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Item 08 - Obligation Refuding Bonds
MEMO TO: FROM: MEETING DATE: SUBJECT: RECOMMENDATION: f�CViSt� ITEM # �2 HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL ROGER NELSON, CITY MANAGER OCTOBER 19, 2004 REVISED AGENDA ITEM NO. 8 City Council to consider approving: " An Ordinance providing for the issuance of City of Grapevine, Texas, General Obligation Refunding Bonds, Series 2004; levying a tax in payment thereof; prescribing the form of said bonds; approving the Official Statement; approving execution and delivery of a bond purchase agreement and an escrow agreement and enacting other provisions related thereto." BACKGROUND: Work on this Bond sale was continuing late Friday and over the weekend, after the posting of the agenda item included in your packet. After completing the comparison of anticipated interest savings from the refinancing versus an earlier retirement of the TIF Bonds, it is recommended that the TIF Bonds not be refinanced. Refinancing of the Series 1995 and Series 1996 GO bonds is still advantageous and is recommended for approval. The ordinance prepared for your consideration this evening will authorize the sale of refunding bonds to refinance $6,995,000 of previously issued GO bonds. The amount of refunding bonds to be sold will depend upon pricing which was received by First Southwest Company this afternoon. The amount will be approximately $7.0 million. The exact amount will be presented to you this evening by the First Southwest representative. This will result in a net present value saving estimated at $430,000 (6.1 % of principle) over the remaining life of the bonds. The TIF Bonds had a planned retirement date in 2012, based upon historical TIF # 1 revenue receipts. The proposed refinancing would move that estimated retirement date back to 2014, at the lower interest rate. A recently updated model of the revenues going into TIF #1 shows, however, that we may be able to retire the TIF bonds in 2009. When this was factored into the analysis, the projected savings from early retirement exceeded the savings from the lower interest rate after refinancing. Staff recommends that the TIF bonds be dropped from the refinancing issue and that we refinance only the Series 1995 and Series 1996 GO bonds. October 19, 2004 (10:16AM) NCV isc-!— ITEM 0 MEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: ROGER NELSON, CITY MANAGER* MEETING DATE: OCTOBER 19, 2004 SUBJECT: REVISED AGENDA ITEM NO. 8 RECOMMENDATION: City Council to consider approving: " An Ordinance providing for the issuance of City of Grapevine, Texas, General Obligation Refunding Bonds, Series 2004; levying a tax in payment thereof; prescribing the form of said bonds; approving the Official Statement; approving execution and delivery of a bond purchase agreement and an escrow agreement and enacting other provisions related thereto." BACKGROUND: Work on this Bond sale was continuing late Friday and over the weekend, after the posting of the agenda item included in your packet. After completing the comparison of anticipated interest savings from the refinancing versus an earlier retirement of the TIF Bonds, it is recommended that the TIF Bonds not be refinanced. Refinancing of the Series 1995 and Series 1996 GO bonds is still advantageous and is recommended for approval. The ordinance prepared for your consideration this evening will authorize the sale of refunding bonds to refinance $6,995,000 of previously issued GO bonds. The amount of refunding bonds to be sold will depend upon pricing which was received by First Southwest Company this afternoon. The amount will be approximately $7.0 million. The exact amount will be presented to you this evening by the First Southwest representative. This will result in a net present value saving estimated at $430,000 (6.1 % of principle) over the remaining life of the bonds. The TIF Bonds had a planned retirement date in 2012, based upon historical TIF # 1 revenue receipts. The proposed refinancing would move that estimated retirement date back to 2014, at the lower interest rate. A recently updated model of the revenues going into TIF #1 shows, however, that we may be able to retire the TIF bonds in 2009. When this was factored into the analysis, the projected savings from early retirement exceeded the savings from the lower interest rate after refinancing. Staff recommends that the TIF bonds be dropped from the refinancing issue and that we refinance only the Series 1995 and Series 1996 GO bonds. October 19, 2004 (10:16AM) C • � i' � � i relating to $7,345,000 CITY OF GRAPEVINE, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2004 Adopted: October 19, 2004 GRA325/71011 Dallas 879344 1.DOC Section 1.01. Section 1.02. Section 1.03. Section 1.04. TABLE OF CONTENTS Page DEFINITIONS AND OTHER PRELIMINARY MATTERS Definitions............................................................................................................... 2 Findings................................................................................................................... 4 Table of Contents, Titles and Headings.................................................................. 4 Interpretation........................................................................................................... 4 ARTICLE II SECURITY FOR THE BONDS; INTEREST AND SINKING FUND Section2.01. Tax Levy................................................................................................................. 4 Section 2.02. Interest and Sinking Fund....................................................................................... 5 ARTICLE III AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE BONDS Section3.01. Authorization...........................................................................................................5 Section 3.02. Date, Denomination, Maturities and Interest.......................................................... 6 Section 3.03. Medium, Method and Place of Payment................................................................. 6 Section 3.04. Execution and Registration of Bonds...................................................................... 7 Section3.05. Ownership............................................................................................................... 8 Section 3.06. Registration, Transfer and Exchange...................................................................... 9 Section3.07. Cancellation.............................................................................................................9 Section3.08. Temporary Bonds....................................................................................................9 Section 3.09. Replacement Bonds...............................................................................................10 Section 3.10. Book -Entry -Only System......................................................................................11 Section 3.11. Successor Securities Depository; Transfer Outside Book -Entry Only System..... 12 Section 3.12. Payments to Cede & Co........................................................................................12 ARTICLE IV REDEMPTION OF BONDS BEFORE MATURITY Section 4.01. Limitation on Redemption....................................................................................12 Section 4.02. Optional Redemption............................................................................................13 Section 4.03. Partial Redemption................................................................................................13 Section 4.04. Notice of Redemption to Owners..........................................................................13 Section 4.05. Payment Upon Redemption..................................................................................14 Section 4.06. Effect of Redemption............................................................................................14 GRA325/71011 Dallas 879344 1.DOC (i) ARTICLE V PAYING AGENT/REGISTRAR Section 5.01. Appointment of Initial Paying Agent/Registrar....................................................14 Section5.02. Qualifications........................................................................................................14 Section 5.03. Maintaining Paying Agent/Registrar.....................................................................14 Section5.04. Termination...........................................................................................................15 Section 5.05. Notice of Change to Owners.................................................................................15 Section 5.06. Agreement to Perform Duties and Functions........................................................15 Section 5.07. Delivery of Records to Successor.........................................................................15 ARTICLE VI FORM OF THE BONDS Section6.01. Form Generally.....................................................................................................15 Section6.02. Form of the Bonds.................................................................................................16 Section6.03. CUSIP Registration...............................................................................................22 Section6.04. Legal Opinion........................................................................................................ 22. Section 6.05. Statement of Insurance..........................................................................................22 ARTICLE VII SALE AND DELIVERY OF BONDS, DEPOSIT OF PROCEEDS Section 7.01. Sale of Bonds, Official Statement......................................................................... 22 Section 7.02. Control and Delivery of Bonds............................................................................. 23 Section 7.03. Deposit of Proceeds............................................................................................... 23 Section7.04. Security of Funds.................................................................................................. 24 ARTICLE VIII INVESTMENTS Section8.01. Investments............................................................................................................ 24 Section 8.02. Investment Income................................................................................................ 24 ARTICLE IX PARTICULAR REPRESENTATIONS AND COVENANTS Section 9.01. Payment of the Bonds........................................................................................... 24 Section 9.02. Other Representations and Covenants................................................................... 25 Section 9.03. Provisions Concerning Federal Income Tax Exclusion ........................................ 25 Section 9.04. No Private Use or Payment and No Private Loan Financing ................................ 25 Section 9.05. No Federal Guaranty.............................................................................................26 Section 9.06. Bonds are not Hedge Bonds.................................................................................. 26 GRA325/71011 Dallas 879344_I.DOC (ii) Section 9.07. No -Arbitrage Covenant.........................................................................................26 Section9.08. Arbitrage Rebate................................................................................................... 26 Section 9.09. Information Reporting........................................................................................... 27 Section 9.10. Continuing Obligation ......................... Section 9.11. Qualified Tax -Exempt Obligations....................................................................... 27 ARTICLE X DEFAULT AND REMEDIES Section10.01. Events of Default................................................................................................... 27 Section 10.02. Remedies for Default............................................................................................ 28 Section 10.03. Remedies Not Exclusive....................................................................................... 28 ARTICLE XI DISCHARGE Section11.01. Discharge...............................................................................................................28 ARTICLE XII CONTINUING DISCLOSURE UNDERTAKING Section12.01. Annual Reports......................................................................................................28 Section 12.02. Material Event Notices.......................................................................................... 29 Section 12.03. Limitations, Disclaimers and Amendments.......................................................... 30 ARTICLE XIII REDEMPTION OF BONDS; APPROVAL OF ESCROW AGREEMENT; PURCHASE OF ESCROWED SECURITIES Section 13.01. Redemption of Refunded Bonds........................................................................... 31 Section 13.02. Subscription of Federal Securities......................................................................... 31 Section 13.03. Approval of Escrow Agreement............................................................................ 31 Section 13.04. Notice of Deposit.................................................................................................. 31 Schedule I — Schedule of Refunded Bonds Exhibit A - Description of Annual Disclosure of Financial Information .................................... A-1 GRA325/71011 Dallas 874344_1.DOC AN ORDINANCE PROVIDING FOR THE ISSUANCE OF CITY OF GRAPEVINE, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2004, IN THE AGGREGATE PRINCIPAL AMOUNT OF $7,345,000; LEVYING A TAX IN PAYMENT THEREOF; PRESCRIBING THE FORM OF SAID BONDS; APPROVING THE OFFICIAL STATEMENT; APPROVING EXECUTION AND DELIVERY OF A BOND PURCHASE AGREEMENT AND AN ESCROW AGREEMENT; AND ENACTING OTHER PROVISIONS RELATING THERETO; WHEREAS, there are presently outstanding certain obligations of the City of Grapevine, Texas (the "City"), which are secured by and payable from ad valorem taxes levied on property within the City in an amount sufficient to pay principal of and interest on such bonds as they become due within the limits prescribed by law; and WHEREAS, the City now desires to refund such obligations described on Schedule I hereto (such Refunded Bonds to be hereinafter referred to as the "Refunded Bonds"); and WHEREAS, Chapter 1207, Texas Government Code, authorizes the City to issue refunding bonds and to deposit the proceeds from the sale thereof, and any other available funds or resources, directly with a place of payment (paying agent) for the Refunded Bonds, and such deposit, if made before such payment dates, shall constitute the making of firm banking and financial arrangements for the discharge and final payment of the Refunded Bonds; and WHEREAS, Chapter 1207 further authorizes the City to enter into an escrow agreement with any paying agent for the Refunded Bonds with respect to the safekeeping, investment, reinvestment, administration and disposition of any such deposit, upon such terms and conditions as the City and such paying agent may agree, provided that such deposits may be invested and reinvested only in direct obligations of the United States of America, including obligations the principal of and interest on which are unconditionally guaranteed by the United States of America, and which shall mature and bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment or prepayment of the Refunded Bonds; and WHEREAS, JPMorgan Chase Bank, N.A. is a paying agent for one or more series of the Refunded Bonds and the Escrow Agreement hereinafter authorized constitutes an escrow agreement of the kind authorized and permitted by said Chapter 1207; and WHEREAS, the City Council of the City hereby finds and determines that refunding the Refunded Bonds for the purpose of achieving a gross debt service savings of approximately $702,325.00 and a net present value debt service savings of approximately $570,016.15, representing approximately 8.149%, with respect to the Refunded Bonds is in the best interest of the citizens of the City; and WHEREAS, the City Council has found and determined that it is necessary and in the best interest of the City and its citizens that it authorize by this Ordinance the issuance and delivery of its bonds in a single series at this time; and GRA325/71011 Dallas 879344j MOC WHEREAS, it is officially found, determined and declared that the meeting at which this Ordinance has been adopted was open to the public as required by law, and the public notice of the time, place and purpose of said meeting was given as required by Chapter 551, Texas Government Code, as amended; therefore BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF GRAPEVINE, TEXAS: ARTICLE I DEFINITIONS AND OTHER PRELIMINARY MATTERS Section 1.01. Definitions. Unless otherwise expressly provided or unless the context clearly requires otherwise in this Ordinance, the following terms shall have the meanings specified below: "Bond" means any of the Bonds. "Bond Date" means the date designated as the date of the Bonds by Section 3.02(a) of this Ordinance. "Bonds" means the City's bonds authorized to be issued by Section 3.01 of this Ordinance and designated as "City of Grapevine, Texas, General Obligation Refunding Bonds, Series 2004." "Business Day" means a day that is not a Saturday, Sunday, legal holiday or other day on which banking institutions in the city where the Designated Payment/Transfer Office is located are required or authorized by law or executive order to close. "City" means the City of Grapevine, Texas. "Closing Date" means the date of the initial delivery of and payment for the Bonds. "Code" means the Internal Revenue Code of 1986, as amended, including applicable regulations, published rulings and court decisions. "Designated Payment/Transfer Office" means (i) with respect to the initial Paying Agent/Registrar named herein, its office in Dallas, Texas, or at such other location designated by the Paying Agent/Registrar and (ii) with respect to any successor Paying Agent/Registrar, the office of such successor designated and located as may be agreed upon by the City and such successor. "DTC" means The Depository Trust Company of New York, New York, or any successor securities depository. GRA325/71011 Dallas 879344 I.DOC -2- "DTC Participant" means brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities transactions among DTC Participants. "Escrow Agent" means JPMorgan Chase Bank, N.A., or its successors or assigns. "Escrow Agreement" means that certain Escrow Agreement, dated as of October 15, 2004, between the City and the Escrow Agent. "Escrow Fund" means the fund by that name established in the Escrow Agreement. "Event of Default" means any event of default as defined in Section 10.01 of this Ordinance. "Initial Bond" means the Initial Bond authorized by Section 3.04(d) of this Ordinance. "Interest and Sinking Fund" means the interest and sinking fund established by Section 2.02 of this Ordinance. "Interest Payment Date" means the date or dates on which interest on the Bonds is scheduled to be paid until their respective dates of maturity or prior redemption, such dates being February 15 and August 15, commencing February 15, 2005. "MSRB" means the Municipal Securities Rulemaking Board. "NRMSIR" means each person whom the SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to time. "Owner" means the person who is the registered owner of a Bond or Bonds, as shown in the Register. "Paying Agent/Registrar" means initially JPMorgan Chase Bank, N.A., or any successor thereto as provided in this Ordinance. "Record Date" means the last Business Day of the month next preceding an Interest Payment Date. "Register" means the bond register specified in Section 3.06(a) of this Ordinance. "Representations Letter" means the Blanket Letter of Representations previously executed by the City and DTC and on file with DTC. "SEC" means the United States Securities and Exchange Commission. "SID" means any person designated by the State of Texas or an authorized department, officer or agency thereof, as and determined by the SEC or its staff to be a state information depository within the meaning of the Rule from time to time. GRA325/71011 Dallas 879344 I.DOC -3- "Special Payment Date" means the Special Payment Date prescribed by Section 3.03(b). "Special Record Date" means the Special Record Date prescribed by Section 3.03(b). "Unclaimed Payments" means money deposited with the Paying Agent/Registrar for the payment of principal of, redemption premium, if any, or interest on the Bonds as the same come due and payable or money set aside for the payment of Bonds duly called, for redemption prior to maturity. "Underwriters" mean Southwest Securities, Inc., SAMCO Capital Markets and FTN Financial Capital Markets, as underwriters of the Bonds pursuant to that certain Bond Purchase Agreement approved in Section 7.01 hereof. Section 1.02. Findings. The declarations, determinations and findings declared, made and found in the preamble to this Ordinance are hereby adopted, restated and made a part of the operative provisions hereof. Section 1.03. Table of Contents, Titles and Headings. The table of contents, titles and headings of the Articles and Sections of this Ordinance have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof and shall never be considered or given any effect in construing this Ordinance or any provision hereof or in ascertaining intent, if any question of intent should arise. Section 1.04. Interpretation. (a) Unless the context requires otherwise, words of the masculine gender shall be construed to include correlative words of the feminine and neuter genders and vice versa, and words of the singular number shall be construed to include correlative words of the plural number and vice versa. (b) This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein. ARTICLE II SECURITY FOR THE BONDS; INTEREST AND SINKING FUND Section 2.01. Tax Lew. (a) Pursuant to the authority granted by the Texas Constitution and the laws of the State of Texas, there is hereby levied for the current year and for each succeeding year hereafter while any of the Bonds or any interest thereon is outstanding and unpaid, an ad valorem tax on each one hundred dollars' valuation of taxable property within the City, at a rate sufficient, within the limit prescribed by law, to pay the debt service requirements of the Bonds, being (i) the interest on the Bonds, and (ii) a sinking fund for their redemption at maturity or a sinking GRA325/71011 Dallas 879344 i.DOC IN fund of 2% per annum (whichever amount is greater), when due and payable, full allowance being made for delinquencies and costs of collection. (b) The ad valorem tax thus levied shall be assessed and collected each year against all property appearing on the tax rolls of the City most recently approved in accordance with law and the money thus collected shall be deposited as collected to the Interest and Sinking Fund. (c) Said ad valorem tax, the collections therefrom, and all amounts on deposit in or required hereby to be deposited to the Interest and Sinking Fund are hereby pledged and committed irrevocably to the payment of the principal of and interest on the Bonds when and as due and payable in accordance with their terms and this Ordinance. (d) To the extent the City has available funds which may be lawfully used to pay debt service on the Bonds and such funds are on deposit in the Interest and Sinking Fund in advance of the time when the City Council of the City is scheduled to set a tax rate for any year, then such tax rate which would otherwise be required to be established pursuant to subsection (a) of this Section may be reduced to the extent and by the amount of such funds in the Interest and Sinking Fund. (e) If the lien and provisions of this Ordinance shall be released in a manner permitted by Article XI hereof, then the collection of such ad valorem tax may be suspended or appropriately reduced, as the facts may permit, and further deposits to the Interest and Sinking Fund may be suspended or appropriately reduced, as the facts may permit. In determining the aggregate principal amount of outstanding Bonds, there shall be subtracted the amount of any Bonds that have been duly called for redemption and for which money has been deposited with the Paying Agent/Registrar for such redemption. Section 2.02. Interest and Sinking Fund. (a) The City hereby establishes a special fund or account, to be designated the "City of Grapevine, Texas General Obligation Refunding Bonds, Series 2004, Interest and Sinking Fund," said fund to be maintained at an official depository bank of the City separate and apart from all other funds and accounts of the City. (b) Money on deposit in or required by this Ordinance to be deposited to the Interest and Sinking Fund shall be used solely for the purpose of paying the interest on and principal of the Bonds when and as due and payable in accordance with their terms and this Ordinance. ARTICLE III AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE BONDS Section 3.01. Authorization. The City's bonds to be designated "City of Grapevine, Texas General Obligation Refunding Bonds, Series 2004," are hereby authorized to be issued and delivered in accordance with Tex. Const. art. XI, Sec. 5, Chapter 1207 Texas Government Code, as amended, and GRA325/71011 Dallas 879344_I.DOC -5- Section 9.26 of the City's Home -Rule Charter. The Bonds shall be issued in the aggregate principal amount of $7,345,000, for the purpose of providing funds to (i) refund the Refunded Bonds, and (ii) pay the costs of issuing the Bonds. Section 3.02. Date, Denomination, Maturities and Interest. (a) The Bonds shall be dated October 15, 2004. The Bonds shall be in fully registered form, without coupons, in the denomination of $5,000 or any integral multiple thereof, and shall be numbered separately from one upward, except the Initial Bond, which shall be numbered T-1. (b) The Bonds shall mature on February 15 in the years and in the principal amounts set forth in the following schedule: (c) Interest shall accrue and be paid on each Bond respectively until its maturity or prior redemption, from the later of the Bond Date or the most recent Interest Payment Date to which interest has been paid or provided for at the rates per annum for each respective maturity specified in the schedule contained in subsection (b) above. Such interest shall be payable semiannually commencing on February 15, 2005, and on each February 15 and August 15 thereafter until maturity or prior redemption. Interest on the Bonds shall be calculated on the basis of a 360 -day year composed of 12 months of 30 days each. Section 3.03. Medium, Method and Place of Pavment. (a) The principal of, premium, if any, and interest on the Bonds shall be paid in lawful money of the United States of America. (b) Interest on the Bonds shall be payable to the Owners as shown in the Register at the close of business on the Record Date; provided, however, in the event of nonpayment of interest on a scheduled Interest Payment Date and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") shall be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the "Special Payment Date," which shall be 15 days after the Special Record Date) shall be sent at least five Business Days prior to the Special Record Date by United States mail, first GRA325/71011 Dallas 879344 1.DOC 10 Serial Bonds Maturity Principal Interest Maturity Principal Interest (February 15) Amount Rate (February 15) Amount Rate 2005 $130,000 2.500% 2012 $ 40,000 3.500% 2006 30,000 2.500% 2013 40,000 3.500% 2007 30,000 2.500% 2014 1,960,000 3.500% 2008 35,000 2.500% 2015 2,035,000 4.000% 2009 35,000 3.000% 2016 2,125,000 4.000% 2010 35,000 3.000% 2017 815,000 4.000% 2011 35,000 3.250% (c) Interest shall accrue and be paid on each Bond respectively until its maturity or prior redemption, from the later of the Bond Date or the most recent Interest Payment Date to which interest has been paid or provided for at the rates per annum for each respective maturity specified in the schedule contained in subsection (b) above. Such interest shall be payable semiannually commencing on February 15, 2005, and on each February 15 and August 15 thereafter until maturity or prior redemption. Interest on the Bonds shall be calculated on the basis of a 360 -day year composed of 12 months of 30 days each. Section 3.03. Medium, Method and Place of Pavment. (a) The principal of, premium, if any, and interest on the Bonds shall be paid in lawful money of the United States of America. (b) Interest on the Bonds shall be payable to the Owners as shown in the Register at the close of business on the Record Date; provided, however, in the event of nonpayment of interest on a scheduled Interest Payment Date and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") shall be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the "Special Payment Date," which shall be 15 days after the Special Record Date) shall be sent at least five Business Days prior to the Special Record Date by United States mail, first GRA325/71011 Dallas 879344 1.DOC 10 class, postage prepaid, to the address of each Owner of a Bond appearing on the Register at the close of business on the last Business Day next preceding the date of mailing of such notice. (c) Interest shall be paid by check, dated as of and mailed on the Interest Payment Date, and sent by the Paying Agent/Registrar to each Owner, first class United States mail, postage prepaid, to the address of each Owner as it appears in the Register, or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the Owner; provided, however, that the Owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. (d) The principal of each Bond shall be paid to the Owner on the due date thereof (whether at the maturity date or the date of prior redemption thereof) upon presentation and surrender of such Bond at the Designated Payment/Transfer Office of the Paying Agent/Registrar. (e) If the date for the payment of the principal of or interest on the Bonds shall be a Saturday, Sunday, legal holiday, or day on which banking institutions in the city where the Designated Payment/Transfer Office is located are required or authorized by law or executive order to close, the date for such payment shall be the next succeeding day which is not a Saturday, Sunday, legal holiday, or day on which banking institutions are required or authorized to close, and payment on such date shall have the same force and effect as if made on the original date payment was due and no additional interest shall be due by reason of nonpayment on the date on which such payment is otherwise stated to be due and payable. (f) Unclaimed Payments shall be segregated in a special escrow account and held in trust, uninvested by the Paying Agent/Registrar, for the account of the Owners of the Bonds to which the Unclaimed Payments pertain. Subject to Title 6 of the Texas Property Code, any Unclaimed Payments remaining unclaimed by the Owners entitled thereto for three years after the applicable payment or redemption date shall be applied to the next payment or payments on the Bonds thereafter coming due and, to the extent any such money remains after the retirement of all outstanding Bonds, shall be paid to the City to be used for any lawful purpose. Thereafter, neither the City, the Paying Agent/Registrar nor any other person shall be liable or responsible to any Owners of such Bonds for any further payment of such unclaimed moneys or on account of any such Bonds, subject to Title 6 of the Texas Property Code, any applicable escheat law or similar. Section 3.04. Execution and Registration of Bonds. (a) The Bonds shall be executed on behalf of the City by the Mayor and the City Secretary, by their manual or facsimile signatures, and the official seal of the City shall be impressed or placed in facsimile thereon. Such facsimile signatures on the Bonds shall have the same effect as if each of the Bonds had been signed manually and in person by each of said officers, and such facsimile seal on the Bonds shall have the same effect as if the official seal of the City had been manually impressed upon each of the Bonds. GRA325/71011 Dallas 879344 I.DOC W (b) In the event that any officer of the City whose manual or facsimile signature appears on the Bonds ceases to be such officer before the authentication of such Bonds or before the delivery thereof, such manual or facsimile signature nevertheless shall be valid and sufficient for all purposes as if such officer had remained in such office. (c) Except as provided below, no Bond shall be valid or obligatory for any purpose or be entitled to any security or benefit of this Ordinance unless and until there appears thereon the Certificate of Paying Agent/Registrar substantially in the form provided herein, duly authenticated by manual execution by an officer or duly authorized signatory of the. Paying Agent/Registrar. It shall not be required that the same officer or authorized signatory of the Paying Agent/Registrar sign the Certificate of Paying Agent/Registrar on all of the Bonds. In lieu of the executed Certificate of Paying Agent/Registrar described above, the Initial Bond delivered at the Closing Date shall have attached thereto the Comptroller's Registration Certificate substantially in the form provided herein, manually executed by the Comptroller of Public Accounts of the State of Texas, or by his duly authorized agent, which Certificate shall be evidence that the Bond has been duly approved by the Attorney General of the State of Texas and that it is a valid and binding obligation of the City, and has been registered by the Comptroller of Public Accounts of the State of Texas. (d) On the Closing Date, one Initial Bond representing the entire principal amount of all Bonds, payable in stated installments to the initial purchaser, or its designee, executed manually or by facsimile by the Mayor and City Secretary of the City, approved by the Attorney General, and registered and manually signed by the Comptroller of Public Accounts, will be delivered to the initial purchaser or its designee. Upon payment for the Initial Bond, the Paying Agent/Registrar shall cancel the Initial Bond and deliver to DTC on behalf of the Purchaser one registered definitive Bond for each year of maturity of the Bonds in the aggregate principal amount of all Bonds for such maturity, registered in the name of Cede & Co., as nominee of DTC. Section 3.05. Ownership. (a) The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Bond is registered as the absolute owner of such Bond for the purpose of making and receiving payment of the principal thereof and redemption premium, if any, thereon, for the further purpose of making and receiving payment of the interest thereon, and for all other purposes (except interest will be paid to the person in whose name such bond is registered on the Record Date or Special Record Date, as applicable), whether or not such Bond is overdue, and neither the City nor the Paying Agent/Registrar shall be bound by any notice or knowledge to the contrary. (b) All payments made to the Owner of a Bond shall be valid and effectual and shall discharge the liability of the City and the Paying Agent/Registrar upon such Bond to the extent of the sums paid. GRA325/71011 Dallas 879344 1.DOC am Section 3.06. Registration, Transfer and Exchange. (a) So long as any Bonds remain outstanding, the City shall cause the Paying Agent/Registrar to keep at the Designated Payment/Transfer Office a register (the "Register") in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of Bonds in accordance with this Ordinance. (b) The ownership of a Bond may be transferred only upon the presentation and surrender of the Bond at the Designated Payment/Transfer Office with such endorsement or other evidence of transfer as is acceptable to the Paying Agent/Registrar. No transfer of any Bond shall be effective until entered in the Register. (c) The Bonds shall be exchangeable upon the presentation and surrender thereof at the Designated Payment/Transfer Office for a Bond or Bonds of the same maturity and interest rate and in any denomination or denominations of any integral multiple of $5,000 and in an aggregate principal amount equal to the unpaid principal amount of the Bonds presented for exchange. The Paying Agent/Registrar is hereby authorized to authenticate and deliver Bonds exchanged for other Bonds in accordance with this Section. (d) Each exchange Bond delivered by the Paying Agent/Registrar in accordance with this Section shall constitute an original contractual obligation of the City and shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such exchange Bond is delivered. (e) No service charge shall be made to the Owner for the initial registration, subsequent transfer, or exchange for a different denomination of any of the Bonds. The Paying Agent/Registrar, however, may require the Owner to pay a sum sufficient to cover any tax or other governmental charge that is authorized to be imposed in connection with the registration, transfer or exchange of a Bond. (f) Neither the City nor the Paying Agent/Registrar shall be required to issue, transfer, or exchange any Bond called for redemption, in whole or in part, within 45 calendar days prior to the date fixed for redemption; provided, however, such limitation shall not be applicable to an exchange by the Owner of the uncalled principal balance of a Bond. Section 3.07. Cancellation. All Bonds paid or redeemed before scheduled maturity in accordance with this Ordinance, and all Bonds in lieu of which exchange Bonds or replacement Bonds are authenticated and delivered in accordance with this Ordinance, shall be cancelled and proper records shall be made regarding such payment, redemption, exchange or replacement. The Paying Agent/Registrar shall dispose of cancelled Bonds in accordance with the Securities Exchange Act of 1934. Section 3.08. Temporary Bonds. (a) Following the delivery and registration of the Initial Bond and pending the preparation of definitive Bonds, the proper officers of the City may execute and, upon the City's GRA325/71011 Dallas 879344 1.DOC In request, the Paying Agent/Registrar shall authenticate and deliver, one or more temporary Bonds that are printed, lithographed, typewritten, mimeographed or otherwise produced, in any denomination, substantially of the tenor of the definitive Bonds in lieu of which they are delivered, without coupons, and with such appropriate insertions, omissions, substitutions and other variations as the officers of the City executing such temporary Bonds may determine, as evidenced by their signing of such temporary Bonds. (b) Until exchanged for Bonds in definitive form, such Bonds in temporary form shall be entitled to the benefit and security of this Ordinance. (c) The City, without unreasonable delay, shall prepare, execute and deliver to the Paying Agent/Registrar the Bonds in definitive form; thereupon, upon the presentation and surrender of the Bonds in temporary form to the Paying Agent/Registrar, the Paying Agent/Registrar shall cancel the Bonds in temporary form and shall authenticate and deliver in exchange therefor Bonds of the same maturity and series, in definitive form, in the authorized denomination, and in the same aggregate principal amount, as the Bonds in temporary form surrendered. Such exchange shall be made without the making of any charge therefor to any Owner. Section 3.09. Replacement Bonds. (a) Upon the presentation and surrender to the Paying Agent/Registrar of a mutilated Bond, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Bond of like tenor and principal amount, bearing a number not contemporaneously outstanding. The City or the Paying Agent/Registrar may require the Owner of such Bond to pay a sum sufficient to cover any tax or other governmental charge that is authorized to be imposed in connection therewith and any other expenses connected therewith. (b) In the event that any Bond is lost, apparently destroyed or wrongfully taken, the Paying Agent/Registrar, pursuant to the applicable laws of the State of Texas and in the absence of notice or knowledge that such Bond has been acquired by a bona fide purchaser, shall authenticate and deliver a replacement Bond of like tenor and principal amount, bearing a number not contemporaneously outstanding, provided that the Owner first: (i) furnishes to the Paying Agent/Registrar satisfactory evidence of his or her ownership of and the circumstances of the loss, destruction or theft of such Bond; (ii) furnishes such security or indemnity as may be required by the Paying Agent/Registrar to save it and the City harmless; (iii) pays all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Paying Agent/Registrar and any tax or other governmental charge that is authorized to be imposed; and (iv) satisfies any other reasonable requirements imposed by the City and the Paying Agent/Registrar. GRA325/71011 Dallas 879344_1.DOC -10- (c) If, after the delivery of such replacement Bond, a bona fide purchaser of the original Bond in lieu of which such replacement Bond was issued presents for payment such original Bond, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Bond from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the City or the Paying Agent/Registrar in connection therewith. (d) In the event that any such mutilated, lost, apparently destroyed or wrongfully taken Bond has become or is about to become due and payable, the Paying Agent/Registrar, in its discretion, instead of issuing a replacement Bond, may pay such Bond if it has become due and payable or may pay such Bond when it becomes due and payable. (e) Each replacement Bond delivered in accordance with this Section shall constitute an original additional contractual obligation of the City and shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such replacement Bond is delivered. Section 3.10. Book-Entry-Onl S sem. (a) Notwithstanding any other provision hereof, upon initial issuance of the Bonds, the Bonds shall be registered in the name of Cede & Co., as nominee of DTC. The definitive Bonds shall be initially issued in the form of a single separate bond for each of the maturities thereof. (b) With respect to Bonds registered in the name of Cede & Co., as nominee of DTC, the City and the Paying Agent/Registrar shall have no responsibility or obligation to any DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence, the City and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any DTC Participant or any other person, other than an Owner, as shown on the Register, of any notice with respect to the Bonds, including any notice of redemption, or (iii) the payment to any DTC Participant or any other person, other than an Owner, as shown in the Register of any amount with respect to principal of, premium, if any, or interest on the Bonds. Notwithstanding any other provision of this Ordinance to the contrary, the City and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Bond is registered in the Register as the absolute owner of such Bond for the purpose of payment of principal of, premium, if any, and interest on the Bonds, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfer with respect to such Bond, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of, premium, if any, and interest on the Bonds only to or upon the order of the respective Owners as shown in the Register, as provided in this Ordinance, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the Register, shall receive a certificate evidencing the GRA325/71011 Dallas 879344 1.DOC -11- obligation of the City to make payments of amounts due pursuant to this Ordinance. Upon delivery by DTC to the Paying Agent/Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., the word "Cede & Co." in this Ordinance shall refer to such new nominee of DTC. (c) The Representations Letter previously executed and delivered by the City, and applicable to the City's obligations delivered in book -entry -only form to DTC as securities depository, is hereby ratified and approved for the Bonds. Section 3.11. Successor Securities Depository; Transfer Outside Book -Entry Only System. In the event that the City or the Paying Agent/Registrar determines that DTC is incapable of discharging its responsibilities described herein and in the Representations Letter of the City to DTC, and that it is in the best interest of the beneficial owners of the Bonds that they be able to obtain certificated Bonds, or in the event DTC discontinues the services described herein, the City shall (i) appoint a successor securities depository, qualified to act as such under Section 17(a) of the Securities and Exchange Act of 1934, as amended, notify DTC and DTC Participants of the appointment of such successor securities depository and transfer one or more separate Bonds to such successor securities depository; or (ii) notify DTC and DTC Participants of the availability through DTC of certificated Bonds and cause the Paying Agent/Registrar to transfer one or, more separate registered Bonds to DTC Participants having Bonds credited to their DTC accounts. In such event, the Bonds shall no longer be restricted to being registered in the Register in the name of Cede & Co., as nominee of DTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names Owners transferring or exchanging Bonds shall designate, in accordance with the provisions of this Ordinance. Section 3.12. Payments to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, so long as any Bonds are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on such Bonds, and all notices with respect to such Bonds, shall be made and given, respectively, in the manner provided in the Representations Letter of the City to DTC. ARTICLE IV REDEMPTION OF BONDS BEFORE MATURITY Section 4.01. Limitation on Redemption. The Bonds shall be subject to redemption before scheduled maturity only as provided in this Article IV. GRA325/71011 Dallas 879344 I.DOC -12- Section 4.02. Optional Redemption. (a) The City reserves the option to redeem Bonds maturing on and after February 15, 2015 in whole or any part, before their respective scheduled maturity dates, on February 15, 2014 or on any date thereafter, such redemption date or dates to be fixed by the City, at a price equal to the principal amount of the Bonds called for redemption plus accrued interest to the date fixed for redemption. (b) If less than all of the Bonds are to be redeemed pursuant to an optional redemption, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar to call by lot the Bonds, or portions thereof, within such maturity or maturities and in such principal amounts for redemption. (c) The City, at least 45 days before the redemption date, unless a shorter period shall be satisfactory to the Paying Agent/Registrar, shall notify the Paying Agent/Registrar of such redemption date and of the principal amount of Bonds to be redeemed. Section 4.03. Partial Redemption. (a) A portion of a single Bond of a denomination greater than $5,000 may be redeemed, but only in a principal amount equal to $5,000 or any integral multiple thereof. If such a Bond is to be partially redeemed, the Paying Agent/Registrar shall treat each $5,000 portion of the Bond as though it were a single Bond for purposes of selection for redemption. (b) Upon surrender of any Bond for redemption in part, the Paying Agent/Registrar, in accordance with Section 3.06 of this Ordinance, shall authenticate and deliver an exchange Bond or Bonds in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered, such exchange being without charge. (c) The Paying Agent/Registrar shall promptly notify the City in writing of the principal amount to be redeemed of any Bond as to which only a portion thereof is to be redeemed. Section 4.04. Notice of Redemption to Owners. (a) The Paying Agent/Registrar shall give notice of any redemption of Bonds by sending notice by first class United States mail, postage prepaid, not less than 30 days before the date fixed for redemption, to the Owner of each Bond (or part thereof) to be redeemed, at the address shown on the Register at the close of business on the Business Day next preceding the date of mailing such notice. (b) The notice shall state the redemption date, the redemption price, the place at which the Bonds are to be surrendered for payment, and, if less than all the Bonds outstanding are to be redeemed, an identification of the Bonds or portions thereof to be redeemed. (c) Any notice given as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives such notice. GRA325/71011 Dallas 879344 I.DOC -13- Section 4.05. Payment Unon Redemption. (a) Before or on each redemption date, the City shall deposit with the Paying Agent/Registrar money sufficient to pay all amounts due on the redemption date and the Paying Agent/Registrar shall make provision for the payment of the Bonds to be redeemed on such date by setting aside and holding in trust such amounts as are received by the Paying Agent/Registrar from the City and shall use such funds solely for the purpose of paying the principal of, redemption premium, if any, and accrued interest on the Bonds being redeemed. (b) Upon presentation and surrender of any Bond called for redemption at the Designated Payment/Transfer Office on or after the date fixed for redemption, the Paying Agent/Registrar shall pay the principal of, redemption premium, if any, and accrued interest on such Bond to the date of redemption from the money set aside for such purpose. Section 4.06. Effect of Redem tp ion. (a) Notice of redemption having been given as provided in Section 4.04 of this Ordinance, the Bonds or portions thereof called for redemption shall become due and payable on the date fixed for redemption and, unless the City defaults in its obligation to make provision for the payment of the principal thereof, redemption premium, if any, or accrued interest thereon, such Bonds or portions thereof shall cease to bear interest from and after the date fixed for redemption, whether or not such Bonds are presented and surrendered for payment on such date. (b) If the City shall fail to make provision for payment of all sums due on a redemption date, then any Bond or portion thereof called for redemption shall continue to bear interest at the rate stated on the Bond until due provision is made for the payment of same by the City. ARTICLE V PAYING AGENT/REGISTRAR Section 5.01. Appointment of Initial Paving Agent/Registrar. JPMorgan Chase Bank, N.A., Dallas, Texas, is hereby appointed as the initial Paying Agent/Registrar for the Bonds. Section 5.02. Qualifications. Each Paying Agent/Registrar shall be a commercial bank, a trust company organized under the laws of the State of Texas, or any other entity duly qualified and legally authorized to serve as and perform the duties and services of paying agent and registrar for the Bonds. Section 5.03. Maintaining Pa.-dng_A eg nt/Re ig strar. (a) At all times while any Bonds are outstanding, the City will maintain a Paying Agent/Registrar that is qualified under Section 5.02 of this Ordinance. The Mayor is hereby authorized and directed to execute an agreement (the "Paying Agent/Registrar Agreement"), in GRA325/71011 Dallas 879344 I.DOC -14- the form presented at this meeting, with the Paying Agent/Registrar specifying the duties and responsibilities of the City and the Paying Agent/Registrar. The signature of the Mayor shall be attested by the City Secretary of the City. (b) If the Paying Agent/Registrar resigns or otherwise ceases to serve as such, the City will promptly appoint a replacement. Section 5.04. Termination. The City, upon not less than 60 days notice, reserves the right to terminate the appointment of any Paying Agent/Registrar by delivering to the entity whose appointment is to be terminated written notice of such termination. Section 5.05. Notice of Change to Owners. Promptly upon each change in the entity serving as Paying Agent/Registrar, the City will cause notice of the change to be sent to each Owner by first class United States mail, postage prepaid, at the address in the Register, stating the effective date of the change and the name and mailing address of the replacement Paying Agent/Registrar. Section 5.06. Agreement to Perform Duties and Functions. By accepting the appointment as Paying Agent/Registrar and executing the Paying Agent/Registrar Agreement, the Paying Agent/Registrar is deemed to have agreed to the provisions of this Ordinance and that it will perform the duties and functions of Paying Agent/Registrar prescribed thereby. Section 5.07. Delivery of Records to Successor. If a Paying Agent/Registrar is replaced, such Paying Agent/Registrar, promptly upon the appointment of the successor, will deliver the Register (or a copy thereof) and all other pertinent books and records relating to the Bonds to the successor Paying Agent/Registrar. ARTICLE VI FORM OF THE BONDS Section 6.01. Form Generally. (a) The Bonds, including the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the Certificate of the Paying Agent/Registrar, and the Assignment form to appear on each of the Bonds, (i) shall be substantially in the form set forth in this Article, with such appropriate insertions, omissions, substitutions, and other variations as are permitted or required by this Ordinance, and (ii) may have such letters, numbers, or other marks of identification (including identifying numbers and letters of the Committee on Uniform Securities Identification Procedures of the American Bankers Association) and such legends and endorsements (including any reproduction of an opinion of counsel) thereon as, consistently GRA325/71011 Dallas 879344 1.DOC -15- herewith, may be determined by the City or by the officers executing such Bonds, as evidenced by their execution thereof. (b) Any portion of the text of any Bonds may be set forth on the reverse side thereof, with an appropriate reference thereto on the face of the Bonds. (c) The definitive Bonds shall be typewritten, photocopied, printed, lithographed, or engraved, and may be produced by any combination of these methods or produced in any other similar manner, all as determined by the officers executing such Bonds, as evidenced by their execution thereof. (d) The Initial Bond submitted to the Attorney General of the State of Texas may be typewritten and photocopied or otherwise reproduced. Section 6.02. Form of the Bonds. The form of the Bond, including the form of the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the form of Certificate of the Paying Agent/Registrar and the form of Assignment appearing on the Bonds, shall be substantially as follows: GRA325nio1 l Dallas 879344 i.DOC -16- (a) Form of Bond. REGISTERED INTEREST RATE: REGISTERED United States of America State of Texas County of Tarrant CITY OF GRAPEVINE, TEXAS GENERAL OBLIGATION REFUNDING BOND SERIES 2004 MATURITY DATE: BOND DATE: CUSIP NUMBER: February 15, October 15, 2004 The City of Grapevine (the "City"), in the County of Tarrant, State of Texas, for value received, hereby promises to pay to or registered assigns, on the Maturity Date specified above, the sum of unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a 360 - day year of twelve 30 -day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2005. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the designated office in Dallas, Texas (the "Designated Payment/Transfer Office"), of JPMorgan Chase Bank, N.A., as initial Paying Agent/Registrar, or, with respect to a successor paying agent/registrar, at the Designated Payment/Transfer Office of such successor. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of the Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last Business Day of GRA325/71011 Dallas 879344 I.DOC -17- the month next preceding such interest payment date; provided, however, in the event of nonpayment of interest on a scheduled payment date and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") shall be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the "Special Payment Date," which date shall be 15 days after the Special Record Date) shall be sent at least five Business Days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of each Owner of a Bond appearing on the books of the Paying Agent/Registrar at the close of business on the last Business Day next preceding the date of mailing of such notice. If the date for the payment of the principal of or interest on this Bond shall be a Saturday, Sunday, legal holiday, or day on which banking institutions in the city where the Designated Payment/Transfer Office is located are required or authorized by law or executive order to close, the date for such payment shall be the next succeeding day which is not a Saturday, Sunday, legal holiday, or day on which banking institutions are required or authorized to close, and payment on such date shall have the same force and effect as if made on the original date payment was due and no additional interest shall be due by reason of nonpayment on the date on which such payment is otherwise stated to be due and payable. This Bond is one of a series of fully registered bonds specified in the title hereof issued in the aggregate principal amount of $7,345,000 (herein referred to as the "Bonds"), issued pursuant to a certain ordinance of the City (the "Ordinance") for the purpose of providing funds to refund certain outstanding bonds of the City, and to pay the costs of issuing the Bonds. The City has reserved the option to redeem the Bonds maturing on or after February 15, 2015, in whole or in part, before their respective scheduled maturity dates, on February 15, 2014, or on any date thereafter, at a price equal to the principal amount of the Bonds so called for redemption plus accrued interest to the date fixed for redemption. If less than all of the Bonds are to be redeemed, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar to call by lot or other customary method that results in a random selection the Bonds, or portions thereof, within such maturity and in such principal amounts, for redemption. Notice of such redemption or redemptions shall be given by first class mail, postage prepaid, not less than 30 days before the date fixed for redemption, to the registered owner of each of the Bonds to be redeemed in whole or in part. Notice having been so given, the Bonds or portions thereof designated for redemption shall become due and payable on the redemption date specified in such notice; from and after such date, notwithstanding that any of the Bonds or portions thereof so called for redemption shall not have been surrendered for payment, interest on such Bonds or portions thereof shall cease to accrue. As provided in the Ordinance, and subject to certain limitations therein set forth, this Bond is transferable upon surrender of this Bond for transfer at the Designated Payment/Transfer Office with such endorsement or other evidence of transfer as is acceptable to the Paying Agent/Registrar-, thereupon, one or more new fully registered Bonds of the same stated maturity, GRA325/71011 Dallas 879344_I.DOC go of authorized denominations, bearing the same rate of interest, and for the same aggregate principal amount will be issued to the designated transferee or transferees. Neither the City nor the Paying Agent/Registrar shall be required to issue, transfer or exchange any Bond called for redemption where such redemption is scheduled to occur within 45 calendar days of the date fixed for redemption; provided, however, such limitation shall not be applicable to an exchange by the registered owner of the uncalled principal balance of a Bond. The City, the Paying Agent/Registrar, and any other person may treat the person in whose name this Bond is registered as the owner hereof for the purpose of receiving payment as herein provided (except interest shall be paid to the person in whose name this Bond is registered on the Record Date) and for all other purposes, whether or not this Bond be overdue, and neither the City nor the Paying Agent/Registrar shall be affected by notice to the contrary. IT IS HEREBY CERTIFIED AND RECITED that the issuance of this Bond and the series of which it is a part is duly authorized by law; that all acts, conditions and things required to be done precedent to and in the issuance of the Bonds have been properly done and performed and have happened in regular and due time, form and manner, as required by law; and that ad valorem taxes upon all taxable property in the City have been levied for and pledged to the payment of the debt service requirements of the Bonds, within the limit prescribed by law; that when so collected, such taxes shall be appropriated to such purpose; and that the total indebtedness of the City, including the Bonds, does not exceed any constitutional or statutory limitation. IN WITNESS WHEREOF, the City has caused this Bond to be executed by the manual or facsimile signature of the Mayor of the City and countersigned by the manual or facsimile signature of the City Secretary of the City, and the official seal of the City has been duly impressed or placed in facsimile on this Bond. City Secretary, City of Grapevine, Texas [SEAL] GRA325/71011 Dallas 879344 I.DOC -19- Mayor, City of Grapevine, Texas (b) Form of Comptroller's Registration Certificate. The following Comptroller's Registration Certificate may be deleted from the definitive Bonds if such certificate on the Initial Bond is fully executed. OFFICE OF THE COMPTROLLER § OF PUBLIC ACCOUNTS § REGISTER NO. OF THE STATE OF TEXAS § I hereby certify that there is on file and of record in my office a certificate of the Attorney General of the State of Texas to the effect that this Bond has been examined by him as required by law, that he finds that it has been issued in conformity with the Constitution and laws of the State of Texas, and that it is a valid and binding obligation of the City of Grapevine, Texas, and that this Bond has this day been registered by me. Witness my hand and seal of office at Austin, Texas, Comptroller of Public Accounts of the State of Texas [SEAL] (c) Form of Certificate of Paving Agent/Registrar. The following Certificate of Paying Agent/Registrar may be deleted from the Initial Bond if the executed Comptroller's Registration Certificate appears thereon. CERTIFICATE OF PAYING AGENT/REGISTRAR The records of the Paying Agent/Registrar show that the Initial Bond of this series of bonds was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas, and that this is one of the Bonds referred to in the within -mentioned Ordinance. Dated: GRA325/71011 Dallas 879344 I.DOC JPMORGAN CHASE BANK, N.A., as Paying Agent/Registrar -20- Authorized Signatory (d) Form of Assignment. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto (print or typewrite name, address and Zip Code of transferee): (Social Security or other identifying number: 1 the within Bond and all rights hereunder and hereby irrevocably constitutes and appoints attorney to transfer the within Bond on the books kept for registration hereof, substitution in the premises. Dated: Signature Guaranteed By: Authorized Signatory with full power of NOTICE: The signature on this Assignment must correspond with the name of the registered owner as it appears on the face of the within Bond in every particular and must be guaranteed in a manner acceptable to the Paying Agent/Registrar. (e) The Initial Bond shall be in the form set forth in paragraphs (a) through (d) of this Section, except for the following alterations: (i) immediately under the name of the Bond, the headings "INTEREST RATE" and "MATURITY DATE" shall both be completed with the words "As shown below" and the words "CUSIP NUMBER:" shall be deleted; (ii) in the first paragraph of the Bond, the words "on the Maturity Date specified above" shall be deleted and the following will be inserted: "on February 15 in each of the years, in the principal installments and bearing interest at the per annum rates in accordance with the following schedule: Years Principal Installments Interest Rates (Information to be inserted from schedule in Section 3.02 of this Ordinance) (iii) the Initial Bond shall be numbered T -l. GRA325/71011 Dallas 8793441 DOC -21- Section 6.03. CUSIP Registration. The City may secure identification numbers through the CUSIP Service Bureau Division of Standard & Poor's Corporation, New York, New York, and may authorize the printing of such numbers on the face of the Bonds. It is expressly provided, however, that the presence or absence of CUSIP numbers on the Bonds shall be of no significance or effect as regards the legality thereof and neither the City nor the attorneys approving said Bonds as to legality are to be held responsible for CUSIP numbers incorrectly printed on the Bonds. Section 6.04. Legal Opinion. The approving legal opinion of Vinson & Elkins L.L.P., Bond Counsel, may be printed on the reverse side of or attached to each Bond over the certification of the City Secretary of the City, which may be executed in facsimile. Section 6.05. Statement of Insurance. A statement relating to a municipal bond insurance policy, if any, to be issued for the Bonds may be printed on or attached to each Bond. ARTICLE VII SALE AND DELIVERY OF BONDS, DEPOSIT OF PROCEEDS Section 7.01. Sale of Bonds, Official Statement. (a) The Bonds are hereby officially sold and awarded and shall be delivered to the Underwriters, in accordance with the terms and provisions of that certain Bond Purchase Agreement relating to the Bonds between the City and the Underwriters and dated the date of the passage of this Ordinance. The form and content of such Bond Purchase Agreement are hereby approved, and the Mayor is hereby authorized and directed to execute and deliver, and the City Secretary is hereby authorized and directed to attest, such Bond Purchase Agreement. It is hereby officially found, determined and declared that the terms of this sale are the most advantageous reasonably obtainable. The Bonds shall initially be registered in the name of Southwest Securities, Inc. or its designee. (b) The form and substance of the Preliminary Official Statement for the Bonds dated October 11, 2004, as amended, and any addenda, supplement or amendment thereto (the "Preliminary Official Statement"), and the final Official Statement (the "Official Statement") presented to and considered at this meeting, are hereby in all respects approved and adopted, and the Preliminary Official Statement is hereby deemed final as of its date (except for the omission of pricing and related information) within the meaning and for the purposes of paragraph (b)(1) of Rule 15c2-12 under the Securities Exchange Act of 1934, as amended. The Mayor of the City is hereby authorized and directed to execute the Official Statement and deliver appropriate numbers of copies thereof to the Underwriters. The Official Statement as thus approved, executed and delivered, with such appropriate variations as shall be approved by the Mayor of the City and the Underwriters, may be used by the Underwriters in the public offering of the Bonds and the sale thereof. The City Secretary is hereby authorized and directed to include and GRA325/71011 Dallas 879344_i.DOC -22- maintain a copy of the Official Statement and any addenda, supplement or amendment thereto thus approved among the permanent records of this meeting. The use and distribution of the Preliminary Official Statement for the Bonds in the preliminary public offering of the Bonds by the Underwriters are hereby ratified, approved and confirmed. (c) All officers of the City are authorized to execute such documents, certificates and receipts, and to make such elections with respect to the tax-exempt status of Bonds, as they may deem appropriate in order to consummate the delivery of the Bonds in accordance with the provisions and terms of sale therefor. (d) The obligation of the Underwriters to accept delivery of the Bonds is subject to such purchaser being furnished with the final, approving opinion of Vinson & Elkins L.L.P., bond counsel for the City, which opinion shall be dated and delivered the Closing Date. Section 7.02. Control and Delivery of Bonds. (a) The Mayor of the City is hereby authorized to have control of the Initial Bond and all necessary records and proceedings pertaining thereto pending investigation, examination and approval of the Attorney General of the State of Texas, registration by the Comptroller of Public Accounts of the State and registration with, and initial exchange or transfer by, the Paying Agent/Registrar. (b) After registration by the Comptroller of Public Accounts, delivery of the Bonds shall be made to the initial purchasers thereof under and subject to the general supervision and direction of the Mayor, against receipt by the City of all amounts due to the City under the terms of sale. (c) In the event the Mayor or City Secretary is absent or otherwise unable to execute any document or take any action authorized herein, the Mayor Pro Tem and the Assistant City Secretary, respectively, shall be authorized to execute such documents and take such actions, and the performance of such duties by the Mayor Pro Tem and the Assistant City Secretary shall for the purposes of this Ordinance have the same force and effect as if such duties were performed by the Mayor and City Secretary, respectively. Section 7.03. Deposit of Proceeds. On the Closing Date, the City shall cause the proceeds from the sale of the Bonds to be deposited as follows: (a) All amounts received on the Closing Date as accrued interest on the Bonds from the Bond Date to the Closing Date shall be deposited to the Interest and Sinking Fund. (b) $7,249,383.73 of the proceeds of the Bonds shall be deposited to the Escrow Fund and shall be applied in accordance with the Escrow Agreement. (c) An amount equal to $121,628.52 shall be deposited as directed by the Director of Finance and used to pay the costs and expenses pertaining to the issuance of the Bonds, GRA325/71011 Dallas 8793441 DOC -23- including bond insurance premium. To the extent any of such sum is not used for such purpose, such excess shall be deposited to the Interest and Sinking Fund. Section 7.04. Security of Funds. All moneys on deposit in funds referred to in this Ordinance shall be secured in the manner and to the fullest extent required by the laws of the State of Texas for the security of public funds and moneys on deposit in such funds shall be used only for the purposes permitted by this Ordinance. ARTICLE VIII INVESTMENTS Section 8.01. Investments. (a) Money in the Interest and Sinking Fund created by this Ordinance, at the option of the City, may be invested in such securities or obligations as permitted under applicable law as in effect on the date of the investment. (b) Any securities or obligations in which money in the Interest and Sinking Fund is so invested shall be kept and held in trust for the benefit of the Owners and shall be sold and the proceeds of sale shall be timely applied to the making of all payments required to be made from the Interest and Sinking Fund. Section 8.02. Investment Income. (a) Interest and income derived from investment of the Interest and Sinking Fund shall be credited to such Fund. (b) The investment and application of money in the Escrow Fund shall be in accordance with the provisions of the Escrow Agreement. ARTICLE IX PARTICULAR REPRESENTATIONS AND COVENANTS Section 9.01. Payment of the Bonds. On or before each Interest Payment Date for the Bonds and while any of the Bonds are outstanding and unpaid, there shall be made available to the Paying Agent/Registrar, out of the Interest and Sinking Fund, money sufficient to pay such interest on, principal of, and redemption premium, if any, on the Bonds as will accrue or mature on the applicable Interest Payment Date maturity date or date of prior redemption if any. ' GRA325/71011 Dallas 879344_1.DOC N1 Section 9.02. Other Representations and Covenants. (a) The City will faithfully perform at all times any and all covenants, undertakings, stipulations, and provisions contained in this Ordinance and in each Bond; the City will promptly pay or cause to be paid the principal of, redemption premium, if any, and interest on each Bond on the dates and at the places and manner prescribed in such Bond; and the City will, at the times and in the manner prescribed by this Ordinance, deposit or cause to be deposited the amounts of money specified by this Ordinance. (b) The City is duly authorized under the laws of the State of Texas to issue the Bonds; all action on its part for the creation and issuance of the Bonds has been duly and effectively taken; and the Bonds in the hands of the Owners thereof are and will be valid and enforceable obligations of the City in accordance with their terms. Section 9.03. Provisions Concerning Federal Income Tax Exclusion. The City intends that the interest on the Bonds shall be excludable from gross income for purposes of federal income tax purposes pursuant to sections 103 and 141 through 150 of the Code and the applicable Income Tax Regulations promulgated thereunder (the "Regulations"). The City covenants and agrees not to take any action, or knowingly omit to take any action within its control, that if taken or omitted, respectively, would cause the interest on the Bonds to be includable in gross income, as defined in section 61 of the Code, for purposes of federal income taxation. In particular, the City covenants and agrees to comply with each requirement of this Article IX; provided, however, that the City shall not be required to comply with any particular requirement of this Article IX if the City has received an opinion of nationally recognized bond counsel ("Counsel's Opinion") that such noncompliance will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds or if the City has received a Counsel's Opinion to the effect that compliance with some other requirement set forth in this Article IX will satisfy the applicable requirements of the Code and the Regulations, in which case compliance with such other requirement specified in such Counsel's Opinion shall constitute compliance with the corresponding requirement specified in this Article IX. Section 9.04. No Private Use or Pavment and No Private Loan Financing. The City shall certify, through an authorized officer, employee or agent, that, based upon all facts and estimates known or reasonably expected to be in existence on the date the Bonds are delivered, that the proceeds of the Refunded Bonds have not been used and the proceeds of the Bonds will not be used in a manner that would cause the Bonds to be "private activity bonds" within the meaning of section 141 of the Code and the Regulations promulgated thereunder. Moreover, the City covenants and agrees that it will make such use of the proceeds of the Bonds and the Refunded Bonds, including interest or other investment income derived from Bond proceeds, regulate the use of property financed, directly or indirectly, with such proceeds, and take such other and further action as may be required so that the bonds will not be "private activity bonds" within the meaning of section 141 of the Code and the Regulations promulgated thereunder. GRA325/71011 Dallas 879344_1.DOC -25- Section 9.05. No Federal Guaranty. The City covenants and agrees not to take any action, or knowingly omit to take any action or knowingly omit to take any action within its control, that, if taken or omitted, respectively, would cause the Bonds to be "federally guaranteed" within the meaning of section 149(b) of the Code and the applicable Regulations thereunder, except as permitted by section 149(b)(3) of the Code and such Regulations. Section 9.06. Bonds are not Hedge Bonds. The City covenants and agrees not to take any action, or knowingly omit to take any action, and has not knowingly omitted and will not knowingly omit to take any action, within its control, that, if taken or omitted, respectively, would cause the Bonds to be "hedge bonds" within the meaning of section 149(8) of the Code and the applicable Regulations thereunder. Section 9.07. No -Arbitrage Covenant. The City shall certify, through an authorized officer, employee or agent, that, based upon all facts and estimates known or reasonably expected to be in existence on the date the Bonds are delivered, the City will reasonably expect that the proceeds of the Bonds will not be used in a manner that would cause the Bonds to be "arbitrage bonds" within the meaning of section 148(a) of the Code and the applicable Regulations thereunder. Moreover, the City covenants and agrees that it will make such use of the proceeds of the Bonds including interest or other investment income derived from Bond proceeds, regulate investments of proceeds of the Bonds, and take such other and further action as may be required so that the Bonds will not be "arbitrage bonds" within the meaning of section 148(a) of the Code and the applicable Regulations promulgated thereunder. Section 9.08. Arbitrage Rebate. If the City does not qualify for an exception to the requirements of Section 148(f) of the Code, the City will take all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the "gross proceeds" of the Bonds (within the meaning of section 148(f)(6)(B) of the Code), be rebated to the federal government. Specifically, the City will (i) maintain records regarding the investment of the gross proceeds of the Bonds as may be required to calculate the amount earned on the investment of the gross proceeds of the Bonds separately from records of amounts on deposit in the funds and accounts of the City allocable to other bond issue of the City or moneys which do not represent gross proceeds of any bonds of the City, (ii) calculate at such times as are required by applicable Regulations, the amount earned from the investment of the gross proceeds of the Bonds which is required to be rebated to the federal government, and (iii) pay, not less often than every fifth anniversary date of the delivery of the Bonds or on such other dates as may be permitted under applicable Regulations, all amounts required to be rebated to the federal government. Further, the City will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a GRA325/71011 Dallas 879344 I.DOC &X61 smaller profit or a larger loss than would have resulted if the arrangement had been at arm's length and had the yield on the issue not been relevant to either party. Section 9.09. Information Reporting. The City covenants and agrees to file or cause to be filed with the Secretary of the Treasury, not later than the 15th day of the second calendar month after the close of the calendar quarter in which the Bonds are issued, an information statement concerning the Bonds, all under and in accordance with section 149(e) of the Code and the Regulations promulgated thereunder. Section 9.10. Continuing Obligation. Notwithstanding any other provision of this Ordinance, the City's obligations under the covenants and provisions of this Article IX shall survive the defeasance and discharge of the Bonds. Section 9.11. Qualified Tax -Exempt Obligations. The City hereby designates the Bonds as "qualified tax-exempt obligations" for purposes of section 265(b) of the Code. In connection therewith, the City represents (a) that the aggregate amount of tax-exempt obligations issued by the City during calendar year 2004, including the Bonds, which have been designated as "qualified tax-exempt obligations" under section 265(b)(3) of the Code does not exceed $10,000,000, and (b) that the reasonably anticipated amount of its tax-exempt obligations which will be issued by the City during calendar year 2004, including the Bonds, will not exceed $10,000,000. For purposes of this Section 9.05, the term "tax-exempt obligations" does not include "private activity bonds" within the meaning of section 141 of the Code, other than "qualified 501(c)(3) bonds" within the meaning of section 145 of the Code. In addition, for purposes of this Section 9.05, the City includes all governmental units which are aggregate with the City under section 265(b) of the Code. ARTICLE X DEFAULT AND REMEDIES Section 10.01. Events of Default. Each of the following occurrences or events for the purpose of this Ordinance is hereby declared to be an Event of Default: (i) the failure to make payment of the principal of, redemption premium, if any, or interest on any of the Bonds when the same becomes due and payable; or (ii) default in the performance or observance of any other covenant, agreement or obligation of the City, which default materially and adversely affects the rights of the Owners, including but not limited to, their prospect or ability to be repaid in accordance with this Ordinance, and the continuation thereof for a period of 60 days after notice of such default is given by any Owner to the City. GRA325/71011 Dallas 879344 1.DOC -27- Section 10.02. Remedies for Default. (a) Upon the happening of any Event of Default, then any Owner or an authorized representative thereof, including but not limited to, a trustee or trustees therefor, may proceed against the City for the purpose of protecting and enforcing the rights of the Owners under this Ordinance, by mandamus or other suit, action or special proceeding in equity or at law, in any court of competent jurisdiction, for any relief permitted by law, including the specific performance of any covenant or agreement contained herein, or thereby to enjoin any act or thing that may be unlawful or in violation of any right of the Owners hereunder or any combination of such remedies. (b) It is provided that all such proceedings shall be instituted and maintained for the equal benefit of all Owners of Bonds then outstanding. Section 10.03. Remedies Not Exclusive. (a) No remedy herein conferred or reserved is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or under the Bonds or now or hereafter existing at law or in equity; provided, however, that notwithstanding any other provision of this Ordinance, the right to accelerate the debt evidenced by the Bonds shall not be available as a remedy under this Ordinance., (b) The exercise of any remedy herein conferred or reserved shall not be deemed a waiver of any other available remedy. ARTICLE XI DISCHARGE Section 11.01. Discharge. The Bonds may be defeased, refunded and discharged in any manner permitted by applicable law. ARTICLE XII CONTINUING DISCLOSURE UNDERTAKING Section 12.01. Annual Reports. (a) The City shall provide annually to each NRMSIR and to any SID, within six (6) months after the end of each fiscal year, financial information and operating data with respect to the City of the general type included in the final Official Statement, being the information described in Exhibit A hereto. Any financial statements so to be provided shall be (i) prepared in accordance with the accounting principles described in Exhibit A hereto, and (ii) audited, if the City commissions an audit of such statements and the audit is completed within the period during which they must be provided. If the audit of such financial statements is not complete within GRA325n i o 11 Dallas 879344 I.DOC so such period, then the City shall provide notice that audited financial statements are not available and shall provide unaudited financial statements for the applicable fiscal year to each NRMSIR and any SID. The City shall provide audited financial statements for the applicable fiscal year to each NRMSIR and to any SID. Thereafter, when and if audited financial statements become available, the City shall provide such audited financial statements as required to each NRMSIR and to any SID. (b) If the City changes its fiscal year, it will notify each NRMSIR and any SID of the change (and of the date of the new fiscal year end) prior to the next date by which the City otherwise would be required to provide financial information and operating data pursuant to this Section. (c) The financial information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to each NRMSIR and any SID or filed with the SEC. Section 12.02. Material Event Notices. (a) The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Bonds, if such event is material within the meaning of the federal securities laws: (i) principal and interest payment delinquencies; (ii) nonpayment related defaults; (iii) unscheduled draws on debt service reserves reflecting financial difficulties; (iv) unscheduled draws on credit enhancements reflecting financial difficulties; (v) substitution of credit or liquidity providers, or their failure to perform; (vi) adverse tax opinions or events affecting the tax exempt status of the Bonds; (vii) modifications to rights of Owners; (viii) bond calls; (ix) defeasance; (x) release, substitution, or sale of property securing repayment of the Bonds; .e GRA325/71011 Dallas 879344_I.DOC -29- (xi) rating changes. (b) The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with Section 12.01 of this Ordinance by the time required by such Section. Section 12.03. Limitations Disclaimers and Amendments. (a) The City shall be obligated to observe and perform the covenants specified in this Article for so long as, but only for so long as, the City remains an "obligated person" with respect to the Bonds within the meaning of the Rule, except that the City in any event will give notice of any deposit made in accordance with Article XI that causes Bonds no longer to be outstanding. (b) The provisions of this Article are for the sole benefit of the Owners and beneficial owners of the Bonds, and nothing in this Article, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The City undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Article and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the City's financial results, condition, or prospects or hereby undertake to update any information provided in accordance with this Article or otherwise, except as expressly provided herein. The City does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Bonds at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE OWNER OR BENEFICIAL OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS ARTICLE, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. (c) No default by the City in observing or performing its obligations under this Article shall comprise a breach of or default under the Ordinance for purposes of any other provisions of this Ordinance. (d) Nothing in this Article is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. (e) The provisions of this Article may be amended by the City from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (i) the provisions of this Article, as so amended, would have permitted an underwriter to purchase or sell Bonds in the primary offering of the Bonds in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (A) the Owners of a majority in aggregate principal GRA325/71011 Dallas 879344 I.DOC -30- amount (or any greater amount required by any other provisions of this Ordinance that authorizes such an amendment) of the outstanding Bonds consent to such amendment or (B) an entity or individual a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the Owners and beneficial owners of the Bonds. If the City so amends the provisions of this Article, it shall include with any amended financial information or operating data next provided in accordance with Section 12.01 an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information or operating data so provided. ARTICLE XIII REDEMPTION OF BONDS; APPROVAL OF ESCROW AGREEMENT; PURCHASE OF ESCROWED SECURITIES Section 13.01. Redemption of Refunded Bonds. (a) The Refunded Bonds are hereby called for redemption on the dates, in the principal amounts and at a redemption price equal to the principal amount thereof plus interest accrued thereon to the redemption date all as set forth on Schedule I hereto. (b) The City Secretary is hereby authorized and directed to cause a copy of this Ordinance to be delivered to each paying agent/registrar for the Refunded Bonds the delivery of which shall constitute notice of redemption and notice of defeasance to such paying agent/registrar. Section 13.02. Subscription of Federal Securities. The Mayor and the Director of Finance, either or both, are hereby authorized to make necessary arrangements for the purchase of the Federal Securities referenced in the Escrow Agreement, as may be necessary for the Escrow Fund and the application for the acquisition of the Federal Securities is hereby approved and ratified. Section 13.03. Approval of Escrow Agreement. The Escrow Agreement, in substantially the form presented at this meeting, and its execution and delivery by the Mayor is hereby authorized and- approved. The signature of the Mayor shall be attested by the City Secretary. Following the deposits to the Escrow Fund as herein specified, the Refunded Bonds shall be payable solely from and secured by such deposits and shall cause to be payable from ad valorem taxes. Section 13.04. Notice of Deposit. Each paying agent/registrar for the Refunded Bonds is hereby authorized and directed to give notice of deposit with respect to the Refunded Bonds as required under the ordinance pursuant to which the Refunded Bonds were issued. GRA325/71011 Dallas 879344 1.DOC -31- FINALLY PASSED, APPROVED AND EFFECTIVE THIS OCTOBER _, 2004. Mayor, City of Grapevine, Texas ATTEST: City Secretary City of Grapevine, Texas [SEAL] City Attorney, City of Grapevine, Texas Signature Page. for Bond Ordinance The following outstanding obligations will be redeemed prior to original maturity as indicated below, at a redemption price of par plus interest accrued to the Redemption Date. Original Outstanding Principal Obligations to be Principal Principal Maturities to Amount Redemption Refunded Amount Amount be Refunded Refunded Date City of Grapevine, $1,215,000 $1,215,000 02/15/2014 $1,215,000 02/15/2005 Texas, General 1,275,000 1,275,000 02/15/2015 1,275,000 02/15/2005 Obligation Bonds, 1,340,000 1,340,000 02/15/2016 1,340,000 02/15/2005 Series 1995, dated June 1,1995 City of Grapevine, Texas, General Obligation Bonds, Series 1996 $ 720,000 $ 720,000 2,445,000 2,445,000 Total 3,830,000 02/05/2014 $ 720,000 02/05/2017 2,445,000 Total 3,165,000 Total Refunded¢ 02/15/2006 02/15/2006 EXHIBIT A DESCRIPTION OF ANNUAL DISCLOSURE OF FINANCIAL INFORMATION The following information is referred to in Article XII of this Ordinance. Annual Financial Statements and Operating Data The financial information and operating data with respect to the City to be provided annually in accordance with such Article are as specified (and included in the Appendix or other headings of the Official Statement referred to) below: 1. The portions of the financial statements of the City appended to the Official Statement as Appendix B, but for the most recently concluded fiscal year. 2. Statistical and financial data set forth in Tables numbered 1 through 6 and 8 through 15. Accounting Principles The accounting principles referred to in such Article are the accounting principles described in the notes to the financial statements referred to in Paragraph 1 above. GRA325(71011 Dallas 879344 1.DOC A-1 MEMO TO: FROM: MEETING DATE: SUBJECT: RECOMMENDATION: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL ROGER NELSON, CITY MANAGER OCTOBER 19, 2004 ORDINANCE AUTHORIZING THE SALE OF GENERAL OBLIGATION REFUNDING BONDS City Council to consider approving an ordinance for the sale of $23,135,000 of General Obligation Refunding Bonds, Series 2004. BACKGROUND: At the October 19, 2004 City Council meeting, a representative of the First Southwest Company, the City Financial Advisor, will present bids for the sale of $23,135,000 of General Obligation Refunding Bonds in order to refinance $23,685,000 of Bonds which were issued in 1995 and 1996. This is being done in order to lower the City's overall debt service requirements. The bonds to be refinanced are listed below: Series General Obligation Bond, Series 1995 Combination Tax and Tax Increment Reinvestment Zone Revenue Certificates of Obligation, Series 1996 General Obligation Bonds, Series 1996 Total bonds to be refinanced Amount $3,830,000 $16,690,000 $3,165,000 $23,685,000 Interest Rate 5% 5.25% 5.5% Series 1995 bonds were issued for the purpose of streets, storm drainage and appurtenances; City Hall; Community Activities Center; and a swimming pool. Series 1996 Certificates of Obligations were issued for improvements in TIF #1, the Grapevine Mills Mall TIF. The Series 1996 bonds were issued for streets, storm drainage and appurtenances; and, a swimming pool. October 11, 2004 (1:30PM) It is anticipated that the new financing rate will be approximately 3.87%. This results in a net present value savings of approximately $1,370,000 over the remaining life of the bonds. This refunding is possible due to current market conditions which allow for a financing rate which is lower than the original issue rates and which would result in a significant savings to the City. City staff, working with the First Southwest Company, continually reviews the City's outstanding debt structure and will recommend taking advantage of market conditions and opportunities for refinancing any time they are available. A copy of the official statement prepared for this sale is included in your packet. The draft sale ordinance is available in the City Secretary's Office. Staff recommends acceptance of the First Southwest Company's recommendation and approval of the ordinance authorizing the sale. WAG/cjc HAGWOBondsSeries2004 October 11, 2004 (1:30PM) PRELMINARY OFFICIAL. STATE!1IENT Dated October 11, 2004 NEW ISSUE - Book -Entry -Only Ratings: Moody's: Applied For S&P: Applied For (see "Other Information — Ratings" herein) In the opinion of Bond Counsel, interest on the Bonds is excludable from gross income for federal income tax purposes under existing law and the Bonds are not private activity bonds. See "Tax Exemption" herein for a discussion of the opinion of Bond Counsel, including a description of alternative minimum tax consequences for corporations. THE BONDS WILL NOT BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS 523,135,000* CITY OF GRAPEVINE, TEXAS (Tarrant County) GENERAL OBLIGATION REFUNDING BONDS, SERIES 2004 Dated Date: October 15, 2004 Due: February 15, as shown below PAYMENT TERMS ... Interest on the $23,135,000* City of Grapevine, Texas General Obligation Refunding Bonds, Series 2004 (the "Bonds") will accrue from October 15, 2004 (the "Dated Date"), will be payable February 15 and August 15 of each year, commencing February 15, 2005, and will be calculated on the basis of a 360 -day year consisting of twelve 30 -day months. The definitive Bonds will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book -Entry -Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See "The Bonds - Book -Entry -Only System" herein. The initial Paying Agent/Registrar is JPMorgan Chase Bank, Dallas, Texas (see "The Bonds - Paying Agent/Registrar"). AUTHORITY FOR ISSUANCE ... The Bonds are issued pursuant to the Constitution and general laws of the State of Texas (the "State"), including particularly Texas Government Code, Chapter 1207, as amended, Section 9.26 of the City's Home Rule Charter, and are direct obligations of the City of Grapevine (the "City"), payable from a continuing ad valorem tax levied on all taxable property within the City, within the limits prescribed by law, as provided in the ordinance authorizing the Bonds (the " Ordinance") (see "The Bonds - Authority for Issuance"). PURPOSE ... Proceeds from the sale of the Bonds will be used to refund a portion of the City's outstanding General Obligation Bonds, Series 1995, Combination Tax & Tax Increment Reinvestment Zone Revenue Certificates of Obligation, Series 1996, and General Obligation Bonds, Series 1996 (collectively, the "Refunded Obligations") in order to lower the overall debt service requirements of the City. See "Schedule I - Schedule of Refunded Obligations". Additionally, the proceeds from the sale of the Bonds will be used to pay the costs associated with the issuance of the Bonds. Amount Maturity Rate $ 210,000 ******* 2005 ******* 1,650,000 2009 1,740,000 2010 1,840,000 2011 1,945,000 2012 MATURITY SCHEDULE* CUSIP Yield Suffix t11 Amount Maturity $ 2,060,000 2013 4,065,000 2014 4,290,000 2015 4,540,000 2016 795,000 2017 (Accrued Interest from October 15, 2004 to be added) CUSIP Prefix: 547160 (') CUSIP Rate Yield Suffix (1) (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard and Poor's CUSIP Service Bureau, a division of the McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2015, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2014, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Bonds - Optional Redemption"). LEGALITY . " . The Bonds are offered for delivery when, as and if issued and received by the Underwriters and subject to the approving opinion of the Attorney General of Texas and the opinion of Vinson & Elkins L.L.P., Bond Counsel, Dallas, Texas (see Appendix C, "Form of Bond Counsel's Opinion")" Certain legal matters will be passed upon for the Underwriters by Kelly, Hart & Hallman, a Professional Corporation, Fort Worth, Texas, Counsel for the Underwriters. DELIVERY ... It is expected that the Bonds will be available for delivery through The Depository Trust Company on November 23, 2004. SOUTHWEST SECURITIES SAMCO CAPITAL MARKETS FTN FINANCIAL CAPITAL MARKETS * Preliminary, subject to change. For purposes of compliance with Rule 12c2-12 of the Securities and Exchange Commission as amended in effect on the date hereof, this document constitutes an Official Statement of the City with respect to the Bonds that has been "deemed final " by the City as of its date except for the omission ofno more than the information permitted by Rule 12c2-12. ,�n This Preliminary Official Statement, which includes the cover page and the Appendices hereto, does not constitute an offer to sell or the solicitation of an offer to buy in any jurisdiction to any person to whom it is unlawful to make such offer, solicitation or sale. No dealer, broker, salesperson or other person has been authorized to give information or to make any representation other than those contained in this Preliminary Official Statement, and, ifgiven or made, such other information or representations must not be relied upon. Certain information set forth herein has been provided by sources other than the City that the City believes is reliable, but the City makes no representation as to the accuracy of such information. Any information and expressions of opinion herein contained are subject to change without notice, and neither the delivery of the Preliminary Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or other matters described herein since the date hereof. See "Other Information - Continuing Disclosure of Information"for a description of the City's undertaking to provide certain information on a continuing basis. THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE BONDS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTION IN WHICH THESE SECURITIES HAVE BEEN REGISTERED OR EXEMPTED SHOULD NOT BE REGARDED ASA RECOMMENDATION THEREOF. NEITHER THE CITY NOR THE UNDERWRITERS MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS PRELIMINARY OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY OR ITS BOOK -ENTRY -ONLY SYSTEM, AS SUCH INFORMATION HAS BEEN FURNISHED BY THE DEPOSITORY TRUST COMPANY. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVER -ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAYBE DISCONTINUED AT ANY TIME. The Underwriters have provided the following sentence for inclusion in this Preliminary Official Statement. The Underwriters have reviewed the information in this Preliminary Official Statement in accordance with, and as part of, their responsibilities to investors under federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. TABLE OF CONTENTS PRELIMINARY OFFICIAL STATEMENT TABLE 13A- GENERAL FUND REVENUES AND EXPENDITURE SUMMARY.............................................................3 HISTORY ..................................... .. ............................ 22 ' CITY OFFICIALS, STAFF AND CONSULTANTS .....5 TABLE 14 - MUNICIPAL SALES TAX HISTORY .................... 23 FINANCIAL POLICIES ELECTEDOFFICIALS.............................................................. 5 ...........................................................23 INVESTMENTS...................................................................... 24 SELECTED ADMINISTRATIVE STAFF......................................5 TABLE 15 - CURRENT INVESTMENTS................................... 25 CONSULTANTS AND ADVISORS ............................................. 5 INTRODUCTION ............................................................6 TAXNIATTERS............................................................. 26 PLAN OF FINANCING OTHER INFORMATION ............................................. 28 ...................................................6 RATINGS..................................... ...28 ...................................... THE BONDS..................................................................... 7 LITIGATION.......................................................................... 28 REGISTRATION AND QUALIFICATION OF BONDS FOR SALE 28 TAY INFORMATION LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC ...................................................12 ABLE I - VALUATION, EXEMPTIONS AND GENERAL FUNDS IN TEXAS...................... .. 28 ............................... LEGAL MATTERS OBLIGATION DEBT .................................................... 15 .....................................I........................... 28 AUTHENTICITY OF FINANCIAL DATA AND OTHER TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY INFORMATION ................................... ...... 29 .................. .............................................................................................16 TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT CONTINUING DISCLOSURE OF INFORMATION ..................... 29 FINANCIAL ADVISOR HISTORY....................................................................17 ........................................................... 30 FORWARD-LOOKING STATEMENTS DISCLAIMER................ 30 TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY... 17 VERIFICATION OF ARITHMETICAL AND MATHEMATICAL TABLE 5 - TEN LARGEST TAXPAYERS ................................. 17 COMPUTATIONS........................................................ 30 TABLE 6 - TAX ADEQUACY..................................................18 UNDERWRITING ......................................................... TABLE 7 - ESTIMATED OVERLAPPING DEBT ....................... 18 APPROVAL OF PRELIMINARY OFFICIAL STATEMENT.......... 31 DEBT INFORMATION.............................................„..19 SCHEDULE OF REFUNDED OBLIGATIONS......... Schedule I TABLE 8 - PRO -FORMA GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS .......................................... 19 APPENDICES TABLE 9 - INTEREST AND SINKING FUND BUDGET GENERAL INFORMATION REGARDING THE CITY ................. A PROJECTION..............................................................19 EXCERPTS FROM THE ANNUAL FINANCIAL REPORT.......... B TABLE 10 - COMPUTATION OF SELF-SUPPORTING DEBT ....20 FORM OF BOND COUNSEL'S OPINIONS ................................ C TABLE I I - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS.................................................20 The cover page hereof, this page, the appendices included herein TABLE 12 - OTHER OBLIGATIONS........................................20 and any addenda, supplement or amendment hereto, are part of the Preliminary Official Statement. FINANCLAL LNIFORTMATION..................................... 21 TABLE 13 — CHANGES IN NET ASSETS................................21 PRELIMINARY OFFICIAL STATEMENT SUMMARY This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Preliminary Official Statement. The offering of the Bonds to potential investors is made only by means of this entire Preliminary Official Statement. No person is authorized to detach this summary from this Preliminary Official Statement or to otherwise use it without the entire Preliminary Official Statement. THE CITY ..................................... The City of Grapevine, Texas is a political subdivision and municipal corporation of the State, located in Tarrant County, Texas. The City covers approximately 35.8 square miles (see "Introduction - Description of City"). THE BONDS .................................. The $23,135,000* General Obligation Refunding Bonds, Series 2004 are to mature on February 15 in the years 2005 through 2017 (see "The Bonds - Description of the Bonds"). PAYMENT OF INTEREST .............. Interest on the Bonds accrues from October 15, 2004, and is payable February 15, 2005, and each August 15 and February 15 thereafter until maturity or prior redemption (see "The Bonds - Description of the Bonds"). AUTHORITY FOR ISSUANCE.......... The Bonds are issued pursuant to the general laws of the State, including particularly Chapter 1207, Texas Government Code, as amended, Section 9.26 of the City's Home Rule Charter, and the Ordinance passed by the City Council of the City (see "The Bonds - Authority for Issuance"). SECURITY FOR THE BONDS.......... The Bonds constitute direct obligations of the City, payable from a direct and continuing ad valorem tax levied, within the limit prescribed by law, on all taxable property located within the City (see "The Bonds - Security and Source of Payment"). REDEMPTION ............................... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2015, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2014, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Bonds - Optional Redemption"). TA.x EXEMPTION ............................ In the opinion of Bond Counsel, the interest on the Bonds will be excludable from gross income for federal income tax purposes under existing law and the Bonds are not private activity bonds. See "Tax Matters - Tax Exemption" for a discussion of the opinion of Bond Counsel, including a description of the alternative minimum tax consequences for corporations. USE OF PROCEEDS ........................ Proceeds from the sale of the Bonds will be used to refund a portion of the City's outstanding General Obligation Bonds, Series 1995, Combination Tax & Tax Increment Reinvestment Zone Revenue Certificates of Obligation, Series 1996, and General Obligation Bonds, Series 1996 (collectively, the "Refunded Obligations") in order to lower the overall debt service requirements of the City. See "Schedule I - Schedule of Refunded Obligations". Additionally, the proceeds from the sale of the Bonds will be used to pay the costs associated with the issuance of the Bonds. RATINGS ...................................... The presently outstanding tax supported debt of the City is rated "A1" by Moody's Investors Service, Inc. ("Moody's") and "A+" by Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. ("S&P"). The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA" by S&P through insurance by various commercial insurance companies. Applications for contract ratings on the Bonds have been made to Moody's and S&P (see "Other Information - Ratings"). BOOK -ENTRY -ONLY SYSTEM ...................................... The definitive Bonds will be initially registered and delivered only to Cede & Co., the nominee of DTC pursuant to the Book -Entry -Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds (see "The Bonds - Book -Entry -Only System"). PAYMENT RECORD ..................... The City has not defaulted on its tax -supported debt since 1932 when all defaults were corrected without refunding. *Preliminary, subject to change. P SELECTED FINANCIAL INFORMATION Ratio Funded Fiscal Per Capita Per Capita Tax Debt to Year Estimated Taxable Taxable Funded Funded Taxable % of Ended City Assessed Assessed Tax Tax Assessed Total Tax 9/30 Population (1) Valuation ('-) Valuation Debt Debt Valuation Collections 2001 44,390 $ 4,372,544,371 $ 98,503 $ 156,815,000 $ 3,533 3.59% 99.10% 2002 45,500 4,773,863,018 104,920 157,940,000 3,471 3.31% 99.20% 2003 46,400 4,766,361,580 102,723 157,645,000 3,398 3.31% 99.40% 2004 46,188 4,932,651,055 106,795 148,300,000 3,211 3.01% 94.58% (3) 2005 47,036 5,352,933,433 113,805 138,040,000 141 2,935 2.58% N.A. (1) Source: The City of Grapevine. Preliminary numbers. (2) Source: Tarrant County Appraisal District (3) Unaudited. Preliminary information furnished by City Officials. (4) Projected, includes the Bonds. Excludes the Refunded Obligations. Preliminary, subject to change. For additional information regarding the City, please contact: Fred Werner David K. Medanich Director of Finance Laura Alexander City of Grapevine First Southwest Company 200 South Main 777 Main Street, Suite 1200 Grapevine, Texas 76051 Fort Worth, Texas 76102 (817) 410-3111 (817) 332-9710 4 CITY OFFICIALS, STAFF AND CONSULTANTS ELECTED OFFICIALS Fort Worth, Texas 5 Length of Term City Council Service Expires Occupation William D. Tate 16 Years May, 2006 Attorney -at -Law Mayor Ted R. Ware 25 Years May, 2005 Commercial Contractor Mayor Pro Tem C. Shane Wilbanks 19 Years May, 2006 Personnel Director Councilmember, Place I Sharron Spencer 19 Years May, 2006 Retired Sales Representative Councilmember, Place 2 _ Clydene Johnson 9 Years May, 2007 Independent Insurance Agent Councilmember, Place 3 Darlene Freed 6 Years May, 2007 Commercial Real Estate Agent Councilmember, Place 4 Roy Stewart 8 Years May, 2005 Construction Company Owner Councilmember, Place 6 (1) Previously served 12 years as Mayor and Councilmember. SELECTED ADMINISTRATIVE STAFF Name Position Length of Service Roger Nelson City Manager 7 Years(l) Bruno Rumbelow Assistant City Manager 7 Years Bill Gaither Administrative Services Director 8 Years Fred Werner Director of Finance 7 Years Linda Huff City Secretary 17 Years (1) 9 years with City; 7 years in present position. (2) 22 years with City; 17 years in present position. CONSULTANTS AND ADVISORS Auditors........................................................................................................................................................Deloitte & Touche LLP Fort Worth, Texas BondCounsel................................................................................................................................................ Vinson & Elkins L.L.P. Dallas, Texas Financial Advisor...................................................................................................................................... First Southwest Company Fort Worth, Texas 5 PRELIMINARY OFFICIAL STATEMENT RELATING TO $23,235,000* CITY OF GRAPEVINE, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2004 INTRODUCTION This Preliminary Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance of $23,135,000* City of Grapevine, Texas, General Obligation Refunding Bonds, Series 2004 (the "Bonds"). Capitalized terms used in this Preliminary Official Statement have the same meanings assigned to such terms in the Ordinance to be adopted on the date of sale of the Bonds ("the Ordinance") which will authorize the issuance of the Bonds, except as otherwise indicated herein. There follows in this Preliminary Official Statement descriptions of the Bonds and certain information regarding the City and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the City's Financial Advisor, First Southwest Company, Fort Worth, Texas, DESCRIPTION OF THE CITY ... The City is a political subdivision and municipal corporation of the State, duly organized and existing under the laws of the State, including the City's Home Rule Charter. The City first adopted its Home Rule Charter in 1965. The City operates under the Council/Manager form of government with a City Council comprised of the Mayor and six Councilmembers. The City Manager is the chief administrative officer for the City. Some of the services that the City provides are: public safety (police and fire protection), highways and streets, electric, water and sanitary sewer utilities, health and social services, culture -recreation, public transportation, public improvements, planning and zoning, and general administrative services. The 2000 Census population for the City was 42,059, and the 2005 estimated population is 47,036. The City covers approximately 35.8 square miles. PLAN OF FINANCING PURPOSE .... Proceeds from the sale of the Bonds will be used to refund a portion of the City's outstanding General Obligation Bonds, Series 1995, Combination Tax & Tax Increment Reinvestment Zone Revenue Certificates of Obligation, Series 1996 and General Obligation Bonds, Series 1996 (collectively, the "Refunded Obligations") in order to lower the overall debt service requirements of the City. Additionally, the proceeds from the sale of the Bonds will be used to pay the costs of issuance related to the Bonds. See "Schedule I - Schedule of Refunded Obligations" for a detailed listing of the Refunded Obligations and their respective call dates at par. REFUNDED OBLIGATIONS ... The principal and interest due on the Refunded Obligations are to be paid on the scheduled interest payment dates and the respective redemption dates of such Refunded Obligations, from funds to be deposited pursuant to a certain Escrow Agreement (the "Escrow Agreement") between the City and JPMorgan Chase Bank, Dallas, TX (the "Escrow Agent"). The Ordinance provides that from the proceeds of the sale of the Bonds received from the Underwriters, together with other funds of the City, the City will deposit with the Escrow Agent the amount necessary to accomplish the discharge and final payment of the Refunded Obligations on their respective redemption dates. Such funds will be held by the Escrow Agent in a special escrow account (the "Escrow Fund") and used to purchase direct obligations of the United States of America (the "Federal Securities"). Under the Escrow Agreement, the Escrow Fund is irrevocably pledged to the payment of the principal of and interest on the Refunded Obligations. _. Grant Thomton LLP, certified public accountants, a nationally recognized accounting firm, will verify at the time of delivery of the Bonds to the Underwriters thereof the mathematical accuracy of the schedules that demonstrate the Federal Securities will mature and pay interest in such amounts which, together with uninvested funds, if any, in the Escrow Fund, will be sufficient to pay, when due, the principal of and interest on the Refunded Obligations. Such maturing principal of and interest on the Federal Securities will not be available to pay the Bonds (see "Other Information — Verification of Arithmetical and Mathematical Computations"). By deposit of the Federal Securities and cash, if necessary, with the Escrow Agent pursuant to the Escrow Agreement, the City will have effected the defeasance of all the Refunded Obligations in accordance with the law. It is the opinion of Bond Counsel that as a result of such defeasance and in reliance upon the report of Grant Thornton LLP, certified public accountants, the Refunded Obligations will be outstanding only for the purpose of receiving payments from the Federal Securities and any cash held for such purpose by the Escrow Agent and such Refunded Obligations will not be deemed as being outstanding bonds of the City payable from taxes nor for the purpose of applying any limitation on the issuance of debt. * Preliminary, subject to change. The City has covenanted in the Escrow Agreement to make timely deposits to the Escrow Fund, from lawfully available funds, of any additional amounts required to pay the principal of and interest on the Refunded Obligations, if for any reason, the cash balances on deposit or scheduled to be on deposit in the Escrow Fund be insufficient to make such payment. SOURCES AND USE OF PROCEEDS ... The proceeds from the sale of the Bonds will be applied as follows: Sources: The Bonds Par Amount $ - Original Issue Premium - Accrued Interest - Uses: Deposit to Escrow Fund Deposit to Interest and Sinking Fund Costs of Issuance (1) Total Uses of Funds (1) Including Underwriters' Discount and Insurance Premium. THE BONDS DESCRIPTION OF THE BONDS ... The Bonds are dated October 15, 2004, and mature on February 15 in each of the years and in the amounts shown on the cover pages. Interest on the Bonds will be computed on the basis of a 360 -day year of twelve 30 -day months, and will be payable on February 15 and August 15 of each year, commencing February 15, 2005 until maturity or prior redemption. The definitive Bonds will be issued only in fully registered form in any integral multiple of $5,000 for any one maturity and will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book -Entry -Only System described herein. No physical delivery of the Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See "Book -Entry -Only System" herein. AUTHORITY FOR ISSUANCE ... The Bonds are being issued pursuant to the Constitution and general laws of the State of Texas, particularly, Texas Government Code, Chapter 1207, as amended, Section 9.26 of the City's Home Rule Charter, and the Ordinance passed by the City Council. SECURITY AND SOURCE OF PAYMENT ... The principal of and interest on the Bonds is payable from a continuing direct annual ad valorem tax levied by the City, within the limits prescribed by law, upon all taxable property in the City. TAx RATE LIMITATION.. . All taxable property within the City is subject to the assessment, levy and collection by the City of a continuing, direct annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem tax debt within the limits prescribed by law. Article XI, Section 5, of the Texas Constitution is applicable to the City, and limits its maximum ad valorem tax rate to $2.50 per $100 Taxable Assessed Valuation for all City purposes. The Home Rule Charter of the City adopts the constitutionally authorized maximum tax rate of $2.50 per $100 Taxable Assessed Valuation. OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2015, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2014, or any date thereafter, at a price equal to the principal amount of the Bonds called for redemption plus accrued interest to the fixed date for redemption. If less than all of the Bonds are to be redeemed, the City shall determine the maturity or maturities and amounts thereof to be redeemed. If less than all the Bonds of any maturity are to be redeemed, the City shall direct the Paying Agent(Registrar (or DTC while the Bonds are in Book -Entry -Only form) to call by lot the Bonds, or portions thereof, within such maturity or maturities and in such principal amounts for redemption. If a Bond (or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Bond (or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. NOTICE OF REDEMPTION ... Not less than 30 days prior to a redemption date for the Bonds, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to the registered owners of the Bonds to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY OBLIGATION OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH OBLIGATION OR PORTION THEREOF SHALL CEASE TO ACCRUE. DEFEASANCE ... The Ordinance provides that the City may discharge its obligations to the registered owners of any or all of the Bonds, to pay principal, interest and redemption price thereon in any manner permitted by law. Under current Texas law, such discharge may be accomplished either (i) by depositing with the Comptroller of Public Accounts of the State of Texas a sum of money equal to the principal of, premium, if any, and all interest to accrue on such Bonds to maturity or redemption or (ii) by depositing with an eligible place of payment (paying agent) for obligations of the City amounts sufficient, to provide for the payment and/or redemption of such Bonds; provided that such deposits may be invested and reinvested only in (a) direct obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the City adopts or approves the proceedings authorizing the issuance of refunding obligations, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent; and (c) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the City adopts or approves the proceedings authorizing the issuance of refunding obligations to refund the Bonds, as applicable, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. The foregoing obligations may be in book entry form, and shall mature and/or bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment and/or redemption of the Bonds, as the case may be. If any of such Bonds are to be redeemed prior to their respective dates of maturity, provision must have been made for giving notice of redemption as provided in the Ordinance. Upon such deposit as described above, such Bonds shall no longer be regarded to be outstanding or unpaid. After firm banking and financial arrangements for the discharge and final payment or redemption of Bonds have been made as described above, all rights of the City to initiate proceedings to call such Bonds for redemption or take any other action amending the terms of such Bonds are extinguished; provided, however, that the right to call such Bonds for redemption is not extinguished if the City: (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call such Bonds for redemption; (ii) gives notice of the reservation of that right to the owners of such Bonds immediately following the making of the firm banking and financial arrangements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes. There is no assurance that the current law will not be changed in a manner which would permit investments other than those described above to be made with amounts deposited to defease the Bonds. Because the Ordinance does not contractually limit such investments, registered owners may be deemed to have consented to defeasance with such other investments notwithstanding the fact that such investments may not be for the same investment quality as those currently permitted under Texas law. BooK-ENTRY-ONLY SYSTEM. . . This section describes how ownership of the Bonds are to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by DTC while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book -Entry -Only System has been provided by DTC for use in disclosure documents such as this Preliminary Official Statement. The City believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Preliminary Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered security certificate will be issued for each maturity of the Bonds, as set forth on the cover page hereof, in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non -U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, LSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Obligation ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which—the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book -entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, defaults, and proposed amendments to the Obligation documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Paying Agent/Registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or Paying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC (nor its nominee], the Paying Agent/Registrar or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered for the Bonds. The information in this section concerning DTC and DTC's book -entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. USE OF CERTAIN TERMS IN OTHER SECTIONS OF THIS PRELIMINARY OFFICIAL STATEMENT. In reading this Preliminary Official Statement it should be understood that while the Bonds are in the Book -Entry -Only System, references in other sections of this Preliminary Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book -Entry -Only System, and (ii) except as described above, notices that are to be given to registered owners under the Ordinance will be given only to DTC. Information concerning DTC and the Book -Entry -Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by the City. PAYING AGENT/REGISTRAR ... The initial Paying Agent/Registrar is JPMorgan Chase Bank, Dallas, Texas. In the Ordinance, the City retains the right to replace the Paying Agent/Registrar. The City covenants to maintain and provide a Paying Agent/Registrar at all times until the Bonds, as the case may be, are duly paid and any successor Paying Agent/Registrar shall be a commercial bank or trust company organized under the laws of the State of Texas or other entity duly qualified and legally authorized to serve as and perform the duties and services of Paying Agent/Registrar for the Bonds. Upon any change in the Paying Agent/Registrar for the Bonds, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Bonds affected by the changes by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar, Interest on the Bonds shall be paid to the registered owners appearing on the registration books of the Paying Agent/Registrar at the close of business on the Record Date (hereinafter defined), and such interest shall be paid (i) by check sent United States Mail, first class postage prepaid to the address of the registered owner recorded in the registration books of the Paying Agent/Registrar or (ii) by such other method, acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner. Principal of the Bonds will be paid to the registered owner at their stated maturity or earlier redemption, upon presentation to the designated payment/transfer office of the Paying Agent/Registrar. If the date for the payment of the principal of or interest on the Bonds shall be a Saturday, Sunday, a legal holiday or a day when banking institutions in the city where the designated payment/transfer office of the Paying Agent/ Registrar is located are authorized to close, then the date for such payment shall be the next succeeding day which is not such a day, and payment on such date shall have the same force and effect as if made on the date payment was due. In the event the Book -Entry -Only System is discontinued and printed certificates are issued to the registered owners, the City and the Paying Agent/Registrar shall not be required to transfer or exchange any Obligation called for redemption, in whole or in part, within 45 days of the date fixed for redemption; provided, however, such limitation of transferability shall not be applicable to an exchange by the registered owner of the uncalled balance of an Obligation. TRANSFER, EXCHANGE AND REGISTRATION ... In the event the Book -Entry -Only System should be discontinued, the Bonds may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender to the Paying Agent/Registrar and such transfer or exchange shall be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. Bonds may be assigned by the execution of an assignment form on the respective Bonds or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Bonds will be delivered by the Paying Agent/Registrar, in lieu of the Bonds being transferred or exchanged, at the designated office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered owner or his designee. To the extent possible, new Bonds issued in an exchange or transfer of Bonds will be delivered to the registered owner or assignee of the registered owner in not more than three business days after the receipt of the Bonds to be canceled, and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Bonds registered and delivered in an exchange or transfer shall be in any integral multiple of $5,000 for any one maturity and for a like aggregate principal amount as the Bonds surrendered for exchange or transfer. See "Book -Entry -Only System" herein for a description of the system to be utilized initially in regard to ownership and transferability of the Bonds. Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Bond called for redemption, in whole or in part, within 45 days of the date fixed for redemption; provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of an Bond. RECORD DATE FOR INTEREST PAYMENT ... The record date ("Record Date") for the interest payable on the Bonds on any interest payment date means the close of business on the last business day of the month next preceding. In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the 10 past due interest ("Special Payment Date", which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each registered owner of a Bond to be paid on the Special Payment Date that appears on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. BONDHOLDERS' REMEDIES ... The Ordinance establishes as "events of default" (i) the failure to make payment of principal of, redemption premium, if any, or interest on any of Bonds, when due and payable; or (ii) default in the performance or observance of any other covenant, agreement, or obligation of the City, which default materially and adversely affects the rights of the Owners, including but not limited to their prospect or ability to be repaid in accordance with the Ordinance, and the continuation thereof for a period of sixty days after the notice of such default is given by any Owner to the City. Under State law, there is no right to the acceleration of maturity of the Bonds upon the failure of the City to observe any covenant under the Ordinance. Although a registered owner could presumably obtain a judgment against the City if a default occurred in the payment of the principal of or interest on any such Bonds, such judgment could not be satisfied by execution against any property of the City. Such registered owner's only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the City to levy, assess and collect an annual ad valorem tax sufficient to pay principal of and interest on the Bonds as they become due. The enforcement of such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The Ordinance does not provide for the appointment of a trustee to represent the interest of the registered owners upon any failure of the City to perform in accordance with the terms of such Ordinance, or upon any other condition. Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code. Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Bonds are qualified with respect to the customary rights of debtors relative to their creditors. (The remainder of this page left blank intentionally.) a TAX INFORMATION AD VALOREM Tax LAW ... The appraisal of property within the City is the responsibility of the Tarrant Appraisal District (the "Appraisal District"), Excluding agricultural and open -space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to appraise all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. In determining market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (1) the market value of the property, or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value, of property within the City by petition filed with the Appraisal Review Board. Reference is made to the V.T.C.A., Property Tax Code, for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ("Article VIII") and State law provide for certain exemptions from property taxes, the valuation of agricultural and open -space lands at productivity value, and the exemption of certain personal property from ad valorem taxation. Under Section 1-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant: (1) An exemption of not less than $3,000 of the market value of the residence homestead ofpersons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision; and (2) An exemption of up to 20% of the market value of residence homesteads; the minimum exemption under this provision is $5,000. In the case of residence homestead exemptions granted under Section 1-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. State law and Section 2, Article VIII, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to a maximum of $12,000. Effective January 1, 2004, under Article VIII and State law, the governing body of a county, municipality or junior college district, may freeze the total amount of ad valorem taxes levied on the residence homestead of a disabled person or persons 65 years of age or older to the amount of taxes imposed in the year such residence qualified for such exemption. Also, upon receipt of a petition signed by five percent of the registered voters of the county, municipality or junior college district, an election must be held to determine by majority vote whether to establish such a limitation on taxes paid on residence homesteads of persons 65 years of age or who are disabled. Upon providing for such exemption, such freeze on ad valorem taxes is transferable to a different residence homestead and to a surviving spouse living in such homestead who is disabled or is at least 55 years of age. If improvements (other than maintenance or repairs) are made to the property, the value of the improvements is taxed at the then current tax rate, and the total amount of taxes imposed is increased to reflect the new improvements with the new amount of taxes then serving as the ceiling on taxes for the following years. Once established, the tax rate limitation may not be repeated or rescinded. Article VIII provides that eligible owners of both agricultural land (Section 1-d) and open -space land (Section 1-d-1), including open -space land devoted to farm or ranch purposes or open -space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Sections I -d and 1-d-1. Nonbusiness personal property, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as nonbusiness property are exempt from ad valorem taxation. Article VIII, Section 1-j, provides for "freeport property" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. The City and the other taxing bodies within its territory may agree to jointly create tax increment financing zones, under which the tax values on property in the zone are "frozen" at the value of the property at the time of creation of the zone. To date, the City has created two tax increment financing zones ("TIFs") within the boundaries of the City. See "Tax Increment Financing Zone" below. The difference between any increase in the assessed valuation of taxable real property in the TIF in excess of the base value of taxable real property in the TIF is known as the "Incremental Value", and during the existence of the TIFs, taxes levied 12 by the City against the Incremental Value in the TIFs are restricted to paying project and financing costs within the TIFs and are not available for the payment of other obligations of the City. The City also may enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. EFFECTIVE TAx RATE AND ROLLBACK TAx RATE ... Section 26.05 of the Property Tax Code provides that the governing body of a taxing unit is required to adopt the annual tax rate for the unit before the later of September 30 or the 60'' day after the date the certified appraisal roil is received by the taxing unit, and a failure to adopt a tax rate by such required date will result in the tax rate for the taxing unit for the tax year to be the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the taxing unit for the preceding tax year. Furthermore, Section 26.05 provides the City Council may not adopt a tax rate that exceeds the lower of the rollback tax rate or 103 per cent of the effective tax rate until a public hearing is held on the proposed tax rate following a notice of such public hearing (including the requirement that notice be posted on the City's website if the City owns, operates or controls an internet website and public notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. The tax rate consists of two components: (1) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service. Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate." If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate. "Effective tax rate" means the rate that will produce last year's total tax levy (adjusted) from this year's total taxable values (adjusted). "Adjusted" means lost values are not included in the calculation of last year's taxes and new values are not included in this year's taxable values. "Rollback tax rate" means the rate that will produce last year's maintenance and operation tax levy (adjusted) from this year's values (adjusted) multiplied by 1.08 plus a rate that will produce this year's debt service from this year's values (unadjusted) divided by the anticipated tax collection rate. The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. PROPERTY ASSESSMENT AND TAx PAYMENT ... Property within the City is generally assessed as of January I of each year. Business inventory may, at the option of the taxpayer, be assessed as of September 1. Oil and gas reserves are assessed on the basis of a valuation process which uses an average of the daily price of oil and gas for the prior year. Taxes become due October I of the same year, and become delinquent on February I of the following year. Taxpayers 65 years old or older are permitted by State law to pay taxes on homesteads in four installments with the first due on February 1 of each year and the final installment due on August 1. PENALTIES AND INTEREST ... Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: After July, penalty remains at 12%, and interest increases at the rate of 1% each month, In addition, if an account is delinquent in July, up to a 20% attorney's collection fee is added to the total tax penalty and interest charge. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents 13 Cumulative Cumulative Month Penalty Interest Total February 6% 1 % 7% March 7 2 9 April 8 3 11 May 9 4 13 June 10 5 15 July 12 6 18 After July, penalty remains at 12%, and interest increases at the rate of 1% each month, In addition, if an account is delinquent in July, up to a 20% attorney's collection fee is added to the total tax penalty and interest charge. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents 13 governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. CITY APPLICATION OF TAX CODE ... The City grants an exemption to the market value of the residence homestead of persons 65 years of age or older of $60,000. The City has granted an additional exemption of 20% of the market value of residence homesteads; minimum exemption of $5,000. See Table I for a listing of the amounts of the exemptions described above. The City has not adopted the tax freeze for citizens who are disabled or are 65 years of age or older, which became a local option and subject to local referendum on January 1, 2004. Ad valorem taxes are not levied by the City against the exempt value of residence homesteads for the payment of debt. The City does not tax nonbusiness personal property; does not tax lease value on personal use vehicles; and the City contracts with the Grapevine-Colleyville Independent School District for the collection of its taxes. The City does not permit split payments, and discounts are not allowed. The City does not tax freeport property. The City does not collect the additional one-half cent sales tax for reduction of ad valorem taxes. TAX ABATEMENT POLICY ... The City does not have a tax abatement policy. TAX INCREMENT FINANCE ZONES.. The City has established the Tax Increment Financing Reinvestment Zone Number One, comprised of approximately 175 acres in the northeast area of the City. The tax increment base for the Reinvestment Zone Number One established on January 1, 1996 was $7,647,325. As of September 30, 2004, the Reinvestment Zone Number One Taxable Assessed Value is $201,980,697. The project for which the Zone was created was completed on October 31, 1997. The City has additionally established the Tax Increment Financing Reinvestment Zone Number Two, comprised of approximately 121.817 acres in the northeast area of the City. The tax increment base for the Reinvestment Zone Number Two established on January 1, 1998 was $744,866. As of September 30, 2004 the Reinvestment Zone Number Two Taxable Assessed Value is $257,214,332. As of September 30, 2004 approximately $100% of permanent improvements have been made to Reinvestment Zone Number Two. (The remainder of this page left blank intentionally.) 14 TABLE 1 - VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT 2004/05 Market Valuation Established by Tarrant Appraisal District Less Exemptions/Reductions at 100% Market Value: Residence Homestead Exemptions Over 65 Years of Age Disabled Exemptions Veterans Exemptions Pollution Control Exemptions Solar/Wind Power Exemptions Freeport Exemptions Open -Space Land Use Reductions Prorated Absolutes Nominal Value Reductions 2004/05 Taxable Assessed Valuation $ 6,382,715,129 $ 361,762,592 59,272,871 902,500 1,174,800 61,488 9,774 550,697,849 55,759,683 116,736 23,403 1,029,781,696 2004/05 Incremental Taxable Assessed Value of Real Property within Reinvestment Zone Number One 2004/05 Incremental Taxable Assessed Value of Real Property within Reinvestment Zone Number Two 2004/05 Taxable Assessed Valuation available for General Fund Obligations and Debt of City City Funded Debt Payable from Ad Valorem Taxes h> General Obligation Bonds (as of 9/30/04) (2) Certificates of Obligation (as of 9/30/04)(2) Equipment Acquisition Notes (as of 9/30/04) The Bonds Funded Debt Payable from Ad Valorem Taxes Less Self -Supporting Debt: (4) Combination Tax and Tax Increment Reinvestment Zone Revenue Certificates of Obligation (as of 9/30/04) Net Funded Debt Payable From Ad Valorem Taxes Interest and Sinking Fund as of September 30, 2004 $ 5,352,933,433 194,333,372 256,469,466 $ 5,803,736,271 $ 65,145,000 57,980,000 1,490,000 23,135,000 $ 147,750,000 53,740,000 (5) $ 94,010,000 $ 1,453,541 Ratio Total Funded Debt to Taxable Assessed Valuation ................................................. . 2005 Estimated Population - 47,036 Per Capita Taxable Assessed Valuation - $113,805 Per Capita Total Funded Debt - $3,141 2.76% (1) This statement of indebtedness does not include currently outstanding $26,299,660 system revenue bonds, as these bonds are payable solely from the net revenues of the Waterworks and Sewer System (the "System"), as defined in the ordinances authorizing the system revenue bonds. (2) Excludes the Refunded Obligations, preliminary, subject to change. (3) Preliminary, subject to change. (4) The self-supporting amount is a projection of debt by the City based on actual historical payments from the Tax Increment Reinvestment Zone Funds. The amount of self-supporting debt is based on the percentage of revenue support as shown in Table 10. There is no guarantee that these payments will continue in the future. If the payments are not made from the revenues in the future, the difference will have to be paid for with ad valorem taxes. (5) Includes a portion of the Bonds. 15 TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY Taxable Appraised Value for Fiscal Year Ended September 30 2005 2004 2003 7. of % of % of Category Amount Total Amount Total Amount Total Real, Residential, Single -Family $ 2,052,562,907 32.16% $ 1,964,374,887 33.09% $ 1,848,342,618 31.72% Real, Residential, Multi -Family 280,451,216 4.39% 287,029,406 4.83% 252,912,480 4.34% Real, Vacant Lots Tracts 105,098,629 1.65% 106,298,853 1.79% 100,697,189 1.73% Real, Acreage (Land Only) 115,957,997 1.82% 126,583,447 2.13% 138,891,577 2.38% Real, Farm and Ranch Improvements 2,417,897 0.04% 2,382,927 0.04% 2,353,699 0.04% Real, Commercial 1,439,927,013 22.56% 1,254,791,876 21.14% 1,198,547,815 20.57% Real, Industrial 40,705,402 0.64% 14,652,926 0.25% 14,825,922 0.25% Real and Tangible Personal, Utilities 237,407,049 3.72% 166,164,616 2.80% 147,113,035 2.52% Real, Mobile Homes 7,817,281 0.12% 8,176,799 0.14% 8,173,982 0.14% Tangible Personal, Business - 0.00% 0.00% - 0.00% Tangible Personal, Commercial 1,939,745,844 30.39% 1,849,545,899 31.15% 1,966,523,825 33.75% Tangible Personal, Industrial 143,245,651 2.24% 136,629,168 2.30% 138,115,671 2.37% Tangible Personal, Mobile Homes - 0.00% - 0.00% - 0.00% Tangible Personal, Other 165,093 0.00% 1,000,000 0.02% - 0.00% Real Property, Inventory 17,213,150 0.27% 19,338,550 0.33% 10,141,975 0.17% Total Appraised Value Before Exemptions $ 6,382,715,129 100.00% $ 5,936,969,354 100.00% $ 5,826,639,788 100.00% Adjustments (52,070,988) Less: Total Exemption/Reductions (1,029,781,696) (1,004,318,299) (1,008,207,220) Taxable Assessed Value $ 5,352,933,433 $ 4,932,651,055 $ 4,766,361,580 Taxable Appraised Value for Fiscal Year Ended September 30 2002 2001 %of %of Category Amount Total Amount Total Real, Residential, Single -Family $ 1,673,214,512 30.17% $ 1,522,401,913 29.49% Real, Residential, Multi -Family 200,728,832 3.62% 151,579,484 2.94% Real, Vacant Lots Tracts 104,297,996 1.88% 109,952,787 2.13% Real, Acreage (Land Only) 171,706,596 3.10% 165,569,051 3.21% Real, Farm and Ranch Improvements 2,160,035 0.04% 2,441,498 0.05% Real, Commercial 1,086,095,366 19.59% 932,109,580 18.06% Real, Industrial 14,530,371 0.26% 10,891,084 0.21% Real and Tangible Personal, Utilities 102,859,092 1.85% 88,123,888 1.71% Real, Mobile Homes 9,059,623 0.16% 4,239,290 0.08% Tangible Personal, Business - 0.00% 0.00% Tangible Personal, Commercial 2,126,886,729 38.35% 2,127,859,776 41.22% Tangible Personal, Industrial 46,334,087 0.84% 40,389,885 0.78% Tangible Personal, Mobile Homes - 0.00% - 0.00% Tangible Personal, Other 111,976 0.00% 146,674 0.00% Real Property, Inventory 7,290,582 0.13% 6,679,162 0.13% Total Appraised Value Before Exemptions $ 5,545,275,797 100.00% $ 5,162,384,072 100.00% Adjustments (86,019,171) _ Less: Total Exemption/Reductions (685,393,608) (789,839,701) Taxable Assessed Value $ 4,773,863,018 $ 4,372,544,371 NOTE: Valuations shown are certified taxable assessed values reported by the Tarrant Appraisal District to the State Controller of Public Accounts. Certified values are subject to change throughout the year as contested values are resolved and the Appraisal District updates records. 16 TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT HISTORY (1) Source: The City of Grapevine. (2) Source: Tarrant Appraisal District. (3) Projected, includes the Bonds. Excludes the Refunded Obligations. Preliminary, subject to change. TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY Fiscal 2004/05 % of Total Ratio Taxable Fiscal Distribution Taxable Tax Debt Tax Debt Funded Year General Taxable Assessed Outstanding to Taxable Debt Ended Estimated Assessed Valuation at End Assessed Per 9/30 Population (1) Valuation ('-) Per Capita of Year Valuation Cama 2001 44,390 $ 4,372,544,371 $ 98,503 $ 156,815,000 3.59% $ 3,533 2002 45,500 4,773,863,018 104,920 157,940,000 3.31% 3,471 2003 46,400 4,766,361,580 102,723 157,645,000 3.31% 3,398 2004 46,188 4,932,651,055 106,795 148,300,000 3.01% 3,211 2005 47,036 5,352,933,433 113,805 138,040,000 13) 2.58% 2,935 (1) Source: The City of Grapevine. (2) Source: Tarrant Appraisal District. (3) Projected, includes the Bonds. Excludes the Refunded Obligations. Preliminary, subject to change. TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY Fiscal 2004/05 % of Total Taxable Year Distribution Assessed Assessed Name of Taxpayer Ended Tax General Interest and Commercial Airline % Current % Total 9/30 Rate Fund Sinking Fund Tax Levy Collections Collections 2001 $ 0.37500 $ 0.189641 $ 0.185359 $ 16,333,571 98.80% 99.10% 2002 0.36600 0.135924 0.230076 17,431,826 98.39% 99.09% 2003 0.36600 0.148900 0.217100 17,635,463 98.60% 99.40% 2004 0.36600 0.123700 0.242300 18,053,503 98.97% { 94.58% (t) 2005 0.36350 0.141560 0.221940 19,318,716 In Process of Collection (1) Unaudited. Preliminary information furnished by City Officials. TABLE 5 - TEN LARGEST TAXPAYERS GENERAL OBLIGATION DEBT LIMITATION ... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "The Bonds — Tax Rate Limitation"). 17 2004/05 % of Total Taxable Taxable Assessed Assessed Name of Taxpayer Nature of Property Valuation Valuation American Airlines Inc. Commercial Airline $ 317,564,490 5.93% Opryland Hotel Hotel 262,065,747 4.90% CAE Simuflite Simuflite Training School 185,348,146 3.46% Grapevine Mills Ltd. Partnership Regional Shopping Mall 181,438,640 3.39% Delta Airlines/Atlantic Southeast Airlines Commercial Airline 178,055,220 3.33% Verizon/GTE Telecommunication 142,546,416 2.66% Skywest Airlines Commercial Airline 55,957,047 1.05% Oncor Electric Delivery Co. Electric Service 45,885,535 0.86% Northwest Airlines Commercial Airline 36,518,089 0.68% John Q. Hammons Hotel Lp Hotel 35,000,000 0.65% $ 1,440,379,330 26.91% GENERAL OBLIGATION DEBT LIMITATION ... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "The Bonds — Tax Rate Limitation"). 17 TABLE 6 -TAX ADEQUACY(') 2005 Principal and Interest Requirements $ 11,681,716 $0.2205 Tax Rate at 99.00% Collection Produces $ 11,685,186 Average Annual Principal and Interest Requirements, 2005 - 2026 $ 5,785,695 $0.1092 Tax Rate at 99.00% Collection Produces $ 5,786,949 Maximum Principal and Interest Requirements, 2005 $ 11,681,716 $0.2205 Tax Rate at 99.00% Collection Produces $ 11,685,186 (1) Includes the Bonds, less self-supporting debt. Excludes the Refunded Obligations. Preliminary, subject to change. TABLE 7 - ESTIMATED OVERLAPPING DEBT Expenditures of the various taxing entities within the territory of the City are paid out of ad valorem taxes levied by such entities on properties within the City. Such entities are independent of the City and may incur borrowings to finance their expenditures. This statement of direct and estimated overlapping ad valorem tax bonds ("Tax Debt") was developed from information contained in "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. Except for the amounts relating to the City, the City has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities listed may have issued additional Tax Debt since the date hereof, and such entities may have programs requiring the issuance of substantial amounts of additional Tax Debt, the amount of which cannot be determined. The following table reflects the estimated share of overlapping Tax Debt of the City. Taxing Jurisdiction City of Grapevine Carroll Independent School District Coppell Independent School District Dallas County Dallas County Community College District Dallas County Hospital District Grapevine-Colleyville Independent School District Tarrant County Tarrant County Hospital District Tarrant County Junior College District Total Direct and Overlapping Funded Debt 2004/05 Net City's Taxable 2004/05 Total Estimated Overlapping Assessed Tax Funded % Funded Debt Value Rate Debt Applicable 9/30.'2004 $ 5,352,933,433 $ 0.3635 $ 94,010,000 li 100.00% $ 94,010,000 4,411,336,158 1.9030 158,474,195 5.38% 8,525,912 5,751,081,057 1.7350 116,502,961 0.48% 559,214 129,617,491,048 0.2039 203,692,395 0.01% 20,369 134,404,944,574 0.0778 43,125,000 0.01% 4,313 129,617,491,048 0.2540 6,670,000 0.01% 667 13,159,000,737 .1.7010 232,180,813 67.47% 156,652,395 111,228,762,367 0.2725 175,615,000 5.24% 9,202,226 111,228,762,367 0.2353 1,190,000 5.24% 3,767,298 111,228,762,367 0.1394 71,895,000 5.24% 62,356 $ 272,804,749 Ratio of Direct and Overlapping Funded Debt to Taxable Assessed Valuation ............................................... 5.10% Per Capita Overlapping Funded Debt................................................................................ $ 5,799.91 (1) Includes the Bonds, less self-supporting debt and Refunded Obligations. Preliminary, subject to change. 18 DEBT INFORMATION TABLE 8 - PRO -FORMA GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS Fiscal Year Total Less TIF Total Debt Ended Outstanding Debt �1� The Bonds (z) Debt Self -Supporting Less TIF 9130 Principal Interest Principal Interest Requirements Requirements(;) Requirements 2005 $ 9,500,000 $ 6,107,404 $ 210,000 $ 939,746 $ 16,757,150 $ 5,075,434 $ 11,681,716 2006 9,410,000 5,649,268 - 1,125,175 16,184,443 4,983,554 11,200,889 2007 9,370,000 5,180,679 - 1,125,175 15,675,854 4,991,601 10,684,254 2008 9,655,000 4,718,629 - 1,125,175 15,498,804 4,994,673 10,504,131 2009 8,090,000 4,304,093 1,650,000 1,090,113 15,134,205 4,982,585 10,151,620 2010 7,765,000 3,936,466 1,740,000 1,015,900 14,457,366 4,984,085 9,473,281 2011 7,380,000 3,560,699 1,840,000 930,750 13,711,449 4,985,923 8,725,526 2012 6,430,000 3,242,754 1,945,000 836,125 12,453,879 5,009,773 7,444,106 2013 6,510,000 2,935,666 2,060,000 736,000 12,241,666 5,029,423 7,212,243 2014 4,900,000 2,657,038---- 4,065,000 582,875 12,204,913 5,049,623 7,155,290 2015 5,020,000 2,407,198 4,290,000 374,000 12,091,198 5,073,493 7,017,705 2016 4,700,000 2,154,998 4,540,000 153,250 11,548,248 5,096,086 6,452,161 2017 4,960,000 1,902,813 795,000 19,875 7,677,688 2,591,176 5,086,511 2018 5,245,000 1,634,056 - - 6,879,056 2,591,939 4,287,117 2019 5,545,000 1,348,627 - 6,893,627 2,597,814 4,295,813 2020 3,825,000 1,097,760 - 4,922,760 2,602,404 2,320,356 2021 4,050,000 884,738 - 4,934,738 2,606,194 2,328,544 2022 2,810,000 688,800 - 3,498,800 2,608,894 889,906 2023 2,440,000 542,869 - 2,982,869 2,608,744 374,125 2024 2,200,000 411,838 - 2,611,838 2,611,838 - 2025 2,335,000 282,588 - 2,617,588 2,617,588 2026 2,475,000 145,406 - 2,620,406 2,620,406 $ 124,615,000 $ 55,794,383 $ 23,135,000 $ 10,054,158 $ 189,409,544 $ 86,313,244 $ 121,372,366 % of Principal Retired 32.41% 62.62% 86.37% 96.74% 100.00% (1) "Outstanding Debt" includes lease/purchase obligations and self-supporting debt. Excludes the Refunded Obligations. Preliminary, subject to change. (2) Average life of the issue — 8.779 years. Interest on the Bonds has been calculated at an average rate of 4.95% for purposes of illustration. Preliminary, subject to change. (3) Includes a portion of the Bonds; preliminary, subject to change. TABLE 9 - INTEREST AND SINIQNG FUND BUDGET PROJECTION Tax Supported Debt Service Requirements, Fiscal Year Ending 9/30/2005 .............................. $ 11,681,716 "' Interest and Sinking Fund Balance as of 9/30/04 ................................. $ 1,453,541 Interest and Sinking Fund Tax Levy ........................................... 9,946,675 Penalty and Interest........................................................ 65,000 Budgeted Transfers(2)......................................................... 1,225,976 Estimated Investment Income .................................................. 65,000 12,756,192 Estimated Balance, 9/30/2005................................................................. $ 1,074,476 (1) Excludes TIF self-supporting debt service. (2) Includes Golf Course user fees. 19 TABLE 10 -COMPUTATION OF SELF-SUPPORTING DEBT Beginning Fund Balance, 9-30-03.................................. $ 5,675,988 Projected Net Tax Increment Reinvestment Zone Revenue Available for Debt Service........................................................ 3,801,179 Requirements for Tax Increment Reinvestment Zone Certificates.......................................................................................... 4.361.839 ProjectedFund Balance, 9-30-04..............................................................................................................................................$ 5,115,328 Percentage of Tax Increment Reinvestment Zone Revenue Certificates Self-Supporting...................................................... 100.00% TABLE I I - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS Amount Amount Date Amount Previously Being Unissued Purpose Authorized Authorized Issued Issued Balance Street Improvements 12/5/1998 $ 30,245,000 $ 24,997,314 $ - $ 5,247,686 ANTICIPATED ISSUANCE OF GENERAL OBLIGATION DEBT ... The City anticipates the issuance of approximately $5.2 million of additional general obligation debt within the next six months. TABLE 12 - OTHER OBLIGATIONS The City has no unfunded debt outstanding as of September 30, 2004, PENSION FUND ... The City provides pension benefits for all of its full-time employees through the Texas Municipal Retirement System ("TMRS"), a State-wide administered pension plan. The City makes annual contributions to the plan equal to the amounts accrued for pension expense. (For more detailed information concerning the retirement plan, see Appendix B, "Excerpts from the City's Annual Financial Report".) (The remainder of this page left blank intentionally) 20 FINANCIAL INFORMATION TABLE 13 - CHANGES IN NET ASSETS (t) (1) For the fiscal year ended September 30, 2003, the City implemented Government Accounting Standards Board Statement No. 34 ("GASB 34"). 21 Fiscal Year Ended Revenues: 9/30/2003 Program Revenues Charges for Services $ 13,518,121 Operating Grants and Contributions 1,893,118 Capital grants and contributions 1,108,954 General Revenues Property Taxes $ 22,768,284 Hotel occupancy taxes 3,380,659 Sales taxes 16,040,397 Mixed beverage taxes 578,218 Franchise fees 4,944,789 Investment earnings 1,106,609 Miscellaneous 155,158 Gain (loss) on sale/retirement of fixed assets (58,080) Total Revenues $ 65,436,227 Expenses: General Government $ 13,062,473 Public Safety 16,366,353 Culture and recreation 14,069,760 Public Works 14,342,030 Interest on long-term debt 7,603,547 Water and sewer Lake Enterprise - Total Expenses $ 65,444,163 Increase in net assets before transfers $ (7,936) Transfers - Changes in S (7,936) net assets Net Assets - 10/01/02 27,864,377 Net Assets - 9/30/03 $ 27,856,441 (1) For the fiscal year ended September 30, 2003, the City implemented Government Accounting Standards Board Statement No. 34 ("GASB 34"). 21 TABLE 13A - GENERAL FUND REVENUES AND EXPENDITURE HISTORY 0 Fiscal Year Ended September 30, Revenues 2003 2002 2001 2000 1999 Taxes $ 28,715,417 $ 27,165,580 $ 29,239,672 $ 27,051,303 $ 25,160,401 Licenses and Permits 1,482,165 1,536,786 1,146,428 1,494,428 1,163,306 Intergovernmental 129,428 217,614 4,381,910 182,863 190,189 Charges for Services 5,784,270 5,009,819 2,984,179 3,003,353 2,693,057 Fines and Forfeitures 2,046,991 2,101,526 2,149,638 2,360,028 1,850,076 Interest and Miscellaneous 1,119,469 792,073 876,507 776,140 687,619 Total Revenues $ 39,277,740 $ 36,823,398 $ 40,778,334 $ 34,868,115 $ 31,744,648 Expenditures General Government $ 12,168,352 $ 11,686,622 $ 10,510,527 $ 5,683,237 $ 5,625,351 Public Safety 15,846,568 15,532,602 17,640,884 15,404,767 13,245,400 Culture and Recreation 5,673,980 5,184,010 5,737,648 5,183,727 4,519,957 Capital Outlay 80,649 - Public Works 4,770,722 4,772,777 6,067,277 5,657,648 5,062,397 Total Expenditures $ 38,540,271 $ 37,176,011 $ 39,956,336 $ 31,929,379 $ 28,453,105 Excess (deficiency) of Revenues Over Expenditures $ 737,469 $ (352,613) $ 821,998 $ 2,938,736 $ 3,291,543 Other Financing Sources Budgeted Transfers In $ 304,000 $ 300,000 $ 400,000 $ - $ 13,090 Budgeted Transfers Out (1,068,765) (1,753,450) (1,295,979) (2,098,598) (1,900,345) Total Transfers $ (764,765) $ (1,453,450) $ (895,979) $ (2,098,598) $ (1,887,255) Net Increase (Decrease) $ (27,296) $ (1,806,063) $ (73,981) $ 840,138 $ 1,404,288 I Other Miscellaneous Adjustments Residual Equity Transfer 262,087 - 1,172 79,788 Beginning Fund Balance 6,131,875 7,658,665 7,732,646 6,891,336 5,407,260 Ending Fund Balance $ 6,104,579 $ 6,114,689 $ 7,658,665 $ 7,732,646 $ 6,891,336 22 TABLE 14 - MUNICIPAL SALES TAX HISTORY The City has adopted the Municipal Sales and Use Tax Act, V.A.T.C.S., Tax Code, Chapter 321, which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City; the proceeds are credited to the General Fund and are not pledged to the payment of the Bonds. Collections and enforcements are effected through the offices of the Comptroller of Public Accounts, State of Texas, who remits the proceeds of the tax, after deduction of a 2% service fee, to the City monthly. Fiscal Year % of Equivalent of Ended Total Ad Valorem Ad Valorem Per 9/30 Collected Tax Levy Tax Rate Capita 2000 $ 14,340,693 93.29% $ 0.3506 S 363 2001 16,048,266 98.25% 0.3670 362 2002 14,939,771 85.70% 0.3129 328 2003 16,040,397 90.96% 0.3365 346 2004 �j� 14,995,435 83.06% 0.3040 325 (1) As of September 30, 2004, collections through July 31, 2004. FINANCIAL POLICIES Basis of Accounting ... The accounting policies of the City conform to generally accepted accounting principles for governmental entities as promulgated by the Government Accounting Standards Board. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental funds and expendable trust funds are accounted for using a current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the combined balance sheet. Operating statements of these funds present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. All proprietary funds are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included on the combined balance sheet. Fund equity is segregated into contributed capital and retained earnings components. Proprietary fund -type operating statements present increases (revenues) and decreases (expenses)in net total assets. The modified accrual basis of accounting is used by all governmental funds types, expendable trust funds and agency funds. Under the modified accrual basis of accounting revenues are recognized when susceptible to accrual ( i.e., when they become both measurable and available). "Measurable" means collectible within the current period of soon enough thereafter to be used to pay liabilities of the current period. Expenditures are generally recorded when the related fund liability is incurred. However, principal of and interest on general long-term debt are recorded as fund liabilities when due or when amounts have been accumulated in the debt service fund for payments to be made early in the following year. Major revenue sources which have been treated as susceptible to accrual under the modified basis of accounting include property taxes, charges for services, intergovernmental revenues, an d investment of idle funds. The accrual basis of accounting is utilities by proprietary funds types. Under this method, revenue is recorded when earned and expenses are recorded at the time liabilities are incurred. The City reports deferred revenue on its combined balance sheet. Deferred revenues arise when a potential revenue does not meeting both the "measurable" and "available" criteria for recognition in the current period. Deferred revenues also arise when resources are received by the government before it has a legal claim to them, as when grant monies are received prior to the incurrence of qualified expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the govemment has a legal claim to the resources, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized. Fund Balances ... It is the City's policy regarding the General Fund and Enterprise Funds that working capital resources should be maintained at a minimum of 10% of the Fund's operating expenditure budget. The City maintains its various debt service funds in accordance with the covenants of the Ordinances. Use of Bond Proceeds... The City's policy is to use bond proceeds for capital expenditures only. Such revenues are never to be used to fund normal City operations. 23 Budgetary Procedures... The City Charter establishes the fiscal year as the twelve-month period beginning each October 1. Each year between May and July, the City Manager analyzes and then atter review, submits a budget of estimated revenues and expenditures to the City Council. Subsequently, the City Council will hold work sessions to discuss and amend the budget to coincide 0 with their direction of the City. Various public hearings may be held to comply with state and local statutes. The City Council will adopt a budget prior to September 30. If the Council fails to adopt a budget then the budget presented to the Council by the City Manager becomes the adopted budget. During the fiscal year, budgetary control is maintained by the monthly review of departmental appropriation balances. Actual operations are compared to the amounts set forth in the budget. Departmental appropriations that have not been expended lapse at the end of the fiscal year. Therefore, funds that were budgeted and not used by the departments during the fiscal year are not available for their use unless appropriated in the ensuing fiscal year's budget. INVESTMENTS The City invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the City Council of the City. Both state law and the City's investment policies are subject to change. LEGAL INVESTMENTS ... Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies, counties, cities and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit that are issued by a state or national bank domiciled in the State of Texas, a savings bank domiciled in the State of Texas, or a state or federal credit union domiciled in the State of Texas and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for City deposits, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (9) securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than "A" or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above, clauses (11) through (13) below, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the City, held in the City's name and deposited at the time the investment is made with the City or a third party designated by the City; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less, (10) certain bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least "A-1" or "P -I" or the equivalent by at least one nationally recognized credit rating agency, (11) commercial paper with a stated maturity of 270 days or less that is rated at least "A-1" or "P-1" or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (12) no -loan money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share and (13) no -loan mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than "AAA" or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations, including letters of credit, of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described in the next succeeding paragraph. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAAm or an equivalent by at least one nationally recognized rating service. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. INVESTMENT POLICIES ... Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of 24 investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar -weighted maturity allowed for pooled fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each funds' investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under Texas law, City investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At least quarterly the investment officers of the City shall submit an investment report detailing: (1) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority from the City Council. ADDITIONAL PROVISIONS .. Under Texas law the City is additionally required to: (I) annually review its adopted policies and strategies; (2) require any investment officers with personal business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (3) require the registered principal of funis seeking to sell securities to the City to: (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) perform an annual audit of the management controls on investments and adherence to the City's investment policy; (5) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (6) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (7) restrict the investment in non -money market mutual funds of any portion of bond proceeds, reserves and funds held for debt service to no more than 15% of the entity's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service; and (8) require local government investment pools to conform to the new disclosure, raring, net asset value, yield calculation, and advisory board requirements. TABLE I5- CURRENT INVESTMENTS As of September 30, 2004, the City's investable funds were invested in the following categories: (The Remainder of This Page Left Blank Intentionally.) 25 Book Market Description Percent Value Value Government Securities 40.16% $ 25,890,818 $ 25,800,087 TexPoollLogic 59.84% 38,580,079 38,580,079 100.00% $ 64,470,897 $ 64,380,166 (The Remainder of This Page Left Blank Intentionally.) 25 TAX MATTERS TA -x EXEMPTION ... In the opinion of Vinson & Elkins L.L.P., Bond Counsel, (i) interest on the Bonds is excludable from gross =, "a income for federal income tax purposes under existing law and (ii) the Bonds are not "private activity bonds" under the Internal Revenue Code of 1986, as amended (the "Code"), and interest on the Bonds will not be subject to the alternative minimum tax on individuals and corporations, except as described below in the discussion regarding the adjusted current earnings adjustment for corporations. The Code imposes a number of requirements that must be satisfied for interest on state or local obligations, such as the Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of proceeds and the source of repayment, limitations on the investment of proceeds prior to expenditure, a requirement that excess arbitrage earned on the investment of proceeds be paid periodically to the United States, and requirement that the issuer file an information report with the Internal Revenue Service. The City has covenanted in the Ordinance that it will comply with these requirements. Bond Counsel's opinion will assume continuing compliance with the covenants of the Ordinance pertaining to those sections of the Code which affect the exclusion from gross income of interest on the Bonds for federal income tax purposes and, in addition, will rely on representations by the City, the City's Financial Advisor and the Underwriters with respect to matters solely within the knowledge of the City, the City's Financial Advisor and the Underwriters, respectively, which Bond Counsel has not independently verified. If the City should fail to comply with the covenants in the Ordinance or if the foregoing representations should be determined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of the Bonds, regardless of the date on which the event causing such taxability occurs. The Code also imposes a 20%" alternative minimum tax on the "alternative minimum taxable income" of a corporation, if the amount of such alternative minimum tax is greater than the amount of the corporation's regular income tax. Generally, the alternative minimum taxable income of a corporation (other than any S corporation, regulated investment company, REIT, REMIC or FASIT), includes 75% of the amount by which its "adjusted current earnings" exceeds its other "alternative minimum taxable income." Because interest on tax-exempt obligations, such as the Bonds, is included in a corporation's "adjusted current earnings," ownership of the Bonds could subject a corporation to alternative minimum tax consequences. Under the Code, taxpayers are required to report on their returns the amount of tax-exempt interest, such as interest on the Bonds, received or accrued during the year. Except as stated above, and as stated below in "Tax Accounting Treatment of Original Issue Discount Bonds", Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt of interest on, or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations, and individuals otherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the U.S. may be subject to the "branch profits tax" on their effectively -connected earnings and profits including tax-exempt interest such as interest on the Bonds. These categories of prospective purchasers should consult their own tax advisors as to the applicability of these consequences. Bond Counsel's opinions are based on existing law, which is subject to change. Such opinions are further based on Bond Counsel's knowledge of facts as of the date hereof. Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances that may thereafter come to Bond Counsel's attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, Bond Counsel's opinions are not a guarantee of result and are not binding on the Internal Revenue Service (the "Service"); rather, such opinions represent Bond Counsel's legal judgment based upon its review of existing law and in reliance upon the representations and covenants referenced above that it deems relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the City as the taxpayer and the Owners of the Bonds may not have a right to participate in such audit. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit regardless of the ultimate outcome of the audit. 26 TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT BONDS ... The initial public offering price for certain of the respective Bonds may be less than the principal amount thereof (the "Original Issue Discount Bonds"). In such case, Bond Counsel, under existing law and based upon the assumptions hereinafter stated, will render an opinion to the effect that: (a) The difference between (i) the amount payable at the maturity of each Original Issue Discount Bond, and (ii) the initial offering price to the public of such Original Issue Discount Bond constitutes original issue discount with respect to such Original Issue Discount Bond in the hands of any owner who has purchased such Original Issue Discount Bond in the initial public offering of the Bonds; and (b) Such initial owner is entitled to exclude from gross income (as defined in Section 61 of the Code) an amount of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such original issue discount allocable to the period that such Original Issue Discount Bond continues to be owned by such owner. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Bond prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Bond was held by such initial owner) is includable in gross income. (Because original issue discount is treated as interest for federal income tax purposes, the discussion regarding interest on the Bonds under the caption "Tax Exemption" generally applies, except as otherwise provided below, to original issue discount on an Original Issue Discount Bond held by an owner who purchased such Bond at the initial offering price in the initial public offering of the Bonds, and should be considered in connection with the discussion in this portion of the Preliminary Official Statement.) In rendering the foregoing opinion, Bond Counsel will assume, in reliance upon certain representations of the Underwriters, that (a) the Underwriters have purchased the Bonds for contemporaneous sale to the public and (b) all of the Original Issue Discount Bonds have been initially offered, and a substantial amount of each maturity thereof has been sold, to the general public in arm's-length transactions for a price (and with no other consideration being included) not more than the initial offering prices thereof. Neither the City nor Bond Counsel warrants that the Original Issue Discount Bonds will be offered and sold in accordance with such assumptions. Certain of the representations of the initial purchaser, upon which Bond Counsel will rely in rendering the foregoing opinion, will be based on records or facts the initial purchaser had no reason to believe were not correct. Under existing law, the original issue discount on each Original Issue Discount Bond is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semi-annual anniversary dates of the date of the Bonds and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Bond. The federal income tax consequences of the purchase, ownership, and redemption, sale or other disposition of Original Issue Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Bonds should consult their own tax advisors with respect to the determination for federal, state, and local income tax purposes of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Bonds. 27 OTHER INFORMATION RATINGS The presently outstanding tax supported debt of the City is rated "AI" by Moody's and "A+" by S&P. The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA" by S&P through insurance by various commercial insurance companies. Applications for contract ratings on this issue have been made to Moody's and S&P. An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The ratings reflect only the respective views of such organization and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by either or both of such rating companies, if in the judgment of either or both companies, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or either of them, may have an adverse effect on the market price of the Bonds. LITIGATION It is the opinion of the City Attorney and City Staff that there is no pending litigation against the City that would have a material adverse financial impact upon the City or its operations. REGISTRATION AND QUALIFICATION OF BONDS FOR SALE The sale of the Bonds has not been registered under the Federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions. LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the Bonds are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of municipalities or other political subdivisions or public agencies of the State of Texas. With respect to investment in the Bonds by municipalities or other political subdivisions or public agencies of the State of Texas, the Public Funds Investment Act, Chapter 2256, Texas Government Code, requires that the Bonds be assigned a rating of "A" or its equivalent as to investment quality by a national rating agency. See "OTHER INFORMATION - Ratings" herein. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Bonds are legal investments for state banks, savings banks, trust companies with at capital of one million dollars or more, and savings and loan associations. The Bonds are eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the City has been made of the laws in other states to determine whether the Bonds are legal investments for various institutions in those states. LEGAL MATTERS The City will furnish a complete transcript of proceedings incident to the authorization and issuance of the Bonds, including the approving legal opinion of the Attorney General of the State of Texas to the effect that each Initial Bond is a valid and binding obligations of the City, and based upon examination of such transcript of proceedings, the approving legal opinion of Bond Counsel to the effect that the Bonds issued in compliance with the provisions of the Ordinance are valid and legally binding obligations of the City and the interest on such Bonds is excludable from gross income for federal income tax purposes under existing law and the Bonds are not private activity bonds, subject to the matters described under "Tax Matters" herein. A form of such Bond Counsel opinion is attached hereto as Appendix C. Bond Counsel did not take part in the preparation of the Preliminary Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information describing the Bonds in the Preliminary Official Statement under the captions "Plan of Financing" (except under the subcaption "Sources and Use of Proceeds"), "The Bonds" (except for the subcaption "Book -Entry -Only System" and "Bondholders Remedies'), "Tax Matters" and "Continuing Disclosure of Information" (except for under the subcaption "Compliance with Prior Undertakings") and the subcaptions "Legal Investments and Eligibility to Secure Public Fund in Texas", and "Legal Matters" under the caption "Other Information" and is of the opinion that the information relating to the Bonds and the Ordinance contained therein fairly and accurately describe the provisions thereof. The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds are contingent on the sale and delivery of the Bonds. The legal opinion will accompany the Bonds deposited with DTC or will be printed on the Bonds in the event of the discontinuance of the Book -Entry -Only System. Certain legal matters will be passed upon for the Underwriters by Kelly, Hart & Hallman, a Professional Corporation, Fort Worth, Texas, Counsel to the Underwriters. The legal fees to be paid to Underwriter's Counsel for services rendered in connection with the issuance of the Bonds are contingent on the sale and delivery of the Bonds. 28 AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION The financial data and other information contained herein have been obtained from City records, audited financial statements and other sources, which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Preliminary Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available -to securities brokers and others who subscribe to receive the information from the vendors. ANNUAL REPORTS ... The City will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Preliminary Official Statement under Tables numbered I through 6 and 8 through 15 and in Appendix B. The City will update and provide this information within six months after the end of each fiscal year ending in or after 2004. The City will provide the updated information to each nationally recognized municipal securities information repository ("NRMSIR") and to any state information depository ("SID") that is designated by the State of Texas and approved by the State of Texas and approved by the staff of the United States Securities and Exchange Commission (the "SEC"). The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12. The updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide unaudited financial statements by the required time and audited financial statements when and if such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix B or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify each NRMSIR and the SID of the change. The Municipal Advisory Council of Texas has been designated by the State of Texas and approved by the SEC staff as a qualified SID. The address of the Municipal Advisory Council is 600 West 8th Street, P. 0. Box 2177, Austin, Texas 78768- 2177, and its telephone number is 512/476-6947. MATERIAL EVENT NOTICES ... The City will also provide timely notices of certain events to certain information vendors. The City will provide notice of any of the following events with respect to the Bonds, if such event is material to a decision to purchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7) modifications to rights of holders of the Bonds; (8) Bond or Note calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds; and (11) rating changes. (Neither the Bonds or the Ordinance make any provision for debt service reserves or liquidity enhancement.) In addition, the City will provide timely notice of any failure by the City to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports." The City will provide each notice described in this paragraph to the SID and to either each NRMSIR or the Municipal Securities Rulemaking Board ("MSRB"). AVAILABILITY OF INFORMATION FROM NRMSIRS AND SID ... The City has agreed to provide the foregoing information only to NRMSIRs and the SID, The information will be available to holders of Bonds only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. LIMITATIONS AND AMENDMENTS ... The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Bonds, or both, may seek a writ of mandamus to compel the City to comply with its agreement. 29 The City may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds, as the case may be, consent to the amendment or (b) any person unaffiliated with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds, as the case may be. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the SEC Rule 15c2-12 or a court of final jurisdiction enters judgment that such provisions of the SEC Rule 15c2-12 are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Bonds in the primary offering thereof. If the City so amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. COMPLIANCE WITH PRIOR UNDERTAKINGS ... The City has compiled in all material respects with all continuing disclosure agreements made by it in accordance with SEC Rule 15c2-12. FINANCIAL ADVISOR First Southwest Company is employed as Financial Advisor to the City in connection with the issuance of the Bonds. The Financial Advisor's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. First Southwest Company, in its capacity as Financial Advisor, has relied on the opinion of Bond Counsel and has not verified and does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Bonds, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. The Financial Advisor to the City has provided the following sentence for inclusion in this Preliminary Official Statement, The Financial Advisor has reviewed the information in this Preliminary Official Statement in accordance with, and as part of, its responsibilities to the City and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. FORWARD-LOOKING STATEMENTS DISCLAIMER The statements contained in this Preliminary Official Statement, and in any other information provided by the City, that are not purely historical, are forward-looking statements, including statements regarding the City' expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Preliminary Official Statement are based on information available to the City on the date hereof, and the City assumes no obligation to update any such forward-looking statements. The City' actual results could differ materially from those discussed in such forward-looking statements. The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial, and other governmental authorities and officials. Assumptions related to the foregoing involve judgements with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Preliminary Official Statement will prove to be accurate. VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS The arithmetical accuracy of certain computations included in the schedules provided by First Southwest Company on behalf of the City relating to (a) computation of forecasted receipts of principal and interest on the forecasted payments of principal and interest to redeem the Refunded Obligations and (b) computation of the yields of the Refunding Obligations and the restricted Federal Securities were verified by Grant Thornton, LLP, certified public accountants. Such computations were based solely on assumptions and information supplied by First Southwest Company on behalf of the City. Grant Thornton, LLP has restricted its procedures to verifying the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information on which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome. 30 UNDERWRITING The Underwriters have agreed, subject to certain conditions, to purchase the Bonds from the City, at an underwriting discount of The Underwriters will be obligated to purchase all of the Bonds if any Bonds are purchased. The Bonds to be offered to the public may be offered and sold to certain dealers (including the Underwriters and other dealers depositing Bonds into investment trusts) at prices lower than the public offering prices of such Bonds, and such public offering prices may be changed, from time to time, by the Underwriters. APPROVAL OF PRELIMINARY OFFICIAL STATEMENT The Ordinance will also approve the form and content of this Preliminary Official Statement, and any addenda, supplement or amendment thereto, and authorize its further use in the reoffering of the Bonds by the Underwriters. ATTEST: /s/ LINDA HUFF City Secretary 31 /s/ WILLIAM D. TATE Mayor City of Grapevine, Texas Schedule l SCHEDULE OF REFUNDED OBLIGATIONS* General Obligation Bonds, Series 1995 Interest Original Maturity Interest Principal Dated Date Date Rate Amount 6/1/1995 2/15/2014 5.00% $ 1,215,000 2/15/2015 5.00% 1,275,000 2/15/2016 5.00% 1,340,000 The 2014 - 2016 maturities will be redeemed prior to original maturity on February 15, 2005 at par. Combination Tax & Tax Increment Reinvestment Zone Revenue Certificates of Obligation, Series 1996 Original Maturity Interest Principal Dated Date Date Rate Amount 10/1/1996 2/15/2009 5.25% $ 1,675,000 2/15/2010 5.25% 1,780,000 2/15/2011 5.25% 1,890,000 2/15/2012 5.25% 2,005,000 2/15/2014 5.25% 4,390,000 2/15/2016 5.25% 4,950,000 The 2009 - 2016 maturities will be redeemed prior to original maturity on February 15, 2006 at par. General Obligation Bonds, Series 1996 Original Maturity Interest Principal Dated Date Date Rate Amount 10/1/1996 2/15/2014 5.50% $ 720,000 2/15/2017 5.50% 2,445,000 The 2014 and 2017 maturities will be redeemed prior to original maturity on February 15, 2006 at par. * Preliminary, subject to change. APPENDIX A GENERAL INFORMATION REGARDING THE CITY TILE CITY ... The City is a political subdivision of the State of Texas incorporated in 1907 and operates as a home -rule City under the general laws of the State of Texas and a charter approved by the voters in 1965. The City has a Council/Manager form of government in which the mayor and six council members are elected for staggered three-year terms with elections held annually in May. Policy making is the responsibility of, and is vested in, the City Council. The Council delegates the operational authority of the City to the City Manager, who is the chief administrative officer of the City. The City provides all the functions normally associated with a municipality including, but not limited to, public safety (i.e., police and fire personnel and equipment), health inspection and enforcement, water and sewer facilities, streets and drainage facilities and parks and recreational facilities. The City presently employs approximately 497 full-time staff members. POPULATION ... The City has had significant population growth during the past several years. These population estimates are as follows: Year _Population Source Year Population Source 1970 7,023 U.S. Census 1993 31,902 City Estimate 1980 11,801 U.S. Census 1994 32,727 City Estimate 1981 15,245 Grapevine Community Profile 1995 33,211 City Estimate 1982 16,183 Grapevine Community Profile 1996 34,950 City Estimate 1983 18,121 Grapevine Community Profile 1997 -36,000 City Estimate 1984 19,405 Grapevine Community Profile 1998 37,946 City Estimate 1985 22,002 Grapevine Community Profile 1999 39,190 City Estimate 1986 24,493 Grapevine Community Profile 2000 39,523 U.S. Census 1987 25,853 Grapevine Community Profile 2001 44,390 City Estimate I988 27,132 City Estimate 2002 45,500 City Estimate 1989 27,257 City Estimate 2003 46,400 City Estimate 1990 29,202 U.S. Census 2004 46,188 City Estimate 1991 30,300 City Estimate 2005 47,036 City Estimate 1992 31,400 City Estimate ECONOMICS ... The proximity of the Dallas/Fort Worth International Airport ("DFW") greatly influences both industrial and residential growth of the City. DFW has been and is expected to continue to be an economic generator of employment, spin-off businesses and tax base, all of which benefit the City and the surrounding area. Approximately 65% of the airport is within the city limits of Grapevine. Several large business operations owe their genesis to DFW including air cargo services, flight kitchens, rent/lease car operations and SimuFlite Training International, a company which provides jet pilot flight training in advanced flight simulators. Seven of the ten largest taxpayers of the City are directly related to DFW either by location or primary business sources. DFW contains approximately 18,000 acres and directly employs some 33,000 personnel. These employees have skills ranging from custodial level to highly trained jet aircraft pilots. A number of these people have purchased homes in the City and conduct their daily business here. DFW has approximately 19,400 parking spaces and is currently expanding parking facilities. Sales tax from parking fees generate about $330,000 in annual income for the City and hotels providing service for travelers at DFW and seminar space for business meetings generate approximately $2.0 million in annual hotel/motel tax revenue. EMPLOYMENT ... The labor market in the City continues to be strong. Employment figures furnished by Texas Employment Commission are: A-1 August Annual Annual Annual Annual Annual 2004 2003 2002 2001 2000 1999 Labor Force 22,695 22,478 22,219 22,001 21,757 21,309 Employed 22,028 21,692 21,476 21,509 21,393 20,956 Unemployed 667 786 743 492 364 353 Percent of Unemployed 2.94% 3.50% 3.34% 2.24% 1.67% 1.66% A-1 MAJOR EMPLOYERS Company Dallas/Fort Worth International Airport Gaylord Texan Resort & Convention Center Grapevine/Colleyville Independent School District United Parcel Service Baylor Medical Center Gamestop City of Grapevine D/FW Hilton Hotel SimuFlite Training International Apollo Paper/John Harland Source: City of Grapevine, Department of Development Services. BANKING AND FINANCIAL— Banking facilities for the City are provided by four banks, the Texas Bank of Grapevine, the First State Bank of Grapevine, Frost Bank and a branch of NationsBank of Texas, Independent National Bank, Bank One and of Bank of America. Also located in the City is a branch of the Omni Federal Credit Union. Source: City of Grapevine, Finance Department. BUILDING PERMITS ... The number and value of building permits issued by the City are: Fiscal Estimated Residential Permits Number of Product Employees Airport 16,420 Hotel/Convention 1,800 School District 1,576 Parcel Service 1,200 Health Services 1,000 Electronic/Software Distribution 600 City Government 540 Hotel 400 Pilot Training 300 Paper Products 200 BANKING AND FINANCIAL— Banking facilities for the City are provided by four banks, the Texas Bank of Grapevine, the First State Bank of Grapevine, Frost Bank and a branch of NationsBank of Texas, Independent National Bank, Bank One and of Bank of America. Also located in the City is a branch of the Omni Federal Credit Union. Source: City of Grapevine, Finance Department. BUILDING PERMITS ... The number and value of building permits issued by the City are: Fiscal Commercial Permits Residential Permits Total Year Number Number Number Total Ended of Dollar of Dollar of Dollar 9/30 Permits Value Permits Value Permits Value 1999 32 $ 59,920,763 185 $ 21,026,688 217 $ 80,947,451 2000 56 84,742,336 211 56,040,989 267 140,783,325 2001 53 364,294,642 89 12,445,025 142 376,739,667 2002 23 21,888,714 183 48,911,056 206 70,799,770 2003 28 34,396,654 158 43,615,909 186 78,012,563 Source: City of Grapevine records. RECREATION ... Located approximately two miles north of the downtown area of the City lies Grapevine Lake. The lake serves as the City reservoir and supplies approximately 50% of the water supply of the City. The lake covers a surface area of approximately 12,740 acres and has a shore line of 146 miles. The lake is 19 miles long and 2.5 miles wide at its widest point. The lake is owned and operated by the U.S, Corps of Engineers and is a major recreation area for swimming, fishing, picnicking and camping and draws some five million visitors each year to the area. The City also has an extensive park system which includes tennis courts, racquetball courts, baseball and softball diamonds, football and soccer fields, a jogging and biking trail, swimming pool and picnic areas. The City also owns and operates an 18 -hole golf course and has plans for a 9 -hole expansion. TRANSPORTATION... The City is in the center of a highway network that includes seven spokes of an extensive highway system; six U.S. highways, seven major state highways and one interstate highway. This network connects the City to all major entrances to both Dallas and Fort Worth, with major highway systems both north/south and east/west. There are 43 motor freight lines providing service to the City and the City is within the Dallas and Fort Worth Commercial Zone for deliveries. Railroad service is offered by the Cotton Belt Railroad and the Southern Pacific Railroad, both with daily switching service. Greyhound/ Trailways Bus Lines provides the City with surface bus transportation. A-2 HOTEL AND CONVENTION FACILITIES... There are four major hotels in the City and several other hotels and motels adjacent to the City near DFW. The Hyatt Regency DFW is located on the airport and provides 1,450 rooms, one of the largest hotels in Texas. The Hyatt provides more than 130,000 square feet of meeting and convention facilities, five dining facilities, availability to two 18 -hole championship golf courses, tennis courts, heated swimming pool and health spa and jogging trails. The D/FW Airport Hilton and Executive Conference Center is a 400 -room hotel located 2.5 miles north of DFW offering a 14,400 square foot exhibit hall and ballroom that can accommodate 900 banquet guests. Also provided are three restaurants, tennis courts, racquetball courts, indoor and outdoor swimming pools, steam room, health club and lighted jogging trails. Adjacent to the hotel is the Austin Ranch where horseback riding and other western events are available to hotel guests. The Embassy Suites Conference Center is a 12 -story, 329 -room hotel located just north of DFW Airport. The Embassy Suites offers a 12,640 square foot conference center and ballroom, a 3,432 square foot junior ballroom and 14 other meeting rooms. Also provided is a state-of-the-art fitness center, a heated indoor swimming pool, complimentary, cooked -to -order breakfast and 24-hour in -room dining. The Gaylord Texan on Lake Grapevine is a 1,511 room resort and convention center located just 6 minutes from D/FW Airport. The Gaylord Texan provides 400,000 square feet of convention, meeting, exhibit and pre -function space featuring 70 breakout rooms, three ballrooms, 180,000 square -feet of dedicated exhibit space, an 80,000 square foot outdoor event lawn and a 2,500 square foot amphitheater. Other amenities include seven restaurants, the Dallas Cowboys Golf Club, a contemporary Southwestem-style outdoor pool, a 25,000 square foot European spa, salon and fitness center with 13 treatment rooms and a 20 -meter indoor lap pool, outdoor tennis courts and marina access for recreational water -craft. EDUCATION... Secondary education is provided to the City by the Grapevine-Colleyville Independent School District (the "District"). The District provides seventeen campuses, all air conditioned, as follows: 2 High schools 4 Middle schools I l Elementary schools In addition to the campuses, the District also owns an administration/service center, an auditorium and a complete athletic complex. Historical school enrollment figures are: 1983 3,732 1994 10,878 1984 4,037 1995 11,363 1985 4,675 1996 11,655 1986 5,617 1997 12,398 1987 6,107 1998 12,928 1988 6,604 1999 13,299 1989 7,156 2000 13,369 1990 7,984 2001 13,534 1991 8,710 2002 13,677 1992 9,435 2003 13,619 1993 10,236 2004 13,738 Source: Grapevine-Colleyville Independent School District. Educational opportunities beyond the secondary level are numerous and within easy driving distance of the City. Some of the colleges and universities within a 50 mile radius of the City are as follows: College/University Location Texas Christian University Fort Worth, Texas Texas Wesleyan University Fort Worth, Texas Tarrant County College Fort Worth, Texas University of Texas at Arlington Arlington, Texas University of North Texas Denton, Texas Texas Women's University Denton, Texas Southern Methodist University Dallas, Texas Dallas Baptist University Dallas, Texas Dallas Community College Dallas, Texas University of Dallas Irving, Texas University of Texas at Dallas Richardson, Texas A-3 APPENDIX B EXCERPTS FROM THE CITY OF GRAPEVINE, TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2003 The information contained in this Appendix consists of excerpts from the City of Grapevine, Texas Annual Financial Report for the Year Ended September 30, 2003, and is not intended to be a complete statement of the City's financial condition. Reference is made to the complete Report for further information. April 2, 2004 To the Honorable Mayor, Members of the City Council, and Citizens of the City of Grapevine, Texas Submitted herewith is the comprehensive annual financial report of City of Grapevine (the "City"), for the i fiscal year ended September 30, 2003. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the enclosed data is accurate in all material respects. The data is reported in a j manner designed to present fairly the financial position and results of operations of the various funds and ! account groups of the City. To enable the reader to gain an understanding of the City's financial activities, all necessary disclosures have been included. t The Comprehensive Annual Financial Report (CAFR) is prepared in accordance with generally accepted accounting principles (GAAP) established by the Government Accounting Standards Board. The CAFR is presented in three sections: introductory, financial, and statistical. The introductory section includes this transmittal letter, the City's organizational chart, and a list of principal officials. The financial section includes a Management and Discussion Analysis (MD&A), basic financial statements and combining and individual fund statements and schedules, as well as the independent auditor's report on ! the basic financial statements. The MD&A is a narrative introduction, overview, and analysis to l accompany the p y basic financial statements. The MD&A can be found immediately following the independent auditors' report. The letter of transmittal is designed to complement and should be read in conjunction with the MD&A. The statistical section includes selected financial and demographic information, generally presented on a multi-year basis. k The Reporting Entity L! Incorporated in February 1907, Grapevine is a home rule city operating under a council-manager form of government. Policymaking and legislative authority are vested in the City Council, which consists of a mayor and a six -member council. The City Manager is appointed by the City Council and is responsible for carrying out policies and for the daily management of the City. Council members serve three-year staggered terms, with two council members elected each year. The mayor is elected to serve a three-year term. LJ The City provides a full range of services, including police and fire protection, emergency ambulance service, sanitation, planning and zoning, public improvements, water and sewer services, culture and recreation and general administrative services. The City has the following component units: the Heritage Foundation; and, the Tax Reinvestment Zones Numbers One and Two (the "TIFS") operated with City staff and resources. F Lr Administrative Services • 200 South Main street • Grapevine, Texas 76051 • 817-410-3113 • Fax 817-410-3005 The financial statements of the city include two component units because of their fiscal dependency on the primary government. The TIFS were formed to finance and make public improvements, under the authority of the Tax Increment Financing Act. The TIFS are governed by two separate nine -member boards of directors; of which, five members are appointed by the City Council. Member taxing jurisdictions appoint the remaining four board members. Financial statements of the TIFS are available from the City. The City is also financially accountable for The Heritage Foundation, which is reported separately within the City's financial statements. The Heritage Foundation (the "Foundation") is a Texas non-profit corporation governed by a seven -member board of directors appointed by City Council, which includes a City Council member and the Director of the City's Convention and Visitor's Bureau. Profile of the City of Grapevine, Texas The City is located in the center of the Dallas/Fort Worth metropolitan complex, 21 miles northwest of downtown Dallas and 19 miles northeast of downtown Fort Worth. Three major freeways, State Hwy 114, State Hwy 121, and Interstate Hwy 635, intersect in the heart of Grapevine, providing excellent access to Dallas, Fort Worth and the areas shopping, entertainment and employment centers. The City is approximately 35 square miles and serves a population of46,1$$. Local Economy The City is located in Northeast Tarrant County and is home to the Dallas/Fort Worth International Airport. Two-thirds of the airport, including all terminal buildings, is located within Grapevine city limits. Although the DFW metropolitan area did feel the impact of the economic downturn and, in particular, the financial impact related to the airline industry's struggles, forecasts indicate that the DFW area will continue to see the addition of new jobs and continued growth. Early in FY 2404 a Wal-Mart Supercenter and Sam's Wholesale Club opened. The Gaylord Texan Resort and Convention Center, a 1,500 room luxury hotel and convention center, opened in April 2004. Accounting System and Budgetary Controls City management is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the City are protected from loss, theft, or misuse. Management must also ensure that adequate accounting data is complied to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be derived and (2) the valuation of costs and benefits require estimates and judgments by management. All internal control evaluations occur within the above framework. The City's accounting records for general governmental operations are maintained on a modified accrual basis, with revenues recognized when measurable and available and expenditures recorded when the liability is incurred. Proprietary operations are maintained on a full accrual basis. The objective of budgetary controls is to ensure compliance with legal provisions contained in the annual budget approved by the City Council. Activities of the General Fund, Special Revenue Fund (Hotel Occupancy Tax), and Debt Service Fund are included in the annual budget. The budget is developed and controlled at the department level although appropriations are set at the fund level, and encumbrances are entered at the time purchase orders, contracts and other commitments are made. Encumbrances that do iv hl 5 "I'M not lapse at year-end are reported as reservations of fund balances since they are commitments that will be honored during the subsequent year. Capital projects budgets are over the life of the project and not on an annual basis. Awards and Acknowledgements The City Charter requires an annual audit of the books of account financial records, and transactions of all administrative departments of the City. The City Charter specifies that independent accountants selected by the City Council conduct such audits. The accounting firm of Deloitte & Touche, LLP was T7 selected by the City Council to conduct this year's audit. The independent auditor's report on the general- ' ! purpose financial statements is included in the financial section of this report. The Government Finance Officers Association of the United States and Canada (GFOA) awarded a �j Certificate of Achievement for Excellence in Financial Reporting to the City for its corehensive annual financial report (CAFR) for the fiscal year ended September 30, 2002. This was the 16''consecutive year that the City has received this prestigious award. In order to be awarded a Certificate of Achievement the City published an easily readable and e icientl applicable legal requirements. ff y organized CAFR. This report satisfied both GAAP and A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR LJ continues to meet the Certificate of Achievement Program's requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. In addition, the City of Grapevine has also received the GFOA's Distinguished Budget Presentation Award for its annual budget document for the fiscal year ended September 30, 2002. This is the 16th consecutive year that the City has received this prestigious award. In order to qualify for the Distinguished Budget Presentation Award, the City's budget document was judged proficient in several categories including policy documentation, financial planning, and organization. The preparation of this report would not have been possible without the efficient and dedicated services of the entire staff of the finance department. We would like to express our appreciation to all members of the department who assisted and contributed to the preparation of this report. We would like to thank the members of the City Council for their interest and support in planning and conducting the financial operations of the City in a responsible and professional manner. Respectfully submitted, William A. Gaither, Director of Administrative Services v Certificate of Achievement for Excellence in Financial Reporting Presented to City of Grapevine, For its Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2002 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. ice o "t�- 1101�1 s� President amn* Executive Director I City of Grapevine r Adetra on Administration Administration, Finance, Information Technology Purchasing, Personnel, NDrDepL - Admin. Municipal Coot, Risk Management UITity E RV * Utility Admin. Svcs. Golf Course * A "nistretton Adrnh istratlon Admin Istration UnNorm Cies Preverdon & Training Sr. Cliizen Carter Criminal Investigations s Operations Park Maintenance Tecdv*w SaMces Recreation Arnkraf Control Aquatics Athletics Programs Recreation Programs CAC Lake Parks Admktistratfon Engineering Streets Tratflc Operations Internal SeNoes Fleet Water *, vVastewater * Stotmwater Drainage * City Attorney Munidpel Court Judge Advisory Boards Administration Adm Wstratlon BUWkg Inspection Planning Historic Preservation Tmmsh>p Reckailzaticn Maim, Sates & Promotions Com fentforton Carter Grapevine Vintage Railroad * Administered through General Fund departments; Located in other funds Vii CITY 4F GRAPEVINE, TEXAS A MffIS�t RA1 iVE OFI ICULS Roger Nelson City Manager Bruno Rumbelow Assistant City Manager John F. Boyle, Jr. City Attorney William A. Gaither Director ofAdministrative Services H. T. (Tommy) Hardy Director of Development Services Dale Wilkins Chief of Police Douglas M. Evans Director of Parks and Recreation P. W. McCallum Executive Director, Convention & Visitors Bureau Fred L. Werner Managing Director of Financial Services Gary W. Livingston Budget Manager Linda Huff City Secretary David Florence Municipal Court Judge Jerry L. Hodge Director of Public Works David B. Anderson Fire Chief Janis Roberson Library Director James M. Smith Director of Golf Carolyn Van Duzee Personnel Director Charles Dent Purchasing Agent ,�llRAF�EVdN,Ida ]E E '4X X A $7,345,000 GENERAL OBLIGATION REFUNDING BONDS, SERIES 2004 Tuesday, October 19, 2004 The following ratings have been assigned: Moody's Investors Service, Inc. Standard & Poor's Rating Group A Division of McGraw-Hill, Inc. Underlying FSA Credit Insured Rating "Aaa" "A1" "AAA" "AA-" upgraded from "A+" PREPARED BY: =FFIRST SOUTHWEST COMPANY 013 r sea► New Issue: Grapevine (City of) TX Global Credit Research New Issue 14 OCT 2004 MOODY'S ASSIGNS Al RATING TO CITY OF GRAPEVINE (TX) $23.135 MILLION GO REFUNDING BONDS, SERIES 2004 RATING AFFIRMATION AFFECTS $147.7 MILLION IN OUTSTANDING PARITY DEBT, INCLUDING CURRENTISSUE Municipality TX Moody's Rating ISSUE RATING General Obligation Refunding Bonds, Series 2004 Al Sale Amount $23,135,000 Expected Sale Date 10/18/04 Rating Description General Obligation, Limited Tax Moody's Outlook No Outlook Opinion NEW YORK, Oct 14, 2004 -- Moody's Investors Service has assigned an Al rating to the City of Grapevine's upcoming sale of $23,135,000 General Obligation Refunding Bonds, Series 2004. Simultaneously, Moody's affirms the Al rating on the City's $148 million in outstanding parity debt. Moody's believes the Al rating reflects the City's large tax base that continues to expand despite financial hardship experienced by major taxpayers, stable financial operations, and manageable debt position. Proceeds from the sale of bonds will be used to refund certain outstanding debt in order to lower overall debt service requirements. The obligations are secured by the proceeds of a continuing, direct annual ad valorem tax levied, within the limits prescribed by law, on all taxable property located within the City. Located in northeast Tarrant County (general obligation rating Aaa), the City of Grapevine is a suburban community located within the Dallas/Ft. Worth metropolitan area. Two-thirds of the Dallas/Ft. Worth International Airport, including all terminal buildings, is located within the City. As a result, the City's tax base experienced modest growth between 2003 and 2004 as growth was tempered by losses at major airlines including American and Delta following the events of September 11th. The tax base has rebounded significantly in fiscal 2005, expanding 8.5% to $5.35 billion. The assessed valuation grew $420 million over the fiscal 2004 value, which officials attribute primarily to new development due to the nearly $300 million Gaylord Texan Resort and Convention Center that opened in April 2004. The resort and convention center reports 64% occupancy rates since opening, indicating the viability of the hotel despite competition from downtown Ft. Worth and Dallas. Other commercial properties recently added to the tax base include a Walmart Super Center and Sam's Wholesale Club. Officials report new residential construction has slowed, but reappraisal of existing single-family homes remains healthy. Moody's believes diversification of the tax base through new commercial construction and ongoing reappraisal of existing residential properties offsets uncertainty in assessed valuation growth provided by airline operations. Over the past four years, the City has planned to reduce its general fund reserve, decreasing the fund balance from $7.7 million or 22.2% of general fund revenues at fiscal year-end 2000 to $6.1 million or 15.4% of general fund revenues at fiscal year-end 2003. Although management's plan to reduce reserves is somewhat of a concern given that sales taxes, an economically cyclical revenue source, provide 26.5% of operating funds, officials did not draw on the fund balance in fiscal 2004 (unaudited) and have no plans to reduce the reserve in fiscal 2005. Additionally, after a 6.9% decline in sales tax collections in fiscal 2002, receipts rebounded in fiscal 2003, climbing 7.4% to $16 million. As a result of new retail development and favorable activity at the Gaylord Texan, officials anticipate sales taxes to increase to $18.4 million at fiscal year-end 2004, which is a 15% increase over the prior year. As a result of healthy tax base expansion in fiscal 2005, officials reduced the total tax rate to $3.64 per $1,000 of assessed valuation from $3.66 levied in fiscal 2004. Despite the slight levy reduction, property taxes are slated to generate approximately $1.3 million in additional operating revenues. Moody's believes maintenance of the general fund reserve at its current level is prudent given the City's heavy reliance on sales tax as a primary operating revenue. However, concern over a reduction in financial flexibility is somewhat mitigated by solid growth in sales tax receipts and as property tax revenues increase due to assessed valuation expansion. With $5.2 million in authorized but unissued general obligation debt, which officials anticipate issuing in March 2005, coupled with a $2.7 million equipment note that will be borrowed later this year, the City's direct debt burden of 2.8% is expected to remain elevated over the medium term. Although several school districts have overlapping jurisdiction in the City, Grapevine-Colleyville Independent School District (A1) with $232 million in outstanding debt provides for the largest portion at 67%, which underscores the City's high overall debt burden at 6.1 %. Moody's believes the City's debt position is high for the Al rating category; however, with principal quickly repaid at a rate of 62.6% in ten years and as tax base growth remains healthy, the debt position should remain manageable. KEY STATISTICS: 2004 Estimated Population: 46,188 2005 Full Valuation: $5.35 billion 2005 Full Valuation per Capita: $115,894 Direct Debt Burden: 2.8% Overall Debt Burden: 6.1 % Payout of Principal (10 years): 62.6% FY 2003 General Fund balance: $6.1 million (15.4% of General Fund revenues) Post -Sale Parity Debt Outstanding: $147.7 million City of Grapevine Per Capita Income as % of State (2000 Census): 160.8% Analysts Nora Wittstruck Analyst Public Finance Group Moody's Investors Service Kristin Button Backup Analyst Public Finance Group Moody's Investors Service STANDARD RATING 5 D I R E C T & ORS' Grapevine, Texas; Tax Secured, General Obligation Publication date: 14 -Oct -2004 Primary Credit Analyst(s): Wendy Wipperman, Dallas (1) 214-871-1421; wendy_wipperman@standardandpoors.com Secondary CreditAnalyst(s): Theodore Chapman, Dallas (1) 214-871-1401; theodore—chapman@standardandpoors.com Credit Profile US$23.135 mil GO rfdg bnds ser 2004 dtd 10/15/2004 due 02/15/2017 AA - Sale date: 18 -OCT -2004 UPGRADED $148.300 mil. Grapevine GO $130.140 mil. Grapevine GO (FGIC) $8.865 mil. Grapevine GO (FSA) OUTLOOK: To From AA- A+ AAA/AA-(SPUR) A+ AAA/AA-(SPUR) A+ STABLE Rationale Standard & Poor's Ratings Services raised its standard long-term rating and Standard & Poor's underlying rating (SPUR) on Grapevine, Texas' GO debt outstanding one notch to 'AA-' from 'A+'. Standard & Poor's also assigned its 'AA -'standard long-term rating, and stable outlook, to the city's series 2004 GO refunding bonds. The upgrade is based on the city's: • Expanding and diversifying substantial property tax base, coupled with a competitive property tax rate; and • Moderating overall debt burden, coupled with limited future capital needs. Additional rating factors that support the investment-grade rating include the city's: • Consistently strong financial performance and position; and • High wealth and income levels, which are boosted by its participation in the Dallas -Fort Worth MSA. The city's moderately concentrated economic base, which, while deep, is heavily dependent on Dallas - Fort Worth International Airport and related industries, is an offsetting factor. The city's unlimited ad valorem tax pledge secures the bonds. The city will use series 2004 bond proceeds to refund various maturities of its series 1995 and series 1996 GO bonds outstanding and series 1996 combination tax and tax increment reinvestment zone certificates of obligation outstanding. I` Grapevine, with an estimated population of 46,000, is centrally located between Dallas, Texas and Fort Worth, Texas. City residents have easy transportation access throughout the entire MSA. Dallas -Fort Worth International Airport --two-thirds of which is within Grapevine's corporate city limits --has greatly influenced the city's development. The airport's presence contributes substantial direct and indirect employment, sales and hotel tax revenues, and industrial and commercial real property taxes. While the nationwide economic downturn and the events of Sept. 11, 2001, have somewhat affected most of these revenue sources, airport volume has stabilized. Assessed value (AV) declined by a nominal 0.2% in fiscal 2003 but has since rebounded; AV increased by 3.5% and 8.5% in fiscals 2004 and 2005, respectively, to a substantial $5.353 billion. The construction of the Opryland Texan resort, a 1,500 - room hotel and convention center on Lake Grapevine with an AV of $262 million, contributed to an increase in commercial real property values in fiscal 2005. Other significant commercial development includes Grapevine Mills Mall, a regional outlet mall, and Bass Pro Shop, a sporting goods store. Tax base concentration is moderate: The 10 leading taxpayers account for 27% of total AV. American Airlines Inc., the leading taxpayer, accounts for 5.9% of total AV. Opryland Hotel, the second -leading taxpayer, accounts for 4.9% of AV. Property tax base concentration in the airline industry has declined to 9.9% of total AV in 2004 from 19.0% in 2002. The city's median household income levels are high and exceed state and national levels by 66% and 64%, respectively. Property wealth levels are a high $115,894 per capita. Per capita retail sales are an above-average 133% of the national average due, in part, to Dallas -Fort Worth International Airport's presence within Grapevine's corporate city limits. City unemployment rates, which are low, averaged 3.4% in 2003, which was well below the state's and nation's rates. Despite a $1.1 million reduction in sales tax revenues in fiscal 2002, which resulted in a $335,000 operating deficit, Grapevine's financial performance remains sound. The city transferred out $1.75 million of general fund reserves for capital projects, which resulted in a $5.492 million ending unreserved general fund balance, or 14% of expenditures, at fiscal year-end 2002. In 2002, the city implemented cost-cutting measures in anticipation of sales tax revenue shortfalls and a sluggish economy. The city closed fiscal 2003 at essentially a break-even position while it maintained a stable 36 cents per $100 of AV property tax rate, which was among Tarrant County's and the Dallas -Fort Worth consolidated MSA's lowest rates, providing the city with significant revenue -raising flexibility. City officials are projecting to close fiscal 2004 with a $392,000 operating surplus, increasing its general fund balance to $6.497 million, or a projected 16.4% of expenditures. The city has adopted a general fund balance policy of maintaining a minimum 16.4%, or 60 days', operations. Fiscal 2004 sales tax revenues exceeded fiscal 2003 collections by $1.8 million, representing a nearly 11 % increase. The October 2003 opening of a Wal-Mart Stores Inc. supercenter and a Sam's Club in Grapevine contributed to the healthy sales tax growth. In the fiscal 2005 budget, management is forecasting a 7.9% increase in sales tax revenues over the fiscal 2004 budget, which should be supported by the recent addition of several large retailers and the opening of the 1,500 -room Gaylord Opryland Texas hotel and conference center in April 2004. The city levies a low 36.35 cents per $100 of AV property tax rate in the fiscal 2005 adopted budget, which also includes a $341,000 contribution to the general fund balance. Overall net debt is a high $5,696 per capita; but it has decreased to a moderate 4.9% of market value. The debt burden is almost entirely attributable to Grapevine-Colleyville Independent School District ('AA -'SPUR GO debt rating); direct debt, however, accounted for a low 1.6% of market value. Debt levels should moderate since both the city and school district are approaching buildout. Debt service costs are a high 23.8% of total expenditures, which is in-line with historical levels; debt service, however, is somewhat offset by self-supporting revenue streams. The city's manageable five-year capital plan consists almost entirely of street and quality -of -life projects. The city has $5.3 million of authorized, unissued GO bonds remaining, which it plans to issue in 2005. 15 Outlook The stable outlook reflects the expectation that the economic effects on the aviation, hotel, and related spin-off sectors stemming from the events of Sept. 11, 2001, have stabilized. The stable outlook also reflects Standard & Poor's expectation that the city will maintain its continued sound financial performance and position and that the city's long-term capital requirements will remain moderate. Economy The Grapevine economy has been developing rapidly, which is evidenced by the 22% increase in property values since 2000 to a substantial $5.353 billion in 2004. The presence of Dallas -Fort Forth International Airport --employing an estimated 16,420, a significant decrease from the 33,000 employed before September 11, 2001 --in Grapevine is a major factor in the city's economic growth. American Airlines and, to a lesser extent, Delta Air Lines have experienced significant layoffs since Sept. 11, 2001; the two airlines also account for a combined 9.3% of total AV, down from nearly 18.0% in 2003. Delta Air Lines recently announced its plan to severely curtail its operations out of Dallas -Fort Forth International Airport effective February 2005. Airport officials expect other airlines to increase flights out of the airport, replacing many of Delta's flights. In 2001, state legislation was adopted that limits Grapevine's share of future airport property tax base growth to one-third of any incremental growth over fiscal 2000 levels. Dallas and Fort Worth, which jointly own Dallas -Fort Worth International Airport, will each receive one-third of incremental property tax revenues. Commercial property accounts for nearly 53% of taxable AV, as well as most new development. Grapevine Mills Mall and a Bass Pro Shop are in the city. A Sam's Club and a Wal-Mart supercenter opened in 2003. The opening of Opryland Texas in April 2004 gave the city's retail base an added boost. Additional leading local employers include: • Gaylord Texan Resort (1,800 employees), • Grapevine-Colleyville Independent School District (1,576), • United Parcel Service of America Inc. (1,200), and • Baylor Medical Center (1,000). Copyright© 1994-2004 Standard & Poor's, a division of The McGraw-Hill Companies. All Rights Reserved. Privacy Policy ILL, ill "FINAL $7,345,000 City of Grapevine, Texas General Obligation Refunding Bonds, Series 2004 Date Principal Coupon Interest Total P+1 09/30/2005 130,000.00 2.500% 231,093.75 361,093.75 09/30/2006 30,000.00 2.500% 275,637.50 305,637.50 09/30/2007 30,000.00 2.500% 274,887.50 304,887.50 09/30,!2008 35,000.00 2.500% 274,075.00 309,075.00 09/30/2009 35,000.00 3.000% 273,112.50 308,112.50 09/30/2010 35,000.00 3.000% 272,062.50 307,062.50 09/30/2011 35,000.00 3.250% 270,968.75 305,968.75 09/30/2012 40,000.00 3.500% 269,700.00 309,700.00 09/30/2013 40,000.00 3.500% 268,300.00 308,300.00 09/30/2014 1,960,000.00° 3.5 00% 233,300.00 2.193.300.00 09/30/2015 2,03,000.00 4.000% 158,300.00 2,193,300.00 09,130/2016 2,125,000.00 4.000% 75,100.00 2,200,100.00 09/30/2017 815,000.00 4.000% I6,300.00 831,300.00 Total $7,345,000.00 - $2,892,837.50 $10,237,837.50 True Interest Cost (TIC) 3.8150711% Ser 2004 GO Ref offer 1 10/19/2004 1 3:27 PM I W A Ly � fn L+ CC3 m Sr CCi V] S. 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(1) C� 4. — 4.i O' O O O O Ena O Oo O O O O U� U U Uvea U UtnU O U U CJ�o �U opC> opo 0 0 0 0 0 0 0 0 o 0 0 0 0 o a 0 0 0 0 0 0 0 0 0 0 0 0 E 0 o 0 o 0 0 G N O y 0 O O O •� O O .4 Q U O O .� O O O �n cT 61 o > - 0 o c� 00 bA o > - OO o v, « 3 00 bJJ 0 O o cit o0 bQ 00 0 V-1 > Ln `n oo > K oo p f� - M 6h9V1 64 ��� NC/? 6-zt?� 6hR� 6M4� � 640 64f/?� F IL; i r a� E �n U 6 PREL MINARY OFFICIAL S'I'r1' ENIENT Ratings: Moody's: Applied For Dated October 11, 2004 S&P: Applied For (see "Other Information — NEW ISSUE - Book -Entry -Only Ratings" herein) In the opinion of Bond Counsel, interest on the Bonds is excludable from gross income for federal income tax purposes under existing law and the Bonds are not private activity bonds. See "Tax Exemption" herein for a discussion of the opinion of Bond Counsel, including a description of alternative minimum tax consequences for corporations. THE BONDS WILL NOT BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS $23,135,000* CITY OF GRAPEVINE, TEXAS (Tarrant County) GENERAL OBLIGATION REFUNDING BONDS, SERIES 2004 Dated Date: October 15, 2004 Due: February 15, as shown below PAYMENT TERMS ... Interest on the $23,135,000* City of Grapevine, Texas General Obligation Refunding Bonds, Series 2004 (the "Bonds") will accrue from October 15, 2004 (the "Dated Date"), will be payable February 15 and August 15 of each year, commencing February 15, 2005, and will be calculated on the basis of a 360 -day year consisting of twelve 30 -day months. The definitive Bonds will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book -Entry -Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See "The Bonds - Book -Entry -Only System" herein. The initial Paying Agent/Registrar is JPMorgan Chase Bank, Dallas, Texas (see "The Bonds - Paying Agent/Registrar"). AUTHORITY FOR ISSUANCE ... The Bonds are issued pursuant to the Constitution and general laws of the State of Texas (the "State"), including particularly Texas Government Code, Chapter 1207, as amended, Section 9.26 of the City's Home Rule Charter, and are direct obligations of the City of Grapevine (the "City"), payable from a continuing ad valorem tax levied on all taxable property within the City, within the limits prescribed by law, as provided in the ordinance authorizing the Bonds (the " Ordinance") (see "The Bonds - Authority for Issuance"). PURPOSE ... Proceeds from the sale of the Bonds will be used to refund a portion of the City's outstanding General Obligation Bonds, Series 1995, Combination Tax & Tax Increment Reinvestment Zone Revenue Certificates of Obligation, Series 1996, and General Obligation Bonds, Series 1996 (collectively, the "Refunded Obligations") in order to lower the overall debt service requirements of the City. See "Schedule I - Schedule of Refunded Obligations". Additionally, the proceeds from the sale of the Bonds will be used to pay the costs associated with the issuance of the Bonds. MATURITY SCHEDULE* CUSIP Prefix: 547160 a: CUSIP Amount Maturity Rate Yield Suffix (1) $ 210,000 2005 1,650,000 2009 11740,000 2010 1,840,000 2011 11945,000 2012 CUSIP Prefix: 547160 a: (Accrued Interest from October 15, 2004 to be added) (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard and Poor's CUSIP Service Bureau, a division of the McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2015, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2014, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Bonds - Optional Redemption"). LEGALITY ... The Bonds are offered for delivery when, as and if issued and received by the Underwriters and subject to the approving opinion of the Attorney General of Texas and the opinion of Vinson & Elkins L.L.P., Bond Counsel, Dallas, Texas (see Appendix C, "Form of Bond Counsel's Opinion"). Certain legal matters will be passed upon for the Underwriters by Kelly, Hart & Hallman, a Professional Corporation, Fort Worth, Texas, Counsel for the Underwriters. DELIVERY ... It is expected that the Bonds will be available for delivery through The Depository Trust Company on November 23, 2004. SOUTHWEST SECURITIES SAMCO CAPITAL MARKETS FTN FINANCIAL CAPITAL MARKETS * Preliminary, subject to change. CUSIP Amount Maturity Rate Yield Suffixtll $ 2,060,000 2013 4,065,000 2014 4,290,000 2015 4,540,000 2016 795,000 2017 (Accrued Interest from October 15, 2004 to be added) (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard and Poor's CUSIP Service Bureau, a division of the McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2015, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2014, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Bonds - Optional Redemption"). LEGALITY ... The Bonds are offered for delivery when, as and if issued and received by the Underwriters and subject to the approving opinion of the Attorney General of Texas and the opinion of Vinson & Elkins L.L.P., Bond Counsel, Dallas, Texas (see Appendix C, "Form of Bond Counsel's Opinion"). Certain legal matters will be passed upon for the Underwriters by Kelly, Hart & Hallman, a Professional Corporation, Fort Worth, Texas, Counsel for the Underwriters. DELIVERY ... It is expected that the Bonds will be available for delivery through The Depository Trust Company on November 23, 2004. SOUTHWEST SECURITIES SAMCO CAPITAL MARKETS FTN FINANCIAL CAPITAL MARKETS * Preliminary, subject to change. For punposes of compliance with Rule 12c2-12 of the Securities and Exchange Commission as amended in effect on the date hereof, this document constitutes air Official Statement of the City with respect to the Bonds that has been "deemed final" by the Ciry, as of'its date except for the omission of no more than the information permitted by Rule 12c2-12. This Preliminary Oficial Statement, which includes the cover page and the Appendices hereto, does not constitute all offer to sell or the solicitation of an offer to buy in airy jurisdiction to any person to whom it is unlawfid to make such offer, solicitation or sale. No dealer, broker, salesperson or other person has been authorized to give information or to make any representation other than those contained in this Preliminary Official Statement, and, if given or made, such other information or representations must not be relied upon. Certain information set forth herein has been provided by sources other than the City that the City believes is reliable, but the City makes no representation as to the accuracy of such information. Any information and expressions of opinion: herein contained are subject to change without notice, and neither the delivery of the Preliminary Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or other matters described herein since the date hereof. See "Other Information - Continuing Disclosure oflrformation"for a description of the City's undertaking to provide certain information on a continuing basis. THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE BONDS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTION IN WHICH THESE SECURITIES HAVE BEEN REGISTERED OR EXEMPTED SHOULD NOT BE REGARDED ASA RECOMMENDATION THEREOF. NEITHER THE CITY NOR THE UNDERWRITERS MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS PRELIMINARY OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY OR ITS BOOK -ENTRY -ONLY SYSTEM AS SUCH INFORMATION HAS BEEN FURNISHED BY THE DEPOSITORY TRUST COMPANY. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVER ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS ATA LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAYBE DISCONTINUED AT ANY TIME. The Underwriters have provided the following sentence for inclusion in this Preliminary Official Statement. The Underwriters have reviewed the information in this Preliminary Official Statement in accordance with, and as part of, then- responsibilities to investors under federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. TABLE OF CONTENTS PRELIMINARY OFFICIAL STATEMENT SUMMARY.............................................................3 CITY OFFICIALS, STAFF AND CONSULTANTS ..... 5 ELECTED OFFICIALS.............................................................. 5 SELECTED ADMINISTRATIVE STAFF ....... ........................... .... 5 CONSULTANTS AND ADVISORS.............................................5 INTRODUCTION............................................................6 PLANOF FINANCING...................................................6 THEBONDS.....................................................................7 TAXINFORMATION...................................................12 TABLE 1 - VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT....................................................15 TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY ..........................16 TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT HISTORY....................................................................17 TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY... 17 TABLE 5 - TEN LARGEST TAXPAYERS.................................17 TABLE 6 - TAX ADEQUACY- . .... ............. ........... ...... 18 TABLE 7 - ESTIMATED OVERLAPPING DEBT .......................18 DEBT INFORMATION.................................................19 TABLE 8 - PRO -FORMA GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS..........................................19 TABLE 9 - INTEREST AND SINKING FUND BUDGET PROJECTION..............................................................19 TABLE 10 - COMPUTATION OF SELF-SUPPORTING DEBT ....20 TABLE I I - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS__ ............................................ 20 TABLE 12 -OTHER OBLIGATIONS........................................20 FINANCIAL INFORMATION.....................................21 TABLE 13 — CHANGES IN NET ASSETS................................21 TABLE 13A - GENERAL FUND REVENUES AND EXPENDITURE HISTORY................................................................... 22 TABLE 14 - MUNICIPAL SALES TAX HISTORY .................... 23 FINANCIAL POLICIES...........................................................23 28 INVESTMENTS...................................................................... 24 TABLE 15 - CURRENT INVESTMENTS ................................... 25 TAXMATTERS............................................................. 26 OTHER INFORMATION ............................................. 28 RATINGS.............................................................................. 28 LITIGATION_........................................................................ 28 REGISTRATION AND QUALIFICATION OF BONDS FOR SALE 28 LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS ....................................................... 28 LEGALMATTERS................................................................. 28 AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION........................................................... 29 CONTINUING DISCLOSURE OF INFORMATION_ ................... 29 FINANCIAL ADVISOR........................................................... 30 FORWARD-LOOKING STATEMENTS DISCLAIMER................30 VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS........................................................ 30 UNDERWRITING................................................................... 31 APPROVAL OF PRELIMINARY OFFICIAL STATEMENT.......... 31 SCHEDULE OF REFUNDED OBLIGATIONS ......... Schedule 1 APPENDICES GENERAL INFORMATION REGARDING THE CITY ................. A EXCERPTS FROM THE ANNUAL FINANCIAL REPORT .......... B FORM OF BOND COUNSELS OPINIONS ................................ C The cover page hereof, this page, the appendices included herein and any addenda, supplement or amendment hereto, are part of the Preliminary Official Statement. I�i i�' PRELIMINARY OFFICIAL STATEMENT SUMMARY This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Preliminary Official Statement. The offering of the Bonds to potential investors is made only by means of this entire Preliminary Official Statement. No person is authorized to detach this summary from this Preliminary Official Statement or to otherwise use it without the entire Preliminary Official Statement. THE CITY ..................................... The City of Grapevine, Texas is a political subdivision and municipal corporation of the State, located in Tarrant County, Texas. The City covers approximately 35.8 square miles (see "Introduction - Description of City"). ' THE BONDS .................................. The $23,135,000* General Obligation Refunding Bonds, Series 2004 are to mature on February 15 in the years 2005 through 2017 (see "The Bonds - Description of the Bonds"). PAYMENT OF INTEREST .............. Interest on the Bonds accrues from October 15, 2004, and is payable February 15, 2005, and each August 15 and February 15 thereafter until maturity or prior redemption (see "The Bonds - Description of the Bonds"). AUTHORITY FOR ISSUANCE.......... The Bonds are issued pursuant to the general laws of the State, including particularly Chapter 1207, Texas Government Code, as amended, Section 9.26 of the City's Home Rule Charter, and the Ordinance passed by the City Council of the City (see "The Bonds - Authority for Issuance"). ,r SECURITY FOR THE BONDS .......... The Bonds constitute direct obligations of the City, payable from a direct and continuing ad valorem tax levied, within the limit prescribed by law, on all taxable property located within the City (see "The Bonds - Security and Source of Payment"). REDEMPTION ............................... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2015, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2014, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Bonds - Optional Redemption"). TAX EXEMPTION ............................ In the opinion of Bond Counsel, the interest on the Bonds will be excludable from gross income for federal income tax purposes under existing law and the Bonds are not private activity bonds. See "Tax Matters - Tax Exemption" for a discussion of the opinion of Bond Counsel, including a description of the alternative minimum tax consequences for corporations. USE OF PROCEEDS ........................ Proceeds from the sale of the Bonds will be used to refund a portion of the City's outstanding General Obligation Bonds, Series 1995, Combination Tax & Tax Increment Reinvestment Zone Revenue Certificates of Obligation, Series 1996, and General Obligation Bonds, Series 1996 (collectively, the "Refunded Obligations") in order to lower the overall debt service requirements of the City. See "Schedule I - Schedule of Refunded Obligations". Additionally, the proceeds from the sale of the Bonds will be used to pay the costs associated with the issuance of the Bonds. RATINGS ...................................... The presently outstanding tax supported debt of the City is rated "Al" by Moody's Investors Service, Inc. ("Moody's") and "A+" by Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. ("S&P"). The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA" by S&P through insurance by various commercial insurance companies. Applications for contract ratings on the Bonds have been made to Moody's and I' S&P (see "Other Information - Ratings"). BOOK -ENTRY -ONLY SYSTEM ...................................... The definitive Bonds will be initially registered and delivered only to Cede & Co., the nominee of DTC pursuant to the Book -Entry -Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds (see "The Bonds - Book -Entry -Only System"). PAYMENT RECORD ..................... The City has not defaulted on its tax -supported debt since 1932 when all defaults were corrected without refunding. *Preliminary, subject to change. SELECTED FINANCIAL INFORMATION 4 Ratio Funded Fiscal Per Capita Per Capita Tax Debt to Year Estimated Taxable Taxable Funded Funded Taxable % of Ended City Assessed Assessed Tax Tax Assessed Total Tax 9(30 Population (1) Valuation (z) Valuation Debt Debt Valuation Collections 2001 44,390 $ 4,372,544,371 $ 98,503 $ 156,815,000 $ 3,533 3.59% 99.10% 2002 45,500 4,773,863,018 104,920 157,940,000 3,471 3.31% 99.20% 2003 46,400 4,766,361,580 102,723 157,645,000 3,398 3.31% 99.40% 2004 46,188 4,932,651,055 106,795 148,300,000 3,211 3.01% 94.58%'3' 2005 47,036 5,352,933,433 113,805 138,040,000 ca 2,935 2.58% N.A. (1) Source: The City of Grapevine. Preliminary numbers. (2) Source: Tarrant County Appraisal District (3) Unaudited. Preliminary information furnished by City Officials. (4) Projected, includes the Bonds. Excludes the Refunded Obligations. Preliminary, subject to change. For additional information regarding the City, please contact: Fred Werner David K. Medanich Director of Finance Laura Alexander City of Grapevine First Southwest Company 200 South Main 777 Main Street, Suite 1200 Grapevine, Texas 76051 Fort Worth, Texas 76102 (817) 410-3111 (817) 332-9710 4 CITY OFFICIALS, STAFF AND CONSULTANTS ELECTED OFFICIALS Councilmember, Place 4 Roy Stewart 8 Years May, 2005 Construction Company Owner Councilmember, Place 6 (1) Previously served 12 years as Mayor and Councilmember SELECTED ADMINISTRATIVE STAFF Name Length of Term Roger Nelson City Council Service Expires Occupation William D. Tate 16 Years ct) May, 2006 Attorney -at -Law Mayor Director of Finance 7 Years Linda Huff Ted R. Ware 25 Years May, 2005 Commercial Contractor Mayor Pro Tem C. Shane Wilbanks 19 Years May, 2006 Personnel Director Councilmember, Place 1 Sharron Spencer 19 Years May, 2006 Retired Sales Representative Councilmember, Place 2 Clydene Johnson 9 Years May, 2007 Independent Insurance Agent Councilmember, Place 3 Darlene Freed 6 Years May, 2007 Commercial Real Estate Agent Councilmember, Place 4 Roy Stewart 8 Years May, 2005 Construction Company Owner Councilmember, Place 6 (1) Previously served 12 years as Mayor and Councilmember SELECTED ADMINISTRATIVE STAFF Name Position Length of Service Roger Nelson City Manager 7 Years") Bruno Rumbelow Assistant City Manager 7 Years Bill Gaither Administrative Services Director 8 Years Fred Werner Director of Finance 7 Years Linda Huff City Secretary 17 Years (2) (1) 9 years with City; 7 years in present position. (2) 22 years with City; 17 years in present position CONSULTANTS AND ADVISORS Auditors........................................................................................................................................................Deloitte & Touche LLP Fort Worth, Texas BondCounsel................................................................................................................................................ Vinson & Elkins L.L.P. Dallas, Texas FinancialAdvisor.. ...................................................................................... ................................. ...... First Southwest Company Fort Worth, Texas 5 PRELIMINARY OFFICIAL STATEMENT RELATING TO $23,135,000* CITY OF GRAPEVINE, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2004 INTRODUCTION This Preliminary Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance of $23,135,000* City of Grapevine, Texas, General Obligation Refunding Bonds, Series 2004 (the "Bonds"). Capitalized terms used in this Preliminary Official Statement have the same meanings assigned to such terms in the Ordinance to be adopted on the date of sale of the Bonds ("the Ordinance") which will authorize the issuance of the Bonds, except as otherwise indicated herein. There follows in this Preliminary Official Statement descriptions of the Bonds and certain information regarding the City and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the City's Financial Advisor, First Southwest Company, Fort Worth, Texas. DESCRIPTION OF THE CITY ... The City is a political subdivision and municipal corporation of the State, duly organized and existing under the laws of the State, including the City's Home Rule Charter. The City first adopted its Home Rule Charter in 1965. The City operates under the Council/Manager form of government with a City Council comprised of the Mayor and six Councilmembers. The City Manager is the chief administrative officer for the City. Some of the services that the City provides are: public safety (police and fire protection), highways and streets, electric, water and sanitary sewer utilities, health and social services, culture -recreation, public transportation, public improvements, planning and zoning, and general administrative services. The 2000 Census population for the City was 42,059, and the 2005 estimated population is 47,036. The City covers approximately 35.8 square miles. PLAN OF FINANCING PURPOSE .... Proceeds from the sale of the Bonds will be used to refund a portion of the City's outstanding General Obligation Bonds, Series 1995, Combination Tax & Tax Increment Reinvestment Zone Revenue Certificates of Obligation, Series 1996 and General Obligation Bonds, Series 1996 (collectively, the "Refunded Obligations") in order to lower the overall debt service requirements of the City. Additionally, the proceeds from the sale of the Bonds will be used to pay the costs of issuance related to the Bonds. See "Schedule I - Schedule of Refunded Obligations" for a detailed listing of the Refunded Obligations and their respective call dates at par. REFUNDED OBLIGATIONS ... The principal and interest due on the Refunded Obligations are to be paid on the scheduled interest payment dates and the respective redemption dates of such Refunded Obligations, from funds to be deposited pursuant to a certain Escrow Agreement (the "Escrow Agreement") between the City and JPMorgan Chase Bank, Dallas, TX (the "Escrow Agent"). The Ordinance provides that from the proceeds of the sale of the Bonds received from the Underwriters, together with other funds of the City, the City will deposit with the Escrow Agent the amount necessary to accomplish the discharge and final payment of the Refunded Obligations on their respective redemption dates. Such funds will be held by the Escrow Agent in a special escrow account (the "Escrow Fund") and used to purchase direct obligations of the United States of America (the "Federal Securities"), Under the Escrow Agreement, the Escrow Fund is irrevocably pledged to the payment of the principal of and interest on the Refunded Obligations. Grant Thornton LLP, certified public accountants, a nationally recognized accounting firm, will verify at the time of delivery of the Bonds to the Underwriters thereof the mathematical accuracy of the schedules that demonstrate the Federal Securities will mature and pay interest in such amounts which, together with uninvested funds, if any, in the Escrow Fund, will be sufficient to pay, when due, the principal of and interest on the Refunded Obligations. Such maturing principal of and interest on the Federal Securities will not be available to pay the Bonds (see "Other Information — Verification of Arithmetical and Mathematical Computations"). By deposit of the Federal Securities and cash, if necessary, with the Escrow Agent pursuant to the Escrow Agreement, the City will have effected the defeasance of all the Refunded Obligations in accordance with the law. It is the opinion of Bond Counsel that as a result of such defeasance and in reliance upon the report of Grant Thornton LLP, certified public accountants, the Refunded Obligations will be outstanding only for the purpose of receiving payments from the Federal Securities and any cash held for such purpose by the Escrow Agent and such Refunded Obligations will not be deemed as being outstanding bonds of the City payable from taxes nor for the purpose of applying any limitation on the issuance of debt. * Preliminary, subject to change. yl1 The City has covenanted in the Escrow Agreement to make timely deposits to the Escrow Fund, from lawfully available funds, of any additional amounts required to pay the principal of and interest on the Refunded Obligations, if for any reason, the cash balances on deposit or scheduled to be on deposit in the Escrow Fund be insufficient to make such payment. SOURCES AND USE OF PROCEEDS... The proceeds from the sale of the Bonds will be applied as follows: Sources: The Bonds Par Amount $ _ Original Issue Premium Accrued Interest Uses: Deposit to Escrow Fund $ Deposit to Interest and Sinking Fund Costs of Issuance (1) _ Total Uses of Funds $ _ (1) Including Underwriters' Discount and Insurance Premium. THE BONDS DESCRIPTION OF THE BONDS ... The Bonds are dated October 15, 2004, and mature on February 15 in each of the years and in the amounts shown on the cover pages. Interest on the Bonds will be computed on the basis of a 360 -day year of twelve 30 -day months, and will be payable on February 15 and August 15 of each year, commencing February 15, 2005 until maturity or prior redemption. The definitive Bonds will be issued only in fully registered form in any integral multiple of $5,000 for any one maturity and will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book -Entry -Only System described herein. No physical delivery of the Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See "Book -Entry -Only System" herein. AUTHORITY FOR ISSUANCE ... The Bonds are being issued pursuant to the Constitution and general laws of the State of Texas, particularly, Texas Government Code, Chapter 1207, as amended, Section 9.26 of the City's Home Rule Charter, and the Ordinance passed by the City Council. SECURITY AND SOURCE OF PAYMENT... The principal of and interest on the Bonds is payable from a continuing direct annual ad valorem tax levied by the City, within the limits prescribed by law, upon all taxable property in the City. TAx RATE LIMITATION ... All taxable property within the City is subject to the assessment, levy and collection by the City of a continuing, direct annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem tax debt within the limits prescribed by law. Article XI, Section 5, of the Texas Constitution is applicable to the City, and limits its maximum ad valorem tax rate to $2.50 per $100 Taxable Assessed Valuation for all City purposes. The Home Rule Charter of the City adopts the constitutionally authorized maximum tax rate of $2.50 per $100 Taxable Assessed Valuation. OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2015, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2014, or any date thereafter, at a price equal to the principal amount of the Bonds called for redemption plus accrued interest to the fixed date for redemption. If less than all of the Bonds are to be redeemed, the City shall determine the maturity or maturities and amounts thereof to be redeemed. If less than all the Bonds of any maturity are to be redeemed, the City shall direct the Paying Agent/Registrar (or DTC while the Bonds are in Book -Entry -Only form) to call by lot the Bonds, or portions thereof, within such maturity or maturities and in such principal amounts for redemption. If a Bond (or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Bond (or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. NOTICE OF REDEMPTION ... Not less than 30 days prior to a redemption date for the Bonds, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to the registered owners of the Bonds to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY OBLIGATION OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH OBLIGATION OR PORTION THEREOF SHALL CEASE TO ACCRUE. DEFEASANCE ... The Ordinance provides that the City may discharge its obligations to the registered owners of any or all of the Bonds, to pay principal, interest and redemption price thereon in any manner permitted by law. Under current Texas law, such discharge may be accomplished either (i) by depositing with the Comptroller of Public Accounts of the State of Texas a sum of money equal to the principal of, premium, if any, and all interest to accrue on such Bonds to maturity or redemption or (ii) by depositing with an eligible place of payment (paying agent) for obligations of the City amounts sufficient, to provide for the payment and/or redemption of such Bonds; provided that such deposits may be invested and reinvested only in (a) direct obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the City adopts or approves the proceedings authorizing the issuance of refunding obligations, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent; and (c) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the City adopts or approves the proceedings authorizing the issuance of refunding obligations to refund the Bonds, as applicable, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. The foregoing obligations may be in book entry form, and shall mature and/or bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment and/or redemption of the Bonds, as the case may be. If any of such Bonds are to be redeemed prior to their respective dates of maturity, provision must have been made for giving notice of redemption as provided in the Ordinance. Upon such deposit as described above, such Bonds shall no longer be regarded to be outstanding or unpaid. After firm banking and financial arrangements for the discharge and final payment or redemption of Bonds have been made as described above, all rights of the City to initiate proceedings to call such Bonds for redemption or take any other action amending the terms of such Bonds are extinguished; provided, however, that the right to call such Bonds for redemption is not extinguished if the City: (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call such Bonds for redemption; (ii) gives notice of the reservation of that right to the owners of such Bonds immediately following the making of the firm banking and financial arrangements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes. There is no assurance that the current law will not be changed in a manner which would permit investments other than those described above to be made with amounts deposited to defease the Bonds. Because the Ordinance does not contractually limit such investments, registered owners may be deemed to have consented to defeasance with such other investments notwithstanding the fact that such investments may not be for the same investment quality as those currently permitted under Texas taw. BOOK -ENTRY -ONLY SYSTEM ... This section describes how ownership of the Bonds are to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by DTC while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book -Entry -Only System has been provided by DTC for use in disclosure documents such as this Preliminary Official Statement. The City believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Preliminary Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. The Depository Trust Company ('DTC"), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered security certificate will be issued for each maturity of the Bonds, as set forth on the cover page hereof, in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 8 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing aL corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National s Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant,. either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Obligation ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book -entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, defaults, and proposed amendments to the Obligation documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Paying Agent/Registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or Paying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC [nor its nominee], the Paying Agent/Registrar or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered for the Bonds. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof USE OF CERTAIN TERMS IN OTHER SECTIONS OF THIS PRELIMINARY OFFICIAL STATEMENT. In reading this Preliminary Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System, references in other sections of this Preliminary Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System, and (ii) except as described above, notices that are to be given to registered owners under the Ordinance will be given only to DTC. Information concerning DTC and the Book-Entry-Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by the City. PAYING AGENT/REGISTRAR ... The initial Paying Agent/Registrar is JPMorgan Chase Bank, Dallas, Texas. In the Ordinance, the City retains the right to replace the Paying Agent/Registrar. The City covenants to maintain and provide a Paying Agent/Registrar at all times until the Bonds, as the case may be, are duly paid and any successor Paying Agent/Registrar shall be a commercial bank or trust company organized under the laws of the State of Texas or other entity duly qualified and legally authorized to serve as and perform the duties and services of Paying Agent/Registrar for the Bonds. Upon any change in the Paying Agent/Registrar for the Bonds, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Bonds affected by the changes by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. Interest on the Bonds shall be paid to the registered owners appearing on the registration books of the Paying Agent/Registrar at the close of business on the Record Date (hereinafter defined), and such interest shall be paid (i) by check sent United States Mail, first class postage prepaid to the address of the registered owner recorded in the registration books of the Paying Agent/Registrar or (ii) by such other method, acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner. Principal of the Bonds will be paid to the registered owner at their stated maturity or earlier redemption, upon presentation to the designated payment/transfer office of the Paying Agent/Registrar. If the date for the payment of the principal of or interest on the Bonds shall be a Saturday, Sunday, a legal holiday or a day when banking institutions in the city where the designated payment/transfer office of the Paying Agent/ Registrar is located are authorized to close, then the date for such payment shall be the next succeeding day which is not such a day, and payment on such date shall have the same force and effect as if made on the date payment was due. In the event the Book-Entry-Only System is discontinued and printed certificates are issued to the registered owners, the City and the Paying Agent/Registrar shall not be required to transfer or exchange any Obligation called for redemption, in whole or in part, within 45 days of the date fixed for redemption; provided, however, such limitation of transferability shall not be applicable to an exchange by the registered owner of the uncalled balance of an Obligation. TRANSFER, ExCHANGE AND REGISTRATION ... In the event the Book-Entry-Only System should be discontinued, the Bonds may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender to the Paying Agent/Registrar and such transfer or exchange shall be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. Bonds may be assigned by the execution of an assignment form on the respective Bonds or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Bonds will be delivered by the Paying Agent/Registrar, in lieu of the Bonds being transferred or exchanged, at the designated office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered owner or his designee. To the extent possible, new Bonds issued in an exchange or transfer of Bonds will be delivered to the registered owner or assignee of the registered owner in not more than three business days after the receipt of the Bonds to be canceled, and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Bonds registered and delivered in an exchange or transfer shall be in any integral multiple of $5,000 for any one maturity and for a like aggregate principal amount as the Bonds surrendered for exchange or transfer. See "Book-Entry-Only System" herein for a description of the system to be utilized initially in regard to ownership and transferability of the Bonds. Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Bond called for redemption, in whole or in part, within 45 days of the date fixed for redemption; provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of an Bond. RECORD DATE FOR INTEREST PAYMENT ... The record date ("Record Date") for the interest payable on the Bonds on any interest payment date means the close of business on the last business day of the month next preceding. In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the 10 past due interest ("Special Payment Date", which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each registered owner of a Bond to be paid on the Special Payment Date that appears on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. BONDHOLDERS' REMEDIES ... The Ordinance establishes as "events of default" (i) the failure to make payment of principal of, redemption premium, if any, or interest on any of Bonds, when due and payable; or (ii) default in the performance or observance of any other covenant, agreement, or obligation of the City, which default materially and adversely affects the rights of the Owners, including but not limited to their prospect or ability to be repaid in accordance with the Ordinance, and the continuation thereof for a period of sixty days after the notice of such default is given by any Owner to the City. Under State law, there is no right to the acceleration of maturity of the Bonds upon the failure of the City to observe any covenant under the Ordinance. Although a registered owner could presumably obtain a judgment against the City if a default occurred in the payment of the principal of or interest on any such Bonds, such judgment could not be satisfied by execution against any property of the City. Such registered owner's only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the City to levy, assess and collect an annual ad valorem tax sufficient to pay principal of and interest on the Bonds as they become due. The enforcement of such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The Ordinance does not provide for the appointment of a trustee to represent the interest of the registered owners upon any failure of the City to perform in accordance with the terms of such Ordinance, or upon any other condition. Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code. Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Bonds are qualified with respect to the customary rights of debtors relative to their creditors. (The remainder of this page left blank intentionally.) 11 TAX INFORMATION AD VALOREM TAY LAW ... The appraisal of property within the City is the responsibility of the Tarrant Appraisal District (the "Appraisal District"). Excluding agricultural and open -space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to appraise all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. In detemrining market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (1) the market value of the property, or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to the V,T.C.A., Property Tax Code, for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ("Article VIIP') and State law provide for certain exemptions from property taxes, the valuation of agricultural and open -space lands at productivity value, and the exemption of certain personal property from ad valorem taxation. Under Section 1-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant: (1) An exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision; and (2) An exemption of up to 20% of the market value of residence homesteads; the minimum exemption under this provision is $5,000. In the case of residence homestead exemptions granted under Section I -b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. State law and Section 2, Article VIII, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to a maximum of $12,000. Effective January 1, 2004, under Article VIII and State law, the governing body of a county, municipality or junior college district, may freeze the total amount of ad valorem taxes levied on the residence homestead of a disabled person or persons 65 years of age or older to the amount of taxes imposed in the year such residence qualified for such exemption. Also, upon receipt of a petition signed by five percent of the registered voters of the county, municipality or junior college district, an election must be held to determine by majority vote whether to establish such a limitation on taxes paid on residence homesteads of persons 65 years of age or who are disabled. Upon providing for such exemption, such freeze on ad valorem taxes is transferable to a different residence homestead and to a surviving spouse living in such homestead who is disabled or is at least 55 years of age. If improvements (other than maintenance or repairs) are made to the property, the value of the improvements is taxed at the then current tax rate, and the total amount of taxes imposed is increased to reflect the new improvements with the new amount of taxes then serving as the ceiling on taxes for the following years. Once established, the tax rate limitation may not be repeated or rescinded. Article VIII provides that eligible owners of both agricultural land (Section 1-d) and open -space land (Section 1-d-1), including open -space land devoted to farm or ranch purposes or open -space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Sections 1-d and 1-d-1. Nonbusiness personal property, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property, Boats owned as nonbusiness property are exempt from ad valorem taxation. Article VIII, Section 1-j, provides for "freeport property" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. The City and the other taxing bodies within its territory may agree to jointly create tax increment financing zones, under which the tax values on property in the zone are "frozen" at the value of the property at the time of creation of the zone. To date, the City has created two tax increment financing zones ("TIFs") within the boundaries of the City. See "Tax Increment Financing Zone" below. The difference between any increase in the assessed valuation of taxable real property in the TIF in excess of the base value of taxable real property in the TIF is known as the "Incremental Value", and during the existence of the TIFs, taxes levied 12 by the City against the Incremental Value in the TIFs are restricted to paying project and financing costs within the TIFs and are not available for the payment of other obligations of the City. The City also may enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. EFFECTIVE TAx RATE AND ROLLBACK TAx RATE ... Section 26.05 of the Property Tax Code provides that the governing body of a taxing unit is required to adopt the annual tax rate for the unit before the later of September 30 or the 60"' day after the date the certified appraisal roll is received by the taxing unit, and a failure to adopt a tax rate by such required date will result in the tax rate for the taxing unit for the tax year to be the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the taxing unit for the preceding tax year. Furthermore, Section 26.05 provides the City Council may not adopt a tax rate that exceeds the lower of the rollback tax rate or 103 per cent of the effective tax rate until a public hearing is held on the proposed tax rate following a notice of such public hearing (including the requirement that notice be posted on the City's website if the City owns, operates or controls an internet website and public notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. The tax rate consists of two components: (1) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service. Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate." If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate. "Effective tax rate" means the rate that will produce last year's total tax levy (adjusted) from this year's total taxable values (adjusted). "Adjusted" means lost values are not included in the calculation of last year's taxes and new values are not included in this year's taxable values. "Rollback tax rate" means the rate that will produce last year's maintenance and operation tax levy (adjusted) from this year's values (adjusted) multiplied by 1.08 plus a rate that will produce this year's debt service from this year's values (unadjusted) divided by the anticipated tax collection rate. The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. PROPERTY ASSESSMENT AND TAx PAYMENT ... Property within the City is generally assessed as of January I of each year. Business inventory may, at the option of the taxpayer, be assessed as of September 1. Oil and gas reserves are assessed on the basis of a valuation process which uses an average of the daily price of oil and gas for the prior year. Taxes become due October I of the same year, and become delinquent on February 1 of the following year. Taxpayers 65 years old or older are permitted by State law to pay taxes on homesteads in four installments with the first due on February 1 of each year and the final installment due on August 1. PENALTIES AND INTEREST ... Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: After July, penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, up to a 20% attorney's collection fee is added to the total tax penalty and interest charge. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents 13 Cumulative Cumulative Month Penalty Interest Total February 6% 1 % 7% March 7 2 9 April 8 3 11 May 9 4 13 June 10 5 15 July 12 6 18 After July, penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, up to a 20% attorney's collection fee is added to the total tax penalty and interest charge. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents 13 governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. CITY APPLICATION OF TAx CODE ... The City grants an exemption to the market value of the residence homestead of persons 65 years of age or older of $60,000. The City has granted an additional exemption of 20% of the market value of residence homesteads; minimum exemption of $5,000. See Table 1 for a listing of the amounts of the exemptions described above. The City has not adopted the tax freeze for citizens who are disabled or are 65 years of age or older, which became a local option and subject to local referendum on January 1, 2004. Ad valorem taxes are not levied by the City against the exempt value of residence homesteads for the payment of debt. The City does not tax nonbusiness personal property; does not tax lease value on personal use vehicles; and the City contracts with the Grapevine-Colleyville Independent School District for the collection of its taxes. The City does not permit split payments, and discounts are not allowed. The City does not tax freeport property. The City does not collect the additional one-half cent sales tax for reduction of ad valorem taxes. TAx ABATEMENT POLICY... The City does not have a tax abatement policy. TAx INCREMENT FINANCE ZONES.. The City has established the Tax Increment Financing Reinvestment Zone Number One, comprised of approximately 175 acres in the northeast area of the City. The tax increment base for the Reinvestment Zone Number One established on January 1, 1996 was $7,647,325. As of September 30, 2004, the Reinvestment Zone Number One Taxable Assessed Value is $201,980,697. The project for which the Zone was created was completed on October 31, 1997. The City has additionally established the Tax Increment Financing Reinvestment Zone Number Two, comprised of approximately 121 .817 acres in the northeast area of the City. The tax increment base for the Reinvestment Zone Number Two established on January 1, 1998 was $744,866. As of September 30, 2004 the Reinvestment Zone Number Two Taxable Assessed Value is $257,214,332. As of September 30, 2004 approximately $100% of permanent improvements have been made to Reinvestment Zone Number Two. (The remainder of this page left blank intentionally) 14 a.. TABLE 1 — VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT 2004/05 Market Valuation Established by Tarrant Appraisal District Less Exemptions/Reductions at 100% Market Value: Residence Homestead Exemptions Over 65 Years of Age Disabled Exemptions Veterans Exemptions Pollution Control Exemptions Solar/Wind Power Exemptions Freeport Exemptions Open -Space Land Use Reductions Prorated Absolutes Nominal Value Reductions 2004/05 Taxable Assessed Valuation $ 6,382,715,129 $ 361,762,592 59,272,871 902,500 1,174,800 61,488 9,774 550,697,849 55,759,683 116,736 23,403 1,029,781,696 $ 5,352,933,433 2004/05 Incremental Taxable Assessed Value of Real Property within Reinvestment Zone Number One 2004/05 Incremental Taxable Assessed Value of Real Property within Reinvestment Zone Number Two 2004/05 Taxable Assessed Valuation available for General Fund Obligations and Debt of City City Funded Debt Payable from Ad Valorem Taxes r General Obligation Bonds (as of 9/30/04) (2) Certificates of Obligation (as of 9/30/04)(2) Equipment Acquisition Notes (as of 9,'30104) The Bonds Funded Debt Payable from Ad Valorem Taxes Less Self -Supporting Debt: (4) Combination Tax and Tax Increment Reinvestment Zone Revenue Certificates of Obligation (as of 9.130/04) Net Funded Debt Payable From Ad Valorem Taxes Interest and Sinking Fund as of September 30, 2004 $ 65,145,000 57,980,000 1,490,000 23,135,000 (s) Ratio Total Funded Debt to Taxable Assessed Valuation .................................................. 2005 Estimated Population - 47,036 Per Capita Taxable Assessed Valuation - $113,805 Per Capita Total Funded Debt - $3,141 194,333,372 256,469,466 $ 5,803,736,271 $ 147,750,000 53,740,000 (sl $ 94,010,000 $ 1,453,541 2.76% (1) This statement of indebtedness does not include currently outstanding $26,299,660 system revenue bonds, as these bonds are payable solely from the net revenues of the Waterworks and Sewer System (the "System"), as defined in the ordinances authorizing the system revenue bonds. (2) Excludes the Refunded Obligations, preliminary, subject to change. (3) Preliminary, subject to change. (4) The self-supporting amount is a projection of debt by the City based on actual historical payments from the Tax Increment Reinvestment Zone Funds. The amount of self-supporting debt is based on the percentage of revenue support as shown in Table 10. There is no guarantee that these payments will continue in the future. If the payments are not made from the revenues in the future, the difference will have to be paid for with ad valorem taxes. (5) Includes a portion of the Bonds. 15 TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY Category Real, Residential, Single -Family Real, Residential, Multi -Family Real, Vacant Lots Tracts Real, Acreage (Land Only) Real, Farm and Ranch Improvements Real, Commercial Real, Industrial Real and Tangible Personal, Utilities Real, Mobile Homes Tangible Personal, Business Tangible Personal, Commercial Tangible Personal, Industrial Tangible Personal, Mobile Homes Tangible Personal, Other Real Property, Inventory Total Appraised Value Before Exemptions Adjustments Less: Total Exemption/Reductions Taxable Assessed Value Category Real, Residential, Single -Family Real, Residential, Multi -Family Real, Vacant Lots Tracts Real, Acreage (Land Only) Real, Farm and Ranch Improvements Real, Commercial Real, Industrial Real and Tangible Personal, Utilities Real, Mobile Homes Tangible Personal, Business Tangible Personal, Commercial Tangible Personal, Industrial Tangible Personal, Mobile Homes Tangible Personal, Other Real Property, Inventory Total Appraised Value Before Exemptions Adjustments Less: Total Exemption/Reductions Taxable Assessed Value Taxable Appraised Value for Fiscal Year Ended September 30, 20052004 2003 of % of % of Amount Total Amount Total Amount Total $ 2,052,562,907 32.16% $ 1,964,374,887 33.09% $ 1,848,342,618 31.72% 280,451,216 4.39% 287,029,406 4.83% 252,912,480 4.34/0 105,098,629 1.65% 106,298,853 1.79% 100,697,189 1.73% 115,957,997 1.82% 126,583,447 2.13% 138,891,577 2.380/0' 2,417,897 0.04% 2,382,927 0.04% 2,353,699 0.04% 1,439,927,013 22.56% 1,254,791,876 21.14% 1,198,547,815 20.57% 40,705,402 0.64% 14,652,926 0.25% 14,825,922 0.25% 237,407,049 3.72% 166,164,616 2.80% 147,113,035 2.52% 7,817,281 0.12% 8,176,799 0.14% 8,173,982 0.14% - 0.00% - 0.00% - 0.00% 1,939,745,844 30.39% 1,849,545,899 31.15% 1,966,523,825 33.75% 143,245,651 2.24% 136,629,168 2.30% 138,115,671 2.37% - 0.000/0 - 0.00% - 0.00% 165,093 0.00% 1,000,000 0.02% - 0.00% 17,213,150 0.27% 19,338,550 0.33% 10,141,975 0.17% $ 6,382,715,129 100.00% $ 5,936,969,354 100.00% $ 5,826,639,788 100.00% (52,070,988) (1,029,781,696) (1,004,318,299) (1,008,207,220) $ 5,352,933,433 $ 4,932,651,055 $ 4,766,361,580 Taxable Appraised Value for Fiscal Year Ended September 30, 2002 2001 Amount $ 1,673,214,512 200,728,832 104,297,996 171,706,596 2,160,035 1,086,095,366 14,530,371 102,859,092 9,059,623 2,126,886,729 46,334,087 111,976 7,290,582 $ 5,545,275,797 (86,019,171) (685,393,608) $ 4,773,863,018 % of Total 30.17% 3.62% 1.88% 3.10% 0.04% 19.59% 0.26% 1.85% 0.16% 0.00% 38.35% 0.84% 0.00% 0.00% 0.13% 100.00% Amount $ 1,522,401,913 151,579,484 109,952,787 165,569,051 2,441,498 932,109,580 10,891,084 88,123,888 4,239,290 2,127,859,776 40,389,885 146,674 6,679,162 $ 5,162,384,072 (789,839,701) $ 4,372,544,371 % of Total 29.49% 2.94% 2.13% 3.21% 0.05% 18.06% 0.21% 1,71% 0.08% 0.00°,0 41.22% 0.78% 0.00% 0.00% 0.13% 100.00% NOTE: Valuations shown are certified taxable assessed values reported by the Tarrant Appraisal District to the State Controller of Public Accounts. Certified values are subject to change throughout the year as contested values are resolved and the Appraisal District updates records. 16 ri. TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT HISTORY (1) Unaudited. Preliminary information furnished by City Officials. TABLE 5 - TEN LARGEST TAXPAYERS Name of Taxpayer American Airlines Inc. Opryland Hotel CAE Simuflite Grapevine Mills Ltd. Partnership Delta Airlines/Atlantic Southeast Airlines Verizon/GTE Skywest Airlines Oncor Electric Delivery Co. Northwest Airlines John Q. Hammons Hotel Lp 2004/05 % of Total Taxable Taxable Ratio Assessed Nature of Property Valuation Fiscal Commercial Airline $ 317,564,490 Taxable Tax Debt Tax Debt Funded Simuflite Training School 185,348,146 Year Regional Shopping Mall Taxable Assessed Outstanding to Taxable Debt Telecommunication 142,546,416 Ended Estimated Assessed Valuation at End Assessed Per ' 36,518,089 9/30 Population (1) Valuation (2) Per Capita of Year Valuation Capita 2001 44,390 $ 4,372,544,371 $ 98,503 $ 156,815,000 3.59% $ 3,533 2002 45,500 4,773,863,018 104,920 157,940,000 3.31% 3,471 2003 46,400 4,766,361,580 102,723 157,645,000 3.31% 3,398 2004 46,188 4,932,651,055 106,795 148,300,000 3.01% 3,211 2005 47,036 5,352,933,433 113,805 138,040,000 t3) 2.58% 2,935 (3) (1) Source: The City of Grapevine. (2) Source: Tarrant Appraisal District. (3) Projected, includes the Bonds. Excludes the Refunded Obligations. Preliminary, subject to change. TABLE 4 - TAX ROTE, LEVY AND COLLECTION HISTORY ` Fiscal Year Distribution Ended Tax General Interest and % Current % Total - - 9/30 Rate Fund Sinking Fund Tax Levy Collections Collections 2001 $ 0.37500 $ 0.189641 $ 0.185359 $ 16,333,571 98.80% 99.10% 2002 0.36600 0.135924 0.230076 17,431,826 98.39% 99.09% 2003 0.36600 0.148900 0.217100 17,635,463 98.60% 99.40% 2004 0.36600 0.123700 0.242300 18,053,503 98.97% (1) 94.58%... - 1 2005 0.36350 0.141560 0.221940 19,318,716 In Process of Collection (1) Unaudited. Preliminary information furnished by City Officials. TABLE 5 - TEN LARGEST TAXPAYERS Name of Taxpayer American Airlines Inc. Opryland Hotel CAE Simuflite Grapevine Mills Ltd. Partnership Delta Airlines/Atlantic Southeast Airlines Verizon/GTE Skywest Airlines Oncor Electric Delivery Co. Northwest Airlines John Q. Hammons Hotel Lp GENERAL OBLIGATION DEBT LIMITATION ... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "The Bonds — Tax Rate Limitation"). 17 2004/05 % of Total Taxable Taxable Assessed Assessed Nature of Property Valuation Valuation Commercial Airline $ 317,564,490 5.93% Hotel 262,065,747 4.90% Simuflite Training School 185,348,146 3.46% Regional Shopping Mall 181,438,640 3.39% Commercial Airline 178,055,220 3.33% Telecommunication 142,546,416 2.66% Commercial Airline 55,957,047 1.05% Electric Service 45,885,535 0.86% Commercial Airline 36,518,089 0.68% Hotel 35,000,000 0.65% $ 1,440,379,330 26.91% GENERAL OBLIGATION DEBT LIMITATION ... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "The Bonds — Tax Rate Limitation"). 17 TABLE 6 - TAx ADEQUACY (t) 2005 Principal and Interest Requirements $ 11,681,716 $0.2205 Tax Rate at 99.00% Collection Produces $ 11,685,186 Average Annual Principal and Interest Requirements, 2005 - 2026 $ 5,785,695 $0.1092 Tax Rate at 99.00% Collection Produces $ 5,786,949 Maximum Principal and Interest Requirements, 2005 $ 11,681,716 $0.2205 Tax Rate at 99.00% Collection Produces $ 11,685,186 (1) Includes the Bonds, less self-supporting debt. Excludes the Refunded Obligations. Preliminary, subject to change. TABLE 7 - ESTIMATED OVERLAPPING DEBT Expenditures of the various taxing entities within the territory of the City are paid out of ad valorem taxes levied by such entities on properties within the City. Such entities are independent of the City and may incur borrowings to finance their expenditures. This statement of direct and estimated overlapping ad valorem tax bonds ("Tax Debt") was developed from information contained in "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. Except for the amounts relating to the City, the City has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities listed may have issued additional Tax Debt since the date hereof, and such entities may have programs requiring the issuance of substantial amounts of additional Tax Debt, the amount of which cannot be determined. The following table reflects the estimated share of overlapping Tax Debt of the City. Taxing Jurisdiction City of Grapevine Carroll Independent School District Coppell Independent School District Dallas County Dallas County Community College District Dallas County Hospital District Grapevine-Colleyville Independent School District Tarrant County Tarrant County Hospital District Tarrant County Junior College District Total Direct and Overlapping Funded Debt 2004/05 Net City's Taxable 2004/05 Total Estimated Overlapping Assessed Tax Funded % Funded Debt Value Rate Debt Applicable 9/30/2004 $ 5,352,933,433 $ 0.3635 $ 94,010,000 (t> 100.00% $ 94,010,000 4,411,336,158 1.9030 158,474,195 5.38% 8,525,912 5,751,081,057 1.7350 116,502,961 0.48% 559,214 129,617,491,048 0.2039 203,692,395 0.01% 20,369 134,404,944,574 0.0778 43,125,000 0.01% 4,313 129,617,491,048 0.2540 6,670,000 0.01% 667 13,159,000,737 1.7010 232,180,813 67.47% 156,652,395 111,228,762,367 0.2725 175,615,000 5.24% 9,202,226 111,228,762,367 0.2353 1,190,000 5.24% 3,767,298 111,228,762,367 0.1394 71,895,000 5.24% 62,356 $ 272,804,749 Ratio of Direct and Overlapping Funded Debt to Taxable Assessed Valuation ............................................... 5.10% Per Capita Overlapping Funded Debt................................................................................ $ 5,799.91 (1) Includes the Bonds, less self-supporting debt and Refunded Obligations. Preliminary, subject to change. 18 DEBT INFORMATION TABLE 8 - PRO -FORMA GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS Fiscal Year Total Less TIF Total Debt % of Ended Outstanding Debt cr> The Bonds (2) Debt Self -Supporting Less TIF Principal 9/30 Principal Interest Principal Interest Requirements Requirements (3) Requirements Retired 2005 $ 9,500,000 $ 6,107,404 $ 210,000 $ 939,746 $ 16,757,150 $ 5,075,434 $ 11,681,716 2006 9,410,000 5,649,268 - 1,125,175 16,184,443 4,983,554 11,200,889 2007 9,370,000 5,180,679 - 1,125,175 15,675,854 4,991,601 10,684,254 2008 9,655,000 4,718,629 - 1,125,175 15,498,804 4,994,673 10,504,131 2009 8,090,000 4,304,093 1,650,000 1,090,113 15,134,205 4,982,585 10,151,620 32,41% 2010 7,765,000 3,936,466 1,740,000 1,015,900 14,457,366 4,984,085 9,473,281 2011 7,380,000 3,560,699 1,840,000 930,750 13,711,449 4,985,923 8,725,526 2012 6,430,000 3,242,754 1,945,000 836,125 12,453,879 5,009,773 7,444,106 2013 6,510,000 2,935,666 2,060,000 736,000 12,241,666 5,029,423 7,212,243 2014 4,900,000 2,657,038 4,065,000 582,875 12,204,913 5,049,623 7,155,290 62.62% 2015 5,020,000 2,407,198 4,290,000 374,000 12,091,198 5,073,493 7,017,705 2016 4,700,000 2,154,998 4,540,000 153,250 11,548,248 5,096,086 6,452,161 2017 4,960,000 1,902,813 795,000 19,875 7,677,688 2,591,176 5,086,511 2018 5,245,000 1,634,056 - - 6,879,056 2,591,939 4,287,117 2019 5,545,000 1,348,627 - 6,893,627 2,597,814 4,295,813 86.37% 2020 3,825,000 1,097,760 - 4,922,760 2,602,404 2,320,356 2021 4,050,000 884,738 - - 4,934,738 2,606,194 2,328,544 2022 2,810,000 688,800 - - 3,498,800 2,608,894 889,906 2023 2,440,000 542,869 - - 2,982,869 2,608,744 374,125 2024 2,200,000 411,838 - - 2,611,838 2,611,838 - 96.74% 2025 2,335,000 282,588 - - 2,617,588 2,617,588 2026 2,475,000 145,406 - - 2,620,406 2,620,406 100.00% 7124,615,000 $ 55,794,383 $ 23,135,000 $ 10,054,158 $ 189,409,544 $ 86,313,244 $ 121,372,366 (1) "Outstanding Debt" includes lease/purchase obligations and self-supporting debt. Excludes the Refunded Obligations. Preliminary, subject to change. (2) Average life of the issue — 8.779 years. Interest on the Bonds has been calculated at an average rate of 4.95% for purposes of illustration. Preliminary, subject to change. (3) Includes a portion of the Bonds; preliminary, subject to change. TABLE 9 - INTEREST AND SINKING FUND BUDGET PROJECTION Tax Supported Debt Service Requirements, Fiscal Year Ending 9/30/2005 .............................. $ 11,681,716 tD Interest and Sinking Fund Balance as of 9/30/04 ................................. $ 1,453,54I Interest and Sinking Fund Tax Levy ........................................... 9,946,675 Penalty and Interest........................................................ 65,000 Budgeted Transfers(2......................................................... 1,225,976 Estimated Investment Income .................................................. 65,000 12,756,192 Estimated Balance, 9/30/2005................................................................. $ 1,074,476 (1) Excludes TIF self-supporting debt service. (2) Includes Golf Course user fees. IM TABLE 10 -COMPUTATION OF SELF-SUPPORTING DEBT BeginningFund Balance, 9-30-03...........................................................................................................................................$ 5,675,988 Projected Net Tax Increment Reinvestment Zone Revenue Available for Debt Service.... ................. .............. ................... 3,801,179 Requirements for Tax Increment Reinvestment Zone Certificates.......................................................................................... 4,361,839 ProjectedFund Balance, 9-30-04..............................................................................................................................................$ 5,115,328 Percentage of Tax Increment Reinvestment Zone Revenue Certificates Self-Supporting...................................................... 100.00% TABLE II - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS Amount Amount Date Amount Previously Being Unissued Purpose Authorized Authorized Issued Issued Balance Street Improvements 12/5/1998 $ 30,245,000 $ 24,997,314 $ - $ 5,247,686 ANTICIPATED ISSUANCE OF GENERAL OBLIGATION DEBT ... The City anticipates the issuance of approximately $5.2 million of additional general obligation debt within the next six months. TABLE 12 - OTHER OBLIGATIONS The City has no unfunded debt outstanding as of September 30, 2004. PENSION FUND ... The City provides pension benefits for all of its full-time employees through the Texas Municipal Retirement System ("TMRS"), a State-wide administered pension plan. The City makes annual contributions to the plan equal to the amounts accrued for pension expense. (For more detailed information concerning the retirement plan, see Appendix B, "Excerpts from the City's Annual Financial Report".) (The remainder of this page left blank intentionally.) W1 FINANCIAL INFORMATION TABLE 13 - CHANGES IN NET ASSETS (I) (1) For the fiscal year ended September 30, 2003, the City implemented Government Accounting Standards Board Statement No. 34 ("GASB 34"). 21 Fiscal Year Ended Revenues: 9/30/2003 Program Revenues Charges for Services $ 13,518,121 Operating Grants and Contributions 1,893,118 Capital grants and contributions 1,108,954 General Revenues Property= Taxes $ 22,768,284 Hotel occupancy taxes 3,380,659 Sales taxes 16,040,397 Mixed beverage taxes 578,218 Franchise fees 4,944,789 Investment earnings 1,106,609 Miscellaneous 155,158 Gain (loss) on sale/retirement of fixed assets (58,080) Total Revenues $ 65,436,227 Expenses: General Government $ 13,062,473 Public Safety 16,366,353 Culture and recreation 14,069,760 Public Works 14,342,030 Interest on long-term debt 7,603,547 Water and sewer Lake Enterprise - Total Expenses $ 65,444,163 Increase in net assets before transfers $ (7,936) Transfers - Changes in $ (7,936) net assets Net Assets - 10/01/02 27,864,377 Net Assets - 9/30/03 $ 27,856,441 (1) For the fiscal year ended September 30, 2003, the City implemented Government Accounting Standards Board Statement No. 34 ("GASB 34"). 21 TABLE 13A - GENERAL FUND REVENUES AND EXPENDITURE HISTORY 22 Fiscal Year Ended September 30, RevQnues 2003 2002 2001 2000 1999 Taxes $ 28,715,417 $ 27,165,580 $ 29,239,672 $ 27,051,303 $ 25,160,401 Licenses and Permits 1,482,165 1,536,786 1,146,428 1,494,428 1,163,306 Intergovernmental 129,428 217,614 4,381,910 182,863 190,189 Charges for Services 5,784,270 5,009,819 2,984,179 3,003,353 2,693,057 Fines and Forfeitures 2,046,991 2,101,526 2,149,638 2,360,028 1,850,076 Interest and Miscellaneous 1,119,469 792,073 876,507 776,140 687,619 Total Revenues $ 39,277,740 $ 36,823,398 $ 40,778,334 $ 34,868,115 $ 31,744,648 Expenditures General Government $ 12,168,352 $ 11,686,622 $ 10,510,527 $ 5,683,237 $ 5,625,351 Public Safety 15,846,568 15,532,602 17,640,884 15,404,767 13,245,400 Culture and Recreation 5,673,980 5,184,010 5,737,648 5,183,727 4,519,957 Capital Outlay 80,649 Public Works 4,770,722 4,772,777 6,067,277 5,657,648 5,062,397 Total Expenditures $ 38,540,271 $ 37,176,011 $ 39,956,336 $ 31,929,379 $ 28,453,105 Excess (deficiency) of Revenues Over Expenditures $ 737,469 $ (352,613) $ 821,998 $ 2,938,736 $ 3,291,543 Other Financing Sources Budgeted Transfers In $ 304,000 $ 300,000 $ 400,000 $ - $ 13,090 Budgeted Transfers Out (1,068,765) (1,753,450) (1,295,979) (2,098,598) (1,900,345) Total Transfers $ (764,765) $ (1,453,450) $ (895,979) $ (2,098,598) $ (1,887,255) Net Increase (Decrease) $ (27,296) $ (1,806,063) $ (73,981) $ 840,138 $ 1,404,288 Other Miscellaneous Adjustments - - - - Residual Equity Transfer 262,087 - 1,172 79,788 Beginning Fund Balance 6,131,875 7,658,665 7,732,646 6,891,336 5,407,260 Ending Fund Balance $ 6,104,579 $ 6,114,689 $ 7,658,665 $ 7,732,646 $ 6,891,336 22 TABLE 14 - MUNICIPAL SALES TAX HISTORY The City has adopted the Municipal Sales and Use Tax Act, V.A.T.C.S., Tax Code, Chapter 321, which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City; the proceeds are credited to the General Fund and are not pledged to the payment of the Bonds. Collections and enforcements are effected through the offices of the Comptroller of Public Accounts, State of Texas, who remits the proceeds of the tax, after deduction of a 2% service fee, to the City monthly. Fiscal Year % of Equivalent of Ended Total Ad Valorem Ad Valorem Per 9/30 Collected Tax Levy Tax Rate Capita 2000 $ 14,340,693 93.29% $ 0.3506 $ 363 2001 16,048,266 98.25% 0.3670 362 2002 14,939,771 85.70% 0.3129 328 2003 16,040,397 90.96% 0.3365 346 2004 (i) 14,995,435 83.06% 0.3040 325 (1) As of September 30, 2004, collections through July 31, 2004. FINANCIAL POLICIES Basis of Accounting ... The accounting policies of the City conform to generally accepted accounting principles for governmental entities as promulgated by the Government Accounting Standards Board. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental funds and expendable trust funds are accounted for using a current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the combined balance sheet. Operating statements of these funds present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. All proprietary funds are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included on the combined balance sheet. Fund equity is segregated into contributed capital and retained earnings components. Proprietary fund -type operating statements present increases (revenues) and decreases (expenses) in net total assets. The modified accrual basis of accounting is used by all governmental funds types, expendable trust funds and agency funds. Under the modified accrual basis of accounting revenues are recognized when susceptible to accrual ( i.e., when they become both measurable and available). "Measurable" means collectible within the current period of soon enough thereafter to be used to pay liabilities of the current period. Expenditures are generally recorded when the related fund liability is incurred. However, principal of and interest on general long-term debt are recorded as fund liabilities when due or when amounts have been accumulated in the debt service fund for payments to be made early in the following year. Major revenue sources which have been treated as susceptible to accrual under the modified basis of accounting include property taxes, charges for services, intergovernmental revenues, an d investment of idle funds. The accrual basis of accounting is utilities by proprietary funds types. Under this method, revenue is recorded when earned and expenses are recorded at the time liabilities are incurred. The City reports deferred revenue on its combined balance sheet. Deferred revenues arise when a potential revenue does not meeting both the "measurable" and "available" criteria for recognition in the current period. Deferred revenues also arise when resources are received by the government before it has a legal claim to them, as when grant monies are received prior to the incurrence of qualified expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the government has a legal claim to the resources, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized. Fund Balances ... It is the City's policy regarding the General Fund and Enterprise Funds that working capital resources should be maintained at a minimum of 10% of the Fund's operating expenditure budget. The City maintains its various debt service funds in accordance with the covenants of the Ordinances. Use of Bond Proceeds... The City's policy is to use bond proceeds for capital expenditures only. Such revenues are never to be used to fund normal City operations. 23 Budgetmy Procedures... The City Charter establishes the fiscal year as the twelve-month period beginning each October 1. Each year between May and July, the City Manager analyzes and then after review, submits a budget of estimated revenues and expenditures to the City Council. Subsequently, the City Council will hold work sessions to discuss and amend the budget to coincide with their direction of the City. Various public hearings may be held to comply with state and local statutes. The City Council will adopt a budget prior to September 30. If the Council fails to adopt a budget then the budget presented to the Council by the City Manager becomes the adopted budget. During the fiscal year, budgetary control is maintained by the monthly review of departmental appropriation balances. Actual operations are compared to the amounts set forth in the budget. Departmental appropriations that have not been expended lapse at the end of the fiscal year. Therefore, funds that were budgeted and not used by the departments during the fiscal year are not available for their use unless appropriated in the ensuing fiscal year's budget. INVESTMENTS The City invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the City Council of the City. Both state law and the City's investment policies are subject to change. LEGAL INVESTMENTS ... Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies, counties, cities and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit that are issued by a state or national bank domiciled in the State of Texas, a savings bank domiciled in the State of Texas, or a state or federal credit union domiciled in the State of Texas and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for City deposits, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (9) securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than "A" or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above, clauses (11) through (13) below, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the City, held in the City's name and deposited at the time the investment is made with the City or a third party designated by the City; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less, (10) certain bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least "A -I" or "P-1" or the equivalent by at least one nationally recognized credit rating agency, (11) commercial paper with a stated maturity of 270 days or less that is rated at least "A -I" or "P-1" or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (12) no -loan money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share and (13) no -loan mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than "AAA" or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations, including letters of credit, of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described in the next succeeding paragraph. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAAm or an equivalent by at least one nationally recognized rating service. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. INVESTMENT POLICIES ... Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of 24 investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar -weighted maturity allowed for pooled fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each funds' investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under Texas law, City investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At least quarterly the investment officers of the City shall submit an investment report detailing: (1) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority, from the City Council. ADDITIONAL PROVISIONS ... Under Texas law the City is additionally required to: (1) annually review its adopted policies and strategies; (2) require any investment officers with personal business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (3) require the registered principal of firms seeking to sell securities to the City to: (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) perform an annual audit of the management controls on investments and adherence to the City's investment policy; (5) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (6) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (7) restrict the investment in non -money market mutual funds of any portion of bond proceeds, reserves and funds held for debt service to no more than 15% of the entity's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service; and (8) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements. TABLE 1$ - CURRENT INVESTMENTS As of September 30, 2004, the City's investable funds were invested in the following categories: (The Remainder of This Page Left Blank Intentionally.) ►1W Book Market Description Percent Value Value Government Securities 40.16% $ 25,890,818 $ 25,800,087 TexPool/Logic 59.84% 38,580,079 38,580,079 100.00% $ 64,470,897 $ 64,380,166 (The Remainder of This Page Left Blank Intentionally.) ►1W TAX MATTERS TAX EXEMPTION ... In the opinion of Vinson & Elkins L.L.P., Bond Counsel, (i) interest on the Bonds is excludable from gross income for federal income tax purposes under existing law and (ii) the Bonds are not "private activity bonds" under the Internal Revenue Code of 1986, as amended (the "Code"), and interest on the Bonds will not be subject to the alternative minimum tax on individuals and corporations, except as described below in the discussion regarding the adjusted current earnings adjustment for corporations. The Code imposes a number of requirements that must be satisfied for interest on state or local obligations, such as the Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of proceeds and the source of repayment, limitations on the investment of proceeds prior to expenditure, a requirement that excess arbitrage earned on the investment of proceeds be paid periodically to the United States, and requirement that the issuer file an information report with the Internal Revenue Service. The City has covenanted in the Ordinance that it will comply with these requirements. Bond Counsel's opinion will assume continuing compliance with the covenants of the Ordinance pertaining to those sections of the Code which affect the exclusion from gross income of interest on the Bonds for federal income tax purposes and, in addition, will rely on representations by the City, the City's Financial Advisor and the Underwriters with respect to matters solely within the knowledge of the City, the City's Financial Advisor and the Underwriters, respectively, which Bond Counsel has not independently verified. If the City should fail to comply with the covenants in the Ordinance or if the foregoing representations should be determined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of the Bonds, regardless of the date on which the event causing such taxability occurs. The Code also imposes a 20% alternative minimum tax on the "alternative minimum taxable income' of a corporation, if the amount of such alternative minimum tax is greater than the amount of the corporation's regular income tax. Generally, the alternative minimum taxable income of a corporation (other than any S corporation, regulated investment company, REIT, REMIC or FASIT), includes 75% of the amount by which its "adjusted current earnings" exceeds its other "alternative minimum taxable income." Because interest on tax-exempt obligations, such as the Bonds, is included in a corporation's "adjusted current earnings," ownership of the Bonds could subject a corporation to alternative minimum tax consequences. Under the Code, taxpayers are required to report on their returns the amount of tax-exempt interest, such as interest on the Bonds, received or accrued during the year. Except as stated above, and as stated below in "Tax Accounting Treatment of Original Issue Discount Bonds", Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt of interest on, or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations, and individuals otherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the U.S. may be subject to the "branch profits tax" on their effectively -connected earnings and profits including tax-exempt interest such as interest on the Bonds. These categories of prospective purchasers should consult their own tax advisors as to the applicability of these consequences. Bond Counsel's opinions are based on existing law, which is subject to change. Such opinions are further based on Bond Counsel's knowledge of facts as of the date hereof. Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances that may thereafter come to Bond Counsel's attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, Bond Counsel's opinions are not a guarantee of result and are not binding on the Internal Revenue Service (the "Service"); rather, such opinions represent Bond Counsel's legal judgment based upon its review of existing law and in reliance upon the representations and covenants referenced above that it deems relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the City as the taxpayer and the Owners of the Bonds may not have a right to participate in such audit. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit regardless of the ultimate outcome of the audit. 26 0�r TAX ACCOUNTING TREATMENT OR ORIGINAL ISSUE DISCOUNT BONDS ... The initial public offering price for certain of the respective Bonds may be less than the principal amount thereof (the "Original Issue Discount Bonds"). In such case, Bond Counsel, under existing law and based upon the assumptions hereinafter stated, will render an opinion to the effect that: (a) The difference between (i) the amount payable at the maturity of each Original Issue Discount Bond, and (ii) the initial offering price to the public of such Original Issue Discount Bond constitutes original issue discount with respect to such Original Issue Discount Bond in the hands of any owner who has purchased such Original Issue Discount Bond in the initial public offering of the Bonds; and (b) Such initial owner is entitled to exclude from gross income (as defined in Section 61 of the Code) an amount of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such original issue discount allocable to the period that such Original Issue Discount Bond continues to be owned by such owner. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Bond prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Bond was held by such initial owner) is includable in gross income. (Because original issue discount is treated as interest for federal income tax purposes, the discussion regarding interest on the Bonds under the caption "Tax Exemption" generally applies, except as otherwise provided below, to original issue discount on an Original Issue Discount Bond held by an owner who purchased such Bond at the initial offering price in the initial public offering of the Bonds, and should be considered in connection with the discussion in this portion of the Preliminary Official Statement.) In rendering the foregoing opinion, Bond Counsel will assume, in reliance upon certain representations of the Underwriters, that (a) the Underwriters have purchased the Bonds for contemporaneous sale to the public and (b) all of the Original Issue Discount Bonds have been initially offered, and a substantial amount of each maturity thereof has been sold, to the general public in arm's-length transactions for a price (and with no other consideration being included) not more than the initial offering prices thereof. Neither the City nor Bond Counsel warrants that the Original Issue Discount Bonds will be offered and sold in accordance with such assumptions. Certain of the representations of the initial purchaser, upon which Bond Counsel will rely in rendering the foregoing opinion, will be based on records or facts the initial purchaser had no reason to believe were not correct. Under existing law, the original issue discount on each Original Issue Discount Bond is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semi-annual anniversary dates of the date of the Bonds and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Bond. The federal income tax consequences of the purchase, ownership, and redemption, sale or other disposition of Original Issue Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Bonds should consult their own tax advisors with respect to the determination for federal, state, and local income tax purposes of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Bonds and with respect to the federal, state, local and foreign tax consequences i of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Bonds. 27 OTHER INFORMATION RATINGS The presently outstanding tax supported debt of the City is rated "Al" by Moody's and "A+" by S&P. The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA" by S&P through insurance by various commercial insurance companies. Applications for contract ratings on this issue have been made to Moody's and S&P. An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The ratings reflect only the respective views of such organization and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by either or both of such rating companies, if in the judgment of either or both companies, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or either of them, may have an adverse effect on the market price of the Bonds. LITIGATION It is the opinion of the City Attorney and City Staff that there is no pending litigation against the City that would have a material adverse financial impact upon the City or its operations. REGISTRATION AND QUALIFICATION OF BONDS FOR SALE The sale of the Bonds has not been registered under the Federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions. LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the Bonds are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of municipalities or other political subdivisions or public agencies of the State of Texas. With respect to investment in the Bonds by municipalities or other political subdivisions or public agencies of the State of Texas, the Public Funds Investment Act, Chapter 2256, Texas Government Code, requires that the Bonds be assigned a rating of "A" or its equivalent as to investment quality by a national rating agency. See "OTHER INFORMATION - Ratings" herein. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Bonds are legal investments for state banks, savings banks, trust companies with at capital of one million dollars or more, and savings and loan associations. The Bonds are eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the City has been made of the laws in other states to determine whether the Bonds are legal investments for various institutions in those states. LEGAL MATTERS The City will furnish a complete transcript of proceedings incident to the authorization and issuance of the Bonds, including the approving legal opinion of the Attorney General of the State of Texas to the effect that each Initial Bond is a valid and binding obligations of the City, and based upon examination of such transcript of proceedings, the approving legal opinion of Bond Counsel to the effect that the Bonds issued in compliance with the provisions of the Ordinance are valid and legally binding obligations of the City and the interest on such Bonds is excludable from gross income for federal income tax purposes under existing law and the Bonds are not private activity bonds, subject to the matters described under "Tax Matters" herein. A form of such Bond Counsel opinion is attached hereto as Appendix C. Bond Counsel did not take part in the preparation of the Preliminary Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information describing the Bonds in the Preliminary Official Statement under the captions "Plan of Financing" (except under the subcaption "Sources and Use of Proceeds"), "The Bonds" (except for the subcaption "Book -Entry -Only System" and `Bondholders Remedies"), "Tax Matters" and "Continuing Disclosure of Information" (except for under the subcaption "Compliance with Prior Undertakings") and the subcaptions "Legal Investments and Eligibility to Secure Public Fund in Texas", and "Legal Matters" under the caption "Other Information" and is of the opinion that the information relating to the Bonds and the Ordinance contained therein fairly and accurately describe the provisions thereof. The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds are contingent on the sale and delivery of the Bonds. The legal opinion will accompany the Bonds deposited with DTC or will be printed on the Bonds in the event of the discontinuance of the Book -Entry -Only System. Certain legal matters will be passed upon for the Underwriters by Kelly, Hart & Hallman, a Professional Corporation, Fort Worth, Texas, Counsel to the Underwriters. The legal fees to be paid to Underwriter's Counsel for services rendered in connection with the issuance of the Bonds are contingent on the sale and delivery of the Bonds. 28 cwt AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION The financial data and other information contained herein have been obtained from City records, audited financial statements and other sources, which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Preliminary Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. ANNUAL REPORTS ... The City will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Preliminary Official Statement under Tables numbered 1 through 6 and 8 through 15 and in Appendix B. The City will update and provide this information within six months after the end of each fiscal year ending in or after 2004. The City will provide the updated information to each nationally recognized municipal securities information repository ("NRMSIR") and to any state information depository ("SID") that is designated by the State of Texas and approved by the State of Texas and approved by the staff of the United States Securities and Exchange Commission (the "SEC'). The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12. The updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide unaudited financial statements by the required time and audited financial statements when and if such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix B or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify each NRMSIR and the SID of the change. The Municipal Advisory Council of Texas has been designated by the State of Texas and approved by the SEC staff as a qualified SID. The address of the Municipal Advisory Council is 600 West 8th Street, P. O. Box 2177, Austin, Texas 78768- 2177, and its telephone number is 512/476-6947. MATERIAL EVENT NOTICES ... The City will also provide timely notices of certain events to certain information vendors. The City will provide notice of any of the following events with respect to the Bonds, if such event is material to a decision to purchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7) modifications to rights of holders of the Bonds; (8) Bond or Note calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds; and (11) rating changes. (Neither the Bonds or the Ordinance make any provision for debt service reserves or liquidity enhancement.) In addition, the City will provide timely notice of any failure by the City to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports." The City will provide each notice described in this paragraph to the SID and to either each NRMSIR or the Municipal Securities Rulemaking Board ("MSRB"). AVAILABILITY OF INFORMATION FROM NRMSIRS AND SID ... The City has agreed to provide the foregoing information only to NRMSIRs and the SID. The information will be available to holders of Bonds only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. LIMITATIONS AND AMENDMENTS ... The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Bonds, or both, may seek a writ of mandamus to compel the City to comply with its agreement. s 29 The City may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds, as the case may be, consent to the amendment or (b) any person unaffiliated with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds, as the case may be. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the SEC Rule 15c2-12 or a court of final jurisdiction enters judgment that such provisions of the SEC Rule 15c2-12 are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Bonds in the primary offering thereof. If the City so amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. COMPLIANCE WITH PRIOR UNDERTAKINGS . . . The City has compiled in all material respects with all continuing disclosure agreements made by it in accordance with SEC Rule 15c2-12. FINANCIAL ADVISOR First Southwest Company is employed as Financial Advisor to the City in connection with the issuance of the Bonds. The Financial Advisor's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. First Southwest Company, in its capacity as Financial Advisor, has relied on the opinion of Bond Counsel and has not verified and does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Bonds, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. The Financial Advisor to the City has provided the following sentence for inclusion in this Preliminary Official Statement. The Financial Advisor has reviewed the information in this Preliminary Official Statement in accordance with, and as part of, its responsibilities to the City and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. FORWARD-LOOKING STATEMENTS DISCLAIMER The statements contained in this Preliminary Official Statement, and in any other information provided by the City, that are not purely historical, are forward-looking statements, including statements regarding the City' expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Preliminary Official Statement are based on information available to the City on the date hereof, and the City assumes no obligation to update any such forward-looking statements. The City' actual results could differ materially from those discussed in such forward-looking statements. The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial, and other governmental authorities and officials. Assumptions related to the foregoing involve judgements with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Preliminary Official Statement will prove to be accurate. VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS The arithmetical accuracy of certain computations included in the schedules provided by First Southwest Company on behalf of the City relating to (a) computation of forecasted receipts of principal and interest on the forecasted payments of principal and interest to redeem the Refunded Obligations and (b) computation of the yields of the Refunding Obligations and the restricted Federal Securities were verified by Grant Thornton, LLP, certified public accountants. Such computations were based solely on assumptions and information supplied by First Southwest Company on behalf of the City. Grant Thornton, LLP has restricted its procedures to verifying the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information on which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome. 30 UNDERWRITING The Underwriters have agreed, subject to certain conditions, to purchase the Bonds from the City, at an underwriting discount of The Underwriters will be obligated to purchase all of the Bonds if any Bonds are purchased. The Bonds to be offered to the public may be offered and sold to certain dealers (including the Underwriters and other dealers depositing Bonds into investment trusts) at prices lower than the public offering prices of such Bonds, and such public offering prices may be changed, from time to time, by the Underwriters. APPROVAL OF PRELIMINARY OFFICIAL STATEMENT The Ordinance will also approve the form and content of this Preliminary Official Statement, and any addenda, supplement or amendment thereto, and authorize its further use in the reoffering of the Bonds by the Underwriters. ATTEST: /s/ LINDA HUFF City Secretary 31 /s/ WILLIAM D. TATE Mayor City of Grapevine, Texas THIS PAGE LEFT BLANK INTENTIONALLY Schedule I SCHEDULE OF REFUNDED OBLIGATIONS* General Obligation Bonds, Series 1995 Original Maturity Interest Principal Dated Date Date Rate Amount 6/1/1995 2/15/2014 5.00% $ 1,215,000 2/15/2015 5.00% 1,275,000 2/15/2016 5.00% 1,340,000 The 2014 - 2016 maturities will be redeemed prior to original maturity on February 15, 2005 at par. Combination Tax & Tax Increment Reinvestment Zone Revenue Certificates of Obligation, Series 1996 Original Maturity Interest Principal Dated Date Date Rate Amount 10/1/1996 2/15/2009 5.25% $ 1,675,000 2/15/2010 5.25% 1,780,000 2/15/2011 5.25% 1,890,000 2/15/2012 5.25% 2,005,000 2/15/2014 5.25% 4,390,000 2/15/2016 5.25% 4,950,000 The 2009 - 2016 maturities will be redeemed prior to original maturity on February 15, 2006 at par. General Obligation Bonds, Series 1996 Original Maturity Interest Principal Dated Date Date Rate Amount 10/1/1996 2/15/2014 5.50% $ 720,000 2/15/2017 5.50% 2,445,000 The 2014 and 2017 maturities will be redeemed prior to original maturity on February 15, 2006 at par. * Preliminary, subject to change. THIS PAGE LEFT BLANK INTENTIONALLY L f APPENDIX A GENERAL INFORMATION REGARDING TIIE CITY THE CITY ... The City is a political subdivision of the State of Texas incorporated in 1907 and operates as a home -rule City under the general laws of the State of Texas and a charter approved by the voters in 1965. The City has a Council/Manager form of government in which the mayor and six council members are elected for staggered three-year terms with elections held annually in May. Policy making is the responsibility of, and is vested in, the City Council. The Council delegates the operational authority of the City to the City Manager, who is the chief administrative officer of the City. The City provides all the functions normally associated with a municipality including, but not limited to, public safety (i.e., police and fire personnel and equipment), health inspection and enforcement, water and sewer facilities, streets and drainage facilities and parks and recreational facilities. The City presently employs approximately 497 full-time staff members. POPULATION ... The City has had significant population growth during the past several years. These population estimates are as follows: Year Population Source Year Population Source 1970 7,023 U.S. Census 1993 31,902 City Estimate 1980 11,801 U.S. Census 1994 32,727 City Estimate 1981 15,245 Grapevine Community Profile 1995 33,211 City Estimate 1982 16,183 Grapevine Community Profile 1996 34,950 City Estimate 1983 18,121 Grapevine Community Profile 1997 36,000 City Estimate 1984 19,405 Grapevine Community Profile 1998 37,946 City Estimate 1985 22,002 Grapevine Community Profile 1999 39,190 City Estimate 1986 24,493 Grapevine Community Profile 2000 39,523 U.S. Census 1987 25,853 Grapevine Community Profile 2001 44,390 City Estimate 1988 27,132 City Estimate 2002 45,500 City Estimate 1989 27,257 City Estimate 2003 46,400 City Estimate 1990 29,202 U.S. Census 2004 46,188 City Estimate 1991 30,300 City Estimate 2005 47,036 City Estimate 1992 31,400 City Estimate ECONOMICS ... The proximity of the Dallas/Fort Worth International Airport ("DFW") greatly influences both industrial and residential growth of the City. DFW has been and is expected to continue to be an economic generator of employment, spin-off businesses and tax base, all of which benefit the City and the surrounding area. Approximately 65% of the airport is within the city limits of Grapevine. Several large business operations owe their genesis to DFW including air cargo services, flight kitchens, rent/lease car operations and SimuFlite Training International, a company which provides jet pilot flight training in advanced flight simulators. Seven of the ten largest taxpayers of the City are directly related to DFW either by location or primary business sources. DFW contains approximately 18,000 acres and directly employs some 33,000 personnel. These employees have skills ranging from custodial level to highly trained jet aircraft pilots. A number of these people have purchased homes in the City and conduct their daily business here. DFW has approximately 19,400 parking spaces and is currently expanding parking facilities. Sales tax from parking fees generate about $330,000 in annual income for the City and hotels providing service for travelers at DFW and seminar space for business meetings generate approximately $2.0 million in annual hotel/motel tax revenue. EMPLOYMENT ... The labor market in the City continues to be strong. Employment figures fumished by Texas Employment Commission are: A-1 August Annual Annual Annual Annual Annual 2004 2003 2002 2001 2000 1999 Labor Force 22,695 22,478 22,219 22,001 21757 21,309 Employed 22,028 21,692 21,476 21,509 21,393 20,956 Unemployed 667 786 743 492 364 353 Percent of Unemployed 2.94% 3.50% 3.34% 2.24% 1.67% 1.66% A-1 MAJOR EMPLOYERS Company Dallas/Fort Worth International Airport Gaylord Texan Resort & Convention Center Grapevine/Colleyville Independent School District United Parcel Service Baylor Medical Center Gamestop City of Grapevine D/FW Hilton Hotel SimuFlite Training International Apollo Paper/John Harland Source: City of Grapevine, Department of Development Services. Estimated Number of Product Employees Airport 16,420 Hotel/Convention 1,800 School District 1,576 Parcel Service 1,200 Health Services 1,000 Electronic/Software Distribution 600 City Government 540 Hotel 400 Pilot Training 300 Paper Products 200 BANKING AND FINANCIAL ... Banking facilities for the City are provided by four banks, the Texas Bank of Grapevine, the First State Bank of Grapevine, Frost Bank and a branch of NationsBank of Texas, Independent National Bank, Bank One and of Bank of America. Also located in the City is a branch of the Omni Federal Credit Union. Source: City of Grapevine, Finance Department. BUILDING PERMITS ... The number and value of building permits issued by the City are: Fiscal Commercial Permits Residential Permits Totalum Year Number Nber Number Total Ended of Dollar of Dollar of Dollar 9/30 Permits Value Permits Value Permits Value 1999 32 S 59,920,763 185 $ 21,026,688 217 $ 80,947,451 2000 56 84,742,336 211 56,040,989 267 140,783,325 2001 53 364,294,642 89 12,445,025 142 376,739,667 2002 23 21,888,714 183 48,911,056 206 70,799,770 2003 28 34,396,654 158 43,615,909 186 78,012,563 Source: City of Grapevine records. RECREATION ... Located approximately two miles north of the downtown area of the City lies Grapevine Lake. The lake serves as the City reservoir and supplies approximately 50% of the water supply of the City. The lake covers a surface area of approximately 12,740 acres and has a shore line of 146 miles. The lake is 19 miles long and 2.5 miles wide at its widest point. The lake is owned and operated by the U.S. Corps of Engineers and is a major recreation area for swimming, fishing, picnicking and camping and draws some five million visitors each year to the area. The City also has an extensive park system which includes tennis courts, racquetball courts, baseball and softball diamonds, football and soccer fields, a jogging and biking trail, swirmning pool and picnic areas. The City also owns and operates an 18 -hole golf course and has plans for a 9 -hole expansion. TRANSPORTATION... The City is in the center of a highway network that includes seven spokes of an extensive highway system; six U.S. highways, seven major state highways and one interstate highway. This network connects the City to all major entrances to both Dallas and Fort Worth, with major highway systems both north/south and east/west. There are 43 motor freight lines providing service to the City and the City is within the Dallas and Fort Worth Commercial Zone for deliveries. Railroad service is offered by the Cotton Belt Railroad and the Southern Pacific Railroad, both with daily switching service. Greyhound/Trailways Bus Lines provides the City with surface bus transportation. A-2 HOTEL AND CONVENTION FACILITIES... There are four major hotels in the City and several other hotels and motels adjacent to the City near DFW. The Hyatt Regency DFW is located on the airport and provides 1,450 rooms, one of the largest hotels in Texas. The Hyatt provides more than 130,000 square feet of meeting and convention facilities, five dining facilities, availability to two 18 -hole championship golf courses, tennis courts, heated swimming pool and health spa and jogging trails. The D/FW Airport Hilton and Executive Conference Center is a 400 -room hotel located 2.5 miles north of DFW offering a 14,400 square foot exhibit hall and ballroom that can accommodate 900 banquet guests. Also provided are three restaurants, tennis courts, racquetball courts, indoor and outdoor swimming pools, steam room, health club and Iighted jogging trails. Adjacent to the hotel is the Austin Ranch where horseback riding and other western events are available to hotel guests. The Embassy Suites Conference Center is a 12 -story, 329 -room hotel located just north of DFW Airport. The Embassy Suites offers a 12,640 square foot conference center and ballroom, a 3,432 square foot junior ballroom and 14 other meeting rooms. Also provided is a state-of-the-art fitness center, a heated indoor swimming pool, complimentary, cooked -to -order breakfast and 24-hour in -room dining. The Gaylord Texan on Lake Grapevine is a 1,511 room resort and convention center located just 6 minutes from D/FW Airport, The Gaylord Texan provides 400,000 square feet of convention, meeting, exhibit and pre -function space featuring 70 breakout rooms, three ballrooms, 180,000 square -feet of dedicated exhibit space, an 80,000 square foot outdoor event lawn and a 2,500 square foot amphitheater. Other amenities include seven restaurants, the Dallas Cowboys Golf Club, a contemporary Southwestern -style outdoor pool, a 25,000 square foot European spa, salon and fitness center with 13 treatment rooms and a 20 -meter indoor lap pool, outdoor tennis courts and marina access for recreational water -craft. EDUCATION... Secondary education is provided to the City by the Grapevine-Colleyville Independent School District (the "District"). The District provides seventeen campuses, all air conditioned, as follows: 2 High schools 4 Middle schools 11 Elementary schools In addition to the campuses, the District also owns an administration/service center, an auditorium and a complete athletic complex. Historical school enrollment figures are: 1983 3,732 1994 10,878 1984 4,037 1995 11,363 1985 4,675 1996 11,655 1986 5,617 1997 12,398 1987 6,107 1998 12,928 1988 6,604 1999 13,299 1989 7,156 2000 13,369 1990 7,984 2001 13,534 1991 8,710 2002 13,677 1992 9,435 2003 13,619 1993 10,236 2004 13,738 Source: Grapevine-Colleyville Independent School District. Educational opportunities beyond the secondary level are numerous and within easy driving distance of the City. Some of the colleges and universities within a 50 mile radius of the City are as follows: College/University Location Texas Christian University Fort Worth, Texas Texas Wesleyan University Fort Worth, Texas Tarrant County College Fort Worth, Texas University of Texas at Arlington Arlington, Texas University of North Texas Denton, Texas Texas Women's University Denton, Texas Southern Methodist University Dallas, Texas Dallas Baptist University Dallas, Texas Dallas Community College Dallas, Texas University of Dallas Irving, Texas University of Texas at Dallas Richardson, Texas A-3 111 APPENDIX B EXCERPTS FROM THE CITY OF GRAPEVINE, TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2003 The information contained in this Appendix consists of excerpts from the City of Grapevine, Texas Annual Financial Report for the Year Ended September 30; 2003, and is not intended to be a complete statement of the City's financial condition. Reference is made to the complete Report for further information. THIS PAGE LEFT BLANK INTENTIONALLY APPENDIX C FORM OF BOND COUNSEL'S OPINION A V .I'LSon&-El hi ATTORNEYS AT LAW [Closing Date] $ CITY OF GRAPEVINE, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2004 VINSON & ELKINS L.L.P. 3700 TRAMMELL CROW CENTER 2001 ROSS AVENUE DALLAS, TEXAS 75201-2975 TELEPHONE (214) 220-7700 FAX (214) 220-7716 wwwselaw-com WE HAVE represented the City of Grapevine, Texas (the "Issuer"), as its bond counsel in connection with an issue of bonds (the "Bonds") described as follows: CITY OF GRAPEVINE, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2004, dated October 15, 2004, in the principal amount of The Bonds mature, bear interest, are subject to redemption prior to maturity and may be transferred and exchanged as set out in the Bonds and in the Ordinance adopted by the City Council of the Issuer authorizing their issuance (the "Ordinance"). WE HAVE represented the Issuer as its bond counsel for the purpose of rendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds from gross income for federal income tax purposes. We have not investigated or verified original proceedings, records, data or other material, but have relied solely upon the transcript of proceedings described in the following paragraph. We have not assumed any responsibility with respect to the financial condition or capabilities of the Issuer or the disclosure thereof in connection with the sale of the Bonds. Our role in connection with the Issuer's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. IN OUR CAPACITY as bond counsel, we have participated in the preparation of and have examined a transcript of certified proceedings pertaining to the Bonds, on which we have relied in giving our opinion. The transcript contains certified copies of certain proceedings of the Issuer; an escrow agreement (the "Escrow Agreement") between the Issuer and JPMorgan Chase Bank, N.A., as escrow agent (the "Escrow Agent"); a report (the "Report") of Grant Thornton LLP, Certified Public Accountants (the "Verification Agent"), verifying the sufficiency of the deposits made with the Escrow Agent for defeasance of the obligations being refunded (the "Refunded Obligations") and the mathematical accuracy of certain computations of the yield on the Bonds and obligations acquired with the proceeds of the Bonds; and customary certificates of officers, agents and representatives of the Issuer, and other public officials, and other certified showings relating to the authorization and issuance of the Bonds. We have also examined executed Bond No. 1 of this issue. AUSTIN • BEIJING • DALLAS • DUBAI • HOUSTON • LONDON • MOSCOW • NEW YORK • TOKYO • WASHINGTON, D.C. I BASED ON SUCH EXAMINATION, IT IS OUR OPINION THAT: (A) The transcript of certified proceedings evidences complete legal authority for the issuance of the Bonds in full compliance with the Constitution and laws of the State of Texas presently effective and, therefore, the Bonds constitute valid and legally binding obligations of the Issuer; " (B) A continuing ad valorem tax upon all taxable property within the City of Grapevine, Texas, necessary to pay the principal of and interest on the Bonds, has been levied and pledged irrevocably for such purposes, within the limit prescribed by law, and the total indebtedness of the Issuer, including the Bonds, does not exceed any constitutional, statutory or other limitations; and (C) Firm banking and financial arrangements have been made for the discharge and final payment of the Refunded Bonds pursuant to the Escrow Agreement, and therefore, the Refunded Bonds are deemed to be fully paid and no longer outstanding except for the purpose of being paid from the funds provided therefor in such Escrow Agreement. THE RIGHTS OF THE OWNERS of the Bonds are subject to the applicable provisions of the federal bankruptcy laws and any other similar laws affecting the rights of creditors of political subdivisions generally, and may be limited by general principles of equity which permit the exercise of judicial discretion. IT IS OUR FURTHER OPINION THAT: (1) Interest on the Bonds is excludable from gross income for federal income tax purposes under existing law; (2) The difference between the amount payable at maturity of the Bonds maturing in each of the years through (collectively, the "Original Issue Discount Bonds"), and the "issue price," within the meaning of the Internal Revenue Code of 1986, as amended (the "Code") of such Bonds is excludable from gross income for federal income tax purposes as original issue discount under existing law; and (3) The Bonds are not "private activity bonds" within the meaning of the Code, and interest on the Bonds is not subject to the alternative minimum tax on individuals and corporations, except that interest on the Bonds will be included in the "adjusted current earnings" of a corporation (other than an S corporation, regulated investment company, REIT, REMIC or FASIT) for purposes of computing its alternative minimum tax. In providing such opinions, we have relied on representations of the Issuer, the Issuer's Financial Advisor and the Underwriters with respect to matters solely within the knowledge of the Issuer, the Issuer's Financial Advisor and the Underwriters, respectively, which we have not independently verified, and have assumed continuing compliance with the covenants in the Ordinance pertaining to those sections of the Code which affect the exclusion from gross income 879239_1.DOC -2- of interest on the Bonds for federal income tax purposes. We have further relied on the Report of the Verification Agent regarding the mathematical accuracy of certain computations. If such representations or the Report are determined to be inaccurate or incomplete or the Issuer fails to comply with the foregoing provisions of the Ordinance, interest on the Bonds could become includable in gross income from the date of original delivery, regardless of the date on which the event causing such inclusion occurs. Purchasers of Original Issue Discount Obligations in the initial public offering are directed to the discussion entitled "TAX MATTERS - Tax Accounting Treatment of Original Issue Discount Bonds" in the Official Statement prepared for use in connection with the sale of the Bonds for purposes of determining the portion of the original issue discount described in paragraph 2 above which is allocable to the period such Bonds are held by a holder. The federal income tax consequences of the purchase, ownership, and redemption, sale or other disposition of Original Issue Discount Bonds which are not purchased in the initial public offering at the initial offering price may be determined according to rules which differ from those described above and in the Official Statement. Except as stated above, we express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt of interest on, or disposition of the Bonds. Owners of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations and individuals otherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the U.S. may be subject to the "branch profits tax" on their effectively -connected earnings and profits (including tax-exempt interest such as interest on the Bonds). The opinions set forth above are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement these opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service (the "Service"); rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the Issuer as the taxpayer. We observe that the Issuer has covenanted in the Ordinance not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, may result in the treatment of interest on the Bonds as includable in gross income for federal income tax purposes. 879239_1.DOC -3-