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Home My WebLink AboutRESOLUTION 2007 PARITY BOND 2007 PARITY BOND RESOLUTION AO 1727076.5 Section 1. Section 2. Section 3. Section 4. Section 5. Section 6. Section 7. Section 8. Section 9. Section 10. Section 11. Section 12. Section 13. Section 14. Section 15. Section 16. Section 17. Section 18. Section 19. Section 20. Section 21. Section 22. Section 23. Section 24. Section 25. Section 26. Section 27. Section 28. Section 29. Section 30. Section 31. Section 32. Section 33. Section 34. Section 35. Section 36. Section 37. Section 38. Section 39. Section 40. Section 41. Section 42. TABLE OF CONTENTS Definitions............................................................................................................... 9 Authorization. ....................................................................................................... 12 Execution; Form of Series 2007 Bonds. ............................................................... 13 Required Authentication; Proof of Ownership. ............... .............. .................... ... 22 Bond Registrar; Transfer and Exchange. .............................................................. 22 Lost, Destroyed, Mutilated Bonds. .............. .......................................;................. 22 Global Form; Securities Depository; Ownership of Series 2007 Bonds. ............. 23 Optional Redemption of Series 2007 Bonds......................................................... 24 Mandatory Redemption of Series 2007 Bonds. .................................................... 24 Procedure for and Notice of Redemption. ............................................................ 25 Purchase in Open Market.. ....... ... .... .... ........... ......... ............. ...... ....... ............ ........ 26 Effect of Call for Redemption.......... ............ ............ ....... ............. ...... ...... ............. 26 Cancellation of Bonds. .......................................................................................... 26 Pledge of Revenues; Parity Bonds. ....................................................................... 26 Application of the Series 2007 Bond Proceeds..................................................... 27 Authorization of Escrow Deposit Agreement... ........................................ ............ 27 Deposit of Moneys under Escrow Deposit Agreement......................................... 28 Call for Redemption of Refunded Bonds.............................................................. 28 Notice of Redemption. .......................................................................................... 28 Flow of Funds; Sinking Fund. . ............ ...... .................................. ............ ............. 29 Debt Service Reserve Account. ..... ............................................................ ........... 30 Hedge Payments Fund. . .......... ............ ......... ................ ..................... .............. ...... 33 Utility General Fund. ............................................................................................ 33 Pledged Revenues. ................................................................................................ 34 Rate Covenant. ...................................................................................................... 34 Sinking Fund Disbursements. .. ............ .............. .............. ....... ................. ..... ........ 35 Reserved................................................................................................................ 36 Ratification of 1996 Resolution. ........................................................................... 36 Arbitrage Covenants. ...... ....... .... ..... ....... .... .......... .......... ....... ..... ... ... ............. ........ 36 Bond Insurance Provisions. .... ........ ..... .......... ................... .................................... 36 Reserve Account Surety Bond Provisions. ........................................................... 41 . Insurance Agreement. ........................................................................................... 43 Certification. ......................................................................................................... 43 Use of Proceeds and Tax Covenant. ..................................................................... 43 Severability. .......................................................................................................... 44 Contract. ................................................................................................................ 44 Authorization of Preliminary Official Statement.................................................. 45 Authorization of Bond Purchase Agreement. ....................................................... 45 Continuing Disclosure. ... ......... ......... ......... ... ............ ......................... .......... ......... 45 Termination of 2004 Hedge Agreement. .............................................................. 46 Validation.............................................................................................................. 46 Repealer. ............................................................................................................... 47 Exhibit A-Form ofInsurance Agreement AO 1727076.5 -1- A RESOLUTION TO PROVIDE FOR THE ISSUANCE OF WATER AND SEWERAGE REVENUE REFUNDING BONDS, SERIES 2007, 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 ACQUIRING BY REDEMPTION, PAYMENT OR OTHERWISE ALL OF THE OUTSTANDING RICHMOND COUNTY WATER AND SEWERAGE REVENUE REFUNDING AND IMPROVEMENT BONDS, SERIES 1996A, ALL OF THE OUTSTANDING RICHMOND COUNTY WATER AND SEWERAGE REVENUE REFUNDING BONDS, SERIES 1997, A PORTION OF THE AUGUSTA, GEORGIA WATER AND SEWERAGE REVENUE BONDS, SERIES 2000 AND A PORTION OF THE AUGUSTA, GEORGIA WATER AND SEWERAGE REVENUE BONDS, SERIES 2002; TO RATIFY, REAFFIRM AND ADOPT ALL APPLICABLE TERMS, PROVISIONS, COVENANTS AND CONDITIONS OF THE BOND RESOLUTION, AS SUPPLEMENTED; TO PROVIDE FOR THE ISSUANCE UNDER CERTAIN TERMS AND CONDITIONS OF ADDITIONAL PARITY BONDS; TO REPEAL THE AUTHORIZATION OF THE PREVIOUSLY AUTHORIZED AUCTION RATE BONDS AS DEFINED HEREIN; 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 2007 BONDS; TO AUTHORIZE THE EXECUTION AND DELIVERY OF A BOND PURCHASE AGREEMENT RELATING TO THE SERIES 2007 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 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 the 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 AO 1727076.5 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 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 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 acquire by redemption, payment or otherwise all or any part of the Consolidated Government's outstanding water and sewerage revenue obligations, 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 finance, in whole or in part, the acquisition of the outstanding water and sewerage revenue obligations, 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 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 1996A 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 1727076.5 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 $56,000,000 aggregate principal amount of the Series 1996A Bonds, maturing in the year 2007 and thereafter, remains outstanding, and the outstanding 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 $4,340,000 aggregate principal amount of the Series 1997 Bonds, maturing in the year 2007 and thereafter, remains outstanding, and the outstanding Series 1997 Bonds are secured on a parity with the Series 1996A 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 1727076.5 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 $96,725,000 aggregate principal amount of the Series 2000 Bonds, maturing in the year 2007 and thereafter, remains outstanding, and the outstanding Series 2000 Bonds are secured on a parity with the outstanding Series 1996A Bonds and the Series 1997 Bonds (collectively, the "Series 1996A11997 Bonds") as to lien on the Pledged Revenues in accordance with the 1996 Resolution, as supplemented by the 2000 Resolution; and WHEREAS, pursuant to a resolution adopted May 30, 2002, as supplemented June 21, 2002 (the "2002 Resolution"), the Consolidated Government issued $149,400,000 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: -4- AO 1727076.5 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 $145,405,000 aggregate principal amount of the Series 2002 Bonds, maturing in the year 2007 and thereafter, remains outstanding, and the outstanding Series 2002 Bonds are secured on a parity with the outstanding Series 1996A/1997 Bonds and the outstanding Series 2000 Bonds as to lien on the Pledged Revenues in accordance with the 1996 Resolution, as supplemented by the 2000 Resolution and the 2002 Resolution; and WHEREAS, pursuant to a resolution adopted May 4, 2004 (the "2004 Refunding Resolution"), the Consolidated Government authorized the issuance of not to exceed $65,000,000 aggregate principal amount of Augusta, Georgia Water and Sewerage Revenue Refunding Bonds, Auction Rate Series 2006 (the "Auction Rate Bonds") for the purpose of providing funds to payor to be applied toward the cost of refunding by redemption, payment or otherwise the Outstanding Series 1996A/1997 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 been issued; and WHEREAS, pursuant to a resolution adopted on June 1, 2004 (the "2004 New Money Resolution"), as amended and restated by a resolution adopted on November 23, 2004 (the "2004 Resolution"), the Consolidated Government issued $160,000,000 Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2004 (the "Series 2004 Bonds"), dated December 9,2004, 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, 2005, and maturing on October 1 in the following years and principal amounts: Year Amount Rate 2034 2039 $ 40,025,000 119,975,000 5.25% 5.25 and the entire $160,000,000 aggregate principal amount of the Series 2004 Bonds remains outstanding, and the outstanding Series 2004 Bonds are secured on a parity with the outstanding Series 1996A/1997 Bonds, the outstanding Series 2000 Bonds and the outstanding Series 2002 -5- AO 1727076.5 Bonds as to lien on the. Pledged Revenues in accordance with . the 1996 Resolution, as supplemented by the 2000 Resolution, the 2002 Resolution and the 2004 Resolution; and WHEREAS, pursuant to a resolution adopted June 15, 2004 (the "2004 Amending Resolution") the Consolidated Government amended certain provisions of the 2004 Refunding Resolution and the 2004 New Money Resolution in order to provide for the inclusion of Hedge Payments (as defined therein) in the rates, fees and charges to be assessed and collected for the commodities, services and facilities provided by the System; and WHEREAS, pursuant to the 2004 Refunding Resolution, the Consolidated Government and Merrill Lynch Capital Services, Inc. ("MLCS") entered into an agreement (the "2004 Hedge Agreement") giving MLCS the option to enter an interest rate swap with the Consolidated Government, which swap would be a hedge against the variable rates of interest to be borne by the Auction Rate Bonds, and pursuant to the 2004 Hedge Agreement MLCS has exercised such option and the interest rate swap provided for by the 2004 Hedge Agreement is now in effect; and WHEREAS, based on present market conditions and after a thorough and detailed review and upon the recommendation from its financial advisor, A.G. Edwards & Sons Inc. (the "Financial Advisor"), the Consolidated Government has determined that the 2004 Hedge Agreement should be terminated; and WHEREAS, after a thorough and detailed review and upon the recommendation from its Financial Advisor, the Consolidated Government has determined that due to present market conditions and in order to achieve a debt service savings on the Consolidated Government's now outstanding bonded indebtedness, the Consolidated Government at this time should refund the outstanding Series 1996A Bonds maturing on and after October 1,2008 (which will be all of the outstanding Series 1996A Bonds then outstanding, the Series 1996A Bonds maturing October 1, 2007 being paid at maturity prior to the issuance of the Series 2007 Bonds) in the aggregate principal amount of $54,665,000 (the "Refunded 1996A Bonds"), the outstanding Series 1997 Bonds maturing on and after October 1, 2008 (which will be all of the outstanding Series 1997 Bonds then outstanding, the Series 1997 Bonds maturing October 1, 2007 being paid at maturity prior to the issuance of the Series 2007 Bonds) in the aggregate principal amount of $4,140,000 (the "Refunded 1997 Bonds" and, together with the Refunded 1996A Bonds, the "Refunded 1996A11997 Bonds"), that portion of the outstanding Series 2000 Bonds maturing on and after October 1, 2013 in the aggregate principal amount of $84,255,000 (the "Refunded 2000 Bonds") and that portion of the outstanding Series 2002 Bonds maturing on October 1 in the years 2013 through 2017 and 2019 through 2022 in the aggregate principal amount of $37,010,000 (the "Refunded 2002 Bonds" and, together with the Refunded 1996A/1997 Bonds and the Refunded 2000 Bonds, the "Refunded Bonds"); and WHEREAS, the Financial Advisor has further recommended, and the Consolidated Government has concurred, that such refunding of the Refunded Bonds should be accomplished by making due and legal provision for: -6- AO 1727076.5 (i) the redemption of the Refunded 1996A Bonds on November 21,2007 by paying the principal amount thereof, the 1 percent redemption premium in connection therewith and the interest to accrue thereon until such date of redemption; (ii) the redemption of the Refunded 1997 Bonds on November 21, 2007 by paying the principal amount thereof, the 1 percent redemption premium in connection therewith and the interest to accrue thereon until such date of redemption; (iii) the redemption on October 1, 2010 of the Refunded 2000 Bonds by paying the principal amount thereof, the 1 percent redemption premium in connection therewith and the interest to accrue thereon until such date of redemption; (iv) the redemption on October 1, 2012 of the Refunded 2002 Bonds by paying the principal amount thereof and the interest to accrue thereon until such date of redemption; and (v) the payment of all expenses necessary to accomplish the foregoing; and WHEREAS, from the proceeds derived from the sale of the Series 2007 Bonds hereinafter authorized and defined (the "Series 2007 Bonds"), a sufficient sum will be deposited, simultaneously with the issuance and delivery of the Series 2007 Bonds, with U.S. Bank National Association, as Escrow Agent (the "Escrow Agent"), and will be used to pay the cost of acquiring certain direct obligations of the United States of America (the "Direct Obligations") and to provide an initial cash balance, which Direct Obligations and cash will be deposited in trust with the Escrow Agent pursuant to one or more Escrow Deposit Agreements to be entered into by and between the Escrow Agent and the Consolidated Government (collectively, the "Escrow Deposit Agreement") and the cash and principal of and interest on the Direct Obligations will provide funds in the amounts required to refund all of the Refunded Bonds as aforesaid and will be used for that purpose, all as hereinafter provided; and WHEREAS, upon the refunding of the Refunded Bonds, the Series 2000 Bonds maturing in the years 2008 through 2012 outstanding in the aggregate principal amount of $11,065,000, the Series 2002 Bonds maturing in the years 2008 through 2012, 2018, 2027 and 2032 outstanding in the aggregate principal amount of $107,385,000 and the Series 2004 Bonds outstanding in the entire aggregate principal amount of $160,000,000 (the "Outstanding Prior Bonds") will be. the only revenue obligations of the Consolidated Government 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 1996 Resolution, as ratified, reaffirmed, broadened and extended by the 2000 Resolution, the 2002 Resolution, the 2004 Refunding Resolution, the 2004 New Money Resolution, the 2004 Amending Resolution and the 2004 Resolution (collectively, the "Prior Resolutions"); and WHEREAS, it appears that the most feasible method of providing funds necessary to finance the refunding of the Refunded Bonds is for the Consolidated Government to issue its Series 2007 Bonds, which Series 2007 Bonds, when issued in accordance with the provisions contained in the Prior Resolutions, will rank on a parity as to lien on the revenues of the System with the Outstanding Prior Bonds; and -7- AO 1727076.5 WHEREAS, Wachovia Bank, National Association (the "Representative"), as representative of a syndicate of underwriters (collectively with the Representative, the "Underwriter"), have offered to purchase the Series 2007 Bonds in the aggregate principal amount of $177,010,000 pursuant to a Bond Purchase Agreement, dated the date hereof, by and between the Consolidated Government and the Underwriter (the "Purchase Agreement") at a purchase of $187,874,892.55, which is equal to par less underwriter's discount of $738,131.70 and plus original issue premium of $11,603,024.25, with no accrued interest, and the sale of the Series 2007 Bonds at such prices will provide the Consolidated Government with sufficient funds to finance the cost of the overall undertaking now contemplated by the Consolidated Government as set forth herein; and WHEREAS, the Series 2007 Bonds should now be executed, issued and delivered; and WHEREAS, in order to enhance the Consolidated Government's credit by assuring owners of the Series 2007 Bonds that the principal of and interest on the Series 2007 Bonds will be paid promptly when due, the Consolidated Government will obtain a municipal bond insurance policy (the "Series 2007 Bond Insurance Policy") for the Series 2007 Bonds from Financial Security Assurance Inc. (the "2007 Bond Insurer"); and WHEREAS, it was provided in Article V, Section 8 of the 1996 Resolution, as ratified, reaffirmed, broadened and extended in the other Prior Resolutions, that refunding bonds could be issued, from time to time, upon meeting certain terms and conditions, as set forth therein, which are as follows: (a) The Consolidated Government shall have executed a certificate (i) setting forth the aggregate amount of interest and principal of the Series [1996A ]/1997 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 Series [1996A]/1997 Bonds and Additional Bonds then outstanding (A) with respect to all Series [1996A]/1997 Bonds and Additional Bonds outstanding immediately prior to the date of authentication and delivery of such refunding Bonds and (B) with respect to all Series [1996A]/1997 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 (b) The Consolidated Government shall have executed a certificate: (i) setting forth with respect to the [Refunded] Bonds being refunded by the [Series 2007] Bonds, the aggregate interest and principal on such [Refunded] Bonds falling due from the date of the proposed authentication and issuance of the [Series 2007] Bonds to and through the final maturity date of the [Refunded] Bonds; (ii) setting forth with respect to the proposed [Series 2007] Bonds, the aggregate interest and principal on such [Series 2007] Bonds falling due on such [Series 2007] Bonds from the date of the authentication and delivery thereof to the final maturity of the [Series 2007] 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 Series [1996A ]/1997 Bonds and Additional Bonds to be outstanding immediately after the date of authentication and issuance of the [Series -8- AO 1727076.5 2007] 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; or (c) As an alternative to, and in lieu of, satisfying the requirements of paragraphs (a) and (b), all outstanding Series [1996A]/1997 Bonds and Additional Bonds are being refunded under arrangements which immediately result in making provision for the payment of the [Refunded] Bonds; and WHEREAS, the conditions set forth in paragraph (b) described above have been met, the [Deputy Utilities Director] has executed the certificate referred to in such paragraph and the other conditions to the issuance of refunding bonds have been met; and WHEREAS, upon the recommendation of the Financial Advisor, with which recommendation the Consolidated Government concurs, it has been determined to purchase a debt service reserve surety bond from Financial Security Assurance, Inc. in order to satisfy a portion of the debt service reserve requirement applicable to the Series 2007 Bonds and the Consolidated Government's outstanding water and sewerage revenue bonds; and WHEREAS, prior to the actual issuance and delivery of the Series 2007 Bonds, the Consolidated Government will enter into a contract with U.S. Bank National Association (the "Paying Agent"), pursuant to which the Paying Agent will agree to act as Paying Agent and as Bond Registrar for the Series 2007 Bonds and to perform various functions with respect to the Series 2007 Bonds, including, but not limited to, the authentication of the Series 2007 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 2007. Bonds as same become due and payable; NOW, THEREFORE, BE IT RESOLVED by the Augusta-Richmond County Commission, 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 2007 Parity 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 2007 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 9 of the 1996 Resolution, Section 25 of the 2000 Resolution, Section 25 of the 2002 Resolution, Section 23 of the 2004 Refunding Resolution, Section 26 of the 2004 Resolution and Section 21 of this 2007 Parity Bond Resolution. "Bond Resolution" shall mean collectively the 1996 Resolution, the 2000 Resolution, the 2002 Resolution, the 2004 Refunding Resolution, the 2004 Amending Resolution, the 2004 -9- AD 1727076.5 Resolution and this 2007 Parity Bond 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 2007 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" shall mean the amounts required in each Sinking Fund Year to pay the principal of and interest on the Outstanding. Prior Bonds, the Series 2007 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 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. "Hedge Agreement" means any agreement between the Consolidated Government and any Hedge Provider providing, or providing for the future execution of, a swap, cap or collar for any Bonds, in each case as such agreement is originally executed and as the same may from time to time be amended or supplemented. A Hedge Agreement may be anticipatory and entered into with respect to Bonds that have been authorized but not yet issued, with the same import and effect as if the Bonds relating to such Hedge Agreement had been issued. "Investment Earnings" shall mean 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 2007 Parity Bond Resolution. "Outstanding Prior Bonds" shall mean the Series 2000 Bonds maturing in the years 2008 through 2012 outstanding in the aggregate principal amount of $11,065,000, the Series 2002 Bonds maturing in the years 2008 through 2012, 2018, 2027 and 2032 outstanding in the aggregate principal amount of $107,385,000 and the Series 2004 Bonds outstanding in the entire aggregate principal amount of $160,000,000. -10- AD 1727076.5 "Prior Resolutions" shall mean collectively the 1996 Resolution, the 2000 Resolution, the 2002 Resolution, the 2004 Refunding Resolution, the 2004 Amending Resolution and the 2004 Resolution. "Refunded Bonds" shall mean that portion of the Series 1996A Bonds maturing on and after October 1, 2008 and now outstanding in the aggregate principal amount of $54,665,000, that portion of the Series 1997 Bonds maturing on and after October 1, 2008 and now outstanding in the aggregate principal amount of $4,140,000, that portion of the Series 2000 Bonds maturing on and after October 1, 2013 and now outstanding in the aggregate principal amount of $84,255,000 and that portion of the Series 2002 Bonds maturing on October 1 in the years 2013 through 2017 and 2019 through 2022 and now outstanding in the aggregate principal amount of $37,010,000. "Reserve Requirement" shall mean 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 Outstanding Prior Bonds, the Series 2007 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. "Series 2007 Bond Insurance Policy" shall mean the insurance policy issued by the Series 2007 Bond Insurer guaranteeing the scheduled payment of principal of and interest on the Series 2007 Bonds when due. "Series 2007 Bond Insurer" shall mean Financial Security Assurance Inc., a New York stock insurance company, or any successor thereto or assignee thereof. "Series 2007 Bonds" shall mean the Consolidated Government's Water and Sewerage Revenue Refunding Bonds, Series 2007, in the aggregate principal amount of $177,010,000 authorized to be issued pursuant to Section 3 of this 2007 Parity Bond Resolution. "Series 2007 Reserve Account Surety Bond" shall mean the municipal bond debt service reserve insurance policy issued by the Series 2007 Reserve Account Surety Bond Provider in connection with funding the Reserve Requirement in connection with the issuance of the Series 2007 Bonds. "Series 2007 Reserve Account Surety Bond Provider" shall mean Financial Security Assurance Inc., a New York stock insurance company, or any successor thereto or assignee thereof "2007 Parity Bond Resolution" shall mean this 2007 Parity Bond Resolution of the Augusta-Richmond County Commission adopted September 26, 2007, ratifying, reaffirming, broadening and extending the Prior Resolutions and authorizing the issuance of the Series 2007 Bonds, as same may be supplemented from time to time. Whenever used in this 2007 Parity Bond Resolution, the singular shall include the plural and the plural shall include the singular, unless the context otherwise indicates. -11- AO 1727076.5 Section 2. Authorization. All the terms, provisions and conditions contained in Sections 8 and 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, Section 22 of the 2004 Refunding Resolution and Section 26 of the 2004 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 an aggregate principal amount of $177,010,000 for the purpose of providing funds: (i) to finance, in whole or in part, the cost of acquiring by redemption, payment or otherwise (a) that portion of the Richmond County Water and Sewerage Revenue Refunding and Improvement Bonds, Series 1996A maturing on and after October 1, 2008 and now outstanding in the aggregate principal amount of $54,665,000, (b) that portion of the Richmond County Water and Sewerage Revenue Refunding Bonds, Series 1997 maturing on and after October 1, 2008 and now outstanding in the aggregate principal amount of $4,140,000, (c) that portion of the Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2000 maturing on and after October 1, 2013 and now outstanding in the aggregate principal amount of $84,255,000 and (d) that portion of the Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2002 maturing on October 1 in the years 2013 through 2017 and 2019 through 2022 and now outstanding in the aggregate principal amount of $37,010,000; (ii) to fund a reasonably required debt service reserve and (Hi) to pay all expenses necessary to accomplish the foregoing. The revenue bonds shall be designated "Augusta, Georgia Water and Sewerage Revenue Refunding Bonds, Series 2007," shall be dated the date of issuance, 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 the rate or rates per annum set forth below opposite each principal maturity, all interest payable semiannually on April 1 and October 1 in each year, commencing on April 1, 2008, and the principal shall mature on October 1 in the following years and principal amounts: Year Amount Rate Year Amount Rate 2008 $2,060,000 4.50% 2019 $10,595,000 5.00% 2009 1,740,000 5.00 2020 11,125,000 5.00 2010 1,825,000 4.00 2021 11,680,000 5.00 2011 1,895,000 4.00 2022 12,260,000 5.00 2012 1,970,000 4.00 2023 7,500,000 5.00 2013 7,920,000 5.00 2024 7,875,000 5.00 2014 8,315,000 5.00 2025 8,270,000 5.00 2015 8,735,000 5.00 2026 8,685,000 5.00 2016 9,170,000 5.00 2027 9,115,000 5.00 2017 9,625,000 5.00 2028 9,575,000 5.00 2018 5,925,000 5.00 2030 21,150,000 5.00 The principal amount of the Series 2007 Bonds shall be payable at maturity, unless redeemed prior thereto as hereinafter provided, upon presentation and surrender thereof at the -12- AD 1727076.5 principal corporate trust office of the Paying Agent in Atlanta, Georgia, and payments of interest on the Series 2007 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 2007 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 2007 Bonds shall be payable in lawful money of the United States of America. Section 3. Execution: Form of Series 2007 Bonds. The Series 2007 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 2007 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 2007 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 Series 2007 Bonds a Statement of Insurance prepared by the 2007 Bond Insurer. In case any officer whose signature shall appear on the Series 2007 Bonds shall cease to be such officer before delivery of such Series 2007 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 2007 Bonds, the certificate of authentication and registration, form of assignment and the certificate of validation to be endorsed upon the Series 2007 Bonds shall be in substantially the following form, with such variations, omissions and insertions as are required or permitted by this 2007 Parity Bond Resolution, to wit: -13- AD 1727076.5 Unless this Bond is presented by an authorized representative of The Depository Trust Company, a New York corporation (HDTC''), to Augusta, Georgia or its agents for registration of transfer, exchange, or payment, and any Bond issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. No. R- $ UNITED STATES OF AMERICA STATE OF GEORGIA AUGUSTA, GEORGIA WATER AND SEWERAGE REVENUE REFUNDING BOND SERIES 2007 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 U.S. Bank National Association, Atlanta, Georgia, Paying Agent and Bond Registrar (the "Paying Agent" or "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 April 1, 2008, 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. Notwithstanding the foregoing, so long as this Bond is registered in the name of Cede & Co., payment of principal of and interest on this Bond shall be made by wire transfer to Cede & Co. This Bond is one of a duly authorized issue in the aggregate principal amount of $177,010,000 (the "Series 2007 Bonds") of like tenor, except as to numbers, denominations, interest rates, dates of maturity and redemption provisions, issued by the Consolidated Government for the purpose of providing funds: (i) to finance, in whole or in part, the cost of -14- AD 1727076.5 acquiring by redemption, payment or otherwise (a) that portion of the Richmond County Water and Sewerage Revenue Refunding and Improvement Bonds, Series 1996A maturing on and after October 1, 2008 and now outstanding in the aggregate principal amount of $54,665,000, (bY that portion of the Richmond County Water and Sewerage Revenue Refunding Bonds, Series 1997 maturing on and after October 1, 2008 and now outstanding in the aggregate principal amount of $4,140,000, (c) that portion of the Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2000 maturing on and after October 1, 2013 and now outstanding in the aggregate principal amount of $84,255,000 and (d) that portion of the Augusta, Georgia Water and Sewerage Revenue Bonds, Series 2002 maturing on October. 1 in the years 2013 through 2017 and 2019 through 2022 and now outstanding in the aggregate principal amount of $37,010,000; (ii) to fund a reasonably required debt service reserve and (iii) to pay all expenses necessary to accomplish the foregoing. The Series 2007 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, a resolution adopted on May 30, 2002, as supplemented June 21, 2002, a resolution adopted on May 4,2004, a resolution adopted on June 15,2004 and a resolution adopted June 1,2004, as supplemented, amended and restated on November 23,2004 (collectively, the "Prior Resolutions") and a resolution adopted September 26,2007 (the "2007 Resolution" and, together with the Prior Resolutions, the "Bond Resolution"). The Series 2007 Bonds rank on a parity as to lien on the Pledged Revenues (as hereinafter defined) of the Consolidated Government's water and sewerage system, as now existent and as hereafter added to, extended, improved and equipped (the "System") with the Consolidated Government's outstanding Water and Sewerage Revenue Bonds, Series 2000, Water and Sewerage Revenue Bonds, Series 2002 and Water and Sewerage Revenue Bonds, Series 2004 (collectively, the "Outstanding Prior Bonds"). In addition to the Outstanding Prior Bonds and the Series 2007 Bonds (collectively, the "Bonds"), the Consolidated Government may issue, under certain terms and conditions as provided in the Bond Resolution, additional revenue bonds, and ifissued, such bonds will rank on a parity as to lien on the Pledged Revenues of the System with the Bonds. Reference to the Bond Resolution 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 Series 2007 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 2007 Bonds are being issued by means of a book-entry system, with actual Series 2007 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 2007 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 2007 -15- AO 1727076.5 Bonds are not available for distribution to the owners of beneficial interests in the Series 2007 Bonds registered in book-entry form (the "Beneficial Owners"), except under the limited circumstances set forth in the 2007 Resolution. The principal, redemption premium (if any) and interest on the Series 2007 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 2007 Bonds by participants of the Securities Depository will be the responsibility of such participants and other nominees of Beneficial Owners. Neither the Consolidated Govemrrient 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 2007 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 ail 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 2007 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 Series 2007 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 Bond Resolution. 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 Series. 2007 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 Bond Resolution. 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 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 moneys and securities from time to time on deposit in the funds and accounts established in the Bond Resolution. -16- AD 1727076.5 The Bond Resolution provides, among other things, for prescribing and revising rates and collecting fees and charges for the services, facilities and commodities furnished by the System 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 sum of (x) 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 and (y) the scheduled payments of net interest amounts paid or payable to certain "Hedge Providers" (as defmed 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 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 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 2007 Bonds may be redeemed prior to their respective maturities, either in whole at any time or in part on any Interest Payment Date not earlier than October 1, 2017 from any moneys available for such purpose as provided in the 2007 Resolution by payment of the redemption price of 101 percent of the principal amount thereof and accrued interest thereon to date of redemption. In addition, the Series 2007 Bonds maturing October 1, 2030 are subject to mandatory redemption prior to maturity in accordance with the provisions of the 2007 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 amount on October 1 in the following year: -17- AD 1727076.5 Year Amount 2029 $10,320,000 $10,830,000 principal amount of Series 2007 Bonds maturing October 1, 2030 shall be paid at maturity. Notice designating the Bonds (or the portion of the principal amount of the Series 2007 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 2007 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 2007 Bonds so designated . for redemption after the redemption date. To the extent and in the manner permitted by the Bond Resolution, modifications, alterations, amendments, additions and recisions of the provisions of the Bond Resolution, or of any resolution supplemental thereto or of the Series 2007 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 Series 2007 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 Bond Resolution 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 of amounts sufficient to pay the principal of and the interest on the Series 2007 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 2007 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 Bond Resolution 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. -18- AD 1727076.5 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 [manuaIHfacsimile] signature of the Clerk of the Commission of the Consolidated Government, this October _,2007. AUGUST A, GEORGIA (S E A L) By: Mayor Attest: Clerk of Commission -19- AD 1727076.5 Date of Authentication and Registration: CERTIFICATE OF AUTHENTICATION AND REGISTRATION This Bond is one of the Series 2007 Bonds described in the resolution adopted September _, 2007. U.S. BANK NATIONAL ASSOCIATION, 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 October _, 2007 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. (8 E A L) Clerk, Superior Court Richmond County, Georgia ********** -20- AD 1727076.5 ASSIGNMENT FOR V ALUE 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 ********** -21- AD 1727076.5 Section 4. Required Authentication: Proof of Ownershiu. Only those Series 2007 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 2007 Parity Bond Resolution and such certificate upon any of the Series 2007 Bonds when duly executed shall be conclusive evidence that such Series 2007 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 2007 Bonds that may be issued hereunder at anyone time. The person in whose name any Series 2007 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 2007 Bond, including redemption premium, if any, and the interest thereon to the extent of the sums so paid. Section 5. Bond Re2istrar: Transfer and Exchan2e. The Bond Registrar shall keep the bond registration book for the registration of the Series 2007 Bonds and for the registration of transfers of the Series 2007 Bonds as herein provided. The transfer of any Series 2007 Bond shall be registered upon the bond registration book upon the surrender and presentation of the Series 2007 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 2007 Bond or Series 2007 Bonds so surrendered, a new Series 2007 Bond or Series 2007 Bonds registered in the name of the transferee, of the same series and maturity, in any denomination or denominations authorized by this 2007 Parity Bond Resolution, and in an aggregate principal amount equal to the aggregate principal amount of the Series 2007 Bonds so surrendered. Any Series 2007 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 2007 Bonds of the same maturity equal to the principal amount of the Series 2007 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 2007 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 2007 Bonds under this 2007 Parity Bond Resolution. Section 6. Lost. Destroved. Mutilated Bonds. If any Series 2007 Bond shall become mutilated, the Bond Registrar in its discretion and at the expense of the owner of such Series 2007 Bond shall authenticate and deliver a new Series 2007 Bond of like tenor and series registered in the name of the owner in exchange and substitution for such mutilated Series 2007 Bond. If any Series 2007 Bond shall become lost, destroyed or wrongfully taken, evidence of such loss, destruction or wrongful taking within a -22- AD 1727076.5 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 2007 Bond of like tenor and series registered in 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 2007 Bonds. (a) Upon the initial issuance, the ownership of each Series 2007 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 2007 Bonds shall be registered in the name of Cede & Co., as the nominee of The Depository Trust Company. Beneficial Owners will not receive Series 2007 Bonds from the Bond Registrar evidencing their ownership interests. Except as provided in subsection (c) of this Section, the Series 2007 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 2007 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 2007 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 2007 Bonds; or (Hi) 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 2007 Bonds. So long as any Series 2007 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 2007 Bonds for all purposes whatsoever, including without limitation: (i) the payment of principal, premium, if any, and interest on such series of Series 2007 Bonds; -23- AD 1727076.5 (ii) giving notices of redemption and other matters with respect to such Series 2007 Bonds; (iii) registering transfers with respect to such Series 2007 Bonds; (iv) the selection of Series 2007 Bonds for redemption; and (v) voting and obtaining consents under the Bond Resolution. So long as any Series 2007 Bonds are registered in Book-Entry Form, the Paying Agent shall pay all principal of, premium, if any, and interest on the Series 2007 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 2007 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 2007 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 Government within 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 2007 Bond certificates representing the Series 2007 Bonds to the bondholders. Series 2007 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 2007 Bond certificates representing the Series 2007 Bonds to the persons in whose names such Series2007 Bonds are so registered on the Business Day immediately preceding the date of such exchange. Section 8. Optional Redemption of Series 2007 Bonds. The Series 2007 Bonds may be redeemed prior to their respective maturities either in whole at any time or in part on any Interest Payment Date not earlier than October 1, 2017 from any moneys available for such purpose deposited with the Paying Agent on or before the date fixed for redemption by payment of the redemption price of 101 percent of the principal amount thereof and accrued interest thereon to date of redemption. Section 9. Mandatory Redemption of Series 2007 Bonds. The Series 2007 Bonds maturing October 1, 2030 are subject to mandatory redemption prior to maturity 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 amount on October 1 in the following year: -24- AO 1727076.5 Year Amount 2029 $10,320,000 $10,830,000 principal amount of Series 2007 Bonds maturing October 1, 2030 shall be paid at maturity. Section 10. Procedure for and Notice of Redemption. The Consolidated Government shall select the maturities of Series 2007 Bonds to be optionally redeemed in part. If less than all of the Series 2007 Bonds of a single maturity are to be redeemed, the Bond Registrar shall treat any Series 2007 Bond of such maturity outstanding in a denomination of greater than $5,000 as two or more separate Series 2007 Bonds in the denomination of $5,000 each and shall assign separate numbers to each for the purpose of determining the Series 2007 Bonds or the principal amount of such Series 2007 Bonds in a denomination greater than $5,000 to be redeemed by lot. With respect to any Series 2007 Bond called for partial redemption, the registered owner thereof shall surrender such Series 2007 Bond to the Bond Registrar in exchange for one or more Series 2007 Bonds in any authorized denomination in the aggregate principal amount equal to the unredeemed principal amount of such Series 2007 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 2007 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 2007 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 2007 Bonds shall be payable and shall be mailed, postage prepaid, to all registered owners of Series 2007 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 2007 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 2007 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 2007 Bonds, or it may redeem the Series 2007 Bonds before it redeems the Bonds of any such future issue or issues, or it may redeem some of the Series 2007 Bonds and some of the Bonds of any such future issue or issues at the same time. If less than a -25- AO 1727076.5 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. Section 11. 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 2007 Bonds in the open market at a price not exceeding the callable price hereinabove set forth. Any such Series 2007 Bonds so purchased cannot be reissued and same shall be disposed of as is hereinafter provided in this 2007 Parity Bond Resolution. Section 12. Effect of Call for Redemption. Notice having been given in the manner and under the conditions hereinabove provided, the Series 2007 Bonds so designated for redemption or the portion of the Series 2007 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 specified in such notice, and from and after the date of redemption so designated, unless default. shall be made in the payment of the Series 2007 Bonds so designated for redemption or the portion of the Series 2007 Bonds so designated for partial redemption, interest on the principal amount of said Series 2007 Bonds so designated for redemption shall cease to accrue on 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 2007 Bonds. Section 14. Plede:e of Revenues: Parity Bonds. The Series 2007 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 2007 Parity Bond Resolution, just as if the Outstanding Prior Bonds and the Series 2007 Bonds had been issued simultaneously under the same resolution. The Consolidated Government hereby represents, warrants and covenants in favor of the owners of the Outstanding Prior Bonds and the Series 2007 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 Outstanding Prior Bonds and the Series 2007 Bonds, enforceable in accordance with the terms of the Bond Resolution and the terms of the Outstanding Prior Bonds and the Series 2007 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 of the Consolidated Government to issue Additional Parity Bonds in accordance with the provisions of the Bond Resolution. No filing or recording of the Bond Resolution or of any other document or instrument (including financing statements under the Uniform Commercial Code) is necessary or required in connection with the creation, enforceability or priority of the lien and pledge of the Bond Resolution. The Consolidated Government shall not -26- AO 1727076.5 hereafter make or suffer to exist any pledge or assignment of or lien on the Pledged Revenues ranking prior to or on a parity with the Outstanding Prior Bonds and the Series 2007 Bonds; provided, however, the Consolidated Government 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. Application of the Series 2007 Bond Proceeds. From the proceeds derived from the sale of the Series 2007 Bonds, the following payments shall be made, simultaneously with the issuance and delivery of the Series 2007 Bonds, to the extent and in the manner set forth herein: (a) The sum of $602,156.26, or such other amount as may be necessary, representing the premium on the Series 2007 Bond Insurance Policy insuring the Series 2007 Bonds shall be paid to the Series 2007 Bond Insurer. (b) The sum of $175,344.33, or such other amount as may be necessary, representing the premium on the Series 2007 Reserve Account Surety Bond, shall be paid to the Series 2007 Reserve Account Surety Bond Provider. (c) The sum of $186,423,667.93, or such other amount as may be necessary, shall be deposited with the Escrow Agent and applied in accordance with the Escrow Deposit Agreement to the refunding of the Refunded Bonds. (d) The sum of $673,724.03, or such other amount as may be necessary, shall be deposited into the 2007 Expense Account hereinafter created and shall be used and applied toward the payment by or on behalf of the Consolidated Government of fees, charges and expenses incurred in connection with the issuance and delivery of the Series 2007 Bonds. There is hereby created a separate account of the Consolidated Government to be designated as the "2007 Expense Account." All payments from the 2007 Expense Account shall be applied at the written direction of the Consolidated Government to the payment of costs and expenses incurred by the Consolidated Government in connection with the issuance and delivery of the Series 2007 Bonds. Section 16. Authorization of Escrow Deposit A2reement. The Consolidated Government is hereby authorized to enter into an Escrow Deposit Agreement with the Escrow Agent on the date of the issuance and delivery of the Series 2007 Bonds. The Escrow Deposit Agreement may apply to all refundings contemplated hereby, or there may be a separate escrow Deposit Agreement for each series of the Refunded Bonds. The Mayor of the Commission is hereby authorized and directed to execute the Escrow Deposit Agreement for and on behalf of the Consolidated Government, and the Clerk of the Commission is hereby authorized and directed to attest same and impress thereon the official seal of the Consolidated Government, and the Escrow Deposit Agreement shall be in substantially the form which is on file and of record in the Minute Book of the Consolidated Government and by this reference thereto, the Escrow Deposit Agreement is incorporated herein and made a part hereof, subject to such changes, insertions and omissions as may be required to effect the refunding of -27- AO 1727076.5 the Refunded Bonds as aforesaid and as same may be approved by the Mayor of the Commission, and the execution of the Escrow Deposit Agreement by such officer. as herein authorized shall be conclusive evidence of any such approval. Section 17. Deposit of Monevs under Escrow Deposit Ae:reement. Simultaneously with the issuance and delivery of the Series 2007 Bonds, a sufficient sum as shall be necessary derived from the sale of the Series 2007 Bonds and other lawfully available funds shall be deposited with the Escrow Agent under the Escrow Deposit Agreement, to pay the cost of establishing an initial cash balance and acquiring the Direct Obligations, which cash and Direct Obligations shall be deposited in an irrevocable trust fund held by the Escrow Agent under the Escrow Deposit Agreement. The cash and Direct Obligations so deposited with the Escrow Agent and the principal of and the income derived from the cash and Direct Obligations shall be subject to a lien and charge in favor of the owners of the Refunded Bonds and shall be held for the security of such owners until used and applied as hereinafter and in the Escrow Deposit Agreement provided. The moneys so deposited in trust with the Escrow Agent. shall be in an amount sufficient without investment and shall be used to refund all of the Refunded Bonds, on the earliest date for redemption. Section 18. Call for Redemption of Refunded Bonds. (a) The Refunded 1996A Bonds are hereby called for redemption on November 21, 2007 and the owners of the Refunded 1996A Bonds should present same for payment on November 21, 2007 date and receive the principal amount thereof, the 1 percent redemption premium in connection therewith and the interest to accrue thereon until November 21,2007; (b) The Refunded 1997 Bonds are hereby called for redemption on November 21, 2007 and the owners of the Refunded 1997 Bonds should present same for payment on November 21, 2007 date and receive the principal amount thereof, the 1 percent redemption premium in connection therewith and the interest to accrue thereon until November 21,2007; (c) The Refunded 2000 Bonds are hereby called for redemption on October 1, 2010 and the owners of the Refunded 2000 Bonds should present same for payment on October 1, 2010 and receive the principal amount thereof, the 1 percent redemption premium in connection therewith and the interest to accrue thereon until October 1,2010; and (d) The Refunded 2002 Bonds are hereby called for redemption on October 1, 2012 and the owners of the Refunded 2002 Bonds should present same for payment on October 1, 2012 and receive the principal amount thereof and the interest to accrue thereon until October 1, 2012. Section 19. Notice of Redemption. U.S. Bank National Association is hereby authorized and directed to call the Refunded Bonds for redemption on the redemption dates set forth above in Section 18. At least 30 days prior to the respective redemption dates, notice of such redemption shall be mailed postage prepaid to the registered owners of the Refunded Bonds to be redeemed at the addresses which appear on the bond registration book kept by U.S. Bank National Association, as Bond Registrar -28- AO 1727076.5 for the Refunded Bonds. The respective notices of redemption shall be in substantially the forms to be attached as exhibits to the Escrow Deposit Agreement. Section 20. Flow of Funds: Sinkine: 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 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 In 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 deposited into the Revenue Fund shall be used and disbursed from the Revenue Fund as hereinafter provided. There shall first be paid from the Revenue Fund 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 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 2000 Resolution as the "Augusta, Georgia Water and Sewerage 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 moneys with which to pay the principal of and the interest on the Outstanding Prior Bonds and the Series 2007 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 2007 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 2007 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 equal to one sixth of the interest on the Outstanding Prior Bonds and the Series 2007 Bonds coming due on the next Interest Payment Date for the Outstanding Prior Bonds and the Series 2007 Bonds; and (ii) an amount equal to one-twelfth of the principal on the -29- AO 1727076.5 Outstanding Prior Bonds and the Series 2007 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 and the Series 2007 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 2007 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 2007 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 2007 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 2007 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 (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 SinkingFund 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 2007 Parity Bond 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 2007 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 2007 Bonds, the Additional Bonds therewith then outstanding and on the proposed Additional Bonds to be issued. Section 21. 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 2007 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 -30- AO 1727076.5 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 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 2007 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 2007 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 of the Outstanding Prior Bonds, the Series 2007 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 with the Consolidated Government, impair or reduce the security granted to the owners of the Outstanding Prior Bonds, the Series 2007 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 -31- AO 1727076.5 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 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 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 Reserve Account Surety Bond is purchased. 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 -32- AO 1727076.5 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 22. Hede:e Payments Fund. The Consolidated Government has heretofore created and established with the Sinking Fund Custodian a separate, segregated fund designated as the "Augusta, Georgia Hedge Payments Fund." After there have been paid from the Revenue Fund in each month all amounts required or permitted to be paid pursuant to Sections 20 and 21 of this 2007 Parity Bond Resolution, there shall be paid from the Revenue Fund to the Hedge Payments Fund an amount sufficient, taking into account amounts on deposit therein, to pay the amounts due the Hedge Providers under the Hedge Agreements (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 Hedge Payments Fund. 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 20 and 21 of this 2007 Parity Bond Resolution. Section 23. 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 Series 2007 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, including without limitation payments in lieu of taxes and payments in lieu of franchise 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 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; (g) paying to any 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 -33- AO 1727076.5 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 and the Series 2007 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 24. Plede: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 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 Series 2007 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 25. 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 businesslike 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, the 2002 Resolution, the 2004 Refunding Resolution, the 2004 Resolution and this 2007 Parity 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 amount 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 construction funds) 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 and any future -34- AO 1727076.5 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 Bondholder or by any affected Hedge Provider. 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 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 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. Section 26. Sinkine: Fund Disbursements. Subject to the terms and conditions set forth in the Bond Resolution, moneys in the Sinking Fund shall be disbursed for (a) the payment of the interest on the Outstanding Prior Bonds and the Series 2007 Bonds as such interest becomes due and payable; (b) the payment of the principal of the Outstanding Prior Bonds and the Series 2007 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 and the Series 2007 Bonds before maturity at the price and under the conditions provided therefor in the Bond Resolution; (d) the purchase of the Outstanding Prior Bonds and the Series 2007 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, Section 16 of the 2004 Refunding Resolution, Section 20 of the 2004 Resolution and Section 21 of this 2007 Parity Bond Resolution) to the Revenue Fund; (f) the payment of charges for paying the Outstanding Prior Bonds and the Series 2007 Bonds and interest thereon and the charges for the registration of the Outstanding Prior Bonds and the Series 2007 Bonds and their transfer or exchange in accordance with the terms thereof and (g) the payment of any charges for investment services. -35- AO 1727076.5 Section 27. Reserved. Section 28. 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 Series 2007 Bonds. Section 29. Arbitra2e Covenants. The Consolidated Government hereby covenants and agrees that it will not, subsequent to the date of the issuance and delivery of the Series 2007 Bonds, intentionally use any portion of the proceeds of the Series 2007 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 Series 2007 Bonds in compliance with the applicable provisions of Sections 141 through 150 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 30. Bond Insurance Provisions. The following provisions shall apply with respect to the Series 2007 Bonds so long as the Series 2007 Bond Insurance Policy is in effect, notwithstanding anything herein to the contrary as follows: (a) The prior written consent of the Series 2007 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. Notwithstanding anything to the contrary set forth in the Bond Resolution, amounts on deposit in the Debt Service Reserve Account shall be applied solely to the payment of debt service due on the Bonds. (b) The Series 2007 Bond Insurer shall be deemed to be the sole holder of the Series 2007 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 2007 Bonds insured by it are entitled to take pursuant to this 2007 Parity Bond Resolution. Remedies granted to the Bondowners shall expressly include mandamus. (c) No acceleration of the Series 2007 Bonds shall occur without the consent of the Series 2007 Bond Insurer and in the event the maturity of the Series 2007 Bonds is accelerated, the Series 2007 Bond Insurer may elect, in its sole discretion, to pay accelerated principal and interest accrued, on such principal to the date of acceleration (to the extent unpaid by the -36- AO 1727076.5 Consolidated Government) and the Paying Agent and the Consolidated Government shall be required to accept such amounts. Upon payment of such accelerated principal and interest accrued to the acceleration date as provided above, the Series 2007 Bond Insurer's obligations under the Series 2007 Bond Insurance Policy with respect to such Series 2007 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 2007 Bond Insurer. No grace period shall be permitted for payment defaults. (e) The Series 2007 Bond Insurer shall be a third party beneficiary to this 2007 Parity Bond Resolution. (f) Any amendment, supplement, modification to, or waiver.of, the Bond Resolution or any other transaction document, including any underlying security agreement, that requires the consent of Bondowners or adversely affects the rights and interests of the Series 2007 Bond Insurer shall be subject to the prior written consent of the Series 2007 Bond Insurer. (g) The rights granted to the Series 2007 Bond Insurer under this 2007 Parity Bond Resolution to request, consent to or direct any action are rights granted to the Series 2007 Bond Insurer in consideration of its issuance of the Series 2007 Bond Insurance Policy. Any exercise by the Series 2007 Bond Insurer of such rights is merely an exercise of the Series 2007 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 2007 Bonds nor does such action evidence any position of the Series2007 Bond Insurer, positive or negative, as to whether the consent of any holder of the Series 2007 Bonds is required in addition to consent of the Series 2007 Bond Insurer. (h) To accomplish defeasance the Consolidated Government shall cause to be delivered (i) a report of an independent firm of nationally recognized certified public accountants or such other accountant as shall be acceptable to the Series 2007 Bond Insurer ("Accountant") verifying the sufficiency of the escrow established to pay the Series 2007 Bonds in full on the maturity or redemption date ("Verification"), (ii) an escrow deposit agreement (which shall be acceptable in form and substance to the Series 2007 Bond Insurer), and (iii) an opinion of nationally recognized bond counsel to the effect that the Series 2007 Bonds are no longer "Outstanding" 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 2007 Bond Insurer. The Series 2007 Bond Insurer shall be provided with final drafts of the above-referenced documentation not less than five business days prior to the funding of the escrow. Bonds shall be deemed "Outstanding" under the Bond Resolution unless and until they are in fact paid and retired or the above criteria are met. (i) Amounts paid by the Series 2007 Bond Insurer under the Series 2007 Bond Insurance Policy shall not be deemed paid for purposes of this 2007 Parity Bond Resolution and shall remain Outstanding (as defined in the Series 2007 Bond Insurance Policy) and continue to be due and owing until paid by the Consolidated Government in accordance with this 2007 Parity Bond Resolution. -37- AO 1727076.5 G) The Consolidated Government covenants and agrees to take such action (including, as applicable, filing of UCC financing statements and continuations thereof) as is necessary from time to time to preserve the priority of the pledge of the Pledged Revenues under applicable law. (k) If on the third business day prior to the related scheduled Interest Payment Date or principal payment date (any such day, a "Payment Date") there is not on deposit with the Paying Agent, after making all transfers and deposits required under this 2007 Parity Bond Resolution, moneys sufficient to pay the principal of and interest on the Series 2007 Bonds due on such Payment Date, the Paying Agent shall give notice to the Series 2007 Bond Insurer and to its designated agent (if any) (the "Series 2007 Bond Insurer's Fiscal Agent") by telephone or telecopy of the amount of such deficiency by 12 noon, New York City time, on such business day. If on the second business day prior to the related Payment Date there continues to be a deficiency in the amount available to pay the principal of and interest on the Series 2007 Bonds due on such Payment Date, the Paying Agent shall make a claim under the Series 2007 Bond Insurance Policy and give notice to the Series 2007 Bond Insurer and the Series 2007 Bond Insurer's Fiscal Agent (if any) by telephone of the amount of such deficiency, and the allocation of such deficiency between the amount required to pay interest on the Series 2007 Bonds and the amount required to pay principal of the Series 2007 Bonds, confirmed in writing to the Series 2007 Bond Insurer and the Series 2007 Bond Insurer's Fiscal Agent by 12 noon, New York City time, on such second business day by filling in the form of Notice of Claim and Certificate (as such term is defined in the Series 2007 Bond Insurance Policy) delivered with the Series 2007 Bond Insurance Policy. 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 2007 Bonds who surrender their Series 2007 Bonds a new Series 2007 Bond or Series 2007 Bonds in an aggregate principal amount equal to the unredeemed portion of the Series 2007 Bond surrendered. The Paying Agent shall designate any portion of payment of principal on the Series 2007 Bonds paid by the Series 2007 Bond Insurer, whether by virtue of mandatory sinking fund redemption, maturity or other advancement of maturity, on its books as a reduction in the principal amount of Series 2007 Bonds registered to the then current holder of such Series 2007 Bond, whether the Securities Depository or the Securities Depository Nominee or otherwise, and shall issue a replacement Series 2007 Bond to the Series 2007 Bond Insurer, 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 2007 Bond shall have no effect on the amount of principal or interest payable by the Consolidated Government on any Series 2007 Bond or the subrogation rights of the Series 2007 Bond Insurer. The Paying Agent shall. keep a complete and accurate record of all funds deposited by the Series 2007 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 2007 Bond. The Series 2007 Bond Insurer shall have the right to inspect such records at reasonable times upon reasonable notice to the Paying Agent. -38- AO 1727076.5 Upon payment of a claim under the Series 2007 Bond Insurance Policy, the Paying Agent shall establish a separate special purpose trust account for the benefit of holders of the Series 2007 Bonds referred to herein as the "Policy Payments Account" and over which the Paying Agent shall have exclusive control and sole right of withdrawal. The Paying Agent shall receive any amount paid under the Series 2007 Bond Insurance Policy in trust on behalf of the holders of the Series 2007 Bonds and shall deposit any such amount in the Policy Payments Account and distribute such 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 2007 Bonds in the same manner as principal and interest payments are to be made with respect to the Series 2007 Bonds under the sections hereof and in this 2007 Parity Bond Resolution regarding payment of the Series 2007 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 amounts paid under the Series 2007 Bond Insurance Policy are applied to claims for payment of principal of or interest on the Series 2007 Bonds, interest on such principal of and interest on such Series 2007 Bonds shall accrue and be payable from the date of such payment at the greater of (i) the per annum rate of interest, publicly announced from time to time by JPMorgan Chase Bank or its successor at its principal office in the City of New York, as its prime or base lending rate plus 3 percent, and (ii) the then applicable rate of interest on the Series 2007 Bonds provided that in no event shall such rate exceed 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 a year of 360 days. Funds held in the Policy Payments Account shall not be invested by the Paying Agent and 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 2007 Bond Payment Date shall promptly be remitted to the Series 2007 Bond Insurer. (1) The Series 2007 Bond Insurer shall, to the extent it makes any payment of principal of or interest on the Series 2007 Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Series 2007 Bond Insurance Policy. (m) The Consolidated Government shall payor reimburse the Series 2007 Bond Insurer for any and all charges, fees, costs and expenses which the Series 2007 Bond Insurer may reasonably payor incur in connection with (i) the administration, enforcement, defense or preservation of any rights or security in this 2007 Parity Bond Resolution; (ii) the pursuit of any remedies under this 2007 Parity Bond Resolution or otherwise afforded by law or equity, (iii) any amendment, waiver or other action with respect to, or related to, this 2007 Parity Bond Resolution whether or not executed or completed, (iv) the violation by the Consolidated Government or the Obligor (as defined in the Series 2007 Bond Insurance Policy) of any law, rule or regulation, or any judgment, order or decree applicable to it or (v) any litigation or other dispute in connection with this 2007 Parity Bond Resolution or the transactions contemplated thereby, other than amounts resulting from the failure of the Series 2007 Bond Insurer to honor its obligations under the Series 2007 Bond Insurance Policy. The Series 2007 Bond Insurer reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver -39- AO 1727076.5 or consent proposed in respect of this 2007 Parity Bond Resolution. The amounts payable pursuant to this subparagraph shall only be payable from the Pledged Revenues or from other lawfully available funds. (n) The Series 2007 Bond Insurer shall be entitled to pay principal or interest on the Series 2007 Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Consolidated Government (as such terms are defined in the Series 2007 Bond Insurance Policy) and any amounts due on the Series 2007 Bonds as a result of acceleration of the maturity thereof in accordance with this 2007 Parity Bond Resolution, whether or not the Series 2007 Bond Insurer has received a Notice of Nonpayment (as such term is defined in the Series 2007 Bond Insurance Policy) or a claim upon the Series 2007 Bond Insurance Policy. (0) The notice address of the Series 2007 Bond Insurer is: Financial Security Assurance Inc., 31 West 52nd Street, New York, New York 10019, Attention: Managing Director-Surveillance; Telephone: (212) 826-0100; Telecopier: (212) 339-3556. All notices shall reference the Policy Number. In each case in which notice or other communication refers to an Event of Default, then a copy of such notice or other communication shall also be sent to the attention of General Counsel and shall be marked to indicate "URGENT MATERIAL ENCLOSED." (P) The Series 2007 Bond Insurer shall be provided with the following information: (ii) (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 within 30 days after the approval thereof; (iii) 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 2007 Bonds; (iv) Notice of any default known to the Consolidated Government within five business days after knowledge thereof; (v) Prior notice of the advance refunding or redemption of any of the Series 2007 Bonds, including the principal amount, maturities and CUSIP numbers thereof; (vi) 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; (vii) 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"); -40- AO 1727076.5 (viii) 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 2007 Bonds; (ix) A full original transcript of all proceedings relating to the execution of any amendment or supplement to the Series 2007 Resolution (other than a supplemental resolution adopted solely for the purposes of issuing Additional Bonds or executing and delivering any Hedge Agreement); and (x) All reports, notices and correspondence to be delivered under the terms of this 2007 Parity Bond Resolution. (q) Notwithstanding satisfaction of the other conditions to the issuance of Additional Bonds set forth in the Bond Resolution, no such issuance may occur (1) if an Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default) exists unless such default shall be cured upon such issuance and (2) unless the Debt Service Reserve Account is fully funded at the Reserve Requirement (including the proposed issue) upon the issuance of such Additional Bonds, in either case unless otherwise permitted by the Insurer. (r) In determining whether any amendment, consent, waiver or other action to be taken, or. any failure to take action, under the Resolution would adversely affect the security for the Bonds or the rights of the Bondowners, the Consolidated Government shall consider the effect of any such amendment, consent, waiver, action or inaction as if there were no Insurance Policy. (s) No contract shall be entered into or any action taken by which the rights of the Insurer or security for or sources of payment of the Bonds may be impaired or prejudiced in any material respect except upon obtaining the prior written consent of the Insurer. Section 31. Reserve Account Surety Bond Provisions. The following provisions shall apply with respect to the Series 2007 Reserve Account Surety Bond Provider so long as the Series 2007 Reserve Account Surety Bond is in effect: (a) The Consolidated Government shall repay any draws under the Series 2007 Reserve Account Surety Bond and pay all related reasonable expenses incurred by the Series 2007 Reserve Account Surety Bond Provider. Interest shall accrue and be payable on such draws and expenses from the date of payment by the Series 2007 Reserve Account Surety Bond Provider at the Late Payment Rate. "Late Payment Rate" means the lesser of (A) the greater of (i) 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 2007 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 -41- AO 1727076.5 lending rate of such national bank as the Series 2007 Reserve Account Surety Bond Provider shall specify. (b) 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. (c) Amounts in respect of Policy Costs paid to the Series 2007 Reserve Account Surety Bond Provider shall be credited first to interest due, then to the expenses due and then to principal due. As and to the extent that payments are made to the Series 2007 Reserve Account Surety Bond Provider on account of principal due, the coverage under the Series 2007 Reserve Account Surety Bond will be increased by a like amount, subject to the terms of the Series 2007 Reserve Account Surety Bond. (d) If and to the extent cash or other investments have also been deposited therein, all cash and investments in the Debt Service Reserve Account shall be transferred to the Debt Service Account and such investments liquidated for payment of debt service on the Bonds before any drawing may be made on the Series 2007 Reserve Account Surety Bond or any other Reserve Account Surety 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 2007 Reserve Account Surety Bond) on which there is available coverage shall be made on a pro rata basis (calculated by reference to the coverage then available thereunder) after applying all available cash and investments in the Debt Service Reserve Account. Payment of Policy Costs and reimbursement of amounts with respect to other Reserve Account Surety Bonds shall be made on a pro rata basis prior to replenishment of any cash drawn from the Debt Service Reserve Account. ( e) If the Consolidated Government shall fail to pay any Policy Costs in accordance with the requirements of Paragraph (a) of this Section, the Series 2007 Reserve Account Surety Bond 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 of the Series 2007 Bonds and any Additional Bonds or (ii) remedies which would adversely affect owners of the Series 2007 Bonds and any Additional Bonds. (f) The dollar amount of Policy Costs then owed shall be (i) added to the maximum Debt Service Requirement for purposes of the test for the issuance of Additional Bonds in Section 8 of Article V of the 1996 Resolution and (ii) included in the amounts for which the Consolidated Government is required to impose rates, fees and charges pursuant to Section 25 of this 2007 Parity Bond Resolution. (g) The Bond Resolution shall not be discharged until all Policy Costs owing to the Series 2007 Reserve Account Surety 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. -42- AO 1727076.5 (h) The Paying Agent shall ascertain the necessity for a claim upon the Series 2007 Reserve Account Surety Bond and to provide notice to the Series 2007 Reserve Account Surety Bond Provider in accordance with the terms of the Series 2007 Reserve Account Surety Bond at least five business days prior to each date upon which interest or principal is due on the Series 2007 Bonds. The Paying Agent shall give notice to the Series 2007 Reserve Account Surety Bond Provider of any failure of the Consolidated Government to make timely payment in full of any deposit required to be made to the Debt Service Account within two Business Days of the date due. Section 32. Insurance Ae:reement. The Mayor and Clerk to the Commission are hereby authorized and directed to purchase the Series 2007 Bond Insurance Policy and the Series 2007 Reserve Account Surety Bond and such Series 2007 Reserve Account Surety Bond shall be held for the credit of the Debt Service Reserve Account. In connection with the purchase of the Series 2007 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 2007 Bonds, which Insurance Agreement shall be in substantially the form attached as Exhibit A hereto and incorporated herein, with such changes as may be authorized by the Mayor. The execution and delivery of the Insurance Agreement shall be conclusive evidence of the approval of any such changes. Section 33. 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 2007 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 2007 Bonds. Section 34. Use of Proceeds and Tax Covenant. The Series 2007 Bonds are being issued by the Consolidated Government in compliance with the conditions necessary for interest income on the Series 2007 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 2007 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 Series 2007 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 2007 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 2007 Bonds or any other funds of the Consolidated Government or take or omit to take any action that would cause the Series 2007 Bonds to be "arbitrage bonds" within the meaning of -43- AO 1727076.5 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 2007 Bonds. (c) It will not permit any use of the facilities financed or refinanced by the Series 2007 Bonds which would cause the Series 2007 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 2007 Parity Bond 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 Bond Resolution shall in nowise conflict with the terms, covenants and conditions of the Bond Resolution but shall for all legal purposes contain all of the applicable covenants, agreements and provisions of the Bond Resolution for the equal protection and benefit of all bondholders. Section 35. Severability. In case anyone or more of the provisions of this 2007 Parity Bond Resolution, or the Series 2007 Bonds issued hereunder, shall for any reason be held illegal or invalid, such illegality or invalidity shall not affect any other provisions of this 2007 Parity Bond Resolution or the Series 2007 Bonds, but this 2007 Parity Bond Resolution and the Series 2007 Bonds shall be construed and enforced as if such illegal or invalid provisions had not been contained therein. Section 36. Contract. The provisions, terms and conditions of this 2007 Parity Bond Resolution, as the same shall be supplemented by the 2007 Supplemental Resolution, shall constitute a contract by and between the Consolidated Government and the owners of the Outstanding Prior Bonds and the Series 2007 Bonds authorized to be issued hereunder, and after the issuance of the Series 2007 Bonds this 2007 Parity Bond Resolution, as supplemented by the 2007 Supplemental 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 Bond Resolution, 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 other Prior Resolutions and this 2007 Parity Bond Resolution. Any subsequent proceeding or proceedings authorizing the issuance of Additional Bonds or obligations with the Outstanding Prior Bonds and the Series 2007 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, Section 22 of the 2004 Refunding Resolution, Section 26 of the 2004 Resolution and Section 21 of this 2007 Parity -44- AO 1727076.5 Bond Resolution, shall in nowise conflict with the terms, covenants and conditions of the Bond Resolution, but shall for all legal purposes contain all the applicable covenants, agreements and provisions of the Bond Resolution for the equal protection and benefit of all owners of the Outstanding Prior Bonds, the Series 2007 Bonds and such Additional Bonds. Section 37. Authorization ofPreliminarv Official Statement. The use of the Preliminary Official Statement dated September 20, 2007 with respect to the Series 2007 Bonds is hereby ratified and approved. The execution by the Mayor of a certificate "deeming final" the Preliminary Official Statement prior to the date hereof is hereby authorized, ratified and approved. The preparation, use, execution and delivery of a final Official Statement, to be dated the date hereof in substantially the form as the Preliminary Official Statement but including the particulars with respect to the Series 2007 Bonds as set forth herein, is hereby authorized and approved. Section 38. Authorization of Bond Purchase A2reement. The Purchase Agreement by and between the Consolidated Government and the Underwriter in substantially the form presented at the meeting at which this 2007 Parity Bond Resolution is adopted be, and the same is, authorized and approved and the Mayor of the Consolidated Government is hereby authorized and directed to execute and deliver such Purchase Agreement in the name and on behalf of the Consolidated Government and the Clerk of the Commission is hereby authorized to attest same and to affix the seal of the Consolidated Government thereto, if required. Section 39. Continuine: Disclosure. The Consolidated Government hereby covenants and agrees that it will, to the extent allowed by applicable law, comply with and carry out all provisions of the Continuing Disclosure Certificate to be executed by the Consolidated Government and dated as of the date of issuance and delivery of the Series 2007 Bonds, as originally executed and as it may be amended from time to time in accordance with its terms (the "Disclosure Certificate"). Notwithstanding any other provision of this 2007 Parity Bond Resolution or the Prior Resolutions, failure of the Consolidated Government to comply with the Disclosure 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 2007 Bonds or the Outstanding Prior Bonds. It is expressly provided, however, that any beneficial owner of the Series 2007 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 seeking mandamus or specific performance 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 solely from funds lawfully available for such purpose. Nothing contained in this 2007 Parity Bond Resolution or in the Disclosure Certificate shall obligate the levy of any tax to comply with the Consolidated Government's obligations under this Section. -45- AO 1727076.5 Section 40. Termination of 2004 Hede:e Ae:reement. The appropriate officials of the Consolidated Government are hereby authorized to terminate the 2004 Hedge Agreement and to make a termination payment to the provider thereof in accordance with its terms. Such termination payment shall be payable solely from amounts available therefor in the Utility General Fund. Section 41. Validation. The Series 2007 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 2007 Parity Bond 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. -46- AO 1727076.5 Section 42. Repealer. Any and all resolutions, or parts of resolutions, in conflict with this 2007 Parity Bond Resolution this day passed be and are hereby repealed, and this 2007 Parity Bond Resolution shall be in full force and effect from and after its adoption. Without limiting the foregoing, the authority of the Consolidated Government to issue the Auction Rate Bonds as provided in the 2004 Refunding Resolution shall be and is hereby repealed effective as of the date of the issuance and delivery of the Series 2007 Bonds herein authorized to be issued. APPROVED on September 26, 2007. 11~Y: CJ2 C.#'~ J1t Mayor ~ttested: 7?~;J 77M~ i)~. Clerk . ommission (SEAL) -47- AO 1727076.5 EXHIBIT A Form of Insurance Agreement AO 1727076.5 INSURANCE AGREEMENT INSURANCE AGREEMENT, dated as of October 15,2007, by and between Augusta Utilities Department (the "Issuer") and Financial Security Assurance Inc. (the "Insurer") (the "Agreement"). In consideration of the issuance by the Insurer of its Municipal Bond Debt Service Reserve Insurance Policy No. 1t#ff:If#tt R (the "Reserve Policy") with respect to the Issuer's Water and Sewerage Revenue Refunding Bonds, Series 2007 (the "Bonds") issued under the Resolution adopted [date] (the "Resolution") and the Issuer's payment to the Insurer of the insurance premium for the Reserve Policy, the Insurer and the Issuer hereby covenant and agree as follows: 1. Upon any payment by the Insurer under the Reserve Policy, the Insurer shall furnish to the Issuer written instructions as to the manner in which payment of amounts owed to the Insurer as a result of such payment under the Reserve Policy shall be made. 2. The Issuer shall pay the Insurer the principal amount of any draws under the Reserve Policy and pay all related reasonable expenses incurred by the Insurer and shall pay interest thereon from the date of payment by Financial Security at the Late Payment Rate. "Late Payment Rate" means the lesser of (a) the greater of (i) the per annum rate of interest, publicly announced from time to time by JPMorgan Chase Bank at its principal office in the 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 JPMorgan Chase Bank) plus 3%, and (ii) the then applicable highest rate of interest on the 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 a year of 360 days. In the event JPMorgan Chase Bank ceases to announce its Prime Rate, the Prime Rate shall be the prime or base lending rate of such national bank as the Insurer shall designate. 3. Repayment of draws and payment of expenses and the interest accrued 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 1/12th of the aggregate of Policy Costs related to such draw. 4. Amounts in respect of Policy Costs paid to the Insurer shall be credited first to interest due, then to the expenses due and then to principal due. 5. As and to the extent that payments are made to the Insurer on account of principal due, the coverage under the Reserve POlicy will be increased by a like amount, subject to the terms of the Reserve Policy. 6. All cash and investments in the Reserve Fund shall be transferred to the debt service fund for payment of debt service on the Bonds before any drawing may be made on the Reserve Policy or on any alternative credit instrument. Payment of any Policy Costs shall be made prior to replenishment of any such cash amounts. Draws on all alternative credit instruments (including the Reserve Policy) on which there is available coverage shall be made on a pro rata basis (calculated by reference to coverage then available under each such alternative credit instrument) after applying available cash and investments in the Reserve Fund. Payment of Policy Costs and reimbursement of amounts with respect to alternative credit instruments shall be made on a pro- rata basis prior to replenishment of any cash drawn from the Reserve Fund. Page 1 of 2 7. If the Issuer shall fail to pay any Policy Costs in accordance with the requirements of the Resolution and this Agreement, the Insurer shall be entitled to exercise any and all legal and equitable remedies available to it, including those provided under the Resolution, other than (i) acceleration of the maturity of the Bonds or (ii) remedies which would adversely affect owners of the Bonds. 8. The Resolution shall not be discharged until all Policy Costs owing to the Insurer shall have been paid in full. The Issuer's obligation to pay such amounts shall expressly survive payment in full of the Bonds. 9. In order to secure the Issuer's payment obligations with respect to the Policy Costs, there is hereby granted and perfected in favor of the Insurer a security interest (subordinate only to that of the owners of the Bonds) in all revenues and collateral pledged as security for the Bonds. 10. The dollar amount of Policy Costs then owed shall be (i) added to the maximum Debt Service Requirement for purposes of the test for the issuance of Additional Bonds in Section 8 of Article V of the 1996 Resolution and (ii) included in the amounts for which the-Issuer is required to impose rates, fees and charges pursuant to Section 24 of the Resolution. 11. The Paying Agent shall ascertain the necessity for a claim upon the Reserve Policy and provide notice to the Insurer in accordance with the terms of the Reserve Policy at least five business days prior to each date upon which interest or principal is due on the Bonds. Where deposits are required to be made by the Issuer with the Paying Agent to the debt service fund for the Bonds more often than semi-annually, the Paying Agent shall give notice to the Insurer of any failure of the Issuer to make timely payment in full of such deposits within two business days of the date due. 12. Notices to the Insurer shall be sent to the following address (or such other address as the Insurer may designate in writing): Financial Security Assurance Inc., 31 West 52nd Street, New Yori(, New Yori( 10019 Attention: Managing Director - Surveillance. 13. This Agreement may be executed in counterparts, each of which alone and all of which together shall be deemed one original Agreement. 14. If anyone or more of the agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such agreements, provisions or terms shall be deemed severable from the remaining agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement. 15. All capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Resolution. 16. This Agreement and the rights and obligations of the parties of the Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New Yori(o IN WITNESS WHEREOF, the parties hereto have set their hands as of the date written above. AUGUSTA, GEORGIA FINANCIAL SECURITY ASSURANCE INC. By: Title: By: Title: Authorized Officer L:\LEGAL\MUNIS\ST ATES\GA\103114_D.doc CLERK'S CERTIFICATE GEORGIA, RICHMOND COUNTY The undersigned Clerk of the Augusta-Richmond County Commission (the ~~Commission"), DOES 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 September 26, 2007, at which a quorum was present and acting throughout, authorizing the issuance $177,010,000 Augusta, Georgia Water and Sewerage Revenue Refunding Bonds, Series 2007, the original of said resolution being duly recorded in the Minute Book of the Commission, which Minute Book is in my custody and control, and that said resolution was duly adopted by a vote of: Aye~ Nay~ Abstain ,~ a.'ee..d- WITNESS my hand and the official seal of Augusta, Georgia this September ~ 2007. (S E A L) ~ ./>>AfJ !J 122~ . Clerk gtVs AO 1727076.5