account at least equal to the Reserve Requirement on the Prior Bonds, the Series 2004 Bonds and any Additiorial Bonds therewith then outstanding and on the proposed Additional Bonds tobe issued and to maintain said reserve in ari amount sufficient for that purpose; provided, however, the Consolidated Government may satisfy funding of the required reserve through the purchase of a Reserve Account Surety Bond meeting the requirements of the Resolutions. Any such proceeding or proceedings shall restate and reaffirm, by reference, all of the applicable terms, conditions and provisions of the Resolutions. If any Additional Bonds would bear interest at a Variable Rate, the resolution under which such Additional Bonds are issued shall provide a' maximum rate of interest per annum which such Additional Bonds may bear. In ,connection with the issuance of any Additional Bonds under the Resolutions, the Consolidated Government may obtain or cause to be obtained one or more Credit Facilities providing for payment of all or a portion of the principal of, premium, if any, or interest due or to become due on such Additional Bonds, providing for the purchase of such Additional Bonds by the Credit Issuer, or providing funds for the purchase of such Additional Bonds by the Consolidated Government. In connection therewith the Consolidated Government shall enter into Credit Facility Agreements with such Credit Issuers providing for, among other things, (i) the payment of fees and expenses to such Credit Issuer for the issuance of such Credit Facility; (ii) the terms and conditions of such Credit Facility and the Additional Bonds affected thereby; and (iii) the security, if any, to be provided for the issuance of such Credit Facility. The Consolidated Government may in a Credit Facility Agreement agree to directly reimburse such Credit Issuer for amounts paid under the terms of such Credit Facility, together with interest thereon; provided, however, that no Reimbursement Obligation shall be created, for purposes of the Resolutions, until amounts are paid under such Credit Facility. Any such Reimbursement Ob~igation shall be deemed to be a part of the Additional Bonds to which the Credit Facility relates which gave rise to such Reimbursement Obligation, and references to principal and interest payments with respect to such Additional Bonds shall include principal and interest (except for Additional Interest) due on the Reimbursement Obligation incurred as a result of payment of such Additional Bonds with the Credit Facility. All other amounts payable under the Credit Facility Agreement (including any Additional Interest) shall be fully subordinate to the payment of debt service on Bonds (other than Subordinate Bonds). Any such Credit Facility shall be for the benefit of and secure such Additional Bonds or portion' thereof as specified in the applicable bond resolution authorizing such Additional Bonds. (f) Such Additional Bonds or obligations and all proceedings relative thereto, andthe security therefor, shall be validated as prescribed by law. -36- AO 1127325.2 ,c It is expressly provided that nothing contained herein, however, restricts the issuance of Subordinate Bonds. Section 26. Ratification of 1996 Resolution. All of the applicable terms, covenants, conditions and provisions of Article V, Article VI, Article VII, Article vm, Article IX and Article X and each Section thereof of the 1996 Resolution not herein specifically referred to are hereby declared applicable and are broadened and extended so as to cover the bonds issued hereunder and hereby" ratified and reaffirmed as so extended and said terms, covenants, conditions and provisions shall apply for all purposes to the Series 2004 Bonds. Section 27. Authorization of 2004 Rate Lock Aereement: Identification of Hedee. (a) The Consolidated Government hereby authorizes the execution, delivery and performance of the 2004 Rate Lock with the 2004 Rate Lock Co~nterparty. The Mayor and the Clerk of the Commission are hereby authorized and directed to execute the 2004 Rate Lock for and on behalf of the Consolidated Government in advance of, and in anticipation of, the issuance of the Series 2004 Bonds. (b) The Consolidated Government, pursuant to Treasury Regulations SS 1.148- 4(h)(2)(vii) and 1.148-4(h)(5)(iv), hereby identifies the 2004 Rate Lock as a "qualified hedge" under applicable Treasury Regulations. Specifically, the Consolidated Government hereby confirms: 1. The 2004 Rate Lock is being executed and delivered in anticipation of the issuance ofthe Series 2004 Bonds. 11. The reasonably expected governmental purpose ofthe Series 2004 Bonds is to acquire, construct, install and equip the Project. 111. The reasonably expected issue price ofthe Series 2004 Bonds is approximately $160,000,000, the reasonably expected final maturity date of the Series 2004 Bonds is October 1, 2038 and the reasonably expected issue date of the Series 2004 Bonds is on or about August 15, 2004. Section 28. Arbitraee Covenants. The Consolidated Government hereby covenants and agrees that it will not, subsequent to the date of the issuance and delivery of the Series 2004 Bonds, intentionally use, any portion of the proceeds of the Series 2004 Bonds to acquire higher yielding investments, or to replace funds which were used directly or indirectly to acquire higher yielding investments, except as may otherwise be permitted by the Internal Revenue Code of 1986, as amended (the "Code") or the regulations promulgated thereunder; including, but not limited to, complying with the requirements of Section l48(f) of the Code and the regulations promulgated thereunder and the payment of rebate, if any, required to be made, and that it will expend the proceeds of the Series 2004 Bonds in compliance with the applicable provisions of Sections 141 to 150, inclusive, of the Code. Anything herein or in the Prior Resolutions notwithstanding, earnings on amounts in any fund or account may, and shall to the extent necessary, be used to make the payments required under this Section. -37- AO 1127325.2 , , Section 29. Certification. The Mayor and Clerk of the Commission are hereby" authorized and directed to execute, for and on behalf of the Consolidated Government, a certification, based upon facts, estimates and circumstances, as to the reasonable expectations regarding the amount, expenditure and use of the proceeds of the Series 2004 Bonds, as well as such other documents (including, without limitation, elections under Section 148 of the Code) as may be necessary or advisable in connection with the issuance and delivery of the Series 2004 Bonds. Section 30. Use of Proceeds and Tax Covenant. The Series 2004 Bonds are being issued by the Consolidated Government in compliance with the conditions necessary for interest income on the Series 2004 Bonds to be excluded from. gross income for federal income tax purposes pursuant to the provisions of Section 103(a) of the Code relating to obligations of the State or any political subdivision thereof. It is the intention of the Consolidated Government that the interest on the Series 2004 Bonds be and remain excludable from gross income for federal income tax purposes, and, to that end, the Consolidated Government hereby covenants with the holders ofthe Series 2004 Bonds as follows: (a) It will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the tax exempt status of interest on the Series' 2004 Bonds under Section 103 of the Code. (b) It will not directly or indirectly use or permit the use' of any proceeds of the Series 2004 Bonds or any other funds of the Consolidated Government ortake or omit to take any action that would cause the Series 2004 Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the Consolidated Government will comply with all requirements of Section 148 of the Code to the extent applicable to the Series 2004 Bonds. ( c) It will not permit any use of the facilities financed or refinanced by the Series 2004 Bonds which would cause the Series 2004 Bonds to be "private activity bonds" within the meaning of Section 141 of the Code. In the event that at any time the Consolidated Government is of the opinion that for purposes of this Section it is necessary to restrict or limit the yield on the investment of any moneys held under this 2004 Resolution, the Consolidated Government shall take such action as may be necessary. Any subsequent proceeding or proceedings authorizing the issuance of Additional Bonds or obligations as permitted under the Resolutions shall in nowise conflict with the terms, covenants and conditions of the Resolutions but shall for all legal purposes contain all of the applicable covenants, agreements and provisions of said Resolutions for the equal protection and benefit of all bondholders. Section 31. Severabilitv. In case anyone or more of the provisions of this 2004 Resolution, or the Series 2004 Bonds issued hereunder, shall for any reason be held illegal or invalid, such illegality or invalidity shall not affect any other provisions of this 2004 Resolution -38- AO 1127325.2 \ , . . or the Series 2004 Bonds, butthis 2004 Resolution and the Series 2004 Bonds shall be construed and enforced as if such illegal or invalid provisions had not been contained therein. Section 32. Contract. The provisions, terms and conditions of this 2004 Resolution shall constitute a contract by and between the Consolidated Government and the owners of the Outstanding Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds authorized to be issued hereunder, and after the issuance of the Series 2004 Bonds this 2004 Resolution shall not be repealed or amended in any respect which will adversely affect the rights and interests of the owners of the bonds of said issues, nor shall the governing body of the Consolidated Government pass any proceedings in any way adversely affecting the rights of such owners so long as any of the Bonds authorized by the Resolutions, or the interest thereon, shall remain unpaid or until provision shall have been duly made therefor, provided, however, that this covenant shall not be construed as prohibiting modifications hereof or amendments hereto to the extent and in the manner as provided in Article IX of the 1996 Resolution, as ratified, reaffirmed, broadened and extended by the 2000 Resolution and this 2004 Resolution. Any subsequent proceeding or proceedings authorizing the issuance of Additional Bonds or obligations with the Outstanding Prior Bonds, the Auction Rate Bonds and the Series 2004 Bonds as permitted under Section 9 of ArtickV of the. 1996 Resolution, as ratified, reaffirmed, broadened. and extended in Section 25 of the 2000 Resolution, Section 25 of. the 2002 Resolution, Section 23 of the 2004 Refunding Resolution and Section 25 of this 2004 Resolution, shall in nowise conflict with the terms, covenants and conditions of the Resolutions, but shall for all legal purposes contain all the applicable covenants, agreements and provisions of the Resolutions for the equal protection and benefit of all owners of the Outstanding Prior Bonds, the Auction Rate Bonds, Series 2004 Bonds and such Additional Bonds. Section 33. Supplemental Resolution. The Commission, after the Series 2004 Bonds have actually been sold, shall adopt a resolution supplementing this resolution and among other things will specify in said supplemental resolution the interest rate or rates per annum which the Series 2004 Bonds shall bear, the principal amount of Series 2004 Bonds, the maturities of the Series 2004 Bonds which shall be designated as term bonds subject to mandatory redemption, will provide for the optional redemption provisions applicable to the Series 2004 Bonds, will authorize and approve the execution and delivery of a bond purchase agreement, will provide for the terms of any Credit Facility and will provide for the actual issuance and delivery ofthe Series 2004 Bonds upon payment therefor by the purchaser thereof. Section 34. Validation. The Series 2004 Bonds herein authorized to be issued shall be validated in the manner provided by law, and to that end notice of the adoption of this 2004 Resolution and a copy thereof shall be served on the District Attorney of the Augusta Judicial Circuit, in order that proceedings for the above purpose be instituted in the Superior Court of Richmond County. -39- AO 1127325.2 ... \. . Section 35. Repealer. Any and all resolutions, or parts of resolutions, in conflict with this 2004 Resolution this day passed be and are hereby repealed, and this 2004 Resolution shall be in full force and effect from and after its adoption. APPROVED on June L, 2004. Attest: p -40- AO 1127325,2 .... -.. . CLERK'S CERTIFICATE GEORGIA, RICHMOND COUNTY I, Lena J. Bonner, Clerk of the Augusta-Richmond County Commission (the "Commission"), DO HEREBY CERTIFY that the foregoing pages constitute a true and correct copy of the resolution adopted by the Commission at an open public meeting duly called and lawfully assembled on June 1, 2004, at which a quorum was present and acting throughout, authorizing the issuance of not to exceed $160,000,000 Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2004, the original of said resolution being duly recorded in the Minute Book of said Commission, which Minute Book is in my custody and control, and that said resolution was duly adopted by a vote of: AyeL NayL Abstain 0 . -;-:;-- 1ft .... UlI5 ."" , . ,." , ............. .# '\ CIi'ORGl,," _~ '-,,"ill.'-"'-,.....-- (SEAL) AO 1127325,2 ,. .' .. \" , PARITY BOND RESOLUTION A RESOLUTION TO PROVIDE FOR THE ISSUANCE OF WATER AND SEWERAGE REVENUE REFUNDING BONDS, AUCTION RATE SERIES 2006, PURSUANT TO AND IN CONFORMITY WITH A BOND RESOLUTION ADOPTED OCTOBER 21, 1996, AS SUPPLEMENTED, TO PROVIDE FUNDS TO PAY OR TO BE APPLIED TOWARD THE COST OF REFUNDING BY REDEMPTION AND PAYMENT THE RICHMOND COUNTY WATER AND SEWERAGE REVENUE REFUNDING BONDS, SERIES 1996A AND RICHMOND COUNTY WATER AND SEWERAGE REVENUE REFUNDING BONDS, SERIES 1997, MATURING ON AND AFTER OCTOBER 1,2007, NOW OUTSTANDING'IN THE AGGREGATE PRINCIPAL AMOUNT OF $60,340,000, AND TO PAY EXPENSES NECESSARY TO ACCOMPLISH THE FOREGOING; TO AUTHORIZE THE EXECUTION AND DELIVERY OF AN ISDA MASTER AGREEMENT, TOGETHER WITH RELATED SCHEDULE AND CONFIRMATION, IN ORDER TO ESTABLISH A HEDGE AGAINST FLUCTUATIONS IN THE VARIABLE RATE OF INTEREST ON THE AUCTION RATE BONDS; TO RATIFY, REAFFIRM AND ADOPT ALL APPLICABLE TERMS, PROVISIONS, COVENANTS AND CONDITIONS OF THE BOND RESOLUTION; TO PROVIDE FOR THE ADOPTION OF RATES AND THE COLLECTION OF FEES AND CHARGES FOR THE SERVICES, FACILITIES AND COMMODITIES TO BE FURNISHED BY THE WATER AND SEWERAGE SYSTEM; TO PROVIDE FOR THE ISSUANCE UNDER CERTAIN TERMS AND CONDITIONS OF ADDITIONAL PARITY BONDS; TO PROVIDE FOR THE CREATION AND MAINTENANCE OF CERTAIN FUNDS; TO PROVIDE FOR THE ADOPTION OF A SUPPLEMENTAL RESOLUTION FINALIZING THE TERMS OF THE AUCTION RATE BONDS; AND FOR OTHER PURPOSES: 'VHEREAS, under the provisions of Article IX, Section III, Paragraph II(a) of the Constitution of the State of Georgia and an act of the General Assembly of the State of Georgia (Georgia Laws 1995, p. 3648 et seq., as amended - the "Act"), and pursuant to referenda, as authorized and required by said act, which were held within the City of Augusta (the "City") and Richmond County (the "County"), the City and the County (excluding the area within the City of Hephzibah and the Town of Blythe, Georgia) were consolidated into a consolidated government now known as "Augusta, Georgia" (the "Consolidated Government"); and WHEREAS, the Act was amended by subsequent acts, including Georgia Laws 1997, p. 4024 et seq., which provides: Said county-wide government shall be a new political entity, a body politic and corporate, and a political subdivision of the state to be known as "Augusta, Georgia," at times in this Act called the "consolidated government" or "Augusta-Richmond County," having all the governmental and corporate powers, duties, and functions heretofore held by and vested in the City of Augusta and Richmond County, and also the powers, duties, and functions provided in this charter; and AO 1118243.2 r .. WHEREAS, pursuant to the Act, the Consolidated Government now constitutes a county and a municipality under the laws and the Constitution of the State of Georgia, and is a political subdivision of the State of Georgia in the exercise of the respective powers of a municipality and a county; and WHEREAS, pursuant to Article IX, Section II, Paragraph II of the Constitution of the State of Georgia, the Municipal Home Rule Act of 1965 (codified, as amended, at O.C.G.A S 36- 35-1 et seq.) and an ordinance adopted by the Augusta-Richmond County Commission-Council of the Consolidated Government on October 1, 1996 (Georgia Laws 1997, p. 4690 et seq.), the Commission-Council amended the designation of its governing body from the "Augusta- Richmond County Commission-Council" to the "Augusta-Richmond County Commission" (the "Commission"); and WHEREAS, pursuant to the Act, the water and sewerage systems of the City and the County are now owned and operated by the Consolidated Government and pursuant to the 1996 Resolution (hereinafter defined) have been combined into one revenue producing undertaking; and WHEREAS, the Consolidated Government acting by and through the Commission, by virtue of the authority of the Constitution of the State of Georgia, the Act and Title 36, Chapter 82, Article 3 of the Official Code of Georgia Annotated, as amended (the "Revenue Bond Law"), is authorized to issue revenue bonds, to fund in part a reasonably required debt service reserve and to acquire additional water and sewerage facilities by the addition thereto of improvements to the Consolidated Government's water and sewerage system, as now existent and as hereafter added to, extended, improved and equipped (the "System"), and to construct such additions, and to operate and maintain the System for its own use, and for the use of the public and to prescribe and revise rates, and to collect fees and charges for the services, facilities and commodities furnished by the System, and in anticipation of the collection of revenues from the System, to issue revenue bonds to fund in part a reasonably required debt service reserve and finance the cost of such additions, extensions and improvements to the System and to pay all expenses necessary to accomplish the foregoing and to issue refunding bonds to refund bonds issued to finance any such undertaking; and WHEREAS, pursuant to a resolution adopted on October 21, 1996, as supplemented on December 3 and 17, 1996 (the "1996 Resolution"), the Consolidated Government issued $62,880,000 aggregate principal amount of Richmond County Water and Sewerage Revenue Refunding and Improvement Bonds, Series 1996A (the "Series 1996 Bonds"), dated December 1, 1996, bearing interest from date at the rates per annum set forth below, all interest payable semiannually on April 1 and October 1 in each year, commencing on April 1, 1997, and maturing on October 1 in the following years and principal amounts: -2- AO 1118243,2 ,. Year Amount Rate Year Amount Rate 1997 $ 265,000 3.60% 2006 $ 1,260,000 6.00% 1998 350,000 3.80 2007 1,335,000 6.00 1999 365,000 4.00 2008 1,415,000 4.90 2000 375,000 4.10 2009 1,485,000 5.00 2001 395,000 4.20 2010 1,560,000 5.10 2002 410,000 4.30 2012 3,355,000 5.00 2003 1,100,000 4.40 2017 10,000,000 5.125 2004 1,155,000 4.50 2022 13,305,000 5.25 2005 1,205,000 4.60 2028 23,545,000 5.25 and ofthe Series 1996A Bonds there is now outstanding $59,620,000 aggregate principal amount thereof, being bonds maturing in the years 2004 and thereafter, and the Series 1996A Bonds are secured by a lien on the Pledged Revenues (as defined in the 1996 Resolution) in accordance with the 1996 Resolution; and WHEREAS, pursuant to the 1996 Resolution, the Consolidated Government also issued $3,760,000 aggregate principal amount of Richmond County Taxable Water and Sewerage Revenue Refunding Bonds, Series 1996B, which have all been paid; and WHEREAS, pursuant to the 1996 Resolution, the Consolidated Government also issued $5,910,000 aggregate principal amount of Richmond County Water and Sewerage Revenue Refunding Bonds, Series 1997 (the "Series 1997 Bonds"), dated January 1, 1997, bearing interest from date at the rates per annum set forth below, all interest payable semiannually on April 1 and October 1 in each year, commencing on April 1, 1997, and maturing on October 1 in the following years and principal amounts: Year Amount Rate Year Amount Rate 1997 $100,000 3.60% 2006 $ 190,000 4.70 % 1998 140,000 3.80 2007 200,000 4.80 1999 145,000 4.00 2008 210,000 4.90 2000 150,000 4.10 2009 220,000 5.00 2001 155,000 4.20 2010 230,000 5.10 2002 160,000 4.30 2012 500,000 5.00 2003 170,000 4.40 2017 1,490,000 5.125 2004 175,000 4.50 2021 1,490,000 5.25 2005 185,000 4.60 and of the Series 1997 Bonds there is now outstanding $4,890,000 aggregate principal amount thereof, being bonds maturing in the years 2004 and thereafter, and the Series 1997 Bonds are secured on a parity with the Series 1996 Bonds as to lien on the Pledged Revenues in accordance with the 1996 Resolution; and WHEREAS, pursuant to a resolution adopted on August 22, 2000, as supplemented on September 15,2000 (the "2000 Resolution"), the Consolidated Government issued $97,080,000 -3- AO 1118243.2 aggregate principal amount of Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2000 (the "Series 2000 Bonds"), dated September 1,2000, bearing interest from date at the rates per annum set forth below, all interest payable semiannually on April 1 and October 1 in each year, commencing on April 1, 2000, and maturing on October 1 in the following years and principal amounts: Year Amount Rate Year Amount Rate 2006 $ 355,000 4.40% 2014 $ 2,740,000 5.00% 2007 1,405,000 4.50 2015 2,875,000 5.15 2008 1,775,000 4.55 2016 3,020,000 5.25 2009 2,165,000 4.60 2017 3,180,000 5.25 2010 2,265,000 4.65 2018 3,345,000 5.25 2011 2,375,000 4.80 2022 15,240,000 5.25 2012 2,485,000 4.90 2026 18,705,000 5.25 2013 2,605,000 5.00 2030 32,545,000 5.25 and the entire $97,080,000 aggregate principal amount of the Series 2000 Bonds is now outstanding, secured on a parity with the Series 1996 Bonds and the Series 1997 Bonds (collectively, the "Series 1996/1997 Bonds") as to lien on the Pledged Revenues; and WHEREAS, pursuant to a resolution adopted May 30, 2002, as supplemented June 21, 2002 (the "2002 Resolution"), the Consolidated Government issued $154,070,000 aggregate principal amount of Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2002 (the "Series 2002 Bonds"), dated June 1, 2002, bearing interest from date at the rates per annum set forth below, all interest payable semiannually on April 1 and October 1 in each year, commencing on October 1, 2002, and maturing on October 1 in the following years and principal amounts: Year Amount Rate Year Amount Rate 2002 $ 235,000 2.50 % 2014 $ 3,430,000 5.25 % 2003 905,000 2.50 2015 3,615,000 5.00 2004 925,000 2.50 2016 3,795,000 5.00 2005 950,000 3.00 2017 3,980,000 5.00 2006 980,000 3.00 2018 4,180,000 4.50 2007 1,010,000 3.00 2019 4,370,000 5.375 2008 1,425,000 3.30 2020 4,605,000 5.375 2009 1,705,000 3.50 2021 4,850,000 5.25 2010 2,365,000 3.75 2022 5,105,000 5.25 2011 3,015,000 3.875 2027 29,695,000 5.00 2012 3,135,000 4.00 2032 61,865,000 5.00 2013 3,260,000 5.25 and of the Series 2002 Bonds there is now outstanding $148,260,000 aggregate principal amount thereof, being bonds maturing in the years 2004 and thereafter, and the Series 2002 Bonds are -4- AO 1118243.2 1 secured on a parity with the Series 1996 Bonds, the Series 1997 Bonds and the Series 2000 Bonds as to lien on the Pledged Revenues in accordance with the 1996 Resolution; and WHEREAS, the Consolidated Government has received a recommendation from Merrill Lynch & Co. (the "Underwriter"), with which recommendation the Consolidated Government concurs, that, due to present market conditions, it is advisable, feasible and in the best interest of the Consolidated Government to refund by redemption and payment the Series 1996 Bonds maturing on and after October 1,2007 in the aggregate principal amount of $56,000,000 and the Series 1997 Bonds maturing on and after October 1, 2007 in the aggregate principal amount of $4,340,000 (collectively, the "Refunded Bonds"), all to achieve debt service savings; and WHEREAS, to accomplish such refunding, it is proposed that the Consolidated Government, by a single resolution, authorize and provide for (i) the issuance not more than 90 days prior to October 2,2006 (the first date on which the Refunded Bonds may be refunded on a tax-exempt basis) of not to exceed $65,000,000 aggregate principal amount of Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006 (the "Auction Rate Bonds") to provide funds to be applied to the redemption of the Refunded Bonds on October 2, 2006 and to pay costs of issuance, (ii) the execution and delivery of a Forward Bond Purchase Agreement, by and between the Underwriter and the Consolidated Government, pursuant to which the Consolidated Government agrees to sell, and the Underwriter agrees to purchase, the Auction Rate Bonds on a future date, and (iii) the execution and delivery concurrently with the execution of the Forward Bond Purchase Agreement of an ISDA Master Agreement, together with related Schedules and Confirmation (collectively, the "2004 Hedge Agreement") with Merrill Lynch Capital Services, Inc. (the "2004 Hedge Provider"), pursuant to which the 2004 Hedge Provider will agree to pay the Consolidated Government a variable rate that is expected to coincide with the variable interest rate in effect from time to time on the Auction Rate Bonds, and the Consolidated Government will agree to pay to the 2004 Hedge Provider the fixed rate set forth in the 2004 Hedge Agreement, such that the Consolidated Government will effectively convert the variable rate of interest borne by the Auction Rate Bonds to a fixed rate of interest; and WHEREAS, as a result of the foregoing transactions and agreements and the availability of favorable long-term interest rates in the current market, the Consolidated Government expects to realize substantial debt service savings over the life of the Auction Rate Bonds; and WHEREAS, upon the recommendation of the Underwriter, with which recommendation the Consolidated Government concurs, and in order to induce the Credit Issuer (hereinafter defined) to issue a commitment for bond insurance with respect to the Auction Rate Bonds, it has been determined that the Consolidated Government should make due and legal provision to fund a reasonably required debt service reserve for the Auction Rate Bonds; and WHEREAS, the Consolidated Government has applied to Financial Security Assurance, Inc. (the "Credit Issuer") for the issuance of a Credit Facility (as defined in the 1996 Resolution) to enhance the Consolidated Government's credit by assuring owners of the Auction Rate Bonds that the principal of and interest on the Auction Rate Bonds will be paid promptly when due and for the issuance of an insurance policy (the "Swap Policy") in favor of the 2004 Hedge Provider insuring the Consolidated Government's obligations under the 2004 Hedge Agreement; and -5- AO 1118243.2 WHEREAS, to provide for the remarketing of Auction Rate Bonds in accordance with the Auction Rate Procedures attached hereto as Exhibit A-I (the "Auction Rate Procedures"), it is necessary to authorize the execution and delivery by the Consolidated Government of a Broker-Dealer Agreement with Merrill Lynch & Co., as broker-dealer with respect to the Auction Rate Bonds; and WHEREAS, in accordance with the Auction Rate Procedures it is necessary to authorize the execution and delivery by the City of an Auction Agent Agreement; and WHEREAS, it was provided in Section 8 of Article V of the 1996 Resolution, that additional revenue bonds or obligations for refunding purposes could be issued, from time to time, payable from the Pledged Revenues of the System on a parity with the outstanding Series 1996/1997 Bonds, the Series 2000 Bonds and the Series 2002 Bonds (the "Outstanding Prior Bonds"), upon meeting certain terms and conditions, as set forth therein, which are as follows: (a) Either (x) the Consolidated Government shall have executed a certificate: (i) setting forth the aggregate amount of interest and principal of the Outstanding Prior Bonds] and Additional Bonds falling due during the then current Sinking Fund Year and for each subsequent Sinking Fund Year to and including the Sinking Fund Year of the last maturity of any [Outstanding Prior Bonds] and Additional Bonds then outstanding (A) with respect to all [Outstanding Prior Bonds] and Additional Bonds outstanding immediately prior to the date of authentication and delivery of such refunding Bonds and (B) with respect to all [Outstanding Prior Bonds] and Additional Bonds to be outstanding immediately thereafter; and (ii) demonstrating that the amount set forth for each Sinking Fund Year pursuant to (i)(B) above is no greater than the amount set forth for such Sinking Fund Year pursuant to (i)(A) above; or (y) the Consolidated Government shall have executed a certificate: (i) setting forth with respect to the Bonds being refunded by the refunding Bonds, the aggregate interest and principal on such refunded Bonds falling due from the date of the proposed authentication and issuance of the refunding Bonds to and through the final maturity date of the refunded Bonds; (ii) setting forth with respect to the proposed refunding Bonds, the aggregate interest and principal on such Bonds falling due on such refunding Bonds from the date of the authentication and delivery thereof to the final maturity of the refunding Bonds; (iii) demonstrating that the amount set forth in (ii) above is less than the amount set forth in (i) above and (iv) demonstrating that, with respect to all [Outstanding Prior Bonds] and Additional Bonds to be outstanding immediately after the date of authentication and issuance of the refunding Bonds, the maximum interest and principal falling due on such bonds in any Sinking Fund Year shall not exceed the least amount of interest and principal falling due on such bonds in any Sinking Fund Year by more than 20 percent. (b) The payments covenanted to be made into the Sinking Fund, as the same may have been enlarged and extended in any proceedings authorizing the issuance of any Additional Bonds, must be currently being made in full amount as required and the Debt Service Account and Reserve Account held within the Sinking Fund must be at their proper respective balances. (c) An Independent Certified Public Accountant shall certify in triplicate to the Consolidated Government that the requirements of subparagraph (a) above are being complied with. A copy of such certificate shall be furnished to the Designated Representative of the original purchasers of the [Outstanding] Prior Bonds. -6- AO 1118243.2 (d) The Consolidated Government shall pass proper proceedings reciting that all of the above requirements have been met, shall authorize the issuance of the Additional Bonds and shall provide in such proceedings, among other things, the date such Additional Bonds shall bear, the rate or rates of interest and maturity dates, as well as the registration and redemption provisions. Except for Additional Bonds that bear interest at a Variable Rate, the interest on the Additional Bonds of any such issue shall fall due on April 1 and October 1 of each year, and the Additional Bonds shall mature in installments on October 1, but, as to principal, not necessarily in each year or in equal installments. Any such proceeding or proceedings shall require the Consolidated Government to increase the monthly payments then being made into the Sinking Fund to the extent necessary to pay the principal of and the interest on the [Outstanding] Prior Bonds and on all such Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued as same become due and payable, either at maturity or by proceedings for mandatory redemption, in the then current Sinking Fund Year, and to create upon the issuance of the proposed Additional Bonds to be issued a reserve in the Reserve Account at least equal to the Reserve Requirement on the [Outstanding] Prior Bonds and any Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued and to maintain said reserve in an amount sufficient for that purpose; provided, however, the Consolidated Government may satisfy funding of the required reserve through the purchase of a Reserve Account Surety Bond meeting the requirements of the Resolutions. Any such proceeding or proceedings shall restate and reaffirm, by reference, all of the applicable terms, conditions and provisions of the Resolutions. If any Additional Bonds would bear interest at a Variable Rate, the resolution under which such Additional Bonds are issued shall provide a maximum rate of interest per annum which such Additional Bonds may bear. In connection with the issuance of any Additional Bonds under the Resolutions, the Consolidated Government may obtain or cause to be obtained one or more Credit Facilities providing for payment of all or a portion of the principal of, premium, if any, or interest due or to become due on such Additional Bonds, providing for the purchase of such Additional Bonds by the Credit Issuer, or providing funds for the purchase of such Additional Bonds by the Consolidated Government. In connection therewith the Consolidated Government shall enter into Credit Facility Agreements with such Credit Issuers providing for, among other things, (i) the payment of fees and expenses to such Credit Issuer for the issuance of such Credit Facility; (ii) the terms and conditions of such Credit Facility and the Additional Bonds affected thereby; and (iii) the security, if any, to be provided for the issuance of such Credit Facility. The Consolidated Government may in a Credit Facility Agreement agree to directly reimburse such Credit Issuer for amounts paid under the terms of such Credit Facility, together with interest thereon; provided, however, that no Reimbursement Obligation shall be created, for purposes of the Resolutions, until amounts are paid under such Credit Facility. Any such Reimbursement Obligation shall be deemed to be a part of the Additional Bonds to which the Credit Facility relates which gave rise to such Reimbursement Obligation, and references to principal and interest payments with respect to such Additional Bonds shall include principal and interest (except for Additional Interest) due on the Reimbursement Obligation incurred as a result of payment of such Additional Bonds with the Credit Facility. All other amounts payable under the Credit Facility Agreement (including any Additional Interest) shall be fully subordinate to the payment of debt service on Bonds (other than [Subordinate Bonds]). Any such Credit Facility shall be for the benefit of and secure such Additional Bonds or portion thereof as specified in the applicable bond resolution authorizing such Additional Bonds. -7- AO 1118243.2 ( e) Such Additional Bonds or obligations and all proceedings relative thereto, and the security therefor, shall be validated as prescribed by law. WHEREAS, the Outstanding Prior Bonds are the only revenue obligations of the Consolidated Government now outstanding having as security for the payment thereof and interest thereon a first or prior lien on the Pledged Revenues of the System and the Consolidated Government has been and is now complying and will continue to comply in all respects with the applicable terms, covenants and provisions of the Prior Resolutions. NOW, THEREFORE, BE IT RESOLVED by the Augusta-Richmond County Commission and it is hereby resolved by the authority of same, as follows: Section 1. Definitions. Capitalized terms used herein and not defined shall have the meanings set forth in the Prior Resolutions. For the purpose of this 2004 Resolution the definitions set forth in the Prior Resolutions shall be and are hereby amended and added to, effective as of the date of the issuance and delivery of the Auction Rate Bonds herein authorized to be issued, as follows: "Additional Bonds" shall mean any revenue bonds of the Consolidated Government ranking on a parity with the Outstanding Prior Bonds and the Auction Rate Bonds which may hereafter be issued pursuant to Article V, Section 8 of the 1996 Resolution, Section 25 of the 2000 Resolution, Section 25 of the 2002 Resolution and Section 23 of this 2004 Resolution. "Auction Rate Bonds" means the Consolidated Government's Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006, in the aggregate principal amount not to exceed $65,000,000 authorized to be issued pursuant to Section 2 ofthis 2004 Resolution. "Beneficial Owner" shall mean, with respect to any bonds issued in Book-Entry Form, the owners of a beneficial interest in such bonds. "Book-Entry Form" or "Book-Entry System" shall mean, with respect to the Auction Rate Bonds, a form or system, as applicable, under which (i) the ownership of beneficial interests in bonds and bond service charges may be transferred only through book-entry and (ii) physical bonds in fully registered, certificated form are registered only in the name of a Securities Depository or its nominee as holder, with physical bond certificates immobilized in the custody of a Securities Depository. "Debt Service Requirement" means the amounts required in each Sinking Fund Year to pay the principal of and interest on the Outstanding Prior Bonds, the Auction Rate Bonds and any Additional Bonds as same become due and payable; provided, however, with respect to any term obligation which is required to be repaid prior to its stated maturity through the operation of a mandatory sinking fund, the amount of principal coming due in any Sinking Fund Year with respect to such obligation shall be the amount required to be deposited into the sinking fund for the retirement of the principal amount of such obligation rather than the entire principal amount of such debt coming due at the stated maturity. If any Bonds outstanding or proposed to be issued bear interest at a Variable Rate, the interest rate per annum on such Bonds for purposes of calculating the Debt Service Requirement shall be the lesser of (a) the 30-year Revenue Bond Index, (b) the maximum interest rate for such Bonds permitted by the supplemental bonde -8- AO 1118243.2 ~ resolution authorizing the issuance thereof or (c) the "cap" rate, if any, established with respect to such bonds in a related Hedge Agreement. With respect to any Bonds secured by a Credit Facility, Debt Service Requirement shall include (a) any commission or commitment fee obligations with respect to such Credit Facility, (b) the outstanding amount of any Reimbursement Obligation owed to the relevant Credit Issuer and the interest thereon, (c) any Additional Interest owned on Bank Bonds to a Credit Issuer and (d) any remarketing agent fees. With respect to Bonds for which there exists a related Hedge Agreement, Debt Service Requirement shall include the net amounts paid with respect to such Hedge Agreement. "Investment Earnings" means all interest received on and profits derived from investments made with Pledged Revenues or any moneys in the funds and accounts established under Article IV and Article V of the 1996 Resolution, as such accounts may be redesignated under this 2004 Resolution. "Outstanding Prior Bonds" shall mean the outstanding Series 2000 Bonds and Series 2002 Bonds. "Prior Resolutions" means collectively the 1996 Resolution, the 2000 Resolution and the 2002 Resolution. "Reserve Requirement" means the least of (i) the highest Debt Service Requirement in the then current or any succeeding Sinking Fund Year, (ii) 10 percent of the aggregate principal amount of the Prior Bonds, the Auction Rate Bonds and Additional Bonds outstanding, or (iii) 125 percent of the average annual Debt Service Requirement in the current or any succeeding Sinking Fund Year. "Resolutions" means collectively the 1996 Resolution, the 2000 Resolution, the 2002 Resolution and this 2004 Resolution, and as same may be supplemented from time to time. "2004 Hedge Agreement" means the ISDA Master Agreement, together with schedules thereto and Confirmation thereunder, between the Consolidated Government and the 2004 Hedge Provider. "2004 Hedge Provider" means Merrill Lynch Capital Services, Inc., as the counterparty under the 2004 Hedge Agreement. "2004 Resolution" means this resolution of the Augusta-Richmond County Commission of Augusta, Georgia adopted May 4, 2004, ratifying, reaffirming, broadening and extending the Prior Resolutions and authorizing the issuance of the Auction Rate Bonds, as same may be supplemented from time to time, including by the 2004 Supplemental Resolution. "2004 Supplemental Resolution" means, collectively, the resolution or resolutions to be adopted in connection with the pricing of the 2004 Hedge Agreement and the public offering of the Auction Rate Bonds. Whenever used in this 2004 Resolution, the singular shall include the plural and the plural shall include the singular, unless the context otherwise indicates. -9- AO 1118243.2 . Section 2. Authorization. All the terms, provisions 'and conditions contained in Section 9 of Article V of the 1996 Resolution, as ratified, reaffirmed, broadened and extended in Section 25 of the 2000 Resolution and Section 25 of the 2002 Resolution, having been met and complied with, there be and there is hereby authorized to be issued, pursuant to and in conformity with the Prior Resolutions, the Constitution of the State of Georgia, the Revenue Bond Law and the Act, revenue bonds in the aggregate principal amount not to exceed $65,000,000 for the purpose of providing funds to payor to be applied toward the cost of refunding by redemption and payment the Richmond County Water and Sewerage Revenue Refunding Bonds, Series 1996A, maturing on and after October 1, 2007, in the aggregate principal amount of $56,000,000 and the Richmond County Water and Sewerage Revenue Refunding Bonds, Series 1997, maturing on and after October 1, 2007 in the aggregate principal amount of $4,340,000 (collectively, the "Refunded Bonds"), to fund a reasonably required debt service reserve and to pay all expenses necessary to accomplish the foregoing. The revenue bonds shall be designated "Augusta, Georgia Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006," shall be dated not later than the date on which issued and delivered, shall be in the form of fully registered bonds without coupons, shall be in Authorized Denominations (as defined in Exhibit A), shall be numbered upwards from R-l, shall bear interest from date initially at the Auction Period Rate determined in accordance with Exhibit A, and shall be subject to optional redemption as set forth in Exhibit A. The Auction Rate Bonds shall have initial "Auction Dates," initial "Auction Periods," and initial "Interest Payment Dates," as set out in the Supplemental Resolution. The Auction Rate Bonds shall initially bear interest at a "Variable Rate" as defined in the Resolutions, and shall be subject to a Hedge Agreement by virtue of the execution and delivery by the Consolidated Government of the 2004 Hedge Agreement. The "cap rate" for purposes of determining the Debt Service Requirement of the Auction Rate Bonds shall be the "payer rate" for the Consolidated Government established by the 2004 Hedge Agreement, which rate shall not exceed 4.56 percent. The maximum annual rate of interest that the Auction Rate Bonds may bear is set forth in Exhibit A. The principal amount of the Auction Rate Bonds shall mature on October 1 in such year or years not later than 2032, in such principal amounts so that the maturing annual debt service in any calendar year on the Auction Rate Bonds will not exceed $5,000,000 and the maturing annual debt service in any calendar year on the Outstanding Prior Bonds and the Auction Rate Bonds will not exceed $25,000,000. The principal amount of the Auction Rate Bonds shall be payable at maturity, unless redeemed prior thereto as hereinafter provided, upon presentation and surrender thereof at the principal corporate trust office of the Paying Agent in Atlanta, Georgia, and payments of interest on the Auction Rate Bonds shall be made by check or draft payable to the registered owner as shown on the bond registration book kept by the Bond Registrar at the close of business on the fifteenth day of the calendar month next preceding the April 1 and October 1 interest payment dates and such payments of interest shall be mailed to the registered owner at the address shown on the bond registration book. Notwithstanding the foregoing, so long as the Auction Rate Bonds are in Book-Entry Form, principal and interest shall be payable to the Securities Depository or its nominee, all as set forth in Section 8 hereof. Both the principal of and interest on the Auction Rate Bonds shall be payable in lawful money of the United States of America. -10- AO 1118243.2 Section 3. Execution: Form of Auction Rate Bonds. The Auction Rate Bonds shall be executed on behalf of the Consolidated Government by use of the manual or facsimile signature of the Mayor of the Commission and attested by the manual or facsimile signature of the Clerk of the Commission and the official seal of the Consolidated Government shall be impressed thereon or a facsimile thereof imprinted thereon, and the Auction Rate Bonds shall be authenticated by the manual signature of a duly authorized signatory of the Bond Registrar. The validation certificate to be printed on the Auction Rate Bonds shall be executed by use of the manual or facsimile signature of the Clerk of the Superior Court of Richmond County and the official seal of said Court shall be impressed thereon or a facsimile thereof shall be imprinted thereon. There shall be printed on the Auction Rate Bonds a Statement of Insurance prepared by the Credit Issuer. In case any officer whose signature shall appear on the Auction Rate Bonds shall cease to be such officer before delivery of such Auction Rate Bonds, 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 Auction Rate Bonds, the certificate of authentication and registration, form of assignment and the certificate of validation to be endorsed upon the Auction Rate Bonds shall be in substantially the following form, with such variations, omissions and insertions as are required or permitted by this 2004 Resolution, to wit: -11- AO 1118243.2 No. R- $ UNITED STATES OF AMERICA STATE OF GEORGIA AUGUSTA, GEORGIA WATER AND SEWERAGE REVENUE REFUNDING BOND AUCTION RATE SERIES 2006 BOND DATE: INTEREST RATE: Auction Rate MATURITY DATE: October 1,_ CUSIP: FOR VALUE RECEIVED, AUGUSTA, GEORGIA (the "Consolidated Government"), a political subdivision of the State of Georgia, hereby promises to pay solely from the special fund provided therefor, as hereinafter set forth, to CEDE & CO., or registered assigns, the principal sum of DOLLARS in lawful money of the United States of America on the maturity date specified above, unless redeemed prior thereto as hereinafter provided, upon presentation and surrender hereof at the principal corporate trust office of , Paying Agent and Bond Registrar, together with interest thereon at the Auction Rate (as defined and provided in the Parity Bond Resolution of the Consolidated Government adopted on May _,2004 (the "2004 Resolution")) from the later of the Issuance Date set forth above or the most recent interest payment date to which interest has been paid or duly provided for. Interest on this bond is payable on each Interest Payment Date (as hereinafter provided), until the maturity or redemption date of this bond or until the Consolidated Government's obligation with respect to this bond has been satisfied. Payments of interest on this Bond shall be made by check or draft payable to the registered owner as shown on the bond registration book kept by the Bond Registrar at the close of business on the fifteenth day of the calendar month next preceding each Interest Payment Date and such interest payments shall be mailed to the registered owner at the address shown on the bond registration book. This Bond is one of a duly authorized issue in the aggregate principal amount of $154,070,000 (the "Auction Rate Bonds") of like tenor, except as to numbers, denominations, interest rates and dates of maturity and redemption provisions, issued by the Consolidated Government for the purpose of providing funds to payor to be applied toward the cost of refunding by redemption and payment the Richmond County Water and Sewerage Revenue Refunding Bonds, Series 1996A, maturing on and after October 1, 2007, in the aggregate principal amount of $56,000,000 and the Richmond County Water and Sewerage Revenue Refunding Bonds, Series 1997, maturing on and after October 1, 2007 in the aggregate principal amount of $4,340,000 (collectively, the "Refunded Bonds"), to fund a reasonably required debt service reserve and to pay all expenses necessary to accomplish the foregoing. The Auction Rate Bonds are issued under authority of the Revenue Bond Law of the State of Georgia (Title 36, Chapter 82, Article 3 of the Official Code of Georgia Annotated, as amended), and an act of the General Assembly of the State of Georgia (Georgia Laws 1995, p. 3648 et seq., as amended), and were duly authorized by the Augusta-Richmond County Commission (the "Commission") -12- AO 1118243.2 -f by a resolution adopted on October 21, 1996, as supplemented on December 3 and 17, 1996 (the "1996 Resolution"), a resolution adopted on August 22, 2000, as supplemented September 15, 2000 (the "2000 Resolution") a resolution adopted May 30, 2002, as supplemented June 21, 2002 (the "2002 Resolution") and a resolution adopted May _, 2004, as supplemented May _, 2004 and August _, 2006 (the "2004 Resolution" and, together with the 1996 Resolution, the 2000 Resolution and the 2002 Resolution, the "Resolutions"). The Auction Rate Bonds rank on a parity as to lien on the Pledged Revenues (as hereinafter defined) of the System with the Consolidated Government's outstanding Water and Sewerage Revenue Bonds, Series 2000 and Water and Sewerage Revenue Bonds, Series 2002 (collectively, the "Outstanding Prior Bonds"). In addition to the Outstanding Prior Bonds and the Auction Rate Bonds (collectively, the "Bonds"), the Consolidated Government may issue, under certain terms and conditions as provided in the Resolutions, additional revenue bonds, and if issued, such bonds will rank on a parity as to lien on the Pledged Revenues of the System with the Bonds. Reference to the Resolutions is hereby made for a complete description of the funds charged with, and pledged to, the payment of the principal of and the interest on the Bonds or any other issue of bonds issued on a parity therewith, the nature and extent of the security, a statement of rights, duties and obligations of the Consolidated Government, the rights of the owners of the Auction Rate Bonds and the terms and conditions under which additional bonds may be issued, to all the provisions of which the owner hereof, by the acceptance of this Bond, assents. The person in whose name this Bond is registered on the registration books kept by the Bond Registrar shall be deemed to be the owner of this Bond for all purposes. The Auction Rate Bonds are being issued by means of a book-entry system, with actual Auction Rate Bonds immobilized at The Depository Trust Company, New York, New York (the "Securities Depository"), or its successor as Securities Depository, evidencing ownership of the Auction Rate Bonds in principal amounts of $5,000 or integral multiples thereof, and with transfers of beneficial ownership effected on the records of the Securities Depository and its participants pursuant to the rules and procedures established by the Securities Depository. Actual Auction Rate Bonds are not available for distribution to the owners of beneficial interests in the Auction Rate Bonds registered in book-entry form (the "Beneficial Owners"), except under the limited circumstances set forth in the 2004 Resolution. The principal, redemption premium (if any) and interest on the Auction Rate Bonds are payable by the Paying Agent to Cede & Co., as nominee of the Securities Depository. Transfers of principal, redemption premium (if any) and interest payments to participants of the Securities Depository is the responsibility of the Securities Depository; transfers of principal, redemption premium (if any) and interest to Beneficial Owners of the Auction Rate Bonds by participants of the Securities Depository will be the responsibility of such participants and other nominees of Beneficial Owners. Neither the Consolidated Government nor the Paying Agent is responsible or liable for maintaining, supervising or reviewing the records maintained by the Securities Depository, its participants or persons acting through such participants. If the Auction Rate Bonds are no longer registered to a Securities Depository or its nominee, this Bond may be registered as transferred only upon the registration books kept for that purpose at the principal corporate trust office of the Bond Registrar by the registered owner hereof in person, or by his or her attorney duly authorized in writing, upon presentation and surrender to the Bond Registrar of this Bond duly endorsed for registration of transfer or accompanied by an assignment duly executed by the registered owner or his or her attorney duly authorized in writing, and thereupon a new registered bond certificate, in the same aggregate principal amount and of the same maturity shall be issued to the transferee -13- AO 1118243.2 4 in exchange therefor. In addition, if the Auction Rate Bonds are no longer registered to a Securities Depository, this Bond may be exchanged by the registered owner hereof or his or her duly authorized attorney upon presentation at the principal corporate trust office of the Bond Registrar for an equal aggregate principal amount of Auction Rate Bonds of the same maturity and in any authorized denominations in the manner, subject to the conditions and upon payment of charges, if any, provided in the Resolutions. This Bond is transferable only upon the bond registration book kept for that purpose at the principal corporate trust office of the Bond Registrar by the registered owner hereof in person, or by attorney duly authorized in writing, upon the surrender and presentation to the Bond Registrar of this Bond duly endorsed for transfer or accompanied by an assignment duly executed by the registered owner or attorney duly authorized in writing, and thereupon a new registered bond, in the same aggregate principal amount and of the same maturity shall be issued to the transferee in exchange therefor. The Bonds and such revenue bonds of the Consolidated Government as may in the future be issued on a parity therewith, are equally and ratably secured by a pledge of and a lien on the "Pledged Revenues," which are defined in the Resolutions to include net operating revenues of the System (gross operating revenues of the System after provision for payment of all reasonable expenses of operation and maintenance) and earnings on investments made with moneys and securities from time to time on deposit in the funds and accounts established in the Resolutions. The Resolutions provide, among other things, for prescribing and revising rates and collecting fees and charges for the services, facilities and commodities furnished by the System, as now existent and as hereinafter added to, extended, improved and equipped to the extent necessary to produce revenues sufficient (i) to pay the reasonable and necessary costs of operating and maintaining the System, including any contractual obligations incurred pertaining to the operation of the System, (ii) to produce Pledged Revenues (excluding earnings on investments made with moneys and securities from time to time on deposit in the construction funds) in each Fiscal Year (as defined in the 1996 Resolution) equal to at last 110 percent of the amount required to discharge the payment of the Bonds and any bonds issued on a parity therewith then outstanding as the same become due and payable, (iii) to pay into the special fund designated "Augusta, Georgia Water and Sewerage System Sinking Fund" the amounts required to pay the principal of and the interest on the Bonds and any other bonds hereafter issued on a parity therewith as the same become due payable, either at maturity or by proceedings for mandatory redemption, and to create and maintain a reserve therein for that purpose, and (iv) to create and maintain a reserve for extensions and improvements to the System. This Bond shall not be deemed to constitute a debt of the State of Georgia or the Consolidated Government nor a pledge of the faith and credit of said State or Consolidated Government, nor shall the State or Consolidated Government be subject to any pecuniary liability hereon. This Bond shall not be payable from, nor be a charge upon, any funds other than the Pledged Revenues, and is payable solely from the special fund provided therefor from the Pledged Revenues, including all future additions thereto and any other moneys deposited therein. No owner of this Bond shall ever have the right to enforce payment hereof against any other property of the State of Georgia or the Consolidated Government, nor shall this Bond constitute a charge, lien or encumbrance, legal or equitable, upon any other property of the -14- AO 1118243.2 Consolidated Government other than the Pledged Revenues pledged to the payment hereof. The issuance of this Bond shall not directly, indirectly or contingently obligate the State or the Consolidated Government to levy or to pledge any form of taxation whatever therefor or to make any appropriation for its payment. The Auction Rate Bonds may be redeemed prior to maturity as provided in the 2004 Resolution. In addition, the Auction Rate Bonds are subject to mandatory redemption prior to maturity in accordance with the provisions of the 2004 Resolution, in part, by lot in such manner as may be designated by the Bond Registrar at par plus accrued interest to the redemption date, in the following principal amounts on October 1 in the following years: Year Amount $ maturity. principal amount of Bonds maturing October 1, shall be paid at Notice designating the Bonds (or the portion of the principal amount of the Auction Rate Bonds in multiples of $5,000) to be acquired by redemption, as aforesaid, shall be mailed, postage prepaid, not less than 30 days nor more than 60 days prior to the redemption date to all registered owners of Auction Rate Bonds to be redeemed in whole or in part at the addresses which appear in the bond registration book, but failure so to mail any such notice shall not affect the validity of the proceedings for such redemption or cause the interest to accrue on the principal amount of the Auction Rate Bonds so designated for redemption after the redemption date. To the extent and in the manner permitted by the Resolutions, modifications, alterations, amendments, additions and recisions of the provisions of the Resolutions, or of any resolution supplemental thereto or of the Auction Rate Bonds, may be made by the Consolidated Government with the consent of the owners of at least 65 percent in aggregate principal amount of the Auction Rate Bonds then outstanding, including any parity obligations therewith then outstanding, and without the necessity for notation hereon of reference thereto. This Bond is issued with the intent that the laws of the State of Georgia shall govern its construction. In case of default, the owner of this Bond shall be entitled to the remedies provided in the Resolutions authorizing its issuance and in said Revenue Bond Law and any amendments thereto. -15- AO 1118243.2 ,,,,,- f It is hereby recited and certified that all acts, conditions and things required to be done precedent to and in the issuance of this Bond have been done, have happened and have been performed in due and legal form as required by law, and that provision has been made for the allocation from the anticipated revenues of the System, as now existent and as hereafter added to, extended, improved and equipped, of amounts sufficient to pay the principal of and the interest on the Auction Rate Bonds as the same mature, or are acquired by mandatory redemption, and to create and maintain a reserve for that purpose, and that said revenues are irrevocably allocated and pledged to the payment of the Auction Rate Bonds and the interest thereon. This Bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Resolutions until this Bond shall have been authenticated and registered upon the bond registration book kept for that purpose by the Bond Registrar, which authentication and registration shall be evidenced by the execution by the manual signature of a duly authorized signatory of the Bond Registrar of the certificate hereon. IN WITNESS WHEREOF, Augusta, Georgia has caused this Bond to be executed by use of the [manual][facsimile] signature of the Mayor of the Commission of the Consolidated Government and [its official seal to be impressed hereon] [a facsimile of its official seal to be imprinted hereon] and attested by use of the [manual][facsimile] signature of the Clerk of the Commission ofthe Consolidated Government, as of , 2004. AUGUST A, GEORGIA (S E A L) By: Mayor, Augusta-Richmond County Commission Attest: Clerk -16- AO 1118243.2 Date of Authentication and Registration: CERTIFICATE OF AUTHENTICATION AND REGISTRATION This Bond is one of the Auction Rate Bonds described in the resolutions of , 2004 and , 2004. as Bond Registrar By: Authorized Signatory ********** VALIDATION CERTIFICATE STATE OF GEORGIA ) ) COUNTY OF RICHMOND) The undersigned Clerk of the Superior Court of Richmond County, State of Georgia, HEREBY CERTIFIES that this Bond was validated and confirmed by judgment of the Superior Court of Richmond County, Georgia, on , 2004 and that no intervention or objection was filed in the proceedings validating same and that no appeal from said judgment of validation has been taken. WITNESS my [facsimile] signature and seal of the Superior Court of Richmond County, Georgia. (S E A L) Clerk, Superior Court, Richmond County, Georgia ********** -17- AO 1118243.2 ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto [Please print or typewrite name and address including postal zip code of assignee.] [Please insert Social Security or Tax Identification Number.] the within bond and all rights thereunder, hereby constituting and appointing attorney to transfer this Bond on the bond registration book kept for such purpose by the Bond Registrar, with full power of substitution in the premises. DATED (Signature Guaranteed) Registered Owner Notice: Signature(s) must be guaranteed by an eligible guarantor institution (such as banks, stockbrokers, savings and loan associations and credit unions) with membership in an approved Signature Guarantee Medallion Program pursuant to S.E.C. Rule 17Ad-15. Notice: The signature(s) on this assignment must correspond with the name as it appears on the face of the within bond in every particular without alterations, enlargement or any change whatsoever. ********** STATEMENT OF INSURANCE ********** -18- AO 1118243.2 Section 4. Required Authentication: Proof of Ownership. Only those Auction Rate Bonds which shall have endorsed thereon a certificate of authentication and registration substantially in the form hereinbefore set forth, duly executed by the manual signature of an authorized signatory of the Bond Registrar shall be entitled to any benefit or security under this 2004 Resolution and such certificate upon any of the Auction Rate Bonds when duly executed shall be conclusive evidence that such Auction Rate Bond has been duly authenticated, registered and delivered. It shall not be necessary that the same signatory of the Bond Registrar sign the certificate of authentication and registration on all of the Auction Rate Bonds that may be issued hereunder at anyone time. The person in whose name any Auction Rate Bond shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes and the payment of the principal amount, interest and premium, if any, shall be made only to or upon the order of the registered owner thereof. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Auction Rate Bond, including redemption premium, if any, and the interest thereon to the extent of the sums so paid. Section 5. Bond Reeistrar: Transfer and Exchanee. The Bond Registrar shall keep the bond registration book for the registration of the Auction Rate Bonds and for the registration of transfers of the Auction Rate Bonds as herein provided. The transfer of any Auction Rate Bond shall be registered upon the bond registration book upon the surrender and presentation of the Auction Rate Bond to the Bond Registrar duly endorsed for transfer or accompanied by an assignment duly executed by the registered owner or attorney authorized in writing in such form as shall be satisfactory to the Bond Registrar. Upon any such registration of transfer, the Bond Registrar shall authenticate and deliver in exchange for such Auction Rate Bond or Auction Rate Bonds so surrendered, a new Auction Rate Bond or Auction Rate Bonds registered in the name of the transferee, of the same series and maturity, in any denomination or denominations authorized by this 2004 Resolution, and in an aggregate principal amount equal to the aggregate principal amount of the Auction Rate Bonds so surrendered. Any Auction Rate Bond, upon presentation and surrender thereof to the Bond Registrar, together with an assignment duly executed by the registered owner or duly authorized attorney, in such form as may be satisfactory to the Bond Registrar, may be exchanged, at the option of the registered owner, for an aggregate principal amount of Auction Rate Bonds of the same series and maturity equal to the principal amount of the Auction Rate Bond so surrendered and of any authorized denomination or denominations. The Bond Registrar may make a charge for every exchange or registration of transfer of the Auction Rate Bonds sufficient to reimburse it for any tax or other governmental charge required to be paid with respect to such exchange or registration oftransfer, but no other charge shall be made to the owner for the privilege of transferring or exchanging the Auction Rate Bonds under this 2004 Resolution. Section 6. Lost. Destroved. Mutilated Bonds. If any Auction Rate Bond shall become mutilated, the Bond Registrar in its discretion and at the expense of the owner of such Auction Rate Bond shall authenticate and deliver la new Auction Rate Bond of like tenor and series registered in the name of the owner in e~change and substitution for such mutilated Auction Rate Bond. If any Auction Rate Bond shall become lost, destroyed or wrongfully taken, evidence of such loss, destruction or wrongful takirig within a reasonable time thereafter may be submitted to the Consolidated Government and I if such evidence shall be satisfactory and indemnity of a character and in an amount satisfactory shall be given, then the Consolidated Government at the expense of the owner shall cau~e a new Auction Rate Bond of like tenor and -19- AO 1118243.2 series registered in the name of the owner to be authenticated by the Bond Registrar and delivered to the registered owner. I Section 7. Global Form: Securities Depository: Ownership of Auction Rate Bonds. I (a) Upon the initial issuance, the ownership of each Auction Rate Bond shall be registered in the name of the Securities Depository or the Securities Depository Nominee, and ownership thereof shall be maintained in Book-Entry Form by the Securities Depository for the account of the Agent Members thereof. Initially, e~ch maturity of the Auction Rate Bonds shall be registered in the name of Cede & Co., as the hominee of The Depository Trust Company. Beneficial Owners will not receive Auction Rate I Bonds from the Bond Registrar evidencing their ownership interests. Except as provided in subsection (c) of this Section, the Auction Rate Bonds may be transferred, in whole but not in p~, only to the Securities Depository or the Securities Depository Nominee, or to a successor Securities Depository selected or approved by the Consolidated Government or to a nominee of stich successor Securities Depository. (b) With respect to Auction Rate BoJds registered in the name of the Securities Depository or the Securities Depository Nomine~, neither the Consolidated Government, the Bond Registrar nor the Paying Agent shall have cky responsibility or obligation to any Agent Member or Beneficial Owner. Without limitirig the foregoing, neither the Consolidated Government, the Bond Registrar nor the Paying Agent shall have any responsibility or obligation with respect to: (i) the accuracy of the records of the Securities Depository, the Securities Depository Nominee or any Agent Member with respect to any Beneficial Ownership interest in the Auction Rate Bonds; I (ii) the delivery to any Agent Member, any Beneficial Owner or any other person, other than the Securities Depositoryl or the Securities Depository Nominee, of any notice with respect to the Auction Rate Bonds; or I (iii) the payment to any Agent Member, any Beneficial Owner or any other person, other than the Securities Deposito~ or the Securities Depository Nominee, of any amount with respect to the principal, premium, if any, or interest on the Auction Rate Bonds. I So long as any Auction Rate Bonds are registered in Book-Entry Form, the Consolidated Government, the Bond Registrar and the Paying ~gent may treat the Securities Depository as, and deem the Securities Depository to be, the absolute owner of such Auction Rate Bonds for all purposes whatsoever, including without limitation: (i) the payment of principal, premium, if any, and interest on such series of Auction Rate Bonds; (ii) gIvmg notices of redemption and other matters with respect to such Auction Rate Bonds; -20- AO 1118243.2 (iii) registering transfers with respect to such Auction Rate Bonds; the selection of Auction RatJ Bonds for redemption; and voting and obtaining consenJs under the 2004 Resolution. I So long as any Auction Rate Bonds are registered in Book-Entry Form, the Paying Agent I shall pay all principal of, premium, if any, and interest on the Auction Rate Bonds only to the Securities Depository or the Securities Depository 'Nominee as shown in the Bond Register, and all such payments shall be valid and effective to tlflly discharge the Consolidated Government's obligations with respect to payment of principal of; premium, if any, and interest on the Auction Rate Bonds to the extent so paid. I (c) If at any time (i) the Consolidated Government determines that the Securities Depository is incapable of discharging its resporlsibilities described herein, (ii) the Securities Depository notifies the Consolidated Government or the Paying Agent that it is unwilling or unable to continue as Securities Depository with rbspect to the Auction Rate Bonds, or (iii) the Securities Depository shall no longer be register~d or in good standing under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation and a successor Securities Depository is not appointed by the Consblidated Government within 90 days after the Consolidated Government receives notice or becorhes aware of such condition, as the case may be, then this Section shall no longer be applicable and the Consolidated Government shall execute and the Bond Registrar shall authenticat~ and deliver Auction Rate Bond certificates representing the Auction Rate Bonds to the bondh~lders. Auction Rate Bonds issued pursuant to this subsection (c) shall be registered in such James and authorized denominations as the Securities Depository, pursuant to instructions from the Agent Member or otherwise, shall instruct the Bond Registrar. Upon exchange, the Bond Registrar shall authenticate and deliver such Auction Rate Bond certificates representing the Auction Rate Bonds to the persons in whose names such Auction Rate Bonds are so registered on the Business Day immediately preceding the date of such exchange. (iv) (v) Section 8. Optional Redemption of Auction Rate Bonds. The Auction Rate Bonds shall be subject to redemption on the dates and at the prices set forth in Exhibit A. I Section 9. Procedure for and Notice of Redemption. The Consolidated Government shall select the maturities of Auction Rate Bonds to be optionally redeemed in part. If less than all of the Auction Rate Bonds of a single maturity are to be redeemed, the Bond Registrar shall treat any Auction Rate Bond of su6h maturity outstanding in a denomination of greater than $5,000 as two or more separate Aucti~m Rate Bonds in the denomination of $5,000 each and shall assign separate numbers to each fori the purpose of determining the Auction Rate Bonds or the principal amount of such Auction Rate Bonds in a denomination greater than $5,000 to be redeemed by lot. With respect tri any Auction Rate Bond called for partial redemption, the registered owner thereof shall sutrender such Auction Rate Bond to the Bond Registrar in exchange for one or more Auction R~te Bonds in any authorized denomination in the aggregate principal amount equal to the unreddemed principal amount of such Auction Rate Bond so surrendered. -21- AO 1118243.2 The Bond Registrar shall furnish the Consolidated Government on or before the 45th day next preceding each mandatory redemption date (or optional redemption date if such option is exercised) with its certificate setting forth the Auqtion Rate Bonds that have been selected for mandatory redemption (or optional redemption) either in whole or in part on such date. I Not less than 30 days nor more than 60 days before any date upon which any such optional redemption or mandatory redemption is to be made a notice of such redemption signed by a duly authorized signatory of the Bond Registrar designating the Auction Rate Bonds to be redeemed (in whole or in part) shall be filed at the place at which the principal of and interest on the Auction Rate Bonds shall be payable and shall be mailed, postage prepaid, to all registered owners of Auction Rate Bonds to be redeemed (in whole or in part) at addresses which appear upon the bond registration book. It is expressly provided, however, that the failure so to mail any such notice of the optional redemption or mandatory redemption of 'the Auction Rate Bonds shall not affect the validity of the proceedings for such redemption or ~ause the interest to continue to accrue on the principal amount of such Auction Rate Bonds so designated for redemption after the redemption d~. ' However, it is expressly understood and agreed that should the Consolidated Government hereafter elect to issue any Additional Bonds, as I herein authorized, it shall have the right to exercise any optional redemption provision to redeem the Bonds of any such future issue or issues before it redeems the Auction Rate Bonds, or it may redeem the Auction Rate Bonds before it redeems the Bonds of any such future issue or issues, or it may redeem some of the Auction Rate Bonds and some of the Bonds of any such future issue or issues at the same time. If less than a full maturity within an issue of Bonds is redeemed, then such redemption shall be by lot in such manner as may be designated by the Bond Registrar. I Section 10. Purchase in Open Market. I Nothing herein contained shall be construed to limit the right of the Consolidated Government to purchase with any excess moneys, as hereinabove defined, in the Sinking Fund and for sinking fund purposes, the Auction Rate Bonds in the open market at a price not exceeding the callable price hereinabove set forth. Any such Auction Rate Bonds so purchased cannot be reissued and same shall be disposed of as is hereinafter provided in this 2004 Resolution. ' Section 11. Effect of Call for Redemption. Notice having been given in the manner and under the conditions hereinabove provided, I the Auction Rate Bonds so designated for redemption or the portion of the Auction Rate Bonds so designated for partial redemption shall, on the redemption date designated in such notice, become and be due and payable at the redemption price hereinabove specified, and from and after the date of redemption so designated, unless default shall be made in the payment of, the Auction Rate Bonds so designated for redemption or the portion of the Auction Rate Bonds so designated for partial redemption, interest on the principal amount of said Auction Rate Bonds so designated for redemption shall cease to accrue on the redemption date. I AO 1118243.2 I -22-1 I I I I Section 12. Cancellation of Bonds. AlllBonds paid, purchased or redeemed shall be canceled or otherwise destroyed upon their payment and a record of such destruction shall be made and preserved in the permanent records of thel Consolidated Government and in the records of the Bond Registrar pertaining to the Auction Rate Bonds. Section 13. Pledee of Revenues: Parity 'Bonds. The Auction Rate Bonds shall stand on a parity and shall be of equal dignity with the Outstanding Prior Bonds and shall be secured by the lien created pursuant to the provisions of the Prior Resolutions, as the same is ratified, I reaffirmed, broadened and extended by this 2004 IResolution, just as if the Outstanding Prior Bonds and the Auction Rate Bonds had been issued :simultaneously under the same resolution. Section 14. Application of Proceeds: RJfundine of Refunded Bonds. The proceeds of the Auction Rate Bonds shall be applied to the refunding of the Refunded Bonds and the payment of costs of issuance of the Auction Rate Bonds in accordance with the specific provision to be made therefor in the 2004 Supplemental Resolution. Pursuant to the 2004 Supplemental Resolution, the Consolidated Government shall, and the appropriate officials of the Consolidated Government are hereby authorized and directed to, take all necessary action to provide for the redemption of the Refunded Bonds on October 2, 2006, or such later date as may be determined by the Consolidated Government in a resolution supplemental hereto. Section 15. Flow of Funds: Sinkine Frind. The Consolidated Government is now operating and will continue to operate the System on a fiscal year basis commencing on January 1 in each year and extending through December 31 in such year, but it reserves the right by the adoption of proper proceedings to change its fiscal year as provided in the 1996 Resolution. The Consolidated Government covenants that all revenues arising from the ownership or operation of the System and properties in connection therewith as now existent and as hereafter added to, extended and improved shall be collected by the Consolidated Government or by its agents or employees and deposited promptly with the depository to the credit of a special fund heretofore created and designated in Section 2 of Article III of the 1996 Resolution as the "Richmond County Water and Sewerage System Revenue Fund-1996" and redesignated pursuant to the 2000 Resolution as the "Augusta, Georgia Water and Sewerage System Revenue Fund" (the "Revenue Fund"). The moneys deposi~ed into the Revenue Fund shall be used and disbursed from the Revenue Fund as hereinafter provided. I There shall first be paid from the Revenue Fund the Expenses of Operation and Maintenance. I The Consolidated Government covenants that it will continue to maintain the sinking fund created and designated in Article V, Section 2, Paragraphs 2 and 4 of the 1996 Resolution as the "Richmond County Water and Sewerage System Sinking Fund" and redesignated pursuant to the 2002 Resolution as the "Augusta, Georgia iWater and Sewerage System Sinking Fund" (the "Sinking Fund"), which Sinking Fund now c<;msists of two accounts which are to be held therein, created and designated as "Debt Service Account" and "Debt Service Reserve Account." The payments to be made into the Sinking Fund 'must be adjusted so as to provide sufficient moneys with which to pay the principal of and the interest on the Outstanding Prior Bonds and the Auction Rate Bonds as the same become due and payable, either at maturity or by I proceedings for mandatory redemption, in the then: current Sinking Fund Year and to create and I AO 1118243.2 -23-1 I maintain a reserve in the Sinking Fund equal to the Reserve Requirement on the Outstanding Prior Bonds and the Auction Rate Bonds. After the~e have been paid from the Revenue Fund the sums required or permitted to be paid for Expens~s of Operation and Maintenance pursuant to the provisions of this Section, there shall next be paid from the Revenue Fund into the Sinking Fund the following amounts: . (a) There shall be'deposited into the Debt Service Account for the purpose of paying the principal of and interest on the Outstanding Prior Bonds and the Auction Rate Bonds as same become due and payable, either at maturity or by proceedings for mandatory redemption, in the then current Sinking Fund Year, each month after taking into account moneys on deposit therein, (i) an amount sufficient to pay the interest on the Auction Rate Bonds coming due on the first day of the next succeeding month; (ii) an amourit equal to one sixth of the interest on the I Outstanding Prior Bonds coming due on the next Interest Payment Date for the Outstanding Prior Bonds; and (ii) an amount equal to one-twelfth of the principal on the Outstanding Prior Bonds and Auction Rate Bonds coming due on the next I ensuing October 1, such aggregate monthly payments to continue from month to month until I sufficient funds are on hand in the Sinking Fund to pay all of the Outstanding Prior Bonds and Auction Rate Bonds as same mature or are I acquired by mandatory redemption and the interest which will become due and payable thereon. (b) Upon the issuance of the Auction Rate Bonds, the Reserve Account shall be funded by a combination of cash and one or more' Reserve Account Surety Bonds held for the credit of the Reserve Account. Simultaneously with the issuance of the Auction Rate Bonds, there shall be on deposit in the Reserve Account, titking into account moneys on deposit therein and amounts being provided by the Consolidated I Government from lawfully available funds, such amount, if any, as may be required to create in the Reserve Account a reserve equal to the Reserve Requirement upon the date of issuance 10f the Auction Rate Bonds. The Reserve Account shall be maintained for the purpose of paying the principal of and interest on the Outstanding Prior Bonds and the Auction Rate Bonds falling due in any year as to which there would otherwise be a default and if money is taken from the Reserve Account for the payment of such principal and interest, the money so taken shall be replaced in the Reserve Account from the first moneys in the Revenue Fund thereafter available and not required to be used for Expenses of Operation and Maintenance of the System and not required to be paid into the Debt Service Account as provided in subparagraph 19( a) labove. I (c) All sums required to be paid to comply with the provisions of subparagraphs (a) and (b) above shall be paid on or before the 25th d~y of the month in which the payment is due, and if, in any month, for any reason, the full amount herein required to be paid in such month shall not be paid into the Sinking Fund, any deficiency shall be added to and shall become a part of the amount required to be paid into the Sinking Fund in the next succeeding month; provided, however, the Consolidated Government covenants and agrees that in the event it hereafter elects to issue Additional Bonds, pursuant to the provisions of this 2004 Resolution, the above stated payments into the Sinking Fund will be increased to the extent necessary to pay the principal of and interest on the Outstanding Prior Bonds, the IAuction Rate Bonds and on any Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued coming due, either at maturity or by proceedings for mandatory redemption, in the then current Sinking Fund Year and to create upon the issuance of the bonds to be issued and thereafter maintain a reserve for that purpose in an amount at least equal to the Reserve Requirement on the AO 1118243.2 -24- I I Outstanding Prior Bonds, the Auction Rate Bonds, the Additional Bonds therewith then I outstanding and on the proposed Additional Bonds to be issued. The Consolidated Government agrees to I notify the 2004 Hedge Provider that all payments to be made by the 2004 Hedge Provider under the 2004 Hedge Agreement shall be made to the Trustee, for deposit to the Debt Service Account of the Sinking Fund, and used to pay interest on the Auction Rate Bonds when due. I Section 16. Debt Service Reserve Account. In the event a withdrawal of moneys is made from the Reserve Account or any draw is made upon any Reserve Account Surety Bond held within the Reserve Account for the payment of principal of or interest on the Outstanding Prior Bonds or the Auction Rate Bonds, the first moneys available in the Revenue Fund and not required to pay Expenses of Operation and Maintenance or to make the monthly payments into the Debt Service Account as hereinabove provided, shall be immediately paid into the Reserve Account or paid to the Reserve Account Surety Bond Providers as hereinafter described until the amount on deposit in the Reserve Account after payments of any amounts payable under the succeeding sentence equals the Reserve Requirement; provided, however, such payments will in any event be at least sufficient to restore the Reserve Account to its proper balance within 12 months after the date upon which money is taken from the Reserve Account or the date upon which a draw on any Reserve Account Surety Bond is made. In the event of a drawdown on any Reserve Account Surety Bond, the Consolidated ,Government shall on a pro rata basis make (1) all payments (if any) into the Reserve Account necessary to restore the amount of cash or securities, if any, on deposit, therein immediately prior to such draw and (2) make all payments to any Reserve Account Surety Bond Providers, as a repayment of such drawdown (such payments to be made on a pro rata basis to each Reserve Account Surety Bond Provider based upon the amount drawn and not reimbursed und~r each Reserve Account Surety Bond), and (3) upon making full repayment to any Reserve Atcount Surety Bond Provider, shall thereafter make payments into the Reserve Account, to the extent that the then applicable Reserve Requirement exceeds the aggregate of the amount I available to be drawn on a Reserve Account Surety Bond and the amount of cash or securities, if any, on deposit therein immediately prior to such draw. Repayment or any drawdown on the Reserve Account Surety Bond (other than repayments which reinstate the Reserve Account Surety Bond) and any interest or fees due the Reserve Account Surety Bond Provider under such Reserve Account Surety Bond shall be secured by a lien on the Pledged Revenues subordinate to payments into the Debt Service Account, the Reserve Account and payments to any Credit Issuer securing the Outstanding Prior Bonds, the Auction Rate Bonds and any Additional, Bonds. Any such Reserve Account Surety Bond shall be pledged to the benefit of the owners of all of the Outstanding Prior Bonds, the Auction Rate Bonds and any Additional Bonds. The Consolidated Government reserves the right, if it deems it necessary in order to acquire such a Reserve Account Surety Bond, to amend the Resolutions without the consent of any of the owners of the Outstanding Prior Bonds, the Auction Rate Bonds and any Additional Bonds in order to grant the Reserve Account Surety Bond Provider such additional rights as it may demand, provided that such amendment shall not, fin the written opinion of Bond Counsel filed with the Consolidated Government, impair or reduce the security granted to the owners of the Outstanding Prior Bonds, the Auction Rate Bonds and any Additional Bonds or any of them. I -25- AO 1118243.2 It is expressly provided, however, that if oniOctober 2 in any year there are on deposit in the Debt Service Account of the Sinking Fundi any money and securities, same shall be withdrawn therefrom and immediately deposited into the Revenue Fund. It is expressly provided further, however, that if on October 2 in any year there are on deposit in the Reserve Account of the Sinking Fund moneys and securities (such secUrities to be valued at their market value plus accrued interest thereon to October 2) the aggregate amount of which, together with the amounts available under any Reserve Account Surety Bond, is in excess of the then required Reserve I Requirement, such excess moneys shall be withdrawn from the Sinking Fund and immediately deposited into the Revenue Fund. The calculation I and determination of such excess amount in accordance with this provision shall be the resporisibility of the chief financial officer of the utilities department of the Consolidated Government and such financial officer shall notify the Sinking Fund Custodian and make or cause to be made any transfer of funds required pursuant to the provisions of this subparagraph. The Consolidated Government may at any time fulfill any portion of its obligation to fund the Reserve Account by depositing in the Reserve Account a Reserve Account Surety Bond payable on any interest and/or principal payment date in an amount equal to any portion of the reserve requirement then required to be maintained within the Reserve Account. Before any such Reserve Account Surety Bond is substituted for cash or deposited in lieu of cash within the Reserve Account, (A) there shall be filed with the Consolidated Government and the Sinking Fund Custodian (i) an opinion of nationally recognized bond counsel to the effect that such substitution will not adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes; (ii) a certificate of Moody's or Standard & Poor's, whichever rating agency maintains a rating on the outstanding'Bonds, to the effect that (a) if the issuer(s) of the Reserve Account Surety Bond were insuring payment of principal and interest on the Bonds to which the Reserve Account relates, such Bonds would receive the highest rating available from such rating agency (or any similar rating agency then in existence) and (b) that the substitution of such Reserve Account Surety Bond for cash within the Reserve Account will not, in and of itself, result in a reduction of the ratings issued for the Bonds outstanding, and (iii) a copy of the Reserve Account Surety Bond issued to fulfill the Consolidated Government's obligation to fund the Reserve Account together ~ith an opinion of counsel satisfactory to the Sinking Fund Custodian to the effect that the Reserve Account Surety Bond is valid and enforceable in accordance with its terms, (B) the Consolidated Government shall not secure any obligation to the Reserve Account Surety Bond Provider by a lien equal to or superior to the lien granted to the Bonds; (C) the Reserve Account Surety Bond shall permit a drawing by the Consolidated Government for the full stated amount in the event (i) the Reserve Account Surety Bond expires or terminates for any reason prior to the final maturity of the Bonds, and (ii) the Consolidated Government fails to satisfy the Reserve Requirement by the deposit to the Reserve Account of cash, obligations, a substitute Reserve Account Surety Bond, or any combination thereof, on or before the date of such expiration or termination; (D) if the rating issued by the Rating Agency to the Reserve Account Surety Bona Provider is withdrawn or reduced below the rating assigned to that of the Bonds immediately prior to such action by the Rating Agency, the Consolidated Government shall provide a substitute Reserve Account Surety Bond within 60 days after such rating change, and, if no substitute Reserve Account Surety Bond is obtained by such date, shall fund the Reserve Requirement in not more than 24 equal monthly payments commencing not later than the first day of the month immediately succeeding the date representing the end of such 60 day period; and (E):ifthe Reserve Account Surety Bond Provider AO 1118243.2 -26-1 I commences any insolvency proceedings or is determined to be insolvent or fails to make payments when due on its obligations, the Consolidated Government shall provide a substitute Reserve Account Surety Bond within 60 days thereafter, and, if no substitute Reserve Account Surety Bond is obtained by such date, shall fund the Reserve Requirement in not more than 24 equal monthly payments commencing not later than the first day of the month immediately succeeding the date representing the end of such 60 day period. If the events described in either clauses (D) or (E) above occur, the Consolidated .Government shall not relinquish the Reserve Account Surety Bond at issue until after the Reserve Requirement is fully satisfied by the provision of cash, obligations, or a substitute Reserve Account Surety Bond or any combination thereof. Each such Reserve Account Surety Bond shall be unconditional and irrevocable and shall provide liquidity for the life of the Bonds with respect to which the Reserve Account Surety Bond is purchased and, if the Reserve Account Surety Bond is purchased with respect to more than one issue of Bonds hereunder, then for the life of the issue with the longest term. So long as the balance of the Reserve Account equals the Reserve Account Requirement on the Outstanding Prior Bonds, the Auction Rate Bonds and any Additional Bonds, any reimbursement agreement entered into between the Consolidated Government and any such Reserve Account Surety Bond Provider may provide that the Consolidated Government will be obligated to repay such provider an amount equal to any drawdown on the Reserve Account Surety Bond plus a market rate of interest over a specified period of time not to exceed three years but such obligation shall be junior and subordinate in right of payment to all outstanding Bonds. Section 17. Hedee Payments Fund. There is hereby created and established with the Sinking Fund Custodian a separate, segregated fu~d designated as the "Augusta, Georgia Hedge Payments Fund" and, within the Hedge Payments Fund, a separate account designated as the "2004 Hedge Payments Account." After there have been paid from the Revenue Fund in each month all amounts required or permitted to be paid pursuant to Sections 16 and 17 of this 2004 Resolution, there shall be paid from the Revenue Fund to the 2004 Hedge Payments Account an amount sufficient, taking into account amounts on deposit therein, to pay the amounts due the 2004 Hedge Provider under the 2004 Hedge Agreement (other than payments upon early termination thereof). The Consolidated Governm~nt shall notify the Custodian in writing of the amounts required to be deposited to the 2004 Hedge Payments Account. The obligation of the Consolidated Government to make the deposits to the Hedge Payments Fund is and shall always be junior and subordinate in all respects to the obligation of the Consolidated Government with respect to payments to the Sinking Fund as provided in Sections 16 and 17 of this 2004 Resolution. Section 18. Utility General Fund. After there have been paid from the Revenue Fund in each month all amounts required or permitted to be paid as provided herein, all moneys remaining in the Revenue Fund shall be paid at the end of each month into the special fund created and designated in Article V, Section 2, (Paragraph 6 of the 1996 Resolution as the "Richmond County Water and Sewerage System Utility General Fund" and redesignated pursuant to the 2002 Resolution as the "Augusta, ,Georgia Water and Sewerage System Utility General Fund" (the "Utility General Fund"). Except as set forth below, expenditures shall be made from the Utility General Fund only for the purpose of: (a) paying principal of and/or interest on the Outstanding Prior Bonds, the Aucti6n Rate Bonds and any Additional Bonds then outstanding and falling due at any time for the paYment of which money is not available in the Sinking Fund securing the payment of same; (b) making payments into the Sinking Fund in the I -27-1 AO 1118243.2 amounts required in order to accumulate and maintain the Reserve Account created therein at its proper balance; (c) paying such expenses as may be necessary to alleviate or remove the effects of an emergency having a major impact on the System caused by some extraordinary occurrence which makes it necessary to use the funds of the System, to the extent that moneys on deposit in the Revenue Fund are insufficient to meet such emergencies; (d) paying Expenses of Operation and Maintenance for which moneys are not available in the Revenue Fund; ( e) making replacements, additions, extensions and improvem'ents and acquiring equipment and paying the cost of any engineering studies, surveys or plan~ and specifications pertaining to the future development or expansion of the System deemed to be reasonable and in the best interest of the Consolidated Government and the holders of the Bonds; (f) payment of the charges of the Utility General Fund Depository for investment services; and (g) paying to any Reserve Account Surety Bond Provider interest on amounts drawn under such Reserve Account Surety Bond. The Consolidated Government shall maintain at all times a minimum balance in the Utility General Fund equal to the lesser of $2,500,000 or 5 percent of the Operating Revenues of the System for the immediately preceding Fiscal Year. : I It is expressly provided, however, that should bonds be hereafter issued ranking as to lien , on the Pledged Revenues junior and subordinate to the lien securing the payment of the Outstanding Prior Bonds and the Auction Rate I Bonds authorized to be issued hereunder, including any issue or issues of Additional Bonds thereafter issued, then such payments into the Utility General Fund as provided in this Section may be suspended and such moneys shall be available to the extent necessary to pay the principal of and interest on such junior lien bonds and I to create and maintain a reasonable reserve therefor and such moneys may be allocated and pledged for that purpose. Section 19. Pledeed Revenues. As pf<?vided in the Prior Resolution and as hereby ratified and reaffirmed, all Pledged Revenues immediately shall become subject to a lien to secure the payment by the Consolidated Governm~nt of the amounts therein agreed to be paid. The Consolidated Government hereby pledges such Pledged Revenues and hereby covenants and agrees that the Pledged Revenues are hereby pledged to the extent necessary to secure the payment by the Consolidated Government of the amounts herein agreed to be paid with respect to the Outstanding Prior Bonds, the Auction Rate Bonds and any Additional Bonds, and on a junior and subordinate basis, to the payments (other than termination payments) under the Hedge Agreements, and such pledge shall be valid and binding against the Consolidated Government and against all other parties and against all claims of any kind against the Consolidated Government, whether arising in tort, contract or dtherwise, irrespective of whether or not such parties have notice thereof. I Section 20. Rate Covenant. The Consolidated Government covenants and agrees that it has heretofore placed into effect a schedule of rates, fees and charges for the services, facilities and commodities furnished by the System andl as often as it shall appear necessary the Consolidated Government shall revise and adjust: such schedule of rates, fees and charges for either water or sewerage services and facilities, or both, to the extent necessary to produce funds sufficient to operate and maintain the System on a sound business-like basis and to create and maintain the Sinking Fund created by the 1996' Resolution, as same has been enlarged and extended by the 2000 Resolution and this 2004 Resolution, in accordance with and in compliance with the terms, covenants and provisions of the Resolutions and to create and I -28-\ I I AO 1118243.2 maintain a reserve therefor in the amount as required by the Resolutions or such larger amounts as may be required in any proceedings authorizing any such issue or issues of Additional Bonds, as well as to create and maintain a reserve for extensions and improvements to the System. Such rates, fees and charges, in addition to the foregoing requirements, shall be maintained at such level so as to produce Pledged Revenues (excluding Investment Earnings, if any, on the Construction Fund created under this 2004 Resolution) equal to 1.1 times the amount I required to discharge the payment of the principal, of and the interest on the Outstanding Prior Bonds, the Auction Rate Bonds and any future parity issues, either at maturity or by proceedings for mandatory redemption, but in no event, however, will said amount be less than that required to create and maintain the Debt Service Account and the Reserve Account as required by the Resolutions. I The rates, fees and charges shall be classified in a reasonable manner to cover users of the services and facilities furnished by the System Iso that as near as practicable such rates, fees and charges shall be uniform in application to all users falling within any reasonable class. No free services shall at any time be furnished from I the System and it will undertake within its health powers or such other applicable powers now or hereafter provided by law, to require the owners of all improved property abutting any water line or sewerage line to connect with the System. No customer shall be connected to the System or served by the Consolidated Government without a proper meter having been first installed. All services shall be furnished in accordance with rates now or hereafter established, including services furnished to any county, municipal corporation or other public board or body. In the event the Consolidated Government 'shall fail to adopt a schedule or schedules of rates, fees and charges, or to revise its schedule I or schedules of rates, fees and charges, in accordance with the provisions of this Section, any Bondholder without regard to whether any Event of Default, as defined in Article VIII of the 1996 Resolution, shall have occurred, may institute and prosecute in any court of competent jurisdiction, an appropriate action to compel the Consolidated Government to adopt a schedule or schedules of rates, fees and charges, or to revise its schedule or schedules of rates, fees and charges in accordance with the requirements of this Section and the applicable requirements of Section 3 of Article V of the 1996 Resolution. I Section 21. Sinkine Fund Disbursements. Subject to the terms and conditions set forth in the Resolutions, moneys in the Sinking Fund shall be disbursed for (a) the payment of , the interest on the Outstanding Prior Bonds and theiAuction Rate Bonds as such interest becomes due and payable; (b) the payment of the principal of the Outstanding Prior Bonds and the Auction Rate Bonds as same becomes due and payable, either at maturity or by proceedings for I mandatory redemption; (c) the optional redemption of the Outstanding Prior Bonds and the Auction Rate Bonds before maturity at the price and under the conditions provided therefor in the Resolutions; (d) the purchase of the Outstanding Prior Bonds and the Auction Rate Bonds in the open market; provided, however, the price paid shall not exceed the authorized call price; (e) the transfer of excess moneys, if any, in the Sinking Fund (as described in Section 5 of Article V of the 1996 Resolution, Section 20 of the 2000 Resolution, Section 20 of the 2002 Resolution and Section 17 of this 2004 Resolution) to the Revenue Fund; (f) the payment of charges for paying the Outstanding Prior Bonds and the Auction Rate Bonds and interest thereon and the charges for the registration of the Outstanding Prior Bonds and the Auction Rate Bonds -29- AO 1118243.2 and their transfer or exchange in accordance with the terms thereof; and (g) the payment of any charges for investment services. Section 22. Additional Bonds. The Consolidated Government further covenants and agrees that it will not exercise the privilege as provided in Section 9 of Article V of the 1996 Resolution, as ratified, reaffirmed, broadened and extended in Section 25 of the 2000 Resolution and Section 25 of the 2002 Resolution), of issuing additional bonds or obligations ranking as to lien on the Pledged Revenues of the System on a parity with the Outstanding Prior Bonds and the Auction Rate Bonds, unless or until all the following conditions are met: (a) The payments covenanted to be made into the Sinking Fund, as the same may have been enlarged and extended in any proceedings authorizing the issuance of any Additional Bonds, must be currently being made in the full amount as required and the Debt Service Account and Reserve Account held within the Sinking Fund must be at their proper respective balances. (b) Except in the case of Additional Bonds issued for refunding purposes pursuant to Article V, Section 8 of the 1996 Resolution, there shall have been procured and filed with the Consolidated Government (i) a report by Independent Certified Public Accountants to the effect that the Pledged Revenues (excluding Investment Earnings, if any, on construction funds) for a period of 12 consecutive months out of the most recent 18 consecutive months preceding the month of adoption of the proceedings authorizing the issuance of such Additional Bonds must have been equal to at least 1.25 times the maximum Debt Service Requirement for any succeeding Sinking Fund Year on the Outstanding Prior Bonds, the Auction Rate Bonds and any other issue or issues of Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued, or in lieu of the foregoing formula, if a new schedule of rates and charges for the services, facilities and commodities furnished by the System shall have been adopted and shall be in effect and Independent Certified Public Accountants shall certify that had this new rate schedule been in effect during the period described above, the Pledged Revenues of the System would have equaled the requirements of the above formula; or (ii) (x) a report by Independent Certified Public Accountants to the effect that the historical Pledged Revenues (excluding Investment Earnings, if any, on construction funds) for a period of 12 consecutive months out of the most recent 18 consecutive months preceding the month of adoption of the proceedings authorizing the issuance of the proposed Additional Bonds were equal to at least 1.10 times the historical Debt Service Requirement on all Bonds (other than Subordinate Bonds) which were outstanding during such 12-month period, and (y) a report by the Consulting Engineers to the effect that the forecasted Pledged Revenues (excluding Investment Earnings, if any, on construction funds) for each Fiscal Year in the Forecast Period are expected to equal at least 1.25 times the maximum annual Debt Service Requirement on all Bonds (other than Subordinate Bonds) which will be outstanding immediately after the issuance of the proposed Additional Bonds, in the then current or any succeeding Sinking Fund Year. The reports by the Independent Certified Public Accountant that are required by this paragraph (b) may contain pro forma adjustments to historical Pledged Revenues equal to 100 percent of the increased annual amount attributable to any revision in the schedule of rates, fees and charges for the services, facilities and commodities furnished by the System, imposed prior to the date of delivery of the proposed Additional Bonds and not fully reflected in the -30- AO 1118243.2 historical Pledged Revenues actually received during such 12-month period. Such pro forma adjustments shall be based upon a report of the Consulting Engineers as to the amount of Operating Revenues which would have been received during such 12-month period had the new rate schedule been in effect throughout such 12-month period. For the purpose of calculating the maximum Debt Service Requirements under this subparagraph (b), the maximum annual Debt Service Requirements shall be reduced by an amount equal to any capitalized interest funded from the proceeds of the Additional Bonds proposed to be issued in each succeeding Sinking Fund Year for the period for which said interest has been capitalized. (c) An Independent Certified Public Accountant shall certify in triplicate to the Consolidated Government that the requirements of subparagraph (a) above are being complied with and that the requirements of subparagraph (b) above have been met. A copy of such certificate shall be furnished to the Designated Representative of the original purchasers of the Prior Bonds and the Auction Rate Bonds. (d) Except when Bonds are being issued solely for the purpose of refunding outstanding Bonds, the Consulting Engineers for the Consolidated Government shall provide the Consolidated Government with a written report recommending the additions, extensions and improvements to be made to the System and stating that same are feasible, designating in reasonable detail the work and installation proposed to be done and the estimated cost of accomplishing the undertaking. The Consulting Engineers shall set forth in said report the forecasted Pledged Revenues to be derived from the System which will be available for debt service payments in each of the next 10 years and shall indicate the projected coverage of such debt service payments in each succeeding Sinking Fund Year. An executed duplicate original of such report of the Consulting Engineers as required by this provision shall be furnished to the Designated Representative of the original purchasers of the Prior Bonds and the Auction Rate Bonds issued hereunder not less than 10 days before any proceedings are taken to actually issue such Additional Bonds. ( e) The Consolidated Government shall pass proper proceedings reciting that all of the above requirements have been met, shall authorize the issuance of the Additional Bonds and shall provide in such proceedings, among other things, the date such Additional Bonds shall bear, the rate or rates of interest and maturity dates, as well as the registration and redemption provisions. Except for Additional Bonds that bear interest at a Variable Rate, the interest on the Additional Bonds of any such issue shall fall due on April 1 and October 1 of each year, and the Additional Bonds shall mature in installments on October 1, but, as to principal, not necessarily in each year or in equal installments. Any such proceeding or proceedings shall require the Consolidated Government to increase the monthly payments then being made into the Sinking Fund to the extent necessary to pay the principal of and the interest on the Prior Bonds, the Auction Rate Bonds and on all such Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued as same become due and payable, either at maturity or by proceedings for mandatory redemption, in the then current Sinking Fund Year, and to create upon the issuance of the proposed Additional Bonds to be issued a reserve in the Reserve Account at least equal to the Reserve Requirement on the Prior Bonds, the Auction Rate Bonds -31- AO 1118243.2 and any Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued and to maintain said reserve in an amount sufficient for that purpose; provided, however, the Consolidated Government may satisfy funding of the required reserve through the purchase of a Reserve Account Surety Bond meeting the requirements of the Resolutions. Any such proceeding or proceedings shall restate and reaffirm, by reference, all of the applicable terms, conditions and provisions of the Resolutions. If any Additional Bonds would bear interest at a Variable Rate, the resolution under which such Additional Bonds are issued shall provide a maximum rate of interest per annum which such Additional Bonds may bear. In connection with the issuance of any Additional Bonds under the Resolutions, the Consolidated Government may obtain or cause to be obtained one or more Credit Facilities providing for payment of all or a portion of the principal of, premium, if any, or interest due or to become due on such Additional Bonds, providing for the purchase of such Additional Bonds by the Credit Issuer, or providing funds for the purchase of such Additional Bonds by the Consolidated Government. In connection therewith the Consolidated Government shall enter into Credit Facility Agreements with such Credit Issuers providing for, among other things, (i) the payment of fees and expenses to such Credit Issuer for the issuance of such Credit Facility; (ii) the terms and conditions of such Credit Facility and the Additional Bonds affected thereby; and (iii) the security, if any, to be provided for the issuance of such Credit Facility. The Consolidated Government may in a Credit Facility Agreement agree to directly reimburse such Credit Issuer for amounts paid under the terms of such Credit Facility, together with interest thereon; provided, however, that no Reimbursement Obligation shall be created, for purposes of the Resolutions, until amounts are paid under such Credit Facility. Any such Reimbursement Obligation shall be deemed to be a part of the Additional Bonds to which the Credit Facility relates which gave rise to such Reimbursement Obligation, and references to principal and interest payments with respect to such Additional Bonds shall include principal and interest (except for Additional Interest) due on the Reimbursement Obligation incurred as a result of payment of such Additional Bonds with the Credit Facility. All other amounts payable under the Credit Facility Agreement (including any Additional Interest) shall be fully subordinate to the payment of debt service on Bonds (other than Subordinate Bonds). Any such Credit Facility shall be for the benefit of and secure such Additional Bonds or portion thereof as specified in the applicable bond resolution authorizing such Additional Bonds. (f) Such Additional Bonds or obligations and all proceedings relative thereto, and the security therefor, shall be validated as prescribed by law. It is expressly provided that nothing contained herein, however, restricts the issuance of Subordinate Bonds. Section 23. Ratification of 1996 Resolution. All of the applicable terms, covenants, conditions and provisions of Article V, Article VI, Article VII, Article VIII, Article IX and Article X and each Section thereof of the 1996 Resolution not herein specifically referred to are hereby declared applicable and are broadened and extended so as to cover the bonds issued hereunder and hereby ratified and reaffirmed as so extended and said terms, covenants, conditions and provisions shall apply for all purposes to the Auction Rate Bonds. Section 24. Authorization of 2004 Hedee Aereement. The Consolidated Government hereby authorizes the execution, delivery and performance of the 2004 Hedge -32- AO 1118243.2 " 'I . Agreement with the 2004 Hedge Provider. The 2004 Hedge Agreement shall be in substantially the form attached hereto as Exhibit B. The Mayor and the Clerk of the Commission are hereby authorized and directed to execute the 2004 Hedge Agreement for and on behalf of the Consolidated Government in advance of, and in anticipation of, the issuance of the Auction Rate Bonds. Section 25. Authorization of Broker-Dealer Aereements. The Consolidated Government hereby authorizes the execution, delivery and performance of a Broker-Dealer Agreement with Merrill Lynch & Co. as broker-dealer with respect to the Auction Rate Bonds (the "Broker-Dealer Agreement"). The Broker-Dealer Agreement shall be in substantially the form attached hereto as Exhibit C. The Mayor and the Clerk of the Commission are hereby authorized and directed to execute the Broker-Dealer Agreements for and on behalf of the Consolidated Government. Section 26. Authorization of Auction Aeent Aereement. The Consolidated Government hereby authorizes the execution, delivery and performance of an Auction Agent Agreements with an Auction Agent to be selected by the Consolidated Government prior to the issuance of the Auction Rate Bonds and appointed pursuant to the 2004 Supplemental Resolution (the "Auction Agent Agreement"). The Auction Agent Agreement shall be in substantially the form attached hereto as Exhibit D. The Mayor and the Clerk of the Commission are hereby authorized and directed to execute the Auction Agent Agreement for and on behalf of the Consolidated Government. Section 27. Arbitraee Covenants. The Consolidated Government hereby covenants and agrees that it will not, subsequent to the date of the issuance and delivery of the Auction Rate Bonds, intentionally use any portion of the proceeds of the Auction Rate Bonds to acquire higher yielding investments, or to replace funds which were used directly or indirectly to acquire higher yielding investments, except as may otherwise be permitted by the Internal Revenue Code of 1986, as amended (the "Code") or the regulations promulgated thereunder, including, but not limited to, complying with the requirements of Section 148(f) of the Code and the regulations promulgated thereunder and the payment of rebate, if any, required to be made, and that it will expend the proceeds of the Auction Rate Bonds in compliance with the applicable provisions of Sections 141 to 150, inclusive, of the Code. Anything herein or in the Prior Resolutions notwithstanding, earnings on amounts in any fund or account may, and shall to the extent necessary, be used to make the payments required under this Section. Section 28. Certification. The Mayor and Clerk of the Commission are hereby authorized and directed to execute, for and on behalf of the Consolidated Government, a certification, based upon facts, estimates and circumstances, as to the reasonable expectations regarding the amount, expenditure and use of the proceeds of the Auction Rate Bonds, as well as such other documents (including, without limitation, elections under Section 148 of the Code) as may be necessary or advisable in connection with the issuance and delivery of the Auction Rate Bonds. Section 29. Use of Proceeds and Tax Covenant. The Auction Rate Bonds are being issued by the Consolidated Government in compliance with the conditions necessary for interest income on the Auction Rate Bonds to be excluded from gross income for federal income tax -33- AO 1118243.2 . 1 t " purposes pursuant to the provisions of Section 1 03( a) of the Code relating to obligations of the State or any political subdivision thereof. It is the intention of the Consolidated Government that the interest on the Auction Rate Bonds be and remain excludable from gross income for federal income tax purposes, and, to that end, the Consolidated Government hereby covenants with the holders of the Auction Rate Bonds as follows: (a) It will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the tax exempt status of interest on the Auction Rate Bonds under Section 103 of the Code. (b) It will not directly or indirectly use or permit the use of any proceeds of the Auction Rate Bonds or any other funds of the Consolidated Government or take or omit to take any action that would cause the Auction Rate Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the Consolidated Government will comply with all requirements of Section 148 of the Code to the extent applicable to the Auction Rate Bonds. (c) It will not permit any use of the facilities financed or refinanced by the Auction Rate Bonds which would cause the Auction Rate Bonds to be "private activity bonds" within the meaning of Section 141 of the Code. In the event that at any time the Consolidated Government is of the opinion that for purposes of this Section it is necessary to restrict or limit the yield on the investment of any moneys held under this 2004 Resolution, the Consolidated Government shall take such action as may be necessary. Any subsequent proceeding or proceedings authorizing the issuance of Additional Bonds or obligations as permitted under the Resolutions shall in nowise conflict with the terms, covenants and conditions of the Resolutions but shall for all legal purposes contain all of the applicable covenants, agreements and provisions of said Resolutions for the equal protection and benefit of all bondholders. Section 30. Severability. In case anyone or more of the provisions of this 2004 Resolution, or the Auction Rate Bonds issued hereunder, shall for any reason be held illegal or invalid, such illegality or invalidity shall not affect any other provisions of this 2004 Resolution or the Auction Rate Bonds, but this 2004 Resolution and the Auction Rate Bonds shall be construed and enforced as if such illegal or invalid provisions had not been contained therein. Section 31. Contract. The provisions, terms and conditions of this 2004 Resolution shall constitute a contract by and between the Consolidated Government and the owners of the Outstanding Prior Bonds and the owners of the Auction Rate Bonds authorized to be issued hereunder, and after the issuance of the Auction Rate Bonds this 2004 Resolution shall not be repealed or amended in any respect which will adversely affect the rights and interests of the owners of the bonds of said issues, nor shall the governing body of the Consolidated Government pass any proceedings in any way adversely affecting the rights of such owners so long as any of the Bonds authorized by the Resolutions, or the interest thereon, shall remain unpaid or until provision shall have been duly made therefor, provided, however, that this covenant shall not be construed as prohibiting modifications hereof or amendments hereto to the extent and in the -34- AO 1118243.2 .. 1 r " manner as provided in Article IX of the 1996 Resolution, as ratified, reaffirmed, broadened and extended by the 2000 Resolution and this 2004 Resolution. Any subsequent proceeding or proceedings authorizing the issuance of Additional Bonds or obligations with the Outstanding Prior Bonds and the Auction Rate Bonds as permitted under Section 9 of Article V of the 1996 Resolution, as ratified, reaffirmed, broadened and extended in Section 25 of the 2000 Resolution, Section 25 of the 2002 Resolution and Section 23 of this 2004 Resolution, shall in nowise conflict with the terms, covenants and conditions of the Resolutions, but shall for all legal purposes contain all the applicable covenants, agreements and provisions of the Resolutions for the equal protection and benefit of all owners of the Outstanding Prior Bonds, Auction Rate Bonds and such Additional Bonds. Section 32. Supplemental Resolution. The Commission, after the Auction Rate Bonds have actually been sold, shall adopt a resolution supplementing this resolution and among other things will specify in said supplemental resolution the interest rate or rates per annum which the Auction Rate Bonds shall bear, the principal amount of Auction Rate Bonds, the maturities of the Auction Rate Bonds which shall be designated as term bonds subject to mandatory redemption, will provide for the optional redemption provisions applicable to the Auction Rate Bonds, will authorize and approve the execution and delivery of a bond purchase agreement, will provide for the terms of any Credit Facility and will provide for the actual issuance and delivery of the Auction Rate Bonds upon payment therefor by the purchaser thereof. Section 33. Validation. The Auction Rate Bonds herein authorized to be issued shall be validated in the manner provided by law, and to that end notice of the adoption of this 2004 Resolution and a copy thereof shall be served on the District Attorney of the Augusta Judicial Circuit, in order that proceedings for the above purpose be instituted in the Superior Court of Richmond County. Section 34. Repealer. Any and all resolutions, or parts of resolutions, in conflict with this 2004 Resolution this day passed be and are hereby repealed, and this 2004 Resolution shall be in full force and effect from and after its adoption. APPROVED on May:L, 2004. ~ Attest: w' ~ ~ B." e k of ~<#nmission ~~';.~' --l'l~ YJ -. EST. · iJ v" e. 1m ... DI Y+, ............. # -~\,. GEORG\~ __~ ..\,,,,,,,,,,~ ..:4 >~ [SEAL] -35- AO 1118243.2 Sutherland · Asbill & · Brennan LLP 999 Peachtree Street. NE Atlanta. GA 30309-3996 404.853.8000 fax 404.853.8806 WWW.sablaw.com ATTORNEYS AT LAW MATTHEW W. NICHOLS DIRECT LINE: 404,853.8234 Internet: matt.nichols@sablaw.com June 4, 2004 VIA FEDERAL EXPRESS Mr. Stephen E. Shepard Shepard, Plunkett, Hamilton, Boudreaux & Tisdale 701 Greene Street Augusta, Georgia 30901 (}c,)u Re: Not to Exceed $160,00OrAugusta, Georgia Water and Sewerage Revenue Bonds, Series 2004 Dear Steve: Enclosed is a complete copy of the Parity Bond Resolution adopted June 1, 2004 with respect to the referenced bond issue. " Please have this copy signed and sealed on page 40, certified by the Clerk, and placed in the Minute Book of the City Commission. . . Also enclosed are two copies of the Petition and 'Complaint for validation of the Series 2004 Bonds, which Petition also includes a separate copy of the Bond Resolution. Prior to filing the Petition, you need to take the following acti~ns: 1. The Parity Bond Resolution should be ~igned and sealed on page 40 and the Clerk's Certificate that appears at the end ofthe Parity Bond Resolution should be dated, signed and sealed by the Clerk of the Commission. 2. The Clerk's Certificate certifying a true and correct copy of the form of the 2004 Rate Lock Confirmation should be dated, signed and sealed. . 3. The Notice to District Attorney, which is attached as Exhibit A to the District Attorney's Petition and appears immediately in front of the Bond Resolution, will need to be dated, signed and sealed by the Mayor and Clerk. . 4. Once you have taken these steps, the Petition will be ready to present to the District Attorney, who should sign the Petition on page :11 and should also acknowledge service of the Notice to District Attorney, which appears at the ~ery end of the Petition. I I . Austin . New York . I Tallahassee · Washington. DC I \~ \ Mr. Stephen E. Shepard June 4, 2004 Page 2 5. After the District Attorney has signed the Petition and acknowledged service of the Notice, you should obtain a hearing date, fill that in on the first page of the Order and in the body of the Notice to the Public, and have the judge sign the Order setting the hearing. 6. At this point, you should obtain a Civil Action File Number, fill in the file number at the top of the first page of the Petition and the first page of the Order, and also in the body of the Notice to the Public. The Clerk of the Superior Court should date and sign the Notice to the Public. Once these steps have been completed, the Petition and Order should be filed with the Superior Court. You should keep the second copy of the Petition and Order in order to obtain a complete transcript of the entire validation proceedings, certified by the Clerk of the Superior Court, prior to the closing. An extra copy of the Notice to the Public is enclosed for completion and delivery to the newspaper. As required by statute, the Notice to the Public must be published in the official county organ once during each of the two weeks immediately preceding the week of the hearing. As we have discussed, the Notice should run the week of June 7 and again the week of June 14, with the hearing to occur during the week of June 21. If possible, please obtain a proof of the validation hearing notice prior to the first publication to ensure that the newspaper does not make any errors. At your earliest opportunity, please let us know the Civil Action File Number. Also, please send us as soon as it is available a newspaper clipping from the first publication of the validation hearing notice showing the name of the newspaper and the date of publication. Upon receipt of this information, we will be in a position to prepare and send you the answers to be filed in these proceedings, as well as the order confirming and validating the Series 2004 Bonds. If you have any questions, please give us a call. smc~~,c&f Matthew W. Nichols MWN/deb Enclosures AO 1122023.1 Exhibit A Auction Rate Terms and Procedures AO 1118243.2 AO 1119569.1 EXHIBIT A PROVISIONS FOR AUCTION RATE SECURITIES TABLE OF CONTENTS ARTICLE A-I DE FINITI 0 N S.............. ......................................... ........................................ ........... .........1 Section A-lOl Section A-I02 Definitions. .................................................................................................................... 1 Rules of Construction. ................................................................................................... 3 ARTICLE A-II INTEREST RATE MODES, INTEREST RATES AND PAYMENT ........................4 Section A-20 1 Section A-202 Section A-203 Section A-204 Denominations; Medium, Method and Place of Payment of Principal and Interest......4 Determination of Fixed Rate. ........................................................................................4 Determination of Interest Rate and Auction Period During Auction Rate Mode..........5 Changes in Mode...........................................................................................................5 ARTICLE A-III REDEMPTION OF BONDS .........................................................................................7 Section A-301 Section A-302 Section A-303 Optional Redemption. ................................................................................................... 7 Redemption from Sinking Fund Installments.......................... ........ ............. ............ ..... 8 Redemption in Part. ....................................................................................................... 8 AR TI CLE A-IV PURCHASE OF BO NDS ............................................................................................... 9 Section A-401 Section A-402 Section A-403 Section A-404 Section A-405 Section A-406 Section A-407 Mandatory Purchase on Any Mode Change Date. ........................................................9 Notice of Mandatory Tender for Purchase. ... ........ ............ ............ ................................ 9 Purchase Fund. .............................................................................................................. 9 Remarketing of Bonds; Notices.................................................... ............................... 10 Source of Funds for Purchase of Bonds. .....................................................................10 Delivery of Bonds. ..................................................................................................... .11 Delivery and Payment for Purchased Bonds: Undelivered Bonds. .............................11 AR TI CLE A-V A GENTS .........................................................................................................................11 Section A-SOl Section A-502 Section A-503 Section A-504 Remarketing Agent. ....................................................................................... ............. .11 Tender Agent............................................................................................................. ..12 Auction Agent. ........................... ................................................................................. 12 Broker-Dealers. ........................... .............................................................................. ..12 ARTICLE A-VI MISCELLANE 0 US.................... ....... ............. .............. ....... ........ ......... ....... ............... .12 Section A-601 Section A-602 AO 1119569.1 Reserved. .................................................................................. .................................. .12 Notices. ........................................................................................................................ 12 A-i EXlDBIT A PROVISIONS FOR AUCTION RATE SECURITIES ARTICLE A-I DEFINITIONS Section A-tOt Definitions. Capitalized terms used but not otherwise defined in this Exhibit A shall have the meanings set forth in the Parity Bond Resolution of the City Commission of Augusta, Georgia adopted May 4, 2004 (the "2004 Resolution") to which this Exhibit A is attached. The following terms shall, for all purposes herein and (except as the context may otherwise require) in the 2004 Resolution to which this Exhibit A is attached, have the following meanings: Alternate Rate means, on any Rate Determination Date, the BMA Index or if the BMA Index is no longer published, an index or a rate selected or determined by the City. Auction Agent shall have the meaning set forth in Exhibit A-I. Auction Agreement shall have the meaning set forth in Exhibit A-I. Auction Date shall have the meaning set forth in Exhibit A-I. Auction Period shall have the meaning set forth in Exhibit A-I. Auction Period Rate shall have the meaning set forth in Exhibit A-I. Auction Procedures shall have the meaning set forth in Exhibit A-I. Auction Rate Mode means the mode during which the duration of the Auction Period and the interest rate is determined in accordance with Section A-203 and Exhibit A-I. Authorized Denominations means with respect to any Bonds (i) in an Auction Rate Mode, $25,000 and any integral multiple thereof and (ii) in a Fixed Rate Mode, $5,000 and any integral multiple thereof. BMA Index means The Bond Market Association Municipal Swap Index released by Municipal Market Data to its subscribers. Bonds, as used in this Exhibit A (but only in this Exhibit A and Exhibit A-I) shall mean any of the revenue bonds of the Issuer designated as "Augusta, Georgia Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006." Broker-Dealer shall have the meaning set forth in Exhibit A-I. Broker-Dealer Agreement shall have the meaning set forth in Exhibit A-I. Business Day means a day other than (i) a Saturday, Sunday or legal holiday, (ii) a day on which the Paying Agent, the Tender Agent, the Auction Agent (if any Bonds are in an Auction Rate Mode), the Broker-Dealers (if any Bonds are in an Auction Rate Mode), the Remarketing Agent or banks and trust A-I AO 1119569.1 companies in New York, New York are authorized or required to remain closed, or (iii) a day on which the New York Stock Exchange is closed. Current Mode has the meaning specified in Section A-204(b). Electronic Means means telecopy, facsimile transmission, e-mail transmission or other similar electronic means of communication providing evidence of transmission, including a telephonic communication confirmed by any other method set forth in this definition. Favorable Opinion of Bond Counsel means, with respect to any action the occurrence of which requires such an opinion, an unqualified Counsel's Opinion to the effect that such action is permitted under the 2004 Resolution and that such action will not impair the exclusion of interest on such Bonds from gross income for purposes of federal income taxation (subject to the inclusion of any exceptions contained in the opinion delivered upon original issuance of the Bonds). Fixed Rate means an interest rate fixed to the Maturity Date. Fixed Rate Mode means the period during which any Bonds interest at a Fixed Rate. Interest Payment Date means the following dates upon which interest is payable on any Bonds: (a) the Maturity Date or any Mode Change Date; (b) with respect to the Auction Rate Mode, each date that is specified as an "Interest Payment Date" in Exhibit A-I; and (c) with respect to the Fixed Rate Mode, each July 1 and January 1, provided that the Interest Payment Dates for the Fixed Rate Mode may be changed in connection with the conversion to such Mode upon receipt ofa Favorable Opinion of Bond Counsel. Interest Period means the period of time that any interest rate remains in effect, which period, with respect to Bonds in the Fixed Rate Mode, shall be the period from and including the Mode Change Date that they began to bear interest at the Fixed Rate to and including the Maturity Date. Mandatory Purchase Date means any Mode Change Date. Maturity Date means, with respect to any Bond, the final date specified therefore in the Supplemental Resolution. Maximum Auction Rate shall have the meaning set forth in Exhibit A-I. Maximum Rate means ten percent (10%) per annum; provided, however, that in no event shall the Maximum Rate exceed the maximum rate permitted by applicable law. Mode means the Auction Rate Mode or the Fixed Rate Mode. Mode Change Date means, with respect to any Bonds, the date one Mode terminates and another Mode begins. Mode Change Notice shall have the meaning specified in Section A-204(a). New Mode shall have the meaning specified in Section A-204(b). A-2 AO 1119569.1 Notice Parties means the City, the Remarketing Agent (if any), the Tender Agent (if any), the Auction Agent (if any), and all Broker-Dealers (if any). Purchase Fund means the fund created in Section A-403. Purchase Price means an amount equal to the principal amount of any Bond purchased on any Mandatory Purchase Date. Rate Determination Date means any date on which the interest rate on any Bonds is required to be determined, being in the case of any Bonds to be in the Fixed Rate Mode, a Business Day prior to the first day of an Interest Period. Rating Agencies means Fitch, Moody's and S&P or such other nationally recognized securities rating agencies selected by the City. Record Date means, with respect to Any Bonds (i) in the Auction Rate Mode, the opening of business on the Business Day next preceding an Interest Payment Date and (ii) in the Fixed Rate Mode, the fifteenth (l5th) day (whether or not a Business Day) of the calendar month next preceding each Interest Payment Date. Redemption Date means the date fixed for redemption of Any Bonds subject to redemption in any notice of redemption given in accordance with the terms hereof. Remarketing Agent means the remarketing agent appointed pursuant to Section A-SOl of this Exhibit A. Remarketing Agreement means the remarketing agreement entered into among the City and the Remarketing Agent with respect to any Bonds pursuant to which the Remarketing Agent has agreed to remarket the Bonds on the Mandatory Purchase Date at a price of not less than 100% of the principal amount thereof. Remarketing Proceeds Account means the account by that name created in Section A-403. Securities Depository has the meaning set forth in Exhibit A-I. Sinking Fund Installments is defined in Section A-302. Tender Agent means the tender agent appointed pursuant to Section A-502. Tender Agency Agreement means the tender agency agreement entered into among the City and the Tender Agent with respect to any Bonds. Section A-I02 Rules of Construction. (a) Exhibits A and C-l constitute an integral part of the 2004 Resolution and, except to the extent provided in the next sentence, has the same force and effect as if set forth therein. In the event of any conflict between Exhibits A and C-l and the 2004 Resolution, the 2004 Resolution shall control. (b) References in the 2004 Resolution and in this Exhibit A to Articles or Sections with "C-" preceding the number of an Article or Section are to such Article or Section of this Exhibit A. A-3 AO 1119569.1 (c) Unless otherwise provided in the 2004 Resolution and this Exhibit A, references in the 2004 Resolution and in this Exhibit A to "time" shall be deemed to refer to New York, New York time. ARTICLE A-II INTEREST RATE MODES, INTEREST RATES AND PAYMENT Section A-20t Denominations; Medium, Method and Place of Payment of Principal and Interest. (a) The Bonds shall be issued in Authorized Denominations. The principal and redemption price of and interest on the Bonds shall be payable in lawful money of the United States of America. Accrued and unpaid interest on the Bonds shall be due on the Interest Payment Dates and payable by wire transfer of immediately available funds to the account specified by the Owner in a written direction received by the Paying AgentJRegistrar on or prior to a Record Date or, if no such account number is furnished, by check mailed by the Paying AgentJRegistrar to the Owner at the address appearing on the books required to be kept by the Paying AgentJRegistrar pursuant to the 2004 Resolution. The payment of the Purchase Price of Bonds on any Mandatory Purchase Date shall be made by wire transfer in immediately available funds by the Tender Agent to the account specified by the Owner in a written direction received by the Tender Agent or, if no such account number is furnished, by check mailed by the Tender Agent to the Owner at the address appearing on the books required to be kept by the Paying AgentJRegistrar pursuant to the 2004 Resolution. Any such direction shall remain in effect until revoked or revised by such Owner by an instrument in writing delivered to the Paying AgentJRegistrar or the Tender Agent, as the case may be. (b) Interest on Any Bonds that are issued in the Fixed Rate Mode shall be calculated on the basis of a 360-day year composed of twelve 30-day months. Interest on Any Bonds that are issued in the Auction Rate Mode shall be calculated on the basis of a 360-day year for the actual number of days elapsed to the Interest Payment Date. (c) The interest rates for Bonds contained in the records of the Paying AgentJRegistrar shall be conclusive and binding upon the City, the Remarketing Agent, the Tender Agent, the Auction Agent, all Broker-Dealers and the Owners. (d) The Owner of any Bond shall be paid (and shall be obligated to pay as part of the price paid by such Owner in connection with the remarketing to it of such Bonds) interest thereon for an Interest Period or Auction Period only in the amount that would have accrued thereon at the rate or rates established pursuant to this Exhibit A, as applicable. (e) No Bond may bear interest at an interest rate higher than the Maximum Rate. Section A-202 Determination of Fixed Rate. (a) Fixed Rate. The Fixed Rate to be effective for the Interest Period commencing on any Mode Change Date after which Bonds will bear interest at a Fixed Rate, shall be determined by the Remarketing Agent. No later than 4:00 p.m. on the Business Day next preceding the Mode Change Date, the Remarketing Agent shall determine the Fixed Rate and shall make the Fixed Rate available by Electronic Means to each other Notice Party. The Fixed Rate shall be the minimum rate that, in the sole judgment of the Remarketing Agent, would result in a sale of the Bonds at a price equal to the principal amount thereof on the Rate Determination Date taking into consideration the duration of the Interest Period. A-4 AO 1119569.1 (b) Failure to Establish Fixed Rate. If for any reason, a Fixed Rate cannot be established on a Mode Change Date, the Bonds affected shall remain in the Auction Rate Mode. Section A-203 Determination of Interest Rate and Auction Period During Auction Rate Mode. (a) During any Auction Rate Mode, the Bonds shall bear interest at the Auction Period Rate for each Auction Period determined as set forth in this Section and Exhibit A-I. To the extent that any Bonds are initially issued in an Auction Rate Mode, (i) the initial Auction Period for such Bonds shall commence from and include the Closing Date and shall expire on and include the initial Auction Date, (ii) the initial Auction Date for such Bonds (which will be the day of the week on which Auctions will generally be conducted) shall be the date set forth in the Supplemental Resolution and (iii) the Auction Period Rate for the initial Auction Period for such Bonds shall be the interest rate set forth in the Supplemental Resolution. After the initial Auction Period, each Auction Period shall be an Auction Period set forth in the Supplemental Resolution unless such Auction Period is adjusted or changed to a daily, 7-day, 28-day or 35-day Auction Period in accordance with Exhibit A-I. For any other Auction Period that is not an initial Auction Period, the Auction Period Rate shall be the rate of interest determined in accordance with Exhibit A-I. (b) During any Auction Rate Mode, upon the occurrence of a default of the City in the payment of principal, interest or premium on any Bond in the Auction Rate Mode after the same shall have become due, whether at maturity, upon call for redemption or on an Interest Payment Date, the Paying AgentJRegistrar shall immediately give notice of the occurrence of such events to the Auction Agent. (c) (1) Less than all of the Bonds then subject to a particular Auction Period may be converted to another Auction Period in accordance with Exhibit A-I; provided, however, that in such event such Bonds shall be re-designated into two or more subseries for each separate Auction Period with a new CUSIP number for each subseries. (2) If less than all of the Bonds then subject to a particular Auction Period are converted to another Auction Period in accordance with Exhibit A-I, the particular Bonds or portions thereof which are to be converted to a new Auction Period shall be selected by the Auction Agent in its discretion subject to the provisions hereof regarding Authorized Denominations of Bonds subject to such Mode. (3) All Bonds shall be in the same Auction Period. Section A-204 Changes in Mode. (a) Changes. Any Mode, other than a Fixed Rate Mode, may be changed to any other Mode at the times and in the manner hereinafter provided. Any Bonds converted to a Fixed Rate Mode shall not be changed to any other Mode. (b) Notice of Intention to Change Mode. The City or authorized Representative on behalf of the City shall give written notice (the "Mode Change Notice") to the Notice Parties of its intention to effect a change in the Mode from the Mode then prevailing (the "Current Mode") to another Mode (the "New Mode") specified in such written notice, together with the proposed Mode Change Date. Such notice shall be given at least twenty (20) days prior to the Mode Change Date. A-5 AO 1119569.1 (c) General Provisions Applving to Changes from One Mode to Another. (i) The Mode Change Date must be a Business Day. (ii) Additionally, the Mode Change Date from an Auction Rate Mode shall be the Interest Payment Date following the last day of an Auction Period. (iii) On or prior to the date the City, or the Authorized Representative on behalf of the City, provides the notice to the Notice Parties pursuant to Section A-204(b) hereof, the City, or the Authorized Representative on behalf of the City, shall have received a letter from counsel acceptable to the City and addressed to the City (with a copy to all other Notice Parties) to the effect that it expects to be able to deliver a Favorable Opinion of Bond Counsel on the Mode Change Date. (iv) No change in Mode will become effective unless all conditions precedent thereto have been met and the following items shall have been delivered to the Remarketing Agent by 11 :00 a.m., or such later time as is acceptable to the City and the Remarketing Agent, on the Mode Change Date: (1) a Favorable Opinion of Bond Counsel dated the Mode Change Date; (2) if required, unless a Tender Agency Agreement and Remarketing Agreement is effective, an executed copy of such Tender Agency Agreement and Remarketing Agreement; and (3) a certificate of an authorized officer of the Tender Agent to the effect that all of the Bonds tendered or deemed tendered, unless otherwise redeemed, have been purchased at a price at least equal to the Purchase Price thereof. (v) If all conditions to the Mode change are met, the Interest Period(s) for the New Mode shall commence on the Mode Change Date and the Interest Rate(s) shall be determined by the Remarketing Agent in the manner provided in Section A-202. (vi) With respect to a change in the Mode from an Auction Rate Mode to any other Mode, in the event the foregoing conditions have not been satisfied, the Bonds that are subject to the Mode Change Notice will not be subject to mandatory tender for purchase, will continue to bear interest in the Auction Rate Mode and the Auction Period Rate for the Auction Period commencing on the failed Mode Change Date shall be equal to the Maximum Auction Rate as determined on the Auction Date for such Auction Period and the Auction Period commencing on the failed Mode Change Date shall be a seven-day Auction Period. Thereafter, the Auction Period Rate for each succeeding Auction Period shall be determined in accordance with Exhibit A-I and each Auction Period shall be a seven-day Auction Period until the length of the Auction Period is changed in accordance with Exhibit A-I. (d) Serial and Term Bonds. The City may, in the notice given pursuant to Section A-204(b) in connection with any change of Bonds to the Fixed Rate Mode, provide that all or some of such Bonds shall be serial or term Bonds. The total aggregate principal amount of Bonds due on any date, whether in a Fixed Rate Mode or an Auction Rate Mode, shall be equal to the Sinking Fund Installment specified for such date, and the remaining Sinking Fund Installments shall continue to be sinking fund installments for such Bonds due on the Maturity Date, unless the City specified otherwise in the notice. The interest rate A-6 AO 1119569.1 for serial or term Bonds maturing on a particular date may be different from the interest rate or rates established for other Bonds. (e) Partial Mode Changes and Subseries Designations. (i) Less than all of the Bonds then subject to a particular Mode may be converted to another Mode pursuant to this Section; provided, however, that in such event such Bonds shall be re-designated into two or more subseries for each separate Mode with a new CUSIP number for each subseries. (ii) If less than all of the Bonds then subject to a particular Mode are converted to another Mode pursuant to this Section, the particular Bonds or portions thereof which are to be converted to a New Mode shall be selected by the City in its discretion subject to the provisions hereof regarding Authorized Denominations of Bonds subject to such New Mode. ARTICLE A-III REDEMPTION OF BONDS Section A-30t Optional Redemption. (a) Bonds in the Auction Rate Mode shall be subject to redemption at the option of the City, in whole or in part, on any Interest Payment Date immediately following an Auction Period, at the Redemption Price equal to the principal amount thereof, plus accrued interest to the Redemption Date; provided, however, that in the event of a partial redemption of Bonds in an Auction Rate Mode, the aggregate principal amount of Bonds in an Auction Rate Mode which will remain outstanding shall be equal to or more than $10,000,000 unless otherwise consented to by each Broker-Dealer. (b) Bonds in the Fixed Rate Mode are subject to redemption at the option of the City, in whole or in part, on any date following the "No Call Period" set forth below at the Redemption Prices set forth in the following table: A-7 AO 1119569.1 OPTIONAL REDEMPTION DURING FIXED RATE MODE Duration of Interest Period in Fixed Rate Mode No Call Period (commencing on the date of commencement of the Fixed Rate Mode Interest Period) Redemption Price Greater than or equal to 10 years 8 years 101%, declining by 1 % on the first succeeding anniversary of the end of the no call period and thereafter at 100% Greater than or equal to 8 years and less than 10 years 6 years 101% declining by 1 % on the first succeeding anniversary of the end of the no call period and thereafter at 100% Greater than or equal to 4 years and less than 8 years 3 years 100Y2%, declining by Y2% on the first succeeding anniversary of the end of the no call period and thereafter at 100% Less than 4 years Bonds are subject to optional redemption at any time 100% (c) The City may, in connection with a change to a Fixed Rate Mode, alter its rights as described above in Section A-301(b) to redeem any Bonds on and after the Mode Change Date without the consent of Owners of the Bonds; provided, that notice describing the alteration shall be submitted to the Tender Agent and the Remarketing Agent, together with a Favorable Opinion of Bond Counsel, addressed to them. Section A-302 Redemption from Sinking Fund Installments. To the extent that the Supplemental Resolution provides that Bonds are subject to redemption from sinking fund installments, the date on which a sinking fund installment (each a "Sinking Fund Installment") shall be due when the Bonds are in an Auction Rate Mode shall be the dates set forth in the Supplemental Resolution, or if any such date is not an Interest Payment Date, the Interest Payment Date immediately preceding such date. Section A-303 Redemption in Part. In the event of redemption of less than all the Bonds, the Paying Agent/Registrar shall at the written direction of the City, or the Authorized Representative on behalf of the City, select for redemption all then Outstanding Bonds in accordance with said direction; provided, however, that in the event of redemption of less than all the Bonds of as single maturity and interest rate, the particular Bonds to be called for redemption shall be selected by lot or any other method determined by the Paying Agent/Registrar to be fair and reasonable. New Bonds representing the unredeemed balance of the principal amount thereof shall be issued in Authorized Denominations to the Owner thereof, without charge therefore. Any new Bond issued pursuant to this Section shall be executed by the City and A-8 AO 1119569.1 authenticated by the Paying Agent/Registrar and shall be in an aggregate unpaid principal amount equal to the unredeemed portion of such Bond surrendered. ARTICLE A-IV PURCHASE OF BONDS Section A-401 Mandatory Purchase on Any Mode Change Date. The Bonds to be changed to any Mode from any other Mode are subject to mandatory tender for purchase on the Mode Change Date at the Purchase Price. Section A-402 Notice of Mandatory Tender for Purchase. (a) The Paying Agent/Registrar shall, at least fifteen (15) days prior to any Mode Change Date, give notice of the mandatory tender for purchase of such Bonds that is to occur on such date. (b) Notice of any mandatory tender of Bonds shall state that such Bonds are to be purchased pursuant to Section A-401, and shall be provided by the Paying Agent/Registrar or caused to be provided by the Paying Agent/Registrar by mailing a copy of the notice of mandatory tender by first-class mail to each Owner of Bonds at the respective addresses shown on the registry books. Each notice of mandatory tender for purchase shall identify the reason for the mandatory tender for purchase, and specify the Mandatory Purchase Date, the Purchase Price, the place and manner of payment, that the Owner has no right to retain such Bonds and that no further interest will accrue from and after the Mandatory Purchase Date to such Owner. Each notice of mandatory tender for purchase caused by a change in the Mode applicable to the Bonds shall in addition specify the conditions that have to be satisfied pursuant to Section A-204 hereof in order for the New Mode to become effective and the consequences that the failure to satisfy any of such conditions would have. The Paying Agent/Registrar shall give a copy of any notice of mandatory tender given by it to the other Notice Parties. Any notice mailed as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner of any Bond receives the notice, and the failure of such Owner to receive any such notice shall not affect the validity of the action described in such notice. Failure by the Paying Agent/Registrar to give a notice as provided in this Section shall not affect the obligation of the Tender Agent to purchase the Bonds subject to mandatory tender for purchase on the Mandatory Purchase Date. Section A-403 Purchase Fund. (a) Funds and Accounts. There is hereby established, and there shall be maintained with the Tender Agent for the Bonds, a separate fund to be known as the "Purchase Fund." The Tender Agent shall further establish a separate account within such Purchase Fund to be known as the "Remarketing Proceeds Account." (b) Remarketing Proceeds Account. Upon receipt of the proceeds of a remarketing of Bonds on a Mandatory Purchase Date, the Tender Agent shall deposit such proceeds in the related Remarketing Proceeds Account for application to the payment of the Purchase Price of such Bonds. (c) No Investment. Amounts held by the Tender Agent in the Remarketing Proceeds Account relating to the Bonds shall not be deemed as Pledged Revenues under the 2004 Resolution and shall be held uninvested and separate and apart from all other funds and accounts. A-9 AO 1119569.1 (d) Payment of Purchase Price by Tender Agent. The Tender Agent shall pay the Purchase Price of Bonds to their Owners from the moneys in the Remarketing Proceeds Account in accordance with this Exhibit A by 3:00 p.m. on any Mandatory Purchase Date. Section A-404 Remarketing of Bonds; Notices. (a) Remarketing of Bonds. The Remarketing Agent for the Bonds shall offer for sale and use its best efforts to find purchasers for all Bonds required to be tendered for purchase. (b) Notice of Remarketing: Registration Instructions: New Bonds. (i) The Remarketing Agent shall notify the Tender Agent by Electronic Means not later than 11 :45 a.m. on the Mandatory Purchase Date of the registration instructions as may be necessary to re-register Bonds; and (ii) Unless otherwise permitted by the Securities Depository and the book-entry-only system applicable to the Bonds, the Tender Agent shall authenticate and have available for delivery to the Remarketing Agent prior to 12:30 p.m. on the Mandatory Tender Date new Bonds for the respective purchasers thereof. (c) Transfer of Funds. The Remarketing Agent shall at or before 11 :45 a.m. on the Mandatory Purchase Date (x) notify the City and the Tender Agent by Electronic Means of the amount of tendered Bonds that were not successfully remarketed, and (y) confirm to the City and the Tender Agent the transfer of the Purchase Price of remarketed Bonds to the Tender Agent in immediately available funds at or before 12:00 noon, such confirmation to include the pertinent Fed Wire reference number. Section A-405 Source of Funds for Purchase of Bonds. On or before the close of business on the Mandatory Purchase Date with respect to any Bonds, the Tender Agent shall purchase such Bonds from the Owners at the Purchase Price. Unless otherwise provided in a certificate of an Authorized Officer delivered to the Paying AgentlRegistrar, the Tender Agent and the Remarketing Agent on a Mandatory Purchase Date, funds for the payment of such Purchase Price shall be derived solely from the immediately available funds on deposit in the Remarketing Proceeds Account with respect to such Bonds. Notwithstanding the foregoing, unless otherwise provided in a certificate of an Authorized Officer delivered to the Tender Agent and the Remarketing Agent on a Mandatory Purchase Date, the City shall have the option, but shall not be obligated, to transfer immediately available funds to the Tender Agent for the payment of the Purchase Price of any Bond that is tendered or deemed tendered for purchase in accordance with this Exhibit A and the Purchase Price of which is not paid on the Mandatory Purchase Date from the source identified above. Neither the City, the Tender Agent nor the Remarketing Agent shall have any liability or obligation to payor, except from the source identified above, make available such Purchase Price. Unless otherwise provided in a certificate of an Authorized Officer delivered to the Paying AgentJRegistrar and Tender Agent on a Mandatory Purchase Date, the failure to pay any such Purchaser Price for Bonds that have been tendered or deemed tendered for purchase from the source identified above shall not constitute an Event of Default under the 2004 Resolution and in the case of such failure such Bonds shall not be purchased and shall remain in the Mode in effect immediately preceding such Mandatory Purchase Date. A-I0 AO 1119569.1 Section A-406 Delivery of Bonds. Except as otherwise required or permitted by the book-entry-only system of the Securities Depository, the Bonds sold by the Remarketing Agent pursuant to Section A-404 shall be delivered by the Remarketing Agent to the purchasers of those Bonds by 3 :00 p.m. on the Mandatory Purchase Date. Section A-407 Delivery and Payment for Purchased Bonds: Undelivered Bonds. Except as other wise required or permitted by the book-entry-only system of the Securities Depository, Bonds purchased pursuant to this article shall be delivered (with all necessary endorsements) at or before 12:00 noon on the Mandatory Purchase Date, at the office of the Tender Agent in New York, New York. Payment of the Purchase Price shall be made by wire transfer in immediately available funds by the Tender Agent by the close of business on the Mandatory Purchase Date, or, if the Owner has not provided or caused to be provided wire transfer instructions, by check mailed to the Owner at the address appearing in the books required to be kept by the Paying Agent/Registrar pursuant to the 2004 Resolution. If Bonds to be purchased are not delivered by the Owners to the Tender Agent by 12:00 noon on the Mandatory Purchase Date, the Tender Agent shall hold any funds received for the purchase of those Bonds in trust in a separate account and shall pay such funds to the former Owners upon presentation of the Bonds subject to tender. Any such amounts shall be held uninvested. Such undelivered Bonds shall be deemed tendered and cease to accrue interest as to the former Owners on the Mandatory Purchase Date, and moneys representing the Purchase Price shall be available against delivery of those Bonds at the Principal Office of the Tender Agent; provided, however, that any funds which shall be so held by the Tender Agent and which remain unclaimed by the former Owner of any such Bond not presented for purchase for a period of three years after delivery of such funds to the Tender Agent, shall, to the extent permitted by law, upon request in writing by the City and the furnishing of security or indemnity to the Tender Agent's satisfaction, be paid to the City free of any trust or lien and thereafter the former Owner of such Bond shall look only to the City and then only to the extent of the amounts so received by the City without any interest thereon and the Tender Agent shall have no further responsibility with respect to such moneys or payment of the Purchase Price of such Bonds. The Tender Agent shall authenticate a replacement Bond for any undelivered Bond which may then be remarketed by the Remarketing Agent. ARTICLE A-V AGENTS Section A-SOl Remarketing Agent. The City shall appoint and employ the services of a Remarketing Agent prior to any Mode Change Date while any Bonds are in the Auction Rate Mode. Any Remarketing Agent may at any time resign and be discharged of the duties and obligations created by the 2004 Resolution by giving notice to the City and the Tender Agent in accordance with the Remarketing Agreement. Any Remarketing Agent may be removed at any time, at the direction of the City, by an instrument filed with the related Remarketing Agent and the related Tender Agent in accordance with the Remarketing Agreement. Any Remarketing Agent shall be selected by the City and shall be a member of the National Association of Securities Dealers, Inc., shall have a capitalization of at least fifteen million dollars ($15,000,000), and shall be authorized by law to perform all the duties set forth herein. The City's delivery of a Certificate setting forth the effective date of the appointment of a Remarketing Agent and the name, address and telephone number of such Remarketing Agent shall be conclusive evidence that A-ll AO 1119569.1 (i) such Remarketing Agent has been appointed and is qualified to act as Remarketing Agent under the terms of the 2004 Resolution and (ii) if applicable, the predecessor Remarketing Agent has been removed in accordance with the provisions of the 2004 Resolution. Each Remarketing Agent shall keep such books and records as shall be consistent with prudent industry practice and make such books and records available for inspection by the City at all reasonable times. Section A-502 Tender Agent. The City shall appoint and employ the services of the Tender Agent prior to any Mode Change Date while any Bonds are in the Auction Rate Mode. The Tender Agent may at any time resign and be discharged of the duties and obligations created by the 2004 Resolution by giving at least fifteen (15) days' notice to the City, provided that a successor Tender Agent shall be appointed and acting hereunder on or prior to the effective date of such resignation or discharge. The Tender Agent may be removed at any time, at the direction of the City, by an instrument filed with the related Remarketing Agent and upon at least fifteen (15) days' notice to the Tender Agent, provided that a successor Tender Agent shall be appointed and acting hereunder on or prior to the effective date of such removal. The Tender Agent shall be selected by the City and shall be a bank or other financial institution that satisfies the qualifications set forth in the 2004 Resolution. The City's delivery of a Certificate setting forth the effective date of the appointment of a Tender Agent and the name, address and telephone number of such Tender Agent shall be conclusive evidence that (i) such Tender Agent has been appointed and is qualified to act as Tender Agent under the terms hereof and (ii) if applicable, the predecessor Tender Agent has been removed in accordance with the provisions hereof. The Tender Agent shall keep such books and records as shall be consistent with prudent industry practice and make such books and records available for inspection by the City, at all reasonable times. Section A-503 Auction Agent. The City shall appoint and employ the services of an Auction Agent while any Bonds are in the Auction Rate Mode. The City shall have the right to remove the Auction Agent as provided in the Auction Agreement. Section A-504 Broker-Dealers. The City shall appoint and employ the services of one or more Broker-Dealers for the Bonds that are in the Auction Rate Mode. ARTICLE A-VI MISCELLANEOUS Section A-601 Reserved. Section A-602 Notices. (a) Notices to Owners. All notices required to be given to Owners of Bonds, unless otherwise expressly provided, shall be given by first class mail, postage prepaid. A-12 AO 1119569.1 (b) Notices to Rating Agencies. The City shall give written notice to the Rating Agencies of any of the following events: (i) Any change of Tender Agent or Remarketing Agent; (ii) Any material changes to the 2004 Resolution that affect the Bonds; (iii) Any action in connection with a change to a Fixed Rate Mode; and (iv) Any redemption, defeasance or mandatory tender of all the Outstanding Bonds. (c) Demands: Requests. All notices, demands and requests to be given to or made hereunder by the City, the Tender Agent, the Remarketing Agents, the Auction Agent, the Broker-Dealers or the Rating Agencies shall, unless otherwise expressly provided herein, be given or made in writing and shall be deemed to be properly given or made if by United States registered or certified mail, return receipt requested, postage prepaid, addressed as set forth below. Notices, demands and requests that may be given by Electronic Means may be sent to the telephone or fax numbers, as applicable, set forth below: (i) As to the City: The address, phone number and fax number specified in the Supplemental Resolution. (ii) As to the Tender Agent: The address, phone number and fax number specified in the Tender Agency Agreement. (iii) As to the Remarketing Agent(s): The address, phone number and fax number specified in the related Remarketing Agreement. (iv) As to the Auction Agent: The address, phone number and fax number specified in the Auction Agreement. (v) As to the Broker-Dealer(s): The address, phone number and fax number specified In the related Broker-Dealer Agreement. or to such other address as is provided by the entity. A-13 AO 1119569.1 EXHIBIT A-I TO PROVISIONS FOR AUCTION RATE BONDS AUCTION RATE MODE PROVISIONS A-l-l AO 1119566.1 TABLE OF CONTENTS Paee No. Section 1.01 ARTICLE I. DEFINITIONS ....................................................................... Error! Bookmark not defined. Defini ti ons ..................................................................................................................... 2 ARTICLE II. AUCTION PROCEDURES ................................................. Error! Bookmark not defined. Section 2.01 Section 2.02 Section 2.03 Section 2.04 Section 2.05 Section 2.06 Section 2.07 Section 2.08 Section 2.09 Auction Procedures.......................................................................................................4 Orders by Existing Owners and Potential Owners ........................................................4 Submission of Orders by Broker-Dealers to Auction Agent.........................................6 Determination of Auction Rate..................................................................................... 8 Section 1.06. Allocation of the Auction Rate Securities. ..............................................9 Notice of Auction Rate............................................................................................... .11 Auction Rate Index..................................................................................................... .12 Miscellaneous Provisions Regarding Auctions ...........................................................12 Changes in Auction Period or Auction Date ...............................................................13 ARTICLE III. AUCTION AGENT AND MARKET AGENT................... Error! Bookmark not defined. Section 3.01 Section 3.02 Section 3.03 Auction Agent. ............................................................................................................ 14 Qualifications of Auction Agent: Resignation; Removal............................................147 Market Agent................................................ .............................................................. .14 AO 1119566.1 A-l-l EXIllBIT A-I Auction Rate Procedures Section 1.01 Definitions In addition to the terms defined in Exhibit A to the 2004 Resolution, to which this Exhibit A-I is attached, and in the 2004 Resolution itself, the following terms shall have the following meanings with respect to Bonds while they are Auction Rate Securities, unless the context otherwise requires: "Agent Member" means a member of, or participant in, the Securities Depository who will act on behalf of a Bidder. "All Hold Rate" means, as of any Auction Date, a per annum rate equal to 55% of the Auction Rate Index in effect on such Auction Date. "Auction" means each periodic implementation of the Auction Procedures. "Auction Agent" means the auction agent appointed in accordance with Section 3.01 or 3.02. "Auction Agreement" means an agreement between the Auction Agent and the Consolidated Government pursuant to which the Auction Agent agrees to follow the procedures specified in this Exhibit A-I, as such agreement may from time to time be amended or supplemented. "Auction Date" means the Business Day immediately preceding the first day of each Auction Period (or such other day that the Market Agent shall establish as the Auction Date therefor pursuant to Section 1.1 O(b) of this Exhibit A-I); provided, however, that the last Auction Date in an Auction Period shall be the earlier of (i) the Business Day next preceding the last Interest Payment Date before a Mode Change Date and (ii) the Business Day next preceding the last Interest Payment Date before the Maturity Date of such Series of Bonds. The first Auction Date for the Bonds shall be set forth in the 2004 Supplemental Resolution. "Auction Period" means for any Series of Bonds while they are Auction Rate Securities: (i) the Initial Auction Period or the period from and including an Auction Rate Mode Change Date, to and including the first Auction Date following such Auction Rate Mode Change Date, as applicable; and (ii) thereafter until a Mode Change Date or until the Maturity Date of the Bonds of such Series, each period of7 days (unless changed as described in Section 1.10 of this Exhibit A-I) from and including the last Interest Payment Date for the immediately preceding Auction Period, to and including the next succeeding Auction Date or, in the event of an Auction Period with an Interest Payment Date on a Monday, the Sunday following the next succeeding Auction Date, or in the event of a change to a different Mode, to but excluding the Mode Change Date; provided, if any day that would be the last day of any such period does not immediately precede a Business Day, such period shall end on the next day which immediately precedes a Business Day. "Auction Procedures" means the procedures for conducting Auctions for the Auction Rate Securities during an Auction Period set forth in this Exhibit A-I. A-I-2 AO 1119566.1 "Auction Rate" means the rate of interest to be borne by the Auction Rate Securities during each Auction Period, not greater than the Maximum Rate. "Auction Rate" means (i) if Sufficient Clearing Bids exist, the Winning Bid Rate; provided, however, that if all of the Auction Rate Securities are the subject of Submitted Hold Orders, the Auction Rate will be the All Hold Rate and (ii) if Sufficient Clearing Bids do not exist, the Auction Rate will be the Maximum Rate. "Auction Rate Index" has the meaning specified in Section 1.08 of this Exhibit A-I. "Auction Rate Mode Change Date" means the date on which the Bonds convert from a Mode other than an Auction Mode and begin to bear interest at an Auction Rate. "Auction Rate Securities" means the Bonds during any Auction Period. "Available Bonds" means the aggregate principal amount of the Auction Rate Securities that are not the subject of Submitted Hold Orders. "Beneficial Owner" means the customer of a Broker-Dealer for such Series of Bonds who is listed on the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of a Bond of such Series. "Bid" has the meaning specified in subsection (a) of Section 1.03 of this Exhibit A-I. "Bidder" means each Existing Owner and Potential Owner who places an Order. "Broker-Dealer" means any entity that is permitted by law to perform the function required of a Broker-Dealer in this Exhibit A-I that is a member of, or a direct participant in, the Securities Depository, that has been selected by the Consolidated Government, and that is a party to a Broker-Dealer Agreement with the Auction Agent. "Broker-Dealer Agreement" means an agreement between the Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the procedures specified in this Exhibit A-I, as such agreement may from to time be amended or supplemented. "Broker-Dealer Rate" means a rate of 0.25% or such different rate as may be established pursuant to a Broker-Dealer Agreement, provided that the Broker-Dealer Rate must be the same in all Broker-Dealer Agreements. "Existing Owner" means a Person or a Broker-Dealer who is listed as the Beneficial Owner of the Auction Rate Securities in the records of the Auction Agent. "Hold Order" has the meaning specified in subsection (a) of Section 1.03 of this Exhibit A-I. "Initial Auction Period" for the Bonds shall be set forth in a Supplemental Resolution. "Market Agent" means Merrill, Lynch, Pierce, Fenner & Smith Incorporated or any successor market agent appointed in accordance with Section 1.13 of this Exhibit A-I. "Order" means a Hold Order, Bid or Sell Order. A-I-3 AO 1119566.1 "Potential Owner" means any Person, including any Existing Owner, who may be interested in acquiring a beneficial interest in Auction Rate Securities in addition to the Auction Rate Securities at the time owned by such Person, ifany. "Principal Office of the Auction Agent" means the office of the Auction Agent designated in writing to the Issuer, the Bond Registrar, the Market Agent, the Consolidated Government and each Broker-Dealer. "Securities Depository" means The Depository Trust Company and its successors and assigns or any other securities depository selected by the Issuer which agrees to follow the procedures required to be followed by such securities depository in connection with the Auction Rate Securities. "Sell Order" has the meaning specified in subsection (a) of Section 1.03 of this Exhibit A-I. "Submission Deadline" means 1 :00 p.m., New York City time, on each Auction Date, or such other time on such date as shall be specified from time to time by the Auction Agent pursuant to the Auction Agreement as the time by which Broker-Dealers are required to submit Orders to the Auction Agent. "Submitted Bid" has the meaning specified in subsection (b) of Section 1.05 of this Exhibit A-I. "Submitted Hold Order" has the meaning specified in subsection (b) of Section 1.05 of this Exhibit A-I. "Submitted Order" has the meaning specified in subsection (b) of Section 1.05 of this Exhibit A- 1. "Submitted Sell Order" has the meaning specified in subsection (b) of Section 1.05 of Exhibit A. "Sufficient Clearing Bids" means an Auction for which the aggregate principal amount of the Auction Rate Securities that are the subject of Submitted Bids by Potential Owners specifying one or more rates not higher than the Maximum Rate is not less than the aggregate principal amount of the Auction Rate Securities that are the subject of Submitted Sell Orders and of Submitted Bids by Existing Owners specifying rates higher than the Maximum Rate. "Winning Bid Rate" means the lowest rate in any Submitted Bid which, if selected by the Auction Agent as the Auction Rate, would cause the aggregate principal amount of Auction Rate Securities that are the subject of Submitted Bids specifying rates not greater than such rate to be at least equal to the aggregate principal amount of Available Bonds. Section 1.02 Auction Procedures While the Bonds bear interest at the Auction Rate, Auctions shall be conducted on each Auction Date (other than the Auction Date immediately preceding each Auction Period commencing after the ownership of the Auction Rate Securities is no longer maintained in the book-entry system pursuant to Section 2.19 of this Bond Indenture). If there is an Auction Agent on such Auction Date, Auctions shall be conducted in the manner set forth in this Exhibit A-I. Section 1.03 Orders by Existing Owners and Potential Owners (a) Prior to the Submission Deadline on each Auction Date: A-I-4 AO 1119566.1 (i) each Existing Owner may submit to a Broker-Dealer, in writing or by such other method as shall be reasonably acceptable to such Broker-Dealer, information as to: (A) the principal amount of the Auction Rate Securities, if any, held by such Existing Owner which such Existing Owner irrevocably commits to continue to hold for the next succeeding Auction Period without regard to the rate determined by the Auction Procedures for such Auction Period, (B) the principal amount of the Auction Rate Securities, if any, held by such Existing Owner which such Existing Owner irrevocably commits to continue to hold for the next succeeding Auction Period if the rate determined by the Auction Procedures for such Auction Period shall not be less than the rate per annum then specified by such Existing Owner (and which such Existing Owner irrevocably offers to sell on the next succeeding Interest Payment Date if the rate determined by the Auction Procedures for the next succeeding Auction Period shall be less than the rate per annum then specified by such Existing Owner), and/or (C) the principal amount of the Auction Rate Securities, if any, held by such Existing Owner which such Existing Owner irrevocably offers to sell on the next succeeding Interest Payment Date without regard to the rate determined by the Auction Procedures for the next succeeding Auction Period; and (ii) for the purpose of implementing the Auctions and thereby to achieve the lowest possible interest rate on the Auction Rate Securities, the Broker-Dealers shall contact Potential Owners, including Persons that are Existing Owners, to determine the principal amount of the Auction Rate Securities, if any, which each such Potential Owner irrevocably offers to purchase if the rate determined by the Auction Procedures for the next succeeding Auction Period is not less than the rate per annum then specified by such Potential Owner. An Order containing the information referred to in clause (i)(A) of this subsection (a) is herein referred to as a "Hold Order," an Order containing the information referred to in clause (i)(B) or clause (ii) of this subsection (a) is herein referred to as a "Bid", and an Order containing the information referred to in clause (i)(C) of this subsection (a) is herein.referred to as a "Sell Order. " (b) (i) A Bid by an Existing Owner shall constitute an irrevocable offer to sell: (A) the principal amount of the Auction Rate Securities specified in such Bid if the rate determined by the Auction Procedures on such Auction Date shall be less than the rate specified therein; or (B) such principal amount or a lesser principal amount of the Auction Rate Securities to be determined as set forth in subsection (a) (v) of Section 1.06 hereof if the rate determined by the Auction Procedures on such Auction Date shall be equal to such specified rate; or (C) a lesser principal amount of the Auction Rate Securities to be determined as set forth in subsection (b )(iv) of Section 1.06 hereof if such specified rate shall be higher than the Maximum Rate and Sufficient Clearing Bids do not exist. (ii) A Sell Order by an Existing Owner shall constitute an irrevocable offer to sell: A-1-5 AO 1119566.1 (A) the principal amount of the Auction Rate Securities specified in such Sell Order; or (B) such principal amount or a lesser principal amount of the Auction Rate Securities as set forth in subsection (b )(iv) of Section 1.06 hereof if Sufficient Clearing Bids do not exist. (iii) A Bid by a Potential Owner shall constitute an irrevocable offer to purchase: (A) the principal amount of the Auction Rate Securities specified in such Bid if the rate determined by the Auction Procedures on such Auction Date shall be higher than the rate specified therein; or (B) such principal amount or a lesser principal amount of the Auction Rate Securities as set forth in subsection (a)(vi) of Section 1.06 hereof if the rate determined by the Auction Procedures on such Auction Date shall be equal to such specified rate. (c) Anything herein to the contrary notwithstanding: (i) for purposes of any Auction, any Order which specifies the Auction Rate Securities to be held, purchased or sold in a principal amount which is not $25,000 or an integral multiple thereof shall be rounded down to the nearest $25,000, and the Auction Agent shall conduct the Auction Procedures as if such Order had been submitted in such lower amount; (ii) for purposes of any Auction, any portion of an Order of an Existing Owner which relates to an Auction Rate Security which has been called for redemption on or prior to the Interest Payment Date next succeeding such Auction shall be invalid with respect to such portion and the Auction Agent shall conduct the Auction Procedures as if such portion of such Order had not been submitted; and (iii) for purposes of any Auction, no portion of an Auction Rate Security which has been called for redemption on or prior to the Interest Payment Date next succeeding such Auction shall be included in the calculation of Available Bonds for such Auction. Section 1.04 Submission of Orders by Broker-Dealers to Auction Agent (a) Each Broker-Dealer shall submit to the Auction Agent in writing or by such other method as shall be reasonably acceptable to the Auction Agent, prior to the Submission Deadline on each Auction Date, all Orders obtained by such Broker-Dealer and specifying with respect to each Order: (i) the name of the Bidder placing such Order; (ii) the aggregate principal amount of the Auction Rate Securities that are the subject of such Order; (iii) to the extent that such Bidder is an Existing Owner: (A) the principal amount of the Auction Rate Securities, if any, subject to any Hold Order placed by such Existing Owner; A-1-6 AO 1119566.1 (B) the principal amount of the Auction Rate Securities, if any, subject to any Bid placed by such Existing Owner and the rate specified in such Bid; and (C) the principal amount of the Auction Rate Securities, if any, subject to any Sell Order placed by such Existing Owner; and (iv) to the extent such Bidder is a Potential Owner, the rate specified in such Bid. (b) If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent shall round such rate up to the next highest one thousandth of one percent (0.001%). (c) If an Order or Orders covering all of the Auction Rate Securities held by an Existing Owner is not submitted to the Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold Order to have been submitted on behalf of such Existing Owner covering the principal amount of the Auction Rate Securities held by such Existing Owner and not subject to Orders submitted to the Auction Agent; provided, however, that if there is a conversion from one Auction Period to another Auction Period and Orders have not been submitted to the Auction Agent prior to the Submission Deadline covering the aggregate principal amount of the Auction Rate Securities held by such Existing Owner, the Auction Agent shall deem a Sell Order to have been submitted on behalf of such Existing Owner covering the principal amount of the Auction Rate Securities held by such Existing Owner not subject to Orders submitted to the Auction Agent. (d) If one or more Orders covering in the aggregate more than the principal amount of the Outstanding Auction Rate Securities held by any Existing Owner are submitted to the Auction Agent, such Orders shall be considered valid as follows: (i) all Hold Orders shall be considered Hold Orders, but only up to and including in the aggregate the principal amount of the Auction Rate Securities held by such Existing Owner; (ii) (A) any Bid of an Existing Owner shall be considered valid as a Bid of an Existing Owner up to and including the excess of the principal amount of the Auction Rate Securities held by such Existing Owner over the principal amount of the Auction Rate Securities subject to Hold Orders referred to in paragraph (i) above; (B) subject to clause (A), all Bids of an Existing Owner with the same rate shall be aggregated and considered a single Bid of an Existing Owner up to and including the excess of the principal amount of the Auction Rate Securities held by such Existing Owner over the principal amount of the Auction Rate Securities held by such Existing Owner subject to Hold Orders referred to in paragraph (i) above, (C) subject to clause (A), if more than one Bid with different rates is submitted on behalf of such Existing Owner, such Bids shall be considered Bids of an Existing Owner in the ascending order of their respective rates up to the amount of the excess of the principal amount of the Auction Rate Securities held by such Existing Owner over the principal amount of the Auction Rate Securities held by such Existing Owner subject to Hold Orders referred to in paragraph (i) above, and (D) the principal amount, if any, of such Auction Rate Securities subject to Bids not considered to be Bids of an Existing Owner under this paragraph (ii) shall be treated as the subject of a Bid by a Potential Owner; and A-I-7 AO 1119566.1 (E) all Sell Orders shall be considered Sell Orders, but only up to and including a principal amount of the Auction Rate Securities equal to the excess of the principal amount of the Auction Rate Securities held by such Existing Owner over the sum of the principal amount of the Auction Rate Securities considered to be subject to Hold Orders pursuant to paragraph (i) above and the principal amount of the Auction Rate Securities considered to be subject to Bids of such Existing Owner pursuant to paragraph (ii) above. (e) If more than one Bid is submitted on behalf of any Potential Owner, each Bid submitted with the same rate shall be aggregated and considered a single Bid and each Bid submitted with a different rate shall be considered a separate Bid with the rate and the principal amount of the Auction Rate Securities specified therein. (f) The Consolidated Government, the Issuer, the Bond Registrar, the Market Agent and the Auction Agent shall not be responsible for the failure of any Broker-Dealer to submit an Order to the Auction Agent on behalf of any Existing Owner or Potential Owner. Section 1.05 Determination of Auction Rate (a) Not later than 9:30 a.m., New York City time, on each Auction Date, the Auction Agent shall advise the Broker-Dealers and the Bond Registrar by telephone of the All Hold Rate and the Auction Rate Index. (b) Promptly after the Submission Deadline on each Auction Date, the Auction Agent shall assemble all Orders submitted or deemed submitted to it by the Broker-Dealers (each such Order as submitted or deemed submitted by a Broker-Dealer being hereinafter referred to as a "Submitted Hold Order, " a "Submitted Bid" or a "Submitted Sell Order," as the case may be, and collectively as a "Submitted Order") and shall determine (i) the Available Bonds, (ii) whether there are Sufficient Clearing Bids, and (iii) the Auction Rate. (c) Promptly after the Auction Agent has made the determinations pursuant to subsection (b) above, the Auction Agent shall advise the Bond Registrar and the Consolidated Government by telephone (promptly confirmed in writing), telex or facsimile transmission of the Auction Rates for the next succeeding Auction Period. (d) In the event the Auction Agent shall fail to calculate or, for any reason, shall fail to provide the Auction Rate for any Auction Period, (i) if the preceding Auction Period was a period of 35 days or less (other than a daily Auction Period), the new Auction Period shall be the same as the preceding Auction Period and the Auction Rate for the new Auction Period shall be the same as the Auction Rate for the preceding Auction Period, and (ii) if the preceding Auction Period was a period of greater than 35 days, the preceding Auction Period shall be extended to the seventh day following the day that would have been the last day of such Auction Period had it not been extended (or if such seventh day is not followed by a Business Day then to the next succeeding day which is followed by a Business Day) and the Auction Rate in effect for the preceding Auction Period shall continue in effect for the Auction Period as so extended. In the event the Auction Period is extended as set forth in clause (ii) of the preceding sentence, an Auction shall be held on the last Business Day of the Auction Period as so extended. (e) In the event of a failed change of Mode to a Unit Pricing Mode, a Daily Mode, a Weeldy Mode, a Term Rate Mode or a Fixed Rate Mode, or in the event of a failure to change the length of the current Auction Period due to the lack of Sufficient Clearing Bids at the Auction on the Auction Date for the first new Auction Period, the Auction Rate for the next Auction Period shall be the Maximum Rate and the Auction Period shall be a seven-day Auction Period. A-1-8 AO 1119566.1 In the event the Bonds are no longer held in book-entry form by the Securities Depository, the Auction Rate shall be the Maximum Rate. I Section 1.06 Section 1.06. Allocation of the Auction Rate Securities. (a) In the event of Sufficient Clearing !BidS, subject to the further provisions of subsections (c) and (d) below, Submitted Orders shall be accepted or rejected in the following order of priority: I (i) the Submitted Hold Order of each Existing Owner shall be accepted, thus requiring each such Existing Owner to Icontinue to hold the Auction Rate Securities that are the subject of such Submitted Hold Order; (ii) the Submitted Sell Order of each Existing Owner shall be accepted and the Submitted Bid of each Existing Owne~ specifying any rate that is higher than the Winning Bid Rate shall be rejected, thus requiring each such Existing Owner to sell the Auction Rate Securities that are the subject of such Submitted Sell Order or Submitted Bid; (iii) the Submitted Bid of eLh Existing Owner specifying any rate that is lower than the Winning Bid Rate shall be accepted, thus requiring each such Existing Owner to continue to hold the Auction Rate Securities that are the subject of such Submitted Bid; (iv) the Submitted Bid of elCh Potential Owner specifying any rate that is lower than the Winning Bid Rate shall be acceptedl thus requiring each such Potential Owner to purchase the Auction Rate Securities that are the subject of such Submitted Bid; (v) the Submitted Bid of ~ach Existing Owner specifying a rate that is equal to the Winning Bid Rate shall be accepted, thhs requiring each such Existing Owner to continue to hold the Auction Rate Securities that are the subject of such Submitted Bid, but only up to and including the principal amount of the lAuction Rate Securities obtained by multiplying (A) the aggregate principal amount of the Outstanding Auction Rate Securities which are not the subject of Submitted Hold Orders described ih paragraph (i) above or of Submitted Bids described in paragraphs (iii) or (iv) above by (B) h fraction the numerator of which shall be the principal amount of the Outstanding Auction Rate Securities held by such Existing Owner subject to such Submitted Bid and the denominator 6f which shall be the aggregate principal amount of the Outstanding Auction Rate Securities shbject to such Submitted Bids made by all such Existing Owners that specified a rate equal to the Winning Bid Rate, and the remainder, if any, of such Submitted Bid shall be rejected, thus requiring each such Existing Owner to sell any excess amount of the Auction Rate Securities; (vi) the Submitted Bid of each Potential Owner specifying a rate that is equal to the Winning Bid Rate shall be accepted, thus requiring each such Potential Owner to purchase the Auction Rate Securities that are the subject of such Submitted Bid, but only in an amount equal to the principal amount of the Auction Rate Securities obtained by multiplying (A) the aggregate principal amount of the Outstanding I Auction Rate Securities which are not the subject of Submitted Hold Orders described in paragraph (i) above or of Submitted Bids described in paragraphs (iii), (iv) or (v) above by (B) a fraction the numerator of which shall be the principal amount of the Outstanding Auction Rate Securities subject to such Submitted Bid and the denominator of which shall be the sub of the aggregate principal amount of the Outstanding Auction Rate Securities subject to such Submitted Bids made by all such Potential Owners that specified a rate equal to the Winning B'id Rate, and the remainder of such Submitted Bid shall be rejected; and A-1-9 AO 1119566.1 (vii) the Submitted Bid of each Potential Owner specifying any rate that is higher than the Winning Bid Rate shall be rejected. (b) In the event there are not Sufficient Clearing Bids, subject to the further provisions of subsections (c) and (d) below, Submitted Orders shall be accepted or rejected as follows in the following order of priority: (i) the Submitted Hold Order of each Existing Owner shall be accepted, thus requiring each such Existing Owner to continue to hold the Auction Rate Securities that are the subject of such Submitted Hold Order; (ii) the Submitted Bid of each Existing Owner specifying any rate that is not higher than the Maximum Rate shall be accepted, thus requiring each such Existing Owner to continue to hold the Auction Rate Securities that are the subject of such Submitted Bid; (iii) the Submitted Bid of each Potential Owner specifying any rate that is not higher than the Maximum Rate shall be accepted, thus requiring each such Potential Owner to purchase the Auction Rate Securities that are the subject of such Submitted Bid; (iv) the Submitted Sell Orders of each Existing Owner shall be accepted as Submitted Sell Orders and the Submitted Bids of each Existing Owner specifying any rate that is higher than the Maximum Rate shall be deemed to be and shall be accepted as Submitted Sell Orders, in both cases only up to and including the principal amount of the Auction Rate Securities obtained by multiplying (A) the aggregate principal amount of the Auction Rate Securities subject to Submitted Bids described in paragraph (iii) of this subsection (b) by (B) a fraction the numerator of which shall be the principal amount of the Outstanding Auction Rate Securities held by such Existing Owner subject to such Submitted Sell Order or such Submitted Bid deemed to be a Submitted Sell Order and the denominator of which shall be the principal amount of the Outstanding Auction Rate Securities subject to all such Submitted Sell Orders and such Submitted Bids deemed to be Submitted Sell Orders, and the remainder of each such Submitted Sell Order or Submitted Bid shall be deemed to be and shall be accepted as a Hold Order and each such Existing Owner shall be required to continue to hold such excess amount of the Auction Rate Securities; and (v) the Submitted Bid of each Potential Owner specifying any rate that is higher than the Maximum Rate shall be rejected. (c) If, as a result of the procedures described in subsection (a) or (b) above, any Existing Owner or Potential Owner would be required to purchase or sell an aggregate principal amount of Auction Rate Securities which is not an integral multiple of $25,000 on any Auction Date, the Auction Agent shall by lot round up or down the principal amount of the Auction Rate Securities to be purchased or sold by any Existing Owner or Potential Owner on such Auction Date so that the aggregate principal amount of the Auction Rate Securities purchased or sold by each Existing Owner or Potential Owner on such Auction Date shall be an integral multiple of $25,000, even if such allocation results in one or more of such Existing Owners or Potential Owners not purchasing or selling any of the Auction Rate Securities on such Auction Date. (d) If, as a result of the procedures described in subsection (a) above, any Potential Owner would be required to purchase less than $25,000 in principal amount of the Auction Rate Securities on any Auction Date, the Auction Agent shall by lot allocate the Auction Rate Securities for purchase among Potential Owners so that the principal amount of Auction Rate Securities purchased on such Auction Date A-I-IO AO 1119566.1 by any Potential Owner shall be an integral multiple of $25,000, even if such allocation results in one or more of such Potential Owners not purchasing the Auction Rate Securities on such Auction Date. Section 1.07 Notice of Auction Rate (a) On each Auction Date, the Auction Agent shall notify by telephone each Broker-Dealer that participated in the Auction held on such Auction Date and submitted an Order on behalf of any Existing Owner or Potential Owner of: (i) the Auction Rate fixed for the succeeding Auction Period; (ii) Bid Rate; whether Sufficient Clearing Bids existed for the determination of the Winning (iii) if such Broker-Dealer submitted a Bid or a Sell Order on behalf of an Existing Owner, whether such Bid or Sell Order was accepted or rejected, in whole or in part, and the principal amount of the Auction Rate Securities, if any, to be sold by such Existing Owner; (iv) if such Broker-Dealer submitted a Bid on behalf of a Potential Owner, whether such Bid was accepted or rejected, in whole or in part, and the principal amount of the Auction Rate Securities, if any, to be purchased by such Potential Owner; (v) if the aggregate principal amount of the Auction Rate Securities to be sold by all Existing Owners on whose behalf such Broker-Dealer submitted Bids or Sell Orders is different from the aggregate principal amount of the Auction Rate Securities to be purchased by all Potential Owners on whose behalf such Broker-Dealer submitted a Bid, the name or names of one or more Broker-Dealers (and the Agent Member, if any, of each such other Broker-Dealer) and the principal amount of the Auction Rate Securities to be (A) purchased from one or more Existing Owners on whose behalf such other Broker-Dealers submitted Bids or Sell Orders or (B) sold to one or more Potential Owners on whose behalf such Broker-Dealer submitted Bids; and (vi) the immediately succeeding Auction Date. (b) On each Auction Date, each Broker-Dealer that submitted an Order on behalf of any Existing Owner or Potential Owner shall: (i) advise each Existing Owner and Potential Owner on whose behalf such Broker- Dealer submitted a Bid or Sell Order whether such Bid or Sell Order was accepted or rejected, in whole or in part; (ii) instruct each Potential Owner on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, to instruct such Potential Owner's Agent Member to pay to such Broker-Dealer (or its Agent Member) through the Securities Depository the amount necessary to purchase the principal amount of the Auction Rate Securities to be purchased pursuant to such Bid against receipt of such Auction Rate Securities; (iii) instruct each Existing Owner on whose behalf such Broker-Dealer submitted a Sell Order that was accepted or a Bid that was rejected, in whole or in part, to instruct such Existing Owner's Agent Member to deliver to such Broker-Dealer (or its Agent Member) through the Securities Depository the principal amount of the Auction Rate Securities to be sold pursuant to such Bid or Sell Order against payment therefor; A-I-II AO 1119566.1 (iv) advise each Existing Owner on whose behalf such Broker-Dealer submitted an Order and each Potential Owner on whose behalf such Broker-Dealer submitted a Bid of the Auction Rate for the next succeeding Auction Period; (v) advise each Existing Owner on whose behalf such Broker-Dealer submitted an Order of the Auction Date of the next succeeding Auction; and (vi) advise each Potential Owner on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, of the Auction Date of the next succeeding Auction. (c) On the basis of the information provided to it pursuant to paragraph (a) above, each Broker- Dealer that submitted a Bid or Sell Order shall allocate any funds received by it pursuant to subparagraph (b)(ii) above, and any Auction Rate Securities received by it pursuant to (b)(iii) above, among the Potential Owners, if any, on whose behalf such Broker-Dealer submitted Bids, the Existing Owners, if any, on whose behalf such Broker-Dealer submitted Bids or Sell Orders, and any Broker-Dealer identified to it by the Auction Agent pursuant to subparagraph (a)(v) above. (d) On the Business Day after the Auction Date, the Securities Depository shall execute the transactions described above, debiting and crediting the accounts of the respective Agent Members as necessary to effect the purchase and sale of Auction Rate Securities as determined in the Auction. Section 1.08 Auction Rate Index (a) The Auction Rate Index on any Auction Date shall be LffiOR. "LIBOR" means, on any date of determination for an Auction Period, the offered rate (rounded up to the next highest one one-thousandth of one percent (0.001 %)) for deposits in U.S. dollars for a one- month period which appears on the Telerate Page 3750 at approximately 11:00 A.M., London time, on such date, or if such date is not a date on which dealings in U.S. dollars are transacted in the London interbank market, then on the next preceding day on which such dealings were transacted in such market. (b) If for any reason on any Auction Date, the Auction Rate Index shall not be determined as hereinabove provided in this Section, the Auction Rate Index shall be the Auction Rate Index for the Auction Period ending on such Auction Date. (c) The determination of the Auction Rate Index as provided herein shall be conclusive and binding upon the Issuer, the Consolidated Government, the Bond Registrar, the Credit Facility Provider (if any), the Broker-Dealers, the Auction Agent, the Market Agent and the Holders and Beneficial Owners of the Auction Rate Securities. Section 1.09 Miscellaneous Provisions Regarding Auctions (a) In this Exhibit A-I, each reference to the purchase, sale or holding of "Auction Rate Securities" shall refer to beneficial interests in the Auction Rate Securities, unless the context clearly requires otherwise. (b) During an Auction Period, the provisions of this Exhibit A-I including, without limitation, the definitions of All-Hold Rate, Maximum Rate, Auction Rate Index, Interest Payment Date and Auction Rate may be amended pursuant to the provisions of this Section 1.09, notwithstanding any provision to the contrary contained in the Bond Resolution. On the first Auction Date occurring at least 20 days after the date on which the Registrar mailed notice of such proposed amendment to the Holders of the Bonds, A-I-12 AO 1119566.1 (i) Sufficient Clearing Bids have been received or all of the affected Auction Rate Securities are subject to Submitted Hold Orders, and (ii) there is delivered to the Issuer a Favorable Opinion of Bond Counsel with respect to such amendment, the proposed amendment shall be deemed to have been consented to by the Holders of all Outstanding Bonds affected by such amendment. (c) During an Auction Period, so long as the ownership of the Auction Rate Securities is maintained in book-entry form by the Securities Depository, an Existing Owner or a Beneficial Owner may sell, transfer or otherwise dispose of an Auction Rate Security only pursuant to a Bid or Sell Order in accordance with the Auction Procedures or to or through a Broker-Dealer, provided that (i) in the case of all transfers other than pursuant to Auctions, such Existing Owner or its Broker-Dealer or its Agent Member advises the Auction Agent of such transfer and (ii) a sale, transfer or other disposition of the Auction Rate Securities from a customer of a Broker-Dealer who is listed on the records of that Broker- Dealer as the Holder of such Auction Rate Securities to that Broker-Dealer or another customer of that Broker-Dealer shall not be deemed to be a sale, transfer or other disposition for purposes of this Section 1.09 if such Broker-Dealer remains the Existing Owner of the Auction Rate Securities so sold, transferred or disposed of immediately after such sale, transfer or disposition. Section 1.10 Changes in Auction Period or Auction Date (a) Changes in Auction Period. (i) During any Auction Period, the Consolidated Government may, from time to time on any Interest Payment Date, change the length of the Auction Period with respect to the Auction Rate Securities to a period of any integral multiple of seven days (provided that the length of the first Auction Period after such change in length or a change in Auction Date may be the number of days necessary to result in the immediately following Auction Period having a length which is an integral multiple of seven days) or to a six-month Auction Period in order to accommodate economic and financial factors that may affect or be relevant to the length of the Auction Period and the interest rate borne by such Auction Rate Securities. The Consolidated Government shall initiate the change in the length of the Auction Period by giving written notice at least 10 Business Days prior to the Auction Date for such Auction Period to the Issuer, the Bond Registrar, the Auction Agent, the Market Agent, the Broker-Dealers, the Credit Facility Provider (if any) and the Securities Depository that the Auction Period will change if the conditions described herein are satisfied and the proposed effective date of the change. (ii) Any such changed Auction Period shall be for a period of any integral multiple of seven days and shall be for all of the Auction Rate Securities in an Auction Period. (iii) The change in the length of the Auction Period shall not be allowed unless Sufficient Clearing Bids existed at both the Auction before the date on which the notice of the proposed change was given as provided in this subsection (a) and the Auction immediately preceding the proposed change. (iv) The change in length of the Auction Period shall take effect only if Sufficient Clearing Bids exist at the Auction on the Auction Date for such first Auction Period. For purposes of the Auction for such first Auction Period only, each Existing Owner shall be deemed to have submitted Sell Orders with respect to all of its Auction Rate Securities except to the extent such Existing Owner submits an Order with respect to such Auction Rate Securities. If the condition referred to in the first sentence of this paragraph (iv) is not met, the Auction Rate for the next Auction Period shall be the Maximum Rate, and the Auction Period shall be a seven-day Auction Period. (b) Changes in Auction Date. During any Auction Period, the Market Agent, with the written consent of the Consolidated Government and the Credit Facility Provider (if any), may specify an earlier Auction Date (but in no event more than five Business Days earlier) than the Auction Date that would A-1-13 AO 1119566.1 otherwise be determined in accordance with the definition of "Auction Date" in order to conform with then current market practice with respect to similar securities or to accommodate economic and financial factors that may affect or be relevant to the day of the week constituting an Auction Date and the interest rate borne on the Auction Rate Securities. The Market Agent shall provide notice of its determination to specify an earlier Auction Date for an Auction Period by means of a written notice delivered at least 45 days prior to the proposed changed Auction Date to the Bond Registrar, the Consolidated Government, the Issuer, the Broker-Dealers, the Auction Agent and the Securities Depository. Section 1.11 Auction Agent. (a) The initial Auction Agent shall be [Auction Agent/any auction agent] or any successor appointed by the Consolidated Government with the consent of the Credit Facility Provider (if any) to perform the functions specified herein. The Auction Agent shall designate its Principal Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument, delivered to the Issuer, the Bond Registrar, the Consolidated Government, the Market Agent, the Credit Facility Provider (if any) and each Broker-Dealer which will set forth such procedural and other matters relating to the implementation of the Auction Procedures as shall be satisfactory to the Consolidated Government and the Bond Registrar. (b) Subject to any applicable governmental restrictions, the Auction Agent may be or become the owner of or trade in the Auction Rate Securities with the same rights as if such entity were not the Auction Agent. Section 1.12 Qualifications of Auction Agent: Resignation; Removal The Auction Agent shall be (a) a bank or trust company organized under the laws of the United States or any state or territory thereof having a combined capital stock, surplus and undivided profits of at least $30,000,000, or (b) a member of NASD having a capitalization of at least $30,000,000 and, in either case, authorized by law to perform all of the duties imposed upon it by this Bond Indenture and a member of or a participant in, the Securities Depository. The Auction Agent may at any time resign and be discharged of the duties and obligations created by this Bond Indenture by giving at least 90 days notice to the Issuer, the Consolidated Government, the Bond Registrar and the Credit Facility Provider (if any). The Auction Agent may be removed at any time by the Consolidated Government by written notice, delivered to the Auction Agent, the Market Agent, the Bond Registrar and the Credit Facility Provider. Upon any such resignation or removal, the Consolidated Government shall appoint a successor Auction Agent meeting the requirements of this Section. In the event of the resignation or removal of the Auction Agent, the Auction Agent shall pay over, assign and deliver any moneys and Auction Rate Securities held by it in such capacity to its successor. The Auction Agent shall continue to perform its duties hereunder until its successor has been appointed by the Consolidated Government. In the event that the Auction Agent has not been compensated for its services, the Auction Agent may resign by giving 45 days notice to the Issuer, the Consolidated Government, the Market Agent, the Bond Registrar and the Credit Facility Provider (if any) even if a successor Auction Agent has not been appointed. Section 1.13 Market Agent The Consolidated Government has appointed Merrill Lynch, Pierce, Fenner & Smith Incorporated as the initial Market Agent. The Market Agent, including any successor appointed pursuant hereto, shall be a member of the National Association of Securities Dealers, Inc. having capitalization of at least $25,000,000, and be authorized by law to perform all the duties imposed upon it by this Bond Indenture. The Market Agent may be removed at any time at the direction of the Consolidated Government, by written notice delivered to the Market Agent, the Auction Agent and the Bond Registrar, A-1-14 AO 1119566.1 provided that such removal shall not take effect until the appointment of a successor Market Agent. The Market Agent may resign upon 30 days' written notice delivered to the Consolidated Government, the Broker-Dealer and the Bond Registrar. The Consolidated Government shall use its best efforts to appoint a successor Market Agent that is a qualified institution, effective as of the effectiveness of any such resignation or removal. Any successor Market Agent must be approved by the Credit Facility Provider (if any). A-I-IS AO 1119566.1 Exhibit B Form of 2004 Hedee Aereement AO 1118243.2 I Draft: 5/4/2004-(v.3) I (Local Currency-Single Jurisdiction) [Municipal Counterparty] ISDA@ International Swaps and Derivatives Association, Inc. MASTER AGREEMENT dated as of May _, 2004 Merrill Lynch Capital Services, Inc. and City of Augusta, Georgia have entered and/or anticipate entering into one or more transactions (each a "Transaction") that are or will be governed by this Master Agreement (the "Master Agreement"), which includes the schedule (the "Schedule"), and the documents and other confirming evidence (each a "Confirmation") exchanged between the parties confirming those Transactions. Accordingly, the parties agree as follows:- 1. Interpretation (a) Definitions. The terms defined in Section 12 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement. (b) Inconsistency. In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction. (c) Single Agreement. All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this "Agreement"), and the parties would not otherwise enter into any Transactions. 2. Obligations (a) General Conditions. (i) Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement. (ii) Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement. (iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in Copyright ~ 1992 by International Swaps and Derivatives Association, Inc. 1 respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement. (b) Change of Account. Either party may change its account for receiving a payment or delivery by giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment or delivery to which such change applies unless such other party gives timely notice of a reasonable objection to such change. (c) Netting. If on any date amounts would otherwise be payable:- (i) in the same currency; and (ii) in respect of the same Transaction, by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount. The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph (ii) above will not, or will cease to, apply to such Transactions from such date). This election may be made separately for different groups of Transactions and will apply separately to each pairing of branches or offices through which the parties make and receive payments or deliveries. (d) Default Interest; Other Amounts. Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6( c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. If, prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of any obligation required to be settled by delivery, it will compensate the other party on demand if and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement. 3. Representations Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into) that:- (a) Basic Representations. (i) Status. It is duly organized and validly existing under the laws of the jurisdiction of its organization or incorporation and, if relevant under such laws, in good standing; (ii) Powers. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to Copyright Cl:i 1992 by International Swaps and Derivatives Association, Inc. 2 perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorize such execution, delivery and performance; (iii) No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; (iv) Consents. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and (v) Obligations Binding. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). (b) Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party. (c) Absence of Litigation. There is not pending or, to its knowledge, threatened against it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document. (d) Accuracy of Specified Information. All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3( d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect. 4. Agreements Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:- (a) Furnish Specified Information. It will deliver to the other party any forms, documents or certificates specified in the Schedule or any Confirmation by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably practicable. (b) Maintain Authorizations. It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future. (c) Comply with Laws. It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party. 5. Events of Default and Termination Events Copyright <<:i 1992 by International Swaps and Derivatives Association, Inc. 3 (a) Events of Default. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party:- (i) Failure to Payor Deliver. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(d) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party; (ii) Breach of Agreement. Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 2(d) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party; I (iii) Credit Support Default. I (1) Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed; (2) the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document to be in full force and effect for the purpose of this Agreement (in either case other than in accordance with its terms) prior to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the written consent of the other party; or (3) the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, such Credit Support Document; (iv) Misrepresentation. A representation made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated; (v) Default under Specified Transaction. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party (1) defaults under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, an acceleration of obligations under, or an early termination of, that Specified Transaction, (2) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment or delivery due on the last payment, delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or such default continues for at least three Local Business Days if there is no applicable notice requirement or grace period) or (3) disaffirms, disclaims, repudiates or rejects, in whole or in part, a Specified Transaction (or such action is taken by any person or entity appointed or empowered to operate it or act on its behalf); (vi) Cross Default. If "Cross Default" is specified in the Schedule as applying to the party, the occurrence or existence of (1) a default, event of default or other similar condition or event (however described) in respect of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount (as specified in the Schedule) which has resulted Copyright <<:i 1992 by International Swaps and Derivatives Association, Inc. 4 in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or (2) a default by such party, such Credit Support Provider or such Specified Entity (individually or collectively) in making one or more payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any applicable notice requirement or grace period); (vii) Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:- (1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or (viii) Merger Without Assumption. The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer:- (1) the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation oflaw or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or (2) the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement. (b) Termination Events. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any event specified below constitutes an Illegality if the event is specified in (i) below, and, if specified to be applicable, a Credit Copyright ~ 1992 by International Swaps and Derivatives Association, Inc. 5 Event Upon Merger if the event is specified pursuant to (ii) below or an Additional Termination Event if the event is specified pursuant to (iii) below:- (i) Illegality. Due to the adoption of, or any change in, any applicable law after the date on which a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which will be the Affected Party):- (1) to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or (2) to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction; (ii) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in the Schedule as applying to the party, such party ("X"), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or (iii) Additional Termination Event. If any "Additional Termination Event" is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties shall be as specified for such Additional Termination Event in the Schedule or such Confirmation). (c) Event of Default and Illegality. If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an TIlegality, it will be treated as an TIlegality and will not constitute an Event of Default. 6. Early Termination (a) Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the "Defaulting Party") has occurred and is then continuing, the other party (the "Non- defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however, "Automatic Early Termination" is specified in the Schedule as applying to a party, then an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8). (b) Right to Terminate Following Termination Event. (i) Notice. If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Copyright <<:i 1992 by International Swaps and Derivatives Association, Inc. 6 Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require. (ii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b )(i) on action to avoid that Termination Event. (iii) Right to Terminate. If:- (1) an agreement under Section 6(b )(ii) has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b )(i); or (2) an Illegality other than that referred to in Section 6(b)(ii), a Credit Event Upon Merger or an Additional Termination Event occurs, either party in the case of an Illegality, any Affected Party in the case of an Additional Termination Event if there is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions. (c) Effect of Designation. (i) If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing. (ii) Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(d) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e). (d) Calculations. (i) Statement. On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation. (ii) Payment Date. An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment), from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Copyright @ 1992 by International Swaps and Derivatives Association, Inc. 7 Applicable Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. (e) Payments on Early Termination. If an Early Termination Date occurs, the following provisions shall apply based on the parties' election in the Schedule of a payment measure, either "Market Quotation" or "Loss," and a payment method, either the "First Method" or the "Second Method." If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that "Market Quotation" or the "Second Method," as the case may be, shall apply. The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off. (i) Events of Default. If the Early Termination Date results from an Event of Default:- (1) First Method and Market Quotation. If the First Method and Market Quotation apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Unpaid Amounts owing to the Non-defaulting Party over (B) the Unpaid Amounts owing to the Defaulting Party. (2) First Method and Loss. If the First Method and Loss apply, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the Non-defaulting Party's Loss in respect of this Agreement. (3) Second Method and Market Quotation. If the Second Method and Market Quotation apply, an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Unpaid Amounts owing to the Non-defaulting Party less (B) the Unpaid Amounts owing to the Defaulting Party. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (4) Second Method and Loss. If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party's Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (ii) Termination Events. If the Early Termination Date results from a Termination Event:- (1) One Affected Party. If there is one Affected Party, the amount payable will be determined in accordance with Section 6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case, references to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected Party and the party which is not the Affected Party, respectively, and, if Loss applies and fewer than all the Transactions are being terminated, Loss shall be calculated in respect of all Terminated Transactions. (2) Two Affected Parties. If there are two Affected Parties:- (A) if Market Quotation applies, each party will determine a Settlement Amount in respect of the Terminated Transactions, and an amount will be payable equal to (I) the sum of (a) one-half of the difference between the Settlement Amount of the party with the higher Settlement Amount ("X") and the Copyright (Q 1992 by International Swaps and Derivatives Association, Inc. 8 Settlement Amount of the party with the lower Settlement Amount ("Y") and (b) the Unpaid Amounts owing to X less (II) the Unpaid Amounts owing to Y; and (B) if Loss applies, each party will determine its Loss in respect of this Agreement (or, if fewer than all the Transactions are being terminated, in respect of all Terminated Transactions) and an amount will be payable equal to one-half of the difference between the Loss of the party with the higher Loss ("X") and the Loss of the party with the lower Loss ("Y"). If the amount payable is a positive number, Y will pay it to X; if it is a negative number, X will pay the absolute value ofthat amount to Y. (iii) Adjustment for Bankruptcy. In circumstances where an Early Termination Date occurs because "Automatic Early Termination" applies in respect of a party, the amount determined under this Section 6( e) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6( d)(ii). (iv) Pre-Estimate. The parties agree that if Market Quotation applies an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to recover any additional damages as a consequence of such losses. 7. Transfer Neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party, except that:- (a) a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all of its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and (b) a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e). Any purported transfer that is not in compliance with this Section will be void. 8. Miscellaneous (a) Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto. (b) Amendments. No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system. (c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Transaction. Copyright (Q 1992 by International Swaps and Derivatives Association, Inc. 9 (d) Remedies Cumulative. Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by law. ( e) Counterparts and Confirmations. (i) This Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original. (ii) The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms (whether orally or otherwise). A Confirmation shall be entered into as soon as practicable and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system, which in each case will be sufficient for all purposes to evidence a binding supplement to this Agreement. The parties will specify therein or through another effective means that any such counterpart, telex or electronic message constitutes a Confirmation. (f) No Waiver of Rights. A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other right, power or privilege. (g) Headings. The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement. 9. Expenses A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection. 10. Notices (a) Effectiveness. Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:- (i) ifin writing and delivered in person or by courier, on the date it is delivered; (ii) if sent by telex, on the date the recipient's answerback is received; (iii) if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine); (iv) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or (v) if sent by electronic messaging system, on the date that electronic message is received, Copyright <<:I 1992 by International Swaps and Derivatives Association, Inc. 10 unless the date of that delivery (or attempted delivery ) or that receipt, as applicable, is not a Local Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day. (b) Change of Addresses. Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications are to be given to it. 11. Governing Law and Jurisdiction (a) Governing Law. This Agreement will be governed by and construed in accordance with the law specified in the Schedule. (b) Jurisdiction. With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevocably:- (i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and (ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party. Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re- enactment thereof for the time being in force) nor will the bringing of Proceedings in anyone or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction. (c) Waiver of Immunities. Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings. 12. Definitions As used in this Agreement:- "Additional Termination Event" has the meaning specified in Section 5(b). "Affected Party" has the meaning specified in Section 5(b). "Affected Transactions" means (a) with respect to any Termination Event consisting of an lllegality, all Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Transactions. ''Affiliate'' means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or Copyright <<:i 1992 by International Swaps and Derivatives Association, Inc. 11 indirectly under common control with the person. For this purpose, "control" of any entity or person means ownership of a maj ority of the voting power of the entity or person. "Applicable Rate" means:- (a) in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate; (b) in respect of an obligation to pay an amount under Section 6(e) of either party from and after the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable, the Default Rate; (c) in respect of all other obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and (d) in all other cases, the Termination Rate. "consent" includes a consent, approval, action, authorization, exemption, notice, filing, registration or exchange control consent. "Credit Event Upon Merger" has the meaning specified in Section 5(b). "Credit Support Document" means any agreement or instrument that IS specified as such m this Agreement. "Credit Support Provider" has the meaning specified in the Schedule. "Default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum. "Defaulting Party" has the meaning specified in Section 6(a). "Early Termination Date" means the date determined in accordance with Section 6(a) or 6(b)(iii). "Event of Default" has the meaning specified in Section 5(a) and, if applicable, in the Schedule. "Illegality" has the meaning specified in Section 5(b). "law" includes any treaty, law, rule or regulation and "lawful" and "unlawful" will be construed accordingly. "Local Business Day" means, subject to the Schedule, a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any obligation under Section 2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so specified, as otherwise agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this Agreement, (b) in relation to any other payment, in the place where the relevant account is located, (c) in relation to any notice or other communication, including notice contemplated under Section 5(a)(i), in the city specified in the address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where the relevant new account is to be located and (d) in relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified Transaction. "Loss" means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of Copyright @ 1992 by International Swaps and Derivatives Association, Inc. 12 bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and out-of-pocket expenses referred to under Section 9. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets. "Market Quotation" means, with respect to one or more Terminated Transactions and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consideration of an agreement between such party (taking into account any existing Credit Support Document with respect to the obligations of such party) and the quoting Reference Market-maker to enter into a transaction (the "Replacement Transaction") that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have been required after that date. For this purpose, Unpaid Amounts in respect of the Terminated Transaction or group of Terminated Transactions are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Date is to be included. The Replacement Transaction would be subject to such documentation as such party and the Reference Market-maker may, in good faith, agree. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable after the relevant Early Termination Date. The day and time as of which those quotations are to be obtained will be selected in good faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged, after consultation with the other. If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined. ''Non-default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the Non-defaulting Party (as certified by it) ifit were to fund the relevant amount. ''Non-defaulting Party" has the meaning specified in Section 6(a). "Potential Event of Default" means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. "Reference Market-makers" means four leading dealers in the relevant market selected by the party determining a Market Quotation in good faith (a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from among such dealers having an office in the same city. Copyright@ 1992 by International Swaps and Derivatives Association, Inc. 13 "Scheduled Payment Date" means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction. "Set-off" means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount under Section 6 is entitled or subject (whether arising under this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer. "Settlement Amount" means, with respect to a party and any Early Termination Date, the sum of:- (a) the Market Quotations (whether positive or negative) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation is determined; and (b) such party's Loss (whether positive or negative and without reference to any Unpaid Amounts) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result. "Specified Entity" has the meaning specified in the Schedule. "Specified Indebtedness" means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money. "Specified Transaction" means, subject to the Schedule, (a) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions), (b) any combination of these transactions and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation. "Terminated Transactions" means with respect to any Early Termination Date (a) if resulting from a Termination Event, all Affected Transactions and (b) if resulting from an Event of Default, all Transactions (in either case) in effect immediately before the effectiveness of the notice designating that Early Termination Date (or, if "Automatic Early Termination" applies, immediately before that Early Termination Date). "Termination Event" means an illegality or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event. "Termination Rate" means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts. "Unpaid Amounts" owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not been so settled as at such Early Termination Date, an amount equal to the fair Copyright@ 1992 by International Swaps and Derivatives Association, Inc. 14 market value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery, in each case together with (to the extent permitted under applicable law) interest, in the currency of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but excluding) such Early Termination Copyright @ 1992 by International Swaps and Derivatives Association, Inc. 15 Date, at the Applicable Rate. Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed. The fair market value of any obligation referred to in clause (b) above shall be reasonably determined by the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it shall be the average of the fair market values reasonably determined by both parties. IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on th~ first page of this document. I MERRILL LYNCH CAPITAL CITY OF AUGUST A, GEORGIA , SERVICES, INe. By: By: Name: Title: Date: Name: Title: Date: u.s. MUNICIPAL COUNTERPARTY SCHEDULE AMENDMENTS to the Master Agreement (Local Currency-Single Jurisdiction) Part 1. Termination Provisions. (a) Events of Default. (i) Bankruptcy. Clause (6) of Section 5(a)(vii) of this Agreement is hereby amended to read in its entirety as follows:- "(6)(A) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets or (B) in the case of a Government Entity, any Credit Support Provider of such Government Entity or any applicable Specified Entity of such Government Entity, (I) there shall be appointed or designated with respect to it, an entity such as an organization, board, commission, authority, agency or body to monitor, review, oversee, recommend or declare a financial emergency or similar state of financial distress with respect to it or (II) there shall be declared or introduced or proposed for consideration by it or by any legislative or regulatory body with competent jurisdiction over it, the existence of a state of financial emergency or similar state of financial distress in respect of it;". (ii) Merger Without Assumption. Section 5(a)(viii) of this Agreement is hereby amended to read in its entirety as follows:- "(viii) Merger Without Assumption. The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity (or, without limiting the foregoing, if such party is a Government Entity, an entity such as an organization, board, commission, authority, agency or body succeeds to the principal functions of, or powers and duties granted to, such party or any Credit Support Provider of such party) and, at the time of such consolidation, amalgamation, merger, transfer or succeSSlon:- (1) the resulting, surviving, transferee or successor entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or (2) the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving, transferee or successor entity of its obligations under this Agreement." (b) Termination Events. Section 5(b)(ii) of this Agreement is hereby amended to read in its entirety as follows:- "(ii) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in the Schedule as applying to the party, such party ("X"), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity (or, without limiting the foregoing, if X is a Govemment Entity, an entity such as an organization, board, commission, authority, agency or body succeeds to the principal functions of, or powers and duties granted to, X, any Credit Support Provider of X or any Specified Entity of X) and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving, transferee or successor entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or". Part II. Other Provisions. (a) Obligations. Section 2(a)(iii) of this Agreement is hereby amended to read in its entirety as follows:- "(iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default, Potential Event of Default or Incipient Illegality with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement." (b) Representations. (i) The introductory clause of Section 3 of this Agreement is hereby amended to read in its entirety as follows:- "Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into and, in the case of the representations in Section 3(a) and 3(e), at all times until the termination of this Agreement) that-". (ii) Section 3(a)(ii) of this Agreement is hereby amended to read in its entirety as follows:- "(ii) Powers. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action and made all necessary determinations and findings to authorize such execution, delivery and performance;". (iii) Section 3(b) of this Agreement is hereby amended to read in its entirety as follows:- "(b) Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Incipient Illegality (in the case of a Government Entity) or Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a 2 result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party." (iv) Section 3 of this Agreement is hereby amended by adding the following subsection "(e)" thereto, which subsection shall apply only to the Government Entity:- "(e) Non-Speculation. This Agreement has been, and each Transaction hereunder will be (and, if applicable, has been), entered into for purposes of managing its borrowings or investments and not for purposes of speculation." (v) Section 3 of this Agreement is hereby amended by adding the following subsection "(t)" thereto:- "(t) No Immunity. It is not entitled to claim immunity on the grounds of sovereignty or other similar grounds with respect to itself or its revenues or assets (irrespective of their use or intended use) from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) or (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be made subject to in any Proceedings (as defined in Section I I (b)) in the courts of any jurisdiction and no such immunity (whether or not claimed) may be attributed to such party or its revenues or assets." (c) Agreements. (i) The introductory clause of Section 4 of this Agreement is hereby amended to read in its entirety as follows:- "Each party agrees with the other (or, in the case of Section 4(d), (e) and (t), the Government Entity agrees with the other party) that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:-". (ii) Section 4 of this Agreement is hereby amended by adding the following subsections "(d)" and "(e)" thereto:- "(d) Compliance with Covered Indenture. The Government Entity will observe, perform and fulfill each provision in the Covered Indenture applicable to such Government Entity in effect on the Covered Indenture Incorporation Date, as any of those provisions may be amended, supplemented or modified for purposes of this Agreement with the prior written consent of the other party hereto (the "Incorporated Provisions"), with the effect that such other party hereto will have the benefit of each of the Incorporated Provisions (including without limitation, covenants, right to consent to certain actions subject to consent under the Covered Indenture and delivery of financial statements and other notices and information). In the event the Covered Indenture ceases to be in effect prior to the termination of this Agreement, the Incorporated Provisions (other than those provisions requiring payments in respect of bonds, notes, warrants or other similar instruments issued under the Covered Indenture) will remain in full force and effect for purposes of this Agreement as though set forth herein until such date on which all of the obligations of the Government Entity under this Agreement and any obligations of the Government Entity or any Credit Support Provider of the Government Entity under a Credit Support Document have been fully satisfied. The Incorporated Provisions are hereby incorporated by reference and made a part of this Agreement to the same extent as if such provisions were set forth herein. For purposes of this Agreement, the Incorporated Provisions shall be construed as though (i) all references therein to any party making loans, extensions of credit or financial accommodations thereunder or commitments therefor (the "Financings") were to the other party hereto and (ii) to the extent that such Incorporated Provisions are conditioned 3 on or relate to the existence of such Financings or the Government Entity having any obligations in connection therewith, all references to such Financings or obligations were to the obligations of the Government Entity under this Agreement. Any amendment, supplement, modification or waiver of any of the Incorporated Provisions without the prior written consent of the other party hereto shall have no force and effect with respect to this Agreement. Any amendment, supplement or modification for which such consent is obtained shall be part of the Incorporated Provisions for purposes of this Agreement. (e) Notice of Incipient Illegality. If an Incipient Illegality occurs, the Government Entity will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Incipient Illegality and will also give such other information about that Incipient Illegality as the other party may reasonably require." (d) Jurisdiction. Section 11 of this Agreement is hereby amended to read in its entirety as follows:- "(b) Jurisdiction. This Agreement and each Transaction will be governed by and construed in accordance with the laws of New York, provided that jurisdiction shall lie solely in any court in Georgia that would otherwise have jurisdiction over actions brought in contract against the Counterparty." (e) Governing Law. This Agreement, and each written agreement relating hereto, will, unless otherwise expressly provided, be governed by and construed in accordance with the laws of the State of New York, without reference to choice of law doctrine, except that the capacity, power or authority of the Governmental Entity to enter into this Master Agreement and any Transaction shall be governed by and construed in accordance with the laws of the State in which the Governmental Entity is located. (f) Definitions. Section 12 of this Agreement is hereby amended to add the following definitions in their appropriate alphabetical order:- "'Covered Indenture' has the meaning specified in the Schedule." "'Covered Indenture Incorporation Date' has the meaning specified in the Schedule." "'Government Entity' means Counterparty." "'Incipient Illegality' means (a) the enactment by any legislative body with competent jurisdiction over a Government Entity of legislation which, if adopted as law, would render unlawful (i) the performance by such Government Entity of any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of a Transaction or the compliance by such Government Entity with any other material provision of this Agreement relating to such Transaction or (ii) the performance by a Government Entity or a Credit Support Provider of such Government Entity of any contingent or other obligation which the Government Entity (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction, (b) any assertion in any proceeding, forum or action by a Government Entity, in respect of such Government Entity or in respect of any entity located or organised under the laws of the state in which such Government Entity is located to the effect that performance under this Agreement or similar agreements is unlawful or (c) the occurrence with respect to a Government Entity or any Credit Support Provider of such Government Entity of any event that constitutes an Illegality." 4 U.S. MUNICIPAL COUNTERPARTY SCHEDULE to the Master Agreement (Local Currency-Single Jurisdiction) dated as of [Date of Master) between Merrill Lynch Capital Services, Inc. ("MLCS") and City of Augusta, Georgia ("Counterparty") Part III. Termination Provisions. (a) "Specified Entity" means in relation to Counterparty for the purpose of:- Section 5(a)(v) (Default under Specified Transaction), ............................................................ None Section 5( a)( vi) (Cross Default), ............................................................................................... None Section 5( a)( vii) (Bankruptcy), ................................................................................................. None Section 5(b )(ii) (Credit Event Upon Merger), ........................................................................... None and in relation to MLCS for the purpose of:- Section 5(a)(v) (Default under Specified Transaction), Merrill Lynch & Co., Inc. ("ML & Co.") Section 5(a)(vi) (Cross Default), ML & Co. Section 5(a)(vii) (Bankruptcy), ML & Co. Section 5(b)(ii) (Credit Event Upon Merger), ML & Co. (b) "Specified Transaction" will have the meaning specified in Section 12 of this Agreement. (c) The "Cross Default" provisions of Section 5(a)(vi) will apply to both MLCS and Counterparty. If such provisions apply:- "Specified Indebtedness" will have the meaning specified in Section 12 of this Agreement. "Threshold Amount" means, in the case of MLCS, $100,000,000, and in the case of Counterparty, $1,000,000. (d) The "Credit Event Upon Merger" provisions of Section 5(b )(ii) will apply to MLCS and Counterparty . (e) The "Automatic Early Termination" provision of Section 6(a) will not apply to MLCS or Counterparty . (f) Payments on Early Termination. For the purpose of Section 6( e) of this Agreement:- (i) Market Quotation will apply. (ii) The Second Method will apply. (g) Additional Termination Event. Additional Termination Event will apply. The following shall constitute Additional Termination Events:- (i) The rating of the long-term, unsecured, unenhanced senior debt (not taking into account any third party credit enhancement) of Counterparty under the Covered Indenture is withdrawn, suspended or falls below (1) Baa3 as determined by Moody's Investor's Service ("Moody's"), or (2) BBB- as determined by Standard & Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc. ("S&P") or Counterparty fails to have any rated long-term, unsecured, unenhanced senior debt (not taking into account any third party credit enhancement). For the purpose of the foregoing Termination Event, Counterparty shall be the Affected Party. (ii) The rating of the long-term, unsecured, unenhanced senior debt (not taking into account any third party credit enhancement) of ML & Co. is withdrawn, suspended or falls below (1) Baa3 as determined by Moody's, or (2) BBB- as determined by S&P or ML & Co. fails to have any rated long-term, unsecured, unenhanced senior debt (not taking into account any third party credit enhancement). For the purpose of the foregoing Termination Event, MLCS shall be the Affected Party. Part IV. Agreement to Deliver Documents. For the purpose of Section 4(a) of this Agreement, each party agrees to deliver the following documents, as applicable: Party required to F ormlDocumentJCertificate Date by Covered by deliver which Section 3( d) document to be Representation delivered MLCS Guarantee ofML & Co. substantially in date hereof No the form of Exhibit A to this Schedule MLCS Opinion of MLCS counsel substantially in date hereof No the form of Exhibit B to this Schedule MLCS Opinion of ML & Co. counsel substantially date hereof No in the form of Exhibit C to this Schedule Counterparty Opinion of Counterparty counsel date hereof No substantially in the form of Exhibit D to this Schedule Counterparty Certified Resolution of Counterparty date hereof No substantially in the form of Exhibit E to this Schedule Counterparty Officer and Signature Certificate date hereof No Counterparty Credit Support Document date hereof No Counterparty Executed copy of the Covered Indenture date hereof No 2 Each party agrees to deliver documents or certificates confirming any such document or certificate at such times prior to the execution of any Transaction as shall be requested by the other party. Part V. Amendments. This Agreement is hereby amended in the manner set forth in the "U.S. Municipal Counterparty Schedule, Amendments to the Master Agreement (Local Currency-Single Jurisdiction)" attached to this Schedule, which provisions are incorporated herein by reference and shall be deemed to be a part of this Agreement as if set forth herein in their entirety. Part VI. Security and Source of Payment of Counterparty Obligations. (a) Section 4 of this Agreement is hereby amended by adding the following subsection "(f)" thereto:- "(f) The obligations of Counterparty to make payments to MLCS under this Agreement are payable from the revenues of Counterparty derived from its utility system described in the Covered Indenture, are payable from such revenues on a subordinate basis with respect to outstanding indebtedness of Counterparty under the Covered Indenture and with indebtedness hereafter issued or incurred and payable from such revenues on a parity with such indebtedness and do not constitute any kind of indebtedness of Counterparty or any indebtedness for which the faith and credit of Counterparty or any of its revenues are pledged or any indebtedness secured by any lien on or security interest in any property of Counterparty, as defined under and/or proscribed by any constitution, charter, law, rule, regulation, government code, constituent or governing instrument, resolution, guideline, ordinance, order, writ, judgment, decree, or ruling to which Counterparty (or any of its officials in their respective capacities as such) or its property is subject." (b) Section 7 of this Agreement is hereby amended by amending subsection "(b)" and adding subsection "( c)" thereto:- "(b) a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e); and (c) MLCS may assign and delegate its rights and obligations under this Agreement or any Transaction to any subsidiary of ML & Co. organized in the United States of America effective upon three days' prior written notice to Counterparty and upon delivery to Counterparty of a Guarantee by ML & Co. of the obligations of such subsidiary substantially in the form of Exhibit A hereto." Miscellaneous. Part VII. (a) Addresses for Notices. For the purpose of Section 10(a) of this Agreement:- Address for notices or communications to MLCS:- Address: 4 World Financial Center, New York, New York 10080 Swap Group, World Financial Center Attention: Telex No.: 6716341 Facsimile No.: (212) 449-9856 Answerback: MLBSCTR Telephone No.: (212) 449-2734 3 Address for notices or communications to Counterparty:- Address:................................................................................................................................ .[TBA] Attention:..................................................................................................:............................ [TBA] Facsimile No.: ...........................[TBA] Telephone No.: ......................... ..[TBA] (b) Account Details. Account for Payments to MLCS: Bankers Trust Company New York, NY ABA: 021-001-033 AlC #: 00-811-890 Ref: Merrill Lynch Capital Services, Inc. Municipal Swap Account Account for Payments to Counterparty: [TBA] (c) Calculation Agent. The Calculation Agent is MLCS. (d) Credit Support Document. Details of any Credit Support Document, each of which are incorporated by reference in, and made a part of, this Agreement and each Confirmation (unless provided otherwise in a Confirmation): "Credit Support Document" shall mean, with respect to MLCS, the Guarantee ofML & Co., and the Credit Support Annex to this Schedule dated as of May _, 2004, between MLCS and the Counterparty . "Credit Support Document" shall mean, with respect to Counterparty, the Credit Support Annex to this Schedule dated as of May _, 2004, between MLCS and Counterparty, and the insurance policy (if any) delivered by an insurer with respect to any Transaction covered by this Agreement. (e) Credit Support Provider. ~~Credit Support Provider" means, in relation to MLCS, ML & Co. "Credit Support Provider" means, in relation to Counterparty, the Insurer (if any) of Counterparty's obligations under any Transaction covered by this Agreement. (f) Netting of Payments. Subparagraph (ii) of Section 2( c) of this Agreement will not apply to the Transactions executed under this Agreement in each case starting from the date of this Schedule. (g) "Affiliate" will have the meaning specified in Section 12 of this Agreement. (h) "Covered Indenture" means the resolution of the City Council of Counterparty adopted on , 2004, entitled [or] [that certain Trust Indenture dated between Counter party and [TrusteelJ. (i) "Covered Indenture Incorporation Date" means the date of this Schedule. 4 (j) For the purpose of Section 4(a) of this Agreement, each party agrees to deliver the following documents as applicable: (i) Each party agrees to furnish to the other party, as soon as available and in any event within 120 days (or as soon as practicable after becoming publicly available) after the end of each of its fiscal years, a copy of the annual report of the party (or, in the case ofMLCS, ML & Co.) containing audited consolidated financial statements for such fiscal year certified by independent certified public accountants and prepared in accordance with accounting principles that are generally accepted in the United States. In the case of Counterparty, the annual report shall be for its System (as defined in the Covered Indenture). (ii) Each party agrees to furnish to the other party, as soon as available and in any event within 60 days (or as soon as practicable after becoming publicly available) after the end of each of its fiscal quarters, unaudited consolidated financial statements of the party (or, in the case ofMLCS, ML & Co.) for such quarter prepared in accordance with accounting principles that are generally accepted in the United States and on a basis consistent with that of the annual financial statements of the party (or, in the case of MLCS, ML & Co.). (k) This Agreement is hereby amended by adding the following Section "13" hereto:- "13. Relationship Between Parties Each party will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction):- (a) Non-Reliance. It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisors as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction; it being understood that information and explanations related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that Transaction. It has not received from the other party any assurance or guarantee as to the expected results of that Transaction. (b) Assessment and Understanding. It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes, the risks of that Transaction. (c) Status of Parties. The other party is not acting as a fiduciary for or as an advisor to it in respect of that Transaction." 5 Exhibit I [Letterhead of Merrill Lynch Capital Services, Inc.] [Date] [Transaction] City of Augusta, Georgia [address] Ladies and Gentlemen:: The purpose of this letter agreement is to confirm the terms and conditions of the transaction (the "Transaction") entered into between Merrill Lynch Capital Services, Inc. ("MLCS") and City of Augusta, Georgia ("Counterparty") on the Trade Date specified below. This letter agreement constitutes a "Confirmation" as referred to in the Master Agreement specified below. The definitions and provisions contained in the 1992 ISDA U.S. Municipal Counterparty Definitions (as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. 1. This Confirmation supplements, forms part of, and is subject to, the Master Agreement dated as of [Date of Master], as amended and supplemented from time to time (the "Agreement"), between MLCS and Counterparty. All provisions contained in the Agreement govern this Confirmation except as expressly modified below. 2. The terms of the particular Transaction to which this Confirmation relates are as follows: Notional Amount: Trade Date: Effective Date: Termination Date: Fixed Amounts: Fixed Rate Payer: Fixed Rate Payer Period End Dates: [MLCS, Counterparty] No Adjustment to Period End Dates shall apply. , subject to adjustment in accordance with the Following Business Day Convention Fixed Rate Payer Payment Dates: Fixed Rate: Fixed Rate Day Count Fraction: Floating Amounts: Government Bond Basis I-I Floating Rate Payer: Floating Rate Payer Period [MLCS, Counterparty] No Adjustment to Period End End Dates: Floating Rate Payer Dates shall apply. , subject to adjustment in accordance with Payment Dates: Floating Rate Option: the Following Business Day Convention If the _ Index is not published on any Reset Date, MLCS shall determine the _ Index on each Reset Date. The Index so determined shall equal the prevailing rate determined by MLCS for bonds that are rated in the highest short-term rating category by Moody's Investors Service and Standard and Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. in respect of issuers of not less than five "high grade" component issuers selected by the Indexing Agent which shall include, without limitation, issuers of general obligations bonds and that are subject to tender by holders thereof for purchase on not more than seven (7) days notice and the interest on which is (a) variable on a weekly basis, (b) excludable from gross income for federal income tax purposes, and (c) not subject to a "minimum tax" or similar tax unless all tax- exempt bonds are subject to such tax. Floating Rate Day Count Fraction: Method of Calculation: Actual/Actual W eighted Average Reset Date: [3. agrees to provide the following Credit Support Document [or agrees to provide the following in accordance with [specify Credit Support Document]]:] 1-2 Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Confirmation enclosed for that purpose and returning it to us or by sending to us a letter substantially similar to this letter, which letter sets forth the material terms of the Transaction to which this Confirmation relates and indicates agreement to those terms. Yours sincerely, MERRILL LYNCH CAPITAL SERVICES, INe. By: Name: Title: Confirmed as of the date first above written: CITY OF AUGUSTA, GEORGIA By: Name: Title: 1-3 EXHIBIT A GUARANTEE OF MERRILL LYNCH & CO., INe. FOR VALUE RECENED, receipt of which is hereby acknowledged, MERRILL LYNCH & CO., INC., a corporation duly organized and existing under the laws of the State of Delaware ("ML & Co."), hereby unconditionally guarantees to CITY OF AUGUST A, GEORGIA (the "Counterparty"), the due and punctual payment of any and all amounts payable by Merrill Lynch Capital Services, Inc., a corporation organized under the laws of the State of Delaware ("MLCS"), under the terms of the Master Agreement, dated as of [Date of Master], between MLCS and the Counterparty (the "Agreement"), including, in case of default, interest on any amount due, when and as the same shall become due and payable, whether on the scheduled payment dates, at maturity, upon declaration of termination or otherwise, according to the terms thereof. In case of the failure of MLCS punctually to make any such payment, ML & Co. hereby agrees to make such payment, or cause such payment to be made, promptly upon demand made by the Counterparty to ML & Co.; provided, however, that a delay by the Counterparty in giving such demand shall in no event affect ML & Co.'s obligations under this Guarantee. This Guarantee shall remain in full force and effect or shall be reinstated (as the case may be) if at any time any payment guaranteed hereunder, in whole or in part, is rescinded or must otherwise be returned by the Counterparty upon the insolvency, bankruptcy or reorganization of MLCS or otherwise, all as though such payment had not been made. ML & Co. hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Agreement; the absence of any action to enforce the same; any waiver or consent by the Counterparty concerning any provisions thereof; the rendering of any judgment against MLCS or any action to enforce the same; or any other circumstances that might otherwise constitute a legal or equitable discharge of a guarantor or a defense of a guarantor. ML & Co. covenants that this Guarantee will not be discharged except by complete payment of the amounts payable under the Agreement. This Guarantee shall continue to be effective if MLCS merges or consolidates with or into another entity, loses its separate legal identity or ceases to exist. ML & Co. hereby waives diligence; presentment; protest; notice of protest, acceleration, and dishonor; filing of claims with a court in the event of insolvency or bankruptcy of MLCS; all demands whatsoever, except as noted in the first paragraph hereof; and any right to require a proceeding first against MLCS. ML & Co. hereby certifies and warrants that this Guarantee constitutes the valid obligation ofML & Co. and complies with all applicable laws. This Guarantee shall be governed by, and construed in accordance with, the laws of the State of New York. This Guarantee becomes effective concurrent with the effectiveness of the Agreement, according to its terms. This Guarantee may be terminated at any time by notice by ML & Co. to the Counterparty given in accordance with the notice provisions of the Agreement, effective upon receipt of such notice by the Counterparty or such later date as may be specified in such notice; provided, however, that this Guarantee shall continue in full force and effect with respect to any obligation of MLCS under the Agreement entered into prior to the effectiveness of such notice of termination. A-I IN WITNESS WHEREOF, ML & Co. has caused this Guarantee to be executed in its corporate name by its duly authorized representative. MERRILL LYNCH & CO., INe. By: Name: Title: Date: A-2 EXHIBIT B FORM OF OPINION OF INTERNAL COUNSEL FOR MLCS [Date] City of Augusta, Georgia [address] Ladies and Gentlemen: I am counsel to Merrill Lynch Capital Services, Inc. ("MLCS") and am delivering this opinion in connection with the Master Agreement dated as of [Date of Master], between MLCS and City of Augusta, Georgia (the "Agreement") as supplemented by [the] confirmation[s] of [the] transaction[s] entered into on between MLCS and Counterparty (each, a [the] "Confirmation"). In this connection I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such investigations of fact and law as I have deemed necessary or appropriate for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. MLCS is a corporation organized and existing and in good standing under the laws of the State of Delaware. 2. The execution, delivery and performance of the Agreement and [the/each] Confirmation by MLCS are within MLCS's corporate power, have been duly authorized by all necessary corporate action and do not conflict with any provision ofthe certificate of incorporation or by-laws ofMLCS. 3. The Agreement and [the/each] Confirmation have been duly executed and delivered by MLCS and constitute legal, valid and binding obligations of MLCS enforceable against MLCS in accordance with their terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, or other laws affecting the enforcement of creditors' rights generally or by general equity principles. 4. To the best of my knowledge, all federal, state, and local governmental, public, and regulatory authority approvals, consents, notices, authorizations, registrations, licenses, exemptions, and filings that are required to have been obtained or made by MLCS with respect to the authorization, execution, delivery, and performance by, or the enforcement against or by, MLCS of the Agreement and [the/each] Confirmation have been obtained and are in full force and effect and all conditions of such approvals, consents, notices, authorizations, registrations, licenses, exemptions, and filings have been fully complied with. I have relied as to certain matters on information obtained from public officials, officers of MLCS and other sources believed by me to be responsible and I have assumed that the signatures on all documents examined by me are genuine, assumptions which I have not independently verified. B-1 This opinion is limited to the laws of the State of New York, the Delaware General Corporation Law and the Federal laws of the United States. The opinions in this letter are expressed solely as of the date hereof for your benefit and for the benefit of your successors and permitted assigns under the Agreement and may not be relied upon in any manner or for any purposes by any other person. Very truly yours, B-2 EXHmIT C FORM OF OPINION OF COUNSEL FOR MERRILL LYNCH & CO., INC. [Date] City of Augusta, Georgia [ address] Ladies and Gentlemen: We have acted as counsel to Merrill Lynch & Co., Inc. ("Merrill Lynch"), and are delivering this opinion in connection with the Guarantee dated [Date of Master] (the "Guarantee") of Merrill Lynch furnished to you with respect to the Master Agreement (the "Agreement"), dated as of [Date of Master], between Merrill Lynch Capital Services, Inc. and City of Augusta, Georgia. In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or appropriate for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that: 1. Merrill Lynch is a corporation organized and existing under the laws of the State of Delaware. 2. The execution, delivery and performance of the Guarantee are within Merrill Lynch's corporate power, have been duly authorized by all necessary corporate action, and do not conflict with any provision of Merrill Lynch's organizational documents. 3. The Guarantee has been duly executed and delivered by Merrill Lynch and constitutes a legal, valid and binding obligation of Merrill Lynch enforceable against Merrill Lynch in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally or by general equity principles. 4. To the best of our knowledge, all federal, state, and local governmental, public, and regulatory authority approvals, consents, notices, authorizations, registrations, licenses, exemptions, and filings that are required to have been obtained or made by Merrill Lynch with respect to the authorization, execution, delivery, and performance by, or the enforcement against or by, Merrill Lynch of the Guarantee have been obtained and are in full force and effect and all conditions of such approvals, consents, notices, authorizations, registrations, licenses, exemptions, and filings have been fully complied with. We have relied as to certain matters on information obtained from public officials, officers of Merrill Lynch and other sources believed by us to be responsible and we have assumed that the signatures on all documents examined by us are genuine, assumptions which we have not independently verified. This opinion is limited to the laws of the State of New York, the Delaware General Corporation Law and the Federal laws of the United States. The opinions in this letter are expressed C-l solely as of the date hereof for your benefit and for the benefit of your successors and permitted assigns under the Agreement and may not be relied upon in any manner or for any purposes by any other person. Very truly yours, C-2 EXHmIT D FORM OF OPINION OF COUNSEL FOR COUNTERP ARTY [Date] Merrill Lynch Capital Services, Inc. 4 World Financial Center New York, New York 10080 Ladies and Gentlemen: This opinion is furnished to you in connection with the Master Agreement dated as of [Date of Master] between Merrill Lynch Capital Services, Inc. ("MLCS") and City of Augusta, Georgia ("Counterparty") (the "Agreement") as supplemented by [the] confirmation [ s] of [the] transactions entered into on between MLCS and Counterparty (each a [the] "Confirmation"). Weare counsel to Counterparty and in that capacity have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such investigations of fact and law as we have deemed necessary or advisable for the opinions expressed herein. Upon the basis of the foregoing, we are of the opinion that: 1. Counterparty is a [specify type of entity] organized and existing and in good standing under the laws of the State of 2. The execution, delivery and performance of the Agreement and [the/each] Confirmation by Counterparty are within Counterparty's powers and authority and the provisions thereof do not conflict with, violate, or constitute a breach of or default under, any instrument relating to the creation, authorization, organization, existence, or operation ofCounterparty, any commitment, agreement, or other instrument to which Counterparty is a party or by which it or its property or assets is bound or affected, or any constitution, law, rule, regulation, government code, resolution, guideline, ordinance, judgment, order, writ, decree, or ruling to which Counterparty (or any of its officials in their respective capacities as such) or its property is subject. 3. The Agreement and [the/each] Confirmation have been duly executed and delivered by Counterparty and constitute legal, valid, and binding obligations of Counterparty enforceable against Counterparty in accordance with their terms, except, as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, or other laws affecting the enforcement of creditors' rights generally or by general equitable principles. 4. To the best of my knowledge, all federal, state, and local governmental, public, and regulatory authority approvals, consents, notices, authorizations, registrations, licenses, exemptions, and filings that are required to have been obtained or made by Counterparty with respect to the authorization, execution, delivery, and performance by, or the enforcement against or by, Counterparty of the Agreement and [the/each] Confirmation have been obtained and are in full force and effect and all conditions of such approvals, consents, notices, authorizations, registrations, licenses, exemptions, and filings have been fully complied with. 5. There is no action, suit, claim, proceeding, inquiry, or investigation, at law or in equity or by or before any court, governmental or public board, body, or agency, or regulatory authority, or private arbitration association, pending or, to our knowledge, threatened against or affecting Counterparty or any D-l entity affiliated with Counterparty (or any of its officials in their respective capacities as such) or any of its property (nor to our knowledge is there any basis therefor), which in any way questions the right, power, or authority of Counterparty referred to in paragraph 2 above, the validity of the proceeding taken by Counterparty in connection with the authorization, execution, delivery, or performance of the Agreement or [the/each] Confirmation, or wherein any unfavorable decision, ruling, or finding could adversely affect the transactions contemplated by the Agreement or [the/each] Confirmation or which in any way could adversely affect the Agreement or [the/each] Confirmation or the legality, validity, binding effect, or enforceability thereof. 6. Counterparty is subject to suit with respect to its obligations under the Agreement and [the/each] Confirmation and neither Counterparty nor any of its properties and assets has any right to immunity from suit or attachment in aid of execution or other legal process on the grounds of sovereignty or otherwise or, to the extent that Counterparty and any of its properties have any such right to immunity, Counterparty has effectively waived such right for the purpose of the Agreement and [the/each] Confirmation and the party executing the Agreement and [the/each] Confirmation on its behalf has the authority to waive such immunity. [7. The obligations of Counterparty to make payments under the Agreement [constitute (special), (general) limited obligations of Counterparty] [and are secured by a pledge of and a lien and charge upon the revenues of Counterparty and are payable from such revenues on a parity with and other indebtedness hereafter issued or incurred and payable from such revenues on a parity with the ] [are not a lien, charge, or pledge upon the aforementioned pledge),] and do not constitute any kind of indebtedness of Counterparty or any indebtedness for which the faith and credit of Counterparty or any of its revenues are pledged or any indebtedness secured by any lien on or security interest in any property of Counterparty, as defined under and/or proscribed by any constitution, charter, law, rule, regulation, government code, constituent or governing instrument, resolution, guideline, ordinance, order, writ, judgment, decree, or ruling to which Counterparty (or any of its officials in their respective capacities as such) or its property is subject.] 8. The execution and delivery of the Agreement and [the/each] Confirmation will not give rise to any tax or fee imposed on MLCS by any governmental or public board, body, agency, or authority of the State of or any locality or subdivision thereof. We have relied as to certain matters on information obtained from public officials, officers of Counterparty and other sources believed by us to be responsible and we have assumed that the signatures on all documents examined by us are genuine, assumptions which we have not independently verified. This opinion is limited to the laws of the State of and the Federal laws of the United States. The opinions in this letter are expressed solely as of the date hereof for your benefit and for the benefit of your successors and permitted assigns under the Agreement and may not be relied upon in any manner or for any purposes by any other person. Very truly yours, D-2 EXHmIT E [Form of Resolutions] RESOLVED that by engaging in interest rate swap transactions from time to time, [Counterparty] can hedge all or a portion of [Counterparty]'s debt or investments or, in effect, convert interest on all or a portion of [Counterparty]'s debt from a fixed rate to a floating rate, from a floating rate to a fixed rate or from one floating rate to another floating rate, and thereby reduce the cost of borrowing on its outstanding debt by optimizing the relative amounts of fixed and floating rate obligations from time to time or the risk of variations in its debt service costs, and increase the predictability of cash flow from earnings on invested funds and thereby improve [Counterparty]'s ability to manage its funds and revenues during the period of the proposed transaction. RESOLVED that [Counterparty] is hereby authorized to enter into the Master Agreement (the "Agreement") between Merrill Lynch Capital Services, Inc. and [Counterparty] dated as of [Date of Master], in substantially the form presented to this meeting and, from time to time, one or more interest rate swap transactions and agreements terminating any such interest rate swap transaction, pursuant to the Agreement and the documents (each a "Confirmation") exchanged between the parties confirming such interest rate swap transactions. The terms of each interest rate swap transaction, including interest rate, term, Notional Amount (as defined in the Agreement) and options as to commencement and termination of payments, and each termination agreement shall be as described in the Agreement and as provided in the related Confirmation, as approved from time to time by the officers of [Counterparty] authorized to execute the Confirmation. The aggregate Notional Amount, as defined in the Agreement, of such interest rate swap transactions outstanding at anyone time, net of offsetting interest rate swap transactions, shall not exceed $ and each such interest rate swap transaction shall terminate not exceeding years after its effective date. The aggregate Notional Amount of all such interest rate swap transactions as of any time shall be determined on a net basis, i.e., where any such transaction is entered into to offset or reverse an earlier transaction, to the extent of the offsetting or reversing effect, the Notional Amounts of such offsetting or reversing interest rate swap transactions shall not be included in the aggregate total. RESOLVED that the actions contemplated in the Agreement, and each Confirmation, are hereby in all respects approved, authorized, adopted, ratified and confirmed. RESOLVED that all [officers or the equivalent thereof] of [Counterparty] be, and each of them hereby is, authorized to execute and deliver (i) the Agreement and each Confirmation in the name and on behalf of [Counterparty] and if necessary or advisable under its corporate seal (which may be attested by the [Secretary or any Assistant Secretary or the equivalent thereof] of [Counterparty]) or otherwise in the form previously presented to [Counterparty] (with such changes, not inconsistent with the intent of these resolutions and the intent of the [governing body] as the [officer or officers or the equivalent thereof] executing the same, as evidenced by their execution thereof, shall deem necessary or desirable) and (ii) such other agreements and documents as are contemplated by the Agreement or are otherwise necessary in connection with entering into interest rate swap and any similar transactions, as any such [officer or the equivalent thereof] shall deem appropriate, including without limitation, officer certificates[,] [and] legal opinions [and credit support documents]. RESOLVED that all [officers or the equivalent thereof] of [Counterparty] and its agents and counsel be, and each of them hereby is, authorized to take all such further actions, to execute and deliver such further instruments and documents in the name and on behalf of [Counterparty] and if necessary or advisable under its corporate seal (which may be attested by [the Secretary or any Assistant Secretary or the equivalent thereof] of [Counterparty]) or otherwise to pay all such expenses as in his judgment shall be necessary or advisable in order fully to carry out the purposes of the foregoing resolutions. E-l RESOLVED that all actions previously taken or that will be taken by any [officer or the equivalent thereof], employee or agent of [Counterparty] in connection with or related to the matters set forth in or reasonably contemplated by the foregoing resolutions be, and each of them hereby is, adopted, ratified, confirmed and approved in all respects as the acts and deeds of [Counterparty]. E-2 EXHmIT F ISDA@ International Swaps and Derivatives Association, Inc. CREDIT SUPPORT ANNEX to the Schedule to the ISDA MASTER AGREEMENT dated as of May _, 2004 between MERRILL LYNCH CAPITAL SERVICES, INC. and CITY OF AUGUST A, GEORGIA ("Party A") ("Party B") This Annex supplements, forms part of, and is subject to, the above-referenced Agreement, is part of its Schedule and is a Credit Support Document under this Agreement with respect to each party. Accordingly, the parties agree as follows: Paragraph 1. Interpretation (a) Definitions and Inconsistency. Capitalized terms not otherwise defined herein or elsewhere in this Agreement have the meanings specified pursuant to Paragraph 12, and all references in this Annex to Paragraphs are to Paragraphs of this Annex. In the event of any inconsistency between this Annex and the other provisions of this Schedule, this Annex will prevail, and in the event of any inconsistency between Paragraph 13 and the other provisions of this Annex, Paragraph 13 will prevail. (b) Secured Party and Pledgor. All references in this Annex to the "Secured Party" will be to either party when acting in that capacity and all corresponding references to the Pledgor will be to the other party when acting in that capacity; provided, however, that if Other Posted Support is held by a party to this Annex, all references herein to that party as the Secured Party with respect to that Other Posted Support will be to that party as the beneficiary thereof and will not subject that support or that party as the beneficiary thereof to provisions of law generally relating to security interests and secured parties. Paragraph 2. Security Interest Each party, as the Pledgor, hereby pledges to the other party, as the Secured Party, as security for its Obligations and grants to the Secured Party a first priority continuing security interest in, lien on and right of Set-off against all Posted Collateral Transferred to or received by the Secured Party hereunder. Upon the Transfer by the Secured Party to the Pledgor of Posted Collateral, the security interest and lien granted hereunder on that Posted Collateral will be released immediately and, to the extent possible, without any further action by either party. F-l Paragraph 3. Credit Support Obligations (a) Delivery Amount. Subject to Paragraphs 4 and 5, upon demand made by the Secured Party on or promptly following a Valuation Date, if the Delivery Amount for that Valuation Date equals or exceeds the Pledgor's Minimum Transfer Amount, then the Pledgor will Transfer to the Secured Party Eligible Credit Support having a Value as of the date of Transfer at least equal to the applicable Delivery Amount (rounded pursuant to Paragraph 13). Unless otherwise specified in Paragraph 13, the "Delivery Amount" applicable to the Pledgor for any Valuation Date will equal the amount by which: (i) the Credit Support Amount exceeds (ii) the Value as of that Valuation Date of all Posted Credit Support held by the Secured Party . (b) Return Amount. Subject to Paragraphs 4 and 5, upon a demand made by the Pledgor on or promptly following a Valuation Date, if the Return Amount for that Valuation Date equals or exceeds Secured Party's Minimum Transfer Amount, then the Secured Party will Transfer to the Pledgor Posted Credit Support specified by the Pledgor in that demand having a Value as of the date of Transfer as close as practicable to the applicable Return Amount (rounded pursuant to Paragraph 13). Unless otherwise specified in Paragraph 13, the "Return Amount" applicable to the Secured Party for any Valuation Date will equal the amount by which: (i) the Value as of that Valuation Date of all Posted Credit Support held by the Secured Party exceeds (ii) the Credit Support Amount. "Credit Support Amount" means, unless otherwise specified in Paragraph 13, for any Valuation Date (i) the Secured Party's Exposure for that Valuation Date plus (ii) the aggregate of all Independent Amounts applicable to the Pledgor, if any, minus (iii) all Independent Amounts applicable to the Secured Party, if any, minus (iv) the Pledgor's Threshold; provided, however, that the Credit Support Amount will be deemed to be zero whenever the calculation of Credit Support Amount yields a number less than zero. Paragraph 4. Conditions Precedent, Transfer Timing, Calculations and Substitutions (a) Conditions Precedent. Each Transfer obligation of the Pledgor under Paragraphs 3 and 5 and of the Secured Party under Paragraphs 3, 4(d)(ii), 5 and 6(d) is subject to the conditions precedent that: (i) no Event of Default, Potential Event of Default or Specified Condition has occurred and is continuing with respect to the other party; and (ii) no Early Termination Date for which any unsatisfied payment obligations exist has occurred or been designated as the result of an Event of Default or Specified Condition with respect to the other party. (b) Transfer Timing. Subject to Paragraphs 4(a) and 5 and unless otherwise specified, if a demand for the Transfer of Eligible Credit Support or Posted Credit Support is made by the Notification Time, then the relevant Transfer will be made not later than the close of business on the next Local Business Day; if a demand is made after the Notification Time, then the relevant Transfer will be made not later than the close of business on the second Local Business Day thereafter. (c) Calculations. All calculations of Value and Exposure for purposes of Paragraphs 3 and 6( d) will be made by the Valuation Agent as of the Valuation Time. The Valuation Agent will notify each party F-2 (or the other party, if the Valuation Agent is a party) of its calculations not later than the Notification Time on the Local Business Day following the applicable Valuation Date (or in the case of Paragraph 6( d), following the date of calculation). (d) Substitutions. (i) Unless otherwise specified in Paragraph 13, upon notice to the Secured Party specifying the items of Posted Credit Support to be exchanged, the Pledgor may, on any Local Business Day, Transfer to the Secured Party substitute Eligible Credit Support (the "Substitute Credit Support"); and (ii) subject to Paragraph 4(a), the Secured Party will Transfer to the Pledgor the items of Posted Credit Support specified by the Pledgor in its notice not later than the Local Business Day following the date on' which the Secured Party receives the Substitute Credit Support, unless otherwise specified in Paragraph 13 (the "Substitution Date"); provided that the Secured Party will only be obligated to Transfer Posted Credit Support with a Value as of the date of Transfer of that Posted Credit Support equal to the Value as of that date of the Substitute Credit Support. Paragraph 5. Dispute Resolution If a party (a "Disputing Party") disputes (I) the Valuation Agent's calculation of a Delivery Amount or a Return Amount or (II) the Value of any Transfer of Eligible Credit Support or Posted Credit Support, then (1) the Disputing Party will notify the other party and the Valuation Agent (if the Valuation Agent is not the other party) not later than the close of business on the Local Business Day following (X) the date that the demand is made under Paragraph 3 in case of (I) above or (Y) the date of Transfer in the case of (II) above, (2) subject to Paragraph 4(a), the appropriate party will Transfer the undisputed amount to the other party not later than the close of business on the Local Business Day following (X) the date that the demand is made under Paragraph 3 in the case of en above or (Y) the date of Transfer in the case of (II) above, (3) the parties will consult with each other in an attempt to resolve the dispute and (4) if they fail to resolve the dispute by the Resolution Time, then: (i) In the case of a dispute involving a Delivery Amount or Return Amount, unless otherwise specified in Paragraph 13, the Valuation Agent will recalculate the Exposure and the Value as of the Recalculation Date by: (A) utilizing any calculations of Exposure for the Transactions (or Swap Transactions) that the parties have agreed are not in dispute; (B) calculating the Exposure for the Transactions (or Swap Transactions) in dispute by seeking four actual quotations at mid-market from Reference Market-makers for purposes of calculating Market Quotation, and taking the arithmetic average of those obtained; provided that if four quotations are not available for a particular Transaction (or Swap Transaction), then fewer than four quotations may be used for that Transaction (or Swap Transaction); and if no quotations are available for a particular Transaction (or Swap Transaction), then the Valuation Agent's original calculations will be used for that Transaction (or Swap Transaction); (C) utilizing the procedures specified in Paragraph 13 for calculating the Value, if disputed, of Posted Credit Support. (ii) In the case of a dispute involving the Value of any Transfer of Eligible Credit Support or Posted Credit Support the Valuation Agent will recalculate the Value as of the date of Transfer pursuant to Paragraph 13. Following a recalculation pursuant to this Paragraph, the Valuation Agent will notify each party (or the other party, if the Valuation Agent is a party) not later than the Notification Time on the Local Business F-3 Day following the Resolution Time. The appropriate party will, upon demand following that notice by the Valuation Agent or a resolution pursuant to (3) above and subject to Paragraphs 4(a) and 4(b), make the appropriate Transfer. Paragraph 6. Holding and Using Posted Collateral (a) Care of Posted Collateral. Without limiting the Secured Party's rights under Paragraph 6(c), the Secured Party will exercise re~sonable care to assure the safe custody of all Posted Collateral to the extent required by applicable law, and in any event the Secured Party will be deemed to have exercised reasonable care if it exercises at least the same degree of care as it would exercise with respect to its own property. Except as specified in the preceding sentence, the Secured Party will have no duty with respect to Posted Collateral, including, without limitation, any duty to collect any Distributions, or enforce or preserve any rights pertaining thereto. (b) Eligibility to Hold Posted Collateral; Custodians. (i) General. Subject to the satisfaction of any conditions specified in Paragraph 13 for holding Posted Collateral, the Secured Party will be entitled to hold Posted Collateral or to appoint an agent (a "Custodian") to hold Posted Collateral for the Secured Party. Upon notice by the Secured Party to the Pledgor of the appointment of a Custodian, the Pledgor's obligations to make any Transfer will be discharged by making the Transfer to that Custodian. The holding of Posted Collateral by a Custodian will be deemed to be the holding of that Posted Collateral by the Secured Party for which the Custodian is acting. I (ii) Failure to Satisfy Conditions. If the Secured Party or its Custodian fails to satisfy conditions for holding Posted Collateral, then upon a demand made by the Pledgor, the Secured Party will, not later than five Local Business Days after the demand, Transfer or cause its Custodian to Transfer all Posted Collateral held by it to a Custodian that satisfies those conditions or to the Secured Party if it satisfies those conditions. (iii) Liability. The Secured Party will be liable for the acts or omissions of its Custodian to the same extent that the Secured Party would be liable hereunder for its own acts or omissions. (c) Use of Posted Collateral. Unless otherwise specified in Paragraph 13 and without limiting the rights and obligations of the parties under Paragraphs 3, 4(d)(ii), 5, 6(d) and 8, if the Secured Party is not a Defaulting Party or an Affected Party with respect to a Specified Condition and no Early Termination Date has occurred or been designated as the result of an Event of Default or Specified Condition with respect to the Secured Party, then the Secured Party will, notwithstanding Section 9-207 of the New York Uniform Commercial Code, have the right to: (i) sell, pledge, rehypothecate, assign, invest, use, commingle or otherwise dispose of, or otherwise use in its business any Posted Collateral it holds, free from any claim or right of any nature whatsoever of the Pledgor, including any equity or right of redemption by the Pledgor; and (ii) register any Posted Collateral in the name of the Secured Party, its Custodian or a nominee for either. For purposes of the obligation to Transfer Eligible Credit Support or Posted Credit Support pursuant to Paragraphs 3 and 5 and any rights or remedies authorized under this Agreement, the Secured Party will be deemed to continue to hold all Posted Collateral and to receive Distributions made thereon, regardless of whether the Secured Party has exercised any rights with respect to any Posted Collateral pursuant to (i) or (ii) above. F-4 (d) Distributions and Interest Amount. I (i) Distributions. Subject to Paragraph 4(a), if the Secured Party receives or is deemed to receive Distributions on a Local Business Day, it will Transfer to the Pledgor not later than the following Business Day any Distributions it receives or is deemed to receive to the extent that a Delivery Amount would not be created or increased by that Transfer, as calculated by the Valuation Agent (and the date of calculation will be deemed to be a Valuation Date for this purpose). (ii) Interest Amount. Unless otherwise specified in Paragraph 13 and subject to Paragraph 4(a), in lieu of any interest, dividends or other amounts paid or deemed to have been paid with respect to Posted Collateral in the form of Cash (all of which may be retained by the Secured Party), the Secured Party will Transfer to the Pledgor at the times specified in Paragraph 13 the Interest Amount to the extent that a Delivery Amount would not be created or increased by that Transfer, as calculated by the Valuation Agent (and the date of calculation will be deemed to be a Valuation Date for this purpose). The Interest Amount or portion thereof not Transferred pursuant to this Paragraph will constitute Posted Collateral in the form of Cash and will be subject to the security interest granted under Paragraph 2. Paragraph 7. Events of Default For purposes of Section 5(a)(iii)(1) of this Agreement, an Event of Default will exist with respect to a party if: (i) that party fails (or fails to cause its Custodian) to make, when due, any Transfer of Eligible Collateral, Posted Collateral or the Interest Amount, as applicable, required to be made by it and that failure continues for two Local Business Days after notice of that failure is given to that party; (ii) that party fails to comply with any restriction or prohibition specified in this Annex with respect to any of the rights specified in Paragraph 6( c) and that failure continues for five Local Business Days after notice of that failure is given to that party; or (iii) that party fails to comply with or perform any agreement or obligation other than those specified in Paragraphs 7(i) and 7(ii) and that failure continues for 30 days after notice of that failure is given to that party. Paragraph 8. Certain Rights and Remedies , (a) Secured Party's Rights and Remedies. If at any time (1) an Event of Default or Specified Condition with respect to the Pledgor has occurred and is continuing or (2) an Early Termination Date has occurred or been designated as the result of an Event of Default or Specified Condition with respect to the Pledgor, then, unless the Pledgor has paid in full all of its Obligations that are then due, the Secured Party may exercise one or more of the following rights and remedies: (i) all rights and remedies available to a secured party under applicable law with respect to Posted Collateral held by the Secured Party; (ii) any other rights and remedies available to the Secured Party under the terms of Other Posted Support, if any; (iii) the right to Set-off any amounts payable by the Pledgor with respect to any Obligations against any Posted Collateral or the Cash equivalent of any Posted Collateral held by the Secured Party (or any obligation of the Secured Party to Transfer that Posted Collateral); and (iv) the right to liquidate any Posted Collateral held by the Secured Party through one or more public or private sales or other dispositions with such notice, if any, as may be required under F-5 applicable law, free from any claim or right of any nature whatsoever of the Pledgor, including any equity or right of redemption by the Pledgor (with the Secured Party having the right to purchase any or all of the Posted Collateral to be sold) and to apply the proceeds (or the Cash equivalent thereof) from the liquidation of the Posted Collateral to any amounts payable by the Pledgor with respect to any Obligations in that order as the Secured Party may elect. Each party acknowledges and agrees that Posted Collateral in the form of securities may decline speedily in value and is of a type customarily sold on a recognized market, and, accordingly, the Pledgor is not entitled to prior notice of any sale of that Posted Collateral by the Secured Party, except any notice that is required under applicable law and cannot be waived. (b) Pledgor's Rights and Remedies. If at any time an Early Termination Date has occurred or been designated as the result of an Event of Default or Specified Condition with respect to the Secured Party, then (except in the case of an Early Termination Date relating to less than all Transactions (or Swap Transactions) where the Secured Party has paid in full all of its obligations that are then due under Section 6(e) of this Agreement): (i) the Pledgor may exercise all rights and remedies available to a Pledgor under applicable law with respect to Posted Collateral held by the Secured Party; (ii) the Pledgor may exercise any other rights and remedies available to the Pledgor under the terms of Other Posted Support, if any; (iii) the Secured Party will be obligated immediately to Transfer all Posted Collateral and the Interest Amount to the Pledgor; and , (iv) to the extent that Posted Collateral or the Interest Amount is not so Transferred pursuant to (iii) above, the Pledgor may: (A) Set-off any amounts payable by the Pledgor with respect to any Obligations against any Posted Collateral or the Cash equivalent of any Posted Collateral held by the Secured Party (or any obligation of the Secured Party to Transfer that Posted Collateral); and (B) to the extent that the Pledgor does not Set-off under (iv)(A) above, withhold payment of any remaining amounts payable by the Pledgor with respect to any Obligations, up to the Value of any remaining Posted Collateral held by the Secured Party, until that Posted Collateral is Transferred to the Pledgor. (c) Deficiencies and Excess Proceeds. The Secured Party will Transfer to the Pledgor any proceeds and Posted Credit Support remaining after liquidation, Set-off and/or application under Paragraphs 8(a) and 8(b) after satisfaction in full of all amounts payable by the Pledgor with respect to any Obligations; the Pledgor in all events will remain liable for any amounts remaining unpaid after any liquidation, Set- off and/or application under Paragraphs 8(a) and 8(b). (d) Final Returns. When no amounts are or thereafter may become payable by the Pledgor with respect to any Obligations (except for any potential liability under Section 2(d) of this Agreement), the Secured Party will Transfer to the Pledgor all Posted Credit Support and the Interest Amount, if any. Paragraph 9. Representations Each party represents to the other party (which representation will be deemed to be repeated as of each date on which it, as the Pledgor, Transfers Eligible Collateral) that: (i) it has the power to grant a security interest in and lien on any Eligible Collateral it Transfers as the Pledgor and has taken all necessary actions to authorize the granting of that security interest and lien; F-6 (ii) it is the sole owner of or otherwise has the right to Transfer all Eligible Collateral it Transfers to the Secured Party hereunder, free and clear of any security interest, lien, encumbrance or other restrictions other than the security interest and lien granted under Paragraph 2; (iii) upon the Transfer of any Eligible Collateral to the Secured Party under the terms of this Annex, the Secured Party will have a valid and perfected first priority security interest therein (assuming that any central clearing corporation or any third-party financial intermediary or other entity not within the control of the Pledgor involved in the Transfer of that Eligible Collateral gives the notices and takes the action required of it under applicable law for perfection of that interest); and (iv) the performance by it of its obligations under this Annex will not result in the creation of any security interest, lien or other encumbrance on any Posted Collateral other than the security interest and lien granted under Paragraph 2. Paragraph 10. Expenses (a) General. Except as otherwise provided in Paragraphs 10(b) and 10(c), each party will pay its own costs and expenses in connection with performing its obligations under this Annex and neither party will be liable for any costs and expenses incurred by the other party in connection herewith. (b) Posted Credit Support. The Pledgor will promptly pay when due all taxes, assessments or charges of any nature that are imposed with respect to Posted Credit support held by the Secured Party upon becoming aware of the same, regardless of whether any portion of that Posted Credit Support is subsequently disposed of under Paragraph 6( c), except for those taxes, assessments and charges that result from the exercise of the Secured Party's rights under Paragraph 6(c). (c) Liquidation/Application of Posted Credit Support. All reasonable costs and expenses incurred by or on behalf of the Secured Party or the Pledgor in connection with the liquidation and/or application of any Posted Credit Support under Paragraph 8 will be payable, on demand and pursuant to the Expenses Section of this Agreement, by the Defaulting Party or, if there is no Defaulting Party, equally by the parties. Paragraph 11. Miscellaneous (a) Default Interest. A Secured Party that fails to make, when due, any Transfer of Posted Collateral or the Interest Amount will be obliged to pay the Pledgor (to the extent permitted under applicable law) an amount equal to interest at the Default Rate multiplied by the Value of the items of property that were required to be Transferred, from (and including) the date that the Posted Collateral or Interest Amount was required to be Transferred to (but excluding) the date of Transfer of that Posted Collateral or Interest Amount. This interest will be calculated on the basis of daily compounding and the actual number of days elapsed. (b) Further Assurances. Promptly following a demand made by a party, the other party will execute, deliver, file and record any financing statement, specific assignment or other document and take any other action that may be necessary or desirable and reasonably requested by that party to create, preserve, perfect or validate any security interest or lien granted under Paragraph 2, to enable that party to exercise or enforce its rights under this Annex with respect to Posted Credit Support or an Interest Amount or to effect or document a release of a security interest on Posted Collateral or an Interest Amount. (c) Further Protection. The Pledgor will promptly give notice to the Secured Party of, and defend against, any suit, action, proceeding or lien that involves Posted Credit Support Transferred by the Pledgor or that could adversely affect the security interest and lien granted by it under Paragraph 2, unless F-7 that suit, action, proceeding or lien results from the exercise of the Secured Party's rights under Paragraph 6(c). (d) Good Faith and Commercially Reasonable Manner. Performance of all obligations under this Annex, including, but not limited to, all calculations, valuations and determinations made by either party, will be made in good faith and in a commercially reasonable manner. (e) Demands and Notices. All demands and notices given by a party under this Annex will be made as specified in the Notices Section of this Agreement, except as otherwise provided in Paragraph 13. (f) Specifications of Certain Matters. Anything referred to in this Annex as being specified in Paragraph 13 also may be specified in one or more Confirmations or other documents and this Annex will be construed accordingly. Paragraph 12. Definitions As used in this Annex:- "Cash" means the lawful currency of the United States of America. "Credit Support Amount" has the meaning specified in Paragraph 3. "Custodian" has the meaning specified in Paragraphs 6(b )(i) and 13. "Delivery Amount" has the meaning specified in Paragraph 3(a). "Disputing Party" has the meaning specified in Paragraph 5. "Distributions" means, with respect to Posted Collateral other than Cash, all principal, interest and other payments and distributions of cash or other property with respect thereto, regardless of whether the Secured Party has disposed of that Posted Collateral under Paragraph 6(c). Distributions will not include any item of property acquired by the Secured Party upon any disposition or liquidation of Posted Collateral or, with respect to any Posted Collateral in the form of Cash, any distributions on that collateral, unless otherwise specified herein. "Eligible Collateral" means, with respect to a party, the items, if any, specified as such for that party in Paragraph 13. "Eligible Credit Support" means Eligible Collateral and Other Eligible Support. "Exposure" means for any Valuation Date or other date for which Exposure is calculated and subject to Paragraph 5 in the case of a dispute, the amount, if any, that would be payable to a party that is the Secured Party by the other party (expressed as a positive number) or by a party that is the Secured Party to the other party (expressed as a negative number) pursuant to Section 6(e)(ii)(2)(A) of this Agreement as if all Transactions (or Swap Transactions) were being terminated as of the relevant Valuation Time; provided that Market Quotation will be determined by the Valuation Agent using its estimates at mid- market of the amounts that would be paid for Replacement Transactions (as that term is defined in the definition of "Market Quotation"). "Independent Amount" means, with respect to party, the amount specified as such for that party in Paragraph 13; ifno amount is specified, zero. "Interest Amount" means, with respect to an Interest Period, the aggregate sum of the amounts of interest calculated for each day in that Interest Period on the principal amount of Posted Collateral in the form of Cash held by the Secured Party on that day, determined by the Secured Party for each such day as follows: (x) the amount of Cash on that day; multiplied by F-8 (y) the Interest Rate in effect for that day; divided by (z) 360. "Interest Period" means the period from (and including) the last Local Business Day on which an Interest Amount was Transferred (or, if no Interest Amount has yet been Transferred, the Local Business Day on which Posted Collateral in the form of Cash was Transferred to or received by the Secured Party) to (but excluding) the Local Business Day on which the current Interest Amount is to be Tr~nsferred. "Interest Rate" means the rate specified in Paragraph 13. "Local Business Day," unless otherwise specified in Paragraph 13, has the meaning specified in the Definitions Section of this Agreement, except that references to a payment in clause (b) thereof will be deemed to include a Transfer under this Annex. "Minimum Transfer Amount" means, with respect to a party, the amount specified as such for that party in Paragraph 13; ifno amount is specified, zero. "Notification Time" has the meaning specified in Paragraph 13. "Obligations" means, with respect to a party, all present and future obligations of that party under this Agreement and any additional obligations specified for that party in Paragraph 13. "Other Eligible Support" means, with respect to a party, the items, if any, specified as such for that party in Paragraph 13. "Other Posted Support" means all Other Eligible Support Transferred to the Secured Party that remains in effect for the benefit of that Secured Party. "Pledgor" means either party, when that party (i) receives a demand for or is required to Transfer Eligible Credit Support under Paragraph 3(a) or (ii) has Transferred Eligible Credit Support under Paragraph 3(a). "Posted Collateral" means all Eligible Collateral, other property, Distributions, and all proceeds thereof that have been Transferred to or received by the Secured Party under this Annex and not Transferred to the Pledgor pursuant to Paragraph 3(b), 4(d)(ii) or 6(d)(i) or released by the Secured Party under Paragraph 8. Any Interest Amount or portion thereof not Transferred pursuant to Paragraph 6( d)(ii) will constitute Posted Collateral in the form of Cash. "Posted Credit Support" means Posted Collateral and Other Posted Support. "Recalculation Date" means the Valuation Date that gives rise to the dispute under Paragraph 5; provided, however, that if a subsequent Valuation Date occurs under Paragraph 3 prior to the resolution of the dispute, then the "Recalculation Date" means the most recent Valuation Date under Paragraph 3. "Resolution Time"has the meaning specified in Paragraph 13. "Return Amount" has the meaning specified in Paragraph 3(b). "Secured Party" means either party, when that party (i) makes a demand for or is entitled to receive Eligible Credit Support under Paragraph 3(a) or (ii) holds or is deemed to hold Posted Credit Support. "Specified Condition" means, with respect to a party, any event specified as such for that party in Paragraph 13. "Substitute Credit Support" has the meaning specified in Paragraph 4( d)(i). "Substitution Date" has the meaning specified in Paragraph 4( d)(ii). F-9 "Threshold" means, with respect to a party, the amount specified as such for that party in Paragraph 13; if no amount is specified, zero. "Transfer" means, with respect to any Eligible Credit Support, Posted Credit Support or Interest Amount, and in accordance with the instructions of the Secured Party, Pledgor or Custodian, as applicable: (i) in the case of Cash, payment or delivery by wire transfer into one or more bank accounts specified by the recipient; (ii) in the case of certificated securities that cannot be paid or delivered by book-entry, payment or delivery in appropriate physical form to the recipient or its account accompanied by any duly executed instruments of transfer, assignments in blank, transfer tax stamps and any other documents necessary to constitute a legally valid transfer to the recipient; (iii) in the case of securities that can be paid or delivered in book-entry, the giving of written instruments to the relevant depository institution or other entity specified by the recipient, together with a written copy thereof to the recipient, sufficient if complied with to result in a legally effective transfer of the relevant interest to the recipient; and (iv) in the case of Other Eligible Support or Other Posted Support, as specified in Paragraph 13. "Valuation Agent" has the meaning specified in Paragraph 13. "Valuation Date" means each date specified in or otherwise determined pursuant to Paragraph 13. "Valuation Percentage" means, for any item of Eligible Collateral, the percentage specified in Paragraph 13. "Valuation Time" has the meaning specified in Paragraph 13. "Value" means for any Valuation Date or other date for which Value is calculated, and subject to Paragraph 5 in the case of a dispute, with respect to: (i) Eligible Collateral or Posted Collateral that is: (A) Cash, the amount thereof; and (B) a security, the bid price obtained by the Valuation Agent multiplied by the applicable Valuation Percentage, if any; (ii) Posted Collateral that consists of items that are not specified as Eligible Collateral, zero; and (iii) Other Eligible Support and Other Posted Support, as specified in Paragraph 13. F-10 Paragraph 13. Elections and Variables (a) Security Interest for "Obligations". The term "Obligations" as used in this Annex includes the following additional obligations: Not Applicable. (b) Credit Support Obligations. (i) Delivery Amount, Return Amount and Credit Support Amount. (A) "Delivery Amount" has the meaning specified in Paragraph 3(a). (B) "Return Amount" has the meaning specified in Paragraph 3(b). (C) "Credit Support Amount" has the meaning specified in Paragraph 3. (ii) Eligible Collateral. The following items will qualify as "Eligible Collateral": (A) (B) (C) (D) Valuation Percentage Cash; 100% negotiable debt obligations issued by the U.S. Treasury Department having an original maturity of not more than one year; 99% negotiable debt obligations issued by the U.S. Treasury Department having an original maturity of more than one year but not more than ten years; 98% negotiable debt obligations issued by the U.S. Treasury Department having an original maturity of more than ten years; 97% F-ll (E) (F) single-class mortgage participation certificates ("FHLMC Certificates") in book-entry form backed by single- family residential mortgage loans, the full and timely payment of interest at the applicable certificate rate and the ultimate collection of principal of which are guaranteed by the Federal Home Loan Mortgage Corporation (excluding Real Estate Mortgage Investment Conduit ("REMIC") or other multi-class pass-through certificates, pass- through certificates backed by adjustable rate mortgages and securities paying interest or principal only); single-class mortgage pass-through certificates ("FNMA Certificates") in book-entry form backed by single- family residential mortgage loans, the full and timely payment of interest at the applicable certificate rate and the ultimate collection of principal of which are guaranteed by the Federal National Mortgage Association (excluding REMIC or other multi-class pass-through certificates, pass-through certificates backed by adjustable rate mortgages and securities paying interest or principal only); F-12 Valuation Percentage 95% 95% Valuation Percentage (G) single-class fully modified pass- through certificates ("GNMA Certificates") in book-entry form backed by single-family residential mortgage loans, the full and timely payment of principal and interest of which is guaranteed by the Government National Mortgage Association (excluding REMIC or other multi-class pass-through certificates, pass-through certificates backed by adjustable rate mortgages and securities paying interest or principal only); 95% (iii) Party B. Other Eligible Support. There shall be no "Other Eligible Support" for either Party A or (iv) Thresholds. (A) "Independent Amount" means, for each party, with respect to each Transaction, zero (unless a different amount is specified in the Confirmation of that Transaction as that party's Independent Amount). (B) "Threshold" means the amounts set out below determined on the basis of the lower of the ratings assigned by either S&P or Moody's to (i) the long term, unsecured and unsubordinated debt of Merrill Lynch & Co., Inc. ("ML & Co.") in the case of Party A and (ii) the long term debt of Party B secured by the Covered Indenture in the case of Party B; provided that if (x) ML & Co. or Party B has no such ratings or (y) an Event of Default has occurred and is continuing with respect to Party A or Party B, the Threshold with respect to the relevant party shall be zero: Moody's Ratin2 Aa3 or above Al A2 A3 Baal Baa2 or below S&P Ratin2 Aa- or above A+ A A- BBB+ BBB or below Threshold $25 million $20 million $15 million $10 million $5 million $0 (C) "Minimum Transfer Amount" means, with respect to a party, US $100,000; provided, that if (i) an Event of Default has occurred and is continuing or (ii) an Additional Termination Event has occurred, the Minimum Transfer Amount with respect to such party shall be zero. F-13 (D) "Rounding". The Delivery Amount and the Return Amount will be rounded up and down respectively to the nearest integral multiple of US $10,000. (c) Valuation and Timing. (i) "Valuation Agent" means, for purposes of Paragraph 3 and 5, the party making the demand under Paragraph 3; for the purpose of Paragraph 4(d)(ii), the Secured Party receiving the Substitute Credit Support; and for purposes of Paragraph 6( d), the Secured Party receiving or deemed to receive the Distributions or the Interest Amount, as applicable. (ii) "Valuation Date" means (a) each Friday of the relevant calendar month (or if such day is not a Local Business Day then the immediately preceding Local Business Day) and (b) each other such Local Business Day designated as a Valuation Date by notice given by one party to the other no later than the Notification Time on the Local Business Day before the Valuation Date so designated. (iii) "Valuation Time" means the close of business in the city of the Valuation Agent on the Local Business Day preceding the Valuation Date or date of calculation, as applicable; provided that the calculations of Value and Exposure will be made as of approximately the same time on the same date. (iv) "Notification Time" means by 10:00 a.m., New York time, on a Local Business Day. (d) Conditions Precedent and Secured Party's Rights and Remedies. For purposes of Paragraph 8(a), each Termination Event will constitute a Specified Condition with respect to a Pledgor, if the Pledgor fails to pay when due any amount payable by it in connection with an Early Termination Date designated in connection with that Termination Event. For all other purposes of this Annex, each Termination Event specified below with respect to a party will be a "Specified Condition" for that party. Credit Event Upon Merger [X] Additional Termination Events (if any) [X] (e) Substitution. (i) "Substitution Date" has the meaning specified in Paragraph 4(d)(ii). (ii) "Consent." The Pledgor may substitute Eligible Credit Support pursuant to Paragraph 4(d) without consent from the Secured Party. (f) Dispute Resolution. (i) "Resolution Time" means 1 :00 p.m., New York Time, on the first Local Business Day following the date on which notice of the dispute is given under Paragraph 5. (ii) "Value." For the purpose of Paragraph 5(i)(C) and 5(ii), the Value of Eligible Collateral other than Cash will be calculated as follows: F-14 the sum of (i) (x) the arithmetic mean of the closing bid prices quoted on the relevant date of three nationally recognized principal market makers (which may include an affiliate of Party A) for such security chosen by the Valuation Agent multiplied by the applicable Valuation Percentage or (y) if no quotations are available from such principal market makers on the relevant date, the arithmetic mean of the closing bid prices on the next preceding date multiplied by the applicable Valuation Percentage plus (ii) the accrued interest on such security (except to the extent Transferred to a party pursuant to any applicable provision of this Agreement or included in the applicable price referred to in (i) of this clause) as of such date. (iii) "Alternative." Not Applicable. (g) Holding and Using Posted Collateral. (i) "Eligibility to Hold Posted Collateral; Custodians." As long as the conditions set forth in clause (1) below are satisfied, Party A shall be entitled to hold Posted Collateral pursuant to Paragraph 6(b). As long as the condition set forth in clause (2) below are satisfied, any Custodian for Party A shall be entitled to hold Posted Collateral pursuant to Paragraph 6(b). (1) Party A: (a) The long-term unsecured debt ratings of ML & Co. are at least BBB+ (in the case ofS&P) and Baal (in the case of Moody's) and (b) Party A is not a Defaulting Party. (2) The Custodian: The Custodian is either: (a) a wholly owned, direct or indirect', Affiliate of ML & Co. or (b) a bank or trust company located in the State of New York having total assets of at least US $10,000,000,000. Initially, the Custodian for Party A is: Merrill Lynch, Pierce Fenner & Smith, Inc. As long as the conditions set forth in clause (1) below are satisfied, Party B shall be entitled to hold Posted Collateral pursuant to paragraph 6(b). As long as the conditions set forth in clause (2) below are satisfied, any Custodian for Party B shall be entitled to hold Posted Collateral pursuant to Paragraph 6(b). (1) Party B: (a) The long-term unsecured debt ratings of Party B are at least BBB+ (in the case of S&P) and Baal (in the case of Moody's) and (b) Party B is not a Defaulting Party. (2) The Custodian: The Custodian is a bank or trust company located in the State of New York having total assets of at least US $10,000,000,000. Initially, the Custodian for Party B is: ............................................................ (ii) "Use of Posted Collateral" The provisions of Paragraph 6( c) will apply to Party A and Party B. F-15 (h) Distributions and Interest Amount. (i) "Interest Rate." The Interest Rate will be the rate per annum equal to the overnight Federal Funds Rate for each day cash is held by the Secured Party as reported in Federal Reserve Publication H.15-5l9. (ii) "Transfer of Interest Amount." The Transfer of the Interest Amount will be made on the first Local Business Day of each calendar month and on any Local Business Day that Posted Collateral in the form of Cash is Transferred to the Pledgor pursuant to Paragraph 3(b). (iii) "Alternative to Interest Amount." Not Applicable. (i) Additional Representation(s). Not Applicable. (j) "Other Eligible Support and Other Posted Support." (i) "Value" with respect to Other Eligible Support and Other Posted Support means: Not Applicable. (ii) "Transfer" with respect to Other Eligible Support and Other Posted Support means: Not Applicable. (k) Demands and Notices. All demands, specifications and notices made by a party to this Annex will be made pursuant to the Notices Section of this Agreement. (1) Addresses for Transfers. Not Applicable. (m) Other Provisions. (i) Posted Collateral. The definition of Posted Collateral shall also include any and all accounts in which Cash Collateral is held. (ii) Additions to Paragraph 3. The following subparagraph (c) IS hereby added to Paragraph 3 of this Annex: (c) No offset. On any Valuation Date, if either (i) each party is required to make a Transfer under Paragraph 3(a) or (ii) each party is required to make a Transfer under Paragraph 3(b), then the amounts of those obligations will not offset each other. F-16 ~ Merrill Lyncb I Draft: 5/3/2004-(v.3) Administrative No. May _, 2004 Insured Transaction City of Augusta, Georgia [Address] Ladies and Gentlemen: The purpose of this letter agreement is to confIrm tlte terms and conditions of tlte transaction (tlte "Transaction") entered into between Merrill Lynch Capital Services, Inc. ("MLCS") and City of Augusta, Georgia ("Counterparty") on tlte Trade Date specifIed below. Upon tlte issuance of tlte Refunding Bonds (as defmed in tlte Master Agreement) this Transaction will constitute an "Insured Transaction" as defmed in Paragraph 4 below, and it will tltereafter be subject to tlte special provisions of Paragraph 4 below which apply to Insured Transactions. The defInitions and provisions contained in tlte 1992 ISDA U.S. Municipal Counterparty DefInitions (as published by tlte International Swaps and Derivatives Association, Inc. tlte "DefInitions") are incorporated into this ConfIrmation. In tlte event of any inconsistency between tltose defInitions and provisions and this ConfIrmation, this ConfIrmation will govern. 1. This ConfIrmation shall supplement, form a part of, and be subject to, tlte Master Agreement, dated as of May _, 2004 (tlte "Agreement"), between MLCS and Counterparty. All provisions contained in such Master Agreement will govern this ConfIrmation except as expressly modifIed below. 2. Swaption Terms. The particular Swap Transaction to which this ConfIrmation relates is a Swaption, tlte terms of which are as follows: A. Swaption Terms: Trade Date: May _, 2004 Option Style: Seller: European Counterparty Premium: MLCS $ Buyer: Premium Payment Date: May _, 2004 B. Procedure for Exercise: Exercise Terms: Latest Exercise Time: October 2, 2006, subject to adjustment in accordance witlt tlte ModifIed Following Business Day Convention. 9:00 a.m. New York City time on tlte NotifIcation Date 3:00 p.m. New York City time on tlte NotifIcation Date Exercise Date: Earliest Exercise Time: NotifIcation Date: The notice of exercise must be received by Counterparty at least 60 days prior to tlte Exercise Date. C. Settlement Terms: Settlement: Physical 3. Swap Transaction Terms. The terms oftlte underlying Swap Transaction to which this ConfIrmation relates are as follows: Notional Amount: $63,320,000, reducing on the dates and in tlte amounts as set forth in Annex I hereto. Effective Date: The Exercise Date Termination Date: October 1,2028 FIXED AMOUNTS: Fixed Rate Payer: Fixed Rate Payer Payment Dates: Fixed Rate Payer Period End Dates: Counterparty Semi-annually on each April 1 and October 1, commencing on tlte fIrst April 1 or October 1 following tlte Effective Date and terminating on the Termination Date, subject to adjustment in accordance with the ModifIed Following Business Day Convention. Semi-annually on each April 1 and October 1, commencing on tlte fIrst April 1 or October 1 following the Effective Date and terminating on the Termination Date. No Adjustment shall apply to Period End Dates. 4.56% Fixed Rate: Fixed Rate Day Count Fraction: 30/360 FLOATING AMOUNTS: Floating Rate Payer: Floating Rate Payer Payment Dates: MLCS Floating Rate Payer Period End Dates: Monthly, on tlte fIrst day of each month, commencing on the fIrst day of tlte calendar montlt immediately following tlte Effective Date and terminating on tlte Termination Date, subject to adjustment in accordance witlt tlte ModifIed Following Business Day Convention. Monthly, on tlte fIrst day of each month, commencing on the fIrst day of the calendar montlt immediately following the Effective Date and terminating on the Termination Date. No Adjustment shall apply to Period End Dates. Floating Rate: Designated Maturity: Reset Date: 67% ofUSD-LillOR-BBA One montlt The Effective Date and each Floating Rate Payer Period End Date thereafter. Floating Rate Day Count Fraction: Metltod of Averaging: Actual/360 Inapplicable 7. Compounding: Inapplicable 4. Insurer Provisions. The following provisions shall apply to this Transaction (the "Insured Transaction") upon tlte issuance of a Financial Guaranty Insurance Policy issued by Financial Security Assurance Inc. (including any successor thereto, "Insurer"), as insurer witlt respect to Counterparty, as principal, and for tlte benefIt of MLCS, as benefIciary (tlte "Swap Insurance Policy"), relating to this Transaction. To tlte extent of any inconsistency between tlte provisions set fortlt in this Paragraph 4 and the provisions of tlte Agreement, the provisions set fortlt in this Paragraph 4 shall govern. (i) Designation of Early Termination Date. Notwithstanding anything to tlte contrary in Section 6 of tlte Agreement, if any: (A) Event of Default in respect of this Insured Transaction under Section 5(a) of the Agreement occurs with respect to Counterparty as tlte Defaulting Party, except an Event of Default under any of Sections 5(a)(iii), 5(a)(vii) or 5(a)(viii) of the Agreement (but only witlt respect to the foregoing specifIed Events of Default if Counterparty is the Defaulting Party as a result of tlte occurrence of such events witlt respect to Counterparty's Credit Support Provider); or (B) Termination Event in respect of this Insured Transaction under Section 5(b) of tlte Agreement occurs witlt respect to either MLCS or Counterparty as tlte Affected Party, except a Termination Event under Section 5(b)(i)(2) or an Additional Termination Event under Paragraph 4(xvi)(A) or (B) below; tlten, in either case, neitlter MLCS nor Counterparty shall designate an Early Termination Date in respect of this Insured Transaction unless: (Y) Insurer has failed to pay any payment when due to MLCS under tlte terms and conditions of tlte Swap Insurance Policy and such failure is continuing; or (Z) Insurer has otlterwise consented in writing to such designation. Notwitltstanding anything in tlte Agreement, if any Event of Default under tlte Agreement occurs with respect to Counterparty as tlte Defaulting Party, tlten Insurer (so long as it has not failed to pay any payment due to MLCS under tlte terms and conditions oftlte Swap Insurance Policy) shall have tlte right (but not tlte obligation) upon notice to MLCS to designate an Early Termination Date witlt respect to Counterparty witlt tlte same effect as if such designation were made by MLCS. For purposes of tlte foregoing sentence, an Event of Default witlt respect to Counterparty shall be considered to be continuing, notwitltstanding any payment by Insurer under tlte Swap Insurance Policy. The parties acknowledge tltat, except as tlte Swap Insurance Policy may be otlterwise endorsed, unless Insurer designates an Early Termination Date (as opposed to merely consenting to such designation by one of tlte parties) payments due from Counterparty because an Early Termination Date has been designated will not be insured. (ii) Termination Rights of Counter party. Notwitltstanding anything to tlte contrary in Section 6(a) or Section 6(b) of tlte Agreement, Counterparty shall not designate an Early Termination Date pursuant to tlte Agreement witltout tlte prior written consent of tlte Insurer if as a result of such early termination Counterparty would be required to make a payment to MLCS pursuant to Section 6 of tlte Agreement. Notlting in tlte preceding provision (i) or this provision (ii) is intended or shall be interpreted to restrict Counterparty's rights to designate an Early Termination Date where as a result of such early termination Counterparty would not be required to make a payment to MLCS pursuant to Section 6 of tlte Agreement. (iii) No suspension ofpayments. Notwitltstanding Section 2(a)(iii) oftlte Agreement, MLCS shall not suspend any payments due under this Insured Transaction under Section 2(a)(iii) unless Insurer is in default in respect of any payment obligations under tlte Swap Insurance Policy. ':\ (iv) Representations and agreements. Each party agrees that each of its representations and agreements in tlte Agreement is expressly made to and for tlte benefIt ofInsurer. (v) Third-party beneficiary. Counterparty and MLCS hereby each acknowledge and agree tltat Insurer shall be an express tltird-party benefIciary (and not merely an incidental third-party benefIciary) of tlte Agreement and the obligations of such party under this Insured Transaction, and as such, entitled to enforce tlte Agreement and the terms of this Insured Transaction against such party on its own behalf and otherwise shall be afforded all remedies available hereunder or otherwise afforded by law against the parties hereto to redress any damage or loss incurred by Insurer including, but not limited to, fees (including professional fees), costs and expenses incurred by Insurer which are related to, or resulting from any breach by such party of its obligations hereunder. (vi) Policy coverage. Counterparty and MLCS hereby each acknowledge and agree tltat Insurer's obligation with respect to this Insured Transaction shall be limited to tlte terms of tlte Swap Insurance Policy. Notwithstanding any other provision of tlte Agreement, Insurer shall not have any obligation to pay interest on any amount payable by Counterparty under tlte Agreement. (vii) Subrogation. Counterparty and MLCS hereby acknowledge that to tlte extent of payments made by Insurer to MLCS under the Swap Insurance Policy, Insurer shall be fully subrogated to the rights of MLCS against Counterparty under this Insured Transaction to which such payments relate, including, but not limited to, tlte right to receive payment from Counterparty and tlte enforcement of any remedies. MLCS hereby agrees to assign to Insurer its right to receive payment from Counterparty under this Insured Transaction to the extent of any payment hereunder by Insurer to MLCS. Counterparty hereby acknowledges and consents to the assignment by MLCS to Insurer of any rights and remedies that MLCS has under this Insured Transaction or any other document executed in connection herewith. (viii) Isolation of Insured Transaction in designating an Early Termination Date. Notwithstanding Section 6 of tlte Agreement, any designation of an Early Termination Date in respect of this Insured Transaction by Insurer or by MLCS witlt the consent of Insurer pursuant to paragraph (i) above shall apply only to this Insured Transaction and not to any otlter Transaction under the Agreement, unless MLCS shall designate an Early Termination Date in respect of such other Transaction. Notlting contained in this paragraph (viii) shall affect tlte rights ofMLCS under tlte Agreement to designate an Early Termination Date in respect of any Transaction otlter tltan this Insured Transaction, which designation shall not apply to this Insured Transaction unless expressly provided in such designation and unless Insurer shall have designated, or consented to tlte designation by MLCS of, an Early Termination Date in respect of this Insured Transaction in accordance witlt paragraph (i) above. (ix) No netting. Notwithstanding Section 2(c) oftlte Agreement, in no event shall eitlter Counterparty or MLCS be entitled to net its payment obligations in respect of this Insured Transaction against tlte payment obligations of tlte other party in respect of other Transactions under tlte Agreement if such Transactions are not Insured Transactions, nor may eitlter Counterparty or MLCS net tlte payment obligations of tlte otlter party under Transactions tltat are not Insured Transactions against tlte payment obligations of such party under this Insured Transaction, it being tlte intention of tlte parties tltat their payment obligations under this Insured Transaction be treated separate and apart from all otlter Transactions. Section 6( e) of the Agreement shall apply to this Insured Transaction with tlte same effect as if this Insured Transaction constituted a single master agreement. Notwitltstanding Section 6( e) of the Agreement, tlte amount payable under Section 6( e) of tlte Agreement upon the termination of this Insured Transaction shall be determined witltout regard to any Transactions otlter tltan this Insured Transaction, it being the intention of tlte parties that their payment obligations under this Insured Transaction be treated separate and apart from all other Transactions unless otlterwise specifIed in such otlter Transaction and agreed to in writing by Insurer. 4 (x) No set-off or counterclaim. In no event shall either Counterparty or MLCS be entitled to: (A) set-off its payment obligations in respect of tltis Insured Transaction against the payment obligations of the otlter party (whetlter by counterclaim or otherwise) if such obligations are not Insured Transactions, or (B) net tlte payment obligations of the otlter party tltat are not witlt respect to this Insured Transaction against tlte payment obligations of such party under this Insured Transaction, it being tlte intention of tlte parties tltat tlteir payment obligations under this Insured Transaction be treated separate and apart from all otlter obligations. Notwithstanding Section 6( e) of tlte Agreement, the amount payable under Section 6( e) of tlte Agreement upon tlte termination of this Insured Transaction shall be determined witltout regard to any obligation otlter tltan tltose under this Insured Transaction, it being tlte intention of the parties that tlteir payment obligations under this Insured Transaction be treated separate and apart from all other obligations unless otherwise specifIed in such other obligation and agreed to in writing by Insurer. (xi) Expenses. Counterparty agrees to reimburse Insurer immediately and unconditionally upon demand for all reasonable expenses incurred by Insurer in connection witlt tlte issuance of tlte Swap Insurance Policy and tlte enforcement by Insurer of Counterparty's obligations under the Agreement and any otlter documents executed in connection witlt tlte execution and delivery of tlte Agreement, including, but not limited to, fees (including professional fees), costs and expenses incurred by Insurer which are related to, or resulting from any breach by Counterparty of its obligations hereunder or under tlte Covered Indenture. (xii) Transfers/Assignments. Notwitltstanding Section 7 of tlte Agreement, no Insured Transaction may be assigned or transferred by eitlter MLCS or Counterparty witltout tlte prior written consent of Insurer. However, MLCS may make such an assignment to an affIliate of ML & Co. witltout Insurer's prior written consent, if MLCS (or tlte entity currently guaranteeing tlte obligations of MLCS, if any) provides (i) a guaranty of the obligations of tlte assignee under such Insured Transaction, as assigned, substantially identical to Exhibit A to tlte Agreement and (ii) an opinion of counsel to tlte Guarantor (or tlte entity currently guaranteeing tlte obligations of MLCS, if any) relating tltereto, each in form and substance acceptable to Insurer, which acceptance shall not be unreasonably witltheld. (xiii) Am endmentslWaivers. Section 8(b) oftlte Agreement is hereby amended by (A) adding tlte words "or any Credit Support Document" after tlte word "Agreement" and (B) adding tlte phrase "and Insurer" following tlte word "parties". (xiv) Notices. A copy of each notice or otlter communication between tlte parties witlt respect to tlte Agreement must be forwarded to Insurer. (xv) Reference Market-makers. The deftnition of "Reference Market-makers" set forth in Section 12 of tlte Agreement shall be amended in its entirety to read as follows: "Reference Market-makers" means four (4) leading dealers in tlte relevant swap market selected by tlte party determining a Market Quotation in good faitlt (a) from among dealers of tlte highest credit standing which satisfy all tlte criteria tltat such party applies generally at tlte time in deciding whetlter to offer or to make an extension of credit and (b) to tlte extent practicable, from among dealers having an offIce in tlte greater New York metropolitan area. The rating classifIcation assigned to any outstanding long term senior debt securities issued by such dealers shall be at least (1) "AI" or higher as determined by Moody's, (2) "A+" or higher as determined by S&P or (3) an equivalent rating determined by a nationally-recognized rating service acceptable to botlt parties, provided, however, tltat in any case, if Market Quotations cannot be determined by four (4) such dealers, tlte party making tlte determination of tlte Market Quotation may designate, witlt tlte consent oftlte otlter party and Insurer, one (1) or more leading dealers whose long-term senior debt 'i bears a lower investment grade rating. (xvi) Additional Termination Event will apply. The following shall constitute Additional Termination Events:- (A) An Adverse Surety Event occurs; pmYi.d.ed, howpvpr, that, in any such case, (X) an Event of Default has occurred or is continuing with respect to Counterparty as tlte Defaulting Party (and not if such event has occurred solely in respect of Insurer as Credit Support Provider); or (Y) a Termination Event has occurred or is continuing witlt respect to Counterparty as the Affected Party (and not if such event has occurred solely in respect of Insurer as Credit Support Provider). For the purpose of the foregoing Termination Event, tlte Affected Party shall be Counterparty. (B) MLCS has notifIed Counterparty that an Adverse Surety Event has occurred and Counterparty has not, within 30 days of receiving such notice provided a Credit Support Provider whose obligations are pursuant to a Credit Support Document reasonably acceptable to MLCS. The occurrence of an "Adverse Surety Event" for purposes of the Agreement shall mean that any of tlte following events has occurred in respect of Insurer: (1) Insurer fails to meet its payment obligations when due to MLCS under tlte terms and conditions of the Swap Insurance Policy and such failure is continuing; or (2) (i) the expiration or termination of the Swap Insurance Policy, or the ceasing of the Swap Insurance Policy to be in full force and effect, prior to tlte Termination Date of this Insured Transaction and to which the Swap Insurance Policy applies witltout tlte written consent of the parties to tlte Agreement or (ii) Insurer repudiates, or challenges tlte validity of, tlte Swap Insurance Policy (or such action is taken by any person or entity appointed or empowered to act witlt respect to such matter); or (3) due to the adoption of, or any change in, any applicable treaty, law, rule or regulation after tlte Trade Date of this Insured Transaction or due to tlte promulgation of, or any change in, tlte interpretation by any court, tribunal or regulatory authority witlt competent jurisdiction of any applicable treaty, law, rule or regulation after tlte Trade Date of this Insured Transaction, it becomes unlawful for Insurer to perform any absolute or contingent obligation which tlte Insurer has under tlte Swap Insurance Policy relating to tlte Transaction; or (4) Insurer consolidates, reorganizes, or merges with or into, or transfers all or substantially all its assets to, anotlter entity and, at the time of any such event tlte resulting, surviving, or transferee entity fails to assume by operation of law or otlterwise all of tlte obligations of Insurer under the Swap Insurance Policy; or (S) Insurer: (i) is dissolved (otlter than pursuant to a consolidation, amalgamation or merger); (ii) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as tltey become due; (iii) makes a general assignment, arrangement or composition witlt or for the benefIt of its creditors; (iv) institutes or has instituted against it a proceeding seeking a judgment of insolvency, reorganization, receivership, conservatorship, liquidation, or moratorium or any other similar laws affecting creditors' rights generally as such laws would apply in the event of the insolvency, reorganization, receivership, conservatorship, liquidation, or moratorium witlt respect to Insurer, or a petition is presented for tlte winding-up or liquidation of it, and, in tlte case of any such proceeding or petition instituted or presented against it, such fi proceeding or petition (A) results in a judgment of insolvency or tlte entry of an order for relief or the making of an order for tlte winding-up or liquidation of it or (B) is not dismissed, discharged, stayed or restrained in each case within thirty (30) days of the institution or presentation tltereof; (v) passes a resolution for its winding-up, offIcial management or liquidation (other tltan pursuant to a consolidation, amalgamation or merger); (vi) seeks or becomes subject to tlte appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or otlter similar offIcial for it or for all or substantially all of its assets; (vii) has a secured party take possession of all or substantially all of its assets or a distress, execution, attachment, sequestration or other legal process levied, enforced or sued, on or against all or substantially all of its assets and such secured party maintains possession, or such process is not dismissed, discharged, stayed or restrained, in each case witltin thirty (30) days tltereafter; or (viii) takes any formal or offIcial action in furtherance of, or suggesting its consent to, approval of, or acquiescence in, any of tlte foregoing acts; or (6) The claims paying ability rating of Insurer falls below "A-" by S&P or tlte fmancial strengtlt rating rating of Insurer falls below "A3" by Moody's, and any such rating is witltdrawn or suspended and not reinstated witltin 30 days. (xvii) Reimbursement by Counter party. Counterparty hereby covenants and agrees tltat it shall reimburse Insurer amounts paid under the Swap Insurance Policy and all costs of collection tltereof and enforcement of this Agreement at tlte Insurer Payment Rate (as hereinafter defmed). "Insurer Payment Rate" shall mean tlte lesser of (a) tlte greater of (i) tlte per annum rate of interest, publicly announced from time to time by JPMorgan Chase Bank, N.A. ("Chase") at its principal offIce in tlte City of New York, as its prime or base lending rate ("Prime Rate") (any change in such Prime Rate to be effective on the date such change is announced by Chase) plus 3 percent and (ii) tlte tlten highest rate of interest on the Bonds and (b) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Insurer Payment Rate shall be computed on the basis of the actual number of days elapsed over a year of 360 days. In tlte event tltat Chase ceases to announce its Prime Rate publicly, Prime Rate shall be tlte publicly announced prime or base lending rate of such national bank as Insurer shall specify. (xviii) Agreement to Deliver Documents. For purposes of Section 4(a) of the Agreement, for each Insured Transaction, each party agrees to deliver the following documents in addition to tlte other documents specifIed in tlte Agreement, as applicable: Counterparty Swap Insurance Policy On tlte Exercise Date hereof. No Counterparty Opinion of legal counsel to Insurer On tlte Exercise Date hereof. regarding tlte Swap Insurance Policy in form satisfactory to MLCS No (xix) "Credit Support Document' shall mean, witlt respect to Counterparty, tlte Covered Indenture, but solely with respect to such provisions of tlte Covered Indenture as constitute Incorporated Provisions hereunder and the Swap Insurance Policy. (xx) "Credit Support Provider" means, in relation to Counterparty, tlte Insurer. (xxi) The "Credit Event Upon Merger" provisions of Section 5(b)(ii) will apply to MLCS and Counterparty; provided tltat such provisions shall not apply to Insurer as Counterparty's Credit Support Provider. 7 5. Optional Termination. Counterparty may, on any Business Day (tlte "Optional Termination Date"), terminate and cash settle this Transaction by providing at least fIve (5) Business Days' prior written notice to MLCS; provided however, tltat Counterparty ftrst or concurrently provides evidence satisfactory to MLCS tltat Counterparty has sufficient funds available to pay any amount payable by it to MLCS in connection with such optional termination. The amount due with respect to any such termination shall be determined pursuant to Section 6 of the Master Agreement as if (a) tlte Optional Termination Date is tlte Early Termination Date, (b) Counterparty is the sole Affected Party (for all purposes otlter titan tlte election to terminate), (c) this Transaction is tlte sole Affected Transaction, and (d) Market Quotation and Second Method are selected for purposes of Payments on Early Termination. Notwithstanding anything herein to tlte contrary, tlte parties will be obligated to pay any accrued amounts tltat would otherwise be due on the Optional Termination Date. 6. Credit Support Annex. Notwithstanding anything to tlte contrary contained in tlte Agreement, tlte provisions of the Credit Support Annex shall not apply to Counterparty, and Counterparty shall not be required to post collateral pursuant to tlte Credit Support Annex, in connection with, or as a result of, this Insured Transaction; provided, however, tltat notlting contained in this ConfIrmation shall preclude tlte application of the Credit Support Annex to any otlter Transaction covered by the Agreement. 7. Payment Instructions. To MLCS: Deutsche Bank Trust Company Americas New York, NY ABA: 021-001-033 AlC # 00-811-874 Ref: Merrill Lynch Capital Services, Inc. Attn: Muni Swaps Account for Payments to Counterparty for Premium witlt respect to tlte initial Transaction: [TBA} Account for Payments to Counterparty for all otlter payments: [TBA} 8. Hedging Transaction for Refunded Bonds. This Confirmation is being entered into for tlte purpose of hedging interest rate exposure of Counterparty with respect to tlte issuance of variable rate refunding bonds (tlte "Refunding Bonds") on or about October 2, 2006. The amortization schedule attached to this Conftrmation as Annex 1 is expected to coincide with the expected maturities of the Refunding Bonds. R Please conftrm tltat the foregoing correctly sets forth tlte terms of our agreement by executing the copy of this ConfIrmation enclosed for tltat purpose and returning it to us or by sending to us a letter substantially similar to this letter, which letter sets forth tlte material terms of tlte Transaction to which this ConfIrmation relates and indicates agreement to those terms. Yours sincerely, MERRILL LYNCH CAPITAL SERVICES, INe. By: Name: Title: Conftrmed as oftlte date fIrst above written: CITY OF AUGUSTA, GEORGIA By: Name: Title: <) Reduction Date 1 % 1/2006 1 % 1/2007 1 % 1/2008 10/01/2009 10/01/2010 10/01/2011 10/01/2012 1 % 1/20 13 10/01/2014 10/01/2015 10/01/2016 10/01/2017 10/01/2018 10/01/2019 1 % 1/2020 1 % 1/2021 10/01/2022 1 % 1/2023 1 % 1/2024 1 % 1/2025 10/01/2026 10/01/2027 10/01/2028 ANNEX I to ConfIrmation, dated May _, 2004, between Merrill Lynch Capital Services, Inc. and City of Augusta, Georgia Notional Reduction Amount $ 1,675,000 1,760,000 1,845,000 1,930,000 2,025,000 2,125,000 2,225,000 2,335,000 2,445,000 2,565,000 2,690,000 2,820,000 2,955,000 3,100,000 3,250,000 3,405,000 3,570,000 3,740,000 3,920,000 4,110,000 4,310,000 4, 'iJO,OOO $63,320,000 10 Outstanding Notional Amount $63,320,000 61,645,000 59,885,000 58,040,000 56,110,000 54,085,000 51,960,000 49,735,000 47,400,000 44,955,000 42,390,000 39,700,000 36,880,000 33,925,000 30,825,000 27,575,000 24,170,000 20,600,000 16,860,000 12,940,000 8,830,000 4,520,000 -0- Exhibit C Broker-Dealer A2reement AO 1118243.2 AO 1120515.1 BROKER-DEALER AGREEMENT between as Auction Agent and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, as Broker-Dealer and AUGUST A, GEORGIA Dated as of ,2006 Relating to $ Augusta, Georgia Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006 SECTION 1. SECTION 2. SECTION 3. SECTION 4. SECTION 5. AO 1120515.1 TABLE OF CONTENTS DEFINITIONS AND RULES OF CONSTRUCTION. ......................................................................1 THE AUCTION. .................................................................................................................................3 THE AUCTION AGENT....................................................................................................................6 MISCELLANEOUS. ..........................................................................................................................7 GOVERNING LAW. ..........................................................................................................................9 -1- BROKER-DEALER AGREEMENT This BROKER-DEALER AGREEMENT dated as of April 1, 2003 (the "Agreement") by and among , as auction agent (together with its successors and assigns, the "Auction Agent"), MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED (together with its successor and assigns, hereinafter referred to as "Merrill Lynch"), and AUGUSTA, GEORGIA, as the Issuer of the Series ARS (the "Issuer"). WHEREAS, the Issuer has issued $ aggregate principal amount of its Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006 (the "Series ARS") pursuant to a Parity Bond Resolution of the Issuer adopted , 2004 (the "Bond Resolution"). WHEREAS, the Bond Resolution provides that the interest rate with respect to the Series ARS for each ARS Interest Period after the initial ARS Interest Period shall, except under certain conditions, equal the rate per annum that the Auction Agent advises results from implementation of the Auction Procedures (the "Auction Rate"). WHEREAS, Merrill Lynch is an Authorized Broker-Dealer listed in the Auction Agent Agreement, and the Auction Agent is entering into this Agreement pursuant to Section 2.8(a) of the Auction Agent Agreement. WHEREAS, the Auction Procedures require the participation of one or more Broker-Dealers. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Auction Agent, as agent of the Issuer, and Merrill Lynch agree as follows: Section 1. Definitions and Rules of Construction. 1.1 Terms Defined bv Reference. Capitalized terms used herein and not othetwise defined shall have the meanings given such terms in the Bond Resolution or the Auction Agent Agreement. 1.2 Terms Defined Herein. As used herein and in each Appendix hereto, the following terms shall have the following meanings, unless the context othetwise requires: "ARS Beneficial Owner" shall mean the Person who is the beneficial owner of Series ARS according to the records of (i) a Securities Depository while the Series ARS are in book-entry form or (ii) the Bond Registrar while the Series ARS are not in book-entry form. "Auction" shall have the meaning specified in Section 2.1 hereof. "Auction Agent Agreement" shall mean the Auction Agent Agreement, dated as of , 2006, by and among the Issuer, the Bond Registrar and the Auction Agent relating to the Series ARS as amended. AO 1120515.1 "Auction Procedures" shall mean the provisions that are set forth in Section 2 of Exhibit B of the Auction Agent Agreement. "Authorized Officer" shall mean each Vice President, Assistant Vice President and Assistant Treasurer of the Auction Agent assigned to the Dealing and Trading Group of its Corporate Trust Department and every other officer or employee of the Auction Agent designated as an "Authorized Officer" for purposes of this Agreement in a written communication to Merrill Lynch. "Notice of Failure to Deliver" shall mean a notice substantially in the form of Exhibit C hereto. "Notice of Transfer" shall mean a notice substantially in the form of Exhibit B hereto. "Order Form" shall mean the form to be submitted by any Broker-Dealer on any Auction Date in a form acceptable to the Auction Agent. "Participant" shall mean a member of, or participant Ill, the Securities Depository. "Settlement Procedures" shall mean the Settlement Procedures attached hereto as Exhibit A. I "Merrill Lynch Officer" shall mean each officer or employee of Merrill Lynch designated as a "Merrill Lynch Officer" for purposes of this Agreement in a written communication to the Auction Agent. 1.3 Rules of Construction. Unless the context or use indicates another or different meaning or intent, the following rules shall apply to the construction of this Agreement: (a) Words importing the singular number shall include the plural number and VIce versa. (b) The captions and headings herein are solely for convenience of reference and shall not constitute a part of this Agreement nor shall they affect its meaning, construction or effect. (c) The words "hereof," "herein," "hereto," and other words of similar import refer to this Agreement as a whole. (d) All references herein to a particular time of day shall be to New York City time. -2- AO 1120515.1 Section 2. The Auction. 2.1 Auction Procedures and Settlement Procedures. (a) On each Auction Date, the provisions of the Auction Procedures will be followed by the Auction Agent for the purpose of determining the Applicable ARS Rate for the next ARS Interest Period. Each periodic operation of such procedures is hereinafter referred to as an "Auction." (b) All of the provIsIOns contained in the Auction Procedures and the Settlement Procedures are incorporated herein by reference in their entirety and shall be deemed to be a part of this Agreement to the same extent as if such provisions were fully set forth herein. (c) Merrill Lynch agrees to act as, and assumes the obligations of and limitations and restrictions placed upon, a Broker-Dealer under the Bond Resolution and as otherwise set forth in this Agreement. (d) Merrill Lynch and other Broker-Dealers may participate in Auctions for their own accounts. The Auction Agent shall have no duty or liability with respect to monitoring the provisions of this subsection (d). 2.2 Preparation for Each Auction. (a) Not later than 9:30 a.m., New York City time, on each Auction Date for the Series ARS, the Auction Agent shall advise Merrill Lynch by telephone of the All-Hold Rate, ARS Maximum Rate and the "AA" Financial Commercial Paper Rate or the Index, as the case may be, used in determining such rates. (b) In the event the Auction Date for any Auction shall be changed after the Auction Agent has given notice of such Auction Date pursuant to clause (vii) of paragraph (a) of the Settlement Procedures, the Auction Agent, by such means as the Auction Agent deems practicable, shall give notice of such change to Merrill Lynch not later than the earlier of 9:15 a.m., New York City time, on the new Auction Date and 9:15 a.m., New York City time, on the old Auction Date. Thereafter, Merrill Lynch shall use its best efforts to promptly notify its customers who are Existing Holders of such change in the Auction Date. (c) The Auction Agent may, but shall have no duty to, request, from time to time, Merrill Lynch to provide it with a list of the respective customers Merrill Lynch believes are Existing Holders and the aggregate amount held by Merrill Lynch. Merrill Lynch shall comply with any such request, and the Auction Agent shall keep confidential any such information, including information received as to the identity of Bidders in any Auction, and shall not disclose any such information so provided to any person other than the Issuer, the Bond Registrar and Merrill Lynch, provided that the Auction Agent reserves the right to disclose any such information if (i) it is ordered to do so by a court or regulatory judicial or quasi-judicial agency or authority, or (ii) it is advised by its counsel that its failure to do so would be unlawful or would impose upon it any actual or potential loss, claim, damage, liability, or expense for which it has not received indemnity satisfactory to it. -3- AD 1120515.1 2.3 Auction Schedule. The Auction Agent shall conduct Auctions in accordance with the schedule set forth below. Such schedule may be changed by the Auction Agent with the consent of the Issuer and the Market Agent, which consent shall not be unreasonably withheld or delayed. The Auction Agent shall give notice pursuant to Section 4.3 hereof of any such change to each Broker-Dealer. Such notice shall be given prior to the first Auction Date on which any such change shall be effective. By 9:00 a.m. By 9:30 a.m. 9:30 a.m.-I:OO p.m. Not earlier than 1 :00 p.m. By approximately 3:00 p.m. The Market Agent makes the Index available to the Auction Agent. The Auction Agent advises the Bond Registrar and the Broker-Dealers ofthe ARS Maximum Rate, the All-Hold Rate and the "AA" Financial Commercial Paper Rate or the Index, as the case may be, used in determining such ARS Maximum Rate and All-Hold Rate, as set forth in ,Section 2.2(a) hereof. The Auction Agent assembles information communicated to it by Broker-Dealers as provided in Section 2(b )(i) of the Auction Procedures. The Submission Deadline is 1 :00 p.m., New York City time. The Auction Agent makes the determination pursuant to Section 2(c)(i) of the Auction Procedures. The Auction Agent advises the Bond Registrar and the Broker- Dealers of the Auction Rate for the next ARS Interest Period and the results of the Auction as provided in Section 2{ c )(ii) of the Auction Procedures. Submitted Bids and Submitted Sell Orders are accepted and rejected in whole or in part and principal amount of Series ARS is allocated as provided in Section 2{ d) of the Auction Procedures. The Auction Agent gives notice of Auction results as set forth in paragraph (a) ofthe Settlement Procedures. (a) Merrill Lynch shall submit Orders to the Auction Agent pursuant to an Order Form. Merrill Lynch shall submit separate Orders to the Auction Agent for each Potential Holder or Existing Holder on whose behalf Merrill Lynch is submitting an Order and shall not net or aggregate the Orders of different Potential Holders or Existing Holders on whose behalf Merrill Lynch is submitting Orders. (b) Merrill Lynch shall deliver to the Auction Agent (i) a Notice of Transfer in writing of any transfer of Series ARS made through Merrill Lynch by an Existing Holder to another person other than pursuant to an Auction, and (ii) a Notice of a Failure to Deliver in writing of the failure of any Series ARS to be transferred to or by any person that purchased or sold Series ARS through Merrill Lynch pursuant to an Auction. The Auction Agent is not required to accept any notice delivered pursuant to the terms of the foregoing sentence with respect to an Auction unless it is received by the Auction Agent by 3:00 p.m., New York City time, on the Business Day next preceding the applicable Auction Date. AO 1120515.1 -4- (c) Merrill Lynch and other Broker-Dealers may submit Orders in Auctions for their own accounts; provided, however, that any Broker-Dealer that is an affiliate of the Authority or of the Institution must submit at the next Auction therefor a Sell Order covering all Series ARS held for its own account. The Auction Agent shall have no duty or liability with respect to monitoring or enforcing the requirements of this subsection ( c). (d) Merrill Lynch agrees to handle its customers' Orders in accordance with its duties under applicable securities laws and rules. 2.4 Notices. (a) On each Auction Date, the Auction Agent shall notify Merrill Lynch by telephone of the results of the Auction as set forth in paragraph (a) of the Settlement Procedures. The Auction Agent shall notify Merrill Lynch in writing of the disposition of all Orders submitted by Merrill Lynch in the Auction held on such Auction Date by 10:30 a.m., New York City time, on the Business Day next succeeding such Auction Date if previously requested by Merrill Lynch. (b) Merrill Lynch shall notify each Existing Holder or Potential Holder on whose behalf Merrill Lynch has submitted an Order as set forth in paragraph (b) of the Settlement Procedures and take such other action as is required by Merrill Lynch pursuant to the Settlement Procedures. (c) The Auction Agent shall deliver to Merrill Lynch all notices and certificates which the Auction Agent is required to deliver to Merrill Lynch pursuant to Section 2 of the Auction Agent Agreement after receipt of such notices and certificates at the times and in the manner set forth in the Auction Agent Agreement. 2.5 Broker-Dealer Fee to Be Paid to Merrill Lynch. On the first ARS Interest Payment Date and each ARS Interest Payment Date immediately following an Auction Date, the Auction Agent shall pay to Merrill Lvnch from moneys received from the Institution pursuant to Section 4.5(b) of the Auction Agent Agreement an amount equal to the product of (i) _ of 1 % per annum, multiplied by (ii) (A) in the case of the first ARS Interest Payment Date, the aggregate principal amount of Series ARS placed by Merrill Lynch on the Closing Date or (B) in the case of each ARS Interest Payment Date immediately following an Auction Date, for the period just elapsed, the sum of (x) the aggregate principal amount of the Series ARS placed by Merrill Lynch in such Auction that were (1) the subject of Submitted Bids of Existing Holders submitted by Merrill Lynch and continued to be held as a result of such submission and (2) the subject of Submitted Bids of Potential Holders submitted by Merrill Lynch and purchased as a result of such submission and (y) the aggregate principal amount of the Series ARS subject to valid Hold Orders (determined in accordance with the Bond Resolution) that were acquired by such Existing Holders through Merrill Lynch, or (C) if an Auction was not held on such Auction Date, the aggregate principal amount of the Series ARS that were acquired by Existing Holders through Merrill Lynch, multiplied by (iii) the number of days in such ARS Interest Period divided by (iv) 360. For purposes of subc1auses (ii)(B)(x)(1) and (ii)(B)(y) of the foregoing sentence, if any Existing Holder who acquired Series ARS through Merrill Lynch transfers those Series ARS to another person other than pursuant to an Auction, then the Broker-Dealer for the -5- AO 1120515.1 Series ARS so transferred shall continue to be Merrill Lynch; provided, however, that if the transfer was effected by, or if the transferee is a Broker-Dealer other than Merrill Lynch, then such Broker-Dealer shall be the Broker-Dealer for such Series ARS. 2.6 Settlement. (a) If any Existing Holder on whose behalf Merrill Lynch has submitted a Bid or Sell Order for Series ARS that was accepted in whole or in part fails to instruct its Participant to deliver the Series ARS subject to such Bid or Sell Order against payment therefor, Merrill Lynch shall instruct such Participant to deliver such Series ARS against payment therefor and Merrill Lynch may deliver to the Potential Holder on whose behalf Merrill Lynch submitted a Bid that was accepted in whole or in part, a principal amount of the Series ARS that is less than the principal amount of the Series ARS specified in such Bid to be purchased by such Potential Holder. Notwithstanding the foregoing terms of this Section, any delivery or nondelivery of Series ARS which represents any departure from the results of an Auction, as determined by the Auction Agent, shall be of no effect unless and until the Auction Agent shall have been notified of such delivery or non-delivery in accordance with the terms of Section 2.3(b) hereof. The Auction Agent shall have no duty or liability with respect to enforcement of this subsection (a). (b) None of the Auction Agent, the Bond Registrar, the Broker-Dealers or the Authority shall have any responsibility or liability with respect to the failure of an Existing Holder, a Potential Holder or its respective Participant to deliver Series ARS or to pay for Series ARS sold or purchased pursuant to the Auction Procedures or otherwise. Section 3. The Auction Agent. 3.1 Duties and Responsibilities. (a) The Auction Agent is acting solely as a non-fiduciary agent for the Issuer hereunder and owes no duties to any other person by reason of this Agreement. (b) The Auction Agent undertakes hereunder to perform such duties and only such duties as are specifically set forth in the Auction Agent Agreement against the Auction Agent and no implied covenants or obligations shall be read into this Agreement by means of the provisions of the Bond Resolution or otherwise against the Auction Agent. (c) In the absence of willful misconduct or gross negligence on its part, the Auction Agent shall not be liable for any action taken, suffered or omitted or for any error of judgment made by it in the performance of its duties under this Agreement. The Auction Agent shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been grossly negligent in ascertaining (or failing to ascertain) the pertinent facts. 3.2 Rights of the Auction Agent. (a) The Auction Agent may conclusively rely and shall be fully protected in acting or refraining from acting upon any communication authorized by this Agreement and upon any written instruction, notice, request, direction, consent, report, certificate or other instrument, paper, document or communication reasonably believed by it to be genuine. The -6- AO 1120515.1 Auction Agent shall not be liable for acting or refraining from acting upon any telephone communication authorized by this Agreement which the Auction Agent believes in good faith to have been given by the Issuer or by a Broker-Dealer. The Auction Agent may record telephone communications with the Broker-Dealers. (b) The Auction Agent may consult with counsel of its own choice, and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Auction Agent shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder. (d) The Auction Agent may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys and shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care hereunder. (e) The Auction Agent shall not be responsible or liable for any failure or delay in the performance of its obligations under this agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; acts of terrorism; epidemics; riots; interruptions, loss or malfunctions or utilities; communications or computer (hardware or software) services; accidents; labor disputes; acts of civil or military authority or governmental actions; it being understood that the Auction Agent shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances. In no event shall the Auction Agent be responsible or liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit), even if the Auction Agent has been advised of the likelihood of such loss or damage and regardless of the form of action. (f) The Auction Agent makes no representations as to and shall have no liability with respect to the correctness of the recitals in, or the validity, accuracy or adequacy,of this Agreement, any offering material used in connection with the offer and sale of the Series ARS or any other agreement or instrument executed in connection with the transactions contemplated herein. Section 4. Miscellaneous. 4.1 Termination. The Broker-Dealer may be removed as provided by Section 3A07(b) of the Bond Resolution. In addition, the Broker-Dealer may be removed by the Auction Agent at the written direction of the Institution, or may resign at any time, upon five Business Day's notice to the Auction Agent and the Insurer. The Auction Agent upon the written direction of the Institution with the consent of the Authority, which shall not be unreasonably withheld, may terminate this Broker-Dealer Agreement at any time on five Business Day's notice to the other parties hereto; provided further that if the Broker-Dealer in this Broker-Dealer Agreement is Merrill Lynch, the Auction Agent may not terminate this Broker-Dealer -7- AO 1120515.1 Agreement without the prior written consent of the Authority and the Institution, which consent shall not be unreasonably withheld or delayed; and provided further that this Broker-Dealer Agreement shall terminate upon the resignation or removal of the Broker-Dealer pursuant to this Section 4.1 or termination of the Auction Agreement. 4.2 Participant. Merrill Lynch is, and shall remain for the term of this Agreement, a member of, or Participant in, the Securities Depository (or an affiliate of such a member or Participant). 4.3 Communications. Except for (i) communications authorized to be made by telephone pursuant to this Agreement or the Auction Procedures and (ii) communications in connection with the Auctions (other than those expressly required to be in writing), all notices, requests and other communications to any party hereunder shall be in writing (including facsimile or similar writing) and shall be given to such party, addressed to it, at its address or facsimile number set forth below: If to Merrill Lynch, addressed: Attention: Telephone: Facsimile: If to the Auction Agent, addressed: Attention: Dealing and Trading Group - Auction Desk Telephone: Facsimile: If to the Issuer, addressed: Attention: Telephone: Facsimile: Corporate Trust Department If to the Authority, addressed: Telephone: Facsimile: -8- AO 1120515.1 If to the Institution, addressed: Attention: Telephone: Facsimile: Chief Financial Officer or such other address or facsimile number as such party may hereafter specify for such purpose by notice to the other party. Each such notice, request or communication shall be effective when delivered at the address specified herein. Communications shall be given on behalf of Merrill Lynch by a Merrill Lynch Officer and on behalf of the Auction Agent by an Authorized Officer. Merrill Lynch may record telephone communications with the Auction Agent. 4.4 Benefits. Nothing in this Agreement, express or implied, shall give to any person, other than the Auction Agent, Merrill Lynch and their respective successors and assigns, any benefit of any legal or equitable right, remedy or claim under this Agreement. 4.5 Amendment; Waiver. (a) This Agreement shall not be deemed or construed to be modified, amended, rescinded, canceled or waived, in whole or in part, except by a written instrument signed by a duly authorized representative of each of the parties hereto. (b) Failure of either party to this Agreement to exercise any right or remedy hereunder in the event of a breach of this Agreement by the other party shall not constitute a waiver of any such right or remedy with respect to any subsequent breach. 4.6 Successors and Assigns. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and permitted assigns of each of Merrill Lynch and the Auction Agent. 4.7 Severability. If any clause, provision or section of this Agreement shall be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any remaining clause, provision or sections hereof. 4.8 Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 5. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said State, without giving effect to principles of conflicts of law thereof. The parties agree that all actions and proceedings arising out of this Agreement or any of the transactions contemplated hereby shall -9- AO 1120515.1 be brought in the County of New York and, in connection with any such action or proceeding submit to the jurisdiction of, and venue in, such County. To the extent permitted by law, each of the parties hereto also irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of this Agreement or the transactions contemplated hereby. -10- AO 1120515.1 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered under seal by their proper and duly authorized officer as of the date first above written. , as Auction Agent By: Title: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, as Broker-Dealer By: Title: AO 1120515.1 Exhibit A Broker-Dealer Agreement SETTLEMENT PROCEDURES Capitalized terms used herein shall have the meanings given such terms in the Bond Resolution. (a) Not later than 3:00 p.m., New York City time, on each Auction Date, the Auction Agent shall notify by telephone (or by other means acceptable to the parties) each Broker-Dealer that participated in the Auction held on such Auction Date and submitted an Order on behalf of an Existing Holder or Potential Holder of: (i) the Auction Rate fixed for the next ARS Interest Period; (ii) whether there were Sufficient Clearing Bids in such Auction; (iii) if such Broker-Dealer (a "Seller's Broker-Dealer") submitted a Bid or a Sell Order on behalf of an Existing Holder, whether such Bid or Sell Order was accepted or rejected, in whole or in part, and the principal amount of Series ARS, if any, to be sold by such Existing Holder; (iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted a Bid on behalf of a Potential Holder, whether such Bid was accepted or rejected, in whole or in part, and the principal amount of Series ARS, if any, to be purchased by such Potential Holder; (v) if the aggregate amount of Series ARS to be sold by all Existing Holders on whose behalf such Broker-Dealer submitted a Bid or a Sell Order exceeds the aggregate principal amount of Series ARS to be purchased by all Potential Holders on whose behalf such Broker-Dealer submitted a Bid, the name or names of one or more Buyer's Broker-Dealers (and the name of the Participant, if any, of each such Buyer's Broker-Dealer) acting for one or more purchasers of such excess principal amount of Series ARS and the principal amount of Series ARS to be purchased from one or more Existing Holders on whose behalf such Broker-Dealer acted by one or more Potential Holders on whose behalf each of such Buyer's Broker-Dealers acted; (vi) if the principal amount of Series ARS to be purchased by all Potential Holders on whose behalf such Broker-Dealer submitted a Bid exceeds the amount of Series ARS to be sold by all Existing Holders on whose behalf such Broker-Dealer submitted a Bid or a Sell Order, the name or names of one or more Seller's Broker-Dealers (and the name of the Participant, if any, of each such Seller's Broker-Dealer) acting for one or more sellers of such excess principal amount of Series ARS and the A-I AO 1120515.1 principal amount of Series ARS to be sold to one or more Potential Holders on whose behalf such Broker-Dealer acted by one or more Existing Holders on whose behalf each of such Seller's Broker-Dealers acted; and (vii) the Auction Date for the next succeeding Auction. (b) On each Auction Date, each Broker-Dealer that submitted an Order on behalf of any Existing Holder or Potential Holder shall: (i) advise each Existing Holder and Potential Holder on whose behalf such Broker-Dealer submitted a Bid or Sell Order in the Auction on such Auction Date whether such Bid or Sell Order was accepted or rejected, in whole or in part; (ii) in the case of a Broker-Dealer that is a Buyer's Broker-Dealer, advise each Potential Holder on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, to instruct such Potential Holder's Participant to pay to such Broker-Dealer (or its Participant) through the Securities Depository the amount necessary to purchase the principal amount of Series ARS to be purchased pursuant to such Bid against receipt of such Series ARS; (iii) in the case of a Broker-Dealer that is a Seller's Broker-Dealer, instruct each Existing Holder on whose behalf such Broker-Dealer submitted a Sell Order that was accepted, in whole or in part, or a Bid that was accepted, in whole or in part, to instruct such Existing Holder's Participant to deliver to such Broker-Dealer (or its Participant) through the Securities Depository the principal amount of Series ARS to be sold pursuant to such Order against payment therefor; (iv) advise each Existing Holder on whose behalf such Broker-Dealer submitted an Order and each Potential Holder on whose behalf such Broker-Dealer submitted a Bid of the Auction Rate for the next ARS Interest Period; (v) advise each Existing Holder on whose behalf such Broker-Dealer submitted an Order ofthe next Auction Date; and (vi) advise each Potential Holder on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, of the next Auction Date. (c) On the basis of the information provided to it pursuant to paragraph(a) above, each Broker-Dealer that submitted a Bid or Sell Order in an Auction is required to allocate any funds received by it in connection with such Auction pursuant to paragraph (b )(ii) above, and any Series ARS received by it in connection with such Auction pursuant to paragraph (b )(iii) above among the Potential Holders, if any, on whose behalf such Broker-Dealer submitted Bids, the Existing Holders, if any on whose behalf such Broker-Dealer A-2 AO 1120515.1 submitted Bids or Sell Orders in such Auction, and any Broker-Dealers identified to it by the Auction Agent following such Auction pursuant to paragraph (a) (v) or (a)(vi) above. (d) On each Auction Date: (i) each Potential Holder and Existing Holder with an Order in the Auction on such Auction Date shall instruct its Participant as provided in (b )(ii) or (b )(iii) above, as the case may be; (ii) each Seller's Broker-Dealer that is not a Participant of the Securities Depository shall instruct its Participant to (A) pay through the Securities Depository to the Participant of the Existing Holder delivering Series ARS to such Broker-Dealer following such Auction pursuant to (b)(iii) above the amount necessary to purchase such Series ARS against receipt of such Series ARS, and (B) deliver such Series ARS through the Securities Depository to a Buyer's Broker-Dealer (or its Participant) identified to such Seller's Broker-Dealer pursuant to (a)(v) above against payment therefor; and (iii) each Buyer's Broker-Dealer that is not an Participant in the Securities Depository shall instruct its Participant to (A) pay through the Securities Depository to Seller's Broker-Dealer (or its Participant) identified following such Auction pursuant to (a)(vi) above the amount necessary to purchase the Series ARS to be purchased pursuant to (b )(ii) above against receipt of such Series ARS, and (B) deliver such Series ARS through the Securities Depository to the Participant of the purchaser thereof against payment therefor. (e) On the Business Day following each Auction Date: (i) each Participant for a Bidder in the Auction on such Auction Date referred to in (d) (i) above shall instruct the Securities Depository to execute the transactions described under (b )(ii) or (b )(iii) above for such Auction, and the Securities Depository shall execute such transactions; (ii) each Seller's Broker-Dealer or its Participant shall instruct the Securities Depository to execute the transactions described in (d)(ii) above for such Auction, and the Securities Depository shall execute such transactions; and (iii) each Buyer's Broker-Dealer or its Participant shall instruct the Securities Depository to execute the transactions described in (d)(iii) above for such Auction, and the Securities Depository shall execute such transactions. (f) If an Existing Holder selling Series ARS in an Auction fails to deliver such Series ARS (by authorized book-entry), a Broker-Dealer may deliver to the Potential Holder on behalf of which it submitted a Bid that was accepted a principal amount of Series ARS that is less than the principal amount of Series ARS that otherwise was to be purchased by such Potential Holder. In such event, the principal amount of Series ARS to be so delivered shall be determined solely by such Broker-Dealer. Delivery of such lesser principal amount of Series ARS shall constitute good delivery. Notwithstanding the foregoing terms of this paragraph (f), A-3 AO 1120515.1 any delivery or nondelivery of Series ARS which shall represent any departure from the results of an Auction, as determined by the Auction Agent, shall be of no effect unless and until the Auction Agent shall have been notified of such delivery or nondelivery in accordance with the provisions of the Auction Agent Agreement and the Broker-Dealer Agreements. A-4 AO 1120515.1 Exhibit B Broker-Dealer Agreement NOTICE OF TRANSFER (To be used only for transfers made other than pursuant to an Auction) Augusta, Georgia Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006 Weare (check one) the Existing Holder named below; or the Broker-Dealer for such Existing Holder; or the Participant for such Existing Holder. We hereby notify you that such Existing Holder has transferred $ (must be in units of $25,000 if Series ARS are in a seven-day Auction Period or $50,000 if Series ARS are in a 35-day Auction Period) of Series ARS to (Name of Existing Holder) (Name of Broker-Dealer) (Name of Participant) By: Name: Title: B-1 AO 1120515.1 Weare ( check one) a Broker-Dealer for (the "Purchaser"), which purchased $ (must be in units of $25,000 if Series ARS are in a seven-day Auction Period or $50,000 if Series ARS are in a 35-day Auction Period) of the Series ARS in the Auction held on from the sale of such Series ARS. a Broker-Dealer for (the "Seller"), which sold $ (must be in units of $25,000 if Series ARS are in a seven-day Auction Period or $50,000 if Series ARS are in a 35-day Auction Period) of the Series ARS in the Auction held on We hereby notify you that ( check one) the Seller failed to deliver such Series ARS to the Purchaser. the Purchaser failed to make payment to the Seller upon delivery of such Series ARS. AO 1120515.1 Exhibit C Broker-Dealer Agreement NOTICE OF FAILURE TO DELIVER (To be used only for failure to deliver Series ARS sold pursuant to an Auction) Augusta, Georgia Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006 (Name of Broker-Dealer) By: Name: Title: C-l Exhibit D Auction A!!ent A!!reement AO 1118243.2 AO 1120593.1 AUCTION AGENT AGREEMENT Between AUGUSTA, GEORGIA and as Auction Agent Dated as of ,2006 Relating to AUGUST A, GEORGIA WATER AND SEWERAGE REVENUE REFUNDING BONDS, Auction Rate Series 2006 Table of Contents Section 1. Definitions and Rules of Construction............................................................................1 1.1. Terms Defined by Reference. ..................................................................................1 1.2. Terms Defined Herein..............................................................................................l 1.3. Rules of Construction. .............................................................................................2 Section 2. The Auction. ...................................................................................................................3 2.1. Auction Procedures and Settlement Procedures. .....................................................3 2.2. Preparation of Each Auction. ....... ................ ................... ............................ ....... ......3 2.3. All-Hold Rate and ARS Maximum Rate. ................................................................5 2.4. Auction Schedule. .................................................................................................... 6 2.5. Changes in Applicable Percentage and Other Rates................................................7 2.6. Notices to Existing Holders. ........ .................. ..................... ..................... ...... .......... 7 2.7. ARS Payment Default. .............................................................................................7 2.8. Broker-Dealers. ........................................................................................................ 8 2.9. Access to and Maintenance of Auction Records. ....................................................8 Section 3. Issuer's Disclaimer.......................................................................................................... 9 Section 4. The Auction Agent.......................................................................................................... 9 4.1. Duties and Responsibilities. ......................... ............................................ ................9 4.2. Rights of the Auction Agent. ................. ............ ................. ......................... ............9 4.3. Auction Agent's Disclaimer. .... ....... ..... ............................ ............. ................ ..... ...1 0 4.4. Compensation, Remedies and Indemnification. ....................................................10 4.5. Compensation of the Broker-Dealers. ..... .................. .......... ............. .............. ........10 4.6. Resignation and Removal. .......... ................................................... .............. ........ ..11 Section 5. Miscellaneous. ........................................... ................................................................. ..11 5.1. Term of Agreement. ...............................................................................................11 5.2. Communications. ........ ......................................................................................... ..12 5.3. Amendment; Waiver............................................................................................ ..12 5.4. Successor and Assigns. ..................:...................................................................... .13 5.5. Severability. .......................................................................................................... .13 5.6. Execution in Counterparts........................... ..................... ........... ..................... ......13 5.7. Governing Law. .................................................................................................. ...13 5.8. Issuer. .................................................................................................................... .13 5.9. Third Party Beneficiary....................................................................................... ...13 5.10. Effective Date. ........................................... .......................................................... ..14 -1- AO 1120593.1 AUCTION AGENT AGREEMENT This AUCTION AGENT AGREEMENT, dated as of "Agreement"), between AUGUST A, GEORGIA, and agent (together with its successors and assigns, the "Auction Agent"). , 2006 (the as auction WHEREAS, the Issuer proposes to issue and deliver $ aggregate principal amount of Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006 (the "Series ARS") pursuant to a Parity Bond Resolution adopted May _, 2004, as supplemented (the "Bond Resolution"). NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the adequacy and sufficiency of which are hereby acknowledged, and intending to be legally bound, the Issuer and the Auction Agent agree as follows: Section 1. Definitions and Rules of Construction. 1.1. Terms Defined by Reference. Capitalized terms used herein and not otherwise defined shall have the meanings given such terms in the Bond Registrar. 1.2. Terms Defined Herein. As used herein and in each Exhibit hereto, the following terms shall have the following meanings, unless the context otherwise requires: "ARS Beneficial Owner" shall mean the Person who is the beneficial owner of the Series ARS according to the records of (i) a Securities Depository while the Series ARS are in book-entry form or (ii) the Bond Registrar while the Series ARS are not in book-entry form. "Auction" shall have the meaning specified in Section 2.1 hereof. "Auction Agent Fee" shall have the meaning specified in Section 4.4(a) hereof. "Auction and Settlement Procedures" shall mean those procedures set forth in Exhibit B hereto. "Auction Procedures" shall mean the provisions that are set forth in Section 2 of the Auction and Settlement Procedures. "Authorized Broker-Dealer" shall mean each Person listed in Exhibit F hereto. "Authorized Officer" shall mean each Vice President, Assistant Vice President and Assistant Treasurer of the Auction Agent assigned to the Dealing and Trading Group of its Corporate Trust Department and every other officer or employee of the Auction Agent designated as an "Authorized Officer" for purposes hereof in a communication to the Issuer. AD 1120593.1 "Authorized Issuer Representative" shall mean each person designated in writing by the Mayor of the Issuer as an "Authorized Issuer Representative" for purposes hereof in a communication to the Auction Agent. "Broker-Dealer Agreement" shall mean each agreement between the Auction Agent and a Broker-Dealer relating to the Series ARS substantially in the form attached hereto as Exhibit A. "Broker-Dealer Fee" shall have the meaning specified in Section 4.5(a) hereof. "Existing Holder Registry" shall mean the register maintained by the Auction Agent pursuant to Section 2.2(a)(i) hereof. "Notice of ARS Payment Default" shall mean a notice substantially in the form of Exhibit E hereto. "Notice of Failure to Deliver" shall mean a notice substantially in the form of Exhibit C to the Broker-Dealer Agreement. "Notice of Failure to Receive Certificate" shall mean a notice substantially in the form of Exhibit C hereto. "Notice of Failure to Receive Opinion" shall mean a notice substantially in the form of Exhibit D hereto. "Notice of Transfer" shall mean a notice substantially in the form of Exhibit B to the Broker-Dealer Agreement. "Participant" shall mean a member of, or participant in, a Securities Depository. "Regular Record Date" shall mean the second Business Day next preceding each ARS Interest Payment Date. "Settlement Procedures" shall mean the procedures that are set forth in Section 3 of the Auction and Settlement Procedures. 1.3. Rules of Construction. Unless the context or use indicates another or different meaning or intent, the following rules shall apply to the construction of this Agreement: (a) Words importing the singular number shall include the plural number and VIce versa. (b) The captions and headings herein are solely for convenience of reference and shall not constitute a part of this Agreement nor shall they affect its meaning, construction or effect. (c) The words "hereof," "herein," "hereto," and other words of similar import refer to this Agreement as a whole. -2- AO 1120593.1 (d) All references herein to a particular time of day shall be to New York City time. Section 2. The Auction. 2.1. Auction Procedures and Settlement Procedures. (a) The Bond Resolution provides that the Applicable ARS Rate for each ARS Interest Period after the first ARS Interest Period, except as provided in Article 3A thereof, shall equal the rate per annum that the Auction Agent advises results from implementation of the Auction and Settlement Procedures set forth herein. The Issuer hereby appoints as Auction Agent for purposes of the Auction and Settlement Procedures and to perform such other obligations and duties as are herein set forth. hereby accepts such appointment and agrees that it shall follow the procedures set forth in this Section and the Auction and Settlement Procedures for the purpose of, among other things, determining the Applicable ARS Rate for each ARS Interest Period after the first ARS Interest Period. Each periodic operation of such procedures is hereinafter referred to as an "Auction." (b) All of the provisions contained in the Auction and Settlement Procedures set forth in Exhibit B hereto are incorporated herein by reference in their entirety and shall be deemed to be a part hereof to the same extent as if such provisions were fully set forth herein. In the case of any conflict between the terms of any document incorporated herein by reference and the terms hereof, the Auction Agent is, subject to its obligations as set forth in Section 4.1, authorized to perform its duties according to the terms hereof, and shall have no liability for so doing. 2.2. Preparation of Each Auction. (a) (i) The Auction Agent shall maintain a current registry of Bondholders based upon information provided to it by the Broker-Dealer (such registry being herein called the "Existing Holder Registry"). Such Persons shall constitute the Existing Holders for purposes of each Auction. The Auction Agent shall indicate in the Existing Holder Registry the identity of the respective Broker-Dealer of each Existing Holder, if any, on whose behalf such Broker-Dealer submitted the most recent Order in any Auction which resulted in such Existing Holder continuing to hold or purchasing the Series ARS. Merrill Lynch, Pierce, Fenner & Smith, Incorporated, initially as the Broker-Dealer, shall provide or cause to be provided to the Auction Agent on the Closing Date a list of the initial Existing Holders of Series ARS. The Auction Agent may conclusively rely upon, as evidence of the identities of the Existing Holders, (A) such list, (B) the results of each Auction and (C) notices from any Broker-Dealer of such Existing Holder, Participant of such Existing Holder or the Existing Holder as described in the first sentence of Section 2.2(a)(iii) hereof. (ii) The Issuer shall notify the Auction Agent when any notice of redemption or mandatory tender of Series ARS is sent to the Securities Depository with respect to Series ARS not later than 11 :00 a.m., New York City time, on the date such notice is sent. In the event the Auction Agent receives from the Issuer written notice of any partial redemption or -3- AO 1120593.1 any mandatory tender of any Series ARS, the Auction Agent shall, at least three Business Days prior to such redemption date or Tender Date, or as promptly as practicable after its receipt of such notice, request the Securities Depository to notify the Auction Agent of the identities of the Participants (and the respective principal amounts) from the accounts of which Series ARS have been called for redemption or mandatory tender and the person or department at such Participant to contact regarding such redemption or mandatory tender and, at least two Business Days prior to such redemption date or Tender Date with respect to Series ARS being partially redeemed or tendered, or as promptly as practicable after its receipt of such notice, the Auction Agent may, but shall not be obligated to, request each Participant so identified to disclose to the Auction Agent (upon selection by such Participant of the Existing Holders whose Series ARS are to be redeemed or tendered) the aggregate principal amount of such Series ARS of each such Existing Holder, if any, which are to be redeemed or tendered; provided the Auction Agent has been furnished with the name and telephone number of a person or department at such Participant from which it is to request such information. In the absence of receiving any such information with respect to any Existing Holder from such Existing Holder's Participant or otherwise, the Auction Agent may continue to treat such Existing Holder as the ARS Beneficial Owner of the principal amount of Series ARS shown in the Existing Holder Registry. (iii) The Auction Agent shall register in the Existing Holder Registry a transfer of Series ARS only if (A) such transfer is pursuant to an Auction or (B) if such transfer is made other than pursuant to an Auction, the Auction Agent has been notified in writing by a Notice of Transfer, by the Broker-Dealer of such Existing Holder, by the Participant of such Existing Holder or by the Existing Holder of such transfer. The Auction Agent is not required to accept any notice of transfer delivered prior to an Auction unless it is received by the Auction Agent by 3:00 p.m., New York City time, on the Business Day next preceding the applicable Auction Date. The Auction Agent shall rescind a transfer made on the Existing Holder Registry if the Auction Agent has been notified in writing by a Notice of a Failure to Deliver by the Participant or the Broker-Dealer of any Person that (i) purchased any Series ARS or (ii) sold any Series ARS and the purchaser failed to make payment to such Person upon delivery to the purchaser of such Series ARS. The Auction Agent is not required to accept any notice of rescission to transfer delivered prior to an Auction unless it is received by the Auction Agent by 3:00 p.m., New York City time, on the Business Day next preceding the applicable Auction Date. (b) The Auction Agent may, but shall have no duty to, request that the Broker-Dealers, as set forth in the Broker-Dealer Agreements, provide the Auction Agent with a list of their respective customers that such Broker-Dealers believe are Existing Holders of Series ARS and the aggregate amount held by such Broker-Dealer. The Auction Agent shall keep confidential any such information and shall not disclose any such information so provided to any person other than the relevant Broker-Dealer, the Authority and the Issuer, provided that the Auction Agent reserves the right to disclose any such information if (i) it is ordered to do so by a court or regulatory judicial or quasi-judicial agency or authority, or (ii) it is advised by its counsel that its failure to do so would be unlawful or would expose it to any actual or potential loss, claim, damage liability, or expense for which it has not received indemnity satisfactory to it. (c) In the event that any day that is scheduled to be an Auction Date shall be changed after the Auction Agent shall have given the notice referred to in Section 3(a)(vii) of the -4- AO 1120593.1 Auction and Settlement Procedures, the Auction Agent, by such means as the Auction Agent deems practicable, shall give notice of such change to the Broker-Dealers not later than 9:15 a.m., New York City time, on the earlier of the new Auction Date or the old Auction Date. 2.3. All-Hold Rate and ARS Maximum Rate. (a) On the date hereof the Applicable Percentage is 150%. If there is any change in the ratings then assigned to the Series ARS by Moody's, S&P or Fitch (or substitute or successor rating agencies) which results in a change to the Applicable Percentage after the date of this Agreement or if the Applicable Percentage is adjusted by the Market Agent in accordance with the Bond Resolution, the Issuer shall notify the Auction Agent in writing of such change in the Applicable Percentage prior to 9:00 a.m., New York City time, on the Auction Date next succeeding such change. In determining the ARS Maximum Rate on any Auction Date as set forth in Section 2.3(b )(i) hereof, the Auction Agent shall be entitled to conclusively rely on the Applicable Percentage of which it has most recently received notice from the Issuer or, in the absence of such notice, the Applicable Percentage set forth in the first sentence of this subsection (a). (b) (i) On each Auction Date, the Auction Agent shall determine the "AA" Financial Commercial Paper Rate, the All-Hold Rate and the ARS Maximum Rate. Pursuant to the Market Agent Agreement, not later than 9:00 a.m., New York City time, on each Auction Date, the Market Agent shall make available to the Auction Agent the Index for use by the Auction Agent in connection with such determination. Not later than 9:30 a.m., New York City time, on each Auction Date, the Auction Agent shall notify the Issuer and the Broker-Dealers of the All-Hold Rate and the ARS Maximum Rate so determined and the "AA" Financial Commercial Paper Rate or the Index, as the case may be, used to make such determination. (ii) If, after delivery to the Auction Agent of the notice referred to in Section of the Bond Resolution, the Auction Agent delivers to the Broker-Dealers either of the certificates referred to in Section 2.5( c) or (d) hereof, the next succeeding Auction will not be held and the Auction Agent shall notify the Issuer of the ARS Maximum Rate determined for the next succeeding ARS Interest Period on the first day of such ARS Interest Period pursuant to Section 2.3(b )(i) above. (iii) Upon the occurrence of an ARS Payment Default, Auctions will be suspended and the Applicable ARS Rate for each ARS Interest Period commencing after the occurrence of such ARS Payment Default to and including the ARS Interest Period, if any, during which, or commencing less than two Business Days after, such ARS Payment Default is cured or waived in accordance with the Bond Resolution will equal the Non-Payment Rate as determined by the Issuer in accordance with the provisions of the Bond Resolution on the first day of such ARS Interest Period as provided in the Bond Resolution; provided, however, that if an Auction occurred on the Business Day immediately preceding any such ARS Interest Period (notwithstanding that a weekend may have passed between such Auction and such ARS Interest Period), the Applicable ARS Rate for such ARS Interest Period shall be the Non-Payment Rate. The Applicable ARS Rate for each ARS Interest Period commencing at least two Business Days -5- AO 1120593.1 after any cure or waiver of an ARS Payment Default shall be determined through implementation of the Auction Procedures. (iv) If the ownership of the Series ARS is no longer maintained in book-entry form by a Securities Depository, no further Auctions will be held and the Applicable ARS Rate for each ARS Interest Period commencing after the delivery of Bond certificates pursuant to Section 306 of the Bond Resolution will equal the ARS Maximum Rate as determined by the Auction Agent on the Business Day immediately preceding the first day of such ARS Interest Period as provided in the Bond Resolution. (v) If any "AA" Financial Commercial Paper Rate is not quoted on an interest basis but is quoted on a discount basis, the Auction Agent shall convert the quoted rate to the interest equivalent thereof, as set forth in the definition of "AA" Financial Commercial Paper Rate in the Bond Resolution; or, if the rate obtained by the Auction Agent is not quoted on an interest or discount basis, the Auction Agent shall convert the quoted rate to an interest rate after consultation with the Market Agent as to the method of such conversion. (vi) If the Federal Reserve Bank of New York has not made available its 30-day commercial paper rate for purposes of determining the "AA" Financial Commercial Paper Rate, the Issuer shall request that the Institution appoint by Officer's Certificate at least three commercial paper dealers to provide commercial paper quotes for purposes of determining the "AA" Financial Commercial Paper Rate, as further provided in Section 3A02(b) of the Bond Resolution. 2.4. Auction Schedule. The Auction Agent shall conduct Auctions in accordance with the schedule set forth below. Such schedule may be. changed by the Auction Agent with the consent of the Issuer, each Broker-Dealer and the Market Agent, which consent shall not be unreasonably withheld or delayed. The Auction Agent shall give notice pursuant to Section 5.2 hereof of any such change to each Broker-Dealer. Such notice shall be given prior to the first Auction Date on which any such change shall be effective. By 9:00 a.m. By 9:30 a.m. The Market Agent makes available to the Auction Agent the Index. The Auction Agent advises the Issuer and the Broker-Dealers of the ARS Maximum Rate, the All-Hold Rate and the "AA" Financial Commercial Paper Rate or the Index, as the case may be, used in determining such ARS Maximum Rate and All-Hold Rate, as set forth in Section 2.3(b )(i) hereof. 9:30 a.m. - 1 :00 p.m. The Auction Agent assembles information communicated to it by Broker-Dealers as provided in Section 2(b )(i) of the Auction and Settlement Procedures. The Submission Deadline is 1 :00 p.m., New York City time. Not earlier than 1 :00 p.m. The Auction Agent makes the determination pursuant to Section 2( c )(i) of the Auction and Settlement Procedures. -6- AO 1120593.1 By approximately 3 :00 p.m. The Auction Agent advises the Issuer and the Broker-Dealers of the Auction Rate for the next ARS Interest Period and the results of the Auction as provided in Section 2{ c )(ii) of the Auction and Settlement Procedures. Submitted Bids and Submitted Sell Orders are accepted and rejected in whole or in part and principal amount of Series ARS is allocated as provided in Section 2{ d) of the Auction and Settlement Procedures. The Auction Agent shall follow the notification procedures set forth in Section 3(a) ofthe Auction and Settlement Procedures. 2.5. Changes in Applicable Percentage and Other Rates. Section receipt thereof. (a) The Auction Agent shall mail any notice delivered to it pursuant to of the Bond Resolution to the Existing Holders within two Business Days of its (b) The Auction Agent shall deliver any notice delivered to it pursuant to Section of the Bond Resolution to the Broker-Dealers not later than 3:00 p.m., New York City time, on the Business Day on which it receives such certificate. Any noticed received after 3:00 p.m. shall be deemed to have been delivered on the next succeeding Business Day. (c) If, after delivery to the Auction Agent of the notice referred to in subsection (a) of this Section, the Auction Agent fails to receive the certificate referred to in Section of the Bond Resolution by 11 :00 a.m., New York City time, on the Business Day immediately preceding the next succeeding Auction Date, the Auction Agent shall deliver a Notice of Failure to Receive Certificate to the Broker-Dealers not later than 3:00 p.m., New York City time, on such Business Day. (d) If, after delivery to the Auction Agent of the notice referred to in subsection (a) of this Section, the Auction Agent fails to receive the Opinion of nationally recognized bond counsel referred to in Section of the Bond Resolution by 9:30 a.m. on the next succeeding Auction Date, the Auction Agent shall deliver a Notice of Failure to Receive Opinion to the Broker-Dealers promptly by telecopy or other similar means. 2.6. Notices to Existing Holders. The Auction Agent shall be entitled to conclusively rely upon the address of each Existing Holder as provided in writing by such Existing Holder or a Broker-Dealer in connection with any notice to Existing Holders required to be given by the Auction Agent. 2.7. ARS Payment Default. (a) After delivery by the Issuer to the Auction Agent of a notice pursuant to Section 3AOl(f) of the Bond Resolution that an ARS Payment Default shall have occurred, the Auction Agent shall deliver a Notice of ARS Payment Default to the Broker-Dealers on the Business Day following its receipt of the same by telecopy or other similar means. -7- AO 1120593.1 (b) The Auction Agent shall deliver a copy of any notice received by it from the Issuer to the effect that an ARS Payment Default has been cured to the Broker-Dealers on the Business Day following its receipt of the same by telecopy or other similar means. 2.8. Broker-Dealers. (a) If the Auction Agent is provided with a copy of a Broker-Dealer Agreement, which has been manually signed, it shall enter into such Broker-Dealer Agreement with such person. (b) The Auction Agent may enter into a Broker-Dealer Agreement with any other Person who requests to be selected to act as a Broker-Dealer. The Auction Agent shall, with the written consent of the Institution and the Market Agent, enter into a Broker-Dealer Agreement with each Broker-Dealer prior to the participation of any such Broker-Dealer in any Auction; provided, however, that such Broker-Dealer Agreement may be effective with respect to an Auction only if the Auction Agent shall have received a manually signed copy of such Broker-Dealer Agreement at least seven days prior to such Auction. (c) The Auction Agent shall terminate any Broker-Dealer Agreement as set forth therein if so directed by the Institution. 2.9. Access to and Maintenance of Auction Records. The Auction Agent shall afford to the Bond Registrar and the Issuer, and their respective agents, independent public accountants and counsel, access at reasonable times during normal business hours to review and make extracts or copies (at no cost to the Auction Agent) of all books, records, documents and other information concerning the conduct and results of Auctions, provided that any such agent, accountant, or counsel shall furnish the Auction Agent with a letter from Bond Registrar or the Issuer, as the case may be, requesting that the Auction Agent afford such Person access. The Auction Agent shall not be responsible or liable for any actions of the Issuer, Authority, the Insurer or their respective agents, accountants and counsel for passing on confidential information as a result of access to such records and information. The Auction Agent shall maintain records relating to any Auction for a period of two years after such Auction, and such records shall, in reasonable detail, accurately and fairly reflect the actions taken by the Auction Agent hereunder. To the fullest extent permitted by applicable law, the Issuer agrees to keep any information regarding the customers of any Broker-Dealer received from the Auction Agent in connection with this Agreement or any Auction confidential and shall not disclose such information or permit the disclosure of such information without the prior written consent of the applicable Broker-Dealer to anyone except such agent, accountant or counsel engaged to audit or review the results of Auctions as permitted by this Section. Any such agent, accountant or counsel, before having access to such information, shall agree to keep such information confidential and not to disclose such information or permit disclosure of such information without the prior written consent of the applicable Broker-Dealer, except as may otherwise be required by law. The Auction Agent shall have no liability in connection with, or responsibility for, the actions of any party or of any employee or agent of any party with regard to the such party's treatment of information provided to it under this Section 2.9. -8- AO 1120593.1 Section 3. Reserved. Section 4. The Auction Agent. 4.1. Duties and Responsibilities. (a) The Auction Agent is acting solely as agent for the Issuer hereunder and owes no fiduciary duties to any person by reason ofthis Agreement. (b) The Auction Agent undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement by means of the provisions of the Bond Resolution or otherwise against the Auction Agent. (c) In the absence of willful misconduct or gross negligence on its part, the Auction Agent shall not be liable for any action taken, suffered or omitted or for any error of judgment made by it in the performance of its duties under this Agreement. The Auction Agent shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been grossly negligent in ascertaining the pertinent facts for making such judgment. In no event shall the Auction Agent be responsible or liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit), even if the Auction Agent has been advised of the likelihood of such loss or damage and regardless of the form of action. (d) The Auction Agent shall not be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; acts of terrorism; epidemics; riots; interruptions, loss or malfunctions or utilities; computer (hardware or software) or communications services; accidents; labor disputes; acts of civil or military authority or governmental actions; it being understood that the Auction Agent shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances. 4.2. Rights ofthe Auction Agent. (a) The Auction Agent may conclusively rely on and shall be fully protected in acting or refraining from acting upon any communication authorized hereby and upon any written instruction, notice, request, direction, consent, report, certificate, form or bond certificate or other instrument, paper or document reasonably believed by it to be genuine. The Auction Agent shall not be liable for acting upon any telephone communication authorized hereby which the Auction Agent believes in good faith to have been given by the Issuer or by a Broker-Dealer or by their designated or appointed agents or representatives. The Auction Agent may record telephone communications with the Issuer or with the Broker-Dealers or both. -9- AO 1120593.1 (b) The Auction Agent may consult with counsel of its choice, and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Auction Agent shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder. (d) The Auction Agent may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys and shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care hereunder. 4.3. Auction Agent's Disclaimer. The Auction Agent makes no representation as to the validity or adequacy of this Agreement, the Broker-Dealer Agreements or the Series ARS. The Auction Agent shall have no obligation or liability in respect of the registration or exemption therefrom of the Series 2003A Bonds under federal or state securities laws in respect of the sufficiency or the conformity of any transfer of the Series 2003A Bonds pursuant to the terms of the Auction Agent Agreement, any Broker-Dealer Agreement or any other document contemplated hereby or thereby. 4.4. Compensation, Remedies and Indemnification. (a) The Auction Agent shall be compensated on an annual basis for its acceptance and performance of its duties hereunder according to that certain Fee Letter between the Auction Agent and the Authority. (b) The Issuer shall indemnify and hold harmless the Auction Agent for and against any loss, liability or expense incurred without negligence or misconduct on the Auction Agent's part, arising out of or in connection with its agency under this Agreement and the Broker-Dealer Agreements, including the reasonable costs and expenses (including the reasonable fees and expenses of its counsel) of defending itself and its directors, officers, agents, and employees against any such claim or liability in connection with its exercise or performance of any of its duties hereunder and thereunder and of enforcing this indemnification provision; provided that the Institution shall not indemnify the Auction Agent pursuant to this subsection (b) for any fees and expenses incurred by the Auction Agent in the normal course of performing its duties hereunder and under the Broker-Dealer Agreements. 4.5. Compensation of the Broker-Dealers. (a) On the first ARS Interest Payment Date and each ARS Interest Payment Date immediately following an Auction Date, the Broker-Dealers shall be entitled to receive a fee for all services rendered by them under the Broker-Dealer Agreements with respect to the Auction held on such Auction Date in an amount equal to the product of (i) 0.25 of 1 % per annum, multiplied by (ii) (A) in the case of the first ARS Interest Payment Date, the aggregate principal amount of outstanding Series ARS on the Closing Date or (B) in the case of each ARS Interest Payment Date immediately following an Auction Date, the aggregate principal amount -10- AO 1120593.1 of outstanding Series ARS at the close of business on the Regular Record Date immediately preceding such Auction Date, multiplied by (iii) the number of days in such ARS Interest Period, divided by (iv) 360 (the "Broker-Dealer Fee"). The Broker-Dealer Fee shall be payable solely out of amounts paid by the Institution under Section 4.03(e) of the Loan Agreement for the account of the Broker-Dealers, in accordance with Section 4.5(b) hereof. (b) On the first ARS Interest Payment Date and each ARS Interest Payment Date immediately following an Auction Date, the Issuer shall pay to the Auction Agent an amount in cash equal to the Broker-Dealer Fee payable pursuant to Section 4.5(a) hereof. The Auction Agent shall pay such moneys, and pay the remainder of such moneys to the Broker-Dealers in payment of the Broker-Dealer Fee as set forth in Section 2.5(b) of each Broker-Dealer Agreement. 4.6. Resignation and Removal. The Auction Agent may resign and shall be subject to removal, in each case as provided in the Bond Resolution. Section 5. Miscellaneous. 5.1. Term of Agreement. (a) This Agreement shall terminate on the earlier of (i) the satisfaction and discharge of the Bond Resolution or this Agreement and (ii) the date on which this Agreement is terminated in accordance with this Section. The Issuer may terminate this Agreement in accordance with the Bond Resolution. The Auction Agent may terminate this Agreement upon written notice to the Issuer, the Bond Registrar, each Broker-Dealer and the Market Agent on the date specified in such notice, which date shall be no earlier than 45 days after the date of delivery of such notice. Notwithstanding the foregoing, the provisions of Section 2 hereof shall terminate upon the delivery of Bond certificates representing the Series ARS. Notwithstanding the foregoing, the Auction Agent may terminate this Agreement if, after notifying the Issuer, the Credit Facility Provider and the Market Agent that it has not received payment of any Auction Agent Fee due it in accordance with the terms hereof, the Auction Agent does not receive such payment within 45 days. Any resignation or termination of the Auction Agent, other than as described in the immediately preceding sentence, shall not become effective until a successor auction agent has been appointed and such successor auction agent has accepted such position; provided, however, that in the event that a Successor Auction Agent has not been appointed within 45 days after the date specified in its notice of resignation, then the Auction Agent may petition a court of competent jurisdiction for a replacement. (b) Except as otherwise provided in this subsection (b), the respective rights and duties of the Issuer and the Auction Agent under this Agreement shall cease upon termination of this Agreement. The Issuer's representations, warranties, covenants and obligations to the Auction Agent under Section 4.4 hereof and to the Broker-Dealer under Section 4.5 hereof shall survive the termination of this Agreement. Upon termination of this Agreement, the Auction Agent upon request shall promptly deliver to the Issuer copies of all -11- AO 1120593.1 books and records maintained by it with respect to the Series ARS in connection with its duties hereunder. 5.2. Communications. Except for (i) communications authorized to be made by telephone pursuant to this Agreement or the Auction Procedures or Settlement Procedures and (ii) communications in connection with Auctions (other than those expressly required to be in writing), all notices, requests and other communications to any party hereunder shall be in writing (including facsimile or similar writing) and shall be given to such party addressed to it at its address, or facsimile number set below: or such other address, telephone or facsimile number as such party may hereafter specify for such purpose by notice in writing to the other party. Each such notice, request or communication shall be effective when delivered at the address specified herein. Communications shall be given on behalf of the Issuer by an Authorized Issuer Representative and on behalf of the Auction Agent by an Authorized Officer. 5.3. Amendment: Waiver. (a) This Agreement shall not be deemed or construed to be modified, amended, rescinded, canceled or waived, in whole or in part, except by a written instrument -12- AO 1120593.1 signed by a duly authorized representative of each of the parties hereto and consented to in writing by the Credit Provider. (b) Failure of either party hereto to exercise any right or remedy hereunder in the event of a breach hereof by the other party shall not constitute a waiver of any such right or remedy with respect to any subsequent breach. 5.4. Successor and Assigns. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and assigns of each of the Issuer and the Auction Agent. This Agreement may not be assigned by either party hereto absent the prior written consent of the other party and the Insurer, which consents shall not be unreasonably withheld. 5.5. Severability. If any clause, provision or section hereof shall be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof. 5.6. Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 5.7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts of law thereof. The parties agree that all actions and proceedings arising out of this Agreement or any of the transactions contemplated hereby shall be brought in the County of New York and, in connection with any such action or proceeding, submit to the jurisdiction of, and venue in, such County. To the extent permitted by law, each of the parties hereto also irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of this Agreement or the transactions contemplated hereby. 5.8. Issuer. All privileges, rights and immunities given to the Issuer in the Bond Resolution are hereby extended to and applicable to the Issuer's obligations hereunder. 5.9. Benefits. This Agreement inures to the benefit of the Insurer. -13- AO 1120593.1 ARS. AD 1120593.1 5.10. Effective Date. This Agreement shall become effective on the date of initial delivery of the Series -14- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered under seal by their proper and duly authorized officers as of the date first above written. AUGUST A, GEORGIA, as Issuer By: Mayor , as Auction Agent By: Title: AO 1120593.1 Exhibit A FORM OF BROKER-DEALER AGREEMENT A-2 Auction Agent Agreement Exhibit B Auction Agent Agreement AUCTION AND SETTLEMENT PROCEDURES Section 1. Definitions. Capitalized terms used herein and not otherwise defined shall have the meanings given such terms in the Bond Resolution. "Available Series ARS" has the meaning set forth in Section 2(c)(i)(A) hereof. "Bid" has the meaning set forth in Section 2(a)(i) hereof. "Bidder" has the meaning set forth in Section 2(a)(i) hereof. "Buyer's Broker-Dealer" has the meaning set forth in Section 3(a)(iv) hereof. "Hold Order" has the meaning set forth in Section 2(a)(i) hereof. "Order" has the meaning set forth in Section 2(a)(i) hereof. "Sell Order" has the meaning set forth in Section 2(a)(i) hereof. "Seller's Broker-Dealer" has the meaning set forth in Section 3(a)(iii) hereof. "Submission Deadline" has the meaning set forth in Section 2.4 of the Auction Agreement. "Submitted Bid" has the meaning set forth in Section 2( c )(i) hereof. "Submitted Hold Order" has the meaning set forth in Section 2(c)(i) hereof. "Submitted Order" has the meaning set forth in Section 2( c )(i) hereof. "Submitted Sell Order" has the meaning set forth in Section 2(c)(i) hereof. "Sufficient Clearing Bids" has the meaning set forth in Section 2( c )(i)(B) hereof. "Winning Bid Rate" has the meaning set forth in Section 2(c)(i)(C) hereof. Section 2. Auction Procedures. So long as the ownership of the Series ARS is maintained in book-entry form by the Securities Depository, an Existing Holder may sell, transfer or otherwise dispose of Series ARS only pursuant to a Bid or Sell Order placed in an Auction or through a Broker-Dealer, provided that, in the case of all transfers other than pursuant to Auctions, such Existing Holder, its Broker-Dealer or its Participant advises the Auction Agent of such transfer. Subject to the provisions of Article 3A of the Bond Resolution, Auctions shall be conducted on each Auction Date, if there is an Auction Agent on such Auction Date, in the following manner: (a) (i) Prior to the Submission Deadline on each Auction Date: (A) each Existing Holder of Series ARS may submit to a Broker-Dealer by telephone or otherwise any information as to: B-1 AO 1120593.1 (I) the principal amount of outstanding Series ARS, if any, held by such Existing Holder which such Existing Holder desires to continue to hold without regard to the Auction Rate for the next succeeding ARS Interest Period; (II) the principal amount of outstanding Series ARS, if any, which such Existing Holder offers to sell if the Auction Rate for the next succeeding ARS Interest Period shall be less than the rate per annum specified by such Existing Holder; and/or (III) the principal amount of outstanding Series ARS, if any, held by such Existing Holder which such Existing Holder offers to sell without regard to the Auction Rate for the next succeeding ARS Interest Period; and (B) one or more Broker-Dealers may contact Potential Holders to determine the principal amount of Series ARS which each Potential Holder offers to purchase, if the Auction Rate for the next succeeding ARS Interest Period shall not be less than the rate per annum specified by such Potential Holder. The statement of an Existing Holder or a Potential Holder referred to in (A) or (B) of this paragraph (i) is hereinafter referred to as an "Order," and each Existing Holder and each Potential Holder placing an Order is hereinafter referred to as a "Bidder"; an Order described in clause (A) (I) is hereinafter referred to as a "Hold Order"; an Order described in clause (A) (II) or (B) is hereinafter referred to as a "Bid"; and an Order described in clause (A) (III) is hereinafter referred to as a "Sell Order." (ii) (A) Subject to the provisions of Section 2(b) hereof, a Bid by an Existing Holder shall constitute an irrevocable offer to sell (in each case for settlement in same day funds on the next ARS Interest Payment Date therefor at a price equal to 100% of the principal amount thereof): (I) the principal amount of outstanding Series ARS specified in such Bid if the Auction Rate determined as provided herein shall be less than the rate specified in such Bid; or (II) such principal amount or a lesser principal amount of outstanding Series ARS to be determined as set forth in Section 2(d)(i)(D), if the Auction Rate determined as provided herein shall be equal to the rate specified in such Bid; or (III) such principal amount or a lesser principal amount of outstanding Series ARS to be determined as set forth in Section 2( d)(ii)(C) if the rate specified therein shall be higher than the ARS Maximum Rate and Sufficient Clearing Bids have not been made. (B) Subj ect to the provisions of Section 2(b) hereof, a Sell Order by an Existing Holder shall constitute an irrevocable offer to sell (in each case for settlement in same day funds on the next ARS Interest Payment Date therefor at a price equal to 100% of the principal amount thereof): B-2 AO 1120593.1 (I) the principal amount of outstanding Series ARS specified in such Sell Order if Sufficient Clearing Bids exist; or (II) such principal amount or a lesser principal amount of outstanding Series ARS set forth in Section 2( d)(ii)(C), if Sufficient Clearing Bids have not been made. (C) Subject to the provisions of Section 2(b) hereof, a Bid by a Potential Holder shall constitute an irrevocable offer to purchase (in each case for settlement in same day funds on the next ARS Interest Payment Date therefor at a price equal to 100% of the principal amount thereof): (I) the principal amount of outstanding Series ARS specified in such Bid if the Auction Rate determined as provided herein shall be higher than the rate specified in such Bid; or (II) such principal amount or a lesser principal amount of outstanding Series ARS set forth in Section 2( d)(i)(E), if the Auction Rate determined as provided herein shall be equal to the rate specified in such Bid. (b) (i) Each Broker-Dealer shall submit in writing to the Auction Agent prior to the Submission Deadline on each Auction Date all Orders obtained by such Broker-Dealer and shall specify with respect to each such Order: (A) (B) of such Order; the name of the Bidder placing such Order; the aggregate principal amount of Series ARS that are the subject (C) to the extent that such Bidder is an Existing Holder: (I) the principal amount of Series ARS, if any, subject to any Hold Order placed by such Existing Holder; (II) the principal amount of Series ARS, if any, subject to any Bid placed by such Existing Holder and the rate specified in such Bid; and (III) the principal amount of Series ARS, if any, subject to any Sell Order placed by such Existing Holder; and (D) to the extent such Bidder is a Potential Holder, the rate specified in such Potential Holder's Bid. (ii) If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent shall round such rate up to the next higher one thousandth (.001) of 1 %. (iii) If an Order or Orders covering all outstanding Series ARS held by an Existing Holder is not submitted to the Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold Order to have been submitted on behalf of such Existing Holder covering the principal amount of outstanding Series ARS held by such Existing Holder and not subject to an Order submitted to the Auction Agent. B-3 AD 1120593.1 (iv) Neither the Institution, the Authority, the Issuer nor the Auction Agent shall be responsible for any failure of a Broker-Dealer to submit an Order to the Auction Agent on behalf of any Existing Holder or Potential Holder, nor shall any such party be responsible for failure by any Securities Depository to effect any transfer or to provide the Auction Agent with current information regarding registration of transfers. (v) If any Existing Holder submits through a Broker-Dealer to the Auction Agent one or more Orders covering in the aggregate more than the principal amount of outstanding Series ARS held by such Existing Holder, such Orders shall be considered valid as follows and in the following order of priority: (A) All Hold Orders shall be considered valid, but only up to and including in the aggregate the principal amount of outstanding Series ARS held by such Existing Holder, and if the aggregate principal amount of Series ARS subject to such Hold Orders exceeds the aggregate principal amount of Series ARS held by such Existing Holder, the aggregate principal amount of Series ARS subject to each such Hold Order shall be reduced so that the aggregate principal amount of Series ARS subject to such Hold Orders equals the aggregate principal amount of outstanding Series ARS held by such Existing Holder. (B) (I) any Bid shall be considered valid up to and including the excess of the principal amount of outstanding Series ARS held by such Existing Holder over the aggregate principal amount of Series ARS subject to any Hold Order referred to in subsection (v)(A) above; (II) subject to subsection (v)(B)(I) above, if more than one Bid with the same rate is submitted on behalf of such Existing Holder and the aggregate principal amount of outstanding Series ARS subject to such Bids is greater than such excess, such Bids shall be considered valid up to and including the amount of such excess; (III) subject to subsections (v)(B)(I) and (v)(B)(II) above, if more than one Bid with different rates is submitted on behalf of such Existing Holder, such Bids shall be considered valid first in the ascending order of their respective rates until the highest rate is reached at which such excess exists and then at such rate up to and including the amount of such excess; and (IV) in any such event, the amount of outstanding Series ARS, if any, subject to Bids not valid under this subsection (B) shall be treated as the subject of a Bid by a Potential Holder at the rate therein specified; and (C) All Sell Orders shall be considered valid up to and including the excess of the principal amount of outstanding Series ARS held by such Existing Holder over the aggregate principal amount of Series ARS subject to Hold Orders referred to in subsection (v)(A) and valid Bids referred to in subsection (v)(B). (vi) If more than one Bid for Series ARS is submitted on behalf of any Potential Holder, each Bid submitted shall be a separate Bid with the rate and principal amount therein specified. B-4 AO 1120593.1 (vii) Any Bid or Sell Order submitted by an Existing Holder covering an aggregate principal amount of Series ARS not equal to an Authorized Denomination shall be rejected and shall be deemed a Hold Order. Any Bid submitted by a Potential Holder covering an aggregate principal amount of Series ARS not equal to an Authorized Denomination shall be rejected. (viii) Any Bid specifying a rate higher than the ARS Maximum Rate will be treated as a Sell Order if submitted by an Existing Holder and will not be accepted if submitted by a Potential Holder. Any Bid submitted by an Existing Holder or on behalf of a Potential Holder specifying a rate lower than the All-Hold Rate shall be considered as valid and shall be selected in the ascending order of their respective rates contained in the Submitted Bids. (ix) Any Order submitted in an Auction by a Broker-Dealer to the Auction Agent prior to the Submission Deadline on any Auction Date shall be irrevocable. (c) (i) Not earlier than the Submission Deadline on each Auction Date, the Auction Agent shall assemble all valid Orders submitted or deemed submitted to it by the Broker-Dealers (each such Order as submitted or deemed submitted by a Broker-Dealer being hereinafter referred to individually as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as a "Submitted Order" and collectively as "Submitted Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders") and shall determine: (A) the excess of the total principal amount of outstanding Series ARS over the sum of the aggregate principal amount of outstanding Series ARS subject to Submitted Hold Orders (such excess being hereinafter referred to as the "Available Series ARS"), and (B) from the Submitted Orders whether: (I) the aggregate principal amount of outstanding Series ARS subject to Submitted Bids by Potential Holders specifying one or more rates equal to or lower than the ARS Maximum Rate exceeds or is equal to the sum of: (II) the aggregate principal amount of outstanding Series ARS subject to Submitted Bids by Existing Holders specifying one or more rates higher than the ARS Maximum Rate, and (III) the aggregate principal amount of outstanding Series ARS subject to Submitted Sell Orders (in the event such excess or such equality exists, other than because all of the outstanding Series ARS are subject to Submitted Hold Orders, such Submitted Bids described in subclause (I) above shall be referred to collectively as "Sufficient Clearing Bids"); and (C) if Sufficient Clearing Bids exist, the lowest rate specified in such Submitted Bids (the "Winning Bid Rate") such that if: (I) (aa) each such Submitted Bid from Existing Holders specifying such lowest rate and (bb) all other Submitted Bids from Existing B-5 AO 1120593.1 Holders specifying lower rates were rejected, thus entitling such Existing Holders to continue to hold the principal amount of Series ARS subject to such Submitted Bids, and (II) (aa) each such Submitted Bid from Potential Holders specifying such lowest rate and (bb) all other Submitted Bids from Potential Holders specifying lower rates were accepted, the result would be that such Existing Holders described in subsection (C)(I) above would continue to hold an aggregate principal amount of outstanding Series ARS which, when added to the aggregate principal amount of outstanding Series ARS to be purchased by such Potential Holders described in subsection (C) (II) above, would equal not less than the Available Series ARS. (ii) Promptly after the Auction Agent has made the determinations pursuant to Section 2(c)(i) hereof, the Auction Agent shall advise the Broker-Dealer and the Issuer of the ARS Maximum Rate and the All-Hold Rate and the components thereof on the Auction Date and, based on such determinations, the Auction Rate for the next succeeding ARS Interest Period as follows: (A) if Sufficient Clearing Bids exist, that the Auction Rate for the next succeeding ARS Interest Period shall be equal to the Winning Bid Rate so determined; (B) if Sufficient Clearing Bids do not exist (other than because all of the outstanding Series ARS are subject to Submitted Hold Orders), that the Auction Rate for the next succeeding ARS Interest Period shall be equal to the ARS Maximum Rate; or (C) if all outstanding Series ARS are subject to Submitted Hold Orders, that the Auction Rate for the next succeeding ARS Interest Period shall be equal to the All-Hold Rate. (d) Existing Holders shall continue to hold the principal amount of Series ARS that are subject to Submitted Hold Orders, and, based on the determinations made pursuant to Section 2(c)(i) hereof, Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the Auction Agent shall take such other action as set forth below: (i) if Sufficient Clearing Bids have been made, all Submitted Sell Orders shall be accepted and, subject to the provisions of Sections 2(d)(iv) and 2(d)(v), Submitted Bids shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids shall be rejected: (A) Existing Holders' Submitted Bids specifying any rate that is higher than the Winning Bid Rate shall be accepted, thus requiring each such Existing Holder to sell the aggregate principal amount of Series ARS subject to such Submitted Bids; (B) Existing Holders' Submitted Bids specifying any rate that is lower than the Winning Bid Rate shall be rejected, thus entitling each such Existing Holder to continue to hold the aggregate principal amount of Series ARS subject to such Submitted Bids; B-6 AO 1120593.1 (C) Potential Holders' Submitted Bids specifying any rate that is lower than the Winning Bid Rate shall be accepted; (D) each Existing Holder's Submitted Bid specifying a rate that is equal to the Winning Bid Rate shall be rejected, thus entitling such Existing Holder to continue to hold the aggregate principal amount of Series ARS subject to such Submitted Bid, unless the aggregate principal amount of outstanding Series ARS subject to all such Submitted Bids shall be greater than the principal amount of Series ARS (the "remaining principal amount") equal to the excess of the Available Series ARS over the aggregate principal amount of Series ARS subject to Submitted Bids described in subsections (B) and (C) of this Section 2(d)(i), in which event such Submitted Bid of such Existing Holder shall be rejected in part, and such Existing Holder shall be entitled to continue to hold the principal amount of Series ARS subject to such Submitted Bid, but only in an amount equal to the aggregate principal amount of Series ARS obtained by multiplying the remaining principal amount by a fraction, the numerator of which shall be the principal amount of outstanding Series ARS held by such Existing Holder subject to such Submitted Bid and the denominator of which shall be the sum of the principal amount of outstanding Series ARS subject to such Submitted Bids made by all such Existing Holders that specified a rate equal to the Winning Bid Rate; and (E) Each Potential Holder's Submitted Bid specifying a rate that is equal to the Winning Bid Rate shall be accepted, but only in an amount equal to the principal amount of Series ARS obtained by multiplying the excess of the aggregate principal amount of Available Series ARS over the aggregate principal amount of Series ARS subject to Submitted Bids described in subsections (B), (C) and (D) of this Section 2( d) (i) by a fraction the numerator of which shall be the aggregate principal amount of outstanding Series ARS subject to such Submitted Bid and the denominator of which shall be the sum of the principal amount of outstanding Series ARS subject to Submitted Bids made by all such Potential Holders that specified a rate equal to the Winning Bid Rate. (ii) If Sufficient Clearing Bids have not been made (other than because all of the outstanding Series ARS are subject to submitted Hold Orders), subject to the provisions of Sections 2(d)(iv) and (v), Submitted Orders shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids shall be rejected: (A) Existing Holders' Submitted Bids specifying any rate that is equal to or lower than the ARS Maximum Rate shall be rejected, thus entitling such Existing Holders to continue to hold the aggregate principal amount of Series ARS subject to such Submitted Bids; (B) Potential Holders' Submitted Bids specifying any rate that is equal to or lower than the ARS Maximum Rate shall be accepted, and specifying any rate that is higher than the ARS Maximum Rate shall be rejected; and (C) each Existing Holder's Submitted Bid specifying any rate that is higher than the ARS Maximum Rate and the Submitted Sell Order of each Existing Holder shall be accepted, thus entitling each Existing Holder that submitted any such B-7 AD 1120593.1 Submitted Bid or Submitted Sell Order to sell the Series ARS subject to such Submitted Bid or Submitted Sell Order, but in both cases only in an amount equal to the aggregate principal amount of Series ARS obtained by multiplying the aggregate principal amount of Series ARS subject to Submitted Bids described in subsection (B) of this Section 2( d)(ii) which are accepted by a fraction the numerator of which shall be the aggregate principal amount of outstanding Series ARS held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and the denominator of which shall be the aggregate principal amount of outstanding Series ARS subject to all such Submitted Bids and Submitted Sell Orders. (iii) If all outstanding Series ARS are subject to Submitted Hold Orders, all Submitted Bids shall be rejected. (iv) If, as a result of the procedures described in Section 2(d)(i) or 2( d)(ii), any Existing Holder would be entitled or required to sell, or any Potential Holder would be entitled or required to purchase, a principal amount of Series ARS that is not equal to an Authorized Denomination the Auction Agent shall, in such manner as in its sole discretion it shall determine, round up or down the principal amount of Series ARS to be purchased or sold by any Existing Holder or Potential Holder so that the principal amount of Series ARS purchased or sold by each Existing Holder or Potential Holder shall be equal to an Authorized Denomination. (v) If, as a result of the procedures described in Section 2(d)(ii), any Potential Holder would be entitled or required to purchase less than an Authorized Denomination of Series ARS, the Auction Agent shall, in such manner as in its sole discretion it shall determine, allocate Series ARS for purchase among Potential Holders so that only Series ARS in Authorized Denominations are purchased by any Potential Holder, even if such allocation results in one or more of such Potential Holders not purchasing any Series ARS. (vi) The Institution, Authority, Issuer, Broker-Dealers and Auction Agent shall have no liability in the event that there are not Sufficient Clearing Bids from time to time pursuant to the Auction Procedures. (e) Based on the result of each Auction, the Auction Agent shall determine the aggregate principal amount of Series ARS to be purchased and the aggregate principal amount of Series ARS to be sold by Potential Holders and Existing Holders on whose behalf each Broker-Dealer Submitted Bids or Sell Orders and, with respect to each Broker-Dealer, to the extent that such aggregate principal amount of Series ARS to be sold differs from such aggregate principal amount of Series ARS to be purchased, determine to which other Broker-Dealer or Broker Dealers acting for one or more purchasers such Broker-Dealer shall deliver, or from which other Broker-Dealer or Broker-Dealers acting for one or more sellers such Broker-Dealer shall receive, as the case may be, Series ARS. (f) Any calculation by the Auction Agent (or the Issuer, if applicable) of the Applicable Series ARS Rate, the "AA" Financial Commercial Paper Rate, the ARS Maximum Rate, the All-Hold Rate and the Non-Payment Rate shall, in the absence of manifest error, be binding on all ARS Beneficial Owners and all other parties. B-8 AO 1120593.1 Section 3. Settlement Procedures. (a) Not later than 3:00 p.m., New York City time, on each Auction Date, the Auction Agent shall notify by telephone (or by other means acceptable to the parties) each Broker-Dealer that participated in the Auction held on such Auction Date and submitted an Order on behalf of an Existing Holder or Potential Holder of: (i) the Auction Rate fixed for the next ARS Interest Period; (ii) whether there were Sufficient Clearing Bids in such Auction; (iii) if such Broker-Dealer (a "Seller's Broker-Dealer") submitted a Bid or a Sell Order on behalf of an Existing Holder, whether such Bid or Sell Order was accepted or rejected, in whole or in part, and the principal amount of Series ARS, if any, to be sold by such Existing Holder; (iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted a Bid on behalf of a Potential Holder, whether such Bid was accepted or rejected, in whole or in part, and the principal amount of Series ARS, if any, to be purchased by such Potential Holder; (v) if the aggregate principal amount of Series ARS to be sold by all Existing Holders on whose behalf such Broker-Dealer submitted a Bid or a Sell Order exceeds the aggregate principal amount of Series ARS to be purchased by all Potential Holders on whose behalf such Broker-Dealer submitted a Bid, the name or names of one or more Buyer's Broker-Dealers (and the name of the Participant, if any, of each such Buyer's Broker-Dealer) acting for one or more purchasers of such excess principal amount of Series ARS and the principal amount of Series ARS to be purchased from one or more Existing Holders on whose behalf such Broker-Dealer acted by one or more Potential Holders on whose behalf each of such Buyer's Broker-Dealers acted; (vi) if the principal amount of Series ARS to be purchased by all Potential Holders on whose behalf such Broker-Dealer submitted a Bid exceeds the aggregate principal amount of Series ARS to be sold by all Existing Holders on whose behalf such Broker-Dealer submitted a Bid or a Sell Order, the name or names of one or more Seller's Broker-Dealers (and the name of the Participant, if any, of each such Seller's Broker-Dealer) acting for one or more sellers of such excess principal amount of Series ARS and the principal amount of Series ARS to be sold to one or more Potential Holders on whose behalf such Broker-Dealer acted by one or more Existing Holders on whose behalf each of such Seller's Broker-Dealers acted; and (vii) the Auction Date for the next succeeding Auction. (b) On each Auction Date, each Broker-Dealer that submitted an Order on behalf of any Existing Holder or Potential Holder shall: (i) advise each Existing Holder and Potential Holder on whose behalf such Broker-Dealer submitted a Bid or Sell Order in the Auction on such Auction Date whether such Bid or Sell Order was accepted or rejected, in whole or in part; B-9 AO 1120593.1 (ii) in the case of a Broker-Dealer that is a Buyer's Broker-Dealer, advise each Potential Holder on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, to instruct such Potential Holder's Participant to pay to such Broker-Dealer (or its Participant) through the Securities Depository the amount necessary to purchase the principal amount of Series ARS to be purchased pursuant to such Bid against receipt of such Series ARS; (iii) in the case of a Broker-Dealer that is a Seller's Broker-Dealer, instruct each Existing Holder on whose behalf such Broker-Dealer submitted a Sell Order that was accepted, in whole or in part, or a Bid that was accepted, in whole or in part, to instruct such Existing Holder's Participant to deliver to such Broker-Dealer (or its Participant) through the Securities Depository the principal amount of Series ARS to be sold pursuant to such Order against payment therefor; (iv) advise each Existing Holder on whose behalf such Broker-Dealer submitted an Order and each Potential Holder on whose behalf such Broker-Dealer submitted a Bid of the Auction Rate for the next ARS Interest Period; (v) advise each Existing Holder on whose behalf such Broker-Dealer submitted an Order of the next Auction Date; and (vi) advise each Potential Holder on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, of the next Auction Date. (c) On the basis of the information provided to it pursuant to Section 3(a), each Broker-Dealer that submitted a Bid or Sell Order in an Auction is required to allocate any funds received by it in connection with such Auction pursuant to Section 3(b )(ii), and any Series ARS received by it in connection with such Auction pursuant to Section 3(b)(iii) among the Potential Holders, if any, on whose behalf such Broker-Dealer Submitted Bids, the Existing Holders, if any on whose behalf such Broker-Dealer Submitted Bids or Sell Orders in such Auction, and any Broker-Dealers identified to it by the Auction Agent following such Auction pursuant to Section 3(a)(v) or 3(a)(vi). (d) On each Auction Date: (i) each Potential Holder and Existing Holder with an Order in the Auction on such Auction Date shall instruct its Participant as provided in Section 3(b )(ii) or 3(b )(iii), as the case may be; (ii) each Seller's Broker-Dealer that is not a Participant of the Securities Depository shall instruct its Participant to (A) pay through the Securities Depository to the Participant of the Existing Holder delivering Series ARS to such Broker-Dealer following such Auction pursuant to Section 3(b )(iii) the amount necessary to purchase such Series ARS against receipt of such Series ARS, and (B) deliver such Series ARS through the Securities Depository to a Buyer's Broker-Dealer (or its Participant) identified to such Seller's Broker-Dealer pursuant to Section 3(a)(v) against payment therefor; and B-lO AO 1120593.1 (iii) each Buyer's Broker-Dealer that is not a Participant in the Securities Depository shall instruct its Participant to (A) pay through the Securities Depository to Seller's Broker-Dealer (or its Participant) identified following such Auction pursuant to Section 3(a)(vi) the amount necessary to purchase the Series ARS to be purchased pursuant to Section 3(b )(ii) against receipt of such Series ARS, and (B) deliver such Series ARS through the Securities Depository to the Participant of the purchaser thereof against payment therefor. ( e) On the Business Day following each Auction Date: (i) each Participant for a Bidder in the Auction on such Auction Date referred to in Section 3( d)(i) shall instruct the Securities Depository to execute the transactions described under Section 3(b )(ii) or 3(b )(iii) for such Auction, and the Securities Depository shall execute such transactions; (ii) each Seller's Broker-Dealer or its Participant shall instruct the Securities Depository to execute the transactions described in Section 3( d)(ii) for such Auction, and the Securities Depository shall execute such transactions; and (iii) each Buyer's Broker-Dealer or its Participant shall instruct the Securities Depository to execute the transactions described in Section 3(d)(iii) for such Auction, and the Securities Depository shall execute such transactions. (f) If an Existing Holder selling Series ARS in an Auction fails to deliver such Series ARS (by authorized book-entry), a Broker-Dealer may deliver to the Potential Holder on behalf of which it submitted a Bid that was accepted a principal amount of Series ARS that is less than the principal amount of Series ARS that otherwise was to be purchased by such Potential Holder. In such event, the principal amount of Series ARS to be so delivered shall be determined solely by such Broker-Dealer. Delivery of such lesser principal amount of Series ARS shall constitute good delivery. Notwithstanding the foregoing terms of this subsection, any delivery or nondelivery of Series ARS which shall represent any departure from the results of an Auction, as determined by the Auction Agent, shall be of no effect unless and until the Auction Agent shall have been notified of such delivery or nondelivery in accordance with the provisions of the Auction Agent Agreement and the Broker-Dealer Agreements. B-ll AD 1120593.1 Exhibit C Auction Agent Agreement NOTICE OF FAILURE TO RECEIVE CERTIFICATE Augusta, Georgia Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006 NOTICE IS HEREBY GIVEN that a condition to changing the percentage used to determine the All-Hold Rate, the Applicable Percentage used to determine the ARS Maximum Rate, and the percentage of the Index used to determine the Non-Payment Rate has not been met. The existing percentages and Applicable Percentage will be used to determine the All-Hold Rate, the ARS Maximum Rate and the Non-Payment Rate, as the case may be. The interest rate on the Series ARS for the next succeeding ARS Interest Period will be equal to the ARS Maximum Rate on the Auction Date. Terms used herein have the meanings set forth in the Bond Resolution relating to the above-referenced issue. , as Auction Agent By: Title: Date: C-l AO 1120593.1 Exhibit D Auction Agent Agreement NOTICE OF FAILURE TO RECEIVE OPINION Augusta, Georgia Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006 NOTICE IS HEREBY GIVEN that a condition to changing the percentage used to determine the All-Hold Rate, the Applicable Percentage used to determine the ARS Maximum Rate, and the percentage of the Index used to determine the Non-Payment Rate has not been met. The existing percentages and Applicable Percentage will be used to determine the All-Hold Rate, the ARS Maximum Rate and the Non-Payment Rate, as the case may be. The interest rate on the Series ARS for the next succeeding ARS Interest Period will be equal to the ARS Maximum Rate on the Auction Date. Terms used herein have the meanings set forth in the Bond Resolution relating to the above-referenced issue. , as Auction Agent By: Title: Date: D-l AO 1120593.1 Exhibit E Auction Agent Agreement NOTICE OF ARS PAYMENT DEFAULT Augusta, Georgia Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006 NOTICE IS HEREBY GIVEN that an ARS Payment Default has occurred and not been cured. Determination of the interest rate on the Series ARS pursuant to the Auction Procedures will be suspended. The interest rate on the Series ARS for each ARS Interest Period commencing after will equal the Non-Payment Rate as it is determined by the Issuer on the first day of such ARS Interest Period. All terms used herein and not otherwise defined shall have the meanings given such terms in the Parity Bond Resolution of Augusta, Georgia adopted , 2004. , as Auction Agent By: Title: Date: E-l AO 1120593.1 LIST OF AUTHORIZED BROKER-DEALERS Merrill Lynch, Pierce, Fenner & Smith Incorporated F-l AD 1120593.1 Exhibit F Auction Agent Agreement ~ CLERK'S CERTIFICATE GEORGIA, RICHMOND COUNTY I, Lena J. Bonner, Clerk of the Augusta-Richmond County Commission (the "Commission"), DO HEREBY CERTIFY that the foregoing pages constitute a true and correct copy of the resolution adopted by the Commission at an open public meeting duly called and lawfully assembled on May 4, 2004, at which a quorum was present and acting throughout, authorizing the issuance of not to exceed $65,000,000 Augusta, Georgia Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006, the original of said resolution being duly recorded in the Minute Book of said Commission, which Minute Book is in my custody and control, and that said resolution was duly adopted by a vote of: Aye~ NayL Abstain L. .... WITNESS my hand and the official seal of Augusta, Geo~~th!~~M~y 10 , ~004. . '" ~'=' G.. . '..;.. '(~. :' U ".'" '-:j t, ." ~ ." ~G ;., ".. ~~. 'i,~~; . : . ~ ::-~ t.~ " ::::,' P.8T. ." ~ Oa.. 1m .. s# \' . ............0. , \\~~.~ GeeOORG\~ _. " '. ~~'''~-~ \i, 'e,. .)'j\;', 4." \\; (SEAL) '"' t;. ,.., f;'-' ,~ AD 1118243.2 ~