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Home My WebLink AboutItem 03 - Waterworks and Sewer System Revenue Refunding Bonds, Series 2002P' q1310 $ 69070,000 WATERWORKS AND SEWER SYSTEM REVENUE REFUNDING BONDS, SERIES 2002 Tuesday, September 3, 2002 The following ratings have been assigned: PREPARED BY: :?FIRST SOUTHWEST COMPANY Underlying FSA Credit Insured Rating_ Moody's Investors Service, Inc. "Aaa" "A3" Standard & Poor's Rating Group "AAA" "A" A Division of McGraw-Hill, Inc. PREPARED BY: :?FIRST SOUTHWEST COMPANY NET PRESENT VALUE BENEFIT............................................................................................. $410,630.08 NET PV BENEFIT / $5,895,000 REFUNDED PRINCIPAL....................................................... 6.966% First Southwest Company File = Revenue.sf-02 Rev Ref pricing -Refunding Public Finance 91312002 2:17 PM $6,070,000 City of Grapevine, Texas Waterworks and Sewer System Revenue Refunding Bonds, Series 2002 DEBT SERVICE COMPARISON Date Ser 2002 P+1 Non Ref D/S Net New D/S Old Net DIS Savings 9/30/2003 722,326.26 3,587,977.52 4,292,763.67 4,297,812.52 5,048.85 9/30/2004 651,576.26 3,583,091.26 4,234,667.52 4,297,676.26 63,008.74 9/30/2005 652,176.26 3,582,526.26 4,234,702.52 4,295,111.26 60,408.74 9/30/2006 651,376.26 3,580,843.76 4,232,220.02 4,294,908.76 62,688.74 9/30/2007 652,901.26 2,182,008.76 2,834,910.02 2,895,486.26 60,576.24 9/30/2008 882,751.26 1,964,791.26 2,847,542.52 2,906,243.76 58,701.24 9/30/2009 883,376.26 1,968,296.26 2,851,672.52 2,913,848.76 62,176.24 9/30/2010 886,251.26 1,979,183.76 2,865,435.02 2,924,736.26 59,301.24 9/30/2011 288,076.26 1,991,236.26 2,279,312.52 2,339,138.76 59,826.24 9/30/2012 285,738.76 1,993,692.50 2,279,431.26 2,341,755.00 62,323.74 9/30/2013 286,551.26 2,007,707.50 2,294,258.76 2,355,020.00 60,761.24 9/30/2014 286,670.00 2,011,497.50 2,298,167.50 2,357,216.26 59,048.76 9/30/2015 281,070.00 2,015,163.76 2,296,233.76 2,358,445.02 62,211.26 9/30/2016 - 2,024,482.50 2,024,482.50 2,024,482.50 - 9/30/2017 - 1,788,906.26 1,788,906.26 1,788,906.26 - 9/30/2018 - 1,130,125.00 1,130,125.00 1,130,125.00 - 9/30/2019 - 1,131,125.00 1,131,125.00 1,131,125.00 - 9/30/2020 - 529,625.00 529,625.00 529,625.00 - 9/30/2021 - 525,625.00 525,625.00 525,625.00 - Total 7,410,841.36 39,577,905.12 46,971,206.37 47,707,287.64 736,081.27 NET PRESENT VALUE BENEFIT............................................................................................. $410,630.08 NET PV BENEFIT / $5,895,000 REFUNDED PRINCIPAL....................................................... 6.966% First Southwest Company File = Revenue.sf-02 Rev Ref pricing -Refunding Public Finance 91312002 2:17 PM D TrueInterest Cost (TIC)....................................................................................................... 3.5107616% First Southwest Company File = Revenue.sf-02 Rev Ref pricing -Refunding Public Finance 913/2002 2:17 PM $6,070,000 City of Grapevine, Texas Waterworks and Sewer System Revenue Refunding Bonds, Series 2002 PRICING SUMMARY Maturity Type of Bond Coupon Yield Maturity Value Price Dollar Price 9/01/2003 Serial Coupon 3.000% 1.500% 525,000.00 101.351% 532,092.75 9/01/2004 Serial Coupon 2.000% 1.710% 470,000.00 100.542% 472,547.40 9/01/2005 Serial Coupon 2.250% 2.140% 480,000.00 100.307% 481,473.60 9/01/2006 Serial Coupon 2.750% 2.500% 490,000.00 100.924% 494,527.60 9/01/2007 Serial Coupon 3.000% 2.820% 505,000.00 100.818% 509,130.90 9/01/2008 Serial Coupon 3.250% 3.140% 750,000.00 100.587% 754,402.50 9/01/2009 Serial Coupon 3.500% 3.370% 775,000.00 100.793% 781,145.75 9/01/2010 Serial Coupon 3.500% 3.590% 805,000.00 99.382% 800,025.10 9/01/2011 Serial Coupon 5.250% 3.720% 235,000.00 111.510% 262,048.50 9/01/2012 Serial Coupon 3.750% 3.820% 245,000.00 99.424% 243,588.80 9/01/2013 Serial Coupon 3.875% 3.980% 255,000.00 99.075% 252,641.25 9/01/2014 Serial Coupon 4.000% 4.110% 265,000.00 98.969% 262,267.85 9/01/2015 Serial Coupon 4.100% 4.230% 270,000.00 98.713% 266,525.10 Total 6,070,000.00 6,112,417.10 TrueInterest Cost (TIC)....................................................................................................... 3.5107616% First Southwest Company File = Revenue.sf-02 Rev Ref pricing -Refunding Public Finance 913/2002 2:17 PM $6,070,000 City of Grapevine, Texas Waterworks and Sewer System Revenue Refunding Bonds, Series 2002 SUMMARY OF BONDS REFUNDED ISSUE Maturity Type of Bond Coupon Maturity Value Call Date Call Price 92 Rev Ref 9/01/2003 Serial Coupon 5.400% 375,000 11/07/2002 100.000% 92 Rev Ref 9/01/2004 Serial Coupon 5.500% 400,000 11/07/2002 100.000% 92 Rev Ref 9/01/2005 Serial Coupon 5.600% 420,000 11/07/2002 100.000% 92 Rev Ref 9/01/2006 Serial Coupon 5.750% 445,000 11/07/2002 100.000% 92 Rev Ref 9/01/2007 Serial Coupon 5.750% 470,000 11/07/2002 100.000% 92 Rev Ref 9/01/2008 Serial Coupon 5.750% 500,000 11/07/2002 100.000% 92 Rev Ref 9/01/2009 Serial Coupon 6.000% 530,000 11/07/2002 100.000% 92 Rev Ref 9/01/2010 Serial Coupon 6.000% 565,000 11/07/2002 100.000% Subtotal 3,705,000 95 Rev 9/01/2008 Serial Coupon 5.400% 225,000 9/01/2005 100.000% 95 Rev 9/01/2009 Serial Coupon 5.500% 240,000 9/01/2005 100.000% 95 Rev 9/01/2010 Serial Coupon 5.500% 250,000 9/01/2005 100.000% 95 Rev 9/01/2011 Serial Coupon 5.600% 265,000 9/01/2005 100.000% 95 Rev 9/01/2012 Serial Coupon 5.625% 280,000 9/01/2005 100.000% 95 Rev 9/01/2013 Serial Coupon 5.625% 295,000 9/01/2005 100.000% 95 Rev 9/01/2014 Serial Coupon 5.625% 310,000 9/01/2005 100.000% 95 Rev 9/0112015 Serial Coupon 5.625% 325,000 9/01/2005 100.000% Subtotal 2,190,000 Total 5,895,000 First Southwest Company File = Revenue.sf-02 Rev Ref pricing -Refunding Public Finance 91312002 2:17 PM 9 rn rn cn cn rn m m aN o0 D opo N ,M+ m N O M N 00 -- EW-� 00 — Ny d �t cn Ln �n F-+ x x x x x Ell _ O ct cd c cli Z F—+ H YAC H H O H E— yC N N cn H W H C O o, rn rn �; on > > co > r m 2 ° a : ria Ci odCd � U, 73 °0 °0 \p ;01 CA J, t� �l N �, M 64 14 69 C/n 64 C/a 6R V1 64 J! 64 C� 64 cn OFFICIAL STATEMENT Dated September 3, 2002 NEW ISSUE - Book -Entry -Only Ratings: Moody's: "Aaa" S&P: "AAA" FSA Insured (see 'Bond Insurance" and "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 t alternative minimum tax consequences for corporations. THE BONDS WILL NOT BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS $6,070,000 CITY OF GRAPEVINE, TEXAS (Tarrant and Dallas Counties) 4 WATERWORKS AND SEWER SYSTEM REVENUE REFUNDING BONDS, SERIES 2002 Dated Date: September 1, 2002 Due: September 1, as shown below PAYMENT TERMS ... Interest on the $6,010,000 City of Grapevine, Texas, Waterworks and Sewer System Revenue Refunding Bonds, Series 2002 (the "Bonds") will accrue from September 1, 2002 (the "Dated Date"), and will be payable March 1 and September 1 of each year, commencing March 1, 2003, 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 Bank One, National Association, Austin, Texas (see"The Bonds - Paying Agent/Registrar"). AUTHORITY FOR ISSUANCE ... The Bonds are issued pursuant to the general laws of the State of Texas, particularly Texas Government Code, Chapter 1207, as amended, and an ordinance (the "Ordinance") passed by the City Council of the City of Grapevine (the "City"), and are special obligations of the City, payable, both as to principal and interest, solely from and, together with the outstanding Previously Issued Bonds, secured by a first lien on and pledge of the Net Revenues of the City's Waterworks and Sewer System (the "System"). The City has not covenanted nor obligated u itself to pay the Bonds from monies raised or to be raised from taxation (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 debt described in Schedule I (the "Refunded Bonds") in order to lower the overall debt service requirements of the City and to pay the costs associated with the issuance of the u.W. Bonds. ■o�, . o, The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy to be issued H_. concurrently with the delivery of the Bonds by FINANCIAL SECURITY ASSURANCE INC. MATURITY SCHEDULE* x l Amount Maturity Rate Yield Amount Maturity Rate Yield $ 525,000 2003 3.00% 1.50% $ 805,000 2010 3.500% 3.59% U 470,000 2004 2.00% 1.71% 235,000 2011 5.250% 3.72% 480,000 2005 2.25% 2.14% 245,000 2012 3.750% 3.82% 490,000 2006 2.75% 2.50% 255,000 2013 3.875% 3.98% 505,000 2007 3.00% 2.82% 265,000 2014 4.000% 4.11% 750,000 2008 3.25% 3.14% 270,000 2015 4.100% 4.23% 775,000 2009 3.50% 3.37% (Accrued Interest from September 1, 2002 to be added) OPTIONAL, REDEMPTION ... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after September 1, 2013, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on September 1, 2012, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Bonds - Optional Redemption"). mow: LEGALITY ... The Bonds are offered for delivery when, as and if issued and received by the Underwriter and subject to the approving opinion of the Attorney General of 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 Underwriter by Fulbright & Jaworski L.L.P., Dallas, Texas, Counsel for the Underwriter. DELIVERY ... It is expected that the Bonds will be available for delivery through The Depository Trust Company on October 3, 2002. ,, MORGAN KEEGAN & COMPANY, INC. For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission (the 'Rule'), 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 of no more than the information permitted by the Rule. This 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 Official Statement, and, if given or made, such other information or representations must not be relied upon. The information set forth herein has been obtained from the City and other sources believed to be reliable, but such information is not guaranteed as to accuracy or completeness and is not to be construed as the promise or guarantee of the Financial Advisor. This Official Statement contains, in part, estimates and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of such estimates and opinions, or that they will be realized. The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this 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. Neither the City, the Financial Advisors nor the Underwriter make any representation as to the accuracy, completeness, or adequacy of the information supplied by The Depository Trust Company for use in this Official Statement. IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVERALLOTOR EFFECT TRANSACTIONS WHICH STABILIZE THE MARKET PRICE OF THE OBLIGATIONS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF RECOMMENDED, MAY BE DISCONTINUED AT ANY TIME. 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. The Underwriter has provided the following sentence for inclusion in this official statement The Underwriter has reviewed thdnformation in this official statement in accordance with, and as part of, its responsibilities to investors under federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. TABLE OF CONTENTS OFFICIAL STATEMENT SUMMARY ......... ............................ 3 SELECTED PROVISIONS OF THE BOND ORDINANCE -22 CITY OFFICIALS, STAFF AND CONSULTANTS ................. 5 ELECTED OFFICIALS............................................................ 5 SELECTED ADMINISTRATIVE STAFF.....................................5 CONSULTANTS AND ADVISORS ............................................ 5 INTRODUCTION........................................................................ 7 PLAN OF FINANCING..............................................................7 THEBONDS................................................................................ 8 BONDINSURANCE... ............................................................... 13 THESYSTEM............................................................................14 TABLE 1 -WATER USAGE ................................................. 14 TABLE 2 - TEN LARGEST WATER CUSTOMERS ................... 15 TABLE 3 - MONTHLY WATER RATES ................................. 15 TABLE 4 - MONTHLY SEWER RATES .................................. 16 DEBTINFORMATION............................................................17 TABLE 5 - WATERWORKS AND SEWER SYSTEM REVENUE DEBT SERVICE REQUIREMENTS ............................... 17 FINANCIAL INFORMATION.................................................18 TABLE 6 - CONDENSED STATEMENT OF OPERATIONS....... 18 TABLE 7 - COVERAGE AND FUND BALANCES ..................... 18 TABLE 8 - VALUE OF THE SYSTEM ..................................... 19 TABLE 9 - CITY'S EQUITY IN SYSTEM ................................ 19 TABLE 10 - CURRENT INVESTMENTS.... ............................ - 21 TAXMATTERS.........................................................................27 CONTINUING DISCLOSURE OF INFORMATION.............28 OTHER INFORMATION.........................................................30 RATINGS... ......................... .......... ......... .................. ........ 30 LITIGATION........................................................................30 REGISTRATION AND QUALIFICATION OF BONDS FOR SALE 30 LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS......................................................30 LEGALMATTERS................................................................30 AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION..........................................................31 FINANCIAL ADVISOR..........................................................31 VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS.......................................................31 UNDERWRITING... ........... ............. ................... .... _31 FORWARD LOOKING STATEMENTS.....................................31 MISCELLANEOUS................................................................32 SCHEDULE OF REFUNDED BONDS .......................Schedule I APPENDICES GENERAL INFORMATION REGARDING THE CITY ................ A EXCERPTS FROM THE ANNUAL FINANCIAL REPORT ......... B FORM OF BOND COUNSEL'S OPINION ................................ C SPECIMEN BOND INSURANCE POLICY ................................... D The cover page hereof, this page, the appendices included herein and any addenda, supplement or amendment hereto, are part of the Official Statement. OFFICIAL STATEMENT SUMMARY 1 This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Official Statement. The offering of the Bonds to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this summary from this Official Statement or to otherwise use it without the entire 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 33 square miles (see "Introduction - Description of City"). THE BONDS .................................. The Bonds are issued as $6,070,000 Waterworks and Sewer System Revenue Refunding hL:.. Bonds, Series 2002. The Bonds are issued as serial bonds maturing September 1, 2003 through September 1, 2015 (see "The Bonds -Description of the Bonds"). PAYMENT OF INTEREST .............. Interest on the Bonds accrues from September 1, 2002, and is payable March 1, 2003, and rn each March 1 and September I thereafter until maturity or prior redemption (see "The Bonds - Description of the Bonds," and "The Bonds - Optional Redemption"). AUTHORITY FOR ISSUANCE ......... The Bonds are issued pursuant to the general laws of the State, including particularly Texas ` Government Code, Chapter 1207, as amended, and an Ordinance passed by the City Council of the City (see "The Bonds - Authority for Issuance"). SECURITY FOR THE BONDS .......... The Bonds constitute special obligations of the City, payable, both as to principal and interest, solely from and, together with the outstanding Previously Issued Bonds, are secured by a first lien on and pledge of the Net Revenues of the City's Waterworks and Sewer System (the "System"). The City has not covenanted nor obligated itself to pay the Bonds from monies raised or to be raised from taxation (see "The Bonds - Security and Source of Payment"). OPTIONAL REDEMPTION ............. The City reserves the right, at its option, to redeem Bonds having stated maturities on and after September 1, 2013, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on September 1, 2012, or any date thereafter, at the par value thereof plus accrued interest to the date of 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. w 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. W USE OF PROCEEDS ....................... Proceeds from the sale of the Bonds will be used to refund a portion of the City's outstanding debt described in Schedule I (the "Refunded Bonds") in order to lower the overall debt service requirements of the City and to pay costs associated with the issuance of the Bonds. RATINGS ..................................... The Bonds, along with the presently outstanding revenue debt of the City is rated "Aaa" by Moody's Investors Service, Inc. ("Moody's") and "AAA" by Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. ("S&P") based upon the commitment of Financial Security Assurance Inc. to deliver a municipal bond insurance policy for the Bonds concurrently with the delivery of the Bonds. The uninsured revenue debt of the City is rated "A3" 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 (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 never defaulted in payment of its revenue debt or general obligation tax debt. SELECTED FINANCIAL INFORMATION Fiscal David K. Medanich Director of Finance Water Usage (*) Net Revenues Average 413 S. Main Street Year Estimated Average (817) 410-3111 (817) 332-9710 Available Annual Debt Coverage Ended City Day Peak Day Total For Service of 9/30 Population Usage Usage Usage Debt Service Requirements Debt 1998 37,946 6,971,000 19,112,000 2,551,321,000 5,417,208 2,123,920 2.55x 1999 39,190 9,219,000 19,435,000 3,364,937,000 5,350,839 2,584,440 2.07x 2000 42,059 9,749,000 20,300,000 3,558,482,000 7,292,796 2,379,978 3.06x 2001 42,443 9,249,000 19,591,000 3,060,023,000 7,519,160 2,600,665 2.89x 2002 44,390 7,352,000 13,375,000 2,007,081,000 N/A 2,574,439 N/A (*) as of June 30, 2002. For additional information regarding the City, please contact: Fred Werner David K. Medanich Director of Finance Laura Alexander City of Grapevine or First Southwest Company 413 S. Main Street 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 (1) 7 years with City, 5 in present position. (2) 20 years with City, 15 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 Length of Term City Council Service Expires Occupation William D. Tate 14 Years May, 2003 Attorney -at -Law Mayor Ted R. Ware 23 Years May, 2005 Commercial Contractor Mayor Pro Tem C. Shane Wilbanks 17 Years May, 2003 Personnel Director Councilmember, Place 1 Sharron Spencer 17 Years May, 2003 Retired Sales Representative Councilmember, Place 2 Clydene Johnson 7 Years May, 2004 Independent Insurance Agent Councilmember, Place 3 Darlene Freed 4 Years May, 2004 Commercial Real Estate Agent Councilmember, Place 4 Roy Stewart 6 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 5 Years(i) Bill Gaither Administrative Services Director 6 Years Fred Werner Director of Finance 5 Years Linda Huff City Secretary 15 Years (2) (1) 7 years with City, 5 in present position. (2) 20 years with City, 15 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 THIS PAGE LEFT BLANK INTENTIONALLY OFFICIAL STATEMENT 111 RELATING TO $6,070,000 CITY OF GRAPEVINE, TEXAS WATERWORKS AND SEWER SYSTEM REVENUE REFUNDING BONDS, SERIES 2002 INTRODUCTION This Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance of $6,070,000 City of Grapevine, Texas, Waterworks and Sewer System Revenue Refunding Bonds, Series 2002 (the "Bonds"). Capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Ordinance to be adopted on the date of sale of the Bonds which will authorize the issuance of the Bonds, except as otherwise indicated herein. There follows in this 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, Dallas, 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, while the 2002 estimated population is 44,390. The City covers approximately 33 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 debt described in Schedule I (the "Refunded Bonds") in order to lower the overall debt service requirements of the City and to pay costs associated with the issuance of the Bonds. REFUNDED BONDS ... The principal and interest due on the Refunded Bonds are to be paid on the scheduled interest payment dates and the respective redemption dates of such Refunded Bonds, from funds to be deposited pursuant to a certain Escrow Agreement (the "Escrow Agreement") between the City and Bank One, National Association, Austin, Texas (the "Escrow Agent"). The Ordinance provides that from the proceeds of the sale of the Bonds received from the Underwriter, together with other lawfully available funds, the City will deposit with the Escrow Agent the amount necessary to accomplish the discharge and final payment of the Refunded Bonds 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 Bonds. 3 Grant Thornton LLP, a nationally recognized accounting firm, will verify at the time of delivery of the Bonds to the Underwriter the mathematical accuracy of the schedules that demonstrate the Federal Securities will mature and pay interest in such amounts which, a 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 Bonds. 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 the 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 of the Refunded Bonds in accordance with applicable 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, the Refunded Bonds 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 Bonds will be defeased and cease to be obligations payable from and secured by a lien on and pledge of the Net Revenues of the System and will not be deemed as outstanding obligations of the City or the System for any purpose other than being payable from the funds held in the Escrow Fund. 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 Bonds, 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 together with other available system funds will be applied approximately as follows: Sources of Funds Par Amount of Bonds Initial Reoffering Premium Transfer from Prior Issue Debt Service Funds Accrued Interest Total Sources of Funds Uses of Funds Deposit to Interest and Sinking Fund Deposit to Escrow Fund Cost of Issuance (l) Total Uses of Funds (1) Includes bond insurance and underwriter's discount. THE BONDS $ 6,070,000.00 42,417.10 159,084.68 17,540.11 $ 6,289,041.89 $ 17,540.11 6,130,230.67 141,271.11 $ 6,289,041.89 DESCRIPTION OF THE BONDS ... The Bonds are dated September 1, 2002, and mature on September I in each of the years and in the amounts shown on the cover page hereof. Interest will be computed on the basis of a 360 -day year of twelve 30 -day months, and such interest will be payable on March 1 and September 1, commencing March 1, 2001 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, and the Ordinance. SECURITY AND SOURCE of PAYMENT ... The Bonds are special obligations of the City payable both as to principal and interest, solely from and, together with certain outstanding Previously Issued Bonds and any additional parity bonds which may be issued in the future are equally and ratably secured by a first lien on and pledge of the Net Revenues (as defined in the Ordinance) of the City's combined Waterworks and Sanitary Sewer System (the "System") after the payment of maintenance and operations expenses. The Bonds do not constitute a legal or equitable pledge, charge, lien or encumbrance upon any property of the City or the System, except with respect to the Net Revenues. Maintenance and operating expenses include contractual payments which under Texas laws and their provisions are established as operating expenses. The City has outstanding Previously Issued Bonds secured by and payable from Net Revenues on parity with the Bonds, as follows: Dated Outstanding Date Debt (1) Issue Description 9/1/1985 $ 1,160,516 Waterworks and Sewer System Refunding and Improvement Revenue Bonds, Series 1985 8/1/1992 355,000 Waterworks and Sewer System Revenue Refunding Bonds, Series 1992 7/15/1995 1,140,000 Waterworks and Sewer System Revenue Bonds, Series 1995 10/1/1996 2,470,000 Waterworks and Sewer System Revenue Bonds, Series 1996 8/1/1997 6,675,000 Waterworks and Sewer System Refunding and Improvement Revenue Bonds, Series 1997 3/1/1999 6,950,000 Waterworks and Sewer System Revenue Bonds, Series 1999 3/15/2001 6,745,000 Waterworks and Sewer System Revenue Bonds, Series 2001 Total $ 25,495,516 (1) As of August 1, 2002, excludes the Refunded Bonds. The Bonds are not a charge upon any other income or revenues of the City and shall never constitute an indebtedness or pledge of the general credit or taxing powers of the City. The Ordinance does not create a lien or mortgage on the System or on any of its properties or assets, except the Net Revenues, and any judgment against the City may not be enforced by levy and execution against any property owned by the City. As additional security, a Reserve Fund is required to be maintained in an amount at least equal to the average annual debt service requirements of the outstanding Previously Issued Bonds, the Bonds and any Additional Bonds issued on a parity with the Bonds. Any additional amount required to be accumulated in the fund by reason of the issuance of the Bonds will be funded over a sixty month period in accordance with the provisions of the Ordinance (see " Selected Provisions of the Bond Ordinance"). NET REVENUES ... All of the Net Revenues of the System with the exception of those in excess of the amounts required to establish and maintain the Reserve Fund and Interest and Sinking Fund are irrevocably pledged for the payment of the Bonds and interest thereon. The Bonds, the Previously Issued Bonds and Additional Bonds, if any, are equally and ratably secured by a first lien upon the Net Revenues of the System. RATES ... The City has covenanted in the Ordinance that it will at all times charge and collect rates for services rendered by the System sufficient to pay all operating, maintenance, replacement expenses, any other costs deductible in determining Net Revenues and to pay interest on and the principal of the Previously Issued Bonds, the Bonds and any Additional Bonds, and to establish and maintain the funds provided in the Ordinance. The City has further covenanted that, if the System should become legally liable for any other indebtedness, it will fix and maintain rates and collect charges for the services of the System sufficient to discharge such indebtedness. OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after September 1, 2013, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on September 1, 2012, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. If less than all of the Bonds are to be redeemed, the City may select the maturities of Bonds to be redeemed. If less than all the Bonds of any maturity are to be redeemed, the Paying Agent/Registrar (or DTC while the Bonds are in Book -Entry -Only form) shall determine by lot the Bonds, or portions thereof, within such maturity to be redeemed. 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 BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH BOND OR PORTION THEREOF SHALL CEASE TO ACCRUE. ADDITIONAL. BONDS ... The City may issue Additional Bonds payable from the Net Revenues which together with the Previously Issued Bonds and the Bonds shall be equally and ratably secured by a parity lien on and pledge of the Net Revenues of the System, subject, however, to complying with certain conditions in the Ordinance. See " Selected Provisions of Bond Ordinance" for terms and conditions to be satisfied for the issuance of Additional Bonds. AMENDMENTS ... The City may amend the Ordinance without the consent of or notice to any registered owner in any manner not detrimental to the interests of the registered owners, including the curing of any ambiguity, inconsistency, or formal defector omission therein. In addition, the City may with the written consent of the holder of a majority of aggregate principal amount of the Bonds then outstanding affected thereby, amend, add to, or rescind any of the provisions of the Ordinance; except that, without the consent of the registered owners of the Bonds affected, no such amendment, addition or rescission may (1) extend the time or times of payment of the principal of, premium, if any, and interest thereon, reduce the principal amount thereof, the redemption price, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of, premium, if any, or interest thereon, (2) give any preference to any Bond over any other Bond or (3) reduce the aggregate principal amount of Bonds required to be held by Holders for consent to any such amendment, addition, or rescission. 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 the Bonds to maturity or redemption or (ii) by depositing with an authorized escrow agent amounts sufficient to provide for the payment and/or redemption of the Bonds; provided that such deposits may be invested and reinvested only in (a) direct non -callable 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 bonds, 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 bonds, 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. If any of such Bonds are to be redeemed prior to their date of maturity, provision must have been made for giving notice of redemption as provided in the Ordinance. Under current state law, after such deposit as described above, such Bonds shall no longer be regarded as outstanding or unpaid obligations payable from or secured by the pledge of the Net Revenues of the System or secured by the Ordinance. After firm banking and financial arrangements for the discharge and final payment or redemption of the Bonds have been made as described above, all rights of the City to initiate proceedings to call the Bonds for redemption or take any other action amending the terms of the Bonds are extinguished; provided, however, that the right to call the 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 the Bonds for redemption; (ii) gives notice of the reservation of that right to the owners of the 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. Boox-ENTRY-ONLY SYSTEM ... This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by The Depository Trust Company ("DTC"), New York, New York, while the Bonds, as applicable, 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 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 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. DTC 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, each 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.dtce.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 Bond ("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 10 1 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 ,v 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, tenders, defaults, and proposed amendments to the Security 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 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 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 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, Paying Agent/Registrar, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or 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 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. Use of Certain Terms in Other Sections of this Official Statement. In reading this Official Statement it should be understood that while the Bonds are in the Book -Entry -Only System, references in other sections of this 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 or the Purchaser. Effect of Termination of Book -Entry Only System. In the event the Book -Entry -Only System with respect to the Bonds is discontinued by DTC, or the use of the Book -Entry -Only System with respect to the Bonds is discontinued by the City, printed securities certificates will be issued to the respective holders of the Bonds, as the case may be, and the respective Bonds will be subject to transfer, exchange and registration provisions as set forth in the Ordinance, summarized under "The Bonds - Transfer, Exchange and Registration" below. 11 PAYING AGENT/REGISTRAR ... The initial Paying Agent/Registrar is Bank One, National Association, Austin, 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 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 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 (defined below), 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 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. TRANSFER, EXCHANGE AND REGISTRATION ... In the event the Book -Entry -Only System should be discontinued, printed certificates will be delivered to the registered owners and thereafter the Bonds may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender of the printed certificate 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 designated 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 a 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 15th calendar day of the preceding month. 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 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 Holder of a Bond appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. BONDHOLDERS' REMEDIES ... Except for the remedy of mandamus to enforce the City's covenants and obligations under the Ordinance, the Ordinance does not establish other remedies or specifically enumerate the events of default with respect to the Bonds. The Ordinance does not provide for a trustee to enforce the covenants and obligations of the City. In no event will registered owners have the right to have the maturity of the Bonds accelerated as a remedy. The enforcement of the remedy of mandamus may be difficult and time consuming. No assurance can be given that a mandamus or other legal action to enforce a default under the Ordinance would be successful. 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, such provision is subject to judicial construction. 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 any remedies under the Ordinance 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. 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. 12 BOND INSURANCE Other than with respect to information concerning Financial Security contained under the caption "Bond Insurance" and Appendix D specimen "Municipal Bond Insurance Policy" herein, none of the information in this Official Statement has been supplied or verified by Financial Security and Financial Security makes no representation or warranty, express or implied, as to (i) the accuracy or completeness of such information; (ii) the validity of the Bonds; or (iii) the tax exempt status of the interest on w the Bonds. BOND INSURANCE POLICY Concurrently with the issuance of the Bonds, Financial Security Assurance Inc. ("Financial Security") will issue its Municipal Bond Insurance Policy for the Bonds (the "Policy"). The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. FINANCIAL SECURITY ASSURANCE INC. Financial Security is a New York domiciled insurance company and a wholly owned subsidiary of Financial Security Assurance Holdings Ltd. ("Holdings"). Holdings is an indirect subsidiary of Dexia, S.A., a publicly held Belgian corporation. Dexia, S.A., u,. through its bank subsidiaries, is primarily engaged in the business of public finance in France, Belgium and other European countries. No shareholder of Holdings or Financial Security is liable for the obligations of Financial Security. p� At June 30, 2002, Financial Security's total policyholders' surplus and contingency reserves were approximately $1,710,044,000 ,.... and its total unearned premium reserve was approximately $898,579,000 in accordance with statutory accounting principles. At June 30, 2002, Financial Security's total shareholders' equity was approximately $1,817,013,000 and its total net unearned re° premium reserve was approximately $744,499,000 in accordance with generally accepted accounting principles. 5z The financial statements included as exhibits to the annual and quarterly reports filed by Holdings with the Securities and Exchange Commission are hereby incorporated herein by reference. Also incorporated herein by reference are any such financial statements so filed from the date of this Official Statement until the termination of the offering of the Bonds. Copies of materials incorporated by reference will be provided upon request to Financial Security Assurance Inc.: 350 Park Avenue, New York, New York 10022, Attention: Communications Department (telephone (212) 826-0100). The Policy does not protect investors against changes in market value of the Bonds, which market value may be impaired as a result of changes in prevailing interest rates, changes in applicable ratings or other causes. Financial Security makes no representation regarding the Bonds or the advisability of investing in the Bonds. Financial Security makes no representation regarding the Official Statement, nor has it participated in the preparation thereof, except that Financial Security has provided to the Issuer the information presented under this caption for inclusion in the Official Statement. 13 THE SYSTEM WATERWORKS AND SEWER SYSTEM ... The Waterworks System and Sewer System is a department of the City and is divided into two service areas within the City. The North service area is served by water and wastewater treatment plants owned and operated by the City. The South service area is provided services by the Trinity River Authority (the "TRA") pursuant to service -area contracts. In 1990, the City instituted a capital recovery fee to be paid by builders of new construction within the City limits. The fee charged is on a per unit basis for residences and on a per acre basis for industrial/commercial construction and is designed to help defray costs of extensions and growth of the water and sewer system brought about by new construction. State law and the ordinance authorizing the capital recovery fee stipulate that the capital recovery fee may be used for debt service if bond proceeds are used for projects pursuant to which the capital recovery fee is imposed. WATERWORKS SYSTEM ... The City owns and operates a water treatment plant to provide treated water to the North service area. Complete water treatment, including fluoridation, is provided by the conventional filtration plant. The plant was expanded from 2 MGD treatment capacity to 4.0 MGD capacity during the summer of 1981 and from 4 MGD to 8 MGD in 1990. A surface water supply for the treatment plant is provided by nearby Lake Grapevine, a U.S. Corps of Engineers lake completed in 1952. The lake provides 435,500 acre-feet of storage for flood control, rapid and sedimentation purposes. The City is entitled to 3.26 MGD for water supply purposes. This 3.26 MGD yield is considered to be a "safe yield," i.e., water available under severe drought conditions. The South service area is supplied treated water by TRA pursuant to a 35 -year contract which became effective in November, 1981. TRA supplied water to Bedford and Euless and the contract called for an extension of that system to include a supply point for Grapevine, North Richland Hills and Colleyville. The contract commits the TRA to supply water to meet the needs of the service area. The City has agreed to pay TRA its net cost of operation and maintenance and debt service requirements. The City will pay its obligations to TRA out of moneys received from the operation of its Water and Sewer System. This obligation is an operation and maintenance expense of the City which is senior to its Water and Sewer System Revenue debt. The above described expenses shall be known as the "annual requirement". The City's proportionate share of the "annual requirement" is determined as follows: The City's proportionate share of the annual requirement shall be a percentage obtained by dividing the City's estimated annual treated water requirement for the upcoming year by the total estimated volume to be treated and used by all contracting parties for the same year. The City is then billed monthly according to its actual annual usage with provisions for adjustment. The present cost to the City for the treated water is $1.72 per 1,000 gallons. TRA obtains its water from the Tarrant County Water Control District No. I (the "District") which also supplies several area cities including Fort Worth and Arlington. The District obtains its surface water from lakes located north of Fort Worth on the Trinity River and from Cedar Creek Lake located southeast of Dallas in Henderson and Kaufman Counties. In 1989, the District completed a lake in Navarro and Freestone Counties which is approximately twice the size of the Cedar Creek reservoir. The District estimates that the new lake will supply water for its customers through the year 2030. The City distribution system ranges in size from 30" to 6" for transmission mains and is variously steel cylinder, asbestos/cement, cast iron and PVC C-900, down to 3/4" copper lines for single-family home connections. The City has 2 million gallons in elevated storage capacity and 3.65 million gallons capacity in ground storage. TABLE 1 - WATER USAGE (GALLONS) 14 Peak Average Fiscal Day Day Total Year Usage Usage Usage 1997 14,390,000 6,560,000 2,396,778,000 1998 19,112,000 6,971,000 2,551,321,000 1999 19,435,000 9,219,000 3,364,937,000 2000 20,300,000 9,749,000 3,558,482,000 2001 19,591,000 9,249,000 3,060,023,000 14 TABLE 3 - MONTHLY WATER RATES (EFFECTIVE 10-1-01) General Water Consumption First 2,000 gallons $9.75 (Minimum) Over 2,000 gallons $2.74/M gallons Temporary ... For a water meter installed for construction or other temporary purposes on a fire hydrant: Two dollars and fifty- seven cents ($2.74) per one thousand (1,000) gallons and a minimum charge of fifty-five dollars and thirty-nine cents ($59.13). Minimum Charge ... In any case, the following monthly minimum charges shall be made upon customers of the water system. Minimum Minimum TABLE 2 - TEN LARGEST WATER CUSTOMERS (GALLONS) Size of Meter Gallons Charges 3/4" or Less 2,000 $ 9.75 1" 9,000 Fiscal 1'/z" 21,000 61.73 Year Ended 34,000 97.29 3" 9/30/2001 % of Total 4" Customer Water Usage Water Usage 134,000 Grapevine Colleyville Independent School District 57,923,000 1.89% 658.13 Grapevine Mills YCP D/FW Operator, Inc. 41,351,000 40,584,000 1.35% 1.33% City of Grapevine 26,137,000 0.85% Embassy Suite - Grapevine 25,401,000 0.83% Flagship Properties Corp. 24,362,000 0.80% Trailwood Mobile Horne Park 21,106,000 0.69% Mareina Del Rey Apartments 20,557,000 0.67% Ambassador Apartments 20,436,000 0.67% TM Co. Oaks Inv. Ltd. 20,005,000 0.65% 297,862,000 9.73% Source: City Water Department. WATER RATE STUDY ... The City accepted an independent water and sewer study from consultants in November of 1988. As a ten,. result of the study, the City adopted a new water and sewer rate ordinance effective January 1, 1989, and revised those rates on October 1, 1990, September 1, 1992, October 1, 1993, October 1, 1995, and October 1, 2000. The City also adopted a policy of annual rate reviews. TABLE 3 - MONTHLY WATER RATES (EFFECTIVE 10-1-01) General Water Consumption First 2,000 gallons $9.75 (Minimum) Over 2,000 gallons $2.74/M gallons Temporary ... For a water meter installed for construction or other temporary purposes on a fire hydrant: Two dollars and fifty- seven cents ($2.74) per one thousand (1,000) gallons and a minimum charge of fifty-five dollars and thirty-nine cents ($59.13). Minimum Charge ... In any case, the following monthly minimum charges shall be made upon customers of the water system. 15 Minimum Minimum Monthly Size of Meter Gallons Charges 3/4" or Less 2,000 $ 9.75 1" 9,000 28.89 1'/z" 21,000 61.73 2" 34,000 97.29 3" 78,000 211.67 4" 100,000 277.85 6" 134,000 370.87 8" 239,000 658.13 Larger than 8" To be agreed upon by contract. Fire Sprinkler Connections - $30.42 15 WASTEWATER SYSTEM ... The City serves the North service area with its own activated sludge process treatment plant which has a hydraulic capacity of 3.75 MGD. This plant presently serves that portion of the City north of the Cotton Belt Railroad, approximately 50 percent of the City geographically. In 1985, increased effluent standards of the Texas Natural Resource Conservation Commission resulted in a reduction of capacity of the plant to 1.5 MGD. In 1986 additional tertiary treatment expanded the capacity of the plant to 1.75 MGD and the City completed an expansion of the plant to 3.75 MGD in 1987. The City entered into a contract with TRA to provide sewage treatment for the southern section of the City on November 29, 1973. The contract will remain in force for a period of 50 years from that date and thereafter until any bonds, or any bonds issued to refund same, have been paid in full. TRA has extended their system in the southern section of the City to allow flow through a 33 to 39 inch transmission main. The City has agreed to pay TRA its net cost of operation and maintenance and debt service requirements. The City will pay its obligations to TRA from moneys to be received from the operation of its Waterworks and Sewer System, and such payments to TRA by contract are maintenance and operation expenses of the System. Maintenance and operation expenses of the System have a claim on the revenues of the System prior to the claim securing the payment of debt service on revenue obligations of the System. The above described expense shall be known as the "annual requirement". The City's proportionate share of the "annual requirement" is determined as follows: The City's proportionate share of the annual requirement shall be a percentage obtained by dividing the City's estimated annual contributing flow to the System by the total estimated annual contributing flow to the System by all contracting parties. The City's annual payment shall be made to TRA in twelve (12) equal monthly installments with provision for adjustment. The City's cost under the contract is presently $1.289 per 1,000 gallons flow to TRA. TABLE 4 - MONTHLY SEWER RATES (EFFECTIVE 10-1-01) Residential Service First 2,000 gallons $7.80 (Minimum) Next 13,000 gallons $3.26/M gallons Commercial Service First 2,000 gallons $11.52 (Minimum) Over 2,000 gallons $ 3.26/M gallons The monthly volume charge for residential customers will be based on the individual customer's average monthly water use during the previous winter quarter months of December, January and February, but in no event shall the volume used to compute this monthly charge exceed 15,000 gallons. The volumes used to compute these charges are based on the amount of water used by the residential customer as measured by a meter. Where no previous winter quarter average is available from the records, the volume to be used for this monthly volume charge shall be the lower of 10,000 gallons or actual consumption. Sewer customers residing within city limits not connected to water system pay a monthly charge of $28.93. APPLICATION AND COST DEPOSIT FOR WATER, WASTEWATER AND REFUSE SERVICE ... Any person desiring to obtain water, wastewater and refuse service shall make application to the water department and, prior to the granting of such service, shall deposit with the City, in the form of cash deposit or cash bond, a sum of money equal to the rates shown on the following table: Single-family residential, minimum $ 50.00 Multi -family (apartments), minimum per 2" tap 40.00 Commercial, minimum 40.00 Industrial, minimum 230.00 3/4" Construction Meter 125.00 2" Construction Meter 750.00 16 DEBT INFORMATION TABLE 5 - WATERWORKS AND SEWER SYSTEM REVENUE DEBT SERVICE REQUIREMENTS Fiscal Year Total % of Ended Outstanding Debt(l) The Bonds (2) Outstanding Principal 9/30 Principal Interest Total Principal Interest Total Debt Retired 2002 $ 1,634,060 $ 2,666,243 $ 4,300,303 - - - $ 4,300,303 2003 1,304,030 2,284,745 3,588,775 $ 525,000 $ 197,326 $ 722,326 4,311,101 2004 1,332,766 2,251,123 3,583,889 470,000 181,576 651,576 4,235,465 2005 1,371,836 2,211,488 3,583,324 480,000 172,176 652,176 4,235,500 2006 1,412,824 2,168,817 3,581,641 490,000 161,376 651,376 4,233,018 28.58% 2007 1,285,000 897,671 2,182,671 505,000 147,901 652,901 2,835,573 2008 1,130,000 835,381 1,965,381 750,000 132,751 882,751 2,848,133 2009 1,185,000 783,736 1,968,736 775,000 108,376 883,376 2,852,113 2010 1,250,000 729,544 1,979,544 805,000 81,251 886,251 2,865,795 2011 1,320,000 671,511 1,991,511 235,000 53,076 288,076 2,279,588 57.85% 2012 1,385,000 608,878 1,993,878 245,000 40,739 285,739 2,279,616 2013 1,465,000 542,708 2,007,708 255,000 31,551 286,551 2,294,259 2014 1,540,000 471,497 2,011,497 265,000 21,670 286,670 2,298,167 2015 1,620,000 395,164 2,015,164 270,000 11,070 281,070 2,296,234 2016 1,710,000 314,483 2,024,483 - - - 2,024,483 85.59% 2017 1,560,000 228,906 1,788,906 - - - 1,788,906 2018 980,000 150,125 1,130,125 - - - 1,130,125 2019 1,030,000 101,125 1,131,125 - - - 1,131,125 2020 480,000 49,625 529,625 - - - 529,625 2021 500,000 25,625 525,625 - - - 525,625 100.00% 3 25,495,516 $ 18,388,394 $ 43,883,910 $ 6,070,000 $ 1,340,841 7 7,410,841 $ 51,294,751 (1) Excludes the Refunded Bonds. (2) Average life of the issue - 6.230 years. Interest on the Bonds has been calculated at the rates illustrated on the cover page hereof. AUTHORIZED BUT UNISSUED REVENUE BONDS ... The City has no voted but unissued revenue bonds, and pursuant to State law is not required to approve its revenue bonds through election. ANTICIPATED ISSUANCE OF REVENUE BONDS ... The City does not anticipate the issuance of additional revenue bonds within the next six months. 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".) 17 (1) Prior to 2001, impact fees were considered internal water and sewer capital recovery fees. Beginning in 2001, due to an accounting change, these impact fees are now recognized as revenue and included in Other Revenue. TABLE 7 - COVERAGE AND FUND BALANCES (1) Average Annual Principal and Interest Requirements, 2002-2022 ............................... $ 2,564,738 Coverage of Average Requirements by 9/30/01 Net Available .................................. 2.56 times Maximum Principal and Interest Requirements, 2003 ......................................... $ 4,311,101 Coverage of Maximum Requirements by 9/30/01 Net Available ................................ 1.52 times Waterworks and Sewer System Revenue Bonds Outstanding as of 8/1/02 ......................... $31,565,516 Interest and Sinking Fund, 6/30/02....................................................... $ 363,927 Reserve Fund, 6/30/02................................................................. $ 2,643,801 (1) Projected, and includes the Bonds being offered herein. Excludes the Refunded Bonds. 18 FINANCIAL INFORMATION TABLE 6 - CONDENSED STATEMENT OF OPERATIONS - Fiscal Year Ended September 30, Revenues: 2001 2000 1999 1998 1997 Water Sales $ 9,091,354 $ 9,177,385 $ 7,188,523 $ 6,859,541 $ 5,402,793 Wastewater Sales 5,083,277 5,133,839 4,027,597 3,784,759 3,579,118 Other Revenue (1) 1,631,032 588,754 533,828 887,709 374,950 Total Revenues $ 15,805,663 $ 14,899,978 $ 11,749,948 $ 11,532,009 $ 9,356,861 Operating Expenses: Water Fund $ 7,906,159 $ 7,401,225 $ 5,990,519 $ 5,684,197 $ 4,422,965 Wastewater Fund 2,741,160 2,538,568 2,275,482 2,136,026 1,990,250 Total Operating Expenses $ 10,647,319 $ 9,939,793 $ 8,266,001 $ 7,820,223 $ 6,413,215 Net Revenue from Operations $ 5,158,344 $ 4,960,185 $ 3,483,947 $ 3,711,786 $ 2,943,646 Investment Income 1,277,173 1,360,288 998,242 1,089,553 589,372 Capital Recovery Transfer - 980,501 787,208 517,623 499,135 Other Gains (Losses) 127,387 - - 98,246 - Net Available for Debt Service $ 6,562,904 $ 7,300,974 $ 5,269,397 $ 5,417,208 $ 4,032,153 Average Annual Debt $ 2,600,665 $ 2,379,978 $ 2,434,441 $ 2,123,920 $ 2,163,972 Average Annual Debt Coverage 2.52x 3.07x 2.16x 2.55x 1.86x Average Annual Debt Coverage without Capital Recovery 2.52x 2.66x 1.84x 2.31x 1.63x Water Customers 12,951 12,744 12,433 12,034 11,760 Wastewater Customers 11,924 12,501 12,327 12,128 10,827 (1) Prior to 2001, impact fees were considered internal water and sewer capital recovery fees. Beginning in 2001, due to an accounting change, these impact fees are now recognized as revenue and included in Other Revenue. TABLE 7 - COVERAGE AND FUND BALANCES (1) Average Annual Principal and Interest Requirements, 2002-2022 ............................... $ 2,564,738 Coverage of Average Requirements by 9/30/01 Net Available .................................. 2.56 times Maximum Principal and Interest Requirements, 2003 ......................................... $ 4,311,101 Coverage of Maximum Requirements by 9/30/01 Net Available ................................ 1.52 times Waterworks and Sewer System Revenue Bonds Outstanding as of 8/1/02 ......................... $31,565,516 Interest and Sinking Fund, 6/30/02....................................................... $ 363,927 Reserve Fund, 6/30/02................................................................. $ 2,643,801 (1) Projected, and includes the Bonds being offered herein. Excludes the Refunded Bonds. 18 CAPITAL RECOVERY FEES... The City currently collects water and sewer capital recovery fees from newly developed areas in order to help pay for necessary future plant and system improvements to provide water and sewer services to these areas. To satisfy the changes in the State law regarding the formulation and adoption of impact fees in Texas municipalities, an Impact Fee Study (the "Study") was completed in 1990 and 1998. The Study, which was approved by City Council, determined that impact fees could be used to pay bond interest costs for the expansion of water and wastewater plants and/or construction projects on a pay as you go basis. The Study identified approximately $7,130,000 of scheduled interest payments over the next 20 years which can be directly attributed to plant expansion. As a result of this plan, approximately $4,412,942 of capital recovery fees recorded as contributions in prior years has been transferred to operations since 1993. As of June 30, 2002, the City had a capital recovery cash and investments balance of $5,248,000. TABLE 8 - VALUE OF THE SYSTEM TABLE 9 - CITY'S EQUITY IN SYSTEM Fiscal Year Ended September 30, Resources 2001 2000 1999 1998 1997 Land and Improvements $ 550,882 $ 72,527 $ 413,085 $ 413,085 $ 413,085 Buildings 64,562,350 62,488,939 61,128,126 59,590,995 57,212,626 Machinery and Equipment 667,604 871,099 890,008 924,721 1,015,779 Construction in Progress 16,213,216 10,655,772 8,748,328 3,165,831 514,278 Add: Net Restricted Assets $ 81,994,052 $ 74,088,337 $ 71,179,547 $ 64,094,632 $ 59,155,768 Plus: Water Storage Rights 334,661 351,750 368,838 385,927 403,016 Deferred Charges 670,669 513,989 582,793 559,753 583,185 $ 82,999,382 $ 74,954,076 $ 72,131,178 $ 65,040,312 $ 60,141,969 Less: Accumulated Depreciation (17,508,479) (16,372,136) (15,130,832) (13,921,033) (12,961,574) Value after Depreciation $ 65,490,903 $ 58,581,940 $ 57,000,346 $ 51,119,279 $ 47,180,395 TABLE 9 - CITY'S EQUITY IN SYSTEM Obligations Revenue Bond Debt & Other Liabilities Less: I&S Fund and Reserve Fund Net Revenue Bond Debt City's Equity in System Percentage of Equity in System $ 29,756,456 $ 24,645,516 $ 26,037,560 $ 20,967,560 $ 22,882,560 2,958,632 2,720,834 2,873,543 2,417,555 2,478,035 $ 32,715,088 $ 27,366,350 $ 28,911,103 $ 18,550,005 $ 20,404,525 $ 54,494,466 $ 50,141,901 $ 45,428,968 $ 46,578,773 $ 41,675,348 62.49% 64.69% 61.11% 19 71.52% 67.13% Fiscal Year Ended September 30, Resources 2001 2000 1999 1998 1997 Net System Value $ 82,999,382 $ 74,954,076 $ 74,954,076 $ 65,040,312 $ 60,141,969 Less Depreciation -17,508,479 16,372,136 16,372,136 13,921,033 12,961,574 $ 65,490,903 $ 58,581,940 $ 58,581,940 $ 51,119,279 $ 47,180,395 Add: Net Working Capital 7,782,794 7,040,554 4,673,283 4,624,892 7,161,633 Add: Net Restricted Assets 13,935,857 11,885,757 11,084,848 9,384,607 7,737,845 Total 3 87,209,554 $ 77,508,251 $ 74,340,071 $ 65,128,778 $ 62,079,873 Obligations Revenue Bond Debt & Other Liabilities Less: I&S Fund and Reserve Fund Net Revenue Bond Debt City's Equity in System Percentage of Equity in System $ 29,756,456 $ 24,645,516 $ 26,037,560 $ 20,967,560 $ 22,882,560 2,958,632 2,720,834 2,873,543 2,417,555 2,478,035 $ 32,715,088 $ 27,366,350 $ 28,911,103 $ 18,550,005 $ 20,404,525 $ 54,494,466 $ 50,141,901 $ 45,428,968 $ 46,578,773 $ 41,675,348 62.49% 64.69% 61.11% 19 71.52% 67.13% FINANCIAL POLICIES Basis of Accounting ... The City's accounting records of the governmental fund revenues and expenditures are recognized on the modified accrual basis. Revenues are recognized in the accounting period in which they are available and measurable. Expenditures are recognized in the accounting period in which the fund liability occurred, if measurable, except for unmatured interest on general long-term debt. Proprietary Fund revenues and expenses are recognized on the full accrual basis. Revenues are recognized in the accounting period in which they are earned and become measurable. Expenses are recognized in the accounting period in which they are incurred. 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 bond 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. 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 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. Both state law and the City's investment policies are subject to change. Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, (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 of and interest on which are unconditionally 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 issued by a state or national bank, a savings bank or a state or federal credit union, in each case domiciled in the State of Texas, that are (i) guaranteed or insured by the Federal Deposit Insurance Corporation or its successor or the National Credit Union Share Insurance Fund or its successor or (ii) secured by obligations that are described in clauses (1) through (6) above, including mortgage backed securities directly issued by a federal agency or instrumentality that have a market value of not less than the principal amount of the certificates or (iii) in any other manner and amount provided by law for deposits of the City, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1) above and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (9) 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 -I or the equivalent by at least one nationally recognized credit rating agency, (10) commercial paper that is rated at least A-1 or P- i or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a United States or state bank, (11) no-load money market mutual funds regulated by the Securities and Exchange Commission that have a dollar weighted average portfolio 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, (12) no-load mutual funds registered with the Securities and Exchange Commission that: have an average weighted maturity of less than two years; invests exclusively in obligations described in the preceding clauses; 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; provided, however, that the City is not authorized to invest in the aggregate more than 15% of its monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, in such no-load mutual funds, and (13) for bond proceeds, guaranteed investment contracts that have a defined termination date, are secured by obligations of the United States or its agencies and instrumentalities in an amount at least equal to the amount invested under the contract, and are pledged to the City and deposited with the City or with a third party selected and approved by the City. 20 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 AAA -m 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 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 u>, 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 tenn of the reverse repurchase agreement; (7) restrict the investment in non money-market mutual funds in the aggregate to no more than 15% of the City'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 10 - CURRENT INVESTMENTS As of June 30, 2002, the City's investable funds were invested in the following categories: Description Treasury Notes/Bonds/CD/EQ Investment Pools Percent 10.62% 89.38% 100.00% 21 Book Market Value Value $ 10,675,592 $ 10,695,796 89,834,840 89,884,243 $ 100,510,432 $ 100,580,039 SELECTED PROVISIONS OF THE BOND ORDINANCE The following summary is qualified in all respects by reference to the Ordinance which sets forth all terms and conditions pursuant to which the Bonds are issued. DEFINITIONS Unless otherwise expressly provided or unless the context clearly requires otherwise, in this Summary of Certain Provisions of the Ordinance the following terms shall have the meanings specified below: "Additional Bonds" means the additional revenue bonds authorized to be issued on a parity with the Bonds and the Previously Issued Bonds in accordance with the terms of the Ordinance. "Fiscal Year" or "Year" means the fiscal year used by the City in connection with the operation of the System. "Fund" means any fund established pursuant to the Ordinance or any ordinance authorizing the issuance of the Previously Issued Bonds and any Additional Bonds. "Interest and Sinking Fund" means the "City of Grapevine, Texas, Waterworks and Sewer System Revenue Bonds Interest and Sinking Fund," previously established and confirmed under the Ordinance. Net Revenues means all income, revenues, and receipts of every nature derived from and received by virtue of the operation of the System (including interest income and earnings received from the investment of moneys in the special funds created or confirmed by the Ordinance or ordinances authorizing the issuance of Additional Bonds) after deducting, paying, and making provision for the payment of current expenses of maintenance and operation thereof, including all salaries, labor, materials, repairs and extensions necessary to render efficient service; provided, however, that only such expenses for repairs and extensions as in the judgment of the City Council, reasonably and fairly exercised, are necessary to keep the System in operation and to render adequate service to the City and the inhabitants thereof, or such as might be necessary to meet some physical accident or condition which would otherwise impair any obligations payable from the Net Revenues of the System, shall be deducted in determining "Net Revenues." Contractual payments for the purchase of water or the treatment of sewage shall be a maintenance and operating expense of the System to the extent provided in the contract therefor and as may be authorized by law. Depreciation shall never be considered as an expense of operation and maintenance. "Owner" means the person who is the registered owner of a Bond or Bonds as shown in the Register. "Parity Bond" or "Parity Bonds" means the Previously Issued Bonds, the Bonds and any Additional Bonds at any time outstanding. "Previously Issued Bonds" means the City's Waterworks and Sewer System Revenue Refunding Bonds, Series 1985, dated September 1, 1985, the City's Waterworks and Sewer System Revenue Refunding Bonds, Series 1992, dated August 1, 1992, the City's Waterworks and Sewer System Revenue Bonds, Series 1995, dated July 15, 1995, the City's Waterworks and Sewer System Revenue Bonds, Series 1996, dated October 1, 1996, the City's Waterworks and Sewer System Refunding Revenue Bonds, Series 1997, dated August 1, 1997, the City's Waterworks and Sewer System Revenue Bonds, Series 1999, dated March 1, 1999, and the City's Waterworks and Sewer System Revenue Bonds, Series 2001, dated March 15, 2001. "Prior Ordinances" means the ordinances that authorized the issuance of the Previously Issued Bonds. "Reserve Fund" means the "City of Grapevine, Texas, Waterworks and Sewer System Revenue Bonds Reserve Fund," previously established and confirmed in the Ordinance. "Reserve Fund Requirement" means the amount which is equal to the average annual principal and interest requirements on the Parity Bonds at any time outstanding. "Revenue Fund" means the "City of Grapevine, Texas, Waterworks and Sewer System Revenue Fund," previously established and confirmed in the Ordinance. "System" means the City's existing combined waterworks and sewer system, including all properties (real, personnel or mixed and tangible or intangible) owned, operated and maintained by, and vested in, the City for the supply, treatment and distribution of treated water for domestic, commercial, industrial and other uses and the collection and treatment of water -carried waste, together with all future additions, extensions, replacements, thereto. 22 SECURITY FOR THE BONDS The Bonds are issued as Additional Bonds on a parity with the Previously Issued Bonds and any Additional Bonds. The Bonds, together with the outstanding Parity Bonds, are payable from and secured by a first lien on the Net Revenues of the System. The City covenants and agrees that all of the Net Revenues of the System with the exception of those in excess of the amounts $y' required to establish and maintain the funds as provided in the Ordinance are irrevocably pledged to the payment of the Bonds, the outstanding Previously Issued Bonds and any Additional Bonds, together with the interest thereon. The Parity Bonds are special obligations of the City payable solely from the Net Revenues, and the Owners thereof shall never have the right to demand payment thereof out of any other funds raised or to be raised by taxation. FUNDS AND ACCOUNTS Fu pecial Funds. The City covenants in the Ordinance that all revenues derived from the operation of the System shall be kept eparate from other funds of the City. The Ordinance confirms the establishment of the Revenue Fund, the Interest and Sinking nd and the Reserve Fund, each to be maintained at a depository bank of the City so long as any of the Parity Bonds are outstanding and unpaid. Flow of Funds. All gross revenues of every nature received from the operation and ownership of the System shall be deposited from day to day as collected into the Revenue Fund, and the reasonable, necessary, and proper expenses of operation and maintenance of the System shall be paid from the Revenue Fund. The revenues of the System not actually required to pay said expenses shall be deposited to the other Funds in the order of priority and in the amounts set forth below: (a) There shall be deposited into the Interest and Sinking Fund, on the first day of each month, such amounts, in equal monthly installments, as will be sufficient to pay the principal of and interest on the Parity Bonds when due, less any amounts already on deposit therein for such purpose derived from the proceeds of the Bonds or from any other lawfully available source. Money on deposit in the Interest and Sinking Fund shall be used to pay the principal of and interest on the Parity Bonds as such principal matures and such interest becomes due. (b) So long as the moneys on deposit in the Reserve Fund are equal to the Reserve Fund Requirement, no deposits need to be made to the credit of the Reserve Fund. Should the Reserve Fund at any time contain less than the Reserve Fund Requirement, then, subject and subordinate to making the required deposits to the Interest and Sinking Fund, the City shall transfer from the Net Revenues in the Revenue Fund to the Reserve Fund, on the first day of each month, a sum equal to not less than 1/60th of the total amount then required to be maintained therein until the Reserve Fund is restored to the Reserve Fund Requirement. The money on deposit in the Reserve Fund may be used to pay the principal of and interest on the Bonds at any time there are not sufficient funds on deposit in the Interest and Sinking Fund for such purpose. The City may, at its option, withdraw all surplus in the Reserve Fund over the Reserve Fund Requirement and deposit the same in the Revenue Fund. Upon issuance of the Bonds, deposits, if any, being made to the Reserve Fund shall be increased to accumulate, within 60 months from the date of the Bonds, an amount equal to the Reserve Fund Requirement. Deficiencies in Funds. If in any month the City shall fail to pay into any Fund the full amounts required, amounts equivalent to such deficiencies shall be set apart and paid into said Fund from the first available and unallocated Net Revenues of the System for the following month or months. Such payments shall be in addition to the amounts otherwise required to be paid into said Fund during such month or months. To the extent necessary, the City shall increase the rates and charges for services of the System to make up for any such deficiencies. Excess Revenues. The Net Revenues of the System, in excess of those necessary to maintain the Funds as required by the Ordinance, or as may be required in connection with the issuance of Additional Bonds, may be used for any lawful purpose. Security and Investment of Funds. Moneys on deposit in the Funds shall be secured in the manner and to the extent required by the laws of the State of Texas. Money in any Fund may, at the option of the City, be placed in time deposits or certificates of deposit secured by obligations of the type hereinafter described, or may be invested, including investments held in book -entry form, in direct obligations of the United States of America, obligations guaranteed or insured by the United States of America, which, in the opinion of the Attorney General of the United States, are secured by its full faith and credit or represent its general obligations, or invested in indirect obligations of the United States of America, including, but not limited to, evidences of indebtedness issued, insured or guaranteed by such governmental agencies as the Federal Land Banks, Federal Intermediate Credit Banks, Banks for Cooperatives, Federal Horne Loan Banks, Government National Mortgage Association, United States Postal Service, Farmers Home Administration, Federal Home Loan Mortgage Association, Small Business Administration, Federal Housing Association, or Participation Certificates in the Federal Assets Financing Trust; provided that all such deposits and investments are authorized under applicable law and shall be made in such manner as will permit money required to be expended from a fund to be available at the proper time or times for the purposes thereof. Such investments shall be valued each year in terms of current market value as of the last day of the City's fiscal year. Earnings and losses derived from investments Nr held in the Interest and Sinking Fund immediately shall be credited to such Fund. Earnings derived from investments held in the Reserve Fund shall be credited to the Revenue Fund. All such investments shall be sold promptly, when necessary, to prevent any default in connection with the Parity Bonds. 23 ADDITIONAL PARITY BONDS The City may issue Additional Bonds if the following conditions are met: (a) no default exists in connection with any of the covenants or requirements of the Ordinance or ordinances authorizing the issuance of all then outstanding Parity Bonds; (b) the Interest and Sinking Fund and the Reserve Fund each contain the amount then required to be on deposit therein; (c) a Certified Public Accountant certifies to the effect that, in his opinion, the Net Earnings of the System either for the last complete fiscal year of the City, or for any twelve consecutive calendar month period ending not more than ninety days prior to the passage of the ordinance authorizing the issuance of such Additional Bonds, were at least 1-1/4 times the average annual principal and interest requirements for all Parity Bonds to be outstanding after the issuance of the Additional Bonds; the term "Net Earnings," as used in this subparagraph (c), shall mean the Net Revenues of the System excluding and not deducting any charges or disbursements which under standard accounting practice should be charged to capital expenditures; (d) The Additional Bonds are scheduled to mature only on September 1 or March 1, and the interest thereon is scheduled to be paid on September 1 and March 1; and (e) The ordinance authorizing the issuance of such Additional Bonds provides that the aggregate amount to be accumulated in the Reserve Fund shall be increased to an amount equal to the average annual principal and interest requirements of all Parity Bonds to be outstanding after the issuance of said Additional Bonds. Such additional amount shall be so accumulated within sixty months from the date of the Additional Bonds. REPRESENTATIONS AND COVENANTS Payment of Bonds and Additional Bonds. While any of the Parity Bonds are outstanding, the City shall make available to the Paying Agent/Registrar, out of the Interest and Sinking Fund and, if necessary, the Reserve Fund, money sufficient to pay the principal and interest on the Parity Bonds as will mature or as will accrue, as applicable, on each September 1 and March 1, respectively. Rates. The City covenants that it will at all times charge and collect for services rendered by the System rates sufficient to pay all operating, maintenance, replacement expenses, and any other costs deductible in determining Net Revenues and to pay the interest on and the principal of the Parity Bonds, and to establish and maintain the Funds, and that, if the System should become legally liable for any other indebtedness, the City will fix and maintain rates and collect charges for the services of the System sufficient to discharge such indebtedness. Maintenance and Operation; Insurance. While any of the Parity Bonds are outstanding, the City covenants and agrees to maintain the System in good condition and operate it in an efficient manner and at reasonable expense and to maintain insurance on the System, for the benefit of the holder or holders of the Parity Bonds, of a kind and in an amount which usually would be carried by private companies engaged in a similar type of business. Nothing in the Ordinance shall be construed as requiring the City to expend any money which is derived from sources other than the System but nothing shall be construed as preventing the City from doing so. Records; Accounts; Accounting Reports. The City shall keep proper books of records and accounts, separate from all other records and accounts of the City, in which complete and correct entries shall be made of all transactions relating to the System, and shall have said books audited once each fiscal year by a Certified Public Accountant. The City agrees to operate the System and keep its books of records and accounts pertaining thereto on the basis of its current fiscal year; provided, however, that the City Council may change such fiscal year by ordinance duly passed, if such change is deemed necessary by the City Council. Within ninety days after the close of each fiscal year the City will furnish, without cost, to any holder of any outstanding Parity Bonds who may so request, a signed or certified copy of a report by a Certified Public Accountant, covering the next preceding fiscal year, showing the following information: (i) a detailed statement of all gross revenues of the System and all expenses of operation and maintenance thereof for such fiscal year;(ii) balance sheet as of the end of such fiscal year; (iii) an accountant's comment regarding the manner in which the City has complied with the requirements of the Ordinance and his recommendation, if any, for any changes or improvements in the operation of the System; (iv) a list of insurance policies in force at the end of such fiscal year, showing, as to each policy, the risk covered, the amount of the policy, the name of the insurer, and the expiration date; (v) the number of properties connected with the System, and the gross revenues of the System for such fiscal year; (vi) the number of unmetered customers of the System at the end of such fiscal year; (vii) the number of gallons of water through the master meter, the number of gallons of water billed, an estimate of the number of gallons of water used for flushing mains and for fires, and the number of unaccounted gallons of water; and (viii) the total annual billings of the System, and the average monthly bills per customer. Any holder or holders of any Parity Bonds shall have the right at all reasonable times to inspect the System and all records, accounts and data of the City relating thereto. 24 Further Covenants. The City further covenants that: (a) it has the lawful power to pledge the Net Revenues to the payment of the Bonds and has lawfully exercised said power under the Constitution and laws of the State of Texas; that the Parity Bonds shall be ratably secured under such pledge in such manner that one Parity Bond shall have no preference over any other Parity Bond of said issues; (b) other than for the payment of the Previously Issued Bonds and the Bonds, Net Revenues of the System are not in any manner now pledged to the payment of any debt or obligation of the City or of the System except for any debt or obligation which has a pledge of the Net Revenues subject and subordinate to the pledge of the Net Revenues associated with the Parity Bonds; (c) so long as any Parity Bonds or any interest thereon are outstanding, the City will not sell or encumber the physical ,= properties of the System or any substantial part thereof; provided, however, this covenant shall not be construed to prohibit the sale of such machinery or other properties or equipment which has become obsolete or otherwise unsuited to the efficient operation of the System; (d) no free service of the System shall be allowed, and should the City or any of its agencies or instrumentalities make use of the services and facilities of the System, payment of the reasonable value thereof shall be made by the City out of funds from sources other than the revenues and income of the System; (e) that it will comply with all of the terms and conditions of any and all franchises, permits and authorizations applicable to or necessary with respect to the System, and which have been obtained from any governmental agency; and the City has or will obtain and keep in full force and effect all franchises, permits, authorizations and other requirements applicable to or necessary with respect to the acquisition, construction, equipment, operation and maintenance of the System; (f) that it will not grant any franchise or permit the acquisition, construction or operation of any competing facilities which might be used as a substitute for the System's facilities, and, to the extent that it legally may, the City will prohibit any such competing facilities; and (g) no impact fees assessed pursuant to Chapter 395, Texas Local Government Code, as amended, shall be used or expended in connection with an improvement or expansion of the System that is not identified in a capital improvements plan adopted in accordance with said Chapter. Amendments. The City acknowledges that the covenants and obligations of the City contained in the Ordinance are a material inducement to the purchase of the Bonds. The Ordinance shall constitute a contract with the Owners of the Bonds from time to time, shall be binding on the City, and shall not be amended or repealed by the City so long as any Bond remains outstanding, except as permitted in the Ordinance. The City may, without the consent of or notice to any Owners of Bonds, from time to time and at any time, amend the Ordinance in any manner not detrimental to the interests of the Owners of any Bonds, including the curing of any ambiguity, inconsistency, or formal defect or omission herein. In addition, the City may, with the written consent of Owners of Bonds owning a majority in aggregate principal amount of the Bonds then outstanding and affected thereby, amend, add to or rescind any of the provisions of this Ordinance; provided that, without the consent of all Owners of outstanding Bonds, no such amendment, addition or rescission shall (i) extend the time or times of payment of the principal of, premium, if any, and interest on the Bonds, reduce the principal amount thereof, the redemption price therefor or the rate of interest thereon, or in any other way modify the terms of payment of the principal of, premium, if any, or interest on the Bonds, (ii) give any preference to any Bond over any other Bond, or (iii) reduce the aggregate principal amount of Bonds required for consent to any such amendment, addition or rescission. 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 taxation pursuant to sections 103 and 141 through 150 of the Internal Revenue Code of 1986, as amended (the "Code"), and applicable Income Tax Regulations (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, of the holders thereof for purposes of federal income taxation. The City covenants and agrees to comply with each requirement set forth in the Ordinance relating to the tax exempt status of the Bonds; provided, however, that the City shall not be required to comply with any particular requirement of the Ordinance 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 the Ordinance will satisfy the applicable requirements of the Code, in which case compliance with such other requirement specified in such Counsel's Opinion shall constitute compliance with the corresponding requirement specified in the Ordinance. 25 DEFAULT AND REMEDIES Remedies in Event of Default In addition to all the rights and remedies provided by the laws of the State of Texas, the City covenants and agrees that in the event the City (i) defaults in payments to be made to the Interest and Sinking Fund and Reserve Fund as required by this Ordinance or (ii) defaults in the observance or performance of any other of the covenants, conditions or obligations set forth in this Ordinance, the Owner of any Parity Bond shall be entitled to a writ of mandamus issued by a court of proper jurisdiction compelling and requiring the City Council and other officers of the City to observe and perform any covenant, condition or obligation prescribed in this Ordinance. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power, or shall be construed to be a waiver of any such default or acquiescence therein, and every such right and power may be exercised from time to time and as often as may be deemed expedient. The specific remedies herein provided shall be cumulative of all other existing remedies and the specification of such remedies shall not be deemed to be exclusive. Notwithstanding any other provision of the Ordinance, the right to accelerate the debt evidenced by the Bonds shall not be available as a remedy under this Ordinance. DISCHARGE The Bonds may be defeased, discharged or refunded in any manner permitted by applicable law. (Remainder of Page Intentionally Left Blank) 26 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 i," on individuals and corporations, except as described below in the discussion regarding the adjusted current earnings adjustment r 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 Underwriter with respect to matters solely within the knowledge of the City, the City's Financial Advisor and the Underwriter, respectively, which Bond Counsel has not independently verified. Bond Counsel will further rely on the report of Grant Thornton LLP, certified public accountants, regarding the mathematical accuracy of certain computations. If the City should fail to comply with the covenants in the Ordinance or if the foregoing representations or report should be determined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery or report 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 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 outcome of the audit. 27 TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT BONDS ... The initial public offering price for certain of the 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 Official Statement.) In rendering the foregoing opinion, Bond Counsel will assume, in reliance upon certain representations of the Underwriter, that (a) the Underwriter has 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. 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 Official Statement under Tables numbered 1 through 10 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 2002. 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 28 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 audited such 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 calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds; and (11) rating changes. (Neither the Bonds nor the Ordinance make any provision for 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 may seek a writ of mandamus to compel the City to comply with its agreement. 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 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. 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 of the Bonds. 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 complied in all material respects with all continuing disclosure agreements made by it in accordance with SEC Rule 15c2-12. 29 OTHER INFORMATION RATINGS The Bonds, along with the presently outstanding revenue debt of the City is rated "Aaa" by Moody's Investors Service, Inc. ("Moody's") and "AAA" by Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. ("S&P") based upon the commitment of Financial Security Assurance Inc. to deliver a municipal bond insurance policy for the Bonds concurrently with the delivery of the Bonds. The uninsured revenue debt of the City is rated "A3" 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. 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 1433, 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 the Initial Bond is a valid and binding obligation 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 special 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 opinion is attached hereto as Appendix C. Bond Counsel did not take part in the preparation of the 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 Official Statement under the captions "Plan of Financing" (except for the subcaption "Sources and Uses of Funds,"), "The Bonds" (except for the subcaption "Book -Entry -Only System"), "Tax Matters" and "Continuing Disclosure of Information" (except under the subcaption "Compliance with Prior Undertakings") and the subcaption "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 Underwriter by Fulbright & Jaworski L.L.P., Dallas, Texas, Counsel to the Underwriter. 30 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 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. 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 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 Official Statement. The Financial Advisor has reviewed the information in this 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. 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 Federal Securities and the forecasted payments of principal and interest to redeem the Refunded Bonds and (b) computation of the yields of the Refunding Bonds 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. UNDERWRITING The Underwriter has agreed, subject to certain conditions, to purchase the Bonds from the City, at an underwriting discount of $39,134.74. The Underwriter 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 Underwriter 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 Underwriter. FORWARD LOOKING STATEMENTS The statements contained in this 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's expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward looking statements included in this Official 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. It is important to note that the City's actual results could differ materially from those in such forward-looking statements. The forward-looking statements 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 judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement would prove to be accurate. 31 MISCELLANEOUS The financial data and other information contained herein have been obtained from the City's 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 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. The Ordinance authorizing the issuance of the Bonds will also approve the form and content of this Official Statement, and any addenda, supplement or amendment thereto, and authorize its further use in the reoffering of the Bonds by the Underwriter. ATTEST: /s/ LINDA HUFF City Secretary City of Grapevine, Texas 32 /s/ WILLIAM D. TATE Mayor City of Grapevine, Texas Schedule I SCHEDULE OF REFUNDED BONDS Waterworks and Sewer System Revenue Refunding Bonds, Series 1992 The 2003- 2010 maturities will be redeemed prior to original maturity on November 7, 2002 at par. Waterworks and Sewer System Revenue Bonds, Series 1995 Principal Original Original Interest Amount Dated Date Maturity Rate Outstanding 8/1/1992 9/1/2003 5.400% $ 375,000 9/1/2004 5.500% 400,000 9/1/2005 5.600% 420,000 9/1/2006 5.750% 445,000 9/1/2007 5.750% 470,000 9/l/2008 5.750°x° 500,000 9/1/2009 6.000% 530,000 9/1/2010 6.000% 565,000 The 2003- 2010 maturities will be redeemed prior to original maturity on November 7, 2002 at par. Waterworks and Sewer System Revenue Bonds, Series 1995 o , The 2008 - 2015 maturities will be redeemed prior to original maturity on September 1, 2005 at par. Principal Original Original Interest Amount Dated Date Maturity Rate Outstanding 7/15/1995 9/1/2008 5.400% $ 225,000 9/1/2009 5.500% 240,000 9/1/2010 5.500% 250,000 9/1/2011 5.600% 265,000 9/1/2012 5.625% 280,000 9/1/2013 5.625% 295,000 9/1/2014 5.625% 310,000 9/1/2015 5 625°/ 325 000 o , The 2008 - 2015 maturities will be redeemed prior to original maturity on September 1, 2005 at par. THIS PAGE LEFT BLANK INTENTIONALLY 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 k 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. 1 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 Underwriter with respect to matters solely within the knowledge of the City, the City's Financial Advisor and the Underwriter, respectively, which Bond Counsel has not independently verified. Bond Counsel will further rely on the report of Grant Thornton LLP, certified public accountants, regarding the mathematical accuracy of certain computations. If the City should fail to comply with the covenants in the Ordinance or if the foregoing representations or report should be determined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery or report 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 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 outcome of the audit. 27 TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT BONDS ... The initial public offering price for certain of the 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 Official Statement.) In rendering the foregoing opinion, Bond Counsel will assume, in reliance upon certain representations of the Underwriter, that (a) the Underwriter has 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. 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 Official Statement under Tables numbered 1 through 10 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 2002. 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 28 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 audited such 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 5121476-6947. 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 calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds; and (11) rating changes. (Neither the Bonds nor the Ordinance make any provision for 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 may seek a writ of mandamus to compel the City to comply with its agreement. 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 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. 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 of the Bonds. 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 complied in all material respects with all continuing disclosure agreements made by it in accordance with SEC Rule 15c2-12. 29 OTHER INFORMATION RATINGS The Bonds, along with the presently outstanding revenue debt of the City is rated "Aaa" by Moody's Investors Service, Inc. ("Moody's") and "AAA" by Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. ("S&P") based upon the commitment of Financial Security Assurance Inc. to deliver a municipal bond insurance policy for the Bonds concurrently with the delivery of the Bonds. The uninsured revenue debt of the City is rated "A3" 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. 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 fumish 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 the Initial Bond is a valid and binding obligation 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 special 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 opinion is attached hereto as Appendix C. Bond Counsel did not take part in the preparation of the 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 Official Statement under the captions "Plan of Financing" (except for the subcaption "Sources and Uses of Funds,"), "The Bonds" (except for the subcaption "Book -Entry -Only System"), "Tax Matters" and "Continuing Disclosure of Information" (except 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 Underwriter by Fulbright & Jaworski L.L.P., Dallas, Texas, Counsel to the Underwriter. 30 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 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. 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 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 Official Statement. The Financial Advisor has reviewed the information in this 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. 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 Federal Securities and the forecasted payments of principal and interest to redeem the Refunded Bonds and (b) computation of the yields of the Refunding Bonds 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. UNDERWRITING The Underwriter has agreed, subject to certain conditions, to purchase the Bonds from the City, at an underwriting discount of $39,134.74. The Underwriter 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 Underwriter 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 Underwriter. FORWARD LOOKING STATEMENTS The statements contained in this 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's expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward looking statements included in this Official 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. It is important to note that the City's actual results could differ materially from those in such forward-looking statements. The forward-looking statements 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 judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement would prove to be accurate. 31 MISCELLANEOUS The financial data and other information contained herein have been obtained from the City's 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 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. The Ordinance authorizing the issuance of the Bonds will also approve the form and content of this Official Statement, and any addenda, supplement or amendment thereto, and authorize its further use in the reoffering of the Bonds by the Underwriter. ATTEST: /s/ LINDA HUFF City Secretary City of Grapevine, Texas 32 /s/ WILLIAM D. TATE Mayor City of Grapevine, Texas GENERAL INFORMATION REGARDING THE 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 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 1991 30,300 City Estimate 1980 11,801 U.S. Census 1992 31,400 City Estimate 1981 15,245 Grapevine Community Profile 1993 31,902 City Estimate 1982 16,183 Grapevine Community Profile 1994 32,727 City Estimate 1983 18,121 Grapevine Community Profile 1995 33,211 City Estimate 1984 19,405 Grapevine Community Profile 1996 34,950 City Estimate 1985 22,002 Grapevine Community Profile 1997 36,000 City Estimate 1986 24,493 Grapevine Community Profile 1998 37,946 City Estimate 1987 25,853 Grapevine Community Profile 1999 39,190 City Estimate 1988 27,132 City Estimate 2000 42,059 U.S. Census 1989 27,257 City Estimate 2001 42,443 City Estimate 1990 29,202 U.S. Census 2002 44,390 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 September Annual Annual Annual Annual Annual 2001 2000 1999 1998 1997 1996 Labor Force 22,567 21,757 21,309 20,796 20,096 19,790 Employed 22,032 21,393 20,956 20,430 19,705 19,377 Unemployed 535 364 353 366 391 413 Percent of Unemployed 2.37% 1.67% 1.66% 1.76% 1.95% 2.09% A-1 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 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 MAJOR EMPLOYERS Residential Permits Total Year Number Estimated Number Number Number of Ended Company Product Employees Dollar Dallas/Fort Worth International Airport Airport 33,000 Permits Grapevine/Colleyville Independent School District School District 1,656 Permits United Parcel Service Parcel Service 1,218 $ 105,827,449 GTE Directory Corporation Yellow Pages Directory 1,200 $ 145,941,112 Baylor Medical Center Health Services 874 ®r, Hyatt Regency Hotel Hotel 815 1999 City of Grapevine City Government 434 21,026,688 D/FW Hilton Hotel Hotel 380 56 Super Shuttle Airport Shuttle Service 320 267 SimuFlite Training International Pilot Training 260 364,294,642 Embassy Suites Hotel 250 376,739,667 Trencor Heavy Equipment Manufacturing 180 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 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 Ended of Dollar of Dollar of Dollar 9/30 Permits Value Permits Value Permits Value 1997 39 $ 105,827,449 182 $ 40,113,663 221 $ 145,941,112 1998 35 85,231,406 228 37,995,929 263 123,227,335 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 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 a< 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 and 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 three 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. 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 school 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: 1982 3,646 1992 9,459 1983 3,732 1993 10,878 1984 4,037 1994 10,957 1985 4,675 1995 11,316 1986 5,617 1996 12,373 1987 6,107 1997 12,893 1988 6,604 1998 13,319 1989 7,156 1999 13,159 1990 7,984 2000 13,615 1991 8,706 2001 14,276 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 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 CITY OF GRAPEVINE, TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2001 The information contained in this Appendix consists of excerpts from the City of Grapevine, Texas Annual Financial Report for the Year Ended September 30, 2001, 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 THIS PAGE LEFT BLANK INTENTIONALLY APPENDIX D SPECIMEN BOND INSURANCE POLICY THIS PAGE LEFT BLANK INTENTIONALLY