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Item 05 - Certificates of Obligation
nu I '60, MEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: ROGER NELSON, CITY MANAGER/4�/ MEETING DATE: JULY 17, 2001 SUBJECT: ORDINANCE AUTHORIZING THE SALE OF COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION RECOMMENDATION: City Council to consider approving an ordinance accepting bids as recommended for the sale of $4,385,000 of Combination Tax and Revenue Certificates of Obligation, Series 2001, for financing the Palace Arts Center. BACKGROUND: At the July 17, 2001, City Council meeting a representative of the First Southwest Company, the City's Financial Advisor will present bids for the sale of $4,385,000 of Combination Tax and Revenue Certificates of Obligation (CO's). Sale of the CO's was authorized by the City Council when approving a Notice of Intent at the June 19, 2001, City Council Meeting. The Notice of Intent has been published twice as required by law in a newspaper of general circulation in the community. Funds from the sale of the CO's will be used to purchase the Palace Arts Center (includes the Palace Theatre and the Lancaster Theatre) from the Heritage Foundation. This is a financing mechanism recommended by the City Attorney and Bond Counsel in order to meet the requirements of State law. The funds will be used by the Heritage Foundation to pay off the bank note financing previously approved by the City Council. Approval of a lease agreement between the City and the Heritage Foundation is necessary to formalize the financing arrangement. The City will lease the facility back to the Foundation with a triple net lease. The Foundation will maintain, repair and operate the project. The term of the lease shall be concurrent with the City's Certificates of Obligation (20 years). The Foundation's rent for the project shall be equal to the City's combined principal and interest payments on the Certificates of Obligation. As security for the lease payments, the Foundation will pledge all net revenues from operations of the Palace, all unencumbered private donations, all local and federal grants, and all net Foundation revenue from its projects, operations and festivals. The Foundation has in its lease the July 12, 2001 (9:49AM) option to purchase the Palace from the City for its market value, less depreciation. The M,p depreciation schedule will follow the bond schedule in terms of project value. The City Attorney has prepared the appropriate documents to accommodate the sale and lease actions described above. City Council action on these documents is scheduled on this agenda under a later agenda item. Uses for the funds from the CO's sale are as follows: Purchase of Palace Arts Center $4,331,568 Cost of Debt Issuance 53,432 Total $4,385,000 A copy of the official statement prepared for the sale is included in your packet. The draft CO sale ordinance is available in the City Secretary's Office. Staff recommends acceptance of the First Southwest Company's recommendation and approval of the ordinance authorizing the sale. WAG/cjc H:AGM Bond SalePalace2001 July 12, 2001 (9:48AM) PRELIMINARY OFFICIAL STATEMENT Dated July 5, 2001 NEW ISSUE - Book -Entry -Only Ratings: Moody's: Applied For S&P: Applied For See ("Other Information - Ratings" herein) In the opinion of Bond Counsel, interest on the Certificates is excludable from gross income for federal income tax purposes under existing law and the Certificates are not private activity bonds. See "Tax Exemption" herein for a discussion of the opinion of Bond Counsel, including a description of alternative minimum tax consequences for corporations. THE CERTIFICATES WILL NOT BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITtT1'IONS $4,385,000 CITY OF GRAPEVINE, TEXAS (Tarrant County) COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2001 Dated Date: July 15, 2001 Due: August 15, as shown below PAYMENT TERMS ... Interest on the $4,385,000 City of Grapevine, Texas Combination Tax and Revenue Certificates of Obligation, Series 2001 (the "Certificates") will accrue from July 15, 2001, (the "Dated Date") and will be payable February 15 and August 15 of each year commencing February 15, 2002, and will be calculated on the basis of a 360 -day year consisting of twelve 30 -day months. The definitive Certificates 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 Certificates may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Certificates will be made to the owners thereof. Principal of, premium, if any, and interest on the Certificates 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 Certificates. See "The Certificates - Book -Entry -Only System" herein. The initial Paying Agent/Registrar is Bank One, Texas, N.A., Austin, Texas (see "The Certificates - Paying Agent/Registrar"). AUTHORITY FOR ISSUANCE ... The Certificates are issued pursuant to the Constitution and general laws of the State of Texas, (the "State") particularly Subchapter C of Chapter 271, Texas Local Government Code (the Certificate of Obligation Act of 1971), as amended, and constitute direct obligations of the City of Grapevine, Texas (the "City"), payable from a combination of (i) the levy and collection of a direct and continuing ad valorem tax levied, within the limits prescribed by law, on all taxable property within the City, and (ii) a limited pledge (not to exceed $1,000) of surplus net revenues of the City's Waterworks and Sewer System, as provided in the ordinance authorizing the Certificates (the "Ordinance") (see "The Certificates - Authority for Issuance"). PURPOSE ... Proceeds from the sale of the Certificates will be used for the acquisition of the Palace Arts Center in downtown Grapevine, and to pay costs of issuance associated with the sale of the Certificates. Amount Maturity $ 105,000 2002 135,000 2003 140,000 2004 150,000 2005 155,000 2006 165,000 2007 175,000 2008 185,000 2009 195,000 2010 205,000 2011 MATURITY SCHEDULE Rate Yield Amount Maturity $ 215,000 2012 230,000 2013 240,000 2014 255,000 2015 265,000 2016 280,000 2017 295,000 2018 315,000 2019 330,000 2020 350,000 2021 (Accrued Interest from July 15, 2001 to be added) Rate Yield REDEMPTION ... The City reserves the right, at its option, to redeem Certificates having stated maturities on and after August 15, 2012, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2011, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. Additionally, the Certificates may be subject to mandatory redemption in the event the Initial Purchaser(s) of the Certificates elects to aggregate one or more maturities as a Term Certificate (see "The Certificates - Optional Redemption" and "The Certificates - Mandatory Sinking Fund Redemption"). LEGALITY ... The Certificates are offered for delivery when, as and if issued and received by the Initial Purchaser(s) 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 Opinions"). DELIVERY ... It is expected that the Certificates will be available for delivery through The Depository Trust Company on August 21, 2001. BIDS DUE TUESDAY, JULY 17, 2001, AT 11:30 AM, CDT OFFICIAL BID FORM Honorablc Mayor and City Council July 17, 2001 City of Grapevine, Texas Honorable Mayor andMembets ofthe City Council: Reference is made to your Preliminary Official Statement and Notice of Sale and Bidding Instructions, dated July 5, 2001 of 54,385,000 CITY OF GRAPEVINE, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2001, both of which constitute a pari hereof. For your legally issued Certificates, as described in said Notice of Sale and Bidding Instructions and Preliminary Officialtate t, we will pay you par and accrued interest from date of issue to date of delivery to us, plus a cash premium of $ for Cenifrcotcs maturing and hearing interest as follows: principal Lnlcrost Principal Intcmq Ptincipal tntcregl Willy4ty amonnt lkarce Ma riev aw9mg Rate Ma®ttv AW0111a Rate 8115102 S 105,000 2/15109 Z j 8/15109 S 185,000 Z 9115/15 S 255,000 8115103 135,00n 8115110 195,000e�1 8115/16 265,000 RC1 8115104 140,000 8115111 205,00056 9115/17 290,000 9115105 150,000 6/15/12 215,000 �w 8/1s118 295,000 8115f06 155,000 9115113 230,000 V1716 9115119 315,000 8115/07 165,000 9115114 240,000 8115/20 330,000 8115/08 175,000 8115/11 350,000 25 Of the principal maturities sot forth in the table above, term certificates have been created as indicated in the following table (which may include multiple term certificates, one Terni certificate or no tr= certificate if none is indicated). For those years which have been combined into a teen certificate, the principal amount shown in the table above shall be the mandatory sinking fund redemption amounts in such years except that the amount shown in the year of the tem certificate maturity date shall mature in such year- The term certificates created are as follows: Term Year of Principal Maturity Dat& First Mandatory Amount of Interest AuUE 15 _RcdSL2go" Tcrm i3and� Rate 5 % • S $ % Our calculation (which isnot a part ofthis bid) ofthe hue interest cost from the above is: TRUE INTEF PST COST We are having the Certificates of the following ruaturitics G� C' insured by /— 4 / � _ at a premium of iA X 00 .,O 0 , said premium to be paid by the Pttttltuiger• Any foes to be paid to the rating agencies as a resu .t ?f said insurance will be paid Iry the City. This Preliminary Official Statement, which includes the cover page and the Appendices hereto, does not constitute an offer to sell or the solicitation of an offer to buy in any jurisdiction to any person to whom it is unlawful to make such offer, solicitation or sale. No dealer, broker, salesperson or other person has been authorized to give information or to make any representation other than those contained in this Preliminary Official Statement, and, 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 Preliminary 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 Preliminary Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or other matters described. TABLE OF CONTENTS OFFICIAL STATEMENT SUMMARY ........................ 3 CITY OFFICIALS, STAFF AND CONSULTANTS .... 5 ELECTED OFFICIALS ................................................... 5 SELECTED ADMINISTRATIVE STAFF ............................. 5 CONSULTANTS AND ADVISORS ................................... 5 INTRODUCTION.. .......................... ............... ............... 7 THE CERTIFICATES.................................................... 7 TAX INFORMATION................................................... 12 TABLE I - VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT .......................................... 14 TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY..................................................... 15 TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT HISTORY ............................................... 16 TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY......................................................... 16 TABLE 5 - TEN LARGEST TAXPAYERS ..................... 16 TABLE 6 - TAX ADEQUACY .................................... 17 TABLE 7 - ESTIMATED OVERLAPPING DEBT ............ 17 DEBT INFORMATION ................................................ 18 TABLE 8 - PRO -FORMA GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS ................................ 18 TABLE 9 - INTEREST AND SINKING FUND BUDGET PROTECTION ................................................... 18 TABLE 10 - COMPUTATION OF SELF-SUPPORTING DEBT.............................................................. 19 TABLE I I - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS ....................................... 19 TABLE 12 - OTHER OBLIGATIONS ........................... 19 FINANCIAL INFORMATION.....................................20 TABLE 13 - GENERAL FUND REVENUES AND EXPENDITURE HISTORY ................................... 20 TABLE 14 - MUNICIPAL SALES TAX HISTORY .......... 21 TABLE 15 - CURRENT INVESTMENTS .........................23 TAXMATTERS............................................................. 24 OTHER INFORMATION.............................................25 RATINGS................................................................... 25 LITIGATION............................................................... 26 REGISTRATION AND QUALIFICATION OF CERTIFICATES FORSALE........................................................26 LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS.................................26 LEGAL MATTERS......................................................26 AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION ................................................. 26 CONTINUING DISCLOSURE OF INFORMATION .............27 INITIAL PURCHASER OF THE CERTIFICATES ................ 28 FINANCIAL ADVISOR.................................................28 CERTIFICATION OF THE OFFICIAL STATEMENT ...........28 APPENDICES GENERAL INFORMATION REGARDING THE CITY ........ A EXCERPTS FROM THE ANNUAL FINANCIAL REPORT.. B FORM OF BOND COUNSEL'S OPINION ....................... C The cover page hereof, this page, the appendices included herein and any addenda, supplement or amendment hereto, are part of the Preliminary Official Statement. OFFICIAL STATEMENT SUMMARY This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Preliminary Official Statement. The offering of the Certificates to potential investors is made only by means of this entire Preliminary Official Statement. No person is authorized to detach this summary from this Preliminary Official Statement or to otherwise use it without the entire Preliminary Official Statement. THE CITY .................................... The City of Grapevine, Texas is a political subdivision and municipal corporation of the State, located in Tarrant County, Texas. The City covers approximately 33 square miles (see "Introduction - Description of City"). THE CERTIFICATES ..................... The Certificates are issued as $4,385,000 Combination Tax and Revenue Certificates of Obligation, Series 2001. The Certificates are issued as serial certificates maturing August 15, 2002 through August 15, 2021, unless the Initial Purchaser(s) designate(s) one or more maturities as a Term Certificate (see "The Certificates - Description of the Certificates"). PAYMENT OF INTEREST .............. Interest on the Certificates accrues from July 15, 2001, and is payable February 15, 2002, and each August 15 and February 15 thereafter until maturity or prior redemption (see "The Certificates - Description of the Certificates" and "The Certificates - Optional Redemption"). AUTHORITY FOR ISSUANCE......... The Certificates are issued pursuant to the general laws of the State, particularly Subchapter C of Chapter 271, Texas Local Government Code (the Certificate of Obligation Act of 1971), as amended, the Ordinance passed by the City Council of the City and Section 9.26 of the City Charter (see "The Certificates - Authority for Issuance"). SECURITY FOR THE CERTIFICATES- ........ ........ .......... The Certificates constitute direct obligations of the City, payable from a combination of (i) a direct and continuing ad valorem tax levied, within the limits prescribed by law, on all taxable property within the City, and (ii) a limited pledge (not to exceed $1,000) of surplus net revenues of the City s Waterworks and Sewer System (see "The Certificates - Security and Source of Payment"). REDEMPTION ............................... The City reserves the right, at its option, to redeem Certificates having stated maturities on and after August 15, 2012, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2011, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. Additionally, the Certificates may be subject to mandatory redemption in the event the Initial Purchaser(s) of the Certificates elect to aggregate one or more maturities as a Term Certificate (see 'The Certificates - Optional Redemption" and "The Certificates - Mandatory Sinking Fund Redemption"). TAX EXEMPTION ........................... In the opinion of Bond Counsel, the interest on the Certificates will be excludable from gross income for federal income tax purposes under existing law and the Certificates are not private activity bonds. See "Tax Matters - Tax Exemption" for a discussion of the opinion of Bond Counsel, including a description of the alternative minimum tax consequences for corporations. USE OF PROCEEDS ......................... Proceeds from the sale of the Certificates will be used for the acquisition of the Palace Arts Center in downtown Grapevine, and to pay costs of issuance associated with the sale of the Certificates. RATINGS ..................................... The presently outstanding tax supported debt of the City is rated "Al" by Moody's Investors Service, Inc. ("Moody's") and "A+" by Standard & Poor's Ratings Services, A Division of the McGraw-Hill Companies, Inc. ("S&P"). The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA" by S&P through insurance by various commercial insurance companies. Applications for contract ratings on the Certificates have been made to Moody's and S&P (see "Other Information - Ratings"). BOOK -ENTRY -ONLY SYSTEM ...................................... The definitive Certificates 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 Certificates may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Certificates will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Certificates 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 Certificates (see "The Certificates - Book -Entry -Only System"). PAYMENT RECORD ...................... The City has not defaulted on its tax -supported debt since 1932 when all defaults were corrected without refunding. SELECTED FINANCIAL INFORMATION (1) Projected, includes the Certificates. (2) Collections for part year only, through May 31, 2001. For additional information regarding the City, please contact: Fred Werner Director of Finance City of Grapevine 200 South Main Grapevine, Texas 76051 (817)410-3111 4 David K. Medanich or Steven Adams First Southwest Company 777 Main Street, Suite 1200 Fort Worth, Texas 76102 (817)332-9710 % of Total Tax Collections 99.68% 99.45% 100.32% 99.77% 98.50% tz> Ratio Funded Fiscal Per Capita Per Capita Tax Debt to Year Estimated Taxable Taxable Funded Funded Taxable Ended City Assessed Assessed Tax Tax Assessed 9/30 Population Valuation Valuation Debt Debt Valuation 1997 36,000 $ 3,124,673,648 $ 86,796 $ 90,993,462 $ 2,528 2.91% 1998 37,946 3,253,338,457 85,736 95,546,968 2,518 2.94% 1999 39,190 3,994,671,130 101,931 103,132,152 2,632 2.58% 2000 42,059 4,089,979,800 97,244 143,995,000 3,424 3.52% 2001 42,298 4,372,544,317 103,375 156,815,000 3,707 3.59% (1) Projected, includes the Certificates. (2) Collections for part year only, through May 31, 2001. For additional information regarding the City, please contact: Fred Werner Director of Finance City of Grapevine 200 South Main Grapevine, Texas 76051 (817)410-3111 4 David K. Medanich or Steven Adams First Southwest Company 777 Main Street, Suite 1200 Fort Worth, Texas 76102 (817)332-9710 % of Total Tax Collections 99.68% 99.45% 100.32% 99.77% 98.50% tz> CITY OFFICIALS, STAFF AND CONSULTANTS ELECTED OFFICIALS Occupation Attorney -at -Law Commercial Contractor Personnel Director Retired Sales Representative Independent Insurance Agent Commercial Real Estate Agent Roy Stewart 4 Years May, 2002 Construction Company Owner Councilmember, Place 6 (I) Previously served 14 years as Mayor and Councilmember. Length of Term City Council Service Exnires William D. Tate 12 Years May, 2003 Mayor City Manager 5 Years Ted R. Ware 21 Years May, 2002 Mayor Pro Tem Director of Finance 3 1/2 Years C. Shane Wilbanks 15 Years May, 2003 Councilmember, Place 1 Sharron Spencer 15 Years May, 2003 Councilmember, Place 2 Clydene Johnson 5 Years May, 2004 Councilmember, Place 3 Darlene Freed 2 Years May, 2004 Councilmember, Place 4 Occupation Attorney -at -Law Commercial Contractor Personnel Director Retired Sales Representative Independent Insurance Agent Commercial Real Estate Agent Roy Stewart 4 Years May, 2002 Construction Company Owner Councilmember, Place 6 (I) Previously served 14 years as Mayor and Councilmember. SELECTED ADMINISTRATIVE STAFF Name Position Length of Service Roger Nelson City Manager 5 Years Bill Gaither Administrative Services Director 4 Years Fred Werner Director of Finance 3 1/2 Years Linda Huff City Secretary 19 Years (1) (1) 19 years with City; 13 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 TEAS PAGE LEFT BLANK INTENTIONALLY PRELIMINARY OFFICIAL STATEMENT RELATING TO $4,385,000 CITY OF GRAPEVINE, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2001 INTRODUCTION This Preliminary Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance of $4,385,000 City of Grapevine, Texas Combination Tax and Revenue Certificates of Obligation, Series 2001 (the "Certificates"). Capitalized terms used in this Preliminary Official Statement have the same meanings assigned to such terms in the Ordinance to be adopted on the date of sale of the Certificates which will authorize the issuance of the Certificates, except as otherwise indicated herein. There follows in this Preliminary Official Statement descriptions of the Certificates 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 2001 estimated population is 42,443. The City covers approximately 33 square miles. THE CERTIFICATES DESCRIPTION of THE CERTIFICATES ... The Certificates are dated July 15, 2001, and mature, or are subject to redemption prior to maturity, on August 15 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 will be payable on August 15 and February 15, commencing February 15, 2002. The definitive Certificates 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 Certificates will be made to the owners thereof. Principal of, premium, if any, and interest on the Certificates 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 Certificates. See "Book -Entry -Only System" herein. AUTHORITY FOR ISSUANCE ... The Certificates are being issued pursuant to the Constitution and general laws of the State of Texas, particularly Subchapter C of Chapter 271, Texas Local Government Code (the Certificate of Obligation Act of 1971), as amended, the Ordinance passed by the City Council, and Section 9.26 of the City Charter. PURPOSE ... Proceeds from the sale of the Certificates will be used for the acquisition of the Palace Arts Center in downtown Grapevine, and to pay costs of issuance associated with the sale of the Certificates. SECURITY AND SOURCE OF PAYMENT ... All taxable property within the City is subject to a continuing direct annual ad valorem tax levied, within the limits prescribed by law, by the City sufficient to provide for the payment of principal of and interest on all Certificates payable in whole or in part from ad valorem taxes. Additionally, the Certificates are payable from and secured by a limited pledge (not to exceed $1,000) of surplus net revenues of the City's Waterworks and Sewer System, as provided in the Ordinance authorizing the Certificates. TAx RATE LIMITATION ... All taxable property within the City is subject to the assessment, levy and collection by the City of a continuing, direct annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem tax debt within the limits prescribed by law. Article XI, Section 5, of the Texas Constitution is applicable to the City, and limits its maximum ad valorem tax rate to $2.50 per $100 Taxable Assessed Valuation for all City purposes. The Home Rule Charter of the City adopts the constitutionally authorized maximum tax rate of $2.50 per $100 Taxable Assessed Valuation. OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem the Certificates, or both, having stated maturities on and after August 15, 2012, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2011, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. If less than all of the Certificates are to be redeemed, the City may select the maturities of Certificates to be redeemed. If less than all the Certificates of any maturity are to be redeemed, the Paying Agent/Registrar (or DTC while the Certificates are in Book -Entry -Only form) shall determine by lot the Certificates, or portions thereof, within such maturity to be redeemed. If a Certificate (or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Certificate (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. MANDATORY SINKING FuND REDEMPTION ... In addition to being subject to optional redemption as provided above, should the initial purchasers of the Certificates elect to designate Certificates as Terms Certificates, such Term Certificates are subject to mandatory sinking fund redemption prior to maturity at a price of par plus accrued interest to the redemption date from amounts required to be deposited in the interest and sinking fund for the Certificates, as applicable, on the first August 15 following the last maturity for serial Certificates, as the case may be, and annually thereafter on each August 15 until the stated maturity of such Term Certificates. The principal amount of Term Certificates to be redeemed on each mandatory redemption date shall be the principal amount that would have been due and payable in the maturity schedule shown on the cover page hereof had no conversion to Term Certificates, as the case may be, occurred. The particular Certificates to be redeemed on August 15 of each year pursuant to the mandatory sinking fund redemption provisions described above shall be chosen by the Paying Agent/Registrar at random by lot or other customary method. The principal amount of Term Certificates of a stated maturity required to be redeemed on any mandatory redemption date pursuant to the operation of the mandatory sinking fund redemption provisions shall be reduced, at the option of the City, by the principal amount of any Term Certificates of the same maturity which, at least 45 days prior to a mandatory redemption date (1) shall have been acquired by the City at a price not exceeding the principal amount of such Term Certificates, plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation, or (2) shall have been redeemed pursuant to the optional redemption provisions and not theretofore credited against a mandatory sinking fund redemption requirement. NOTICE of REDEMPTION ... Not less than 30 days prior to a redemption date for the Certificates, 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 Certificates 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 NOTWITHSTANDING ONE OR MORE REGISTERED OWNERS MAY HAVE FAILED TO RECEIVE SUCH NOTICE. If a Certificate (or any portion of its principal sum) shall have been duly called for redemption and notice of such redemption duly given, then upon the redemption date such Certificate (or the portion of its principal sum to be redeemed) shall become due and payable, and, if monies for the payment of the redemption price and the interest accrued on the principal amount to be redeemed to the date of redemption are held for the purpose of such payment by the Paying Agent/Registrar, interest shall cease to accrue and be payable from and after the redemption date on the principal amount redeemed. DEFEASANCE ... The Ordinance provide that the City may discharge its obligations to the registered owners of any or all of the Certificates, as applicable, 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 Paying Agent/Registrar or other lawfully authorized entity a sum of money equal to the principal of, premium, if any, and all interest to accrue on such Certificates to maturity or redemption or (ii) by depositing with the Paying Agent/Registrar or other lawfully authorized entity amounts sufficient, together with the investments earnings thereon, to provide for the payment and/or redemption of such Certificates; provided that such deposits may be invested and reinvested only in (a) direct obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the City adopts or approves the proceedings authorizing the issuance of refunding obligations, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent; and (c) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the City adopts or approves the proceedings authorizing the issuance of refunding obligations to refund the Certificates, as applicable, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. The foregoing obligations may be in book entry form, and shall mature and/or bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment and/or redemption of the Certificates, as the case may be. If any of such Certificates are to be redeemed prior to their respective dates of maturity, provision must have been made for the payment to the registered owners of such Certificates at the date of maturity or prior redemption of the full amount to which such owner would be entitled and for giving notice of redemption as provided in the Ordinance, as applicable. Upon such deposit as described above, such Certificates shall no longer be regarded to be outstanding or unpaid. After firm banking and financial arrangements for the discharge and final payment or redemption of Certificates have been made as described above, all rights of the City to initiate proceedings to call such Certificates for redemption or take any other action amending the terms of such Certificates are extinguished; provided, however, that the right to call such Certificates for redemption is not extinguished if the City: (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call such Certificates for redemption; (ii) gives notice of the reservation of that right to the owners of such Certificates 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. BOOK -ENTRY -ONLY SYSTEM ... This section describes how ownership of the Certificates are to be transferred and how the principal of, premium, if any, and interest on the Certificates are to be paid to and credited by DTC while the bonds are registered in its nominee name. The information in this section concerning DTC and the Book -Entry -Only System has been provided by DTC for use in disclosure documents such as this Preliminary Official Statement. The City believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Certificates, 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 Certificates), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Preliminary Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the Certificates. The Certificates will be issued as fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee). One fully -registered certificate will be issued for each maturity of the Certificates in the aggregate principal amount of each such maturity and will be deposited with DTC. DTC 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 securities that its participants ("Direct Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book -entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of Certificates under the DTC system must be made by or through DTC Participants, which will receive a credit for such purchases on DTC's records. The ownership interest of each actual purchaser of each Certificate ("Beneficial Owner") is in turn to be recorded on the Direct or Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interest in the Certificates are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Certificates, except in the event that use of the book -entry system described herein is discontinued. To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Certificates with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates; DTC's records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. The 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. Redemption notices shall be sent to Cede & Co. If less than all of the Certificates within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. will consent or vote with respect to the Certificates. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the Record Date (hereinafter defined). The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Certificates are credited on the Record Date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Certificates will be made to DTC. DTC's practice is to credit Direct Participants' accounts on each payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on such payable date. 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, the Paying Agent/Registrar or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the City, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Certificates at any time by giving reasonable notice to the City. Under such circumstances, in the event that a successor securities depository is not obtained, such 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) with respect to the Certificates. In that event, Certificates will be printed and delivered. USE OF CERTAIN TERMS IN OTHER SECTIONS OF THIS PRELIMINARY OFFICIAL STATEMENT. In reading this Preliminary Official Statement it should be understood that while the Certificates are in the Book -Entry Only System, references in other sections of this Preliminary Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in such Certificates, 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 Trust Agreement 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. EFFECT OF TERMINATION OF BOOK -ENTRY ONLY SYSTEM. In the event that the Book -Entry Only System is discontinued by DTC or the use of the Book -Entry Only System is discontinued by the City with respect to the Certificates, the following provisions will be applicable to such Certificates. Such Certificates may be exchanged for an equal aggregate principal amount of such Certificates in authorized denominations and of the same maturity upon surrender thereof at the principal office for payment of the Paying Agent/Registrar. The transfer of any Certificate may be registered on the books maintained by the Paying Agent/Registrar for such purpose only upon the surrender of such Certificate to the Paying Agent/Registrar with a duly executed assignment in form satisfactory to the Paying Agent/Registrar. For every exchange or transfer of registration of Certificates, the Paying Agent/Registrar and the City may make a charge sufficient to reimburse them for any tax or other governmental charge required to be paid with respect to such exchange or registration of transfer. The City shall pay the fee, if any, charged by the Paying Agent/Registrar for the transfer or exchange. The Paying Agent/Registrar will not be required to transfer or exchange any Certificate after its selection for redemption. The City and the Paying Agent/Registrar may treat the person in whose name a Certificate is registered as the absolute owner thereof for all purposes, whether such Certificate is overdue or not, including for the purpose of receiving payment of, or on account of, the principal of, premium if any, and interest on, such Certificate. PAYING AGENT/REGISTRAR ... The initial Paying Agent/Registrar for the Certificates is Bank One, Texas, N.A., 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 Certificates 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 Certificates. Upon any change in the Paying Agent/Registrar for the Certificates, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Certificates by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. 10 RECORD DATE FOR INTEREST PAYMENT ... The record date ("Record Date") for the interest payable on the Certificates on any interest payment date means the close of business on the last business day of the month next preceding. In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the 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 Certificate 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. CERTrFiCATEHOLDERs' REMEDIES ... The Ordinance establish as "events of default" (i) the failure to make payment of principal of redemption premium, if any, or interest on any of the Certificates when due and payable; or (ii) default in the performance or observance of any other covenant, agreement or obligation of the City, which default materially and adversely affects the rights of the owners, including but not limited to their prospect or ability to be repaid in accordance with the Ordinance, and the combination there for a period of sixty days after notice of such default is given to any Owner by the City. Under State law there is no right to the acceleration of maturity of the Certificates upon the failure of the City to observe any covenant under the Ordinance. Although a registered owner of Certificates could presumably obtain a judgment against the City if a default occurred in the payment of principal of or interest on any such Certificates, such judgment could not be satisfied by execution against any property of the City. Such registered owner's only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the City to assess and collect rates and charges for water and sewer services sufficient to pay principal of and interest on the Certificates as it becomes due. The enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. Neither the Ordinance provides for the appointment of a trustee to represent the interests of the bondholders upon any failure of the City to perform in accordance with the terms of the Ordinance, or upon any other condition. Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code. Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, and also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Certificates are qualified with respect to the customary rights of debtors relative to their creditors. TAX INFORMATION AD VALOREmt TAx LAw ... The appraisal ofroe within the Ci is the responsibility of the Tarrant A ( Appraisal District the "Appraisal District"). Excluding agricultural and open -space ld, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to appraise all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. In determining market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (1) the market value of the property, or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to the V.T.C.A., Property Tax Code, for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ("Article VIII") and State law provide for certain exemptions from property taxes, the valuation of agricultural and open -space lands at productivity value, and the exemption of certain personal property from ad valorem taxation. Under Section 1-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant: (1) An exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision; (2) An exemption of up to 20% of the market value of residence homesteads. The minimum exemption under this provision is $5,000. In the case of residence homestead exemptions granted under Section 1-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. ".yState law and Section 2, Article VIII, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to a maximum of $12,000. Article VIII provides that eligible owners of both agricultural land (Section 1-d) and open -space land (Section 1-d-1), including open -space land devoted to farm or ranch purposes or open -space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section 1-d and 1-d-1. Nonbusiness personal property, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as nonbusiness property are exempt from ad valorem taxation. Article VIII, Section I -J, provides for "freeport property" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. The City and the other taxing bodies within its territory may agree to jointly create tax increment financing zones, under which the tax values on property in the zone are "frozen" at the value of the property at the time of creation of the zone. The City also may enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City in tum agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. EFFECTrvE TAx RATE AND ROLLBACK TAX RATE ... The City Council will be required to adopt the annual tax rate per $1000 taxable value for the City before the later of September 30 or the 60'b day after the date the certified appraisal roll is received by the City. If the City Council does not adopt a tax rate by such required date the tax rate for that tax year is the lower of the effective tax rate calculated for the tax year or the tax rate adopted by the City for the preceding tax year. The tax rate consists of two components: (1) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service. 12 Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate". Effective January 1, 2000, a tax rate cannot be adopted by the City Council that exceeds the lower of the rollback tax rate or 103 per cent of the effective tax rate until a public hearing is held on the proposed tax rate following a notice of such public hearing (including the requirements that notice be posted on the City's website if the City owns, operates or controls an internet website and public notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate. "Effective tax rate" means the rate that will produce last years total tax levy (adjusted) from this year's total taxable values (adjusted). "Adjusted" means lost values are not included in the calculation of last year's taxes and new values are not included in this year's taxable values. "Rollback tax rate" means the rate that will produce last year's maintenance and operation tax levy (adjusted) from this year's values (adjusted) multiplied by 1.08 plus a rate that will produce this year's debt service from this year's values (unadjusted) divided by the anticipated tax collection rate. The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. PROPERTY ASSESSMENT AND TAx PAYMENT ... Property within the City is generally assessed as of January 1 of each year. Business inventory may, at the option of the taxpayer, be assessed as of September 1. Oil and gas reserves are assessed on the basis of a valuation process which uses an average of the daily price of oil and gas for the prior year. Taxes become due October I of the same year, and become delinquent on February 1 of the following year. Taxpayers 65 years old or older are permitted by State law to pay taxes on homesteads in four installments with the first due on February 1 of each year and the final installment due on August 1. PENALTIES AND INTEREST ... Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: After July, penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, a 15% attorney's collection fee is added to the total tax penalty and interest charge. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. CITY APPLICATION OF TAx CODE.. . The City grants an exemption to the market value of the residence homestead of persons 65 years of age or older of $60,000. The City has granted an additional exemption of 20% of the market value of residence homesteads; minimum exemption of $5,000. See Table l for a listing of the amounts of the exemptions described above. Ad valorem taxes are not levied by the City against the exempt value of residence homesteads for the payment of debt. The City does not tax nonbusiness personal property; and the City contracts with the Grapevine-CoIleyville Independent School District for the collection of its taxes. 13 Cumulative Cumulative Month Penalty Interest Total February 6% I% 7% March 7 2 9 April 8 3 11 May 9 4 13 June 10 5 15 July 12 6 18 After July, penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, a 15% attorney's collection fee is added to the total tax penalty and interest charge. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. CITY APPLICATION OF TAx CODE.. . The City grants an exemption to the market value of the residence homestead of persons 65 years of age or older of $60,000. The City has granted an additional exemption of 20% of the market value of residence homesteads; minimum exemption of $5,000. See Table l for a listing of the amounts of the exemptions described above. Ad valorem taxes are not levied by the City against the exempt value of residence homesteads for the payment of debt. The City does not tax nonbusiness personal property; and the City contracts with the Grapevine-CoIleyville Independent School District for the collection of its taxes. 13 The City does not permit split payments, and discounts are not allowed, The City does not tax freeport property. The City does not collect the additional one-half cent sales tax for reduction of ad valorem taxes. TAX ABATEMENT POLICY... The City does not have a tax abatement policy. TAX INCREMENT FINANCE ZONES.. The City has established the Tax Increment Financing Reinvestment Zone Number One, comprised of approximately 175 acres in the northeast area of the City. The tax increment base for the Reinvestment Zone Number One established on January 1, 1996 was $7,647,325. The Reinvestment Zone Number One 2000/01 Taxable Assessed Value is $175,396,673. The project was completed on October 31, 1997. The City has additionally established the Tax Increment Financing Reinvestment Zone Number Two, comprised of approximately 121.817 acres in the northeast area of the City. The tax increment base for the Reinvestment Zone Number Two established on January 1, 1998 was $744,866. The Reinvestment Zone Number Two 2000/01 Taxable Assessed Value is $1,495,297. As of May 31, 2001 approximately $6,404,712 of permanent improvements have been made to Reinvestment Zone Number Two. TABLE 1 - VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT 2000/01 Market Valuation Established by Tarrant Appraisal District Less Exemptions/Reductions at 100% Market Value: Residence Homestead Exemptions Over 65 Years of Age/Disabled Disabled Veterans Exemptions Pollution Control Exemptions Solar/Wind Power Exemptions Freeport Exemptions Open -Space Land Use Reductions Prorated Absolute Exemptions 2000/01 Taxable Assessed Valuation City Funded Debt Payable from Ad Valorem Taxes General Obligation Bonds (as of 6/1/01) Certificates of Obligation (as of 6/1/01) Equipment Acquisition Notes (as of 6/1/01) The Certificates Funded Debt Payable from Ad Valorem Taxes Less Self -Supporting Debt: (Z) Combination Tax and Tax Increment Reinvestment Zone Revenue Certificates of Obligation (as of 6/1/01) Net Funded Debt Payable From Ad Valorem Taxes Interest and Sinking Fund as of June 1, 2001 $ 5,162,384,072 $ 265,816,139 42,892,235 946,353 5,552 9,774 437,661,571 42,359,282 148,795 (789,839,7011 $ 75,600,000 76,610,000 1,375,000 4.385.000 $ 4,372,544,371 $ 157,970,000 57,565.000 $ 100,405,000 $ 7,479,517 Ratio Total Funded Debt to Taxable Assessed Valuation .................................................. 3.61% 2001 Estimated Population - 42,298 Per Capita Taxable Assessed Valuation - $103,375 Per Capita Total Funded Debt $3,735 (1) This statement of indebtedness does not include currently outstanding $32,782,560 system revenue bonds, as these bonds are payable solely from the net revenues of the Waterworks and Sewer System (the "System"), as defined in the ordinances authorizing the system revenue bonds. (2) The self-supporting amount is a projection of debt by the City based on actual historical payments from the Tax Increment Reinvestment Zone Fund. The amount of self-supporting debt is based on the percentage of revenue support as shown in Table 10. There is no guarantee that these payments will continue in the future. If the payments are not made from the revenues in the future, the difference will have to be paid for with ad valorem taxes. 14 TABLE 10 - COMPUTATION OF SELF-SUPPORTING DEBT BeginningFund Balance, 9-30-00(')........................................................................................................................................ $ 5,695,250 Projected Net Tax Increment Reinvestment Zone Revenue Available for Debt Service........................................................ 3,735,000 Requirements for Tax Increment Reinvestment Zone Certificates.......................................................................................... (4,782.506) ProjectedFund Balance, 9-30-01............................................................................................................................................. $ 4,647,744 Percentage of System Tax Increment Reinvestment Zone Revenue Certificates Self -Supporting ....................................... 100.00% (1) Unaudited. TABLE 11 - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS Date Purpose Authorized Street Improvements 12/5/98 TABLE 12 - OTHER OBLIGATIONS Amount Amount Previously Unissued Authorized Issued Balance $ 30,245,000 $ 13,610,000 $ 16,635,000 The City has no unfunded debt outstanding as of September 30, 2000 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".) 19 "�" 20 FINANCIAL INFORMATION TABLE 13 - GENERAL FUND REVENUES AND EXPENDITURE HISTORY Fiscal Year Ended September 30 8euenues 2000 1999 1998 1997 1996 Taxes $ 27,051,303 $ 25,160,401 $ 23,365,424 $ 19,061,690 $ 17,125,907 Licenses and Permits 1,494,428 1,163,306 1,246,991 1,491,997 937,000 Intergovernmental 182,863 190,189 216,171 221,844 169,335 Charges for Services 3,003,353 2,693,057 2,522,115 1,984,238 1,427,067 Fines and Forfeitures 2,360,028 1,850,076 1,599,870 1,482,489 1,470,865 Interest and Miscellaneous 776,140 687,619 865,135 477,206 399,464 Total Revenues $ 34,868,115 $ 31,744,648 $ 29,815,706 $ 24,719,464 $ 21,529,638 VYPePrJ;tJ1Tf-,z General Government $ 5,683,237 $ 5,625,351 $ 4,792,874 $ 5,452,213 $ 3,626,510 Public Safety 15,404,767 13,245,400 12,098,657 9,965,868 8,546,355 Culture and Recreation 5,183,727 4,519,957 4,021,478 3,222,997 2,524,332 Public Works 5,657,648 5,062,397 4,188,152 3,546,854 2,993,710 Total Expenditures $ 31,929,379 $ 28,453,105 $ 25,101,161 $ 22,187,932 $ 17,690,907 Excess (deficiency) of Revenues Over Expenditures $ 2,938,736 $ 3,291,543 $ 4,714,545 $ 2,531,532 $ 3,838,731 Budgeted Transfers In $ - $ 13,090 $ 14,170 $ 104,208 $ - Budgeted Transfers Out (2,098,598) (1,900345) (5,610,764) (2,406,216) (3,807,018) Total Transfers $ (2,098,598) $ (1,887,255) $ (5,596,594) $ (2,302,008) $ (3,807,018) Net Increase (Decrease) $ 840,137 $ 1,404,288 $ (882,049) $ 229,524 $ 31,713 Other Miscellaneous Adjustments 898,214 - Residual Equity Transfer 1,172 79,788 - (86,261) - Beginning Fund Balance 6,891,336 5,407,260 6,289,309 5,247,832 5,216,119 Ending Fund Balance $ 7,732,645 $ 6,891,336 $ 5,407,260 $ 6,289,309 $ 5,247,832 "�" 20 TABLE 14 - MUNICIPAL SALES TAX HISTORY The City has adopted the Municipal Sales and Use Tax Act, V.A.T.C.S., Tax Code, Chapter 321, which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City; the proceeds are credited to the General Fund and are not pledged to the payment of the Certificates. Collections and enforcements are effected through the offices of the Comptroller of Public Accounts, State of Texas, who remits the proceeds of the tax, after deduction of a 2% service fee, to the City monthly. Fiscal Year % of Equivalent of Ended Total Ad Valorem Ad Valorem Per 9/30 Collected Tax Levy Tax Rate Canita 1997 $ 6,665,625 51.40% $ 0.2133 $ 185 1998 10,556,089 80.11% 0.3245 278 1999 13,058,268 93.70% 0.3269 333 2000 14,340,693 93.29% 0.3506 341 2001 (1) 8,657,114 52.98% 0.1980 205 (1) Collections for part year only, through June, 2001. FINANCIAL POLICIES Basis of Accounting ... The Cit/,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. 21 INVESTMENTS N'� NO The The City of Grapevine invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the City Council of the City of Grapevine. Both state law and the City's investment policies are subject to change. LEGAL INVESTMENTS ... Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, (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 raring 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 domiciled in Texas, a savings bank domiciled in Texas, or a state or federal credit union domiciled in Texas that are (i) guaranteed or insured by the Federal Deposit Insurance Company 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 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. 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 raring 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 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. 22 ADDITIONAL PROVISIONS ... Under Texas law the City is additionally required to: (1) annually review its adopted policies and strategies; (2) require any investment officers' with personal business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (3) require the registered principal of firms seeking to sell securities to the City to: (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) perform an annual audit of the management controls on investments and adherence to the City's investment policy; (5) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (6) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (7) restrict the investment in non -money market mutual funds of any portion of bond proceeds, reserves and funds held for debt service and to no more than 15% of the entity's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service; and (8) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements. TABLE 15 - CURRENT INVESTMENTS As of June 1, 2001, the City's investable funds were invested in the following categories: Book Market Descrintion Percent Value Value Treasury Notes/Bonds/CD/EQ 6.55% $ 7,876,495 $ 7,880,000 Investment Pools (1) 93.45% 112,396,143 112,470,753 100.00% $ 120,272,638 $ 120,350,753 (1) Includes TexPool, a local government investment pool under the control of the Texas Comptroller of Public Accounts. The Comptroller has engaged Chase Bank of Texas, and its affiliates, to provide investment management and fund accounting services for TexPool. First Southwest Asset Management, Inc., an affiliate of First Southwest Company, provides customer service and marketing for the pool. TexPool currently maintains a AAAm rating from Standard & Poor's. The Pool's investment objectives include achieving a stable net asset value of $1.00 per share. Daily investment or redemption of funds is allowed by the participants. 23 TAX MATTERS lowl lam" TAX EXEMPTION ... In the opinion of Vinson & Elkins L.L.P., Bond Counsel, (i) interest on the Certificates is excludable from gross income for federal income tax purposes under existing law and (ii) the Certificates are not "private activity bonds" under the Internal Revenue Code of 1986, as amended (the "Code"), and interest on the Certificates 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 Certificates, 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 Certificates for federal income tax purposes and, in addition, will rely on representations by the City, the City's Financial Advisor and the initial purchasers of the Certificates with respect to matters solely within the knowledge of the City, the City's Financial Advisor and the initial purchasers of the Certificates, which Bond Counsel has not independently verified. If the City should fail to comply with the covenants in the or if the foregoing representations should be determined to be inaccurate or incomplete, interest on the Certificates could become taxable from the date of delivery of the Certificates, 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 Certificates, is included in a corporation's "adjusted current earnings," ownership of the Certificates 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 Certificates, received or accrued during the year. Except as stated above, and as stated below in "Tax Accounting Treatment of Original Issue Discount Certificates", 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 Certificates. Prospective purchasers of the Certificates 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, 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 Certificates. 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 fiirther 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 Certificates. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the Issuer as the taxpayer and the Owners may not have a right to participate in such audit. Public awareness of any future audit of the Certificates could adversely affect the value and liquidity of the Certificates during the pendency of the audit regardless of the ultimate outcome of the audit. 24 TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT CERTIFICATES ... The initial public offering price for certain of the Certificates may be less than the principal amount thereof (the "Original Issue Discount Certificates"). 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 Certificate, and (ii) the initial offering price to the public of such Original Issue Discount Certificate constitutes original issue discount with respect to such Original Issue Discount Certificate in the hands of any owner who has purchased such Original Issue Discount Certificate in the initial public offering of the Certificates; 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 Certificate equal to that portion of the amount of such original issue discount allocable to the period that such Original Issue Discount Certificate continues to be owned by such owner. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Certificate prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Certificate 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 Certificate 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 Certificates under the caption "Tax Exemption" generally applies, except as otherwise provided below, to original issue discount on an Original Issue Discount Certificate held by an owner who purchased such Certificate at the initial offering price in the initial public offering of the Certificates, and should be considered in connection with the discussion in this portion of the Preliminary Official Statement.) In rendering the foregoing opinion, Bond Counsel will assume, in reliance upon certain representations of the initial purchaser, that (a) the initial purchaser has purchased the Certificates for contemporaneous sale to the public and (b) all of the Original Issue Discount Certificates 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 Certificates 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 Certificate 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 Certificates 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 Certificate 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 Certificate. The federal income tax consequences of the purchase, ownership, and redemption, sale or other disposition of Original Issue Discount Certificates 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 Certificates 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 Certificates 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 Certificates. OTHER INFORMATION RATINGS The presently outstanding tax -supported debt of the City is rated "Al" by Moody's and "A+" by S&P. The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA' by S&P through insurance by various commercial insurance companies. Applications for contract ratings on this issue have been made to Moody's and S&P. An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The ratings reflect only the respective views of such organizations 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 Certificates. 25 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 CERTIFICATES FOR SALE The sale of the Certificates 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 Certificates have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Certificates been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Certificates under the securities laws of any jurisdiction in which the Certificates may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Certificates 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 Certificates 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 Certificates 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 Certificates 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 Certificates 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 Certificates 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 Certificates are legal investments for various institutions in those states. LEGAL MATTERS The City will furnish a complete transcript of proceedings had incident to the authorization and issuance of the Certificates, including the unqualified approving legal opinion of the Attorney General of Texas approving the Initial Certificate and to the effect that the Certificates are valid and legally binding obligations of the City, and based upon examination of such transcript of proceedings, the approving legal opinion of Bond Counsel, to like effect and to the effect that the interest on the Certificates will be excludable from gross income for federal income tax purposes under existing law and the Certificates are not private activity bonds, subject to the matters described under " Tax Matters" herein, including alternative minimum tax consequences for corporations. The customary closing papers, including a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the Certificates, or which would affect the provision made for their payment or security, or in any manner questioning the validity of said Certificates will also be furnished. Bond Counsel did not take part in the preparation of the Notice of Sale and Bidding Instructions, the Official Bid Form and the Preliminary Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information describing the Certificates in the Preliminary Official Statement to verify that such description conforms to the provisions of the Ordinance. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Certificates is contingent on the sale and delivery of the Certificates. The legal opinion will accompany the Certificates deposited with DTC or will be printed on the Certificates in the event of the discontinuance of the Book -Entry -Only System. AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION The financial data and other information contained herein have been obtained from City records, audited financial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Preliminary Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. 26 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 Certificates. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Certificates. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. ANNUAL REPORTS ... The City will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Preliminary Official Statement under Tables numbered 1 through 6 and 8 through 15 and in Appendix B. The City will update and provide this information within six months after the end of each fiscal year ending in or after 2001. The City will provide the updated information to each nationally recognized municipal securities information repository ("NRMSIR") and to any state information depository ("SID") that is designated by the State of Texas and approved by the State of Texas and approved by the staff of the United States Securities and Exchange Commission (the "SEC"). The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12. The updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide unaudited financial statements by the required time and audited financial statements when and if such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix B or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify each NRMSIR and the SID of the change. The Municipal Advisory Council of Texas has been designated by the State of Texas and approved by the SEC staff as a qualified SID. The address of the Municipal Advisory Council is 600 West 8th Street, P. O. Box 2177, Austin, Texas 78768- 2177, and its telephone number is 512/476-6947. MATERIAL EVENT NOTICES ... The City will also provide timely notices of certain events to certain information vendors. The City will provide notice of any of the following events with respect to the Certificates, if such event is material to a decision to purchase or sell Certificates: (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 Certificates; (7) modifications to rights of holders of the Certificates; (8) Bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Certificates; and (11) rating changes. (Neither the Certificates nor the Ordinance make any provision for debt service reserves or liquidity enhancement for the Certificates.) 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 Certificates 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 Certificates 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 Certificates 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 Certificates 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 Certificates 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 Certificates. 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 27 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 Certificates in the primary offering of the Certificates. 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 UNDERTAIMNGS ... The City has complied in all material respects with all continuing disclosure agreements made by it in accordance with SEC Rule 15c2-12. INITIAL PURCHASER OF THE CERTIFICATES After requesting competitive bids for the Certificates, the City accepted the bid of to purchase the Certificates at the interest rates shown on the cover page of the Official Statement at a price of of par plus a cash premium (if any) of $ . The Purchaser(s) can give no assurance that any trading market will be developed for the Certificates after their sale by the City to the Initial Purchaser. The City has no control over the price at which the Certificates are subsequently sold and the initial yield at which the Certificates will be priced and reoffered will be established by and will be the responsibility of the Initial Purchaser. FINANCIAL ADVISOR First Southwest Company is employed as Financial Advisor to the City in connection with the issuance of the Certificates. The Financial Advisor's fee for services rendered with respect to the issuance of the Certificates is contingent upon the issuance and delivery of the Certificates. First Southwest Company may submit a bid for the Certificates, either independently or as a member of a syndicate organized to submit a bid for the Certificates. First Southwest Company, in its capacity as Financial Advisor, has relied on the opinion of Bond Counsel and has not verified and does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Certificates, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. The Financial Advisor to the City has provided the following sentence for inclusion in this Preliminary Official Statement. The Financial Advisor has reviewed the information in this Preliminary Official Statement in accordance with, and as part of, its responsibilities to the City and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. CERTIFICATION OF THE OFFICIAL STATEMENT At the time of payment for and delivery of the Certificates, the City will furnish a certificate, executed by proper officers, acting in their official capacity, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the City contained in its Official Statement, and any addenda, supplement or amendment thereto, on the date of such Official Statement, on the date of sale of said Certificates and the acceptance of the best bid therefor, and on the date of the delivery, were and are true and correct in all material respects; (b) insofar as the City and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (c) insofar as the descriptions and statements, including financial data, of or pertaining to entities, other than the City, and their activities contained in such Official Statement are concerned, such statements and data have been obtained from sources which the City believes to be reliable and the City has no reason to believe that they are untrue in any material respect; and (d) there has been no material adverse change in the financial condition of the City since the date of the last audited financial statements of the City. The Ordinance authorizing the issuance of the Certificates 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 Certificates by the Initial Purchaser(s). ATTEST: LINDA HUFF City Secretary 28 WILLIAM D. TATE Mayor City of Grapevine, Texas APPENDIX A 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 434 full -rime 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 42,298 City Estimate 1990 29,202 U.S. Census 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, rentnease 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 fiunished by Texas Employment Commission are: April Annual Annual Annual Annual Annual 2001 2000 1999 1998 1997 1996 Labor Force 22,272 21,757 21,309 20,796 20,096 19,790 Employed 21,886 21,393 20,956 20,430 19,705 19,377 Unemployed 386 364 353 366 391 413 Percent of Unemployed 1.73% 1.67% 1.66% 1.76% 1.95% 2.09% A-1 MAJOR EMPLOYERS Company Dallas/Fort Worth International Airport Grapevine/Colleyville Independent School District United Parcel Service GTE Directory Corporation Baylor Medical Center Hyatt Regency Hotel City of Grapevine D/FW Hilton Hotel Super Shuttle SimuFlite Training International Embassy Suites Trencor Source: City of Grapevine, Department of Development Services. BANKING AND FINANCIAL... Banking facilities for the City are provided by four banks, the Texas Bank of Grapevine, the First State Bank of Grapevine, Frost Bank and a branch of NationsBank of Texas, Independent National Bank , Bank One and of Bank of America. Also located in the City is a branch of the Omni Federal Credit Union. Source: City of Grapevine, Finance Department. BUILDING PERMITS... The number and value of building permits issued by the City are: Fiscal Estimated Year Number of Product EmWovees Airport 33,000 School District 1,656 Parcel Service 1,218 Yellow Pages Directory 1,200 Health Services 874 Hotel 815 City Government 434 Hotel 380 Airport Shuttle Service 320 Pilot Training 260 Hotel 250 Heavy Equipment Manufacturing 180 BANKING AND FINANCIAL... Banking facilities for the City are provided by four banks, the Texas Bank of Grapevine, the First State Bank of Grapevine, Frost Bank and a branch of NationsBank of Texas, Independent National Bank , Bank One and of Bank of America. Also located in the City is a branch of the Omni Federal Credit Union. Source: City of Grapevine, Finance Department. BUILDING PERMITS... The number and value of building permits issued by the City are: Fiscal Commercial Permits Year Number Ended of Dollar 9/30 Permits Value 1996 23 $ 25,295,000 1997 39 105,827,449 1998 35 85,231,406 1999 32 59,920,763 2000 56 84,742,336 Source: City of Grapevine records. Residential Permits Total Number Number of Dollar of Dollar Permits Value Permits Value 315 $ 39,236,215 338 $ 64,531,215 182 40,113,663 221 145,941,112 228 37,995,929 263 123,227,335 185 21,026,688 217 80,947,451 211 56,040,989 267 140,783,325 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 ashore line of 146 miles. The lake is 19 miles long and 2.5 miles wide at its widest point. The lake is owned and operated by the U.S. Corps of Engineers and is a major recreation area for swimming, fishing, picnicking and camping and draws some five million visitors each year to the area. The City also has an extensive park system which includes tennis courts, racquetball courts, baseball and softball diamonds, football and soccer fields, a jogging and biking trail, swimming pool and picnic areas. The City also owns and operates an 18 -hole golf course and has plans for a 9 -hole expansion. TRANSPORTATION... The City is in the center of a highway network that includes seven spokes of an extensive highway system; six U.S. highways, seven major state highways and one interstate highway. This network connects the City to all major entrances to both Dallas and Fort Worth 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 h` lY HOTEL Arun CONVENTION FAcmrrms... There are three major hotels in the City and several other hotels and motels adjacent to the �,j 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 schools 4 Middle schools 11 Elementary schools In addition to the campuses, the District also owns an administration/service center, an auditorium and a complete athletic complex. Historical school enrollment figures are: 1982 3,646 1991 8,706 1983 3,732 1992 9,459 1984 4,037 1993 10,878 1985 4,675 1994 10,957 1986 5,617 1995 11,316 1987 6,107 1996 12,373 1988 6,604 1997 12,893 1989 7,156 1998 13,319 1990 7,984 1999 13,159 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 ORDINANCE NO. relating to $4,385,000 CITY OF GRAPEVINE, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION SERIES 2001 Adopted: July 17, 2001 GRA325/1 Dallas 491338_2 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND OTHER PRELIMINARY MATTERS Section1.01. Authorization.......................................................................................................... 6 Definitions............................................................................................................... 2 Section1.02. 7 Findings................................................................................................................... 4 Section 1.03. 7 Table of Contents, Titles, and Headings................................................................. 4 Section1.04. 8 Interpretation........................................................................................................... 4 ARTICLE II SECURITY FOR THE CERTIFICATES; INTEREST AND SINKING FUND Section 2.01. Payment of the Certificates..................................................................................... 5 Section 2.02. Interest and Sinking Fund....................................................................................... 6 ARTICLE III AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE CERTIFICATES Section3.01. Authorization.......................................................................................................... 6 Section 3.02. Date, Denomination, Maturities, and Interest......................................................... 7 Section 3.03. Medium, Method, and Place of Payment................................................................ 7 Section 3.04. Execution and Registration of Certificates............................................................. 8 Section3.05. Ownership............................................................................................................... 9 Section 3.06. Registration, Transfer, and Exchange..................................................................... 9 Section3.07. Cancellation.......................................................................................................... 10 Section 3.08. Temporary Certificates......................................................................................... 10 Section 3.09. Replacement Certificates...................................................................................... 11 Section 3.10. Book -Entry -Only System...................................................................................... 12 Section 3.11. Successor Securities Depository; Transfer Outside Book -Entry -Only System.... 13 Section 3.12. Payments to Cede & Co........................................................................................ 13 ARTICLE IV REDEMPTION OF CERTIFICATES BEFORE MATURITY Section 4.01. Limitation on Redemption.................................................................................... 13 Section 4.02. Optional Redemption............................................................................................ 13 Section4.03. [Reserved]............................................................................................................. 14 Section 4.04. Partial Redemption................................................................................................ 14 Section 4.05. Notice of Redemption to Owners......................................................................... 14 Section 4.06. Payment Upon Redemption.................................................................................. 14 GRA325/1 Dallas 491338_2 (1) Section 4.07. Effect of Redemption............................................................................................ 15 ARTICLE V PAYING AGENT/REGISTRAR Section 5.01. Appointment of Initial Paying Agent/Registrar.................................................... 15 Section 5.02. Qualifications........................................................................................................ 15 Section 5.03. Maintaining Paying Agent/Registrar.................................................................... 15 Section5.04. Termination........................................................................................................... 16 Section 5.05. Notice of Change to Owners................................................................................. 16 Section 5.06. Agreement to Perform Duties and Functions........................................................ 16 Section 5.07. Delivery of Records to Successor......................................................................... 16 ARTICLE VI FORM OF THE CERTIFICATES Section 6.01. Form Generally..................................................................................................... 16 Section 6.02. Form of the Certificates........................................................................................ 17 Section 6.03. CUSIP Registration............................................................................................... 22 Section6.04. Legal Opinion....................................................................................................... 22 Section 6.05. Statement of Insurance.......................................................................................... 22 ARTICLE VII SALE AND DELIVERY OF CERTIFICATES; DEPOSIT OF PROCEEDS Section 7.01. Sale of Certificates; Official Statement................................................................ 22 Section 7.02. Control and Delivery of Bonds............................................................................. 23 Section 7.03. Deposit of Proceeds.............................................................................................. 24 ARTICLE VIII INVESTMENTS Section8.01. Investments..............................................................................I............................ 24 Section 8.02. Investment Income................................................................................................ 24 ARTICLE IX PARTICULAR REPRESENTATIONS AND COVENANTS Section 9.01. Payment of the Certificates................................................................................... 24 Section 9.02. Other Representations and Covenants.................................................................. 25 Section 9.03. Provisions Concerning Federal Income Tax Exclusion ........................................ 25 Section 9.04. No Private Use or Payment and No Private Loan Financing ................................ 25 Section 9.05. No Federal Guaranty............................................................................................. 25 GRA325/1 Dallas 491338_2 (ii) Section 9.06. Certificates are not Hedge Certificates................................................................. 26 Section 9.07. No -Arbitrage Covenant......................................................................................... 26 Section 9.08. Arbitrage Rebate................................................................................................... 26 Section 9.09. Information Reporting.......................................................................................... 26 Section 9.10. Continuing Obligation.......................................................................................... 27 ARTICLE X DEFAULT AND REMEDIES Section 10.01. Events of Default.................................................................................................. 27 Section 10.02. Remedies for Default............................................................................................ 27 Section 10.03. Remedies Not Exclusive....................................................................................... 27 ARTICLE XI DISCHARGE Section11.01. Discharge.............................................................................................................. 28 ARTICLE XII CONTINUING DISCLOSURE UNDERTAKING Section 12.01. Annual Reports..................................................................................................... 28 Section 12.02. Material Event Notices......................................................................................... 28 Section 12.03. Limitations, Disclaimers and Amendments.......................................................... 29 ARTICLE XIII EMERGENCY Section 13.01. Declaration of Emergency.................................................................................... 30 Exhibit A - Description of Annual Disclosure of Financial Information A-1 GRA325/1 Dallas 491338_2 AN ORDINANCE PROVIDING FOR THE ISSUANCE OF CITY OF GRAPEVINE, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2001, IN THE AGGREGATE PRINCIPAL AMOUNT OF $4,385,000; LEVYING A TAX IN PAYMENT THEREOF; PRESCRIBING THE FORM OF SAID CERTIFICATES; AWARDING THE SALE THEREOF; APPROVING THE OFFICIAL STATEMENT; ENACTING OTHER PROVISIONS RELATING THERETO; AND DECLARING AN EMERGENCY WHEREAS, under the provisions of Chapter 271, Subchapter C, Texas Local Government Code, as amended, the City of Grapevine, Texas (the "City"), is authorized to issue certificates of obligation for the purposes specified in this Ordinance and for the payment of all or a portion of the contractual obligations for professional services, including that of engineers, attorneys, and financial advisors in connection therewith, and to sell the same for cash as herein provided; and WHEREAS, the City is authorized to provide that such obligations will be payable from and secured by the levy of a direct and continuing ad valorem tax against all taxable property within, the City, in combination with a part of certain revenues of the City's combined waterworks and sewer system (the "System") remaining after payment of any obligations of the City payable in whole or in part from a lien or pledge of such revenues that would be superior to the obligations to be authorized herein; and WHEREAS, the City Council has found and determined that it is necessary and in the best interests of the City and its citizens that it issue such certificates of obligation authorized by this Ordinance; and WHEREAS, pursuant to a resolution heretofore passed by this governing body, notice of intention to issue certificates of obligation of the City payable as provided in this Ordinance was published in a newspaper of general circulation in the City in accordance with the requirements of law; and WHEREAS, no petition of any kind has been filed with the City Secretary, any member of the City Council or any other official of the City, protesting the issuance of such certificates of obligation; and WHEREAS, this City Council is now authorized and empowered to proceed with the issuance of said certificates of obligation and to sell the same for cash; and WHEREAS, the meeting at which this Ordinance is considered is open to the public as required by law, and public notice of the time, place, and purpose of said meeting was given as required by Chapter 551, Texas Government Code, as amended; therefore, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF GRAPEVINE, TEXAS, THAT: GRA325/1 Dallas 491338_2 ARTICLE I Section 1.01. Definitions. Unless otherwise expressly provided or unless the context clearly requires otherwise in this Ordinance, the following terms shall have the meanings specified below: "Business Day" means a day that is not a Saturday, Sunday, legal holiday or other day on which banking institutions in the city where the Designated Payment/Transfer Office is located are required or authorized by law or executive order to close. "Certificate" means any of the Certificates. "Certificate Date" means the date designated as the initial date of the Certificates by Section 3.02(a) of this Ordinance. "Certificates" means the certificates of obligation authorized to be issued by Section 3.01 of this Ordinance and designated as "City of Grapevine, Texas Combination Tax and Revenue Certificates of Obligation, Series 2001," in the aggregate principal amount of $4,385,000. "City" means the City of Grapevine, Texas. "Closing Date" means the date of the initial delivery of and payment for the Certificates. "Code" means the Internal Revenue Code of 1986, as amended, including applicable regulations, published rulings, and court decisions. "Designated Payment/Transfer Office" means (i) with respect to the initial Paying Agent/Registrar named herein, its office in Columbus, Ohio, or at such other location designated by the Paying Agent/Registrar and (ii) with respect to any successor Paying Agent/Registrar, the office of such successor designated and located as may be agreed upon by the City and such successor. "DTC" means The Depository Trust Company of New York, New York, or any successor securities depository. "DTC Participant" means brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities transactions among DTC Participants. "Event of Default" means any event of default as defined in Section 10.01 of this Ordinance. "Fiscal Year" means such fiscal year as shall from time to time be set by the City Council. GRA325/1 Dallas 491338_2 -2- "Initial Certificate" means the initial certificate authorized by Section 3.04 of this Ordinance. "Interest and Sinking Fund" means the interest and sinking fund established by Section 2.02 of this Ordinance. "Interest Payment Date" means the date or dates upon which interest on the Certificates is scheduled to be paid until their respective dates of maturity or prior redemption, such dates being February 15 and August 15 of each year, commencing February 15, 2002. "MSRB" means the Municipal Securities Rulemaking Board. "NRMSIR" means each person whom the SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to time. "Net Revenues" means the gross revenues of the System less the expenses of operation and maintenance as said expenses are defined by Chapter 1502, Texas Government Code, as amended. "Owner" means the person who is the registered owner of a Certificate or Certificates, as shown in the Register. "Paying Agent/Registrar" means initially Bank One, National Association, or any successor thereto as provided in this Ordinance. "Prior Lien Bonds" means any and all bonds or other obligations of the City presently outstanding or that may be hereafter issued, payable from and secured by a first lien on and pledge of the Net Revenues or by a lien on and pledge of the Net Revenues subordinate to a first lien and pledge of such Net Revenues but superior to the lien and pledge of the Surplus Revenues made for the Certificates. "Record Date" means the last Business Day of the month next preceding an Interest Payment Date. "Register" means the Register specified in Section 3.06(a) of this Ordinance. "Representations Letter" means the Blanket Letter of Representations previously executed by the City and DTC and on file with DTC. "Rule" means SEC Rule 15c2-12, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. "SID" means any person designated by the State of Texas or an authorized department, officer or agency thereof, as and determined by the SEC or its staff to be a state information depository within the meaning of the Rule from time to time. GRA325/ 1 Dallas 491338_2 9111 "Special Payment Date" means the Special Payment Date prescribed by Section 3.03(b). "Special Record Date" means the Special Record Date prescribed by Section 3.03(b). "Surplus Revenues" means the revenues of the System remaining after payment of all operation and maintenance expenses thereof, and all debt service, reserve, and other requirements in connection with the City's Prior Lien Bonds; provided, however, that the amount of such surplus revenues pledged to the payment of the Certificates shall be limited to $1,000. "System" as used in this Ordinance means the City's combined waterworks and sewer system, including all present and future additions, extensions, replacements, and improvements thereto. "Unclaimed Payments" means money deposited with the Paying Agent/Registrar for the payment of principal of, redemption premium, if any, or interest on the Certificates as the same come due and payable or money set aside for the payment of Certificates duly called for redemption prior to maturity. Section 1.02. Findings. The declarations, determinations, and findings declared, made, and found in the preamble to this Ordinance are hereby adopted, restated, and made a part of the operative provisions hereof. Section 1.03. Table of Contents, Titles, and Headings. The table of contents, titles, and headings of the Articles and Sections of this Ordinance have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof and shall never be considered or given any effect in construing this Ordinance or any provision hereof or in ascertaining intent, if any question of intent should arise. Section 1.04. Interpretation. (a) Unless the context requires otherwise, words of the masculine gender shall be construed to include correlative words of the feminine and neuter genders and vice versa, and words of the singular number shall be construed to include correlative words of the plural number and vice versa. (b) This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein. GRA325/1 Dallas 491338_2 H ARTICLE II SECURITY FOR THE CERTIFICATES; INTEREST AND SINKING FUND Section 2.01. Payment of the Certificates. (a) Pursuant to the authority granted by the Texas Constitution and the laws of the State of Texas, there is hereby levied for the current year and for each succeeding year hereafter while any of the Certificates or any interest thereon is outstanding and unpaid, an ad valorem tax on each one hundred dollars' valuation of taxable property within the City, at a rate sufficient, within the limit prescribed by law, to pay the debt service requirements of the Certificates, being (i) the interest on the Certificates, and (ii) a sinking fund for their redemption at maturity or a sinking fund of two percent per annum (whichever amount is the greater), when due and payable, full allowance being made for delinquencies and costs of collection. (b) The ad valorem tax thus levied shall be assessed and collected each year against all property appearing on the tax rolls of the City most recently approved in accordance with law, and the money thus collected shall be deposited as collected to the Interest and Sinking Fund. (c) Said ad valorem tax, the collections therefrom, and all amounts on deposit in or required hereby to be deposited to the Interest and Sinking Fund are hereby pledged and committed irrevocably to the payment of the principal of and interest on the Certificates when and as due and payable in accordance with their terms and this Ordinance. (d) The amount of taxes to be provided annually for the payment of principal of and interest on the Certificates shall be determined and accomplished in the following manner: (i) The City's annual budget shall reflect (i) the amount of debt service requirements to become due on the Certificates in the next succeeding Fiscal Year of the City, (ii) the amount on deposit in the Interest and Sinking Fund, as of the date such budget is prepared (after giving effect to any payments required to be made during the remainder of the then current Fiscal Year), and (iii) the amount of Surplus Revenues estimated and budgeted to be available for the payment of such debt service requirements on the Certificates during the next succeeding Fiscal Year of the City. (ii) The amount required to be provided in the succeeding Fiscal Year of the City from ad valorem taxes shall be the amount, if any, the debt service requirements to be paid on the Certificates in the next succeeding Fiscal Year of the City exceeds the sum of (i) the amount shown to be on deposit in the Interest and Sinking Fund (after giving effect to any payments required to be made during the remainder of the then current Fiscal Year) at the time the annual budget is prepared, and (ii) the Surplus Revenues shown to be budgeted and available for payment of said debt service requirements. (iii) Following the final approval of the annual budget of the City, the governing body of the City shall, by ordinance, levy an ad valorem tax at a rate sufficient to produce taxes in the amount determined in paragraph (b) above, to be GRA325/1 Dallas 491338_2 -5- utilized for purposes of paying the principal of and interest on the Certificates in the next succeeding Fiscal Year of the City. (e) The City hereby covenants and agrees that the Surplus Revenues are hereby irrevocably pledged equally and ratably to the payment of the principal of, redemption premium, if any, and interest on the Certificates, as the same become due. (f) If the liens and provisions of this Ordinance shall be released in a manner permitted by Article XI hereof, then the collection of such ad valorem tax may be suspended or appropriately reduced, as the facts may permit, and further deposits to the Interest and Sinking Fund may be suspended or appropriately reduced, as the facts may permit. In determining the aggregate principal amount of outstanding Certificates, there shall be subtracted the amount of any Certificates that have been duly called for redemption and for which money has been deposited with the Paying Agent/Registrar for such redemption. Section 2.02. Interest and Sinking Fund. (a) The City hereby establishes a special fund or account to be designated the "City of Grapevine, Texas Combination Tax and Revenue Certificates of Obligation, Series 2001, Interest and Sinking Fund" (the "Interest and Sinking Fund") said fund to be maintained at an official depository bank of the City separate and apart from all other funds and accounts of the City. (b) Money on deposit in or required by this Ordinance to be deposited to the Interest and Sinking Fund shall be used solely for the purpose of paying the interest on and principal of the Certificates when and as due and payable in accordance with their terms and this Ordinance. AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE CERTIFICATES Section 3.01. Authorization. The City's certificates of obligation to be designated "City of Grapevine, Texas Combination Tax and Revenue Certificates of Obligation, Series 2001" (the "Certificates"), are hereby authorized to be issued and delivered in accordance with the Constitution and laws of the State of Texas, specifically Chapter 271, Subchapter C, Texas Local Government Code, as amended and Section 9.26 of the City's Home -Rule Charter. The Certificates shall be issued in the aggregate principal amount of $4,385,000 for the purpose of paying contractual obligations to be incurred for the following purposes, to wit: (i) acquisition of the Palace Arts Center (the "Project"), located at 300 S. Main Street, Grapevine, Texas for use as a music hall, opera house and theater; and (ii) to pay for professional services of attorneys, financial advisors and other professionals in connection with the Project and the issuance of the Certificates. GRA325/1 Dallas 491338_2 W Section 3.02. Date Denomination Maturities and Interest. (a) The Certificates shall be dated July 15, 2001. The Certificates shall be in fully registered form, without coupons, in the denomination of $5,000 or any integral multiple thereof and shall be numbered separately from one upward, except the Initial Certificate, which shall be numbered T-1. (b) The Certificates shall mature on August 15 in the years and in the principal amounts set forth in the following schedule: Maturity Principal Maturity Principal (August 15) Amount Interest Rate (February 15) Amount Interest Rate 2002 $105,000 5.250% 2012 $215,000 4.600% 2003 135,000 5.250% 2013 230,000 4.700% 2004 140,000 5.250% 2014 240,000 4.800% 2005 150,000 5.250% 2015 255,000 4.900% 2006 155,000 5.250% 2016 265,000 5.000% 2007 165,000 5.250% 2017 280,000 5.000% 2008 175,000 5.250% 2018 295,000 5.000% 2009 185,000 5.250% 2019 315,000 5.000% 2010 195,000 5.250% 2020 330,000 5.000% 2011 205,000 4.500% 2021 350,000 5.125% (c) Interest shall accrue and be paid on each Certificate respectively until its maturity or prior redemption from the later of the Certificate Date or the most recent Interest Payment Date to which interest has been paid or provided for at the rates per annum for each respective maturity specified in the schedule contained in subsection (b) above. Such interest shall be payable semiannually on February 15 and August 15 of each year, commencing on February 15, 2002, computed on the basis of a 360 -day year of twelve 30 -day months. Section 3.03. Medium, Method, and Place of Payment. (a) The principal of and interest on the Certificates shall be paid in lawful money of the United States of America. (b) Interest on the Certificates shall be payable to the Owners as shown in the Register at the close of business on the Record Date; provided, however, in the event of nonpayment of interest on a scheduled Interest Payment Date and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") shall be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the "Special Payment Date," which shall be 15 days after the Special Record Date) shall be sent at least five Business Days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of each Owner of a Certificate appearing on the Register at the close of business on the last Business Day next preceding the date of mailing of such notice. GRA325/1 Dallas 491338_2 (c) Interest shall be paid by check, dated as of and mailed on the Interest Payment Date, and sent by the Paying Agent/Registrar to each Owner, first class United States mail, postage prepaid, to the address of each Owner as it appears in the Register, or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the Owner; provided, however, that the Owner shall bear all risk and expense of such alternative banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. (d) The principal of each Certificate shall be paid to the Owner thereof on the maturity date upon presentation and surrender of such Certificate at the Designated Payment/Transfer Office of the Paying Agent/Registrar. (e) If the date for the payment of the principal of or interest on the Certificates shall be a Saturday, Sunday, legal holiday, or day on which banking institutions in the city where the Designated Payment/Transfer Office is located are required or authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not a Saturday, Sunday, legal holiday, or day on which banking institutions are required or authorized to close, and payment on such date shall have the same force and effect as if made on the original date payment was due and no additional interest shall be due by reason of nonpayment on the date on which such payment is otherwise stated to be due and payable. (f) Unclaimed Payments shall be segregated in a special escrow account and held in trust, uninvested by the Paying Agent/Registrar, for the account of the Owners of the Certificates to which the Unclaimed Payments pertain. Subject to Title 6 of the Texas Property Code, Unclaimed Payments remaining unclaimed by the Owners entitled thereto for three years after the applicable payment or redemption date shall be applied to the next payment or payments on the Certificates thereafter coming due and, to the extent any such money remains after the retirement of all outstanding Certificates, shall be paid to the City to be used for any lawful purpose. Thereafter, neither the City, the Paying Agent/Registrar, nor any other person shall be liable or responsible to any Owners of such Certificates for any further payment of such unclaimed moneys or on account of any such Certificates, subject to Title 6 of the Texas Property Code. Section 3.04. Execution and Registration of Certificates. (a) The Certificates shall be executed on behalf of the City by the Mayor and the City Secretary, by their manual or facsimile signatures, and the official seal of the City shall be impressed or placed in facsimile thereon. Such facsimile signatures on the Certificates shall have the same effect as if each of the Certificates had been signed manually and in person by each of said officers, and such facsimile seal on the Certificates shall have the same effect as if the official seal of the City had been manually impressed upon each of the Certificates. (b) In the event that any officer of the City whose manual or facsimile signature appears on the Certificates ceases to be such officer before the authentication of such Certificates or before the delivery thereof, such manual or facsimile signature nevertheless shall be valid and sufficient for all purposes as if such officer had remained in such office. GRA325/1 Dallas 491338_2 -8- (c) Except as provided below, no Certificate shall be valid or obligatory for any purpose or be entitled to any security or benefit of this Ordinance unless and until there appears thereon the Certificate of Paying Agent/Registrar substantially in the form provided herein, duly authenticated by manual execution by an officer or duly authorized signatory of the Paying Agent/Registrar. It shall not be required that the same officer or authorized signatory of the Paying Agent/Registrar sign the Certificate of Paying Agent/Registrar on all of the Certificates. In lieu of the executed Certificate of Paying Agent/Registrar described above, the Initial Certificate delivered at the Closing Date shall have attached thereto the Comptroller's Registration Certificate substantially in the form provided herein, manually executed by the Comptroller of Public Accounts of the State of Texas, or by his duly authorized agent, which Certificate shall be evidence that the Certificate has been duly approved by the Attorney General of the State of Texas, that it is a valid and binding obligation of the City, and that it has been registered by the Comptroller of Public Accounts of the State of Texas. (d) On the Closing Date, one Initial Certificate representing the entire principal amount of all Certificates, payable in stated installments to the initial purchaser, or its designee, executed manually or by facsimile by the Mayor and City Secretary of the City, approved by the Attorney General, and registered and manually signed by the Comptroller of Public Accounts, will be delivered to the initial purchaser or its designee. Upon payment for the Initial Certificate, the Paying Agent/Registrar shall cancel the Initial Certificate and deliver to the purchaser, one registered definitive Certificate for each year of maturity of the Certificates in the aggregate principal amount of all Certificates for such maturity, registered in the name of Cede& Co., as nominee of DTC. Section 3.05. Ownership. (a) The City, the Paying Agent/Registrar, and any other person may treat the person in whose name any Certificate is registered as the absolute owner of such Certificate for the purpose of making and receiving payment of the principal thereof, for the further purpose of making and receiving payment of the interest thereon, and for all other purposes (except interest shall be paid to the person in whose name such Certificate is registered on the Record Date or Special Record Date, as applicable), whether or not such Certificate is overdue, and neither the City nor the Paying Agent/Registrar shall be bound by any notice or knowledge to the contrary. (b) All payments made to the Owner of a Certificate shall be valid and effectual and shall discharge the liability of the City and the Paying Agent/Registrar upon such Certificate to the extent of the sums paid. Section 3.06. Registration Transfer, and Exchange. (a) So long as any Certificates remain outstanding, the City shall cause the Paying Agent/Registrar to keep at its designated office a register in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of Certificates in accordance with this Ordinance. (b) The ownership of a Certificate may be transferred only upon the presentation and surrender of the Certificate at the Designated Payment/Transfer Office with such endorsement or GRA325/1 Dallas 491338_2 -9- other evidence of transfer as is acceptable to the Paying Agent/Registrar. No transfer of any Certificate shall be effective until entered in the Register. (c) The Certificates shall be exchangeable upon the presentation and surrender thereof at the Designated Payment/Transfer Office Paying Agent/Registrar for a Certificate or Certificates of the same maturity and interest rate and in a denomination or denominations of any integral multiple of $5,000, and in an aggregate principal amount equal to the unpaid principal amount of the Certificates presented for exchange. The Paying Agent/Registrar is hereby authorized to authenticate and deliver Certificates exchanged for other Certificates in accordance with this Section. (d) Each exchange Certificate delivered by the Paying Agent/Registrar in accordance with this Section shall constitute an original contractual obligation of the City and shall be entitled to the benefits and security of this Ordinance to the same extent as the Certificate or Certificates in lieu of which such exchange Certificate is delivered. (e) No service charge shall be made to the Owner for the initial registration, subsequent transfer, or exchange for a different denomination of any of the Certificates. The Paying Agent/Registrar, however, may require the Owner to pay a sum sufficient to cover any tax or other governmental charge that is authorized to be imposed in connection with the registration, transfer, or exchange of a Certificate. Section 3.07. Cancellation. All Certificates paid in accordance with this Ordinance, and all Certificates in lieu of which exchange Certificates or replacement Certificates are authenticated and delivered in accordance with this Ordinance, shall be cancelled and proper records shall be made regarding such payment, redemption, exchange, or replacement. The Paying Agent/Registrar shall then dispose of cancelled Certificates in accordance with the Securities Exchange Act of 1934. Section 3.08. Temporary Certificates. (a) Following the delivery and registration of the Initial Certificate and pending the preparation of definitive Certificates, the proper officers of the City may execute and, upon the City's request, the Paying Agent/Registrar shall authenticate and deliver, one or more temporary Certificates that are printed, lithographed, typewritten, mimeographed, or otherwise produced, in any denomination, substantially of the tenor of the definitive Certificates in lieu of which they are delivered, without coupons, and with such appropriate insertions, omissions, substitutions, and other variations as the officers of the City executing such temporary Certificates may determine, as evidenced by their signing of such temporary Certificates. (b) Until exchanged for Certificates in definitive form, such Certificates in temporary form shall be entitled to the benefit and security of this Ordinance. (c) The City, without unreasonable delay, shall prepare, execute and deliver to the Paying Agent/Registrar the Certificates in definitive form; thereupon, upon the presentation and surrender of the Certificate or Certificates in temporary form to the Paying Agent/Registrar, the Paying Agent/Registrar shall cancel the Certificates in temporary form and shall authenticate and GRA325/ 1 Dallas 491338_2 deliver in exchange therefor a Certificate or Certificates of the same maturity and series, in definitive form, in the authorized denomination, and in the same aggregate principal amount, as the Certificate or Certificates in temporary form surrendered. Such exchange shall be made without the making of any charge therefor to any Owner. Section 3.09. Replacement Certificates. (a) Upon the presentation and surrender to the Paying Agent/Registrar of a mutilated Certificate, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Certificate of like tenor and principal amount, bearing a number not contemporaneously outstanding. The City or the Paying Agent/Registrar may require the Owner of such Certificate to pay a sum sufficient to cover any tax or other governmental charge that is authorized to be imposed in connection therewith and any other expenses connected therewith. (b) In the event that any Certificate is lost, apparently destroyed or wrongfully taken, the Paying Agent/Registrar, pursuant to the applicable laws of the State of Texas and in the absence of notice or knowledge that such Certificate has been acquired by a bona fide purchaser, shall authenticate and deliver a replacement Certificate of like tenor and principal amount, bearing a number not contemporaneously outstanding, provided that the Owner first: (i) furnishes to the Paying Agent/Registrar satisfactory evidence of his or her ownership of and the circumstances of the loss, destruction, or theft of such Certificate; (ii) furnishes such security or indemnity as may be required by the Paying Agent/Registrar to save it and the City harmless; (iii) pays all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Paying Agent/Registrar, and any tax or other governmental charge that is authorized to be imposed; and (iv) satisfies any other reasonable requirements imposed by the City and the Paying Agent/Registrar. (c) If, after the delivery of such replacement Certificate, a bona fide purchaser of the original Certificate in lieu of which such replacement Certificate was issued presents for payment such original Certificate, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Certificate from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost, or expense incurred by the City or the Paying Agent/Registrar in connection therewith. (d) In the event that any such mutilated, lost, apparently destroyed, or wrongfully taken Certificate has become or is about to become due and payable, the Paying Agent/Registrar, in its discretion, instead of issuing a replacement Certificate, may pay such Certificate if it has become due and payable or may pay such Certificate when it becomes due and payable. GRA32sn Dallas 491338_2 -11- (e) Each replacement Certificate delivered in accordance with this Section shall constitute an original additional contractual obligation of the City and shall be entitled to the benefits and security of this Ordinance to the same extent as the Certificate or Certificates in lieu of which such replacement Certificate is delivered. Section 3.1 Q. Book -Entry -Only System. (a) Notwithstanding any other provision hereof, upon initial issuance of the Certificates, the Certificates shall be registered in the name of Cede & Co., as nominee of DTC. The definitive Certificates shall be initially issued in the form of a single separate certificate for each of the maturities thereof. (b) With respect to Certificates registered in the name of Cede & Co., as nominee of DTC, the City and the Paying Agent/Registrar shall have no responsibility or obligation to any DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in the Certificates. Without limiting the immediately preceding sentence, the City and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Certificates, (ii) the delivery to any DTC Participant or any other person, other than an Owner, as shown on the Register, of any notice with respect to the Certificates, including any notice of redemption, or (iii) the payment to any DTC Participant or any other person, other than an Owner, as shown in the Register of any amount with respect to principal of, premium, if any, or interest on the Certificates. Notwithstanding any other provision of this Ordinance to the contrary, the City and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Certificate is registered in the Register as the absolute owner of such Certificate for the purpose of payment of principal of, premium, if any, and interest on Certificates, for the purpose of giving notices of redemption and other matters with respect to such Certificate, for the purpose of registering transfer with respect to such Certificate, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of, premium, if any, and interest on the Certificates only to or upon the order of the respective Owners as shown in the Register, as provided in this Ordinance, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of, premium, if any, and interest on the Certificates to the extent of the sum or sums so paid. No person other than an Owner, as shown in the Register, shall receive a certificate evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. Upon delivery by DTC to the Paying Agent/Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., the word "Cede & Co." in this Ordinance shall refer to such new nominee of DTC. (c) The Representations Letter previously executed and delivered by the City, and applicable to the City's obligations delivered in book -entry -only form to DTC as securities depository, is hereby ratified and approved for the Certificates. GRA325/1 Dallas 491338_2 -12- Section 3.11. _Successor Securities Depository; Transfer Outside Book -Entry -Only System. In the event that the City or the Paying Agent/Registrar determines that DTC is incapable of discharging its responsibilities described herein and in the Representations Letter of the City to DTC, and that it is in the best interest of the City and the beneficial owners of the Certificates that they be able to obtain certificated Certificates, or in the event DTC discontinues the services described herein, the City shall (i) appoint a successor securities depository, qualified to act as such under Section 17(a) of the Securities and Exchange Act of 1934, as amended, notify DTC and DTC Participants of the appointment of such successor securities depository and transfer one or more separate Certificates to such successor securities depository; or (ii) notify DTC and DTC Participants of the availability through DTC of certificated Certificates and cause the Paying Agent/Registrar to transfer one or more separate registered Certificates to DTC Participants having Certificates credited to their DTC accounts. In such event, the Certificates shall no longer be restricted to being registered in the Register in the name of Cede & Co., as nominee of DTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names Owners transferring or exchanging Certificates shall designate, in accordance with the provisions of this Ordinance. Section 3.12. Payments to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, so long as the Certificates are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on such Certificates, and all notices with respect to such Certificates shall be made and given, respectively, in the manner provided in the Representations Letter of the City to DTC. 1:1.711114180►�l REDEMPTION OF CERTIFICATES BEFORE MATURITY Section 4.01. Limitation on Redemption. The Certificates shall be subject to redemption before scheduled maturity only as provided in this Article IV. Section 4.02. Optional Redemption. (a) The City reserves the option to redeem Certificates maturing on and after August 15, 2012 in whole or any part, before their respective scheduled maturity dates, on August 15, 2011 or on any date thereafter, such redemption date or dates to be fixed by the City, at a price equal to the principal amount of the Certificates called for redemption plus accrued interest to the date fixed for redemption. (b) If less than all of the Certificates are to be redeemed pursuant to an optional redemption, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar to call by lot the Certificates, or portions thereof, within such maturity or maturities and in such principal amounts for redemption. GRA325/1 Dallas 491338_2 -13- (c) The City, at least 45 days before the redemption date, unless a shorter period shall be satisfactory to the Paying Agent/Registrar, shall notify the Paying Agent/Registrar of such redemption date and of the principal amount of Certificates to be redeemed. Section 4.03. Reserved Section 4.04. Partial Redemption. (a) A portion of a single Certificate of a denomination greater than $5,000 may be redeemed, but only in a principal amount equal to $5,000 or any integral multiple thereof. If such a Certificate is to be partially redeemed, the Paying Agent/Registrar shall treat each $5,000 portion of the Certificate as though it were a single Certificate for purposes of selection for redemption. (b) Upon surrender of any Certificate for redemption in part, the Paying Agent/Registrar, in accordance with Section 3.06 of this Ordinance, shall authenticate and deliver an exchange Certificate or Certificates in an aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered, such exchange being without charge. (c) The Paying Agent/Registrar shall promptly notify the City in writing of the principal amount to be redeemed of any Certificate as to which only a portion thereof is to be redeemed. Section 4.05. Notice of Redemption to Owners. (a) The Paying Agent/Registrar shall give notice of any redemption of Certificates by sending notice by first class United States mail, postage prepaid, not less than 30 days before the date fixed for redemption, to the Owner of each Certificate (or part thereof) to be redeemed, at the address shown on the Register at the close of business on the Business Day next preceding the date of mailing such notice. (b) The notice shall state the redemption date, the redemption price, the place at which the Certificates are to be surrendered for payment, and, if less than all the Certificates outstanding are to be redeemed, an identification of the Certificates or portions thereof to be redeemed. (c) Any notice given as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives such notice. Section 4.06. Payment Upon Redemption. (a) Before or on each redemption date, the City shall deposit with the Paying Agent/Registrar money sufficient to pay all amounts due on the redemption date and the Paying Agent/Registrar shall make provision for the payment of the Certificates to be redeemed on such date by setting aside and holding in trust such amounts as are received by the Paying Agent/Registrar from the City and shall use such funds solely for the purpose of paying the principal of, redemption premium, if any, and accrued interest on the Certificates being redeemed. GRA325/1 Dallas 491338_2 -14- (b) Upon presentation and surrender of any Certificate called for redemption at the Designated Payment/Transfer Office on or after the date fixed for redemption, the Paying Agent/Registrar shall pay the principal of, redemption premium, if any, and accrued interest on such Certificate to the date of redemption from the money set aside for such purpose. Section 4.07. Effect of Redem tp ion. (a) Notice of redemption having been given as provided in Section 4.05 of this Ordinance, the Certificates or portions thereof called for redemption shall become due and payable on the date fixed for redemption and, unless the City defaults in its obligation to make provision for the payment of the principal thereof, redemption premium, if any, or accrued interest thereon, such Certificates or portions thereof shall cease to bear interest from and after the date fixed for redemption, whether or not such Certificates are presented and surrendered for payment on such date. (b) If the City shall fail to make provision for payment of all sums due on a redemption date, then any Certificate or portion thereof called for redemption shall continue to bear interest at the rate stated on the Certificate until due provision is made for the payment of same by the City. ARTICLE V PAYING AGENT/REGISTRAR Section 5.01. Appointment of Initial Pang Agent/Re istrar. Bank One, National Association, is hereby appointed as the initial Paying Agent/Registrar for the Certificates. Section 5.02. Qualifications. Each Paying Agent/Registrar shall be a commercial bank, a trust company organized under the laws of the State of Texas, or other entity duly qualified and legally authorized to serve as and perform the duties and services of paying agent and registrar for the Certificates. Section 5.03. Maintaining Paving Agent/Registrar. (a) At all times while any of the Certificates are outstanding, the City will maintain a Paying Agent/Registrar that is qualified under Section 5.02 of this Ordinance. The Mayor is hereby authorized and directed to execute an agreement with the Paying Agent/Registrar specifying the duties and responsibilities of the City and the Paying Agent/Registrar. The signature of the Mayor shall be attested by the City Secretary of the City. (b) If the Paying Agent/Registrar resigns or otherwise ceases to serve as such, the City will promptly appoint a replacement. GRA325/1 Dallas 491338_2 -15- Section 5.04. Termination. The City, upon not less than sixty (60) days notice, reserves the right to terminate the appointment of any Paying Agent/Registrar by delivering to the entity whose appointment is to be terminated written notice of such termination. Section 5.05. Notice of Change to Owners. Promptly upon each change in the entity serving as Paying Agent/Registrar, the City will cause notice of the change to be sent to each Owner by first class United States mail, postage prepaid, at the address thereof in the Register, stating the effective date of the change and the name and mailing address of the replacement Paying Agent/Registrar. Section 5.06. Agreement to Perform Duties and Functions. By accepting the appointment as Paying Agent/Registrar and executing the Paying Agent/Registrar Agreement, the Paying Agent/Registrar is deemed to have agreed to the provisions of this Ordinance and that it will perform the duties and functions of Paying Agent/Registrar prescribed thereby. Section 5.07. Delivery of Records to Successor. If a Paying Agent/Registrar is replaced, such Paying Agent/Registrar, promptly upon the appointment of the successor, will deliver the Register (or a copy thereof) and all other pertinent books and records relating to the Certificates to the successor Paying Agent/Registrar. ARTICLE VI FORM OF THE CERTIFICATES Section 6.01. Form Generally. (a) The Certificates, including the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the Certificate of the Paying Agent/Registrar, and the Assignment form to appear on each of the Certificates, (i) shall be substantially in the form set forth in this Article, with such appropriate insertions, omissions, substitutions, and other variations as are permitted or required by this Ordinance, and (ii) may have such letters, numbers, or other marks of identification (including identifying numbers and letters of the Committee on Uniform Securities Identification Procedures of the American Bankers Association) and such legends and endorsements (including any reproduction of an opinion of counsel) thereon as, consistently herewith, may be determined by the City or by the officers executing such Certificates, as evidenced by their execution thereof. (b) Any portion of the text of any Certificates may be set forth on the reverse side thereof, with an appropriate reference thereto on the face of the Certificates. (c) The definitive Certificates, if any, shall be typewritten, photocopied, printed, lithographed, or engraved, and may be produced by any combination of these methods or GRA325/ I Dallas 491338_2 -16- produced in any other similar manner, all as determined by the officers executing such Certificates, as evidenced by their execution thereof. (d) The Initial Certificate submitted to the Attorney General of the State of Texas may be typewritten and photocopied or otherwise reproduced. Section 6.02. Form of the Certificates. The form of the Certificates, including the form of the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the form of Certificate of the Paying Agent/Registrar and the form of Assignment appearing on the Certificates, shall be substantially as follows: (a) Form of Certificate. REGISTERED REGISTERED M United States of America State of Texas County of Tarrant CITY OF GRAPEVINE, TEXAS COMBINATION TAX AND REVENUE CERTIFICATE OF OBLIGATION SERIES 2001 INTEREST RATE: MATURITY DATE: CERTIFICATE DATE: CUSIP NUMBER: % August 15, July 15, 2001 — The City of Grapevine (the "City"), in the County of Tarrant, State of Texas, for value received, hereby promises to pay to or registered assigns, on the Maturity Date specified above, the sum of DOLLARS unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the GRA325/1 Dallas 491338_2 -17- basis of a 360 -day year of twelve 30 -day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2002. The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the designated office in Columbus, Ohio, as Paying Agent/Registrar (the "Designated Payment/Transfer Office"), or, with respect to a successor paying agent/registrar, at the Designated Payment/Transfer Office of such successor. Interest on this Certificate is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Certificate, the registered owner shall be the person in whose name this Certificate is registered at the close of business on the "Record Date," which shall be the last Business Day of the month next preceding such interest payment date; provided, however, that in the event of nonpayment of interest on a scheduled payment date and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") shall be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the "Special Payment Date," which date shall be 15 days after the Special Record Date) shall be sent at least five Business Days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of each Owner of a Certificate appearing on the books of the Paying Agent/Registrar at the close of business on the last Business Day next preceding the date of mailing of such notice. If the date for the payment of the principal of or interest on this Certificate shall be a Saturday, Sunday, legal holiday, or day on which banking institutions in the city where the Designated Payment/Transfer Office is located are required or authorized by law or executive order to close, the date for such payment shall be the next succeeding day which is not a Saturday, Sunday, legal holiday, or day on which banking institutions are required or authorized to close, and payment on such date shall have the same force and effect as if made on the original date payment was due and no additional interest shall be due by reason of nonpayment on the date on which such payment is otherwise stated to be due and payable. This Certificate is one of a series of fully registered certificates specified in the title hereof issued in the aggregate principal amount of $4,385,000 (herein referred to as the "Certificates"), issued pursuant to a certain ordinance of the City (the "Ordinance") for the purpose of paying contractual obligations to be incurred for the acquisition of the Palace Arts Center (the "Project"), located at 300 S. Main Street, Grapevine, Texas for use as a music hall, opera house and theater and to pay the contractual obligations for professional services of engineers, attorneys, financial advisors and other professionals in connection with the Project and the issuance of the Certificates. GRA325/1 Dallas 491338_2 -18- The City has reserved the option to redeem the Certificates maturing on or after August 15, 2012, in whole or in part, before their respective scheduled maturity dates, on August 15, 2011, or on any date thereafter, at a price equal to the principal amount of the Certificates so called for redemption plus accrued interest to the date fixed for redemption. If less than all of the Certificates are to be redeemed, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar to call by lot or other customary method that results in a random selection the Certificates, or portions thereof, within such maturity and in such principal amounts, for redemption. As provided in the Ordinance, and subject to certain limitations therein set forth, this Certificate is transferable upon surrender of this Certificate for transfer at the Designated Payment/Transfer Office with such endorsement or other evidence of transfer as is acceptable to the Paying Agent/Registrar; thereupon, one or more new fully registered Certificates of the same stated maturity, of authorized denominations, bearing thesame rate of interest, and for the same aggregate principal amount will be issued to the designated transferee or transferees. Neither the City nor the Paying Agent/Registrar shall be required to issue, transfer or exchange any Certificate called for redemption where such redemption is scheduled to occur within 45 calendar days of the date fixed for redemption; provided, however, such limitation shall not be applicable to an exchange by the registered owner of the uncalled principal balance of a Certificate. The City, the Paying Agent/Registrar, and any other person may treat the person in whose name this Certificate is registered as the owner hereof for the purpose of receiving payment as herein provided (except interest shall be paid to the person in whose name this Certificate is registered on the Record Date) and for all other purposes, whether or not this Certificate be overdue, and neither the City nor the Paying Agent/Registrar shall be affected by notice to the contrary. IT IS HEREBY CERTIFIED AND RECITED that the issuance of this Certificate and the series of which it is a part is duly authorized by law; that all acts, conditions, and things required to be done precedent to and in the issuance of the Certificates have been properly done and performed and have happened in regular and due time, form, and manner as required by law; that ad valorem taxes upon all taxable property in the City have been levied for and pledged to the payment of the debt service requirements of the Certificates within the limit prescribed by law; that, in addition to said taxes, further provisions have been made for the payment of the debt service requirements of the Certificates by pledging to such purpose, a limited amount of the Surplus Revenues, as defined in the Ordinance, derived by the City from the operation of the combined waterworks and sewer system; that when so collected, such taxes and Surplus Revenues shall be appropriated to such purposes; and that the total indebtedness of the City, including the Certificates, does not exceed any constitutional or statutory limitation. GRA325/1 Dallas 491338_2 -19- IN WITNESS WHEREOF, the City has caused this Certificate to be executed by the manual or facsimile signature of the Mayor of the City and countersigned by the manual or facsimile signature of the City Secretary, and the official seal of the City has been duly impressed or placed in facsimile on this Certificate. Mayor, City of Grapevine, Texas City Secretary, City of Grapevine, Texas [SEAL] (b) Form of Comptroller's Registration Certificate. The following Comptroller's Registration Certificate may be deleted from the definitive Certificates if such certificate on the Initial Certificate is fully executed. OFFICE OF THE COMPTROLLER § OF PUBLIC ACCOUNTS § REGISTER NO. OF THE STATE OF TEXAS § I hereby certify that there is on file and of record in my office a certificate of the Attorney General of the State of Texas to the effect that this Certificate has been examined by him as required by law, that he finds that it has been issued in conformity with the Constitution and laws of the State of Texas, and that it is a valid and binding obligation of the City of Grapevine, Texas; and that this Certificate has this day been registered by me. Witness my hand and seal of office at Austin, Texas, [SEAL] Comptroller of Public Accounts of the State of Texas GRA325/ 1 Dallas 491338_2 -20- (c) Form of Certificate of Paving Agent/Registrar. The following Certificate of Paying Agent/Registrar may be deleted from the Initial Certificate if the Comptroller's Registration Certificate appears thereon. CERTIFICATE OF PAYING AGENT/REGISTRAR The records of the Paying Agent/Registrar show that the Initial Certificate of this series of Certificates was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas, and that this is one of the Certificates referred to in the within -mentioned Ordinance. Dated: (d) Form of Assignment. Paying Agent/Registrar !0 ASSIGNMENT Authorized Signatory FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto (print or typewrite name, address and Zip Code of transferee): (Social Security or other identifying number: ) the within Bond and all rights hereunder and hereby irrevocably constitutes and appoints attorney to transfer the within Bond on the books kept for registration hereof, with full power of substitution in the premises. Dated: Signature Guaranteed By: Authorized Signatory GRA325/1 Dallas 491338_2 -21- NOTICE: The signature on this Assignment must correspond with the name of the registered owner as it appears on the face of the within Certificate in every particular and must be guaranteed in a manner acceptable to the Paying Agent/Registrar. (e) The Initial Certificate shall be in the form set forth in paragraphs (a) through (d) of this Section, except for the following alterations: (i) immediately under the name of the Certificate the headings "INTEREST RATE" and "MATURITY DATE" shall both be completed with the expression "As shown below"; (ii) in the first paragraph of the Certificate, the words "on the Maturity Date specified above" shall be deleted and the following will be inserted: "on February 15 in each of the years, in the principal installments and bearing interest at the per annum rates in accordance with the following schedule: Principal Interest Years Installments Rates" (Information to be inserted from schedule in Section 3.02(b) of this Ordinance) (iii) the Initial Certificate shall be numbered T -l. Section 6.03. CUSIP Registration. The City may secure identification numbers through the CUSIP Service Bureau Division of Standard & Poor's Corporation, New York, New York, and may authorize the printing of such numbers on the face of the Certificates. It is expressly provided, however, that the presence or absence of CUSIP numbers on the Certificates shall be of no significance or effect as regards to the legality thereof and neither the City nor the attorneys approving said Certificates as to legality are to be held responsible for CUSIP numbers incorrectly printed on the Certificates. Section 6.04. Legal Opinion. The approving legal opinion of Vinson & Elkins L.L.P., Bond Counsel, may be printed on the reverse side of or attached to each Certificate over the certification of the City Secretary of the City, which may be executed in facsimile. Section 6.05. Statement of Insurance. A statement related to a municipal bond insurance policy, if any, to be issued for the Certificates may be printed on or attached to each Certificate. ARTICLE VII SALE AND DELIVERY OF CERTIFICATES; DEPOSIT OF PROCEEDS Section 7.01. Sale of Certificates-, Official Statement. (a) The Certificates, having been duly advertised and offered for sale at competitive bid, are hereby officially sold and awarded to William R. Hough & Co. (the "Purchaser") for a GRA325/l Dallas 491338_2 -22- purchase price equal to the principal amount thereof, plus a premium of $609.05, plus interest accrued on the Certificates from the Certificate Date to the Closing Date. It is hereby found and declared that such price is the best obtainable by the City for the Certificates. The initial Certificate shall initially be registered in the name of the Purchaser or its designee. (b) The form and substance of the Preliminary Official Statement, dated July 5, 2001, and any addenda, supplement or amendment thereto (the "Preliminary Official Statement") presented to and considered at this meeting, is hereby in all respects approved and adopted and the Preliminary Official Statement is hereby deemed final as of its date (except for omission of pricing and related information) within the meaning and for the purposes of paragraph (b)(1) of Rule 15c2-12 under the Securities Exchange Act of 1934, as amended. The use and distribution of the Preliminary Official Statement, and the preliminary public offering of the Certificates by the Purchaser is hereby ratified, approved and confirmed. The Preliminary Official Statement with such appropriate variations, including pricing and related information, as shall be approved by the Mayor of the City and the Purchaser (the "Official Statement"), may be used by the Purchaser in the public offering and sale of the Certificates. The City Secretary is hereby authorized and directed to include and maintain a copy of the Official Statement and any addenda, supplement or amendment thereto thus approved among the permanent records of this meeting. The Mayor and City Secretary of the City are hereby authorized and directed to execute the same and deliver appropriate numbers of executed copies thereof to the Purchaser. (c) All officers of the City are authorized to execute such documents, certificates and receipts, and to make such elections with respect to the tax-exempt status of Certificates, as they may deem appropriate in order to consummate the delivery of the Certificates in accordance with the provisions and terms of sale therefor. (d) The obligation of the Purchaser identified in subsection (a) of this Section to accept delivery of the Certificates is subject to such purchaser being furnished with the final, approving opinion of Vinson & Elkins L.L.P., bond counsel for the City, which opinion shall be dated and delivered the Closing Date. Section 7.02. Control and Delivery of Bonds. (a) The Mayor of the City is hereby authorized to have control of the Initial Certificate and all necessary records and proceedings pertaining thereto pending investigation, examination, and approval of the Attorney General of the State of Texas, registration by the Comptroller of Public Accounts of the State of Texas and registration with, and initial exchange or transfer by, the Paying Agent/Registrar. (b) After registration by the Comptroller of Public Accounts, delivery of the Certificates shall be made to the initial purchasers thereof under and subject to the general supervision and direction of the Mayor, against receipt by the City of all amounts due to the City under the terms of sale. GR -A325/1 Dallas 491338_2 -23- Section 7.03. Deposit of Proceeds. (a) First: All amounts received on the Closing Date as accrued interest on the Certificates from the Certificate Date to the Closing Date, together with the premium, shall be deposited to the Interest and Sinking Fund. (b) Second: The remaining balance received on the Closing Date shall be deposited to a special account of the City, such moneys to be dedicated and used solely for the purposes for which the Certificates are being issued as herein provided. ARTICLE VIII INVESTMENTS Section 8.01. Investments. (a) Money in the Interest and Sinking Fund created by this Ordinance, at the option of the City, may be invested in such securities or obligations as permitted under applicable law as in effect on the date of the investment. (b) Any securities or obligations in which money in the Interest and Sinking Fund is so invested shall be kept and held in trust for the benefit of the Owners and shall be sold and the proceeds of sale shall be timely applied to the making of all payments required to be made from the Interest and Sinking Fund. Section 8.02. Investment Income. (a) Interest and income derived from investment of the Interest and Sinking Fund shall be credited to such fund. (b) Interest and income derived from the investment of funds deposited pursuant to Section 7.03(b) hereof shall be credited to the fund or account where deposited until the completion of the Project; thereafter, to the extent such interest and income are present, such interest and income shall be deposited to the Interest and Sinking Fund. ARTICLE IX PARTICULAR REPRESENTATIONS AND COVENANTS Section 9.01. Payment of the Certificates. On or before each Interest Payment Date for the Certificates and while any of the Certificates are outstanding and unpaid, there shall be made available to the Paying Agent/Registrar, out of the Interest and Sinking Fund, money sufficient to pay such interest on, principal of and redemption premium, if any on the Certificates as will accrue or mature on the applicable Interest Payment Date, maturity date or date of prior redemption, if any. GRA325/1 Dallas 491338_2 -24- Section 9.02. Other Representations and Covenants. (a) The City will faithfully perform, at all times, any and all covenants, undertakings, stipulations, and provisions contained in this Ordinance and in each Certificate; the City will promptly pay or cause to be paid the principal of, redemption premium, if any, and interest on each Certificate on the dates and at the places and manner prescribed in such Certificate; and the City will, at the times and in the manner prescribed by this Ordinance, deposit or cause to be deposited the amounts of money specified by this Ordinance. (b) The City is duly authorized under the laws of the State of Texas to issue the Certificates; all action on its part for the creation and issuance of the Certificates has been duly and effectively taken; and the Certificates in the hands of the Owners thereof are and will be valid and enforceable obligations of the City in accordance with their terms. Section 9.03. Provisions Concerning Federal Income Tax Exclusion. The City intends that the interest on the Certificates shall be excludable from gross income for federal income tax purposes pursuant to sections 103 and 141 through 150 of the Code and the applicable Income Tax Regulations promulgated thereunder (the "Regulations"). The City covenants and agrees not to, take any action, or knowingly omit to take any action within its control, that if taken or omitted, respectively, would cause the interest on the Certificates to be includable in gross income, as defined in section 61 of the Code, for federal income tax purposes. In particular, the City covenants and agrees to comply with each requirement of Sections 9.03 through 9.10, inclusive; provided, however, that the City shall not be required to comply with any particular requirement of this Sections 9.03 through 9. 10, inclusive, 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 Certificates or if the City has received a Counsel's Opinion to the effect that compliance with some other requirement set forth in this Sections 9.03 through 9. 10, inclusive, will satisfy the applicable requirements of the Code and the Regulations, in which case compliance with such other requirement specified in such Counsel's Opinion shall constitute compliance with the corresponding requirement specified in Sections 9.03 through 9. 10, inclusive. Section 9.04. No Private Use or Payment and No Private Loan Financing. The City shall certify, through an authorized officer, employee or agent, that, based upon all facts and estimates known or reasonably expected to be in existence on the date the Certificates are delivered, that the proceeds of the Certificates will not be used in a manner that would cause the Certificates to be "private activity bonds" within the meaning of section 141 of the Code and the Regulations promulgated thereunder. Moreover, the City covenants and agrees that it will make such use of the proceeds of the Certificates, including interest or other investment income derived from Certificate proceeds, regulate the use of property financed, directly or indirectly, with such proceeds, and take such other and further action as may be required so that the Certificates will not be "private activity bonds" within the meaning of section 141 of the Code and the Regulations promulgated thereunder. Section 9.05. No Federal Guaranty. The City covenants and agrees not to take any action, and or knowingly omit to take any action within its control, that, if taken or omitted, respectively, would cause the Certificates to be "federally guaranteed" within the meaning of GRA325/1 Dallas 491338_2 -25- section 149(b) of the Code and the applicable Regulations thereunder, except as permitted by section 149(b)(3) of the Code and such Regulations. Section 9.06. Certificates are not Hedge Certificates. 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 Certificates to be "hedge bonds" within the meaning of section 149(8) of the Code and the applicable Regulations thereunder. Section 9.07. No -Arbitrage Covenant. The City shall certify, through an authorized officer, employee or agent, that, based upon all facts and estimates known or reasonably expected to be in existence on the date the Certificates are delivered, the City will reasonably expect that the proceeds of the Certificates will not be used in a manner that would cause the Certificates to be "arbitrage bonds" within the meaning of section 148(a) of the Code and the applicable Regulations thereunder. Moreover, the City covenants and agrees that it will make such use of the proceeds of the Certificates, including interest or other investment income derived from Certificate proceeds, regulate investments of proceeds of the Certificates, and take such other and further action as may be required so that the Certificates will not be "arbitrage bonds" within the meaning of section 148(a) of the Code and the applicable Regulations promulgated thereunder. Section 9.08. Arbitrage Rebate. The City will take all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the "gross proceeds" of the Certificates (within the meaning of section 148(f)(6)(B) of the Code), be rebated to the federal government. Specifically, the City will (i) maintain records regarding the investment of the gross proceeds of the Certificates as may be required to calculate the amount earned on the investment of the gross proceeds of the Certificates separately from records of amounts on deposit in the funds and accounts of the City allocable to other issues of the City or moneys which do not represent gross proceeds of any issues of the City, (ii) calculate at such times as are required by applicable Regulations the amount earned from the investment of the gross proceeds of the Certificates which is required to be rebated to the federal government, and (iii) pay, not less often than every fifth anniversary date of the delivery of the Certificates or on such other dates as may be permitted under applicable Regulations, all amounts required to be rebated to the federal government. Further, the City will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Certificates that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or a larger loss than would have resulted if the arrangement had been at arm's length and had the yield on the issue not been relevant to either party. Section 9.09. Information Reporting. The City covenants and agrees to file or cause to be filed with the Secretary of the Treasury, not later than the 15th day of the second calendar month after the close of the calendar quarter in which the Certificates are issued, an information statement concerning the Certificates, all under and in accordance with section 149(e) of the Code and the applicable Regulations promulgated thereunder. GRA325/1 Dallas 491338_2 -26- Section 9. 10. Continuing Obligation. Notwithstanding any other provision of this Ordinance, the City's obligations under the covenants and provisions of Sections 9.03 through 9.09, inclusive, shall survive the defeasance and discharge of the Certificates. DEFAULT AND REMEDIES Section 10.01. Events of Default. Each of the following occurrences or events for the purpose of this Ordinance is hereby declared to be an Event of Default: (i) the failure to make payment of the principal of, redemption premium, if any, or interest on any of the Certificates when the same becomes due and payable; or (ii) default in the performance or observance of any other covenant, agreement, or obligation of the City, which default materially and adversely affects the rights of the Owners, including but not limited to their prospect or ability to be repaid in accordance with this Ordinance, and the continuation thereof for a period of sixty (60) days after notice of such default is given by any Owner to the City. Section 10.02. Remedies for Default. (a) Upon the happening of any Event of Default, then any Owner or an authorized representative thereof, including but not limited to a trustee or trustees therefor, may proceed against the City for the purpose of protecting and enforcing the rights of the Owners under this Ordinance by mandamus or other suit, action or special proceeding in equity or at law in any court of competent jurisdiction for any relief permitted by law, including the specific performance of any covenant or agreement contained herein, or thereby to enjoin any act or thing that may be unlawful or in violation of any right of the Owners hereunder or any combination of such remedies. (b) It is provided that all such proceedings shall be instituted and maintained for the equal benefit of all Owners of Certificates then outstanding. Section 10.03. Remedies Not Exclusive. (a) No remedy herein conferred or reserved is intended to be exclusive of any other available remedy, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or under the Certificates or now or hereafter existing at law or in equity; provided, however, that notwithstanding any other provision of this Ordinance, the right to accelerate the debt evidenced by the Certificates shall not be available as a remedy under this Ordinance. GRA325/1 Dallas 491338_2 -27- (ii) nonpayment related defaults; (iii) unscheduled draws on debt service reserves reflecting financial difficulties; (iv) unscheduled draws on credit enhancements reflecting financial difficulties; (v) substitution of credit or liquidity providers, or their failure to perform; (vi) adverse tax opinions or events affecting the tax exempt status of the Certificates; (vii) modifications to rights of Owners; (viii) redemption calls; (ix) defeasances; (x) release, substitution, or sale of property securing repayment of the Certificates; and (xi) rating changes. (b) The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with Section 12.01 of this Ordinance by the time required by such Section. Section 12.03, Limitations Disclaimers and Amendments. (a) The City shall be obligated to observe and perform the covenants specified in this Article for so long as, but only for so long as, the City remains an "obligated person" with respect to the Certificates within the meaning of the Rule, except that the City in any event will give notice of any deposit made in accordance with Article XI that causes Certificates to no longer be outstanding. (b) The provisions of this Article are for the sole benefit of the Owners and beneficial owners of the Certificates, and nothing in this Article, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The City undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Article and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the City's financial results, condition, or prospects or hereby undertake to update any information provided in accordance with this Article or otherwise, except as expressly provided herein. The City does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Certificates at any future date. GRA325/1 Dallas 491338_2 -29- UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE OWNER OR BENEFICIAL OWNER OF ANY CERTIFICATE OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS ARTICLE, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. (c) No default by the City in observing or performing its obligations under this Article shall constitute a breach of or default under the Ordinance for purposes of any other provisions of this Ordinance. (d) Nothing in this Article is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. (e) The provisions of this Article may be amended by the City from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (i) the provisions of this Article, as so amended, would have permitted an underwriter to purchase or sell Certificates in the primary offering of the Certificates in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (A) the Owners of a majority in aggregate principal amount (or any greater amount required by any other provisions of this Ordinance that authorizes such an amendment) of the outstanding Certificates consent to such amendment or (B) an entity or individual person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the Owners and beneficial owners of the Certificates. If the City so amends the provisions of this Article, it shall include with any amended financial information or operating data next provided in accordance with Section 12.01 an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in type of financial information or operating data so provided. ARTICLE XIII EMERGENCY Section 13.01. Declaration of Emergency. The public importance of this Ordinance and the fact that it is to the best interest of the City to provide funds for the construction of the improvements herein contemplated at the earliest possible date constitutes an emergency and creates a necessity for the immediate preservation of the public peace, property, health and safety of the citizens of the City requiring that this Ordinance be passed and take effect as an emergency measure, and it is accordingly ordained that this Ordinance shall be in full force and effect from and after its passage in accordance with the Charter of the City. GRA325/1 Dallas 491338_2 -30- APPROVED AND ADOPTED this July 17, 2001. Mayor, City of Grapevine, Texas F.-INISLISS City Secretary, City of Grapevine, Texas City Attorney , City of Grapevine, Texas Signature Page to Certificate Ordinance EXHIBIT A DESCRIPTION OF ANNUAL DISCLOSURE OF FINANCIAL INFORMATION The following information is referred to in Article XII of this Ordinance. Annual Financial Statements and Operating Data The financial information and operating data with respect to the City to be provided annually in accordance with such Section are as specified (and included in the Appendix or other headings of the Official Statement referred to) below: 1. The portions of the financial statements of the City appended to the Official Statement as Appendix B, but for the most recently concluded fiscal year. 2. Statistical and financial data set forth under Tables 1 through 6 and 8 through 15. Accounting Principles The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to in Paragraph 1 above. GRA325/1 Dallas 491338_2 A-1 o bltl.Ml�NlebVil.'W�a�Ib.Y ���� ��.: III.WWIWIAbblYp $4,385,000 COMBINATION TAX - ■ REVENUE CERTIFICATES OF OBLIGATIONy SERIES 2001 SEALED BIDS DUE TUESDAY, JULY 1 7, 200 1, AT 1 1:30 AM, CDT THE FOLLOWING RATINGS HAVE BEEN ASSIGNED: FDIC INSURED MOODY'S INVESTORS SERVICE, INC. "AAA" STANDARD & POOR'S RATING GROUP "AAA" A DIVISION OF MCGRAW-HILL, INC. PREPARED BY: =FIRST SOUTHWEST COMPANY UNDERLYING CREDIT RATING m "A +" Moody's Investors Service Global +r;redit research Grapevine (City of) TX Contacts Kristin Button �Robyn Kapiloff Douglas Benton Moody's Rating Issue 214-220-4383 212-553-4051 214-220-4381 General Obligation Combination Tax & Revenue Certificates of Obligation, Series 2001 Sale Amount $4,385,000 Expected Sale Date 07/17/01 Rating Description General Obligation Limited Tax Municipal Credit Research New Issue Published 9 Jul 2001 MOODY'S ASSIGNS Al RATING TO CITY OF GRAPEVINE'S $4.4 MILLION CERTIFICATES OF OBLIGATION, SERIES 2001 AFFECTS $158 MILLION OF DEBT Rating Al Moody's Investors Service has assigned an Al rating with a stable outlook to the City of Grapevine's $4,385,000 Combination Tax and Revenue Certificates of Obligation, Series 2001. In addition, Moody's has affirmed the Al underlying rating on the city's $158 million outstanding general obligation debt. Proceeds of the certificates, which are secured by a limited tax pledge and a limited pledge of surplus net revenues of the city's water and sewer system, will be used to acquire the Palace Theatre in Downtown Grapevine. Profits from the Theatre are used to make renovations to the city's downtown area. The city's rating and outlook reflect ongoing economic development and diversification, a well-maintained financial position, and a relatively high debt burden reflective of a rapidly growing area. Moody's expects continued tax base growth and diversification given ongoing commercial and residential development. Grapevine, a suburban community that encompasses 65% of the Dallas/Fort Worth International Airport (DFW), continues to experience rapid tax base expansion, as reflected in an average annual growth rate of 8.5% over the last five (1997-2001) fiscal years. Airline activities dominate the city's tax base. Just over $2.1 billion of tangible personal (commercial) property, which is primarily aircraft, comprises 41 % of the city's total taxable value. DFW, considered the world's fifth busiest airport, has substantial capital improvement plans necessitated by growth in airline traffic. Moody's believes city management's recent focus on commercial development will facilitate continued tax base growth and promote economic diversification. The opening of Grapevine Mills Mall, a 1.8 million square foot mall, in 1997 was one of the first successes of these efforts. In fiscal 1999, a 27% growth in sales tax receipts built on the 58% increase in the prior year, which were largely attributed to the opening of the al Grapevine Mills Mall, Fiscal 2000 realized a 9% growth and fiscal 2001 is expected to see a 7% growth in sales tax collections. The development of the Opryland convention center and hotel complex, located in the tax increment reinvestment zone, is projected to facilitate further growth and diversification. The complex is expected to open in 2003 and have 1,500 rooms with space for conventions, meeting rooms and banquet facilities, and a large entertainment facility. The city has also benefited from significant residential development, which has translated into strong residential wealth and income levels that well exceed state and national levels. Moody's believes the financial operations of the city will continue to be well maintained with sizable reserves, given steady growth in sales tax revenue and ongoing tax base expansion. Fiscal 2000 added over $800,000 to the General Fund balance bringing it to $7.7 million, or 22% of General Fund revenues. While the city's informal policy is to maintain General Fund reserves at a minimum of 16% (60 days) of budgeted expenditures, management reports no plans to reduce fund equity at this time. The maintenance of reserves remains an important factor in the city's credit position; particularly as the economically sensitive sales tax has become a more heavily relied upon revenue source for the city. In FY 2000 sales tax revenues represented the city's second largest revenue source, accounting for 31.5% of FY2000 total operating revenues, a share which has increased significantly since 1997 due to rapid sales tax growth (106% growth between 1997 and 2000). Recent State legislation (Senate Bill 569), sought by the cities of Dallas and Fort Worth, who jointly own DFW, will impact the tax revenues collected on airport property by the city. The act, effective September 1, 2001, requires the city to share revenues derived from airport property and sales taxes in excess of those collected in fiscal 2000 with the cities of Dallas and Fort Worth. Moody's expects that while this change will slightly diminish the rate of revenue expansion moving forward, it will not have a material adverse impact on city finances. Moody's anticipates the city's direct debt burden of 3.6% will increase in the near term but remain manageable given future borrowing plans, average principal retirement (53% in 10 years) and growth in the city's taxable values. Similarly, the city's overall debt burden is high at 8.1% and reflects the significant debt of the Grapevine-Colleyville ISD (GO ULT debt rated A2). Future debt plans include the city's remaining $16.6 million in general u4 obligation debt authorization, which is expected to be issued over the next two years. Debt service represents a significant fixed cost, comprising 28.9% of fiscal 2000 operating expenditures, which, while well above the norm, is not inconsistent with other rapidly growing municipalities. Outlook The stable outlook on the City of Grapevine's general obligation limited tax debt reflects Moody's belief that near-term increases in debt burden will be mitigated by continued tax base growth. Moody's expects that officials will continue to maintain reserves at levels consistent with the increased reliance on sales tax receipts, while addressing pressures associated with growth. The stable outlook also reflects Moody's expectation that Senate Bill 569 will have no material adverse impact on the city. aza� KEY STATISTICS: 2001 estimated population: 40,490 Tarrant County Unemployment (April 2001): 3.3% 2001 full valuation: $4.4 billion 2001 full value per capita: $107,991 Debt burden: 8.1% Principal Payout 10 years: 53.2% FY2000 General Fund Balance: $7.7 million (22.2% of General Fund revenues) FYI 999 General Fund Balance: $6.9 million (21.7% of General Fund revenues) © Copyright 2001 by Moody's Investors Service, 99 Church Street, New York, NY 10007. All rights reserved ALL INFORMATION CONTAINED HEREIN IS COPYRIGHTED IN THE NAME OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S"), AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED; FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided "as is" without warranty of any kind and MOODY'S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY'S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY'S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling. Pursuant to Section 17(b) of the Securities Act of 1933, MOODY'S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODY'S have, prior to assignment of any rating, agreed to pay to MOODY'S for appraisal and rating services rendered by it fees ranging from $1,000 to $1,500,000. MADE IN U.S.A STANDARD RA t N G Et D I R E C "T" WOWS Grapevine, Texas; Tax Secured, General Obligation Publication Date: 16 -Jul -2001 Analyst: Wendy Wipperman, Dallas (1) 214-871-1421; Alexander M Fraser, Dallas (1) 214-871-1406 Credit Profile $4.4 mil muni debt muni issue ser 2001 due 2021 A+ Sale date: 17-JUL-2001 AFFIRMED $6.347 mil. Grapevine A+ $5.530 mil. Grapevine comb tax & rev certs of oblig ser 1998 dtd 07/15/1998 due 02/15/2000-2019 AAAA+(SPUR) $31.580 mil. Grapevine comb tax & tax incre reinvest zone rev certs of oblig ser 2000 dtd 06/01/2000 due 08/15/2005-2021 2024 2026 AAAA+(SPUR) $7.880 mil. Grapevine comb tax and rev certs of oblig bnds ser 2000A dtd 11/01/2000 due 02/15/2002-2021 AAA/A+(SPUR) $5.635 mil. Grapevine combination tax & rev certs of oblig ser 2000 dtd 03/01/2000 due 08/15/2001-2010 AAA/A+(SPUR) $500,000 Grapevine equip acquis nts ser 1997 dtd 11/15/1997 due 08/15/1998-2001 AAA/A+(SPUR) $7.635 mil. Grapevine go bnds ser 2000 dtd 03/01/2000 due 02/15/2001-2019 AAA/A+(SPUR) $7.000 mil. Grapevine go bnds ser 2000A dtd 11/01/2000 due 02/15/2003-2021 AAA/A+(SPUR) $30.020 mil. Grapevine go rfdg & imp bnds ser 1999 dtd 02/15/1999 due 02/15/2001-2017 2019 AAA/A+(SPUR) OUTLOOK: STABLE Rationale The rating on Grapevine, Texas' certificates of obligation is based on a limited -tax pledge of the city and reflects the following factors: • Sustained rapid population and economic growth, • Moderately high tax base concentration linked to the Dallas -Fort Worth International Airport, • A strong financial position despite growth pressures, and • High overall debt levels and annual carrying charges. Grapevine's development has been greatly influenced by the Dallas -Fort Worth International Airport, which is primarily located within the city limits of Grapevine. The presence of the airport contributes substantial direct and indirect employment, sales and hotel tax revenue, and industrial and commercial real property taxes. Concentration of the property tax base is moderately high, with 31% of the value being held by the 10 leading taxpayers, including American and Delta Airlines. Overall property values have grown 40% since 1997 to $4.4 billion in assessed value (AV) in fiscal 2001. Income and wealth levels are high, with median household incomes at 164% of the nation and per capita market values at $103,375. Financial conditions remain strong, as evidenced by a fiscal year-end 2000 unreserved general fund balance of $6.68 million, representing 22% of expenditures. Fiscal 1999 posted an operating surplus of $3.5 million, due in part to strong sales tax receipts. The city transferred a total of $1.9 million out of the general fund primarily for capital projects, resulting in a $1.4 million increase to the general fund balance at fiscal year-end 1999. City management projects closing fiscal 2001 with an operating surplus. Year-to-date sales tax collections reflect a 10% increase over fiscal 2000 receipts for the same period. The fiscal 2001 budget is essentially balanced, reflecting a $289,000 operating surplus in Outlook The stable outlook reflects continued rapid population and economic growth and the expectation that the city will maintain its strong financial position while managing ongoing growth -driven capital needs. Economy The Grapevine economy has been experiencing rapid development as evidenced by the 40% increase in property values since 1997. The presence of the Dallas -Fort Forth International Airport within the city is a mayor factor in its economic growth, employing an estimated 33,000. The tax base is moderately concentrated, with the 10 leading taxpayers representing 31 % of AV. Two of the leading taxpayers, American Airlines and Delta Airlines, comprise a combined 19.5% of taxable AV. State legislation was adopted in 2001, which limits Grapevine's share of future airport proper tax base revenue growth to one-third of any incremental growth over fiscal 2000 levels. The cities o Dallas and Fort Worth, which jointly own the Dallas -Fort Forth International Airport, each will receive one-third of the incremental property tax revenues. Commercial development represents a significant 70% of 2001 taxable AV. Fiscal 2000 building permit activity reflects continued commercial development, with commercial uses representing 60% of permit values issued. Development of a $300 million Opryland resort located on Lake Grapevine within the city limits began in 2000, with the project scheduled to be completed in 2003. Finances The city has maintained a strong financial position despite growth pressures and high debt levels. Fiscal 2000 posted an operating surplus of $840,000, increasing the ending unreserved general fund balance to $7.6 million, or 24% of expenditures. The city has adopted a policy of maintaining a minimum fund balance level equal to 60 days, or 16% of operating expenses, which it has exceeded in the past three out of four fiscal years. Audited results for fiscal year-end 1999 reflect an unreserved general fund balance of $6.68 million, representing 22% of expenditures. The city's fiscal 1998 ending general unreserved fund balance was reduced to $4 million, or 13% of operating expenses, from more than $6 million at fiscal year-end 1997 due to $5.6 million in transfers primarily for capital projects. Rapid growth in the tax base has enabled the city to reduce its property tax rate from $0.415 per $100 of AV in fiscal 1997 to $0.375 per $100 of AV in fiscal 2001. Sales tax revenues reflect rapid gains, increasing by $1.28 million, or 9.8%, in fiscal 2000 as compared to 1999 collections. This follows a $2.5 million increase in sales tax collections in fiscal 1999 largely due to the October 1997 opening of Grapevine Mills Mail, a 1.7 million square -foot shopping center. Sales tax support of the operating budget has increased from 23% of fiscal 1997 revenues to 41 % of fiscal 2000 general fund revenues. Debt Overall net debt levels are high at $6,989 per capita and 6.8% of true value. Annual carrying charges are high at 22% of fiscal 2001 budgeted operating expenses. Debt service costs have historically ranged between 25%-27% of annual operating expenses since 1994. This debt issuance will fund the acquisition of the Palace Arts Center. Following this bond issue, the city has $16.6 million in GO debt authorized for street improvements, which will be issued over the next two fiscal years. 'I Copyright© 1994-2001 Standard & Poor's. All Rights Reserved. Privacy Policy A Maw 97 TABULATION OF BIDS RECEIVED AT CITY OF GRAPEVINE, TEXAS $4,385,000 COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2001 TRUE INTEREST ACCOUNT MANAGER COST WILLIAM R. HOUGH & CO. 4.979918% SOUTHWEST SECURITIES 4.980805% MORGAN STANLEY, DEAN WITTER & CO. 4.9B4911% DAIN RAUSCHER, INC. 4.993428% MORGAN KEEGAN Sc COMPANY, INC. 5.016749% FIRST SOUTHWEST COMPANY 5.028354% BANC OF AMERICA SECURITIES, LLC 5.041 829% PREPARED BY: :FIRST SOUTHWEST COMPANY N Ix m IY N w N w UI to ce 0 w 0 w N w N w N 0: N 0 0 W UI L7W Q } Q W } Q W } Q W } Q W } Q W >- Q W >- Q W >} Q W >- Q W } Q W } Q W Q W w W >} } p LL In 0 0 ❑ M N Ln m m M r% M N W J V- 0 0 r% 0 M m m m 0 m M N> M CP M M N N N N ❑ r d d N r r r r r r r r r N ❑ t0 o0,0 10 M O o M ° r 0 M o 0 ° [� 0 \ 0 0] M�- t� 01 M O 0► N �° t0 M L� 0 d Ll ❑ m ❑ M N F a L` d N M r M N N It r It r L*� O r"Q1 d' It M Z rn d M 00 ui 0 r d M N Ln N N Q O O 0A ❑ 0A 0 0 0 M 0► t0 p W 0A 0 ❑ 10� ' Q r N r N Q Z Z ul H Z Z 0 Z z m t- D Q H X Q Q O x I- Q Q X D F Q 9 Q L7 EQ z !- D 19 H Z r 0 0 J 0 z a O W Q U -� 0 z o Q pl p� z 0 C F J 0 z 0 W F U m Z Z °' Z z= l O m O Z N m m Z w N W r r cW G Q M m Z w Q O W Z m W 0> w Z m ul w z W m� W a m to 1 w a 0 w Z w 0> z W m U W N❑ w 0 i U W U� N W L7 0 U w C0 m W Q w D U w a W w O U W N O N p Q to m N Q Z m m N Q U) UI m N m N Q Z Q (, ZWOW x z Q Q Z W0i-N W D Q W Q Z w0F_aW W Q Q Z WD Q Q W D W W < F F � Z I_ co _W � L` W I- I'N Ls W J IS Z D W W� Z_ W W W� Z_ 0 01 W Q1 W W CD W Z_ W Z_ Q N I W m Z > Z > m > z w F 0 Z > _z �> > m w Z m > �- z > m z 0D > r Z > > Z W E- > w -I 0 Q W 0. W a 0 d Ql Q w W d W 0. p a z Q W W I N W IL ❑ W a w W 0. O. m Q w d Q Q W w0 Q Qw M>❑ Q QW i Qw QL. Qw Q IX>0►tY U E9 m Ir 0U' ZN m M 0 LO w Mm M0 Mm w t9ZrU' w W W t9 4 LL L9 M W W D M 0 W Lo L O to 4. W w>❑ 0 0 w L N m W W 0 W W N 0L, w t0 W ul 0 W_ L O N 0 Q 0 0 Q } I- 0 0 0 Q } d❑ U1 0 Q ❑ N 0 0► } F} 0► U) } U } ❑ N } U H N Z w U i 01 } ❑ F N }. U H E. I_ Ll — } W H F } U F } W H H } H '' F Z W W N I- QS r = U I- U N W ti U F❑ W Z U W U p 0 Z 0 U Z LL U F U Z U W U 0 W z U 0 ul 0 w OU❑W0L)0ZI-OW0 0 O' O W D O W 0 M 0 0 00000�Wj000WOZF❑W 0 0 0 Cl w 0 C3 0 0 w 0 W O N O W 0— tQ7 0 N 0 W Ij z❑ I= ❑ w 0 �- 0 V> 01 N Ul UEOO a] Z❑ N ODOIX O Z JN in Q m i-0'Op1W t0 N ND00�O M Z N Z❑ N UtOO t% Z❑ ul ttt 0] N '=X 0► Q m 0► D MwOOMw > z > '' 0 Z > 0�_❑w0►0�p O v 0 > Ca Z H M 0 p t0 Z W r 0 L� W M Z L EN 0 Ut W m W r U t0 w •- 0 m O N z LL r 0 ff}it * m }0! * Q D *Ol * m *m fffQ 1* m {f} 4 ffl•m * Q 0 *m OFFICIAL STATEMENT Ratings: Moody's: "Aaa" Dated July 17, 2001 S&P: "AAA" (Financial Guaranty Insured, see "Municipal Bond Insurance" and NEW ISSUE - Book -Entry -Only "Other Information — Ratings" herein) In the opinion of Bond Counsel, interest on the Certificates is excludable from gross income for federal income tax purposes under existing law and the Certificates are not private activity bonds. See "Tax Exemption" herein for a discussion of the opinion of Bond Counsel, including a description of alternative minimum tax consequences for corporations. THE CERTIFICATES WILL NOT BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS $4,385,000 CITY OF GRAPEVINE, TEXAS (Tarrant County) COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2001 Dated Date: July 15, 2001 Due: August 15, as shown below PAYMENT TERMS ... Interest on the $4,385,000 City of Grapevine, Texas Combination Tax and Revenue Certificates of Obligation, Series 2001 (the "Certificates") will accrue from July 15, 2001, (the "Dated Date") and will be payable February 15 and August 15 of each year commencing February 15, 2002, and will be calculated on the basis of a 360 -day year consisting of twelve 30 -day months. The definitive Certificates 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 Certificates may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Certificates will be made to the owners thereof. Principal of, premium, if any, and interest on the Certificates 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 Certificates. See "The Certificates - Book -Entry -Only System" herein. The initial Paying Agent/Registrar is Bank One, Texas, N.A., Austin, Texas (see "The Certificates - Paying Agent/Registrar"). Auwowy FoR ISSUANCE ... The Certificates are issued pursuant to the Constitution and general laws of the State of Texas, (the "State") particularly Subchapter C of Chapter 271, Texas Local Government Code (the Certificate of Obligation Act of 1971), as amended, and constitute ,w.., direct obligations of the City of Grapevine, Texas (the "City"), payable from a combination of (i) the levy and collection of a direct and continuing ad valorem tax levied, within the limits prescribed by law, on all taxable property within the City, and (ii) a limited pledge (not to exceed $1,000) of surplus net revenues of the City's Waterworks and Sewer System, as provided in the ordinance authorizing the Certificates (the "Ordinance") (see "The Certificates - Authority for Issuance"). PURPOSE ... Proceeds from the sale of the Certificates will be used for the acquisition of the Palace Arts Center in downtown Grapevine, and to 4" pay costs of issuance associated with the sale of the Certificates. F,anew Guaranty tmamu" cop Payment of the principal of and interest on the Certificates when due will be insured by a municipal bond insurance policy to be issued by Financial Guaranty Insurance Company simultaneously with the delivery of the Certificates. ` 1 MATURITY SCHEDULE Amount Maturity Rate Yield Amount Maturity Rate Yield $ 105,000 2002 5.25% 2.80% $ 215,000 2012 4.600% 4.65% 135,000 2003 5.25% 3.25% 230,000 2013 4.700% 4.76% 140,000 2004 5.25% 3.49% 240,000 2014 4.800% 4.86% 150,000 2005 5.25% 3.69% 255,000 2015 4.900% 4.96% 155,000 2006 5.25% 3.84% 265,000 2016 5.000% 5.03% 165,000 2007 5.25% 4.02% 280,000 2017 5.000% 5.08% 175,000 2008 5.25% 4.18% 295,000 2018 5.000% 5.13% 185,000 2009 5.25% 4.31% 315,000 2019 5.000% 5.17% 195,000 2010 5.25% 4.41% 330,000 2020 5.000% 5.19% 205,000 2011 4.50% 4.51% 350,000 2021 5.125% 5.21% (Accrued Interest from July 15, 2001 to be added) REDEMPTION ... The City reserves the right, at its option, to redeem Certificates having stated maturities on and after August 15, 2012, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2011, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Certificates - Optional Redemption". LEGALITY ... The Certificates are offered for delivery when, as and if issued and received by the Initial Purchaser 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 Opinions"). DELIVERY ... It is expected that the Certificates will be available for delivery through The Depository Trust Company on August 21, 2001 This Preliminary Official Statement, which includes the cover page and the Appendices hereto, does not constitute an offer to sell or the solicitation of an offer to buy in any jurisdiction to any person to whom it is unlawful to make such offer, solicitation or sale. No dealer, broker, salesperson or other person has been authorized to give information or to make any representation other than those contained in this Preliminary Official Statement, and, 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 Preliminary 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 Preliminary Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or other matters described. TABLE OF CONTENTS OFFICIAL STATEMENT SUMMARY .........................3 CITY OFFICIALS, STAFF AND CONSULTANTS..... 5 ELECTED OFFICIALS .................................................. 5 SELECTED ADMINISTRATIVE STAFF ............................ 5 CONSULTANTS AND ADVISORS.. . .............................. 5 INTRODUCTION............................................................ 7 THECERTIFICATES.....................................................7 BONDINSURANCE......................................................11 TAX INFORMATION...................................................12 25 TABLE 1 - VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT .......................................... 14 TABLE 2 - TAXABLE ASSESSED VALUATIONS BY REGISTRATION AND QUALIFICATION OF CERTIFICATES CATEGORY...................................................... 15 TABLE 3 - VALUATION AND GENERAL OBLIGATION LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE DEBT HISTORY. . ........................................ ..... 16 TABLE 4 - TAX RATE, LEVY AND COLLECTION LEGAL MATTERS ..................................................... HISTORY......................................................... 16 TABLE 5 - TEN LARGEST TAXPAYERS ................... - 16 TABLE 6 - TAx ADEQUACY .................................... 17 TABLE 7 - ESTIMATED OVERLAPPING DEBT ............ 17 DEBT INFORMATION.................................................18 TABLE 8 - PRO -FORMA GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS ................................ 18 TABLE 9 - INTEREST AND SINKING FUND BUDGET PROJECTION.................................................... 18 TABLE 10 - COMPUTATION OF SELF-SUPPORTING DEBT..............................................................19 TABLE I I - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS ........................................ 19 TABLE 12 - OTHER OBLIGATIONS ........................... 19 FINANCIAL INFORMATION ..................................... 20 TABLE 13 - GENERAL. FUND REVENUES AND EXPENDITURE HISTORY .................................. 20 TABLE 14 - MUNICIPAL SALES TAX HISTORY ........ 21 TABLE 15 - CURRENT INVESTMENTS ........................ 23 TAXMATTERS............................................................ 24 OTHER INFORMATION ............................................. 25 RATINGS.................................................................. 25 LITIGATION.............................................................. 26 REGISTRATION AND QUALIFICATION OF CERTIFICATES FORSALE ....................................................... 26 LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS ................................ 26 LEGAL MATTERS ..................................................... 26 AUTHENTICITY OF FINANCIAL DATA AND OTHER. INFORMATION................................................. 26 CONTINUING DISCLOSURE OF INFORMATION ............. 27 INITIAL PURCHASER OF THE CERTIFICATES ............... 28 FINANCIAL ADVISOR ................................................ 28 CERTIFICATION OF THE OFFICIAL STATEMENT .......... 28 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 Preliminary Official Statement. OFFICIAL STATEMENT SUMMARY This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Preliminary Official Statement. The offering of the Certificates to potential investors is made only by means of this entire Preliminary Official Statement. No person is authorized to detach this summary from this Preliminary Official Statement or to otherwise use it without the entire Preliminary Official Statement. THE CITY ..................................... The City of Grapevine, Texas is a political subdivision and municipal corporation of the State, located in Tarrant County, Texas. The City covers approximately 33 square miles (see "Introduction - Description of City"). THE CERTIFICATES ..................... The Certificates are issued as $4,385,000 Combination Tax and Revenue Certificates of Obligation, Series 2001. The Certificates are issued as serial certificates maturing August 15, 2002 through August 15, 2021 (see "The Certificates - Description of the Certificates"). PAYMENT OF INTEREST .............. Interest en the Certificates accrues from July 15, 2001, and is payable February 15, 2002, and each August 15 and February 15 thereafter until maturity or prior redemption (see "The Certificates - Description of the Certificates" and "The Certificates - Optional Redemption"). AUTHORITY FOR ISSUANCE ......... The Certificates are issued pursuant to the general laws of the State, particularly Subchapter C of Chapter 271, Texas Local Government Code (the Certificate of Obligation Act of 1971), as amended, the Ordinance passed by the City Council of the City and Section 9.26 of the City Charter (see "The Certificates - Authority for Issuance"). SECURITY FOR THE CERTIFICATES .............................. The Certificates constitute direct obligations of the City, payable from a combination of (i) a direct and continuing ad valorem tax levied, within the limits prescribed by law, on all taxable property within the City, and (ii) a limited pledge (not to exceed $1,000) of surplus net revenues of the City's Waterworks and Sewer System (see "The Certificates - Security and Source of Payment"). REDEMPTION ............................... The City reserves the right, at its option, to redeem Certificates having stated maturities on and after August 15, 2012, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2011, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Certificates - Optional Redemption"). TAXEXEMPTION ........................... In the opinion of Bond Counsel, the interest on the Certificates will be excludable from gross income for federal income tax purposes under existing law and the Certificates are not private activity bonds. See "Tax Matters - Tax Exemption" for a discussion of the opinion of Bond Counsel, including a description of the alternative minimum tax consequences for corporations. USE of PROCEEDS ......................... Proceeds from the sale of the Certificates will be used for the acquisition of the Palace Arts Center in downtown Grapevine, and to pay costs of issuance associated with the sale of the Certificates. RATINGS ..................................... The Certificates are 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") by virtue of an insurance policy to be issued by Financial Guaranty Insurance Company. The uninsured ad valorem tax debt of the City is rated "Al" by Moody's and "A+" by S&P. The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA" by S&P through insurance by various commercial insurance companies (see "Other Information - Ratings"). BOOK -ENTRY -ONLY SYSTEM ...................................... The definitive Certificates 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 Certificates may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Certificates will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Certificates 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 Certificates (see "The Certificates - Book -Entry -Only System"). PAYMENT REcoRD...................... The City has not defaulted on its tax -supported debt since 1932 when all defaults were corrected without refunding. SELECTED FINANCIAL INFORMATION Fiscal Tax Debt to Per Capita Taxable Per Capita Year Estimated Taxable Taxable Funded Funded Ended City Assessed Assessed Tax Tax 9/30 Population Valuation Valuation Debt Debt 1997 36,000 $ 3,124,673,648 $ 86,796 $ 90,993,462 $ 2,528 1998 37,946 3,253,338,457 85,736 95,546,968 2,518 1999 39,190 3,994,671,130 101,931 103,132,152 2,632 2000 42,059 4,089,979,800 97,244 143,995,000 3,424 2001 42,298 4,372,544,317 103,375 156,815,000 ir) 3,707 (1) Projected, includes the Certificates. (2) Collections for part year only, through May 31, 2001. For additional information regarding the City, please contact: Fred Werner Director of Finance City of Grapevine 200 South Main Grapevine, Texas 76051 (817) 410-3111 4 David K. Medanich or Steven Adams First Southwest Company 777 Main Street, Suite 1200 Fort Worth, Texas 76102 (817)332-9710 Ratio Funded Tax Debt to Taxable % of Assessed Total Tax Valuation Collections 2.91% 99.68% 2.94% 99.45% 2.58% 100.32% 3.52% 99.77% 3.59% 98.50% (2) CITY OFFICIALS, STAFF AND CONSULTANTS ELECTED OFFICIALS Councilmember, Place 4 Roy Stewart 4 Years May, 2002 Construction Company Owner Councilmember, Place 6 (1) Previously served 14 years as Mayor and Councilmember. SELECTED ADMINISTRATIVE STAFF Name Length of Term Roger Nelson City Council Service Expires Occupation William D. Tate 12 Years May, 2003 Attorney -at -Law Mayor City Secretary 19 Years (i) Ted R. Ware 21 Years May, 2002 Commercial Contractor Mayor Pro Tem C. Shane Wilbanks 15 Years May, 2003 Personnel Director Councilmember, Place 1 Sharron Spencer 15 Years May, 2003 Retired Sales Representative Councilmember, Place 2 Clydene Johnson 5 Years May, 2004 Independent Insurance Agent Councilmember, Place 3 Darlene Freed 2 Years May, 2004 Commercial Real Estate Agent Councilmember, Place 4 Roy Stewart 4 Years May, 2002 Construction Company Owner Councilmember, Place 6 (1) Previously served 14 years as Mayor and Councilmember. SELECTED ADMINISTRATIVE STAFF Name Position Length of Service Roger Nelson City Manager 5 Years Bill Gaither Administrative Services Director 4 Years Fred Werner Director of Finance 3 1/2 Years Linda Huff City Secretary 19 Years (i) (1) 19 years with City; 13 years in present position. CONSULTANTS AND ADVISORS Auditors........................................................................................................................................................Deloitte & Touche LLP Fort Worth, Texas BondCounsel................................................................................................................................................Vinson & Elkins L.L.P. Dallas, Texas Financial Advisor...................................................................................................................................... First Southwest Company Fort Worth, Texas W THIS PAGE LEFT BLANK INTENTIONALLY PRELIMINARY OFFICIAL STATEMENT RELATING TO $4,385,000 CITY OF GRAPEVINE, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2001 INTRODUCTION This Preliminary Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance of $4,385,000 City of Grapevine, Texas Combination Tax and Revenue Certificates of Obligation, Series 2001 (the n "Certificates"). Capitalized terms used in this Preliminary Official Statement have the same meanings assigned to such terms in the Ordinance to be adopted on the date of sale of the Certificates which will authorize the issuance of the Certificates, except as otherwise indicated herein. There follows in this Preliminary Official Statement descriptions of the Certificates 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 2001 estimated population is 42,443. The City covers approximately 33 square miles. THE CERTIFICATES DESCRIPTION OF THE CERTIFICATES ... The Certificates are dated July 15, 2001, and mature, or are subject to redemption prior to maturity, on August 15 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 will be payable on August 15 and February 15, commencing February 15, 2002. The definitive Certificates 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 Certificates will be made to the owners thereof. Principal of, premium, if any, and interest on the Certificates 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 Certificates. See "Book -Entry -Only System" herein. AUTHORITY FOR ISSUANCE ... The Certificates are being issued pursuant to the Constitution and general laws of the State of Texas, particularly Subchapter C of Chapter 271, Texas Local Government Code (the Certificate of Obligation Act of 1971), as amended, the Ordinance passed by the City Council, and Section 9.26 of the City Charter. PURPOSE ... Proceeds from the sale of the Certificates will be used for the acquisition of the Palace Arts Center in downtown Grapevine, and to pay costs of issuance associated with the sale of the Certificates. SECURITY AND SOURCE of PAYMENT... All taxable property within the City is subject to a continuing direct annual ad valorem tax levied, within the limits prescribed by law, by the City sufficient to provide for the payment of principal of and interest on all Certificates payable in whole or in part from ad valorem taxes. Additionally, the Certificates are payable from and secured by a limited pledge (not to exceed $1,000) of surplus net revenues of the City's Waterworks and Sewer System, as provided in the Ordinance authorizing the Certificates. TAx RATE LIMITATION... All taxable property within the City is subject to the assessment, levy and collection by the City of a continuing, direct annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem tax debt within the limits prescribed by law. Article XI, Section 5, of the Texas Constitution is applicable to the City, and limits its ,.. maximum ad valorem tax rate to $2.50 per $100 Taxable Assessed Valuation for all City purposes. The Home Rule Charter of the City adopts the constitutionally authorized maximum tax rate of $2.50 per $100 Taxable Assessed Valuation. OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem the Certificates, or both, having stated maturities on and after August 15, 2012, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2011, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. If less than all of the Certificates are to be redeemed, the City may select the maturities of Certificates to be redeemed. If less than all the Certificates of any maturity are to be redeemed, the Paying Agent/Registrar (or DTC while the Certificates are in Book -Entry - Only form) shall determine by lot the Certificates, or portions thereof, within such maturity to be redeemed. If a Certificate (or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Certificate (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 Certificates, 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 Certificates 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 NOTWITHSTANDING ONE OR MORE REGISTERED OWNERS MAY HAVE FAILED TO RECEIVE SUCH NOTICE. If a Certificate (or any portion of its principal sum) shall have been duly called for redemption and notice of such redemption duly given, then upon the redemption date such Certificate (or the portion of its principal sum to be redeemed) shall become due and payable, and, if monies for the payment of the redemption price and the interest accrued on the principal amount to be redeemed to the date of redemption are held for the purpose of such payment by the Paying Agent/Registrar, interest shall cease to accrue and be payable from and after the redemption date on the principal amount redeemed. DEFEASANCE ... The Ordinance provide that the City may discharge its obligations to the registered owners of any or all of the Certificates, as applicable, 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 Paying Agent/Registrar or other lawfully authorized entity a sum of money equal to the principal of, premium, if any, and all interest to accrue on such Certificates to maturity or redemption or (ii) by depositing with the Paying Agent/Registrar or other lawfully authorized entity amounts sufficient, together with the investments earnings thereon, to provide for the payment and/or redemption of such Certificates; provided that such deposits may be invested and reinvested only in (a) direct obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the City adopts or approves the proceedings authorizing the issuance of refunding obligations, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent; and (c) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the City adopts or approves the proceedings authorizing the issuance of refunding obligations to refund the Certificates, as applicable, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. The foregoing obligations may be in book entry form, and shall mature and/or bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment and/or redemption of the Certificates, as the case may be. If any of such Certificates are to be redeemed prior to their respective dates of maturity, provision must have been made for the payment to the registered owners of such Certificates at the date of maturity or prior redemption of the full amount to which such owner would be entitled and for giving notice of redemption as provided in the Ordinance, as applicable. Upon such deposit as described above, such Certificates shall no longer be regarded to be outstanding or unpaid. After firm banking and financial arrangements for the discharge and final payment or redemption of Certificates have been made as described above, all rights of the City to initiate proceedings to call such Certificates for redemption or take any other action amending the terms of such Certificates are extinguished; provided, however, that the right to call such Certificates for redemption is not extinguished if the City: (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call such Certificates for redemption; (ii) gives notice of the reservation of that right to the owners of such Certificates 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 Certificates are to be transferred and how the principal of, premium, if any, and interest on the Certificates are to be paid to and credited by DTC while the bonds are registered in its nominee name. The information in this section concerning DTC and the Book -Entry -Only System has been provided by DTC for use in disclosure documents such as this Preliminary Official Statement. The City believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Certificates, 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 Certificates), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Preliminary Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the Certificates. The Certificates will be issued as fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee). One fully -registered certificate will be issued for each maturity of the Certificates in the aggregate principal amount of each such maturity and will be deposited with DTC. DTC 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 securities that its participants ("Direct Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book -entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of Certificates under the DTC system must be made by or through DTC Participants, which will receive a credit for such purchases on DTC's records. The ownership interest of each actual purchaser of each Certificate ("Beneficial Owner") is in turn to be recorded on the Direct or Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interest in the Certificates are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Certificates, except in the event that use of the book -entry system described herein is discontinued. To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Certificates with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates; DTC's records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. The 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. Redemption notices shall be sent to Cede & Co. If less than all of the Certificates within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. tk" " Neither DTC nor Cede & Co. will consent or vote with respect to the Certificates. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the Record Date (hereinafter defined). The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Certificates are credited on the Record Date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Certificates will be made to DTC. DTC's practice is to credit Direct Participants' accounts on each payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on such payable date. 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, the Paying Agent/Registrar or the City, u subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the City, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. " DTC may discontinue providing its services as securities depository with respect to the Certificates at any time by giving reasonable notice to the City. Under such circumstances, in the event that a successor securities depository is not obtained, such 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) with respect to the Certificates. In that event, Certificates will be printed and delivered. USE OF CERTAIN TERMS IN OTHER SECTIONS OF THIS PRELIMINARY OFFICIAL STATEMENT. In reading this Preliminary Official Statement it should be understood that while the Certificates are in the Book -Entry Only System, references in other sections of this Preliminary Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in such Certificates, 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 Trust Agreement 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. EFFECT OF TERMINATION OF BOOK -ENTRY ONLY SYSTEM. In the event that the Book -Entry Only System is discontinued by DTC or the use of the Book -Entry Only System is discontinued by the City with respect to the Certificates, the following provisions will be applicable to such Certificates. Such Certificates may be exchanged for an equal aggregate principal amount of such Certificates in authorized denominations and of the same maturity upon surrender thereof at the principal office for payment of the Paying Agent/Registrar. The transfer of any Certificate may be registered on the books maintained by the Paying Agent/Registrar for such purpose only upon the surrender of such Certificate to the Paying Agent/Registrar with a duly executed assignment in form satisfactory to the Paying Agent/Registrar. For every exchange or transfer of registration of Certificates, the Paying Agent/Registrar and the City may make a charge sufficient to reimburse them for any tax or other governmental charge required to be paid with respect to such exchange or registration of transfer. The City shall pay the fee, if any, charged by the Paying Agent/Registrar for the transfer or exchange. The Paying Agent/Registrar will not be required to transfer or exchange any Certificate after its selection for redemption. The City and the Paying Agent/Registrar may treat the person in whose name a Certificate is registered as the absolute owner thereof for all purposes, whether such Certificate is overdue or not, including for the purpose of receiving payment of, or on account of, the principal of, premium, if any, and interest on, such Certificate. PAYING AGENT/REGISTRAR ... The initial Paying Agent/Registrar for the Certificates is Bank One, Texas, N.A., 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 Certificates 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 Certificates. Upon any change in the Paying Agent/Registrar for the Certificates, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Certificates by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. RECORD DATE FOR INTEREST PAYMENT ... The record date ("Record Date") for the interest payable on the Certificates on any interest payment date means the close of business on the last business day of the month next preceding. In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the 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 Certificate 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. CERTIFICATEHOLDERS' REMEDIES ... The Ordinance establish as "events of default" (i) the failure to make payment of principal of redemption premium, if any, or interest on any of the Certificates when due and payable; or (ii) default in the performance or observance of any other covenant, agreement or obligation of the City, which default materially and adversely affects the rights of the owners, including but not limited to their prospect or ability to be repaid in accordance with the Ordinance, and the combination there for a period of sixty days after notice of such default is given to any Owner by the City. Under State law there is no right to the acceleration of maturity of the Certificates upon the failure of the City to observe any covenant under the Ordinance. Although a registered owner of Certificates could presumably obtain a judgment against the City if a default occurred in the payment of principal of or interest on any such Certificates, such judgment could not be satisfied by execution against any property of the City. Such registered owner's only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the City to assess and collect rates and charges for water and sewer services sufficient to pay principal of and interest on the Certificates as it becomes due. The enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. Neither the Ordinance provides for the appointment of a trustee to represent the interests of the bondholders upon any failure of the City to perform in accordance with the terms of the Ordinance, or upon any other condition. Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code. Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, and also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Certificates are qualified with respect to the customary rights of debtors relative to their creditors. 10 BOND INSURANCE Concurrently with the issuance of the Certificates, Financial Guaranty Insurance Company ("Financial Guaranty") will issue its Municipal Bond New Issue Insurance Policy for the Certificates (the "Policy"). The Policy unconditionally guarantees the payment of that portion of the principal of and interest on the Certificates which has become due for payment, but shall be x' unpaid by reason of nonpayment by the issuer of the Certificates (the "Issuer"). Financial Guaranty will make such payments to State Street Bank and Trust Company, N.A., or its successor as its agent (the "Fiscal Agent"), on the later of the date on which such principal and interest is due or on the business day next following the day on which Financial Guaranty shall have received telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from an u, owner of Certificates or the Paying Agent of the nonpayment of such amount by the Issuer. The Fiscal Agent will disburse such amount due on any Certificate to its owner upon receipt by the Fiscal Agent of evidence satisfactory to the Fiscal Agent of the owner's right to receive payment of the principal and interest due for payment and evidence, including any appropriate instruments of assignment, that all of such owner's rights to payment of such principal and interest shall be vested in Financial Guaranty. The term "nonpayment" in respect of a Certificate includes any payment of principal or interest made to an owner of a Certificate which has been recovered from such owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. The Policy is non -cancellable and the premium will be fully paid at the time of delivery of the Certificates. The Policy covers failure to pay principal of the Certificates on their respective stated maturity dates or dates on which the same shall have been duly called for mandatory sinking fund redemption, and not on any other date on which the Certificates may have been otherwise called for redemption, accelerated or advanced in maturity, and covers the failure to pay an installment of interest on the stated date for its payment. Generally, in connection with its insurance of an issue of municipal securities, Financial Guaranty requires, among other things, (i) that it be granted the power to exercise any rights granted to the holders of such securities upon the occurrence of an event of default, without the consent of such holders, and that such holders may not exercise such rights without Financial Guaranty's consent, in each case so long as Financial Guaranty has not failed to comply with its payment obligations under its insurance policy; and (ii) that any amendment or supplement to or other modification of the principal legal documents be subject to Financial Guaranty's consent. The specific rights, if any, granted to Financial Guaranty in connection with its insurance of the Certificates are set forth in the description of the principal legal documents appearing elsewhere in this Official Statement. Reference should be made as well to such description for a discussion of the circumstances, if any, under which the Issuer is required to provide additional or substitute credit enhancement, and related matters. This Official Statement contains a section regarding the ratings assigned to the Certificates and reference should be made to such section for a discussion of such ratings and the basis for their assignment to the Certificates. Reference should be made to the description of the City for a discussion of the ratings, if any, assigned to such entity's outstanding parity debt that is not secured by credit enhancement. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation (the "Corporation"), a Delaware holding company. The Corporation is a subsidiary of General Electric Capital Corporation ("GE Capital"). Neither the Corporation nor GE Capital is _. obligated to pay the debts of or the claims against Financial Guaranty. Financial Guaranty is a monoline financial guaranty insurer domiciled in the State of New York and subject to regulation by the State of New York Insurance Department. As of December 31, 2000, the total capital and surplus of Financial Guaranty was approximately $1.089 billion. Financial Guaranty prepares financial statements on the basis of both statutory accounting principles and generally accepted accounting principles. Copies of such financial statements may be obtained by writing to Financial Guaranty at 115 Broadway, New York, New York 10006, Attention: Communications Department (telephone number: 212-312-3000) or to the New York State Insurance u Department at 25 Beaver Street, New York, New York 10004-2319, Attention: Financial Condition Property/Casualty Bureau (telephone number: 212-480-5187). 11 TAX INFORMATION AD VALOREM TAX LAw ... The appraisal of property within the City is the responsibility of the Tarrant Appraisal District (the "Appraisal District"). Excluding agricultural and open -space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to appraise all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. In determining market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (1) the market value of the property, or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to the V.T.C.A., Property Tax Code, for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ("Article VIII") and State law provide for certain exemptions from property taxes, the valuation of agricultural and open -space lands at productivity value, and the exemption of certain personal property from ad valorem taxation. Under Section 1-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant: (1) An exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision; (2) An exemption of up to 20% of the market value of residence homesteads. The minimum exemption under this provision is $5,000. In the case of residence homestead exemptions granted under Section 1-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. State law and Section 2, Article VIII, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to a maximum of $12,000. Article VIII provides that eligible owners of both agricultural land (Section 1-d) and open -space land (Section 1-d-1), including open -space land devoted to farm or ranch purposes or open -space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section 1-d and 1-d-1. Nonbusiness personal property, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as nonbusiness property are exempt from ad valorem taxation. Article VIII, Section 1-j, provides for "freeport property" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. The City and the other taxing bodies within its territory may agree to jointly create tax increment financing zones, under which the tax values on property in the zone are "frozen" at the value of the property at the time of creation of the zone. The City also may enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. EFFECTIVE TAx RATE AND ROLLBACK TAx RATE ... The City Council will be required to adopt the annual tax rate per $1000 taxable value for the City before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the City. If the City Council does not adopt a tax rate by such required date the tax rate for that tax year is the lower of the effective tax rate calculated for the tax year or the tax rate adopted by the City for the preceding tax year. The tax rate consists of two components: (1) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service. 12 Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate". l Effective January 1, 2000, a tax rate cannot be adopted by the City Council that exceeds the lower of the rollback tax rate or 103 ` per cent of the effective tax rate until a public hearing is held on the proposed tax rate following a notice of such public hearing (including the requirements that notice be posted on the City's website if the City owns, operates or controls an internet website and public notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. If the adopted tax rate exceeds the rollback tax rate the xi qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate. "Effective tax rate" means the rate that will produce last year's total tax levy (adjusted) from this year's total taxable values (adjusted). "Adjusted" means lost values are not included in the calculation of last year's taxes and new values are not included in this year's taxable values. "Rollback tax rate" means the rate that will produce last year's maintenance and operation tax levy (adjusted) from this year's values (adjusted) multiplied by 1.08 plus a rate that will produce this year's debt service from this year's values (unadjusted) divided by the anticipated tax collection rate. The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize s an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. PROPERTY ASSESSMENT AND TAX PAYMENT ... Property within the City is generally assessed as of January 1 of each year. Business inventory may, at the option of the taxpayer, be assessed as of September 1. Oil and gas reserves are assessed on the basis of a valuation process which uses an average of the daily price of oil and gas for the prior year. Taxes become due October I of the same year, and become delinquent on February I of the following year. Taxpayers 65 years old or older are permitted by State law to pay taxes on homesteads in four installments with the first due on February 1 of each year and the final installment due on August 1. PENALTIES AND INTEREST ... Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Cumulative Cumulative Month Penalty Interest Total February 6% 1% 7% March 7 2 9 April 8 3 11 May 9 4 13 June 10 5 15 July 12 6 18 After July, penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, a 15% attorney's collection fee is added to the total tax penalty and interest charge. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. CITY APPLICATION OF TAx CODE ... The City grants an exemption to the market value of the residence homestead of persons 65 years of age or older of $60,000. The City has granted an additional exemption of 20% of the market value of residence homesteads; minimum exemption of $5,000. See Table 1 for a listing of the amounts of the exemptions described above. Ad valorem taxes are not levied by the City against the exempt value of residence homesteads for the payment of debt. The City does not tax nonbusiness personal property; and the City contracts with the Grapevine-Colleyville Independent School District for the collection of its taxes. 13 The City does not permit split payments, and discounts are not allowed. The City does not tax freeport property. The City does not collect the additional one-half cent sales tax for reduction of ad valorem taxes. TAx ABATEMENT POLICY ... The City does not have a tax abatement policy. TAx INCREMENT FINANCE ZONES.. The City has established the Tax Increment Financing Reinvestment Zone Number One, comprised of approximately 175 acres in the northeast area of the City. The tax increment base for the Reinvestment Zone Number One established on January 1, 1996 was $7,647,325. The Reinvestment Zone Number One 2000/01 Taxable Assessed Value is $175,396,673. The project was completed on October 31, 1997. The City has additionally established the Tax Increment Financing Reinvestment Zone Number Two, comprised of approximately 121.817 acres in the northeast area of the City. The tax increment base for the Reinvestment Zone Number Two established on January 1, 1998 was $744,866. The Reinvestment Zone Number Two 2000/01 Taxable Assessed Value is $1,495,297. As of May 31, 2001 approximately $6,404,712 of permanent improvements have been made to Reinvestment Zone Number Two. TABLE I - VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT 2000/01 Market Valuation Established by Tarrant Appraisal District $ 5,162,384,072 Less Exemptions/Reductions at 100% Market Value: Residence Homestead Exemptions $ 265,816,139 Over 65 Years of Age/Disabled 42,892,235 Disabled Veterans Exemptions 946,353 Pollution Control Exemptions 5,552 Solar/Wind Power Exemptions 9,774 Freeport Exemptions 437,661,571 Open -Space Land Use Reductions 42,359,282 Prorated Absolute Exemptions 148,795 (789,839,701) 2000/01 Taxable Assessed Valuation $ 4,372,544,371 City Funded Debt Payable from Ad Valorem Taxes General Obligation Bonds (as of 6/1/01) $ 75,600,000 Certificates of Obligation (as of 6/1/01) 76,610,000 Equipment Acquisition Notes (as of 6/1/01) 1,375,000 The Certificates 4,385,000 Funded Debt Payable from Ad Valorem Taxes $ 157,970,000 Less Self -Supporting Debt: (Z) Combination Tax and Tax Increment Reinvestment Zone Revenue Certificates of 0bligation (as of 6/1/01) 57,565,000 Net Funded Debt Payable From Ad Valorem Taxes $ 100,405,000 Interest and Sinking Fund as of June 1, 2001 $ 7,479,517 Ratio Total Funded Debt to Taxable Assessed Valuation .................................................. 3.61% 2001 Estimated Population - 42,298 Per Capita Taxable Assessed Valuation - $103,375 Per Capita Total Funded Debt $3,735 (1) This statement of indebtedness does not include currently outstanding $32,782,560 system revenue bonds, as these bonds are payable solely from the net revenues of the Waterworks and Sewer System (the "System"), as defined in the ordinances authorizing the system revenue bonds. (2) The self-supporting amount is a projection of debt by the City based on actual historical payments from the Tax Increment Reinvestment Zone Fund. The amount of self-supporting debt is based on the percentage of revenue support as shown in Table 10. There is no guarantee that these payments will continue in the future. If the payments are not made from the revenues in the future, the difference will have to be paid for with ad valorem taxes. 14 TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY NOTE: Valuations shown are certified taxable assessed values reported by the Tarrant Appraisal District to the State Comptroller of Public Accounts. Certified values are subject to change throughout the year as contested values are resolved and the Appraisal District updates records. 15 Taxable Appraised Value for Fiscal Year Ended September 30, 2001 2000 1999 % Of % Of % of Category Amount Total Amount Total Amount Total Real, Residential, Single -Family $ 1,522,401,913 29.49% $ 1,429,819,700 30.03% $ 1,324,311,480 33.12% Real, Residential, Multi -Family 151,579,484 2.94% 129,208,574 2.71% 117,908,272 2.95% Real, Vacant Lots Tracts 109,952,787 2.13% 78,468,029 1.65% 72,832,010 1.82% Real, Acreage (Land Only) 165,569,051 3.21% 144,983,152 3.05% 144,782,450 3.62% Real, Farm and Ranch Improvements 2,441,498 0.05% 3,191,100 0,07% 3,879,434 0.10% Real, Commercial 932,109,580 18.06% 756,002,113 15.88% 572,358,423 14.32% Real, Industrial 10,891,084 0.21% 9,795,363 0.21% 8,731,223 0.22% Real and Tangible Personal, Utilities 88,123,888 1.71% 76,908,376 1.62% 66,444,170 1.66% Real, Mobile Homes 4,239,290 0.08% 141,400 0.00% 152,200 0.00% Tangible Personal, Business - 0.00% - 0.00% - 0.00% Tangible Personal, Commercial 2,127,859,776 41.22% 2,089,790,810 43.90% 1,646,479,365 41.18% Tangible Personal, Industrial 40,389,885 0.78% 27,055,281 0.57% 26,974,631 0.67% Tangible Personal, Mobile Homes - 0.00% 3,120,287 0.07% 3,187,135 0.08% Tangible Personal, Other 146,674 0.00% 3,768,771 0.08% 3,723,954 0.09% Real Property, Inventory 6,679,162 0.13% 8,389,970 0.18% 6,450,400 0.16% Total Appraised Value Before Exemptions $ 5,162,384,072 100.00% $ 4,760,642,926 100.00% $ 3,998,215,147 100.00% Adjustments - - 348,874,464 Less: Total Exemption/Reductions (789,839,701) (670,663,126) (352,418,481) Taxable Assessed Value $ 4,372,544,371 $ 4,089,979,800 $ 3,994,671,130 Taxable Appraised Value for Fiscal Year Ended September 30, 1998 1997 % of % of Category Amount Total Amount Total Real, Residential, Single -Family $ 1,269,695,241 35.14% $ 1,183,119,622 34.70% Real, Residential, Multi -Family 98,709,403 2.73% 92,886,182 2.72% Real, Vacant Lots Tracts 47,489,789 1.31% 46,096,677 1.35% Real, Acreage (Land Only) 112,224,673 3.11% 94,678,310 2.78% Real, Farm and Ranch Improvements 4,381,298 0.12% 4,158,598 0.12% Real, Commercial 387,770,795 10.73% 298,782,743 8.76% Real, Industrial 5,083,972 0.14% 5,384,539 0.16% Real and Tangible Personal, Utilities 64,098,691 1.77% 60,144,766 1.76% Real, Mobile Homes 143,000 0.00% 123,300 0.00% Tangible Personal, Business - 0.00% - 0.00% Tangible Personal, Commercial 1,582,354,352 43.79% 1,563,927,567 45.87% Tangible Personal, Industrial 25,564,473 0.71% 40,058,697 1.18% Tangible Personal, Mobile Homes 3,162,915 0.09% 2,884,175 0.08% Tangible Personal, Other 3,741,821 0,10% 3,748,031 0.11% Real Property, Inventory 8,812,490 0.24% 13,247,140 0.39% Total Appraised Value Before Exemptions $ 3,613,232,913 100.00% $ 3,409,240,347 100.00% Adjustments (3,468,230) (10,343,105) Less: Total Exemption/Reductions (356,426,226) (274,223,594) Taxable Assessed Value $ 3,253,338,457 $ 3,124,673,648 NOTE: Valuations shown are certified taxable assessed values reported by the Tarrant Appraisal District to the State Comptroller of Public Accounts. Certified values are subject to change throughout the year as contested values are resolved and the Appraisal District updates records. 15 TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT HISTORY (1) Projected, includes the Certificates. TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY Fiscal Year 2000/01 Distribution Net Ratio Ended Fiscal General Interest and Taxable Tax Debt Tax Debt Funded Year Fund Taxable Assessed Outstanding to Taxable Debt Ended Estimated Assessed Valuation at End Assessed Per 9/30 Population Valuation Per Capita of Year Valuation Capita 1997 36,000 $ 3,124,673,648 $ 86,796 $ 90,993,462 2.91% $ 2,528 1998 37,946 3,253,338,457 85,736 95,546,968 2.94% 2,518 1999 39,190 3,994,671,130 101,931 103,132,152 2.58% 2,632 2000 42,059 4,089,979,800 97,244 143,995,000 3.52% 3,424 2001 42,298 4,372,544,317 103,375 156,815,000 ��} 3.59% 3,707 (1) Projected, includes the Certificates. TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY Fiscal Year 2000/01 Distribution Taxable Taxable Ended Tax General Interest and Valuation % Current % Total 9/30 Rate Fund Sinking Fund Tax Levy Collections Collections 1997 $ 0.41500 $ 0.280800 $ 0.134200 $ 12,967,402 98.79% 99.68% 1998 0.40500 0.276996 0.128004 13,176,597 98.67% 99.45% 1999 0.38500 0.218736 0.166264 13,935,727 99.13% 100.32% 2000 0.38000 0.201983 0.178017 15,371,388 99.41% 99.77% 2001 0.37500 0.189641 0.185359 16,340,650 98.20% 98.50% (1) Collections for part year only, through May 31, 2001. TABLE 5 - TEN LARGEST TAXPAYERS Name of Taxpayer American Airlines Inc. Grapevine Mills Ltd. Partnership Delta Airlines Inc. UPS Inc./United Parcel Service GE Capital Services National Car Rental System, Inc. Industrial Development International Inc. Hertz Corp Rent-A-Car Division GTE Directories D/FW Hilton Hotel GENERAL OBLIGATION DEBT LIMITATION ... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "The Certificates — Tax Rate Limitation"). 16 2000/01 % of Total Taxable Taxable Assessed Assessed Nature of Property Valuation Valuation Commercial Airline $ 667,847,407 15.27% Regional Shopping Mall 187,728,100 4.29% Commercial Airline 185,929,740 4.25% Parcel Service 59,508,190 1.36% Simuflite Training School 49,419,363 1.13% Car Rental 48,164,562 1.10% Trade Center 46,385,239 1.06% Car Rental 46,264,906 1.06% Real Estate 41,916,938 0.96% Hotel 32,934,392 0.75% $ 1,366,098,837 31.24% GENERAL OBLIGATION DEBT LIMITATION ... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "The Certificates — Tax Rate Limitation"). 16 TABLE 6 - TAX ADEQUACY (1) 2001 Principal and Interest Requirements $ 9,975,707 $0.2305 Tax Rate at 99.00% Collection Produces $ 9,977,928 Average Annual Principal and Interest Requirements, 2001 - 2026 $ 5,839,146 $0.1349 Tax Rate at 99.00% Collection Produces $ 5,839,577 Maximum Principal and Interest Requirements, 2002 $ 11,898,091 $0.2749 Tax Rate at 99.00% Collection Produces $ 11,899,923 (1) Includes the Certificates, excludes self-supporting debt. TABLE 7 - ESTIMATED OVERLAPPING DEBT Expenditures of the various taxing entities within the territory of the City are paid out of ad valorem taxes levied by such entities on properties within the City. Such entities are independent of the City and may incur borrowings to finance their expenditures. This statement of direct and estimated overlapping ad valorem tax bonds ("Tax Debt") was developed from information contained in "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. Except for the amounts relating to the City, the City has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities listed may have issued additional bonds since the date hereof, and such entities may have programs requiring the issuance of substantial amounts of additional bonds, the amount of which cannot be determined. The following table reflects the estimated share of overlapping Tax Debt of the City. Total Direct and Overlapping Funded Debt $ 295,604,259 Ratio of Direct and Overlapping Funded Debt to Taxable Assessed Valuation ............................................. 6.76% Per Capita Overlapping Funded Debt............................................................................. 6,988.61 (1) Includes the Certificates, excludes self-supporting debt. 17 2000/01 Net City's Taxable 2000/01 Total Estimated Overlapping Assessed Tax Funded % Funded Debt Taxing Jurisdiction Value Rate Debt Applicable As of4-1-01 City of Grapevine $ 4,372,544,317 $ 0.375000 $ 100,405,000(l) 100.00% $ 100,405,000 Carroll Independent School District 2,287,210,782 1.885000 165,379,086 5.38% 8,897,395 Coppell Independent School District 4,409,913,056 1.600000 126,690,442 0.48% 608,114 Dallas County 113,990,507,122 0.196000 259,170,938 0.01% 25,917 N Dallas County Community College District 117,401,360,744 0.050000 0 0.01% 0 Dallas County Hospital District 113,990,507,122 0.254000 0 0.01% 0 Grapevine-Coileyville Independent School District 6,462,172,129 1.582290 257,359,524 67.47% 173,640,471 Tarrant County 65,399,809,083 0.274785 125,767,189 5.24% 6,590,201 Tarrant County Hospital District 65,399,809,083 0.234070 17,012,338 5.24% 4,545,715 Tarrant County Junior College District 66,174,768,028 0.106410 86,750,292 5.24% 891,447 Total Direct and Overlapping Funded Debt $ 295,604,259 Ratio of Direct and Overlapping Funded Debt to Taxable Assessed Valuation ............................................. 6.76% Per Capita Overlapping Funded Debt............................................................................. 6,988.61 (1) Includes the Certificates, excludes self-supporting debt. 17 DEBT INFORMATION TABLE 8 - PRO -FORMA GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS Fiscal Year Total Less TIF Total Debt % of Ended Outstanding Debt (l) The Certificates (2) Debt Self -Supporting Less TIF Principal 9/30 Principal Interest Principal Interest Requirements Requirements Requirements Retired 2001 $ 6,445,000 $ 8,313,214 $ 14,758,214 $ 4,782,507 $ 9,975,707 2002 7,290,000 8,650,516 $ 105,000 $ 238,214 16,283,730 4,385,639 11,898,091 2003 7,595,000 7,570,921 135,000 214,378 15,515,299 4,376,189 11,139,110 2004 7,960,000 7,115,268 140,000 207,290 15,422,558 4,361,839 11,060,719 2005 8,115,000 6,670,798 150,000 199,940 15,135,738 5,083,559 10,052,179 23.24% 2006 8,015,000 6,223,974 155,000 192,065 14,586,039 5,072,579 9,513,461 2007 8,130,000 5,793,296 165,000 183,928 14,272,223 5,080,626 9,191,598 2008 8,385,000 5,365,834 175,000 175,265 14,101,099 5,083,698 9,017,401 2009 8,915,000 4,930,666 185,000 166,078 14,196,744 5,087,704 9,109,040 2010 8,685,000 4,487,538 195,000 156,365 13,523,903 5,092,610 8,431,293 49.58% 2011 8,440,000 4,037,285 205,000 146,128 12,828,413 5,093,023 7,735,390 2012 7,660,000 3,641,531 215,000 136,903 11,653,434 5,114,129 6,539,305 2013 7,750,000 3,258,620 230,000 127,013 11,365,633 5,135,360 6,230,273 2014 8,175,000 2,854,328 240,000 116,203 11,385,530 5,156,323 6,229,208 2015 8,490,000 2,421,603 255,000 104,683 11,271,285 5,180,118 6,091,168 75.09% 2016 8,510,000 1,976,688 265,000 92,188 10,843,876 5,201,774 5,642,102 2017 4,885,000 1,621,850 280,000 78,938 6,865,788 2,591,176 4,274,611 2018 4,255,000 1,376,022 295,000 64,938 5,990,959 2,591,939 3,399,021 2019 4,505,000 1,140,074 315,000 50,188 6,010,261 2,597,814 3,412,447 2020 2,730,000 941,966 330,000 34,438 4,036,404 2,602,404 1,434,000 91.25% 2021 2,895,000 784,931 350,000 17,938 4,047,869 2,606,194 1,441,675 2022 1,960,000 648,894 2,608,894 2,608,894 0 2023 2,075,000 533,744 2,608,744 2,608,744 0 2024 2,200,000 411,838 2,611,838 2,611,838 0 2025 2,335,000 282,588 2,617,588 2,617,588 0 98.48% 2026 2,475,000 145,406 2,620,406 2,620,406 0 100.00% $ 158,875,000 $ 91,199,390 $ 4,385,000 $ 2,703,074 $ 236,010,723 $ 87,068,601 $ 148,942,122 (1) Does not include lease/purchase obligations; includes self-supporting debt. (2) Average life of the issue - 12.374 years. Interest on the Certificates have been calculated at the rates illustrated on the cover page hereof. TABLE 9 - INTEREST AND SINKING FUND BUDGET PROJECTION(" Tax Supported Debt Service Requirements, Fiscal Year Ending 9/30/2001 ............................... $ 9,975,707 Interest and Sinking Fund Balance as of 9/30/00 ................................. $ 1,612,591 Interest and Sinking Fund Tax Levy ........................................... 7,438,795 Penalty and Interest........................................................ 65,000 Budgeted Transfers(2)......................................................... 2,468,573 Estimated Investment Income .................................................. 130,000 11,714,959 Estimated Balance, 9/30/2001.................................................................. $ 1,739,252 (1) Excludes TIF self-supporting debt service. (2) Includes Golf Course user fees. 18 TABLE 10 - COMPUTATION OF SELF-SUPPORTING DEBT BeginningFund Balance, 9-30-00 (') ........................................................................................................................................ $ 5,695,250 Projected Net Tax Increment Reinvestment Zone Revenue Available for Debt Service....................................................... 3,735,000 Requirements for Tax Increment Reinvestment Zone Certificates......................................................................................... 4,782,506 ProjectedFund Balance, 9-30-01............................................................................................................................................. $ 4,647,744 Percentage of System Tax Increment Reinvestment Zone Revenue Certificates Self -Supporting ...................................... 100.00% TABLE 11 - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS Amount Date Amount Previously Unissued Purpose Authorized Authorized Issued Balance Street Improvements 12/5/98 $ 30,245,000 $ 13,610,000 $ 16,635,000 TABLE 12 - OTHER OBLIGATIONS The City has no unfunded debt outstanding as of September 30, 2000. 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".) 19 Other Financing Sources Budgeted Transfers In FINANCIAL INFORMATION $ 13,090 $ 14,170 TABLE 13 - GENERAL FUND REVENUES AND EXPENDITURE HISTORY $ - Budgeted Transfers Out (2,098,598) (1,900,345) (5,610,764) Fiscal Year Ended September 30, Total Transfers Revenues 2000 1999 1998 1997 1996 Taxes $ 27,051,303 $ 25,160,401 $ 23,365,424 $ 19,061,690 $ 17,125,907 Licenses and Permits 1,494,428 1,163,306 1,246,991 1,491,997 937,000 Intergovernmental 182,863 190,189 216,171 221,844 169,335 Charges for Services 3,003,353 2,693,057 2,522,115 1,984,238 1,427,067 Fines and Forfeitures 2,360,028 1,850,076 1,599,870 1,482,489 1,470,865 Interest and Miscellaneous 776,140 687,619 865,135 477,206 399,464 Total Revenues $ 34,868,115 $ 31,744,648 $ 29,815,706 $ 24,719,464 $ 21,529,638 Expenditures General Government $ 5,683,237 $ 5,625,351 $ 4,792,874 $ 5,452,213 $ 3,626,510 Public Safety 15,404,767 13,245,400 12,098,657 9,965,868 8,546,355 Culture and Recreation 5,183,727 4,519,957 4,021,478 3,222,997 2,524,332 Public Works 5,657,648 5,062,397 4,188,152 3,546,854 2,993,710 Total Expenditures $ 31,929,379 $ 28,453,105 $ 25,101,161 $ 22,187,932 $ 17,690,907 Excess (deficiency) of Revenues Over Expenditures $ 2,938,736 $ 3,291,543 $ 4,714,545 $ 2,531,532 $ 3,838,732 Other Financing Sources Budgeted Transfers In $ - $ 13,090 $ 14,170 $ 104,208 $ - Budgeted Transfers Out (2,098,598) (1,900,345) (5,610,764) (2,406,216) (3,807,018) Total Transfers $ (2,098,598) $ (1,887,255) $ (5,596,594) $ (2,302,008) $ (3,807,018) Net Increase (Decrease) $ 840,137 $ 1,404,288 $ (882,049) $ 229,524 $ 31,713 Other Miscellaneous Adjustments - - - 898,214 - Residual Equity Transfer 1,172 79,788 - (86,261) - Beginning Fund Balance 6,891,336 5,407,260 6,289,309 5,247,832 5,216,119 Ending Fund Balance $ 7,732,645 $ 6,891,336 $ 5,407,260 $ 6,289,309 $ 5,247,832 20 TABLE 14 - MUNICIPAL SALES TAX HISTORY The City has adopted the Municipal Sales and Use Tax Act, V.A.T.C.S., Tax Code, Chapter 321, which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City; the proceeds are credited to the General Fund and are not pledged to the payment of the Certificates. Collections and enforcements are effected through the offices of the Comptroller of Public Accounts, State of Texas, who remits the proceeds of the tax, after deduction of a 21/o service fee, to the City monthly. Fiscal Year % of Equivalent of Ended Total Ad Valorem Ad Valorem Per 9/30 Collected Tax Levy Tax Rate Capita 1997 $ 6,665,625 51.40% $ 0.2133 $ 185 1998 10,556,089 80.11% 0.3245 278 1999 13,058,268 93.70% 0.3269 333 2000 14,340,693 93.29% 0.3506 341 2001 �'� 8,657,114 52.98% 0.1980 205 (1) Collections for part year only, through June, 2001. 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. 21 INVESTMENTS The City of Grapevine invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the City Council of the City of Grapevine. Both state law and the City's investment policies are subject to change. LEGAL INVESTMENTS ... Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, (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 domiciled in Texas, a savings bank domiciled in Texas, or a state or federal credit union domiciled in Texas that are (i) guaranteed or insured by the Federal Deposit Insurance Company 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, (S) 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 tern of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P -I or the equivalent by at least one nationally recognized credit rating 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. 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 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. 22 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 funis seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (3) require the registered principal of firms seeking to sell securities to the City to: (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) perform an annual audit of the management controls on investments and adherence to the City's investment policy; (5) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (6) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (7) restrict the investment in non - money market mutual funds of any portion of bond proceeds, reserves and funds held for debt service and to no more than 15% of the entity's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service; and (8) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements. TABLE 15 - CURRENT INVESTDIENTS As of June 1, 2001, the City's investable funds were invested in the following categories: (1) Includes TexPool, a local government investment pool under the control of the Texas Comptroller of Public Accounts. The Comptroller has engaged Chase Bank of Texas, and its affiliates, to provide investment management and fund accounting services for TexPool. First Southwest Asset Management, Inc., an affiliate of First Southwest Company, provides customer service and marketing for the pool. TexPool currently maintains a AAAm rating from Standard & Poor's. The Pool's investment objectives include achieving a stable net asset value of $1.00 per share. Daily investment or redemption of funds is allowed by the participants. 23 Book Market Description Percent Value Value Treasury Notes/Bonds/CD/EQ 6.55% $ 7,876,495 $ 7,880,000 Investment Pools (1) 93.45% 112,396,143 112,470,753 100.00% $ 120,272,638 $ 120,350,753 (1) Includes TexPool, a local government investment pool under the control of the Texas Comptroller of Public Accounts. The Comptroller has engaged Chase Bank of Texas, and its affiliates, to provide investment management and fund accounting services for TexPool. First Southwest Asset Management, Inc., an affiliate of First Southwest Company, provides customer service and marketing for the pool. TexPool currently maintains a AAAm rating from Standard & Poor's. The Pool's investment objectives include achieving a stable net asset value of $1.00 per share. Daily investment or redemption of funds is allowed by the participants. 23 TAX MATTERS TAx EXEM MON ... In the opinion of Vinson & Elkins L.L.P., Bond Counsel, (i) interest on the Certificates is excludable from gross income for federal income tax purposes under existing law and (ii) the Certificates are not "private activity bonds" under the Internal Revenue Code of 1986, as amended (the "Code"), and interest on the Certificates 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 Certificates, 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 Certificates for federal income tax purposes and, in addition, will rely on representations by the City, the City's Financial Advisor and the initial purchasers of the Certificates with respect to matters solely within the knowledge of the City, the City's Financial Advisor and the initial purchasers of the Certificates, which Bond Counsel has not independently verified. If the City should fail to comply with the covenants in the or if the foregoing representations should be determined to be inaccurate or incomplete, interest on the Certificates could become taxable from the date of delivery of the Certificates, 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 Certificates, is included in a corporation's "adjusted current earnings," ownership of the Certificates 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 Certificates, received or accrued during the year. Except as stated above, and as stated below in "Tax Accounting Treatment of Original Issue Discount Certificates", 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 Certificates. Prospective purchasers of the Certificates 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, 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 Certificates. 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 Certificates. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the Issuer as the taxpayer and the Owners may not have a right to participate in such audit. Public awareness of any future audit of the Certificates could adversely affect the value and liquidity of the Certificates during the pendency of the audit regardless of the ultimate outcome of the audit. 24 TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT CERTIFICATES ... The initial public offering price for certain of the Certificates may be less than the principal amount thereof (the "Original Issue Discount Certificates"). 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 Certificate, and (ii) the initial offering price to the public of such Original Issue Discount Certificate constitutes original issue discount with respect to such Original Issue Discount Certificate in the hands of any owner who has purchased such Original Issue Discount Certificate in the initial public offering of the Certificates; 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 Certificate equal to that portion of the amount of such original issue discount allocable to the period that such Original Issue Discount Certificate continues to be owned by such owner. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Certificate prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Certificate 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 Certificate 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 Certificates under the caption "Tax Exemption" generally applies, except as otherwise provided below, to original issue discount on an Original Issue Discount Certificate held by an owner who purchased such Certificate at the initial offering price in the initial public offering of the Certificates, and should be considered in connection with the discussion in this portion of the Preliminary Official Statement.) In rendering the foregoing opinion, Bond Counsel will assume, in reliance upon certain representations of the initial purchaser, that (a) the initial purchaser has purchased the Certificates for contemporaneous sale to the public and (b) all of the Original Issue Discount Certificates 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 Certificates 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 Certificate 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 Certificates 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 Certificate 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 Certificate. The federal income tax consequences of the purchase, ownership, and redemption, sale or other disposition of Original Issue Discount Certificates 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 Certificates 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 Certificates 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 Certificates. OTHER INFORMATION RATINGS The Certificates are rated "AW by Moody's and "AAA" by S&P through an insurance policy to be issued by Financial Guaranty Insurance Company. The uninsured ad valorem tax debt of the City is rated "Al" by Moody's and "A+" by S&P. The City also has issues outstanding which are rated "Aaa" by Moody's and "AAA" by S&P through insurance by various commercial insurance companies. 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 organizations 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 Certificates. uv 25 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 CERTIFICATES FOR SALE The sale of the Certificates 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 Certificates have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Certificates been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Certificates under the securities laws of any jurisdiction in which the Certificates may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Certificates 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 Certificates 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 Certificates 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 Certificates 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 Certificates 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 Certificates 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 Certificates are legal investments for various institutions in those states. LEGAL MATTERS The City will furnish a complete transcript of proceedings had incident to the authorization and issuance of the Certificates, including the unqualified approving legal opinion of the Attorney General of Texas approving the Initial Certificate and to the effect that the Certificates are valid and legally binding obligations of the City, and based upon examination of such transcript of proceedings, the approving legal opinion of Bond Counsel, to like effect and to the effect that the interest on the Certificates will be excludable from gross income for federal income tax purposes under existing law and the Certificates are not private activity bonds, subject to the matters described under " Tax Matters" herein, including alternative minimum tax consequences for corporations. The customary closing papers, including a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the Certificates, or which would affect the provision made for their payment or security, or in any manner questioning the validity of said Certificates will also be furnished. Bond Counsel did not take part in the preparation of the Notice of Sale and Bidding Instructions, the Official Bid Form and the Preliminary Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information describing the Certificates in the Preliminary Official Statement to verify that such description conforms to the provisions of the Ordinance. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Certificates is contingent on the sale and delivery of the Certificates. The legal opinion will accompany the Certificates deposited with DTC or will be printed on the Certificates in the event of the discontinuance of the Book -Entry -Only System. AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION The financial data and other information contained herein have been obtained from City records, audited financial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Preliminary Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and re,`erence is made to such documents for further information. Reference is made to original documents in all respects. ei 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 Certificates. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Certificates. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. ANNUAL REPORTS ... The City will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Preliminary Official Statement under Tables numbered 1 through 6 and 8 through 15 and in Appendix B. The City will update and provide this information within six months after the end of each fiscal year ending in or after 2001. 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"). �0H The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12. The updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide unaudited financial statements by the required time and audited financial statements when and if such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix B or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify each NRMSIR and the SID of the change. The Municipal Advisory Council of Texas has been designated by the State of Texas and approved by the SEC staff as a qualified SID. The address of the Municipal Advisory Council is 600 West 8th Street, P. O. Box 2177, Austin, Texas 78768- 2177, and its telephone number is 512/476-6947. MATERIAL EvENT NOTICES ... The City will also provide timely notices of certain events to certain information vendors. The City will provide notice of any of the following events with respect to the Certificates, if such event is material to a decision to purchase or sell Certificates: (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 Certificates; (7) modifications to rights of holders of the Certificates; (8) Bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Certificates; and (11) rating changes. (Neither the Certificates nor the Ordinance make any provision for debt service reserves or liquidity enhancement for the Certificates.) 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"). AvAILASILITY 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 Certificates 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 Certificates 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 Certificates 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 Certificates 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 Certificates 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 Certificates. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or 27 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 Certificates in the primary offering of the Certificates. 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. INITIAL PURCHASER OF THE CERTIFICATES After requesting competitive bids for the Certificates, the City accepted the bid of William R. Hough & Co. to purchase the Certificates at the interest rates shown on the cover page of the Official Statement at a price of par plus a cash premium of $609.05. The Purchaser can give no assurance that any trading market will be developed for the Certificates after their sale by the City to the Initial Purchaser. The City has no control over the price at which the Certificates are subsequently sold and the initial yield at which the Certificates will be priced and reoffered will be established by and will be the responsibility of the Initial Purchaser. FINANCIAL ADVISOR First Southwest Company is employed as Financial Advisor to the City in connection with the issuance of the Certificates. The Financial Advisor's fee for services rendered with respect to the issuance of the Certificates is contingent upon the issuance and delivery of the Certificates. First Southwest Company may submit a bid for the Certificates, either independently or as a member of a syndicate organized to submit a bid for the Certificates. First Southwest Company, in its capacity as Financial Advisor, has relied on the opinion of Bond Counsel and has not verified and does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Certificates, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. The Financial Advisor to the City has provided the following sentence for inclusion in this Preliminary Official Statement. The Financial Advisor has reviewed the information in this Preliminary Official Statement in accordance with, and as part of, its responsibilities to the City and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. CERTIFICATION OF THE OFFICIAL STATEMENT At the time of payment for and delivery of the Certificates, the City will furnish a certificate, executed by proper officers, acting in their official capacity, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the City contained in its Official Statement, and any addenda, supplement or amendment thereto, on the date of such Official Statement, on the date of sale of said Certificates and the acceptance of the best bid therefor, and on the date of the delivery, were and are true and correct in all material respects; (b) insofar as the City and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (c) insofar as the descriptions and statements, including financial data, of or pertaining to entities, other than the City, and their activities contained in such Official Statement are concerned, such statements and data have been obtained from sources which the City believes to be reliable and the City has no reason to believe that they are untrue in any material respect; and (d) there has been no material adverse change in the financial condition of the City since the date of the last audited financial statements of the City. The Ordinance authorizing the issuance of the Certificates 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 Certificates by the Initial Purchaser. WILLIAM D. TATE Mayor City of Grapevine, Texas ATTEST: LINDA HUFF City Secretary 28 APPENDIX A GENERAL INFORMATION REGARDING THE CITY THE Crry... 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 434 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 42,298 City Estimate 1990 29,202 U.S. Census EcoNohncs... 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 April Annual Annual Annual Annual Annual 2001 2000 1999 1998 1997 1996 Labor Force 22,272 21,757 21,309 20,796 20,096 19,790 Employed 21,886 21,393 20,956 20,430 19,705 19,377 Unemployed 386 364 353 366 391 413 Percent of Unemployed 1.73% 1.67% 1.66% 1.76% 1.95% 2.09% A-1 1 MAJOR EMPLOYERS Source: City of Grapevine, Department of Development Services. BANMG AND FINANCIAL... Banking facilities for the City are provided by four banks, the Texas Bank of Grapevine, the First State Bank of Grapevine, Frost Bank and a branch of NationsBank of Texas, Independent National Bank , Bank One and of Bank of America. Also located in the City is a branch of the Omni Federal Credit Union. Source: City of Grapevine, Finance Department. BuiwwG PERmas... The number and value of building permits issued by the City are: Fiscal Commercial Permits Estimated Total Number of Company Product Employees Dallas/Fort Worth International Airport Airport 33,000 Grapevine/Colleyville Independent School District School District 1,656 United Parcel Service Parcel Service 1,218 GTE Directory Corporation Yellow Pages Directory 1,200 Baylor Medical Center Health Services 874 Hyatt Regency Hotel Hotel 815 City of Grapevine City Government 434 D/FW Hilton Hotel Hotel 380 Super Shuttle Airport Shuttle Service 320 SimuFlite Training International Pilot Training 260 Embassy Suites Hotel 250 Trencor Heavy Equipment Manufacturing 180 Source: City of Grapevine, Department of Development Services. BANMG AND FINANCIAL... Banking facilities for the City are provided by four banks, the Texas Bank of Grapevine, the First State Bank of Grapevine, Frost Bank and a branch of NationsBank of Texas, Independent National Bank , Bank One and of Bank of America. Also located in the City is a branch of the Omni Federal Credit Union. Source: City of Grapevine, Finance Department. BuiwwG PERmas... 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 1996 23 $ 25,295,000 315 $ 39,236,215 338 $ 64,531,215 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 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 501/o of the water supply of the City. The lake covers a surface area of approximately 12,740 acres and has a shore line of 146 miles. The lake is 19 miles long and 2.5 miles wide at its widest point. The lake is owned and operated by the U.S. Corps of Engineers and is a major recreation area for swimming, fishing, picnicking and camping and draws some five million visitors each year to the area. The City also has an extensive park system which includes tennis courts, racquetball courts, baseball and softball diamonds, football and soccer fields, a jogging and biking trail, swimming pool and picnic areas. The City also owns and operates an 18 -hole golf course and has plans for a 9 -hole expansion. TRANSPORTATioN... The City is in the center of a highway network that includes seven spokes of an extensive highway system; six U.S. highways, seven major state highways and one interstate highway. This network connects the City to all major entrances to both Dallas and Fort Worth 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 schools 4 Middle schools 11 Elementary schools In addition to the campuses, the District also owns an administration/service center, an auditorium and a complete athletic complex. Historical school enrollment figures are: 1982 3,646 1991 8,706 1983 3,732 1992 9,459 1984 4,037 1993 10,878 1985 4,675 1994 10,957 1986 5,617 1995 11,316 1987 6,107 1996 12,373 1988 6,604 1997 12,893 1989 7,156 1998 13,319 1990 7,984 1999 13,159 Source: Grapevine-Colleyviile 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 G1 is 9 31.1;1 EXCERPTS FROM THE CITY OF GRAPEVINE, TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2000 The information contained in this Appendix consists of excerpts from the City of Grapevine, Texas Annual Financial Report for the Year Ended September 30, 2000, 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 7 APPENDIX C FORM OF BOND COUNSEL'S OPINION THIS PAGE LEFT BLANK INTENTIONALLY APPENDIX D SPECRVIEN BOND INSURANCE POLICY THIS PAGE LEFT BLANK INTENTIONALLY